Registration No. 2-87001
811-3869
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No.
Post-Effective Amendment No. 21
X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 22
X
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
(formally known as Smith Barney Shearson New York Municipals Fund
Inc.)
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code
(212) 723 -9218
Christina T. Sydor
Secretary
Smith Barney New York Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Rule 485(b)
X on November 7, 1994 pursuant to Rule 485(b)
_____ 60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
___________________________________________________________________________
_________
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the
fiscal year ending December 31, 1993 was filed on February 28, 1994.
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary
3. Condensed Financial
Information
Financial Highlights
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objective and Management
Policies; Additional Information
5. Management of the Fund
Management of the Fund; Distributor;
Additional Information; Annual
Report
6. Capital Stock and Other
Securities
Dividends, Distributions and Taxes;
Additional Information
7. Purchase of Securities Being
Offered
Purchase of Shares; Valuation
of Shares; Redemption of Shares;
Exchange Privilege; Distributor;
Additional Information; Minimum
Account Size: Exchange Privilege
8 Redemption or Repurchase
Purchase of Shares;
Redemption of Shares
9. Legal Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover page
11. Table of Contents
Table of Contents
12. General Information and
History
Distributor; Additional
Information
13. Investment Objectives and
Policies
Investment Objective and
Management Policies
14. Management of the Fund
Management of the Fund;
Distributor
15. Control Persons and Principal
Holders of Securities
Management of the Fund
16. Investment Advisory and Other
Services
Management of the Fund;
Distributor
17. Brokerage Allocation
Investment Objective and
Management Policies; Distributor
18. Capital Stock and Other
Securities
Purchase of Shares; Redemption of
Shares; Taxes
19. Purchase, Redemption and
Pricing of Securities Being
Offered
Purchase of Shares; Redemption of
Shares; Distributor; Valuation of
Shares; Exchange Privilege
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculation of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
<PAGE>
P
SMITH BARNEY
R
NEW YORK
O
MUNICIPALS
S
FUND INC.
P
E NOVEMBER 7, 1994
C
Prospectus begins on page one
T
U
S
SMITH BARNEY MUTUAL FUNDS
[LOGO] INVESTING FOR YOUR FUTURE.
EVERYDAY.
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PROSPECTUS November 7, 1994
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney New York Municipals Fund Inc. (the "Fund") is a non-
diversified municipal fund that seeks to provide New York investors with as
high
a level of dividend income exempt from Federal income taxes and New York
State
and New York City personal income taxes as is consistent with prudent
investment
management and the preservation of capital.
This Prospectus concisely sets forth certain information about the
Fund,
including sales charges, distribution and service fees and expenses, that
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it
for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated November 7, 1994, as amended or supplemented
from
time to time, that is available upon request and without charge by calling
or
writing the Fund at the telephone number or address set forth above or by
contacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its
entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
<TABLE>
- ---------------------------------------------------------------------------
- -----
TABLE OF CONTENTS
<S> <C>
PROSPECTUS SUMMARY 3
------------------------------------------------------------------------
- --
FINANCIAL HIGHLIGHTS 11
------------------------------------------------------------------------
- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 14
------------------------------------------------------------------------
- --
NEW YORK MUNICIPAL SECURITIES 20
------------------------------------------------------------------------
- --
VALUATION OF SHARES 22
------------------------------------------------------------------------
- --
DIVIDENDS, DISTRIBUTIONS AND TAXES 23
------------------------------------------------------------------------
- --
PURCHASE OF SHARES 25
------------------------------------------------------------------------
- --
EXCHANGE PRIVILEGE 33
------------------------------------------------------------------------
- --
REDEMPTION OF SHARES 37
------------------------------------------------------------------------
- --
MINIMUM ACCOUNT SIZE 38
------------------------------------------------------------------------
- --
PERFORMANCE 39
------------------------------------------------------------------------
- --
MANAGEMENT OF THE FUND 40
------------------------------------------------------------------------
- --
DISTRIBUTOR 42
------------------------------------------------------------------------
- --
ADDITIONAL INFORMATION 43
------------------------------------------------------------------------
- --
</TABLE>
2
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the
Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, non-diversified management
investment company that seeks to provide New York investors with as high a
level
of dividend income exempt from Federal income taxes and New York State and
New
York City personal income taxes as is consistent with prudent investment
management and the preservation of capital. Its investments consist
primarily of
intermediate-and long-term investment-grade municipal securities issued by
the
State of New York and certain other municipal issuers, political
subdivisions,
agencies and public authorities that pay interest which is exempt from New
York
State and New York City personal income taxes ("New York Municipal
Securities").
Intermediate-and long-term municipal securities have remaining maturities
at the
time of purchase of between three and twenty years. See "Investment
Objective
and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of
shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of
expenses
to which they are subject. A fourth Class of shares, Class Y shares, is
offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.00% and are subject to an annual service fee of
0.15% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which
when
combined with current holdings of Class A shares offered with a sales
charge
equal or exceed $500,000 in the aggregate, will be made at net asset value
with
no sales charge, but will be subject to a contingent deferred sales charge
("CDSC") of 1.00% on redemptions made within 12 months of purchase. See
"Prospectus Summary--Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds, declining by 0.50% after the
first
year after purchase and by 1.00% each year thereafter to zero. This CDSC
3
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PROSPECTUS SUMMARY (CONTINUED)
may be waived for certain redemptions. Class B shares are subject to an
annual
service fee of 0.15% and an annual distribution fee of 0.50% of the average
daily net assets of the Class. The Class B shares' distribution fee may
cause
that Class to have higher expenses and pay lower dividends than Class A
shares.
Class B Shares Conversion Feature. Class B shares will convert
automatically to
Class A shares, based on relative net asset value, eight years after the
date of
the original purchase. Upon conversion, these shares will no longer be
subject
to an annual distribution fee. In addition, a certain portion of Class B
shares
that have been acquired through the reinvestment of dividends and
distributions
("Class B Dividend Shares") will be converted at that time. See "Purchase
of
Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.15% and an
annual
distribution fee of 0.55% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12
months of
purchase. The CDSC may be waived for certain redemptions. The Class C
shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Class C shares, which when
combined
with current holdings of Class C shares of the Fund equal or exceed
$500,000 in
the aggregate, should be made in Class A shares at net asset value with no
sales
charge, and will be subject to a CDSC of 1.00% on redemptions made within
12
months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net
asset
value with no initial sales charge or CDSC. They are not subject to any
service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his
or
her investment. Shareholders who are planning to establish a program of
regular
investment may wish to consider Class A shares; as the investment
accumulates
shareholders may qualify for reduced sales charges and the shares are
subject to
lower ongoing expenses over the term of the investment. As an alternative,
Class
B and Class C shares are sold without any initial sales charge so the
entire
4
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PROSPECTUS SUMMARY (CONTINUED)
purchase price is immediately invested in the Fund. Any investment return
on
these additional invested amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot
be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and
any
conversion rights of the Classes in the context of their own investment
time
frame. For example, while Class C shares have a shorter CDSC period than
Class B
shares, they do not have a conversion feature, and therefore, are subject
to an
ongoing distribution fee. Thus, Class B shares may be more attractive than
Class
C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y
shares,
which are not subject to an initial sales charge, CDSC or service or
distribution fees. The maximum purchase amount for Class A shares is
$4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no
maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares
may be waived for certain eligible purchasers, and the entire purchase
price
will be immediately invested in the Fund. In addition, Class A share
purchases,
which when combined with current holdings of Class A shares offered with a
sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no initial sales charge, but will be subject to a CDSC of 1.00%
on
redemptions made within 12 months of purchase. The $500,000 aggregate
investment
may be met by adding the purchase to the net asset value of all Class A
shares
held in funds sponsored by Smith Barney Inc. ("Smith Barney") listed under
"Exchange Privilege." Class A share purchases may also be eligible for a
reduced
initial sales charge. See "Purchase of Shares." Because the ongoing
expenses of
Class A shares may be lower than those for Class B and Class C shares,
purchasers eligible to purchase Class A shares at net asset value or at a
reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation
for
selling each Class of shares. Investors should understand that the purpose
of
the CDSC on the Class B and Class C shares is the same as that of the
initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of
5
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PROSPECTUS SUMMARY (CONTINUED)
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and
"Exchange Privilege" for other differences between the Classes of shares.
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith Barney, a broker that clears securities transactions through Smith
Barney
on a fully disclosed basis (an "Introducing Broker") or an investment
dealer in
the selling group. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may
open
an account by making an initial investment of at least $1,000 for each
account.
Investors in Class Y shares may open an account for an initial investment
of
$5,000,000. Subsequent investments of at least $50 may be made for all
Classes.
The minimum initial investment requirement for Class A, Class B and Class C
shares and the subsequent investment requirement for all Classes through
the
Systematic Investment Plan described below is $100. There is no minimum
investment requirement in Class A for unitholders who invest distributions
from
a unit investment trust ("UIT") sponsored by Smith Barney. See "Purchase of
Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic
Investment
Plan under which they may authorize the automatic placement of a purchase
order
each month or quarter for Fund shares in an amount of at least $100. See
"Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM")
serves as the Fund's investment advisor. SBMFM provides investment advisory
and
management services to investment companies affiliated with Smith Barney.
SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc., ("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. ("Travelers"),
a
diversified financial services company engaged through its subsidiaries,
principally in four business segments: Investment Services, Consumer
Finance
Services, Life Insurance Services and Property & Casualty Insurance
Services.
SBMFM also serves as the Fund's administrator and The Boston Company
Advisors, Inc. ("Boston Advisors") serves as the Fund's sub-administrator.
Boston Advisors is a wholly owned subsidiary of The Boston Company, Inc.
6
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PROSPECTUS SUMMARY (CONTINUED)
("TBC"), which in turn is an indirect wholly owned subsidiary of Mellon
Bank
Corporation ("Mellon"). See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the
same
Class of certain other funds of the Smith Barney Mutual Funds at the
respective
net asset values next determined, plus any applicable sales charge
differential.
See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day
generally is
quoted daily in the financial section of most newspapers and is also
available
from Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are
declared
daily and paid on the last business day of the Smith Barney statement
month.
Distributions of net realized long-and short-term capital gains, if any,
are
declared and paid annually after the end of the fiscal year in which they
were
earned. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class
will be reinvested automatically in additional shares of the same Class at
current net asset value unless otherwise specified by an investor. Shares
acquired by dividend and distribution reinvestments will not be subject to
any
sales charge or CDSC. Class B shares acquired through dividend and
distribution
reinvestments will become eligible for conversion to Class A shares on a
pro
rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund
will achieve its investment objective. Assets of the Fund also may be
invested
in the municipal securities of non-New York municipal issuers. Dividends
derived
from interest on obligations of non-New York municipal issuers will be
exempt
from Federal income taxes, but may be subject to New York State and New
York
City personal income taxes. Dividends derived from certain municipal
securities
(including New York Municipal Securities), however, may be a specific tax
preference item for Federal alternative minimum tax purposes. The Fund may
invest without limit in securities subject to the Federal alternative
minimum
tax. See "Investment Objective and Management Policies" and "Dividends,
Distributions and Taxes."
The Fund is more susceptible to factors adversely affecting issuers of
New
York Municipal Securities than is a municipal bond fund that does not
emphasize
these issuers. See "New York Municipal Securities" in the Prospectus
7
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PROSPECTUS SUMMARY (CONTINUED)
and "Special Considerations Relating to New York Municipal Securities" in
the
Statement of Additional Information for further details about the risks of
investing in New York obligations.
The Fund is classified as a non-diversified investment company under
the
Investment Company Act of 1940, as amended (the "1940 Act"), which means
that
the Fund is not limited by the 1940 Act in the proportion of its assets
that it
may invest in the obligations of a single issuer. The Fund's assumption of
large
positions in the obligations of a small number of issuers may cause the
Fund's
share price to fluctuate to a greater extent than that of a diversified
company
as a result of changes in the financial condition or in the market's
assessment
of the issuers.
The Fund generally will invest at least 75% of its assets in
securities
rated investment grade, and may invest the remainder of its assets in
securities
rated as low as C by Moody's Investors Service, Inc. ("Moody's") or D by
Standard & Poor's Corporation ("S&P"), or in unrated obligations of
comparable
quality. Securities in the fourth highest rating category, though
considered to
be investment grade, have speculative characteristics. Securities rated as
low
as D are extremely speculative and are in actual default of interest and/or
principal payments.
There are several risks in connection with the use of when-issued
securities, municipal bond index futures contracts and put and call options
on
interest rate futures contracts as hedging devices, municipal leases and
securities lending. See "Investment Objective and Management Policies--
Certain
Portfolio Strategies."
8
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PROSPECTUS SUMMARY (CONTINUED)
<TABLE>
THE FUND'S EXPENSES The following expense table lists the costs and
expenses an
investor will incur either directly or indirectly as a shareholder of the
Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at
the
time of purchase or redemption, and, unless otherwise noted, the Fund's
operating expenses for its most recent fiscal year.
<CAPTION>
CLASS A CLASS B
CLASS C CLASS Y
- ---------------------------------------------------------------------------
- -----------------
<S> <C> <C>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a
percentage of offering price) 4.00% None
None None
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower) None* 4.50%
1.00% None
- ---------------------------------------------------------------------------
- -----------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.55% 0.55%
0.55% 0.55%
12b-1 fees** 0.15 0.65
0.70 None
Other expenses*** 0.08 0.11
0.08 0.08
- ---------------------------------------------------------------------------
- -----------------
TOTAL FUND OPERATING EXPENSES 0.78% 1.31%
1.33% 0.63%
- ---------------------------------------------------------------------------
- -----------------
<FN>
* Purchases of Class A shares, which when combined with current
holdings of
Class A shares offered with a sales charge, equal or exceed $500,000
in
the aggregate, will be made at net asset value with no sales charge,
but
will be subject to a CDSC of 1.00% on redemptions made within 12
months.
** Upon conversion of Class B shares to Class A shares, such shares will
no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing
distribution
fee. As a result, long-term shareholders of Class C shares may pay
more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
*** For Class C and Class Y shares, "Other expenses" have been estimated
based
on expenses incurred by Class A shares because Class C and Class Y
shares
were not available for purchase prior to November 7, 1994.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors
may
actually pay lower or no charges depending on the amount purchased and, in
the
case of Class B, Class C and certain Class A shares, the length of time the
shares are held. See "Purchase of Shares" and "Redemption of Shares." Smith
Barney receives an annual 12b-1 service fee of 0.15% of the value of
average
daily net assets of Class A shares. Smith Barney also receives, with
respect to
Class B shares, an annual 12b-1 fee of 0.65% of the value of average daily
net
assets of that Class, consisting of a 0.50% distribution fee and a 0.15%
service
fee. For Class C shares, Smith Barney receives an annual 12b-1 fee of 0.70%
of
the value
9
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PROSPECTUS SUMMARY (CONTINUED)
of average daily net assets of that Class, consisting of a 0.55%
distribution
fee and a 0.15% service fee. "Other expenses" in the above table include
fees
for shareholder services, custodial fees, legal and accounting fees,
printing
costs and registration fees.
<TABLE>
EXAMPLE The following example is intended to assist an investor in
understanding the various costs that an investor in the Fund will bear
directly
or indirectly. The example assumes payment by the Fund of operating
expenses at
the levels set forth in the table above. See "Purchase of Shares,"
"Redemption
of Shares" and "Management of the Fund."
<CAPTION>
1 YEAR 3 YEARS 5
YEARS 10 YEARS*
- ---------------------------------------------------------------------------
- ------------
<S> <C> <C> <C>
<C>
An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5.00% annual
return and (2) redemption at the end of each time
period:
Class A $ 48 $ 64 $ 82
$ 133
Class B 58 72 82
143
Class C 24 42 73
160
Class Y 6 20 35
79
An investor would pay the following expenses on the
same investment, assuming the same annual return
and no redemption:
Class A 48 64 82
133
Class B 13 42 72
143
Class C 14 42 73
160
Class Y 6 20 35
79
===========================================================================
============
<FN>
* Ten-year figures assume conversion of Class B shares to Class A shares at
the
end of the eighth year following the date of purchase.
</TABLE>
The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment
periods.
To facilitate such comparison, all funds are required to utilize a 5.00%
annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR
LESS THAN THOSE SHOWN.
10
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
FINANCIAL HIGHLIGHTS
<TABLE>
Except where otherwise noted, the following information has been
audited by
Coopers & Lybrand, independent accountants, whose report thereon appears in
the
Fund's Annual Report dated December 31, 1993. The information set out below
should be read in conjunction with the financial statements and related
notes
that also appear in the Fund's Annual Report, which are incorporated by
reference into the Statement of Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<CAPTION>
SIX MONTHS YEAR YEAR YEAR
YEAR YEAR
ENDED ENDED ENDED ENDED
ENDED ENDED
6/30/94 12/31/93# 12/31/92* 12/31/91
12/31/90 12/31/89
(UNAUDITED)
<S> <C> <C> <C> <C>
<C> <C>
Operating performance:
Net asset value, beginning
of period $17.68 $17.12 $16.77 $15.94
$16.26 $15.97
- ---------------------------------------------------------------------------
- -----------------
Income from investment
operations:
Net investment income 0.49 1.02 1.12 1.15
1.16 1.16
Net realized and unrealized
gain/(loss) on investment (1.36) 0.80 0.39 0.84
(0.32) 0.26
- ---------------------------------------------------------------------------
- -----------------
Total from investment
operations (0.87) 1.82 1.51 1.99
0.84 1.42
- ---------------------------------------------------------------------------
- -----------------
Less distributions:
Distributions from net
investment income (0.52) (1.03) (1.12) (1.16)
(1.16) (1.13)
Distributions from realized
capital gains -- (0.23) (0.03) -- -
- - --
Distributions from capital -- -- (0.01) -- -
- - --
- ---------------------------------------------------------------------------
- -----------------
Total distributions (0.52) (1.26) (1.16) (1.16)
(1.16) (1.13)
- ---------------------------------------------------------------------------
- -----------------
Net asset value, end of
period $16.29 $17.68 $17.12 $16.77
$15.94 $16.26
- ---------------------------------------------------------------------------
- -----------------
Total return++ (5.01)% 10.93% 9.36% 12.98%
5.41% 9.18%
- ---------------------------------------------------------------------------
- -----------------
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $515,508 $575,166 $535,514 $469,139
$428,304 $442,563
Ratio of operating expenses
to average net assets 0.78%** 0.78% 0.67% 0.64%
0.64% 0.66%
Ratio of net investment
income to average net
assets 5.81%** 5.83% 6.56% 7.04%
7.31% 7.17%
Portfolio turnover rate 22% 20% 30% 31%
18% 7%
===========================================================================
=================
<FN>
* The Fund commenced operations on January 23, 1984. Any shares
outstanding prior to
November 6, 1992 were designated as Class A shares.
** Annualized.
+ Annualized expense ratio before waiver of fees by investment adviser
and sub-investment
adviser and administrator was 0.82%.
++ Total return represents aggregate total return for the periods
indicated and does not
reflect any applicable sales charges.
+++ Net investment income before waiver of fees by investment adviser and
sub-investment
adviser and administrator was $1.15.
# Per share amounts have been calculated using the monthly average share
method, which
more appropriately presents the per share data for this year since use
of the
undistributed method did not accord with results of operations.
</TABLE>
(Continued on next
page)
11
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
YEAR PERIOD
ENDED ENDED ENDED
ENDED ENDED
12/31/88 12/31/87
12/31/86 12/31/85 12/31/84*
<S> <C> <C> <C>
<C> <C>
Operating performance:
Net asset value beginning of year $15.37 $16.71 $15.48
$13.90 $ 14.25
- ---------------------------------------------------------------------------
- -------------------------
Income from investment operations:
Net investment income 1.15 1.14 1.20
1.24 1.16+++
Net realized and unrealized gain/(loss)
on investments 0.61 (1.33) 1.52
1.58 (0.35)
- ---------------------------------------------------------------------------
- -------------------------
Total from investment operations 1.76 (0.19) 2.72
2.82 0.81
- ---------------------------------------------------------------------------
- -------------------------
Less distributions:
Distributions from net investment income (1.16) (1.14)
(1.20) (1.24) (1.16)
Distributions from realized capital gains -- (0.01)
(0.29) -- --
Distributions from capital -- -- --
- -- --
- ---------------------------------------------------------------------------
- -------------------------
Total distributions (1.16) (1.15)
(1.49) (1.24) (1.16)
- ---------------------------------------------------------------------------
- -------------------------
Net asset value, end of year $15.97 $15.37 $16.71
$15.48 $ 13.90
- ---------------------------------------------------------------------------
- -------------------------
Total return++ 11.82% (1.09%)
18.13% 21.03% 6.90%
===========================================================================
=========================
Ratios to average net assets/supplemental
data:
Net assets, end of year (in 000's) $429,703 $202,265 $218,980
$125,365 $54,182
Ratio of operating expenses to average
net assets 0.64% 0.68%
0.68% 0.81% 0.77%+**
Ratio of net investment income to average
net assets 7.50% 7.22%
7.25% 8.20% 8.94%**
Portfolio turnover rate 27% 22%
11% 20% 45%
===========================================================================
=========================
<FN>
* The Fund commenced operations on January 23, 1984. Any shares
outstanding prior to November 6, 1992
were designated as Class A shares.
** Annualized.
+ Annualized expense ratio before waiver of fees by investment adviser
and sub-investment adviser
and administrator was 0.82%.
++ Total return represents aggregate total return for the periods
indicated and does not reflect any
applicable sales charges.
+++ Net investment income before waiver of fees by investment adviser and
sub-investment adviser and
administrator was $1.15.
# Per share amounts have been calculated using the monthly average share
method, which more appropriately
presents the per share data for this year since use of the
undistributed method did not accord with
results of operations.
</TABLE>
12
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
PERIOD
ENDED ENDED
ENDED
6/30/94 12/31/93#
12/31/92*
(UNAUDITED)
<S> <C> <C>
<C>
Operating performance:
Net asset value, beginning of period $17.68 $17.12
$16.93
- ---------------------------------------------------------------------------
- -----------------
Income from investment operations:
Net investment income 0.45 0.94
0.17
Net realized and unrealized gain/(loss) on
investments (1.38) 0.80
0.20
- ---------------------------------------------------------------------------
- -----------------
Total from investment operations (0.93) 1.74
0.37
- ---------------------------------------------------------------------------
- -----------------
Less distributions:
Distributions from net investment income (0.46)
(0.95) (0.15)
Distributions from capital -- --
- --+
Distributions from net capital gains --
(0.23) (0.03)
- ---------------------------------------------------------------------------
- -----------------
Total distributions: (0.46)
(1.18) (0.18)
- ---------------------------------------------------------------------------
- -----------------
Net asset value, end of period $16.29 $17.68
$17.12
- ---------------------------------------------------------------------------
- -----------------
Total return++ (5.31)%
10.33% 2.23%
- ---------------------------------------------------------------------------
- -----------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $153,424 $137,126
$ 18,125
Ratio of net investment income to average net
asset 5.29%**
5.31% 5.94%**
Ratio of operating expenses to average net
assets 1.30%**
1.31% 1.30%**
Portfolio turnover rate 22%
20% 30%
===========================================================================
=================
<FN>
* The Fund's Class B shares commenced operations on November 6, 1992.
** Annualized.
+ Amount represents less than $0.01 per Class B share.
++ Total return represents aggregate total return for the periods
indicated and does not reflect
any applicable sales charges.
# Per share amounts have been calculated using the monthly average share
method, which more
appropriately presents the per share data for this year since use of
the undistributed method
did not accord with results of operations.
</TABLE>
Prior to November 7, 1994, the Fund did not offer Class C or Class Y
shares
and, accordingly, no comparable financial information is available at this
time
for those Classes.
13
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is to provide New York investors
with
as high a level of dividend income exempt from Federal income and New York
State
and New York City personal income taxes as is consistent with prudent
investment
management and the preservation of capital. This investment objective may
not be
changed without the approval of the holders of a majority of the Fund's
outstanding shares. There can be no assurance that the Fund's investment
objective will be achieved.
The Fund will operate subject to an investment policy providing that,
under
normal market conditions, the Fund will invest at least 80% of its net
assets in
New York Municipal Securities which pay interest which is excluded from
gross
income for Federal income tax purposes and which is exempt from New York
State
and New York City personal income taxes. The Fund may invest up to 20% of
its
net assets in municipal securities of non-New York municipal issuers, the
interest on which is excluded from gross income for Federal income tax
purposes
(not including the possible applicability of a Federal alternative minimum
tax),
but which is subject to New York State and New York City personal income
taxes.
When SBMFM believes that market conditions warrant adoption of a temporary
defensive investment posture, the Fund may invest without limit in non-New
York
municipal issuers and in "Temporary Investments" as described below.
The Fund generally will invest at least 75% of its total assets in
investment-grade debt obligations rated no lower than Baa, MIG 3 or Prime-1
by
Moody's or BBB, SP-2 or A-1 by S&P, or in unrated obligations of comparable
quality, with no minimum rating required for the balance of the Fund's
investments. Unrated securities will be considered to be of investment
grade if
deemed by SBMFM to be comparable in quality to instruments so rated, or if
other
outstanding obligations of the issuers thereof are rated Baa or better by
Moody's or BBB or better by S&P. The balance of the Fund's assets may be
invested in securities rated as low as C by Moody's or D by S&P, or
comparable
unrated securities. Securities in the fourth highest rating category,
though
considered to be investment grade, have speculative characteristics.
Securities
rated as low as D are extremely speculative and are in actual default of
interest and/or principal payments.
The Fund's average weighted maturity will vary from time to time based
on
the judgment of SBMFM. The Fund intends to focus on intermediate-and long-
term
obligations, that is, obligations with remaining maturities at the time of
purchase of between three and twenty years. Obligations which are rated Baa
by
14
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Moody's or BBB by S&P and those which are rated lower than investment-grade
are
subject to greater market fluctuation and more uncertainty as to payment of
principal and interest, and therefore generate higher yields than
obligations
rated above Baa or BBB. The Fund has no present intention of investing in
instruments rated lower than Baa by Moody's or BBB by S&P. A description of
the
rating systems of Moody's and S&P is contained in the Statement of
Additional
Information.
The Fund may invest without limit in "municipal leases," which
generally
are participations in intermediate-and short-term debt obligations issued
by
municipalities consisting of leases or installment purchase contracts for
property or equipment. Municipal leases may take the form of a lease or an
installment purchase contract issued by state and local government
authorities
to obtain funds to acquire a wide variety of equipment and facilities such
as
fire and sanitation vehicles, computer equipment and other capital assets.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget
for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide
that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. Although
"non-appropriation" lease obligations are often secured by the underlying
property, disposition of the property in the event of foreclosure might
prove
difficult. There is no limitation on the percentage of the Fund's assets
that
may be invested in municipal lease obligations. In evaluating municipal
lease
obligations, SBMFM will consider such factors as it deems appropriate,
which may
include: (a) whether the lease can be canceled; (b) the ability of the
lease
obligee to direct the sale of the underlying assets; (c) the general
creditworthiness of the lease obligor; (d) the likelihood that the
municipality
will discontinue appropriating funding for the leased property in the event
such
property is no longer considered essential by the municipality; (e) the
legal
recourse of the lease obligee in the event of such a failure to appropriate
funding; (f) whether the security is backed by a credit enhancement such as
insurance; and (g) any limitations which are imposed on the lease obligor's
ability to utilize substitute property or services rather than those
covered by
the lease obligation.
15
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The Fund may invest without limit in private activity bonds. Interest
income on certain types of private activity bonds issued after August 7,
1986 to
finance non-governmental activities is a specific tax preference item for
purposes of the Federal individual and corporate alternative minimum taxes.
Individual and corporate shareholders may be subject to a Federal
alternative
minimum tax to the extent the Fund's dividends are derived from interest on
those bonds. Dividends derived from interest income on New York Municipal
Securities are a component of the "current earnings" adjustment item for
purposes of the Federal corporate alternative minimum tax.
The Fund is classified as a non-diversified investment company under
the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. The Fund intends to conduct its operations, however, so as to
qualify as
a "regulated investment company" for purposes of the Internal Revenue Code
of
1986, as amended (the "Code"), which will relieve the Fund of any liability
for
Federal income tax to the extent its earnings are distributed to
shareholders.
To so qualify, among other requirements, the Fund will limit its
investments so
that, at the close of each quarter of the taxable year, (a) not more than
25% of
the market value of the Fund's total assets will be invested in the
securities
of a single issuer and (b) with respect to 50% of the market value of its
total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and the Fund will not own
more
than 10% of the outstanding voting securities of a single issuer. The
Fund's
assumption of large positions in the obligations of a small number of
issuers
may cause the Fund's share price to fluctuate to a greater extent than that
of a
diversified company as a result of changes in the financial condition or in
the
market's assessment of the issuers.
The Fund may invest without limit in debt obligations that are
repayable
out of revenue streams generated from economically-related projects or
facilities. Sizeable investments in such obligations could involve an
increased
risk to the Fund should any of the related projects or facilities
experience
financial difficulties. In addition, the Fund may invest up to an aggregate
of
15% of its total assets in securities with contractual or other
restrictions on
resale and other instruments which are not readily marketable and up to 5%
of
its assets in the securities of issuers which have been in continuous
operation
for less than three years. The Fund also is authorized to borrow an amount
of up
to 10% of its total assets in order to meet anticipated redemptions and to
pledge its assets
16
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
(including the amount borrowed) valued at market less liabilities (not
including
the amount borrowed) to the same extent in connection with the borrowings.
Further information about the Fund's investment policies, including a
list
of those restrictions on the Fund's investment activities that cannot be
changed
without shareholder approval, appears in the Statement of Additional
Information.
CERTAIN PORTFOLIO STRATEGIES
In attempting to achieve its investment objective, the Fund may
employ,
among others, the following strategies:
When-Issued Securities. New issues of New York Municipal Securities
(and
other tax-exempt obligations) frequently are offered on a when-issued
basis,
which means that delivery and payment for such securities normally take
place 15
to 45 days after the date of the commitment to purchase. The payment
obligation
and interest rate that will be received on when-issued securities are fixed
at
the time the buyer enters into the commitment. New York Municipal
Securities,
like other investments made by the Fund, may decline or appreciate in value
before their actual delivery to the Fund. Due to fluctuations in the value
of
securities purchased and sold on a when-issued basis, the yields obtained
on
these securities may be higher or lower than the yields available in the
market
on the date when the investments actually are delivered to the buyers. The
Fund
will not accrue income with respect to a when-issued security prior to its
stated delivery date. The Fund will establish a segregated account with the
Fund's custodian consisting of cash, obligations issued or guaranteed by
the
United States government or its agencies or instrumentalities ("U.S.
government
securities") or other high grade debt obligations in an amount equal to the
amount of the purchase price of the when-issued securities. Placing
securities
rather than cash in the segregated account may have a leveraging effect on
the
Fund's net assets. The Fund generally will make commitments to purchase New
York
Municipal Securities (and other tax-exempt obligations) on a when-issued
basis
only with the intention of actually acquiring the securities, but the Fund
may
sell such securities before the delivery date if it is deemed advisable.
Temporary Investments. Under normal market conditions, the Fund may
hold
up to 20% of its total assets in cash or money market instruments,
including
taxable money market instruments ("Temporary Investments"). In addition,
when
SBMFM believes that market conditions warrant, including when acceptable
New
York Municipal Securities are unavailable, the Fund may
17
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
take a temporary defensive posture and invest without limitation in
Temporary
Investments. Tax-exempt securities eligible for short-term investment by
the
Fund under such circumstances are municipal notes rated at the time of
purchase
within the three highest grades by Moody's or S&P or, if not rated, issued
by
issuers with outstanding debt securities rated within the three highest
grades
by Moody's or S&P. The Fund also may invest in certain taxable short-term
instruments having quality characteristics comparable to those for tax-
exempt
investments. To the extent the Fund holds Temporary Investments, it may not
achieve its investment objective. Since the commencement of its operations,
the
Fund has not found it necessary to make taxable Temporary Investments and
it is
not expected that such action will be necessary.
Municipal Bond Index Futures Contracts and Options on Interest Rate
Futures
Contracts. The Fund may enter into municipal bond index futures contracts
and
purchase and sell options on interest rate futures contracts that are
traded on
a domestic exchange or board of trade. Such investments, if any, by the
Fund
will be made solely for the purpose of hedging against changes in the value
of
its portfolio securities and in the value of securities it intends to
purchase
due to anticipated changes in interest rates and market conditions and
where the
transactions are economically appropriate to the reduction of risks
inherent in
the management of the Fund.
A municipal bond index futures contract, which is based on an index of
long-term, tax-exempt municipal bonds, is an agreement in which two parties
agree to take or make delivery of an amount of cash equal to a specific
dollar
amount times the difference between the value of the index at the close of
the
last trading day of the contract and the price at which the index contract
was
originally written. While an interest rate futures contract provides for
the
future sale by one party and the purchase by the other party of a certain
amount
of a specified financial instrument (debt security) at a specified price,
date,
time and place, an option on an interest rate futures contract gives the
purchaser the right, in return for the premium paid, to assume a position
in an
interest rate futures contract at a specified exercise price at any time
prior
to the expiration date of the option. The Fund may purchase put options on
interest rate futures contracts to hedge its portfolio securities against
the
risk of rising interest rates, and may purchase call options on interest
rate
futures contracts to hedge against a decline in interest rates. The Fund
will
sell options on interest rate futures contracts only as part of closing
purchase
transactions to terminate its options positions, although there is no
guarantee
that such transactions can be effected.
18
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
There are several risks in connection with the use of municipal bond
index
futures contracts and options on interest rate futures contracts as hedging
devices. There can be no assurance that there will be a correlation between
price movements in the municipal bond index or options on interest rate
futures,
on the one hand, and price movements in the municipal bonds which are the
subject of the hedge, on the other hand. The lack of correlation could be
pronounced with respect to municipal bond index futures contracts because
the
Fund primarily will hold New York Municipal Securities rather than a
selection
of bonds constituting an index. Positions in municipal bond index futures
contracts and options on interest rate futures contracts may be closed out
only
on an exchange or board of trade that provides an active market; therefore,
there can be no assurance that a liquid market will exist for the contract
or
the option at any particular time. Consequently, the Fund may realize a
loss on
a futures contract that is not offset by an increase in the price of the
municipal bonds being hedged or may not be able to close a futures position
in
the event of adverse price movements. Any income earned from transactions
in
municipal bond index futures contracts and options on interest rate futures
contracts will be taxable. Accordingly, it is anticipated that such
investments
will be made only in unusual circumstances, such as when SBMFM anticipates
an
extreme change in interest rates or market conditions.
The Fund may not purchase or sell municipal bond index futures
contracts or
purchase options on interest rate futures contracts if, immediately
thereafter,
more than 33 1/3% of its net assets would be hedged, or the sum of the
amount of
margin deposits on the Fund's existing futures contracts and premiums paid
for
options would exceed 5% of the value of the Fund's total assets. When the
Fund
enters into futures contracts to purchase an index or debt security or
purchases
call options, an amount of cash, U.S. government securities or other high
grade
debt securities equal to the market value of the contract will be deposited
and
maintained in a segregated account with the Fund's custodian to
collateralize
the positions, thereby insuring that the use of the contract is
unleveraged.
Lending of Portfolio Securities. The Fund has the ability to lend
securities from its portfolio to brokers, dealers and other financial
organizations. Such loans, if and when made, may not exceed 20% of the
Fund's
total assets, taken at value. Loans of portfolio securities by the Fund
will be
collateralized by cash, letters of credit or U.S. government securities
which
are maintained at all times in an amount equal to at least 100% of the
current
market value (determined by
19
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
marking to market daily) of the loaned securities. The risks in lending
portfolio securities, as with other extensions of secured credit, consist
of
possible delays in receiving additional collateral or in the recovery of
the
securities or possible loss of rights in the collateral should the borrower
fail
financially. Loans will be made to firms deemed by SBMFM to be of good
standing
and will not be made unless, in the judgment of SBMFM, the consideration to
be
earned from such loans would justify the risk.
- ---------------------------------------------------------------------------
- -----
NEW YORK MUNICIPAL SECURITIES
As used in this Prospectus, the term "New York Municipal Securities"
generally refers to intermediate-and long-term debt obligations issued by
the
State of New York and its political subdivisions, agencies and public
authorities (together with certain other governmental issuers such as
Puerto
Rico and the Virgin Islands) to obtain funds for various public purposes.
The
interest on such obligations is, in the opinion of bond counsel to the
issuers,
excluded from gross income for Federal income tax purposes and exempt from
New
York State and New York City personal income taxes and, for that reason,
generally is fixed at a lower rate than it would be if it were subject to
such
taxes. Interest income on certain municipal securities (including New York
Municipal Securities) is a specific tax preference item for purposes of the
Federal individual and corporate alternative minimum taxes.
CLASSIFICATIONS
The two principal classifications of New York Municipal Securities are
"general obligation bonds" and "revenue bonds." General obligation bonds
are
secured by the issuer's pledge of its faith, credit and taxing power for
the
payment of principal and interest. Revenue bonds are payable from the
revenues
derived from a particular facility or class of facilities or, in some
cases,
from the proceeds of a special excise tax or other specific revenue source,
but
not from the general taxing power. Sizeable investments in such obligations
could involve an increased risk to the Fund should any of such related
facilities experience financial difficulties. In addition, certain types of
private activity bonds issued by or on behalf of public authorities to
obtain
funds for privately operated facilities are included in the term New York
Municipal Securities, provided the interest paid thereon qualifies as
excluded
from gross income for Federal income tax purposes and as exempt from New
York
State and New York City personal
20
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
NEW YORK MUNICIPAL SECURITIES (CONTINUED)
income taxes. Private activity bonds generally do not carry the pledge of
the
credit of the issuing municipality.
SPECIAL CONSIDERATIONS
Municipal leases, like other municipal debt obligations, are subject
to the
risk of non-payment. The ability of issuers of municipal leases to make
timely
lease payments may be adversely impacted in general economic downturns and
as
relative governmental cost burdens are allocated and reallocated among
Federal,
state and local governmental units. Such non-payment would result in a
reduction
of income to the Fund, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the
net
asset value of the Fund. Issuers of municipal leases might seek protection
under
the bankruptcy laws. In the event of bankruptcy of such an issuer, the Fund
could experience delays and limitations with respect to the collection of
principal and interest on such municipal leases and the Fund may not, in
all
circumstances, be able to collect all principal and interest to which it is
entitled. To enforce its right in the event of a default in lease payments,
the
Fund may take possession of and manage the assets securing the issuer's
obligations on such securities, which may increase the Fund's operating
expenses
and adversely affect the net asset value of the Fund. Any income derived
from
the Fund's ownership or operation of such assets may not be tax-exempt. In
addition, the Fund's intention to qualify as a "regulated investment
company"
under the Code may limit the extent to which the Fund may exercise its
rights by
taking possession of such assets, because as a regulated investment company
the
Fund is subject to certain limitations on its investments and on the nature
of
its income.
The Fund's ability to achieve its investment objective is dependent
upon
the ability of the issuers of New York Municipal Securities to meet their
continuing obligations for the payment of principal and interest. New York
State
and New York City face long-term economic problems that could seriously
affect
their ability and that of other issuers of New York Municipal Securities to
meet
their financial obligations.
Certain substantial issuers of New York Municipal Securities
(including
issuers whose obligations may be acquired by the Fund) have experienced
serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all
New
York issuers and have generally contributed to higher interest costs for
their
borrowings and fewer markets for their outstanding debt obligations. In
recent
21
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
NEW YORK MUNICIPAL SECURITIES (CONTINUED)
years, several different issues of municipal securities of New York State
and
its agencies and instrumentalities and of New York City have been
downgraded by
S&P and Moody's. On the other hand, strong demand for New York Municipal
Securities has more recently had the effect of permitting New York
Municipal
Securities to be issued with yields relatively lower, and after issuance,
to
trade in the market at prices relatively higher, than comparably rated
municipal
obligations issued by other jurisdictions. A recurrence of the financial
difficulties previously experienced by certain issuers of New York
Municipal
Securities could result in defaults or declines in the market values of
those
issuers' existing obligations and, possibly, in the obligations of other
issuers
of New York Municipal Securities. Although as of the date of this
Prospectus, no
issuers of New York Municipal Securities are in default with respect to the
payment of their municipal obligations, the occurrence of any such default
could
affect adversely the market values and marketability of all New York
Municipal
Securities and, consequently, the net asset value of the Fund's portfolio.
Other considerations affecting the Fund's investments in New York
Municipal
Securities are summarized in the Statement of Additional Information.
- ---------------------------------------------------------------------------
- -----
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE, on each day that the NYSE is open, by dividing
the
value of the Fund's net assets attributable to each Class by the total
number of
shares of the Class outstanding.
Generally, the Fund's investments are valued at market value or, in
the
absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Board of Directors. Certain
securities may be valued on the basis of prices provided by a pricing
service
approved by the Board of Directors. Short-term investments that mature in
60
days or less are valued at amortized cost whenever the Fund's Board of
Directors
determines that amortized cost is fair value.
22
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its net investment income (that is,
income
other than its net realized long-and short-term capital gains) on each day
the
Fund is open for business and pays dividends on the last business day of
the
Smith Barney statement month. Distributions of net realized long-and short-
term
capital gains, if any, are declared and paid annually after the end of the
fiscal year in which they have been earned.
If a shareholder does not otherwise instruct, dividends and capital
gains
distributions will be reinvested automatically in additional shares of the
same
Class at net asset value, subject to no sales charge or CDSC. In order to
avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make a
distribution
shortly before December 31 in each year of any undistributed ordinary
income or
capital gains and expects to make any other dividends and distributions as
are
necessary to avoid the application of this tax.
If, for any full fiscal year, the Fund's total distributions exceed
current
and accumulated earnings and profits the excess distributions generally
will be
treated as a tax-free return of capital (up to the amount of the
shareholder's
tax basis in his or her shares). The amount treated as a tax-free return of
capital will reduce a shareholder's adjusted basis in his or her shares.
Pursuant to the requirements of the 1940 Act and other applicable laws, a
notice
will accompany any distribution paid from sources other than net investment
income. In the event the Fund distributes amounts in excess of its net
investment income and net realized capital gains, such distributions may
have
the effect of decreasing the Fund's total assets, which may increase the
Fund's
expense ratio.
The per share dividends on Class B shares and Class C shares may be
lower
than the per share dividends on Class A and Y shares principally as a
result of
the distribution fee applicable with respect to Class B and Class C shares.
The
per share dividends on Class A shares of the Fund may be lower than the per
share dividends on Class Y shares principally as a result of the service
fee
applicable to Class A shares. Distributions of capital gains, if any, will
be
the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund has qualified and intends to continue to qualify each year as
a
regulated investment company under the Code and will designate and pay
23
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
exempt-interest dividends derived from interest earned on qualifying tax-
exempt
obligations. Such exempt-interest dividends may be excluded by shareholders
of
the Fund from their gross income for Federal income tax purposes although
(a)
all or a portion of such exempt-interest dividends will be a specific
preference
item for purposes of the Federal individual and corporate alternative
minimum
taxes to the extent they are derived from certain types of private activity
bonds issued after August 7, 1986 and (b) all exempt-interest dividends
will be
a component of the "current earnings" adjustment item for purposes of the
Federal corporate alternative minimum tax. In addition, corporate
shareholders
may incur a greater Federal "environmental" tax liability through the
receipt of
Fund dividends and distributions. Exempt-interest dividends derived from
interest on New York Municipal Securities will be exempt from New York
State and
New York City personal income (but not corporate franchise) taxes.
Dividends paid from taxable net investment income, if any, and
distributions of any net realized short-term capital gains (whether from
tax-exempt or taxable securities) are taxable to shareholders as ordinary
income, regardless of how long shareholders have held their Fund shares and
whether such dividends or distributions are received in cash or reinvested
in
additional Fund shares. Distributions of net realized long-term capital
gains
are taxable to shareholders as long-term capital gains regardless of how
long
shareholders have held Fund shares and whether such distributions are
received
in cash or reinvested in additional shares. Furthermore, as a general rule,
a
shareholder's gain or loss on a sale or redemption of his or her shares
will be
a long-term capital gain or loss if the shareholder has held the shares for
more
than one year and will be a short-term capital gain or loss if the
shareholder
has held the shares for one year or less. The Fund's dividends and
distributions
will not qualify for the dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder will also receive, if
appropriate, various written notices after the close of the Fund's prior
taxable
year as to the Federal income tax status of his or her dividends and
distributions which were received from the Fund during the Fund's prior
taxable
year. These statements may set forth the dollar amount of income excluded
or
exempt from Federal income taxes or New York State and New York City
personal
income taxes and the dollar amount, if any, subject to such taxes.
Moreover,
these statements will designate the amount of exempt-interest dividends
that is
a specific preference item for purposes of the Federal individual and
corporate
alternative minimum
24
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
taxes. Shareholders should consult their own tax advisors with specific
reference to their own tax situations.
TAX-EXEMPT INCOME VS. TAXABLE INCOME
The table below shows New York taxpayers how to translate the triple
tax
savings from investments such as the Fund into an equivalent return from a
taxable investment. The combined marginal tax rate is lower than the sum of
Federal, New York State and New York City marginal tax rates because the
state
and city taxes that shareholders pay are deductible from Federal taxable
income.
<TABLE>
The yields used below are for illustration only and are not intended to
represent current or future yields for the Fund, which may be higher or
lower
than those shown.
<CAPTION>
NEW YORK
STATE &
NEW YORK COMBINED
TAXABLE INCOME* FEDERAL CITY COMBINED EFFECTIVE TAX-
EXEMPT YIELDS
- --------------- MARGINAL MARGINAL MARGINAL MARGINAL ----------------------
- ----------------------
SINGLE JOINT RATE RATE RATE RATE 4.0% 5.0% 6.0%
7.0% 8.0% 9.0%
- ------ ----- -------- -------- -------- -------- ---- ---- ----
- ---- ---- ----
EQUIVALENT
TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
22,100 36,900 15.00% 11.09% 26.63% 24.88% 5.32% 6.66% 7.99%
9.32% 10.65% 11.98%
53,500 89,150 28.00% 11.24% 39.74% 36.45% 6.29% 7.87% 9.44%
11.01% 12.59% 14.16%
115,000 140,000 31.00% 11.29% 42.79% 39.13% 6.57% 8.21% 9.86%
11.50% 13.14% 14.79%
250,000 250,000 36.00% 11.29% 47.79% 43.54% 7.08% 8.86% 10.63%
12.40% 14.17% 15.94%
250,001 424,760 39.60% 11.29% 51.39% 46.72% 7.51% 9.38% 11.26%
13.14% 15.01% 16.89%
<FN>
* Combined effective marginal tax rate represents the combined Federal,
New
York State and City tax rates adjusted to account for the Federal
deduction
of State and City taxes paid. The calculations assume that no income
will be
subject to the Federal individual alternative minimum tax.
</TABLE>
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are
sold
without an initial sales charge but are subject to a CDSC payable upon
certain
redemptions. Class Y shares are sold without an initial sales charge or
CDSC and
are available only to investors investing a minimum of $5,000,000. See
"Prospectus Summary--Alternative Purchase Arrangements" for a discussion of
factors to consider in selecting which Class of shares to purchase.
25
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
Purchases of Fund shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer
in
the selling group. When purchasing shares of the Fund, investors must
specify
whether the purchase is for Class A, Class B, Class C or Class Y shares. No
maintenance fee will be charged by the Fund in connection with a brokerage
account through which an investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account
by
making an initial investment of at least $1,000 for each account in the
Fund.
Investors in Class Y shares may open an account by making an initial
investment
of $5,000,000. Subsequent investments of at least $50 may be made for all
Classes. For the Fund's Systematic Investment Plan, the minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes is $100. There are no
minimum
investment requirements for Class A shares for employees of Travelers and
its
subsidiaries, including Smith Barney, Directors of the Fund and their
spouses
and children and unitholders who invest distributions from a UIT sponsored
by
Smith Barney. 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, The Shareholder Services Group, Inc., a
subsidiary of
First Data Corporation ("TSSG"). Share certificates are issued only upon a
shareholder's written request to TSSG.
Purchase orders received by Smith Barney prior to the close of regular
trading on the NYSE, on any day the Fund calculates its net asset value,
are
priced according to the net asset value determined on that day. Orders
received
by dealers or Introducing Brokers prior to the close of regular trading on
the
NYSE on any day the Fund calculates its net asset value, are priced
according to
the net asset value determined on that day, provided the order is received
by
Smith Barney prior to Smith Barney's close of business (the "trade date").
Currently, payment for Fund shares is due on the fifth business day after
the
trade date (the "settlement date"). The Fund anticipates that, in
accordance
with regulatory changes, beginning on or about June 1, 1995, the settlement
date
will be the third business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by
purchasing
shares through a service known as the Systematic Investment Plan. Under the
26
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
Systematic Investment Plan, Smith Barney or TSSG is authorized through
preauthorized transfers of $100 or more to charge the regular bank account
or
other financial institution indicated by the shareholder on a monthly or
quarterly basis to provide systematic additions to the shareholder's Fund
account. A shareholder who has insufficient funds to complete the transfer
will
be charged a fee of up to $25 by Smith Barney or TSSG. The Systematic
Investment
Plan also authorizes Smith Barney to apply cash held in the shareholder's
Smith
Barney brokerage account or redeem the shareholder's shares of a Smith
Barney
money market fund to make additions to the account. Additional information
is
available from the Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
<TABLE>
The sales charges applicable to purchases of Class A shares of the
Fund are as follows:
<CAPTION>
DEALERS
SALES CHARGE SALES CHARGE
REALLOWANCE
AS % OF AS % OF
AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED
OFFERING PRICE
--------------------------------------------------------------------------
- ---------------
<S> <C> <C>
<C>
Less than $25,000 4.00% 4.17%
3.60%
$25,000-$49,999 3.50% 3.63%
3.15%
$50,000-$99,999 3.00% 3.09%
2.70%
$100,000-$249,999 2.50% 2.56%
2.25%
$250,000-$499,999 1.50% 1.52%
1.35%
$500,000 and over * *
*
===========================================================================
==============
<FN>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares
offered with a sales charge equal or exceed $500,000 in the aggregate,
will be made at net
asset value without any initial sales charge, but will be subject to a
CDSC of 1.00% on
redemptions made within 12 months of purchase. The CDSC on Class A shares
is payable to
Smith Barney, which compensates Smith Barney Financial Consultants and
other dealers whose
clients make purchases of $500,000 or more. The CDSC is waived in the
same circumstances in
which the CDSC applicable to Class B and Class C shares is waived. See
"Deferred Sales Charge
Alternatives" and "Waivers of CDSC."
</TABLE>
Members of the selling group may receive up to 90% of the sales charge
and
may be deemed to be underwriters of the Fund as defined in the Securities
Act of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of
purchases
of Class A shares of the Fund made at one time by "any person," which
includes
an individual, his or her spouse and children, or a trustee or other
fiduciary
of a single trust estate or single fiduciary account. The reduced sales
charge
27
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
minimums may also be met by aggregating the purchase with the net asset
value of
all Class A shares held in funds sponsored by Smith Barney that are offered
with
a sales charge listed under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a
sales
charge in the following circumstances: (a) sales of Class A shares to
Directors
of the Fund and employees of Travelers and its subsidiaries, or to the
spouses
and children of such persons (including the surviving spouse of a deceased
Director or employee, and retired Directors or employees); (b) offers of
Class A
shares to any other investment company in connection with the combination
of
such company with the Fund by merger, acquisition of assets or otherwise;
(c)
purchases of Class A shares by any client of a newly employed Smith Barney
Financial Consultant (for a period up to 90 days from the commencement of
the
Financial Consultant's employment with Smith Barney), on the condition the
purchase of Class A shares is made with the proceeds of the redemption of
shares
of a mutual fund which (i) was sponsored by the Financial Consultant's
prior
employer, (ii) was sold to the client by the Financial Consultant and (iii)
was
subject to a sales charge; (d) shareholders who have redeemed Class A
shares in
the Fund (or Class A shares of another Fund of the Smith Barney Mutual
Funds
that are offered with a sales charge equal to or greater than the maximum
sales
charge of the Fund) and who wish to reinvest their redemption proceeds in
the
Fund, provided the reinvestment is made within 60 calendar days of the
redemption; (e) accounts managed by registered investment advisory
subsidiaries
of Travelers; and (f) investments of distributions from a UIT sponsored by
Smith
Barney. In order to obtain such discounts, the purchaser must provide
sufficient
information at the time of purchase to permit verification that the
purchase
would qualify for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as
defined
above) at a reduced sales charge or at net asset value determined by
aggregating
the dollar amount of the new purchase and the total net asset value of all
Class
A shares of the Fund and of funds sponsored by Smith Barney, which are
offered
with a sales charge listed under "Exchange Privilege" then held by such
person
and applying the sales charge applicable to such aggregate. In order to
obtain
such discount, the purchaser must provide sufficient information at the
time of
28
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge
or
purchase at net asset value will also be available to employees (and
partners)
of the same employer purchasing as a group, provided each participant makes
the
minimum initial investment required. The sales charge applicable to
purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternatives--Class A Shares," and will be
based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds
offered
with a sales charge to, and share holdings of, all members of the group. To
be
eligible for such reduced sales charges or to purchase at net asset value,
all
purchases must be pursuant to an employer-or partnership-sanctioned plan
meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if
any.
Such plan may, but is not required to, provide for payroll deductions.
Smith
Barney may also offer a reduced sales charge or net asset value purchase
for
aggregating related fiduciary accounts under such conditions that Smith
Barney
will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares
at the reduced sales charge applicable to the group as a whole. The sales
charge
is based upon the aggregate dollar value of Class A shares offered with a
sales
charge that have been previously purchased and are still owned by the
group,
plus the amount of the current purchase. A "qualified group" is one which
(a)
has been in existence for more than six months, (b) has a purpose other
than
acquiring Fund shares at a discount and (c) satisfies uniform criteria
which
enable Smith Barney to realize economies of scale in its costs of
distributing
shares. A qualified group must have more than 10 members, must be available
to
arrange for group meetings between representatives of the Fund and the
members,
and must agree to include sales and other materials related to the Fund in
its
publications and mailings to members at no cost to Smith Barney. In order
to
obtain such reduced sales charge or to purchase at net asset value, the
purchaser must provide sufficient information at the time of purchase to
permit
verification that the purchase qualifies for the reduced sales charge.
Approval
of group purchase reduced sales charge plans is subject to the discretion
of
Smith Barney.
29
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an
opportunity
for an investor to obtain a reduced sales charge by aggregating investments
over
a 13 month period, provided that the investor refers to such Letter when
placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes purchases of all
Class
A shares of the Fund and other funds of the Smith Barney Mutual Funds
offered
with a sales charge over a 13 month period based on the total amount of
intended
purchases plus the value of all Class A shares previously purchased and
still
owned. An alternative is to compute the 13 month period starting up to 90
days
before the date of execution of a Letter of Intent. Each investment made
during
the period receives the reduced sales charge applicable to the total amount
of
the investment goal. If the goal is not achieved within the period, the
investor
must pay the difference between the sales charges applicable to the
purchases
made and the charges previously paid, or an appropriate number of escrowed
shares will be redeemed. New Letters of Intent will be accepted beginning
January 1, 1995. Please contact a Smith Barney Financial Consultant or TSSG
to
obtain a Letter of Intent application.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment
may be immediately invested in the Fund. A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC Shares" are: (a) Class B shares;
(b)
Class C shares; and (c) Class A shares which when combined with Class A
shares
offered with a sales charge currently held by an investor equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal to the lesser
of
the cost of the shares being redeemed or their net asset value at the time
of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to
the
extent that the value of such shares represents: (a) capital appreciation
of
Fund assets; (b) reinvestment of dividends or capital gain distributions;
(c)
with respect to Class B shares, shares redeemed more than five years after
their
purchase; or (d) with respect to Class C shares and Class A shares that are
CDSC
Shares, shares redeemed more than 12 months after their purchase.
Class C and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC
if redeemed within 12 months of purchase. In circumstances in which the
30
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
<TABLE>
CDSC is imposed on Class B shares, the amount of the charge will depend on
the
number of years since the shareholder made the purchase payment from which
the
amount is being redeemed. Solely for purposes of determining the number of
years
since a purchase payment, all purchase payments made during a month will be
aggregated and deemed to have been made on the last day of the preceding
Smith
Barney statement month. The following table sets forth the rates of the
charge
for redemptions of Class B shares by shareholders.
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ---------------------------------------------------------------------------
- ----------
<S> <C>
First
4.50%
Second
4.00%
Third
3.00%
Fourth
2.00%
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
- ---------------------------------------------------------------------------
- ----------
</TABLE>
Class B shares will convert automatically to Class A shares eight
years
after the date on which they were purchased and thereafter will no longer
be
subject to any distribution fees. There will also be converted at that time
such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the
total
number of Class B shares (other than Class B Dividend Shares) owned by the
shareholder. Shareholders who held Class B shares of Smith Barney Shearson
Short-Term World Income Fund (the "Short-Term World Income Fund") on July
15,
1994 and who subsequently exchanged those shares for Class B shares of the
Fund
will be offered the opportunity to exchange all such Class B shares for
Class A
shares of the Fund four years after the date on which those shares were
deemed
to have been purchased. Holders of such Class B shares will be notified of
the
pending exchange in writing approximately 30 days before the fourth
anniversary
of the purchase date and, unless the exchange has been rejected in writing,
the
exchange will occur on or about the fourth anniversary date. See
"Prospectus
Summary--Alternative Purchase Arrangements--Class B Shares Conversion
Feature."
31
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
The length of time that CDSC Shares acquired through an exchange have
been
held will be calculated from the date that the shares exchanged were
initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares
being
redeemed will be considered to represent, as applicable, capital
appreciation or
dividend and capital gain distribution reinvestments in such other funds.
For
Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on
redemption. The
amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares
at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be
$1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount
which
represents appreciation ($200) and the value of the reinvested dividend
shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260)
would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for
a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege");
(b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month
of
the value of the shareholder's shares at the time the withdrawal plan
commences
(see below) (provided, however, that automatic cash withdrawals in amounts
equal
to or less than 2.00% per month of the value of the shareholder's shares
will be
permitted for withdrawal plans that were established prior to November 7,
1994);
(c) redemptions of shares within 12 months following the death or
disability of
the shareholder; (d) involuntary redemptions; and (e) redemptions of shares
made
in connection with a combination of the Fund with any investment company by
merger, acquisition of assets or otherwise. In addition, a shareholder who
has
redeemed shares from other funds of the Smith Barney Mutual Funds may,
under
certain circumstances, reinvest all or part of the redemption proceeds
within 60
days and receive pro rata credit for any CDSC imposed on the prior
redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney
in
the case of shareholders who are also Smith Barney clients or by TSSG in
the
32
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PURCHASE OF SHARES (CONTINUED)
case of all other shareholders) of the shareholder's status or holdings, as
the
case may be.
- ---------------------------------------------------------------------------
- -----
EXCHANGE PRIVILEGE
<TABLE>
Except as otherwise noted below, shares of each Class may be exchanged
at
the net asset value next determined for shares of the same Class in the
following funds of the Smith Barney Mutual Funds, to the extent shares are
offered for sale in the shareholder's state of residence. Exchanges of
Class A,
Class B and Class C shares are subject to minimum investment requirements
and
all shares are subject to the other requirements of the fund into which
exchanges are made and a sales charge differential may apply.
FUND NAME
<S> <C>
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.--Capital Appreciation Portfolio
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Income and Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Smith Barney World Funds, Inc.--International Balanced Portfolio
</TABLE>
33
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<S><C>
Income Funds
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc.--Income Return Account Portfolio
Smith Barney Funds, Inc.--Monthly Payment Government Portfolio
Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities
++ Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Funds, Inc.--Utility Portfolio
Smith Barney Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
* Smith Barney Limited Maturity Treasury Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Municipal Bonds Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
* Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
* Smith Barney Muni Funds--California Limited Term Portfolio
Smith Barney Muni Funds--California Portfolio
* Smith Barney Muni Funds--Florida Limited Term Portfolio
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
* Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New Jersey Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Ohio Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
</TABLE>
34
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<S> <C>
Money Market Funds
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc.--Cash Portfolio
++ Smith Barney Money Funds, Inc.--Government Portfolio
*** Smith Barney Money Funds, Inc.--Retirement Portfolio
++ Smith Barney Muni Funds--California Money Market Portfolio
++ Smith Barney Muni Funds--New York Money Market Portfolio
++ Smith Barney Municipal Money Market Fund, Inc.
- ---------------------------------------------------------------------------
- -----
<FN>
* Available for exchange with Class A, Class C and Class Y shares of
the Fund.
** Available for exchange with Class A, Class B and Class Y shares of
the Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund.
</TABLE>
Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold
without a sales charge or with a maximum sales charge of less than the
maximum
charged by other Smith Barney Mutual Funds will be subject to the
appropriate
"sales charge differential" upon the exchange of such shares for Class A
shares
of a Fund sold with a higher sales charge. The "sales charge differential"
is
limited to a percentage rate no greater than the excess of the sales charge
rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund
shares
relinquished in the exchange and on any predecessor of those shares. For
purposes of the exchange privilege, shares obtained through automatic
reinvestment of dividends and capital gain distributions are treated as
having
paid the same sales charges applicable to the shares on which the dividends
or
distributions were paid; however, if no sales charge was imposed upon the
initial purchase of shares, any shares obtained through automatic
reinvestment
will be subject to a sales charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income Fund
on
July 15, 1994) wishes to exchange all or a portion of his or her shares in
any
of the funds imposing a higher CDSC than that imposed by the Fund, the
exchanged
Class B shares will be subject to the higher applicable CDSC. Upon an
exchange,
the new Class B shares will be deemed to have been purchased on the same
date as
the Class B shares of the Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be
deemed
to have been purchased on the same date as the Class C shares of the Fund
that
have been exchanged.
35
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
EXCHANGE PRIVILEGE (CONTINUED)
Class Y Exchanges. Class Y shareholders of the Fund who wish to
exchange
all or a portion of their Class Y shares for Class Y shares in any of the
funds
identified above may do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions
can
be detrimental to the Fund's performance and its shareholders. SBMFM may
determine that a pattern of frequent exchanges is excessive and contrary to
the
best interests of the Fund's other shareholders. In this event, SBMFM will
notify Smith Barney and Smith Barney may, at its discretion, decide to
limit
additional purchases and/or exchanges by a shareholder. Upon such a
determination, Smith Barney will provide notice in writing or by telephone
to
the shareholder at least 15 days prior to suspending the exchange privilege
and
during the 15 day period the shareholder will be required to (a) redeem his
or
her shares in the Fund or (b) remain invested in the Fund or exchange into
any
of the funds of the Smith Barney Mutual Funds ordinarily available, which
position the shareholder would be expected to maintain for a significant
period
of time. All relevant factors will be considered in determining what
constitutes
an abusive pattern of exchanges.
Exchanges will be processed at the net asset value next determined,
plus
any applicable sales charge differential. Redemption procedures discussed
below
are also applicable for exchanging shares, and exchanges will be made upon
receipt of all supporting documents in proper form. If the account
registration
of the shares of the fund being acquired is identical to the registration
of the
shares of the fund exchanged, no signature guarantee is required. A capital
gain
or loss for tax purposes will be realized upon the exchange, depending upon
the
cost or other basis of shares redeemed. Before exchanging shares, investors
should read the current prospectus describing the shares to be acquired.
The
Fund reserves the right to modify or discontinue exchange privileges upon
60
days' prior notice to shareholders.
36
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it,
as
described below, at a redemption price equal to their net asset value per
share
next determined after receipt of a written request in proper form at no
charge
other than any applicable CDSC. Redemption requests received after the
close of
regular trading on the NYSE are priced at the net asset value next
determined.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure
to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the
shareholder's
account is not with Smith Barney, from the shareholder directly. The
redemption
proceeds will be remitted on or before the seventh day following receipt of
proper tender, except on any days on which the NYSE is closed or as
permitted
under the 1940 Act in extraordinary circumstances. The Fund anticipates
that, in
accordance with regulatory changes, beginning on or about June 1, 1995
payment
will be made on the third business day after receipt of proper tender.
Generally, if the redemption proceeds are remitted to a Smith Barney
brokerage
account, these funds will not be invested for the shareholder's benefit
without
specific instruction and Smith Barney will benefit from the use of
temporarily
uninvested funds. Redemption proceeds for shares purchased by check, other
than
a certified or official bank check, will be remitted upon clearance of the
check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by
submitting a
written request to a Smith Barney Financial Consultant. Shares other than
those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or a dealer in the selling group
or by
submitting a written request for redemption to:
Smith Barney New York Municipals Fund Inc.
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
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
37
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
REDEMPTION OF SHARES (CONTINUED)
endorsed for transfer (or be accompanied by an endorsed stock power) and
must be
submitted to TSSG together with the redemption request. Any signature
appearing
on a redemption request, 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. TSSG may require additional
supporting documents for redemptions made by corporation, executors,
administrators, trustees or guardians. A redemption request will not be
deemed
properly received until TSSG receives all required documents in proper
form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under
which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $100 monthly or quarterly. The withdrawal
plan
will be carried over on exchanges between funds or Classes of the Fund. Any
applicable CDSC will not be waived on amounts withdrawn by a shareholder
that
exceed 1.00% per month of the value of the shareholder's shares subject to
the
CDSC at the time the withdrawal plan commences. (With respect to withdrawal
plans in effect prior to November 7, 1994, any applicable CDSC will be
waived on
amounts withdrawn that do not exceed 2.00% per month of the shareholder's
shares
subject to the CDSC). For further information regarding the automatic cash
withdrawal plan, shareholders should contact a Smith Barney Financial
Consultant.
- ---------------------------------------------------------------------------
- -----
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any
shareholder's
account in the Fund if the aggregate net asset value of the shares held in
the
Fund account is less than $500. (If a shareholder has more than one account
in
this Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net
asset
value. Before the Fund exercises such right, shareholders will receive
written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
38
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PERFORMANCE
YIELD
From time to time, the Fund may advertise the 30 day "yield" and
"equivalent taxable yield" of each Class. The yield of a Class refers to
the
income generated by an investment in those shares over the 30 day period
identified in the advertisement and is computed by dividing the net
investment
income per share earned by the Class during the period by the maximum
public
offering price per share on the last day of the period. This income is
"annualized" by assuming that the amount of income is generated each month
over
a one-year period and is compounded semi-annually. The annualized income is
then
shown as a percentage of the net asset value.
The Fund's equivalent taxable yield demonstrates the yield on a
taxable
investment necessary to produce an after-tax yield equal to the Fund's tax-
free
yield for each Class. It is calculated by increasing the yield shown for
the
Class to the extent necessary to reflect the payment of taxes at specified
tax
rates. Thus, the equivalent taxable yield always will exceed the Fund's
yield.
For more information on equivalent taxable yields, please refer to the
table
under "Dividends, Distributions and Taxes."
TOTAL RETURN
From time to time the Fund may include its total return, average
annual
total return and current dividend return in advertisements and/or other
types of
sales literature. These figures are computed separately for Class A, Class
B,
Class C and Class Y shares of the Fund. These figures are based on
historical
earnings and are not intended to indicate future performance. Total return
is
computed for a specified period of time assuming deduction of the maximum
sales
charge, if any, from the initial amount invested and reinvestment of all
income
dividends and capital gain distributions on the reinvestment dates at
prices
calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount
invested
and subtracting 100%. The standard average annual total return, as
prescribed by
the SEC, is derived from this total return which provides the ending
redeemable
value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the
same
manner but without annualizing the total return or taking sales charges
into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net
asset
value or the maximum public offering price (including sales charge) on the
last
day of the
39
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
PERFORMANCE (CONTINUED)
period for which current dividend return is presented. The current dividend
return for each Class may vary from time to time depending on market
conditions,
the composition of its investment portfolio and operating expenses. These
factors and possible differences in the methods used in calculating current
dividend return should be considered when comparing a Class' current return
to
yields published for other investment companies and other investment
vehicles.
The Fund may also include comparative performance information in
advertising or
marketing its shares. Such performance information may include data from
Lipper
Analytical Services, Inc. or similar independent services that monitor the
performance of mutual funds, or other industry publications. The Fund will
include performance data for Class A, Class B, Class C and Class Y shares
in any
advertisement or information including performance data of the Fund.
- ---------------------------------------------------------------------------
- -----
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund
rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and the companies that furnish services to the
Fund,
including agreements with the Fund's distributor, investment adviser,
administrator, sub-administrator, custodian and transfer agent. The day-to-
day
operations of the Fund are delegated to the Fund's investment adviser,
administrator and sub-administrator. The Statement of Additional
Information
contains background information regarding each Director and executive
officer of
the Fund.
INVESTMENT ADVISER -- SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013,
serves as
the Fund's investment adviser pursuant to a transfer of the advisory
agreement
effective November 7, 1994, from its affiliate Mutual Management Corp.
(Mutual
Management Corp. and SBMFM are both wholly owned subsidiaries of Holdings.)
Investment advisory services continue to be provided to the Fund by the
same
portfolio managers who had provided services under the agreement with
Mutual
Management Corp. SBMFM (through predecessor entities) has been in the
investment
counseling business since 1934 and is a registered investment adviser.
SBMFM
renders investment advice to investment
40
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
MANAGEMENT OF THE FUND (CONTINUED)
companies that had aggregate assets under management as of September 30,
1994 in
excess of $52.4 billion.
Subject to the supervision and direction of the Fund's Board of
Directors,
SBMFM manages the Fund's portfolio in accordance with the Fund's investment
objective and policies and 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.
For
investment advisory services rendered, the Fund pays SBMFM a fee at the
following annual rates of average daily net assets: 0.35% up to $500
million and
0.32% of the net assets in excess of $500 million. For the fiscal year
ended
December 31, 1993, the Fund paid investment advisory fees to Mutual
Management
Corp. in an amount equal to 0.35% of the value of the average daily net
assets
of the Fund.
PORTFOLIO MANAGEMENT
Lawrence T. McDermott, an Investment Officer of SBMFM, has served as
Vice
President and Investment Officer of the Fund since it commenced operations
and
manages the day-to-day operations of the Fund, including making all
investment
decisions.
Management's discussion and analysis, and additional performance
information regarding the Fund during the fiscal year ended December 31,
1993,
is included in the Annual Report dated December 31, 1993. A copy of the
Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or
phone
number listed on page one of the Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees all aspects
of
the Fund's administration. For administration services rendered, the Fund
pays
SBMFM a fee at the following annual rates of average daily net assets:
0.20% to
$500 million; and 0.18% of net assets in excess of $500 million.
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts
02108,
serves as the Fund's sub-administrator. Boston Advisors provides investment
management, investment advisory and/or administrative services to invest-
41
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
MANAGEMENT OF THE FUND (CONTINUED)
ment companies that had aggregate assets under management as of September
30,
1994, in excess of $48.6 billion.
Boston Advisors calculates the net asset value of the Fund's shares
and
generally assists SBMFM in all aspects of the Fund's administration and
operation. Under a sub-administration agreement dated July 20, 1994, Boston
Advisors is paid a portion of the administration fee paid by the Fund to
SBMFM
at a rate agreed upon from time to time between Boston Advisors and SBMFM.
Prior
to July 20, 1994, Boston Advisors served as the Fund's administrator.
- ---------------------------------------------------------------------------
- -----
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York
10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be
sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee
with
respect to Class A, Class B and Class C shares of the Fund at the annual
rate of
0.15% of the average daily net assets of the respective Class. Smith Barney
is
also paid a distribution fee with respect to Class B and Class C shares at
the
annual rate of 0.50% and 0.55%, respectively, of the average daily net
assets
attributable to those Classes. Class B shares which automatically convert
to
Class A shares eight years after the date of original purchase will no
longer be
subject to a distribution fee. The fees are used by Smith Barney to pay its
Financial Consultants for servicing shareholder accounts and, in the case
of
Class B and Class C shares, to cover expenses primarily intended to result
in
the sale of those shares. These expenses include: advertising expenses; the
cost
of printing and mailing prospectuses to potential investors; payments to
and
expenses of Smith Barney Financial Consultants and other persons who
provide
support services in connection with the distribution of shares; interest
and/or
carrying charges; and indirect and overhead costs of Smith Barney
associated
with the sale of Fund shares, including lease, utility, communications and
sales
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares
of a
Class include a commission or fee paid by the investor or Smith Barney at
the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a
shareholder
42
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
DISTRIBUTOR (CONTINUED)
remains a holder of that Class. Smith Barney Financial Consultants may
receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution
and
shareholder service expenses actually incurred by Smith Barney and the
payments
may exceed distribution expenses actually incurred. The Fund's Board of
Directors will evaluate the appropriateness of the Plan and its payment
terms on
a continuing basis and in so doing will consider all relevant factors,
including
expenses borne by Smith Barney, amounts received under the Plan and
proceeds of
the CDSC.
- ---------------------------------------------------------------------------
- -----
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on
October 6, 1983, and is registered with the SEC as a non-diversified, open-
end
management investment company.
Each Class of the Fund represents an identical interest in the Fund's
investment portfolio. As a result, the Classes have the same rights,
privileges
and preferences, except with respect to: (a) the designation of each Class;
(b)
the effect of the respective sales charges for each Class; (c) the
distribution
and/or service fees borne by each Class; (d) the expenses allocable
exclusively
to each Class; (e) voting rights on matters exclusively affecting a single
Class; (f) the exchange privilege of each Class; and (g) the conversion
feature
of the Class B shares. The Fund's Board of Directors does not anticipate
that
there will be any conflicts among the interests of the holders of the
different
Classes. The Directors, on an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
The Fund does not hold annual shareholder meetings. There normally
will be
no meetings of shareholders held 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, at which time the Directors then in office
will
call a shareholders' meeting for the election of Directors. The Directors
will
call a meeting for any purpose upon the written request of shareholders
holding
at least 10% of the Fund's outstanding shares and the Fund will assist
shareholders in calling such a meeting as required by the 1940 Act. When
matters
are submitted for shareholder vote, shareholders of each Class will have
one
vote for each full share held and a proportionate, fractional vote for any
fractional
43
<PAGE>
SMITH BARNEY
New York Municipals Fund Inc.
- ---------------------------------------------------------------------------
- -----
ADDITIONAL INFORMATION (CONTINUED)
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.
Boston Safe Deposit and Trust Company is an indirect wholly owned
subsidiary of Mellon and is located at One Boston Place, Boston,
Massachusetts
02108, and serves as custodian of the Fund's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and
serves
as the Fund's transfer agent.
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 period covered. In an effort to reduce the
Fund's
printing and mailing costs, the Fund plans to consolidate the mailing of
its
semi-annual and annual reports by household. This consolidation means that
a
household having multiple accounts with the identical address of record
will
receive a single copy of each report. Shareholders who do not want this
consolidation to apply to their account should contact their Smith Barney
Financial Consultants or the Fund's transfer agent.
------------------------------
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained
in
this Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the
Fund or
the Distributor. This Prospectus does not constitute an offer by the Fund
or the
Distributor to sell or a solicitation of an offer to buy any of the
securities
offered hereby in any jurisdiction to any person to whom it is unlawful to
make
such an offer or solicitation in such jurisdiction.
44
<PAGE>
SMITH BARNEY
------------
A Member of TravelersGroup [small red umbrella]
SMITH BARNEY
NEW YORK
MUNICIPALS
FUND INC.
388 Greenwich Street
New York, New York 10013
[RECYCLE Recycled
LOGO] Recyclable Fund 13, 194
FD0208 J4
Smith Barney
NEW YORK MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 7, 1994
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney New York
Municipals Fund Inc. (the "Fund"), dated November 7, 1994, as amended or
supplemented from time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund's Prospectus may be obtained from a Smith Bar-
ney Financial Consultant or by writing or calling the Fund at the address
or telephone number set forth above. This Statement of Additional Informa-
tion, although not in itself a prospectus, is incorporated by reference
into the Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference, the same section headings are used in both the Pro-
spectus and the Statement of Additional Information, except where shown
below:
<TABLE>
<S>
<C>
Management of the Fund
1
Investment Objective and Management Policies
5
Municipal Bonds (See in the Prospectus "New York Municipal Securities")
13
Special Considerations Relating to New York Municipal Securities
15
Purchase of Shares
25
Redemption of Shares
26
Distributor
27
Valuation of Shares
28
Exchange Privilege
29
Performance Data (See in the Prospectus "The Fund's Performance")
29
Taxes (See in the Prospectus "Dividends, Distributions and Taxes")
32
Additional Information
35
Financial Statements
35
Appendix
A-1
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of the organizations that
provide services to the Fund. These organizations are as follows:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
Smith Barney Inc.
("Smith Barney") Distributor
Smith Barney Mutual Funds Management Inc. Investment Adviser and
Administrator
("SBMFM")
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-Administrator
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation Transfer Agent
</TABLE>
These organizations and the functions they perform for the Fund are dis-
cussed in the Prospectus and in this Statement of Additional Information.
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The Directors and executive officers of the Fund, together with informa-
tion as to their principal business occupations during the past five
years, are shown 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.
Herbert Barg, Director. Private Investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Director. Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey, New
Jersey 17466.
Martin Brody, Director. Vice Chairman of the Board of Restaurant Associ-
ates Corp.; a Director of Jaclyn, Inc. His address is HMK Associates,
Three ADP Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Director. Professor, Graduate School of Business Adminis-
tration, Harvard University; a Director of Peer Review Analysis, Inc. His
address is Graduate School of Business Administration, Harvard University,
Boston, Massachusetts 02163.
James J. Crisona, Director. Attorney; formerly a Justice of the Supreme
Court of the State of New York. His address is 118 East 60th Street, New
York, New York 10022.
Lewis E. Daidone, Treasurer. Managing Director and Chief Financial Officer
of Smith Barney; Director and Senior Vice President of SBMFM. His address
is 388 Greenwich Street, New York, New York 10013.
Joseph P. Deane, Vice President and Investment Officer. Investment Officer
of SBMFM; prior to July 1993, Managing Director of Shearson Lehman Advi-
sors. His address is 388 Greenwich Street, New York, New York 10013.
Burt N. Dorsett, Director. Managing Partner of Dorsett McCabe Management,
Inc., an investment counseling firm; Director of Research Corporation
Technologies, Inc., a non-profit patent-clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York 10021.
David Fare, Investment Officer. Investment Officer of SBMFM; prior to July
1993, Vice President of Shearson Lehman Advisors. His address is 388
Greenwich Street, New York, New York 10013.
Robert A. Frankel, Director. Management Consultant; retired Vice President
of The Reader's Digest Association, Inc. His address is 102 Grand Street,
Croton-on-Hudson, New York 10520.
Dr. Paul Hardin, Director. Chancellor of the University of North Carolina
at Chapel Hill; a Director of The Summit Bancorporation. His address is
University of North Carolina, 103 S. Building, Chapel Hill, North Carolina
27599.
Elliot S. Jaffe, Director. Chairman of the Board and President of The
Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York
10901.
Stephen E. Kaufman, Director. Attorney. His address is 277 Park Avenue,
New York, New York 10172.
Joseph J. McCann, Director. Financial Consultant; formerly Vice President
of Ryan Homes, Inc. His address is 200 Oak Park Place, Pittsburgh, Penn-
sylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer. Execu-
tive Vice President of Smith Barney and Chairman of Smith Barney Strategy
Advisers Inc.; prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"); Vice Chairman
of Shearson Asset Management, a member of the Asset Management Group of
Shearson Lehman Brothers; a Director of PanAgora Asset Management, Inc.
and PanAgora Asset Management Limited. His address is 388 Greenwich
Street, New York, New York 10013.
Richard P. Roelofs, Executive Vice President. Managing Director of Smith
Barney; President of Smith Barney Strategy Advisers Inc.; prior to July
1993, Senior Vice President of Shearson Lehman Brothers; Vice President of
Shearson Lehman Investment Strategy Advisors Inc., an investment advisory
affiliate of Shearson Lehman Brothers. His address is 388 Greenwich
Street, New York, New York 10013.
Cornelius C. Rose, Jr., Director. President, Cornelius C. Rose Associates,
Inc., Financial Consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address is Fair Oaks, En-
field, New Hampshire 03748.
Christina T. Sydor, Secretary. Managing Director of Smith Barney; General
Counsel and Secretary of SBMFM. Her address is 388 Greenwich Street, New
York, New York 10013.
Stephen J. Treadway, President. Executive Vice President and Director of
Smith Barney; Director and President of SBMFM; and Trustee of Corporate
Realty Income Trust I. His address is 388 Greenwich Street, New York, New
York 10013.
Each Director also serves as a director, trustee or general partner of
other mutual funds for which Smith Barney serves as distributor. As of Oc-
tober 31, 1994, the Directors and officers of the Fund, as a group, owned
less than 1% of the outstanding common stock of the Fund.
No director, officer or employee of Smith Barney or any Smith Barney af-
filiates will receive any compensation from the Fund for serving as an of-
ficer or Director of the Fund. The Fund pays each Director who is not an
officer, director or employee of Smith Barney or of its affiliates a fee
of $2,000 per annum plus $500 per meeting attended and reimburses them for
travel and out-of-pocket expenses. For the fiscal year ended December 31,
1993, such fees and expenses totalled $41,687.
INVESTMENT ADVISER AND ADMINISTRATOR -- SBMFM
SUB-ADMINISTRATOR -- BOSTON ADVISORS
SBMFM serves as investment adviser to the Fund pursuant to a written
agreement dated July 30, 1993 (the "Advisory Agreement"), which was first
approved by the Board of Directors, including a majority of those Direc-
tors who are not "interested persons" of the Fund or Smith Barney, on
April 7, 1993. The services provided by SBMFM under the Advisory Agreement
are described in the Prospectus. SBMFM bears all expenses in connection
with the performance of its services and pays the salary of any officer or
employee who is employed by both it and the Fund. SBMFM is a wholly owned
subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of The Travelers Inc. ("Travelers").
As compensation for SBMFM's services, the Fund pays a fee paid monthly at
the following annual rates of average daily net assets: 0.35% up to $500
million; 0.32% of the next $1 billion; and 0.29% in excess of $1.5 bil-
lion. For the 1991, 1992 and 1993 fiscal years the Fund paid Mutual Man-
agement Corp., a wholly owned subsidiary of Holdings and previously the
Fund's investment adviser and/or Shearson Lehman Advisors, the Fund's in-
vestment adviser prior to Mutual Management Corp., $1,553,171, $1,754,263,
and $2,218,952, respectively, in advisory fees.
SBMFM also serves as administrator to the Fund pursuant to a written
agreement (the "Administration Agreement") dated April 20, 1994, which was
most recently approved by the Fund's Board of Directors, including a ma-
jority of Directors who are not "interested persons" of the Fund or Smith
Barney, on July 20, 1994. As compensation for SBMFM's services rendered,
the Fund pays a fee paid monthly at the following annual rates of average
daily net assets: 0.20% up to $500 million; 0.18% of the next $1 billion;
and 0.16% in excess of $1.5 billion.
Prior to April 20, 1994, Boston Advisors served as administrator to the
Fund. Boston Advisors currently serves as sub-administrator to the Fund
under a written agreement (the "Sub-Administration Agreement") dated April
20, 1994, which was most recently approved by the Fund's Board of Direc-
tors, including a majority of Directors who are not "interested persons"
of the Fund or Boston Advisors on April 20, 1994. Prior to the close of
business on May 21, 1993, Boston Advisors acted in the capacity as the
Fund's sub-investment adviser and administrator. Boston Advisors is a
wholly owned subsidiary of The Boston Company, Inc. ("TBC"), a financial
services holding company, which is in turn a wholly owned subsidiary of
Mellon Bank Corporation ("Mellon").
As compensation for Boston Advisors' services rendered, the Fund pays a
fee computed daily and paid monthly at the following annual rates: 0.20%
of the value of the Fund's average daily net assets up to $500 million and
0.18% of the value of its average daily net assets of the next $1 billion;
and 0.16% of the value of average daily net assets in excess of $1.5 bil-
lion. For the 1991, 1992 and 1993 fiscal years, the Fund paid Boston Advi-
sors $887,526, $1,002,117 and $1,263,785, respectively, in sub-investment
advisory and/or administration fees.
Certain services provided to the Fund by SBMFM and Boston Advisors pursu-
ant to the Administration Agreement are described in the Prospectus under
"Management of the Fund." In addition to those services, SBMFM and Boston
Advisors pay the salaries of all officers and employees who are employed
by both SBMFM and Boston Advisors and the Fund, maintains office facili-
ties for the Fund, furnishes the Fund with statistical and research data,
clerical help and accounting, data processing, bookkeeping, internal au-
diting and legal services and certain other services required by the Fund,
prepares reports to the Fund's shareholders, and prepares tax returns and
reports to and filings with the Securities and Exchange Commission (the
"SEC") and state blue sky authorities. SBMFM and Boston Advisors bear all
expenses in connection with the performance of their services.
The Fund bears expenses incurred in its operation including: taxes, inter-
est, brokerage fees and commissions, if any; fees of Directors who are not
officers, directors, shareholders or employees of Smith Barney; SEC fees
and state blue sky qualification fees; charges of custodian; transfer and
dividend disbursing agent's fees; certain insurance premiums; outside au-
diting and legal expenses; costs of any independent pricing service; costs
of maintaining corporate existence; costs of investor services (including
allocated telephone and personnel expenses); costs of preparing and print-
ing of prospectuses for regulatory purposes and for distribution to exist-
ing shareholders; cost of shareholders' reports and shareholder meetings;
meetings of the officers or Board of Directors of the Fund.
SBMFM and Boston Advisors have each agreed that if in any fiscal year the
aggregate expenses of the Fund (including fees pursuant to the Advisory
Agreement, Administration and Sub-Administration Agreements, but excluding
interest, taxes, brokerage and, with the prior written consent of the nec-
essary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, SBMFM
and Boston Advisors will, to the extent required by state law, reduce
their management fees by the amount of such excess expenses, such amount
to be allocated between them in the proportion that their respective fees
bear to the aggregate of such fees paid by the Fund. Any fee reductions
will be reconciled on a monthly basis. The most restrictive state expense
limitation applicable to the Fund would require a fee reduction in any
year that such expenses exceed 2.50% of the first $30 million of average
net assets, 2.00% of the next $70 million of average net assets and 1.50%
of the remaining average net assets. No fee reduction was required for the
1991, 1992 and 1993 fiscal years.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Fund. The Direc-
tors who are not "interested persons" of the Fund have selected Stroock &
Stroock & Lavan as their counsel.
KPMG Peat Marwick, independent accountants, 345 Park Avenue, New York, New
York 10154, serve as auditors of the Fund and render an opinion on the
Fund's financial statements annually.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the policies
it employs to achieve that objective. The following discussion supplements
the description of the Fund's investment policies in the Prospectus. For
purposes of this Statement of Additional Information, obligations of non-
New York municipal issuers, the interest on which is excluded from gross
income for Federal income tax purposes, together with obligations of the
State of New York and its political subdivisions, agencies and public au-
thorities ("New York Municipal Securities"), are collectively referred to
as "Municipal Bonds."
As noted in the Prospectus, the Fund is classified as a non-diversified
investment company under the 1940 Act, which means that the Fund is not
limited by the 1940 Act in the proportion of its assets that may be in-
vested in the obligations of a single issuer. The identification of the
issuer of Municipal Bonds generally depends upon the terms and conditions
of the security. When the assets and revenues of an agency, authority, in-
strumentality or other political subdivision are separate from those of
the government creating the issuing entity and the security is backed only
by the assets and revenues of such entity, such entity would be deemed to
be the sole issuer. Similarly, in the case of a private activity bond, if
that bond is backed only by the assets and revenues of the nongovernmental
user, then such nongovernmental user is deemed to be the sole issuer. If
in either case, however, the creating government or some other entity
guarantees a security, such a guarantee would be considered a separate se-
curity and would be treated as an issue of such government or other en-
tity.
RATINGS AS INVESTMENT CRITERIA
In general, the ratings of Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") represent the opinions of those
agencies as to the quality of the Municipal Bonds and short-term invest-
ments which they rate. It should be emphasized, however, that such ratings
are relative and subjective, are not absolute standards of quality and do
not evaluate the market risk of securities. These ratings will be used by
the Fund as initial criteria for the selection of portfolio securities,
but the Fund also will rely upon the independent advice of SBMFM to evalu-
ate potential investments. Among the factors that will be considered are
the long-term ability of the issuer to pay principal and interest and gen-
eral economic trends. To the extent the Fund invests in low-rated and com-
parable unrated securities, the Fund's achievement of its investment ob-
jective may be more dependent on SBMFM's credit analysis of such securi-
ties than would be the case for a portfolio consisting entirely of higher-
rated securities. The Appendix contains information concerning the ratings
of Moody's and S&P and their significance.
Subsequent to its purchase by the Fund, an issue of Municipal Bonds may
cease to be rated or its rating may be reduced below the rating given at
the time the securities were acquired by the Fund. Neither event will re-
quire the sale of such Municipal Bonds by the Fund, but SBMFM will con-
sider such event in its determination of whether the Fund should continue
to hold the Municipal Bonds. In addition, to the extent the ratings change
as a result of changes in the rating systems or due to a corporate re-
structuring of Moody's or S&P, the Fund will attempt to use comparable
ratings as standards for its investments in accordance with its investment
objective and policies.
The Fund generally may invest up to 25% of its total assets in securities
rated below investment grade, (i.e., lower than Baa, MIG 3 or Prime-1 by
Moody's or BBB, SP-2 or A-1 by S&P, or in unrated securities of comparable
quality). Such securities (a) will likely have some quality and protective
characteristics that, in the judgment of the rating organization, are out-
weighed by large uncertainties or major risk exposures to adverse condi-
tions and (b) are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation.
While the market values of low-rated and comparable unrated securities
tend to react less to fluctuations in interest rate levels than the market
values of higher-rated securities, the market values of certain low-rated
and comparable unrated municipal securities also tend to be more sensitive
than higher-rated securities to short-term corporate and industry develop-
ments and changes in economic conditions (including recession) in specific
regions or localities or among specific types of issuers. In addition,
low-rated securities and comparable unrated securities generally present a
higher degree of credit risk. During an economic downturn or a prolonged
period of rising interest rates, the ability of issuers of lower-rated and
comparable unrated securities to service their payment obligations, meet
projected goals or obtain additional financing may be impaired. The risk
of loss due to default by such issuers is significantly greater because
low-rated and comparable unrated securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
The Fund may incur additional expenses to the extent it is required to
seek recovery upon a default in the payment of principal or interest on
its portfolio holdings.
While the market for municipal securities is considered to be generally
adequate, the existence of limited markets for particular low-rated and
comparable unrated securities may diminish the Fund's ability to (a) ob-
tain accurate market quotations for purposes of valuing such securities
and calculating its net asset value and (b) sell the securities at fair
value either to meet redemption requests or to respond to changes in the
economy or in the financial markets. The market for certain low-rated and
comparable unrated securities has not fully weathered a major economic re-
cession. Any such recession, however, would likely disrupt severely the
market for such securities and adversely affect the value of the securi-
ties and the ability of the issuers of these securities to repay principal
and pay interest thereon.
Fixed-income securities, including low-rated securities and comparable un-
rated securities, frequently have call or buy-back features that permit
their issuers to call or repurchase the securities from their holders,
such as the Fund. If an issuer exercises these rights during periods of
declining interest rates, the Fund may have to replace the security with a
lower yielding security, thus resulting in a decreased return to the Fund.
TEMPORARY INVESTMENTS
When the Fund is maintaining a defensive position, the Fund may invest in
short-term investments ("Temporary Investments") consisting of: (a) the
following tax-exempt securities: notes of municipal issuers having, at the
time of purchase, a rating within the three highest grades of Moody's or
S&P or, if not rated, having an issue of outstanding Municipal Bonds rated
within the three highest grades by Moody's or S&P; and (b) the following
taxable securities: obligations of the United States government, its agen-
cies or instrumentalities ("U.S. government securities"), repurchase
agreements, other debt securities rated within the three highest grades by
Moody's and S&P, commercial paper rated in the highest grade by either of
such rating services, and certificates of deposit of domestic banks with
assets of $1 billion or more. The Fund may invest in Temporary Investments
for defensive reasons in anticipation of a market decline. At no time will
more than 20% of the Fund's total assets be invested in Temporary Invest-
ments unless the Fund has adopted a defensive investment policy. The Fund
intends, however, to purchase tax-exempt Temporary Investments pending the
investment of the proceeds of the sale of portfolio securities or shares
of the Fund's common stock, or in order to have highly liquid securities
available to meet anticipated redemptions. Since the commencement of its
operations, the Fund has not found it necessary to purchase taxable Tempo-
rary Investments.
INVESTMENTS IN MUNICIPAL BOND INDEX FUTURES CONTRACTS AND OPTIONS ON
INTEREST RATE FUTURES CONTRACTS
The Fund may invest in municipal bond index futures contracts and options
on interest rate futures contracts that are traded on a domestic exchange
or board of trade. Such investments may be made by the Fund solely for the
purpose of hedging against changes in the value of its portfolio securi-
ties due to anticipated changes in interest rates and market conditions,
and not for purposes of speculation. Further, such investments will be
made only in unusual circumstances, such as when SBMFM anticipates an ex-
treme change in interest rates or market conditions.
Municipal Bond Index Futures Contracts. Municipal Bond index futures con-
tracts based on an index of 40 tax-exempt, long-term municipal bonds with
an original issue size of at least $50 million and a rating of A- or
higher by S&P or A or higher by Moody's began trading in mid-1985. No
physical delivery of the underlying municipal bonds in the index is made.
The purpose of the acquisition or sale of a municipal bond index futures
contract by the Fund, as the holder of long-term municipal securities, is
to protect the Fund from fluctuations in interest rates on tax-exempt se-
curities without actually buying or selling long-term municipal securi-
ties.
Unlike the purchase or sale of a Municipal Bond, no consideration is paid
or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker an amount
of cash or cash equivalents equal to approximately 10% of the contract
amount (this amount is subject to change by the board of trade on which
the contract is traded and members of such board of trade may charge a
higher amount). This amount is known as initial margin and is in the na-
ture of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming
that all contractual obligations have been satisfied. Subsequent payments,
known as variation margin, to and from the broker, will be made on a daily
basis as the price of the index fluctuates making the long and short posi-
tions in the futures contract more or less valuable, a process known as
marking-to-market. At any time prior to the expiration of the contract,
the Fund may elect to close the position by taking an opposite position,
which will operate to terminate the Fund's existing position in the fu-
tures contract.
There are several risks in connection with the use of municipal bond index
futures contracts as a hedging device. Successful use of municipal bond
index futures contracts by the Fund is subject to Smith Barney's ability
to predict correctly movements in the direction of interest rates. Such
predictions involve skills and techniques which may be different from
those involved in the management of a long-term municipal bond portfolio.
In addition, there can be no assurance that there will be a correlation
between movements in the price of the municipal bond index and movements
in the price of the Municipal Bonds which are the subject of the hedge.
The degree of imperfection of correlation depends upon various circum-
stances, such as variations in speculative market demand for futures con-
tracts and municipal securities, technical influences on futures trading,
and differences between the municipal securities being hedged and the mu-
nicipal securities underlying the municipal bond index futures contracts,
in such respects as interest rate levels, maturities and creditworthiness
of issuers. A decision of whether, when and how to hedge involves the ex-
ercise of skill and judgment and even a well-conceived hedge may be unsuc-
cessful to some degree because of market behavior or unexpected trends in
interest rates.
Although the Fund intends to enter into futures contracts only if an ac-
tive market exists for such contracts, there can be no assurance that an
active market will exist for the contracts at any particular time. Most
domestic futures exchanges and boards of trade limit the amount of fluctu-
ation permitted in futures contract prices during a single trading day.
The daily limit establishes the maximum amount the price of a futures con-
tract may vary either up or down from the previous day's settlement price
at the end of a trading session. Once the daily limit has been reached in
a particular contract, no trades may be made that day at a price beyond
that limit. The daily limit governs only price movement during a particu-
lar trading day and therefore does not limit potential losses because the
limit may prevent the liquidation of unfavorable positions. It is possible
that futures contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting some futures trad-
ers to substantial losses. In such event, it will not be possible to close
a futures position and, in the event of adverse price movements, the Fund
would be required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the portfolio
being hedged, if any, may partially or completely offset losses on the fu-
tures contract. As described above, however, there is no guarantee the
price of Municipal Bonds will, in fact, correlate with the price movements
in the municipal bond index futures contract and thus provide an offset to
losses on a futures contract.
If the Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of Municipal Bonds held in its portfo-
lio and rates decrease instead, the Fund will lose part or all of the ben-
efit of the increased value of the Municipal Bonds it has hedged because
it will have offsetting losses in its futures positions. In addition, in
such situations, if the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of se-
curities may, but will not necessarily, be at increased prices which re-
flect the decline in interest rates. The Fund may have to sell securities
at a time when it may be disadvantageous to do so.
When the Fund purchases municipal bond index futures contracts, an amount
of cash and U.S. government securities equal to the market value of the
futures contracts will be deposited in a segregated account with the
Fund's custodian (and/or such other persons as appropriate) to collateral-
ize the position and thereby insure that the use of such futures is not
leveraged. In addition, the ability of the Fund to trade in municipal bond
index futures contracts and options on interest rate futures contracts may
be materially limited by the requirements of the Internal Revenue Code of
1986, as amended (the "Code"), applicable to a regulated investment com-
pany. See "Taxes" below.
Options on Interest Rate Futures Contracts. The Fund may purchase put and
call options on interest rate futures contracts which are traded on a do-
mestic exchange or board of trade as a hedge against changes in interest
rates, and may enter into closing transactions with respect to such op-
tions to terminate existing positions. The Fund will sell put and call op-
tions on interest rate futures contracts only as part of closing sale
transactions to terminate its options positions. There is no guarantee
such closing transactions can be effected.
Options on interest rate futures contracts, as contrasted with the direct
investment in such contracts, give the purchaser the right, in return for
the premium paid, to assume a position in interest rate futures contracts
at a specified exercise price at any time prior to the expiration date of
the options. Upon exercise of an option, the delivery of the futures posi-
tion by the writer of the option to the holder of the option will be ac-
companied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of
the futures contract exceeds, in the case of a call, or is less than, in
the case of a put, the exercise price of the option on the futures con-
tract. The potential loss related to the purchase of an option on interest
rate futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point
of sale, there are no daily cash payments to reflect changes in the value
of the underlying contract; however, the value of the option does change
daily and that change would be reflected in the net asset value of the
Fund.
There are several risks relating to options on interest rate futures con-
tracts. The ability to establish and close out positions on such options
will be subject to the existence of a liquid market. In addition, the
Fund's purchase of put or call options will be based upon predictions as
to anticipated interest rate trends by SBMFM, which could prove to be in-
accurate. Even if SBMFM's expectations are correct, there may be an imper-
fect correlation between the change in the value of the options and of the
Fund's portfolio securities.
Repurchase Agreements. The Fund may engage in repurchase agreements with
banks which are the issuers of instruments acceptable for purchase by the
Fund and with certain dealers on the Federal Reserve Bank of New York's
list of reporting dealers. A repurchase agreement is a contract under
which the buyer of a security simultaneously commits to resell the secu-
rity to the seller at an agreed-upon price on an agreed-upon date. Under
the terms of a typical repurchase agreement, the Fund would acquire an un-
derlying debt obligation for a relatively short period (usually not more
than one week) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the Fund's holding period. Under each
repurchase agreement, the selling institution will be required to maintain
the value of the securities subject to the repurchase agreement at not
less than their repurchase price. SBMFM or Boston Advisors, acting under
the supervision of the Fund's Board of Directors, reviews on an ongoing
basis the value of the collateral and the creditworthiness of those banks
and dealers with which the Fund enters into repurchase agreements to eval-
uate potential risks.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the protec-
tion of shareholders. Restrictions 1 through 7 below cannot be changed
without approval by the holders of a majority of the outstanding shares of
the Fund, defined as the lesser of (a) 67% of the Fund's shares present at
a meeting if the holders of more than 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the
Fund's outstanding shares. The remaining restrictions may be changed by
the Fund's Board of Directors at any time.
The Fund may not:
1. Issue senior securities as defined in the 1940 Act and any rules
and orders thereunder, except insofar as the Fund may be deemed to
have issued senior securities by reason of: (a) borrowing money or
purchasing securities on a when-issued or delayed-delivery basis; (b)
purchasing or selling futures contracts and options on futures con-
tracts and other similar instruments; and (c) issuing separate classes
of shares.
2. Invest more than 25% of its total assets in securities, the issu-
ers of which are in the same industry. For purposes of this limita-
tion, U.S. government securities and securities of state or municipal
governments and their political subdivisions are not considered to be
issued by members of any industry.
3. Borrow money, except that the Fund may borrow from banks for tem-
porary or emergency (not leveraging) purposes, including the meeting
of redemption requests which might otherwise require the untimely dis-
position of securities, in an amount not exceeding 10% of the value of
the Fund's total assets (including the amount borrowed) valued at mar-
ket less liabilities (not including the amount borrowed) at the time
the borrowing is made. Whenever borrowings exceed 5% of the value of
the Fund's total assets, the Fund will not make additional invest-
ments.
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 objective and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities.
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, real estate
investment trust securities, commodities or commodity contracts, but
this shall not prevent the Fund from: (a) investing in securities of
issuers engaged in the real estate business 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 (c)
trading in futures contracts and options on futures contracts.
7. Purchase any securities on margin (except for such short-term cred-
its as are necessary for the clearance of purchases and sales of port-
folio securities) or sell any securities short (except against the
box). For purposes of this restriction, the deposit or payment by the
Fund of initial or maintenance margin in connection with futures con-
tracts and related options and options on securities is not considered
to be the purchase of a security on margin.
8. Purchase or otherwise acquire any security if, as a result, more
than 15% of its net assets would be invested in securities that are
illiquid.
9. Purchase or sell oil and gas interests.
10. Invest more than 5% of the value of its total assets in the secu-
rities of issuers having a record, including predecessors, of less
than three years of continuous operation, except U.S. government secu-
rities. (For purposes of this restriction, issuers include predeces-
sors, sponsors, controlling persons, general partners, guarantors and
originators of underlying assets which have less than three years of
continuous operation or relevant business experiences).
11. Invest in companies for the purpose of exercising control.
12. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of
assets and except to the extent permitted by Section 12 of the 1940
Act (currently, up to 5% of the total assets of the Fund and no more
than 3% of the total outstanding voting stock of any one investment
company).
13. Engage in the purchase or sale of put, call, straddle or spread
options or in writing such options, except that the Fund may purchase
and sell options on interest rate futures contracts.
Certain restrictions listed above permit the Fund without shareholder ap-
proval to engage in investment practices that the Fund does not currently
pursue. The Fund has no present intention of altering its current invest-
ment practices as otherwise described in the Prospectus and this Statement
of Additional Information and any future change in those practices would
require Board approval and appropriate disclosure to investors.
For the purposes of Investment Restriction 3, private activity bonds,
where the payment of principal and interest is the ultimate responsibility
of companies within the same industry, are grouped together as an "indus-
try." If any percentage described above is complied with at the time of
investment, a later increase or decrease in percentage resulting from a
change in the value of the assets will not constitute a violation of such
restriction. In order to permit the sale of the Fund's shares in certain
states, the Fund may make commitments more restrictive than the restric-
tions listed above. Should the Fund determine that any such commitment is
no longer in the best interests of the Fund and its shareholders it will
revoke the commitment by terminating sales of its shares in the state in-
volved.
PORTFOLIO TRANSACTIONS
Newly issued securities normally are purchased directly from the issuer or
from an underwriter acting as principal. Other purchases and sales usually
are placed with those dealers from which it appears the best price or exe-
cution will be obtained; those dealers may be acting as either agents or
principals. The purchase price paid by the Fund to underwriters of newly
issued securities usually includes a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers nor-
mally are executed at a price between the bid and asked prices. The Fund
has paid no brokerage commissions since its commencement of operations.
Allocation of transactions, including their frequency, to various dealers
is determined by SBMFM in its best judgment and in a manner deemed fair
and reasonable to shareholders. The primary considerations are availabil-
ity of the desired security and the prompt execution of orders in an ef-
fective manner at the most favorable prices. Subject to these consider-
ations, dealers that provide supplemental investment research and statis-
tical or other services to SBMFM may receive orders for transactions by
the Fund. Information so received enables SBMFM to supplement its own re-
search and analysis with the views and information of other securities
firms. Such information may be useful to SBMFM in serving both the Fund
and other clients, and, conversely, supplemental information obtained by
the placement of business of other clients may be useful to SBMFM in car-
rying out its obligations to the Fund.
The Fund will not purchase Municipal Bonds during the existence of any un-
derwriting or selling group relating thereto of which SBMFM is a member,
except to the extent permitted by the SEC. Under certain circumstances,
the Fund may be at a disadvantage because of this limitation in comparison
with other investment companies which have a similar investment objective
but which are not subject to such limitation.
While investment decisions for the Fund are made independently from those
of the other accounts managed by SBMFM, investments of the type the Fund
may make also may be made by such other accounts. When the Fund and one or
more other accounts managed by SBMFM are prepared to invest in, or desire
to dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by SBMFM to be equitable
to each. In some cases, this procedure may adversely affect the price paid
or received by the Fund or the size of the position obtained or disposed
of by the Fund.
PORTFOLIO TURNOVER
While the Fund's portfolio turnover rate (the lesser of purchases or sales
of portfolio securities during the year, excluding purchases or sales of
short-term securities, divided by the monthly average value of portfolio
securities) is generally not expected to exceed 100%, it has in the past
exceeded 100%. The rate of turnover will not be a limiting factor, how-
ever, when the Fund deems it desirable to sell or purchase securities.
This policy should not result in higher brokerage commissions to the Fund,
as purchases and sales of portfolio securities are usually effected as
principal transactions. Securities may be sold in anticipation of a rise
in interest rates (market decline) or purchased in anticipation of a de-
cline in interest rates (market rise) and later sold. In addition, a secu-
rity may be sold and another security of comparable quality may be pur-
chased at approximately the same time to take advantage of what the Fund
believes to be a temporary disparity in the normal yield relationship be-
tween the two securities. These yield disparities may occur for reasons
not directly related to the investment quality of particular issues or the
general movement of interest rates, such as changes in the overall demand
for or supply of various types of tax-exempt securities. For the 1992 and
1993 fiscal years, the Fund's portfolio turnover rates were 30%, and 20%
respectively. This higher level of turnover was due to significant changes
in the Portfolio in response to the unusual volatility experienced in mu-
nicipal bond markets during this period.
MUNICIPAL BONDS
GENERAL INFORMATION
Municipal Bonds generally are understood to include debt obligations is-
sued to obtain funds for various public purposes, including construction
of a wide range of public facilities, refunding of outstanding obliga-
tions, payment of general operating expenses and extensions of loans to
public institutions and facilities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately oper-
ated facilities are included within the term Municipal Bonds if the inter-
est paid thereon qualifies as excluded from gross income (but not neces-
sarily from alternative minimum taxable income) for Federal income tax
purposes in the opinion of bond counsel to the issuer.
In order to be classified as a diversified investment company under the
1940 Act, the Fund may not, with respect to 75% of its assets, invest more
than 5% of its total assets in the securities of any one issuer (except
U.S. government securities) or own more than 10% of the outstanding voting
securities of any one issuer. For the purposes of diversification under
the 1940 Act, the identification of the issuer of Municipal Bonds depends
upon the terms and conditions of the security. When the assets and reve-
nues of an agency, authority, instrumentality or other political subdivi-
sion are separate from those of the government creating the issuing entity
and the security is backed only by the assets and revenues of such entity,
such entity is deemed to be the sole issuer. Similarly, in the case of a
private activity bond, if that bond is backed only by the assets and reve-
nues of the nongovernmental user, then such nongovernmental user is deemed
to be the sole issuer. If, however, in either case, the creating govern-
ment or some other entity guarantees a security, such a guarantee would be
considered a separate security and is to be treated as an issue of such
government or other entity.
The yield on Municipal Bonds is dependent on a variety of factors, includ-
ing general economic and monetary conditions, general money market fac-
tors, general conditions of the Municipal Bond market, the financial con-
dition of the issuer, the size of a particular offering, maturity of the
obligation offered and the rating of the issue.
Municipal Bonds also may be subject to the provisions of bankruptcy, in-
solvency and other laws affecting the rights and remedies of creditors,
such as the Federal Bankruptcy Code, and laws, if any, which may be en-
acted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon en-
forcement of such obligations or upon the ability of municipalities to
levy taxes. The possibility also exists that, as a result of litigation or
other conditions, the power or ability of any one or more issuers to pay,
when due, the principal of and interest on, its or their Municipal Bonds
may be materially and adversely affected.
WHEN-ISSUED SECURITIES
The Fund may purchase Municipal Bonds on a "when-issued" basis (i.e., for
delivery beyond the normal settlement date at a stated price and yield).
The payment obligation and the interest rate that will be received on the
Municipal Bonds purchased on a when-issued basis are each fixed at the
time the buyer enters into the commitment. Although the Fund will purchase
Municipal Bonds on a when-issued basis only with the intention of actually
acquiring the securities, the Fund may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strat-
egy.
Municipal Bonds are subject to changes in value based upon the public's
perception of the creditworthiness of the issuers and changes, real or an-
ticipated, in the level of interest rates. In general, Municipal Bonds
tend to appreciate when interest rates decline and depreciate when inter-
est rates rise. Purchasing Municipal Bonds on a when-issued basis, there-
fore, can involve the risk that the yields available in the market when
the delivery takes place actually may be higher than those obtained in the
transaction itself. To account for this risk, a segregated account of the
Fund consisting of cash or liquid debt securities equal to the amount of
the when-issued commitments will be established at the Fund's custodian
bank. For the purpose of determining the adequacy of the securities in the
account, the deposited securities will be valued at market or fair value.
If the market or fair value of such securities declines, additional cash
or securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of such commitments by the
Fund. Placing securities rather than cash in the segregated account may
have a leveraging effect on the Fund's net assets. That is, to the extent
the Fund remains substantially fully invested in securities at the same
time it has committed to purchase securities on a when-issued basis, there
will be greater fluctuations in its net assets than if it had set aside
cash to satisfy its purchase commitments. Upon the settlement date of the
when-issued securities, the Fund will meet its obligations from then-
available cash flow, sale of securities held in the segregated account,
sale of other securities or, although it normally would not expect to do
so, from the sale of the when-issued securities themselves (which may have
a value greater or less than the Fund's payment obligations). Sales of se-
curities to meet such obligations may involve the realization of capital
gains, which are not exempt from Federal income taxes.
When the Fund engages in when-issued transactions, it relies on the seller
to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price con-
sidered to be advantageous.
MUNICIPAL LEASES
Municipal leases are municipal securities that may take the form of a
lease or an installment purchase contract issued by state and local gov-
ernment authorities to obtain funds to acquire a wide variety of equipment
and facilities such as fire and sanitation vehicles, computer equipment
and other capital assets. These obligations have evolved to make it possi-
ble for state and local government authorities to acquire property and
equipment without meeting constitutional and statutory requirements for
the issuance of debt. Thus, municipal leases have special risks not nor-
mally associated with Municipal Bonds. These obligations frequently con-
tain "non-appropriation" clauses that provide that the governmental issuer
of the municipal lease has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
legislative body on a yearly or other periodic basis. In addition to the
non-appropriation risk, municipal leases represent a type of financing
that has not yet developed the depth of marketability associated with Mu-
nicipal Bonds; moreover, although the obligations will be secured by the
leased equipment, the disposition of the equipment in the event of fore-
closure might prove difficult. In order to limit the risks, the Fund will
purchase either (a) municipal leases that are rated in the four highest
categories by Moody's or S&P or (b) unrated municipal leases that are pur-
chased principally from domestic banks or other responsible third parties
that have entered into an agreement with the Fund providing the seller
will either remarket or repurchase the municipal leases within a short pe-
riod after demand by the Fund.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES
Some of the significant financial considerations relating to the Fund's
investment in New York Municipal Securities are summarized below. This
summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New
York Municipal Securities that were available prior to the date of this
Statement of Additional Information. The accuracy and completeness of the
information contained in those official statements have not been indepen-
dently verified.
State Economy. New York State (the "State") is the second most populous
state in the nation and has a relatively high level of personal wealth.
The State's economy is diverse with a comparatively large share of the na-
tion's finance, insurance, transportation, communications and services em-
ployment, and a comparatively small share of the nation's farming and min-
ing activity. The State has a declining proportion of its workforce en-
gaged in manufacturing, and an increasing proportion engaged in service
industries. New York City (the "City"), which is the most populous city in
the State and nation and is the center of the nation's largest metropoli-
tan area, accounts for approximately 41% of both the State's population
and personal income.
The State has historically been one of the wealthiest states in the na-
tion. For decades, however, the State has grown more slowly than the na-
tion as a whole, gradually eroding its relative economic affluence. The
recession has been more severe in the State, owing to a significant re-
trenchment in the financial services industry, cutbacks in defense spend-
ing, and an overbuilt real estate market. There can be no assurance that
the State economy will not experience worse-than-predicted results in the
1993-94 and 1994-95 fiscal years, with corresponding material and adverse
effects on the State's projections of receipts and disbursements.
The unemployment rate in the State dipped below the national rate in the
second half of 1981 and remained lower until 1991. The total employment
growth rate in the State has been below the national average since 1984,
and in 1992 the unemployment rate rose to 8.5%. State per capita personal
income remains above the national average. State per capita income for
1992 was $23,534, which is 18.5% above the 1992 national average of
$20,114. Between 1970 and 1980, the percentage by which the State's per
capita income exceeded that of the national average fell from 19.8% to
8.1%, and the State dropped from fifth to eleventh in the nation in terms
of per capita income. However, since 1980, the State's rate of per capita
income growth was greater than that of the nation generally and the
State's rank improved to fourth in 1990 and remained fourth in 1991 and
1992. Some analysts believe that the decline in jobs in both the City and
State is the result of State and local taxation, which is among the high-
est in the nation, and which may cause corporations to locate outside the
State. The current high level of taxes limits the ability of the State and
the City to impose higher taxes in the event of future difficulties.
State Budget. The State Constitution requires the Governor to submit to
the Legislature a balanced Executive Budget which contains a complete plan
of expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all
proposed appropriations or reappropriations and any new or modified reve-
nue measures to be enacted in connection with the Executive Budget. The
entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor submits to the Legislature, on at least a quarterly
basis, reports of actual receipts, revenues, disbursements, expenditures,
tax refunds and reimbursements, and repayment of advances in form suitable
for comparison with the State financial plan, together with explanations
of deviations from the State financial plan. At such time, the Governor is
required to submit any amendments to the State financial plan necessitated
by such deviations.
The Governor released the recommended Executive Budget for the 1994-95
fiscal year on January 18, 1994. The Recommended 1994-95 State Financial
Plan projected a balanced General Fund, with receipts and transfers from
other funds projected at $33.422 billion, including $299 million carried
over from the surplus anticipated for the State's 1993-94 fiscal year.
Disbursements and transfers to other funds are projected at $33.399 bil-
lion and, in addition, the financial plan includes a $23 million repayment
to the State's Tax Stabilization Reserve Fund. The Division of the Budget
projects that at the close of the State's 1994-95 fiscal year, the balance
in the Tax Stabilization Reserve Fund will be $157 million. The balance
available in the Contingency Reserve Fund on April 1, 1994 is projected by
the Division of the Budget at $311 million.
There can be no assurance that the Legislature will enact the Executive
Budget as proposed, nor can there be any assurance that the Legislature
will enact a budget for the State's 1994-95 fiscal year prior to the be-
ginning of such fiscal year. In recent years, the Legislature has failed
to enact a budget prior to the beginning of the State's fiscal year. A
protracted delay in legislative enactment of the State's 1994-95 fiscal
year budget may reduce the effectiveness of several of the actions pro-
posed. The 1994-95 State Financial Plan, when formulated after enactment
of the budget, would have to take into account any reduced savings arising
from any late budget enactment.
The 1993-94 State Financial Plan issued on April 16, 1993 projected Gen-
eral Fund receipts and transfers from other funds at $32.367 billion and
disbursements and transfers to other funds at $32.300 billion. Excess re-
ceipts of $67 million were to be used for a required repayment to the
State's Tax Stabilization Reserve Fund.
The 1993-94 State Financial Plan was last revised on January 18, 1994 (the
"Revised 1993-94 State Financial Plan"). This update now projects a sur-
plus of $299 million, almost one percent of the General Fund. Positive de-
velopments affecting both receipts and disbursements contributed to this
improved outlook for the current year.
The Revised 1993-94 State Financial Plan is based on a number of assump-
tions and projections. Because it is not possible to predict accurately
the occurrence of all factors that may affect the Revised 1993-94 State
Financial Plan, actual results may differ and have differed materially in
recent years, from projections made at the outset of a fiscal year. There
can be no assurance that the State will not face substantial potential
budget gaps in future years resulting from a significant disparity between
tax revenues projected from a lower recurring receipts base and the spend-
ing required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant ac-
tions to align recurring receipts and disbursements in future fiscal
years.
Recent Financial Results. During its 1989-90, 1990-91 and 1991-92 fiscal
years, the State incurred cash-basis operating deficits, prior to the is-
suance of short-term tax and revenue anticipation notes, owing to lower-
than-projected receipts, which it believes to have been principally the
result of a significant slowdown in the New York and regional economy, and
with respect to the 1989-90 fiscal year, changes in taxpayer behavior
caused by the Federal Tax Reform Act of 1986.
The General Fund is the principal operating fund of the State. It receives
all State income that is not required by law to be deposited in another
fund which for the State's 1993-94 fiscal year, comprises approximately
53% of total projected governmental fund receipts.
General Fund receipts, excluding transfers from other funds, totalled
$28.818 billion in the State's 1991-92 fiscal year (before repayment of
$1.081 billion of deficit notes issued in its 1990-91 fiscal year and be-
fore issuance of $531 million in deficit notes to close the 1991-92 fiscal
year General Fund cash basis operating deficit) and $29.950 billion in the
State's 1992-93 fiscal year (before repayment of $531 million in deficit
notes issued to close the State's 1991-92 fiscal year General Fund cash
basis deficit.) General Fund receipts in the State's 1993-94 fiscal year
are estimated in the Revised 1993-94 State Financial Plan at $30.200 bil-
lion. Taxes account for 96% of estimated 1993-94 and 1994-95 General Fund
receipts, with the balance comprised of miscellaneous receipts.
General Fund disbursements, exclusive of transfers to other funds, to-
talled $28.058 billion in the State's 1991-92 fiscal year and $29.068 bil-
lion in the State's 1992-93 fiscal year and are estimated and recommended
to total $30.421 billion and $31.453 billion in the State's 1993-94 and
1994-95 fiscal years, respectively.
The State's financial position as shown in its Combined Balance Sheet as
of March 31, 1993 included an accumulated deficit in its combined govern-
mental funds of $681 million represented by liabilities of $12.864 billion
and assets of $12.183 billion available to liquidate such liabilities.
Debt Limits and Outstanding Debt. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the
State may not, with limited exceptions for emergencies, undertake long-
term borrowing (i.e., borrowing for more than one year) unless the borrow-
ing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the
amount of long-term debt that may be so authorized and subsequently in-
curred by the State. The total amount of long-term State general obliga-
tion debt authorized but not issued as of December 31, 1993 was approxi-
mately $2.273 billion.
The State may undertake short-term borrowings without voter approval (a)
in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (b) in anticipation of the receipt of pro-
ceeds from the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitu-
tional authorization, directly guarantee certain obligations of the
State's authorities and public benefit corporations ("Authorities"). Pay-
ments of debt service on New York State's general obligation and State-
guaranteed bonds and notes are legally enforceable obligations of the
State.
The State also employs two other types of long-term financing mechanisms
which are State-supported but are not general obligations of the State:
moral obligation and lease-purchase or contractual-obligation financing.
In 1990, as part of a State fiscal reform program, legislation was enacted
creating the New York Local Government Assistance Corporation ("LGAC"), a
public benefit corporation empowered to issue long-term obligations to
fund certain payments to local governments traditionally funded through
New York State's annual seasonal borrowing. The legislation empowered LGAC
to issue its bonds and notes in an amount not in excess of $4.7 billion
(exclusive of certain refunding bonds) plus certain other amounts. Over a
period of years, the issuance of those long-term obligations, which will
be amortized over no more than 30 years, is expected to result in elimi-
nating the need for continuing short-term seasonal borrowing for those
purposes. The legislation also imposed a cap on the annual seasonal bor-
rowing of the State at $4.7 billion, less net proceeds of bonds issued by
LGAC and bonds issued to provide for capitalized interest, except in cases
where the Governor and the legislative leaders have certified both the
need for additional borrowing and a schedule for reducing it to the cap.
If borrowing above the cap is thus permitted in any fiscal year, it is re-
quired by law to be reduced to the cap by the fourth fiscal year after the
limit was first exceeded. As of December 31, 1993, LGAC had issued its
bonds to provide net proceeds of $3.581 billion and has been authorized to
issue its bonds to provide net proceeds of up to an additional $275 mil-
lion during the State's 1993-94 fiscal year. The Governor has recommended
up to $315 million in additional bond issuances in the 1994-95 fiscal
year. In April 1993, legislation was also enacted providing for signifi-
cant changes in the long-term financing practices of the State and the Au-
thorities.
The Legislature passed a proposed constitutional amendment that would per-
mit the State, without a voter referendum but within a formula-based cap,
to issue revenue bonds, which would be debt of the State secured solely by
a pledge of certain State tax receipts (including those allocated to State
funds dedicated for transportation purposes), and not by the full faith
and credit of the State. In addition, the proposed amendment would require
that State debt be incurred only for capital projects included in a multi-
year capital financing plan and would prohibit lease-purchase and
contractual-obligation financing mechanisms for State facilities. Public
hearings have been held on the proposed constitutional amendment. The Gov-
ernor has announced that he intends to submit changes to the proposed con-
stitutional amendment. Before becoming effective, the proposed constitu-
tional amendment must first be passed again by the next separately elected
Legislature and then approved by the voters at a general election, so that
it could not become effective at the earliest until January 1, after the
general election in November 1995.
On March 26, 1990, S&P downgraded the State's (a) general obligation bonds
from "AA-" to "A" and (b) commercial paper from "A-1+" to "A-1." Also
downgraded was certain of the State's variously rated moral obligation,
lease-purchase, guaranteed and contractual-obligation debt, including debt
issued by certain New York State agencies. On August 27, 1990, S&P af-
firmed these ratings without change. On June 6, 1990, Moody's changed its
ratings on all the State's outstanding general obligation bonds from "A1"
to "A." On March 26, 1990, S&P changed its ratings on all the State's out-
standing general obligation bonds from "AA-" to "A." On January 6, 1992,
Moody's lowered from "A" to "Baa1" the ratings on certain appropriation-
backed debt of the State of New York and its agencies. Approximately two-
thirds of the State's tax-supported debt is affected by Moody's rating ac-
tion. Moody's stated that the more secure general obligation, state-
guaranteed and LGAC bonds continue to be rated "A" but are placed under
review for possible downgrade over the coming months. On January 13, 1992,
S&P lowered its rating on $4.8 billion of the State's general obligation
bonds to "A-" from "A." Various agency debt, state moral obligations, con-
tractual obligations, lease-purchase obligations and state guarantees are
also affected by S&P's action. Additionally, under S&P's minimum-rating
approach, New York local school district debt will now carry a minimum
rating of "A-" rather than "A" and school districts currently rated "A"
are placed on CreditWatch with negative implications. In taking these rat-
ing actions, Moody's and S&P variously cited continued economic deteriora-
tion, chronic operating deficits, mounting GAAP fund balance deficits and
the legislative stalemate in seeking permanent and structurally sound fis-
cal operations. On January 15, 1992, S&P took further action by lowering
the rating on the claims-paying ability of the State of New York Mortgage
Agency Mortgage Insurance Fund to "BBB+" from "A-" following the January
13, 1992 downgrade of New York State's general obligation bond rating to
"A-."
The State anticipates that its borrowings for capital purposes in its
1993-94 fiscal year will consist of approximately $456 million in general
obligation bonds. In addition, it is anticipated that the State will issue
$140 million in general obligation bonds for the purpose of redeeming out-
standing bond anticipation notes. The Legislature has also authorized the
issuance of up to $85 million in certificates of participation for equip-
ment purchases and real property purposes during the State's 1993-94 fis-
cal year. The Governor has recommended the issuance of $413 million in
bonds and new commercial paper issuances for capital purposes during the
State's 1994-95 fiscal year. In addition, the State expects to issue $154
million in bonds for the purpose of redeeming outstanding bond anticipa-
tion notes. The Governor has also recommended authorization for the issu-
ance of up to $67.8 million in certificates of participation during the
State's 1994-95 fiscal year for personal property acquisitions. The pro-
jection of the State regarding its borrowings for the 1993-94 and 1994-95
fiscal years may change if circumstances require.
Payments for principal and interest due on general obligation bonds, in-
terest due on bond anticipation notes and on tax and revenue anticipation
notes, and contractual-obligation and lease-purchase commitments were
$1.783 billion and $2.045 billion in the aggregate, for New York State's
1991-92 and 1992-93 fiscal years, respectively, and are estimated and rec-
ommended to be $2.167 billion and $2.459 billion for the State's 1993-94
and 1994-95 fiscal years, respectively. These figures do not include in-
terest payable on either State General Obligation Refunding Bonds issued
on July 30, 1992, to the extent that such interest is to be paid from an
escrow fund established with the proceeds of such bonds or New York
State's installment payments relating to the issuance of certificates of
participation.
New York State has never defaulted on any of its general obligation in-
debtedness or its obligations under lease-purchase or contractual-
obligation financing arrangements and has never been called upon to make
any direct payments pursuant to its guarantees. There has never been a de-
fault on any moral obligation debt of any Authority.
Litigation. Certain litigation pending against the State or its officers
or employees could have a substantial or long-term adverse effect on New
York State finances. Among the more significant of these cases are those
that involve (a) the validity of agreements and treaties by which various
Indian tribes transferred title to the State of certain land in central
and upstate New York; (b) certain aspects of New York State's Medicaid
policies and its rates and regulations, including reimbursements to pro-
viders of mandatory and optional Medicaid services; (c) contamination in
the Love Canal area of Niagara Falls; (d) an action against the State and
City officials alleging inadequate shelter allowances to maintain proper
housing; (e) challenges to the practice of reimbursing certain Office of
Mental Health patient care expenses from the client's Social Security ben-
efits; (f) alleged responsibility of the State's officials to assist in
remedying racial segregation in the City of Yonkers; (g) a challenge to
the methods by which the State reimburses localities for the administra-
tive costs of food stamp programs; (h) an action in which the State is a
third party defendant, for injunctive or other appropriate relief, con-
cerning liability for the maintenance of stone groins constructed along
certain areas of Long Island's shoreline; (i) action by school districts
and their employees challenging the constitutionality of Chapter 175 of
the Laws of 1990 which deferred school district contributions to the pub-
lic retirement system and reduced by like amount state aid to the school
districts; (j) challenges to portions of Public Health Law, which imposed
a 13% surcharge on inpatient hospital bills paid by commercial insurers
and employee welfare benefit plans and portions of Chapter 55 of the Laws
of 1992 requiring hospitals to impose and remit to the State an 11% sur-
charge on hospital bills paid by commercial insurers, and which required
health maintenance organizations to remit to the State a surcharge of up
to 9%; and (k) a challenge to provisions of the Public Health Law and im-
plementing regulations that imposed a bad debt and charity care allowance
on all hospital bills and a 13% surcharge on inpatient bills paid by em-
ployee welfare benefit plans.
A number of cases have also been instituted against the State challenging
the constitutionality of various public authority financing programs.
In a proceeding commenced on August 6, 1991 (Schulz, et al. v. State of
New York, et al., Supreme Court, Albany County), petitioners challenge the
constitutionality of two bonding programs of the New York State Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991. In addi-
tion, petitioners challenge the fiscal year 1991-92 judiciary budget as
having been enacted in violation of Sections 1 and 2 of Article VII of the
State Constitution. The defendants' motion to dismiss the action on proce-
dural grounds was denied by order of the Supreme Court dated January 2,
1992. By order dated November 5, 1992, the Appellate Division, Third De-
partment, reversed the order of the Supreme Court and granted defendants'
motion to dismiss on grounds of standing and mootness. By order dated Sep-
tember 16, 1993, on motion to reconsider, the Appellate Division, Third
Department, ruled that plaintiffs have standing to challenge the bonding
program authorized by Chapter 166 of the laws of 1991. The proceeding is
presently pending in Supreme Court, Albany County.
In Schulz, et al. v. State of New York, et al., commenced May 24, 1993,
Supreme Court, Albany County, petitioners challenge, among other things,
the constitutionality of, and seek to enjoin certain highway, bridge and
mass transportation bonding programs of the New York State Thruway Author-
ity and the Metropolitan Transportation Authority authorized by Chapter 56
of the Laws of 1993. Petitioners contend that the application of State tax
receipts held in dedicated transportation funds to pay debt service on
bonds of the Thruway Authority and of the Metropolitan Transportation Au-
thority violates Sections 8 and 11 of Article VII and Section 5 of Article
X of the State Constitution and due process provisions of the State and
Federal Constitutions. By order dated July 27, 1993, the Supreme Court
granted defendants' motions for summary judgment, dismissed the complaint,
and vacated the temporary restraining order previously issued. By decision
dated October 21, 1993, the Appellate Division, Third Department, affirmed
the judgment of the Supreme Court. Plaintiffs' appeal of the decision of
the Appellate Division is pending in the Court of Appeals.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding meth-
ods for determining state and local contributions to state employee re-
tirement systems have been decided against the State. The U.S. Supreme
Court's decision in a case challenging the State's possession of certain
property taken pursuant to the State's Abandoned Property Law may result
in the State having to make certain significant payments during the 1993-
94 fiscal year or thereafter.
The legal proceedings noted above involve State finances, State programs
and miscellaneous tort, real property and contract claims in which the
State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the
State in the 1993-94 and 1994-95 fiscal years or thereafter. Adverse de-
velopments in these proceedings or the initiation of new proceedings could
affect the ability of the State to maintain a balanced Revised 1993-94
State Financial Plan. An adverse decision in any of these proceedings
could exceed the amount of the Revised 1993-94 State Financial Plan re-
serve for the payment of judgments and, therefore, could affect the abil-
ity of the State to maintain a balanced Revised 1993-94 State Financial
Plan. In its audited financial statements for the 1992-93 fiscal year, the
State reported its estimated liability for awarded and anticipated unfa-
vorable judgments to be $721 million.
Although other litigation is pending against the State, except as de-
scribed above, no current litigation involves the State's authority, as a
matter of law, to contract indebtedness, issue its obligations, or pay
such indebtedness when it matures, or affects the State's power or abil-
ity, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
Authorities. The fiscal stability of the State is related to the fiscal
stability of its Authorities, which generally have responsibility for fi-
nancing, constructing and operating revenue-producing public benefit fa-
cilities. Authorities are not subject to the constitutional restrictions
on the incurrence of debt which apply to the State itself, and may issue
bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. As of September 30, 1993, the latest data
available, there were 18 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding
bonds, of these 18 Authorities was $63.5 billion as of September 30, 1993,
of which approximately $7.7 billion was moral obligation debt and approxi-
mately $19.3 billion was financed under lease-purchase or contractual-
obligation financing arrangements.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls
and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the 18 Authorities for operat-
ing and other expenses and, in fulfillment of its commitments on moral ob-
ligation indebtedness or otherwise, for debt service. This operating as-
sistance is expected to continue to be required in future years. The State
provided $947.4 million and $955.5 million in financial assistance to the
18 Authorities during the State's 1991-92 and 1992-93 fiscal years, re-
spectively, and expects to provide approximately $1,171.3 million and
$1,387.8 million in financial assistance to these Authorities in its 1993-
94 and 1994-95 fiscal years, respectively. The amounts set forth above ex-
clude, however, amounts provided for capital construction and pursuant to
lease-purchase or contractual-obligation (including service contract debt)
financing arrangements.
Experience has shown that if an Authority suffers serious financial diffi-
culties, both the ability of the State and the Authorities to obtain fi-
nancing in the public credit markets and the market price of the State's
outstanding bonds and notes may be adversely affected. The Housing Finance
Agency and the Urban Development Corporation have in the past required
substantial amounts of assistance from the State to meet debt service
costs or to pay operating expenses. Further assistance, possibly in in-
creasing amounts, may be required for these, or other, Authorities in the
future. In addition, certain statutory arrangements provide for State
local assistance payments otherwise payable to localities to be made under
certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance pay-
ments have been paid to Authorities under these arrangements. However, in
the event that such local assistance payments are so diverted, the af-
fected localities could seek additional State funds.
New York City and Other Localities. The fiscal health of the State is
closely related to the fiscal health of its localities, particularly the
City of New York, which has required and continues to require significant
financial assistance from the State. The City's independently audited op-
erating results for each of its 1981 through 1993 fiscal years, which end
on June 30, show a General Fund surplus reported in accordance with GAAP.
In addition, the City's financial statements for the 1993 fiscal year re-
ceived an unqualified opinion from the City's independent auditors, the
eleventh consecutive year the City has received such an opinion.
In 1975, the City suffered a fiscal crisis that impaired the borrowing
ability of both the City and the State. In that year the City lost access
to public credit markets. The City was not able to sell short-term notes
to the public again until 1979.
On February 11, 1991, Moody's lowered its rating on the City's general ob-
ligation bonds to "Baa1" from "A." Moody's expressed doubts about whether
the City's January 16, 1991 financial plan presented a "reasonable program
to achieve budget balance in fiscal 1991 and 1992 and assure long-term
structural integrity." Moody's stated "the enormity of the current prob-
lem, the severity of required expenditure cuts, the substantial revenue
enhancements that will be required to achieve balance, the vulnerability
to exogenous factors, and the extremely short time frame within which all
this must be accomplished introduce substantial new risk to the City's
short- and long-term credit outlook." On April 29, 1991, S&P downgraded
the City's outstanding $1.3 billion of general obligation revenue and an-
ticipation notes from "SP-1" to "SP-2." S&P also announced a rating of
"SP-2" for the City's offering of $1.25 billion of general obligation rev-
enue anticipation notes. The lower ratings of S&P "reflect the City's ag-
gravated short-term cash position for fiscal 1991, the unusually high
level of total revenue anticipation note exposure resulting from the
State's delay in passing its budget and distributing fiscal aid, and con-
tinued pressure on revenues and expenditures due to prevailing economic
conditions." On April 30, 1991, Moody's assigned a rating of "MIG-2" to
the same offering of $1.25 billion of general obligation revenue anticipa-
tion notes. Moody's stated that "although an increasingly strained finan-
cial outlook for both the City and the State complicates the State budget
adoption process, this rating on revenue anticipation notes relies explic-
itly on the expectation that the State is fully cognizant of the conse-
quences of further untimely delays in state budget adoption and will act
responsibly. Failure of the State to find a timely resolution to the bud-
get process will have severe implications for the normal financial perfor-
mance of the City and other local governments in the State." On October 7,
1991, Moody's again assigned a "MIG-2" rating to the City's $1.25 billion
of revenue anticipation notes, fiscal 1992, Series A.
Moody's stated in its January 6, 1992 downgrade of certain State obliga-
tions that while such action did not directly affect the bond ratings of
local governments in the State, the impact of the State's fiscal strin-
gency on local government bond ratings will be assessed on a case-by-case
basis. On June 22, 1992, Moody's gave its "MIG-1" rating to the City's
$1.4 billion revenue anticipation notes and tax anticipation notes citing
the City's "markedly improved" short-term credit position.
On July 6, 1993, S&P reaffirmed the City's "A-" rating on $20.4 billion of
general obligation bonds stating that "[t]he City has identified addi-
tional gap-closing measures that have recurring value and will reduce next
year's budget gap . . . by approximately $400 million." Officials at
Moody's also indicated that there were no plans to alter its "Baa1" rating
on the City's general obligation bonds.
The City is heavily dependent on State and Federal assistance to cover in-
sufficiencies in its revenues. There can be no assurance that in the fu-
ture Federal and State assistance will enable the City to make up its bud-
get deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975.
MAC is authorized to issue bonds and notes payable from certain stock
transfer tax revenues, from the City's portion of the State sales tax de-
rived in the City and from State per capita aid otherwise payable by the
State to the City. Failure by the State to continue the imposition of such
taxes, the reduction of the rate of such taxes to rates less than those in
effect on July 2, 1975, failure by the State to pay such aid revenues and
the reduction of such aid revenues below a specified level are included
among the events of default in the resolutions authorizing MAC's long-term
debt. The occurrence of an event of default may result in the acceleration
of the maturity of all or a portion of MAC's debt. As of September 30,
1993, MAC had outstanding an aggregate of approximately $5.304 billion of
its bonds. MAC bonds and notes constitute general obligations of MAC and
do not constitute an enforceable obligation or debt of either the State or
the City. Under its enabling legislation, MAC's authority to issue bonds
and notes (other than refunding bonds and notes) expired on December 31,
1984. Legislation has been passed by the legislature which would, under
certain conditions, permit MAC to issue up to $1.465 billion of additional
bonds, which are not subject to a moral obligation provision.
Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited
by independent accounting firms. To be eligible for guarantees and assis-
tance, the City is required during a "control period" to submit annually
for Control Board approval, and when a control period is not in effect for
Control Board review, a financial plan for the next four fiscal years cov-
ering the City and certain agencies showing balanced budgets determined in
accordance with GAAP. The State also established the Office of the State
Deputy Comptroller for New York City ("OSDC") to assist the Control Board
in exercising its powers and responsibilities. On June 30, 1986, the City
satisfied the statutory requirements for termination of the control pe-
riod. This means that the Control Board's powers of approval are sus-
pended, but the Board continues to have oversight responsibilities.
On November 23, 1993, the City adopted and submitted to the Control Board
a modification to its 1994-1997 Financial Plan (the "November Modifica-
tion") incorporating various re-estimates of revenues and expenditures.
For fiscal year 1994, the November Modification includes additional re-
sources stemming primarily from the City comptroller's fiscal year 1993
annual audit, savings from a reduction in prior years' accrued expendi-
tures, and higher State and federal aid resulting from claims by the City
for reimbursement of various social services costs. These resources were
used to fund new needs in the November Modification including higher costs
in the uniformed agencies, at the Board of Education ("BOE") and for cer-
tain social services, the unlikelihood of the sale of certain City assets,
and lower estimates of miscellaneous and other revenues. After taking
these adjustments into account, the November Modification projected a bal-
anced budget for fiscal year 1994, based upon revenues of $31.585 billion.
For fiscal years 1995, 1996 and 1997, the November Modification projected
budget gaps of $1.730 billion, $2,513 billion and $2.699 billion, respec-
tively. These gaps are higher by about $450 million in fiscal year 1995
and by about $700 million in each of fiscal years 1996 and 1997 than in
the 1994-97 Financial Plan, primarily on account of the non-recurring
value of the fiscal year 1994 revenue adjustments, the loss of certain
one-time resources funding BOE fiscal year 1994 spending needs, and the
reclassification of anticipated State aid from the baseline revenue esti-
mates to the gap-closing program. To offset these larger gaps, the Novem-
ber Modification relies on additional City, State and other actions.
On December 21, 1993, the staff of the Control Board issued its report on
the November Modification. The report stated that the plan was now more
realistic in terms of the gaps it portrayed and the solutions it offered.
However, the solutions were mostly limited to fiscal year 1994 while the
gap for fiscal year 1995 had been increased by $450 million. Beginning in
fiscal year 1995, budget gaps will average over $2 billion annually.
Therefore, the staff recommended that prompt action to replace many
current-year one-shots with recurring savings was critical. The staff ad-
vocated a vigorous and effective strategy to restructure revenues and ex-
penditures, accompanied by a convincingly detailed plan of implementation.
The report focused attention on the need for the City to closely examine
its capital spending priorities, including appropriate funding for ongoing
maintenance, implementation of a stretch-out of capital commitments, and
development of a written debt policy. In addition, the report noted that
administrative other-than-personal-service expenditures have not shared in
past spending reduction and must begin to do so, and that the City must
assemble a coherent labor policy that integrates productivity initiatives
with wage increases and headcount reductions. The report concluded that
actions taken in the next few months are critical to reverse the expansion
that has occurred since the fiscal year 1994 budget was adopted.
On December 1, 1993, a three-member panel appointed by then Mayor David
Dinkins to address the City's structural budget imbalance released a re-
port setting forth its findings and recommendations. In its report, the
panel noted that budget imbalance is likely to be greater than the City
now projects by $255 million in fiscal year 1995, rising to nearly $1.5
billion in fiscal year 1997. The report provided a number of options that
the City should consider in addressing the structural balance issue such
as severe cuts in City-funded personnel levels, increases in residential
property taxes and the sales tax, and the imposition of bridge tolls and
solid waste collection fees. The report also noted that additional State
action will be required in many instances to allow the City to cut its
budget without grave damage to basic services.
OSDC issued a report on the City's economy on November 23, 1993. The re-
port concluded that the four-year old recession in New York City was end-
ing, and that Wall Street industries were leading the turn-around with in-
creased levels of activity, profits, compensation and employment. The re-
port indicated that the slow process of ending the local recession has
been influenced by the slow rate of expansion in the nation and the reces-
sions in Europe and Japan, which have hurt the City's key export indus-
tries of finance, advertising, communications, law and medicine. However,
the report noted that improvements are now evident in these areas. In ad-
dition, the report noted that the local rate of inflation has dropped
below that of the nation, leasing activity for primary office space has
increased, the rate of decline in retail sales has slowed and unemploy-
ment, while still high, has declined two percentage points over the last
year. The report projected that overall employment levels in the City's
private sector industries would be higher by early 1994. However, it also
indicated that the recovery in the local economy would likely be a slow
process, in many ways mirroring the recent experience on the national
level.
Estimates of the City's revenues and expenditures are based on numerous
assumptions and are subject to various uncertainties. If expected federal
or State aid is not forthcoming, if unforeseen developments in the economy
significantly reduce revenues derived from economically sensitive taxes or
necessitate increased expenditures for public assistance, if the City
should negotiate wage increases for its employees greater than the amounts
provided for in the City's financial plan or if other uncertainties mate-
rialize that reduce expected revenues or increase projected expenditures,
then, to avoid operating deficits, the City may be required to implement
additional actions, including increases in taxes and reductions in essen-
tial City services. The City might also seek additional assistance from
New York State.
The City requires certain amounts of financing for seasonal and capital
spending purposes. The City has issued $1.75 billion of notes for seasonal
financing purposes during its 1994 fiscal year. The City's capital financ-
ing program projects long-term financing requirements of approximately
$18.5 billion for the City's fiscal years 1994 through 1997 and other
fixed assets. The major capital requirements include expenditures for the
City's water supply and sewage disposal systems, roads, bridges, mass
transit, schools, hospitals and housing. In addition to financing for new
purposes, the City and the New York City Municipal Water Finance Authority
have issued refunding bonds totalling $1.5 billion in fiscal year 1994.
Certain localities, in addition to the City, could have financial problems
leading to requests for additional State assistance during the State's
1993-94 and 1994-95 fiscal years and thereafter. The potential impact on
the State of such requests by localities is not included in the projec-
tions of the State receipts and disbursements in the State's 1993-94 and
1994-95 fiscal years.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") re-
sulted in the creation of the Financial Control Board for the City of Yon-
kers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions
taken by the Governor or the Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1992, the total indebtedness of all locali-
ties in the State was approximately $35.2 billion, of which $19.5 billion
was debt of the City (excluding $5.9 billion in MAC debt); a small portion
(approximately $71.6 million) of the $35.2 billion of indebtedness repre-
sented borrowing to finance budgetary deficits and was issued pursuant to
enabling State legislation. State law requires the comptroller to review
and make recommendations concerning the budgets of those local government
units other than the City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Seventeen localities had outstanding indebtedness for deficit financing at
the close of their fiscal year ending in 1992.
In 1992, an unusually large number of local government units requested au-
thorization for deficit financings. According to the State's comptroller,
ten local government units were authorized to issue deficit financing in
the aggregate amount of $131.1 million. The current session of the Legis-
lature may receive as many or more requests for deficit-financing authori-
zations as a result of deficits previously incurred by local governments.
Although the comptroller has indicated that the level of deficit financing
requests is unprecedented, such developments are not expected to have a
material adverse effect on the financial condition of the State.
Certain proposed Federal expenditure reductions would reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the Authorities were to suf-
fer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. The longer-
range problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require in-
creasing State assistance.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the Prospec-
tus applies to purchases made by any "purchaser," which is defined to in-
clude the following: (a) an individual; (b) an individual's spouse and his
or her children purchasing shares for their own account; (c) a trustee or
other fiduciary purchasing shares for a single trust estate or single fi-
duciary account; (d) a pension, profit-sharing or other employee benefit
plan qualified under Section 401(a) of the Code and qualified employee
benefit plans of employers who are "affiliated persons" of each other
within the meaning of the 1940 Act; (e) tax-exempt organizations enumer-
ated in Section 501(c) (3) or (13) of the Code; and (f) a trustee or other
professional fiduciary (including a bank, or an investment adviser regis-
tered with the SEC under the Investment Advisers Act of 1940, as amended)
purchasing shares of the Fund for one or more trust estates or fiduciary
accounts. Purchasers who wish to combine purchase orders to take advantage
of volume discounts on Class A shares should contact a Smith Barney Finan-
cial Consultant.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in
Class A shares of the Fund and in Class A shares of other funds of the
Smith Barney Mutual Funds that are offered with an initial sales charge,
including the purchase being made, of any "purchaser" is $25,000 or more.
The reduced sales charge is subject to confirmation of the shareholder's
holdings through a check of appropriate records. The Fund reserves the
right to terminate or amend the combined right of accumulation at any time
after notice to shareholders. For further information regarding the right
of accumulation, shareholders should contact a Smith Barney Financial Con-
sultant.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The public
offering price for Class A and Class Y shares of the Fund is equal to the
net asset value per share at the time of purchase plus, for Class A
shares, an initial sales charge based on the aggregate amount of the in-
vestment. The public offering price for Class B, Class C shares (and Class
A share purchases, including applicable rights of accumulation, equalling
or exceeding $500,000), is equal to the net asset value per share at the
time of purchase and no sales charge is imposed at the time of purchase. A
contingent deferred sales charge ("CDSC"), however, is imposed on certain
redemptions of Class B, Class C shares, and Class A shares when purchased
in amounts exceeding $500,000. The method of computing the public offering
price is shown in the Fund's financial statements, which are incorporated
by reference into this Statement of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed
(a) for any period during which the New York Stock Exchange, Inc. ("NYSE")
is closed (other than for customary weekend or holiday closings), (b) when
trading in the markets that the Fund normally utilizes is restricted, or
an emergency exists, as determined by the SEC, so that disposal of the
Fund's investments or determination of net asset value is not reasonably
practicable or (c) for such other periods as the SEC by order may permit
for protection of the Fund's shareholders.
DISTRIBUTION IN KIND
If the Fund's Board of Directors determines that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make a
redemption payment wholly in cash, the Fund may pay, in accordance with
rules adopted by the SEC, any portion of a redemption in excess of the
lesser of $250,000 or 1% of the Fund's net assets by a distribution in
kind of portfolio securities in lieu of cash. Portfolio securities issued
in a distribution in kind will be readily marketable, although sharehold-
ers receiving distributions in kind may incur brokerage commissions when
subsequently disposing of those securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 and who wish
to receive specific amounts of cash monthly or quarterly. Withdrawals of
at least $100 may be made under the Withdrawal Plan by redeeming as many
shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. Any applicable CDSC will not be waived on amounts withdrawn by
shareholders that exceed 1.00% per month of the value of a shareholder's
shares at the time the Withdrawal Plan commences. (With respect to With-
drawal Plans in effect prior to November 7, 1994, any applicable CDSC will
be waived on amounts withdrawn that do not exceed 2.00% per month of the
value of a shareholders shares at the time the Withdrawal Plan commences.)
To the extent withdrawals exceed dividends, distributions and appreciation
of a shareholder's investment in the Fund, there will be a reduction in
the value of the shareholder's investment, and continued withdrawal pay-
ments will reduce the shareholder's investment and may ultimately exhaust
it. Withdrawal payments should not be considered as income from investment
in the Fund. Furthermore, as it generally would not be advantageous to a
shareholder to make additional investments in the Fund at the same time he
or she is participating in the Withdrawal Plan, purchases by such share-
holder in amounts of less than $5,000 ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates
with TSSG as agent for Withdrawal Plan members. All dividends and distri-
butions on shares in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund. For additional informa-
tion, shareholders should contact a Smith Barney Financial Consultant.
Effective November 7, 1994, Withdrawal Plans should be set up with a Smith
Barney Financial Consultant. A shareholder who purchases shares directly
through TSSG may continue to do so and applications for participation in
the Withdrawal Plan must be received by TSSG no later than the eighth day
of the month to be eligible for participation beginning with that month's
withdrawals.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best efforts basis pur-
suant to a written agreement dated July 30, 1993 (the "Distribution Agree-
ment"). For the 1991, 1992 and 1993 fiscal years, Smith Barney or its pre-
decessor Shearson Lehman Brothers received $1,589,566, $2,199,014 and
$5,438,327, respectively, in sales charges from the sale of Fund's Class A
shares, and did not reallow any portion thereof to dealers.
When payment is made by the investor, unless otherwise noted by the inves-
tor, the funds will be held as a free credit balance in the investor's
brokerage account, and Smith Barney may benefit from the temporary use of
the funds. The investor may designate another use for the funds prior to
settlement date, such as an investment in an Exchange Reserve Fund of the
Smith Barney Mutual Funds. If the investor instructs Smith Barney to in-
vest the funds in a money market fund of the Smith Barney Mutual Funds,
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 which serve the funds in an investment advisory or adminis-
trative capacity will benefit by receiving investment management fees from
both such investment companies, 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.
DISTRIBUTION ARRANGEMENTS
To compensate Smith Barney for the services it provides and for the ex-
pense 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 Smith Barney a service fee,
accrued daily and paid monthly, calculated at the annual rate of 0.15% of
the value of the Fund's average daily net assets attributable to Class A,
Class B and Class C shares. In addition, Class B and Class C shares pay
distribution fees primarily intended to compensate Smith Barney for its
initial expense of paying its Financial Consultants a commission upon
sales of the respective shares. The Class B distribution fee is calculated
at the annual rate of 0.50% of the value of the Fund's average net assets
attributable to the shares of the Class. The Class C distribution fee is
calculated at the annual rate of 0.55% of the value of the Fund's average
net assets attributable to the shares of the Class. For the period from
November 6, 1992 through December 31, 1992, the Class A and Class B shares
incurred $118,993 and $2,039, respectively, in service fees. For the same
period, the Class B shares incurred $6,798 in distribution fees. For the
fiscal year ended December 31, 1993, the Class A and Class B shares in-
curred $848,117 and $122,937, respectively in service fees. For the same
period the Class B shares incurred $409,790 in distribution fees.
Under its terms, the Plan continues from year to year, provided such con-
tinuance is approved annually by vote of the Board of Directors, including
a majority of the Directors who are not interested persons of the Fund and
who have no direct or indirect financial interest in the operation of the
Plan or in the Distribution Agreement (the "Independent Directors"). The
Plan may not be amended to increase the amount of the service and distri-
bution fees without shareholder approval, and all amendments of the Plan
also must be approved by the Directors and the Independent Directors in
the manner described above. The Plan may be terminated at any time with
respect to a Class, without penalty, by vote of a majority of the Indepen-
dent Directors or by vote of a majority of the outstanding voting securi-
ties of the Class (as defined in the 1940 Act). Pursuant to the Plan,
Smith Barney will provide the Board of Directors with periodic reports of
amounts expended under the Plan and the purpose for which such expendi-
tures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE cur-
rently is scheduled to be closed on New Year's Day, President's 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 de-
scription of the procedures used by the Fund in valuing its assets.
The valuation of the Fund's assets is made by Boston Advisors after con-
sultation with an independent pricing service (the "Service") approved by
the Board of Directors. When, in the judgment of the Service, quoted bid
prices for investments are readily available and are representative of the
bid side of the market, these investments are valued at the mean between
the quoted bid prices and asked prices. Investments for which, in the
judgment of the Service, there is no readily obtainable market quotation
(which may constitute a majority of the portfolio securities) are carried
at fair value as determined by the Service. For the most part, such in-
vestments are liquid and may be readily sold. The Service may employ elec-
tronic data processing techniques and/or a matrix system to determine val-
uations. The procedures of the Service are reviewed periodically by the
officers of the Fund under the general supervision and responsibility of
the Board of Directors, which may replace any such Service at any time if
it determines it to be in the best interests of the Fund to do so.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any Fund of the Smith Barney Mutual
Funds may exchange all or part of their shares for shares of the same
Class of other funds of the Smith Barney Mutual Funds, to the extent such
shares are offered for sale in the shareholder's state of residence, on
the basis of relative net asset value per share at the time of exchange as
follows:
A. Class A shares of any Fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds and the sales
charge differential, if any, will be applied. Class A shares of any
Fund may be exchanged without a sales charge for shares of the funds
that are offered without a sales charge. Class A shares of any Fund
purchased without a sales charge may be exchanged for shares sold with
a sales charge, and the appropriate sales charge differential will be
applied.
B. Class A shares of any Fund acquired by a previous exchange of
shares purchased with a sales charge may be exchanged for Class A
shares of any of the other funds, and the sales charge differential,
if any, will be applied.
C. Class B shares of any Fund may be exchanged without a sales
charge. Class B shares of the Fund exchanged for Class B shares of an-
other Fund will be subject to the higher applicable CDSC of the two
funds and, for purposes of calculating CDSC rates and conversion peri-
ods, will be deemed to have been held since the date the shares being
exchanged were deemed to be purchased.
Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney High Income Fund and the ac-
count number in order to accomplish an exchange of shares of the Smith
Barney High Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
Class in a Fund with different investment objectives when they believe
that a shift between funds is an appropriate investment decision. Prior to
any exchange, the shareholder should obtain and review a copy of the cur-
rent prospectus of each Fund into which an exchange is being considered.
Prospectuses may be obtained from a Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting docu-
ments, shares submitted for exchange are redeemed at the then-current net
asset value and, subject to any applicable CDSC, the proceeds are immedi-
ately invested, at a price as described above, in shares of the Fund being
acquired. Smith Barney reserves the right to reject any exchange request.
The exchange privilege may be modified or terminated at any time after
written notice to shareholders.
PERFORMANCE DATA
From time to time, the Fund may quote yield or total return of a Class in
advertisements or in reports and other communications to shareholders. The
Fund may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include the
following industry and financial publications: Barron's, Business Week,
CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune, Insti-
tutional Investor, Investors Daily, Money, Morningstar Mutual Fund Values,
The New York Times, USA Today and The Wall Street Journal. To the extent
any advertisement or sales literature of the Fund describes the expenses
or performance of any Class, it will also disclose such information for
the other Classes.
YIELD
A Class' 30-day yield figure described below is calculated according to a
formula prescribed by the SEC. The formula can be expressed as follows:
YIELD =2 [ ( a-bcd +1)6--1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the pe-
riod that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by the Fund at a discount
or premium, the formula generally calls for amortization of the discount
or premium; the amortization schedule will be adjusted monthly to reflect
changes in the market values of the debt obligations.
The Fund's equivalent taxable 30-day yield for a Class is computed by di-
viding that portion of the Class' 30-day yield which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if
any, of the Class' yield that is not tax-exempt.
The Fund's Class B yield for the 30-day period ended December 31, 1993 was
4.05%. The tax equivalent yield for Class B shares for this period was
6.65% assuming the payment of Federal income taxes at a rate of 31% and
New York state and city taxes at a combined rate of 11.785%.
The yield on municipal securities is dependent upon a variety of factors,
including general economic and monetary conditions, conditions of the mu-
nicipal securities market, size of a particular offering, maturity of the
obligation offered and rating of the issue. Investors should recognize
that, in periods of declining interest rates, the Fund's yield for each
Class of shares will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates the Fund's yield for each
Class of shares will tend to be somewhat lower. In addition, when interest
rates are falling, the inflow of net new money to the Fund from the con-
tinuous sale of its shares will likely be invested in portfolio instru-
ments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the current yield of the Fund. In periods of rising in-
terest rates, the opposite can be expected to occur.
The Fund's yield for Class A shares for the 30-day period ended December
31, 1993 was 4.44%. The equivalent taxable yield for Class A shares for
the same period was 7.29% assuming the payment of Federal income taxes at
a rate of 31% and a combined New York state and city tax rate of 11.785%.
AVERAGE ANNUAL TOTAL RETURN
"Average annual total return" figures, as described below, are computed
according to a formula prescribed by the SEC. The formula can be expressed
as follows:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5- or 10-year period at the
end of the 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and distri-
butions.
The Fund's average annual total return for Class B shares assuming the
maximum applicable CDSC was as follows for the periods indicated:
5.83% per annum for the one-year period beginning January 1, 1993 through
December 31, 1993.
7.60% per annum during the period from commencement, November 6, 1992
through December 31, 1993.
AGGREGATE TOTAL RETURN
Aggregate total return figures, as described below, represent the cumula-
tive change in the value of an investment in the Class for the specified
period and are computed by the following formula:
ERV-P P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000 invest-
ment made at the beginning of a 1-, 5- or 10-year period at
the end of the 1-, 5- or 10-year period (or fractional por-
tion thereof), assuming reinvestment of all dividends and
distributions.
The aggregate total returns for Class A shares were as follows for the pe-
riods indicated:
10.93% for the one-year period beginning January 1, 1993 through December
31, 1993;
57.73% for the five-year period beginning December 31, 1989 through De-
cember 31, 1993;
164.62% for the period from commencement of operations (January 23, 1984)
through December 31, 1994.
These aggregate total return figures do not assume that the maximum 4.0%
sales charge has been deducted from the investment at the time of pur-
chase. If the sales charge had been deducted at the time of purchase, the
aggregate total return for its Class A shares for those same periods would
have been 6.50%, 51.42% and 154.04%, respectively. The total return fig-
ures have been restated to show the change in the maximum sales charge.
The Fund's aggregate total return for Class B shares was as follows for
the periods indicated:
10.33% for the one year period beginning January 1, 1993 through December
31, 1993.
12.79% for the period from November 6, 1992 through December 31, 1993.
These figures do not assume that the maximum 4.50% CDSC assessed by the
Fund has been deducted from the investment at the time of purchase. If the
maximum CDSC had been deducted at the time of purchase, the Fund's aggre-
gate total return for the same periods would have been 5.83% and 8.79%,
respectively.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future per-
formance. Each Class' net investment income changes in response to fluctu-
ation in interest rates and the expenses of the Fund.
Performance will vary from time to time depending upon market conditions,
the composition of the Fund's portfolio and operating expenses and the ex-
penses exclusively attributable to the Class. Consequently, any given per-
formance quotation should not be considered representative of the Class'
performance for any specified period in the future. Because performance
will vary, it may not provide a basis for comparing an investment in the
Class with certain bank deposits or other investments that pay a fixed
yield for a stated period of time. Investors comparing a Class' perfor-
mance with that of other mutual funds should give consideration to the
quality and maturity of the respective investment company's portfolio se-
curities.
TAXES
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 and exempt from New York State and New York
City personal income taxes. The Fund is not intended to constitute a bal-
anced investment program and is not designed for investors seeking capital
gains or maximum tax-exempt income irrespective of fluctuations in princi-
pal. Investment in the Fund would not be suitable for tax-exempt institu-
tions, 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 following is a summary of selected Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended
as a substitute for individual tax advice and investors are urged to con-
sult their own tax advisors as to the tax consequences of an investment in
the Fund.
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) is
a regulated investment company and (b) distributes at least 90% of its
taxable net investment income (including, for this purpose, its net real-
ized short-term capital gains) and 90% of its tax-exempt interest income
(reduced by certain expenses), the Fund will not be liable for Federal in-
come taxes to the extent its taxable net investment income and its net re-
alized long- and short-term capital gains, if any, are distributed to its
shareholders. Any such taxes paid by the Fund would reduce the amount of
income and gains available for distribution to shareholders.
Because the Fund will distribute exempt-interest dividends, interest on
indebtedness incurred by a shareholder to purchase or carry Fund shares is
not deductible for Federal income and New York State and New York City
personal income tax purposes. If a shareholder receives exempt-interest
dividends with respect to any share and if such share is held by the
shareholder for six months or less, then any loss on the sale or exchange
of such share may, to the extent of such exempt-interest dividends, be
disallowed. In addition, the Code may require a shareholder, if he or she
receives exempt-interest dividends, to treat as Federal taxable income a
portion of certain otherwise non-taxable social security and railroad re-
tirement benefit payments. Furthermore, that portion of any exempt-
interest dividend paid by the Fund which represents income derived from
private activity bonds held by the Fund may not retain its tax-exempt sta-
tus in the hands of a shareholder who is a "substantial user" of a facil-
ity financed by such bonds, or a "related person" thereof. Moreover, as
noted in the Fund's Prospectus, (a) some or all of the Fund's dividends
may be a specific preference item, or a component of an adjustment item,
for purposes of the Federal individual and corporate alternative minimum
taxes and (b) the receipt of Fund dividends and distributions may affect a
corporate shareholder's Federal "environmental" tax liability. In addi-
tion, 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 advi-
sors as to whether they are (a) substantial users with respect to a facil-
ity or related to such users within the meaning of the Code or (b) subject
to a Federal alternative minimum tax, the Federal environmental tax, the
Federal branch profits tax or the Federal "excess net passive income" tax.
As described above and in the Fund's Prospectus, the Fund may invest in
municipal bond index futures and financial futures contracts and options
on interest rate futures and financial futures contracts. The Fund antici-
pates that these investment activities will not prevent the Fund from
qualifying as a regulated investment company, however, in order to con-
tinue to qualify as a regulated investment company, the Fund might have to
limit its investments in futures contracts and options on futures con-
tracts. As a general rule, these investment activities will increase or
decrease the amount of long-term and short-term capital gains or losses
realized by the Fund and, accordingly, will affect the amount of capital
gains distributed to the Fund's shareholders.
For Federal income tax purposes, gain or loss on the futures contracts and
options described above (collectively referred to as "section 1256 con-
tracts") is taxed pursuant to a special "mark-to-market" system. Under the
mark-to-market system, these instruments are treated as if sold at the
Fund's fiscal year and for their fair market value. As a result, the Fund
may be treated as realizing a greater or lesser amount of gains or losses
than actually realized. As a general rule, gain or loss on section 1256
contracts is treated as 60% long-term capital gain or loss and 40% short-
term capital gain or loss, and, accordingly, the mark-to-market system
generally will affect the amount of capital gains or losses taxable to the
Fund and the amount of distributions taxable to a shareholder. Moreover,
if the Fund invests in both section 1256 contracts and offsetting posi-
tions, which together constitute a straddle, then the Fund may be required
to defer certain realized losses. The Fund expects that its activities
with respect to section 1256 contracts and offsetting positions in those
contracts will not cause it to be treated as recognizing a materially
greater amount of capital gains than actually realized and will permit it
to use substantially all of the losses in those fiscal years in which such
losses actually occur.
While the Fund does not expect to realize a significant amount of net
long-term capital gains, any such gains realized will be distributed as
described in the Fund's prospectus. Such distributions ("capital gain div-
idends"), if any, will be taxable to shareholders as long-term capital
gains, regardless of how long they have held Fund shares, and will be des-
ignated as capital gain dividends in a written notice mailed by the Fund
to the shareholders after the close of the Fund's taxable year. If a
shareholder receives a capital gain dividend with respect to any share and
if the share has been held by the shareholder for six months or less, then
any loss (to the extent not disallowed pursuant to the six-month rule de-
scribed above relating to exempt-interest dividends) on the sale or ex-
change of such share to the extent of the capital gain dividend, shall be
treated as a long-term capital loss.
If a shareholder incurs a sales charge in acquiring shares of the Fund,
disposes of those shares within 90 days and then acquires shares in a mu-
tual fund for which the otherwise applicable sales charge is reduced by
reason of a reinvestment right (that is, exchange privilege), the original
sales charge will not be taken into account in computing gain/loss on
original shares to the extent the subsequent sales charge is reduced. In-
stead, it will be added to the tax basis in the newly acquired shares.
Furthermore, the same rule also applies to a disposition of the newly ac-
quired or redeemed shares made within 90 days of the second acquisition.
This provision prevents a shareholder from immediately deducting the sales
charge by shifting his or her investment within a family of mutual funds.
Each shareholder will receive after the close of the calendar year an an-
nual statement as to the Federal income tax and New York State and New
York City personal income tax status of his or her dividends and distribu-
tions from the Fund for the prior calendar year. These statements also
will designate the amount of exempt-interest dividends that is a specified
preference item for purposes of the Federal individual and corporate al-
ternative minimum taxes. Each shareholder also will receive, if appropri-
ate, various written notices after the close of the Fund's prior taxable
year as to the Federal income tax status of his or her dividends and dis-
tributions which were received from the Fund during the Fund's prior tax-
able year. Shareholders should consult their tax advisors as to any other
state and local taxes that may apply to these dividends and distributions.
The dollar amount of dividends excluded from Federal income taxation or
New York State and City personal income taxation and the dollar amount
subject to Federal income taxation or New York State and City personal in-
come taxation, if any, will vary for each shareholder depending upon the
size and duration of each shareholder's investment in the Fund. To the ex-
tent the Fund earns taxable net investment income, it intends to designate
as taxable dividends the same percentage of each day's dividend as its
taxable net investment income bears to its total net investment income
earned for the year.
Investors considering buying shares of the Fund just prior to a record
date for a capital gain distribution should be aware that, regardless of
whether the price of the Fund shares to be purchased reflects the amount
of the forthcoming distribution payment; any such payment will be a dis-
tribution payment.
If a shareholder fails to furnish a correct taxpayer identification num-
ber, fails to fully report dividend and interest income, or fails to cer-
tify that he or she has provided a correct taxpayer identification number
and that he or she is not subject to such withholding, the shareholder may
be subject to a 31% "backup withholding" tax with respect to (a) taxable
dividends and distributions, and (b) any proceeds of any redemptions of
Fund shares. An individual's taxpayer identification number is his or her
social security number. The backup withholding tax is not an additional
tax and may be credited against a shareholder's regular Federal income tax
liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substi-
tute for careful tax planning. Individuals are often exempt from state and
local personal income taxes on distributions of tax-exempt interest income
derived from obligations of issuers located in the state in which they re-
side when these distributions are received directly from these issuers,
but are usually subject to such taxes on income derived from obligations
of issuers located in other jurisdictions. Shareholders are urged to con-
sult their tax advisors with specific reference to their own tax situa-
tions.
The Fund was incorporated under the laws of the State of Maryland on Octo-
ber 6, 1983, and is registered with the SEC as a non-diversified open-end
management investment company. On December 15, 1988, November 19, 1992,
July 30, 1993 and October 14, 1994; the Fund's name changed to Shearson
Lehman New York Municipals Inc., SLH New York Municipals Fund Inc., Shear-
son Lehman Brothers New York Municipals Fund Inc., Smith Barney Shearson
New York Municipals Fund Inc., and Smith Barney New York Municipals Fund
Inc., respectively.
ADDITIONAL INFORMATION
Boston Safe, an indirect wholly owned subsidiary of Mellon, is located at
One Boston Place, Boston, Massachusetts 02108, and serves as the custodian
of the Fund. Under the custody agreement, Boston Safe holds the Fund's
portfolio securities and keeps all necessary accounts and records. For its
services, Boston Safe receives a monthly fee based upon the month-end mar-
ket value of securities held in custody and also receives securities
transaction charges. The assets of the Fund are held under bank custodian-
ship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as the Fund's transfer agent. Under the transfer agency agreement, TSSG
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund, and distributes divi-
dends and distributions payable by the Fund. For these services, TSSG re-
ceives 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.
FINANCIAL STATEMENTS
The Fund's Semi-Annual and Annual Reports for the semi-annual period ended
June 30, 1994 and the fiscal year ended December 31, 1993 accompany this
Statement of Additional Information and are incorporated herein by refer-
ence in their entirety.
APPENDIX
Description of S&P and Moody's ratings:
S&P RATINGS FOR MUNICIPAL BONDS
S&P's Municipal Bond ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue
bonds. General obligation bonds are usually secured by all resources
available to the municipality and the factors outlined in the rating defi-
nitions below are weighed in determining the rating. Because revenue bonds
in general are payable from specifically pledged revenues, the essential
element in the security for a revenue bond is the quantity and quality of
the pledged revenues available to pay debt service.
Although an appraisal of most of the same factors that bear on the quality
of general obligation bond credit is usually appropriate in the rating
analysis of a revenue bond, other factors are important, including partic-
ularly the competitive position of the municipal enterprise under review
and the basic security covenants. Although a rating reflects S&P's judg-
ment as to the issuer's capacity for the timely payment of debt service,
in certain instances it may also reflect a mechanism or procedure for an
assured and prompt cure of a default, should one occur, i.e., an insurance
program, Federal or state guarantee or the automatic withholding and use
of state aid to pay the defaulted debt service.
AAA
Prime -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible
to autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Qual-
ity of management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to re-
main, substantial. Stability of the pledged revenues is also exceptionally
strong, due to the competitive position of the municipal enterprise or to
the nature of the revenues. Basic security provisions (including rate cov-
enant, earnings test for issuance of additional bonds, and debt service
reserve requirements) are rigorous. There is evidence of superior manage-
ment.
AA
High Grade -- The investment characteristics of general obligation and
revenue bonds in this group are only slightly less marked than those of
the prime quality issues. Bonds rated "AA" have the second strongest ca-
pacity for payment of debt service.
A
Good Grade -- Principal and interest payments on bonds in this category
are regarded as safe. This rating describes the third strongest capacity
for payment of debt service. It differs from the two higher ratings be-
cause:
General Obligation Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expen-
ditures, or in quality of management. Under certain adverse circumstances,
any one such weakness might impair the ability of the issuer to meet debt
obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional. Sta-
bility of the pledged revenues could show some variations because of in-
creased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Medium Grade -- Of the investment grade ratings, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of
debt service. The difference between "A" and "BBB" ratings is that the
latter shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one deficiency among
the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged rev-
enues could show substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger.
BB, B, CCC AND CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB indicates the lowest
degree of speculation and CC the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C
The rating C is reserved for income bonds on which no interest is being
paid.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating cat-
egories, except in the AAA-Prime Grade category.
S&P RATINGS FOR MUNICIPAL NOTES
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) by S&P to distinguish more
clearly the credit quality of notes as compared to bonds. Notes rated SP-1
have a very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
the designation of SP-1+. Notes rated SP-2 have a satisfactory capacity to
pay principal and interest.
MOODY'S RATINGS FOR MUNICIPAL BONDS
Aaa
Bonds which are Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective ele-
ments are likely to change, such changes as can be visualized are most un-
likely to impair the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all stan-
dards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because mar-
gins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving se-
curity to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest pay-
ments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of in-
terest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
Bonds that are rated Caa are of poor standing. These issues may be in de-
fault or present elements of danger may exist with respect to principal or
interest.
Ca
Bonds that are rated Ca represent obligations which are speculative in a
high degree. These issues are often in default or have other marked short-
comings.
C
Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Baa. The modifier 1 indicates that the se-
curity ranks in the higher end of its generic rating category; the modi-
fier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
MOODY'S RATINGS FOR MUNICIPAL NOTES
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction is in recognition of the differences between short-term credit
risk and long-term credit risk. Loans bearing the designation MIG 1 or
VMIG 1 are of the best quality, enjoying strong protection by established
cash flows of funds for their servicing, superior liquidity support or
from established and broad-based access to the market for refinancing or
both. Loans bearing the designation MIG 2 or VMIG 2 are of high quality,
with ample margins of protection although not as large as the preceding
group. Loans bearing the designation MIG 3 or VMIG 3 are of favorable
quality, with all security elements accounted for but lacking the undeni-
able strength of the preceding grades. Liquidity and flow may be narrow
and market access for refinancing is likely to be less well established.
DESCRIPTION OF S&P A-1+ AND A-1 COMMERCIAL PAPER RATING
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must have either the direct
credit support of an issuer or guarantor that possesses excellent long-
term operating and financial strengths combined with strong liquidity
characteristics (typically, such issuers or guarantors would display
credit quality characteristics which would warrant a senior bond rating of
"AA-" or higher), or the direct credit support of an issuer or guarantor
that possesses above-average long-term fundamental operating and financing
capabilities combined with ongoing excellent liquidity characteristics.
Paper rated A-1 by S&P has the following characteristics: liquidity ratios
are adequate to meet cash requirements; long-term senior debt is rated "A"
or better; the issuer has access to at least two additional channels of
borrowing; basic earnings and cash flow have an upward trend with allow-
ance made for unusual circumstances; typically, the issuer's industry is
well established and the issuer has a strong position within the industry;
and the reliability and quality of management are unquestioned.
DESCRIPTION OF MOODY'S PRIME-1 COMMERCIAL PAPER RATING
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are
the following: (a) evaluation of the management of the issuer; (b) eco-
nomic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas; (c)
evaluation of the issuer's products in relation to competition and cus-
tomer acceptance; (d) liquidity; (e) amount and quality of long-term debt;
(f) trend of earnings over a period of ten years; (g) financial strength
of a parent company and the relationships which exist with the issuer; and
(h) recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to
meet such obligations.
Smith Barney
NEW YORK MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
Fund 13,194
Smith Barney
NEW YORK
MUNICIPALS FUND INC.
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 7, 1994
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year ended December 31, 1993
and the Report of Independent Accountants dated February 11, 1994 are
incorpoated by reference to the Definitive 30b-2 filed on March 1, 1994 as
Accession # 0000053798-94-000108.
The Registrant's Semi-Annual Report for the six month period ended June 30,
1994 is incorporated by reference to the Definitive 30b-2 filed on August
31, 1994 as Accession # 0000053798-94-000443
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
All references are to the Registrant's registration statement on Form N-1A
as filed with the Securities and Exchange Commission ( the "SEC"), on
October 6, 1983. File Nos. 2-87001 and 811-3869 (the "Registration
Statement").
(1)(a) Registrant's Articles of Incorporation and all Amendments are
incorporated by reference to Post-Effective Amendment No. 19 filed on
December 29, 1993 ("Post-Effective Amendment No. 19).
(b) Articles of Amendment dated October 14, 1994, Form of
Articles Supplementary and Form of Articles of Amendment are filed herein.
(2) Registrant's By-Laws are incorporated by reference to Pre-Effective
Amendment No. 1.
(3) Not Applicable.
(4) Registrant's form of stock certificate for Class A and Class B shares
is incorporated by reference to Post-Effective Amendment No. 16.
(5) Investment Advisory Agreement between the Registrant and Greenwich
Street Advisors dated July 30, 1993, is incorporated by reference to Post-
Effective Amendment No. 19.
(6) Distribution Agreement between the Registrant and Smith Barney
Shearson Inc., dated July 30, 1993, is incorporated by reference to Post-
Effective Amendment No. 19.
(7) Not Applicable.
(8) Custodian Agreement between the Registrant and Boston Safe Deposit
and Trust Company ("Boston Safe") is incorporated by reference to Pre-
Effective Amendment No. 1.
(9)(a) Administration Agreement dated April 2, 1994 , between the
Registrant and Smith, Barney Advisers, Inc.("SBA") is filed herein.
(b) Sub-Administration Agreement dated April 20, 1994 , between the
Registrant, SBA and The Boston Company Advisors, Inc. is filed herein.
(c) Transfer Agency and Registrar Agreement dated August 23, 1993
with The Shareholder Services Groujp, Inc. is incorporated by reference to
Post-Effective Amendment No. as filed on March 1, 1994.
(10) Not Applicable.
(11) Consent of Independent Accountants as filed herein.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Amended Services and Distribution Plan pursuant to Rule 12b-1
will be filed by Amendment between the Registrant and Smith Barney Inc. as
filed herein.
(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 10.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Title of Class Holders by Class as of September 23,
1994
Common Stock Class A- 10,794
par value $.01 per Class B- 5,257
share
Item 27. Indemnification
Under the Registrant's corporate charter and Maryland law, directors
and officers of the Registrant are not liable to the Registrant or its
stockholders except for receipt of an improper personal benefit or active
and deliberate dishonesty The Registrant's corporate charter requires that
it indemnify its directors and officers against liabilities unless it is
proved that a director or officer acted in bad faith or with active and
deliberate dishonesty or received a improper personal benefit. These
indemnification provisions are subject to the limitation under the
Investment Company Act of 1940, as amended, that no director or officer may
be protected against liability for willful misfeasance, bad faith, gross
negligence or reckless disregard for the duties of his office.
Item 28(a) Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Mutual Funds Management Inc.,
formerly known as Smith, Barney Advisers, Inc. ("SBMFM")
SBFMF was incorporated in December 1968 under the laws of the State of
Delaware. SBFMF is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Shearson Holdings Inc.), which in
turn is a wholly owned subsidiary of The Travelers Inc. (formerly known
as Primerica Corporation) ("Travelers"). SBMFM is registered as an
investment adviser under the Investment Advisers Act of 1940 (the
"Advisers Act").
The list required by this Item 28 of officers and directors of SBMFM
together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of FORM ADV filed by SBMFM pursuant to the Advisers
Act (SEC File No. 801-8314).
Prior to the close of business on November 7, 1994, Greenwich Street
Advisors served as investment adviser. Greenwich Street Advisors,
through its predecessors, has been in the investment counseling business
since 1934 and is a division of Mutual Management Corp. ("MMC"). MMC
was incorporated in 1978 and is a wholly owned subsidiary of Smith
Barney Holdings Inc. (formerly known as Smith Barney Shearson Holdings
Inc.) ("Holdings"), which is in turn a wholly owned subsidiary of The
Travelers Inc. (formerly known as Primerica Corporation) ("Travelers").
The list required by this Item 28 of officers and directors of MMC and
Greenwich Street Advisors, together with information as to any other
business, profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past two fiscal
years, is incorporated by reference to Schedules A and D of FORM ADV
filed by MMC on behalf of Greenwich Street Advisors pursuant to the
Advisers Act (SEC File No. 801-14437).
Prior to the close of business on July 30, 1993 (the "Closing"),
Shearson Lehman Advisors, a member of the Asset Management Group of
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"), served as
the Registrant's investment adviser. On the Closing, Travelers and
Smith Barney Inc. (formerly known as Smith Barney Shearson Inc.)
acquired the domestic retail brokerage and asset management business of
Shearson Lehman Brothers, which included the business of the
Registrant's prior investment adviser. Shearson Lehman Brothers was a
wholly owned subsidiary of Shearson Lehman Brothers Holdings Inc.
("Shearson Holdings"). All of the issued and outstanding common stock
of Shearson Holdings (representing 92% of the voting stock) was held by
American Express Company. Information as to any past business vocation
or employment of a substantial nature engaged in by officers and
directors of Shearson Lehman Advisors can be located in Schedules A and
D of FORM ADV filed by Shearson Lehman Brothers on behalf of Shearson
Lehman Advisors prior to July 30, 1993. (SEC FILE NO. 801-3701)
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as distributor for
Smith Barney Managed Municipals Fund Inc., Smith Barney New York
Municipals Fund Inc., Smith Barney California Municipals Fund Inc.,
Smith Barney Massachusetts Municipals Fund, Smith Barney Global
Opportunities Fund, Smith Barney Aggressive Growth Fund Inc., Smith
Barney Appreciation Fund Inc., Smith Barney Principal Return Fund,
Smith Barney Shearson Municipal Money Market Fund Inc., Smith Barney
Daily Dividend Fund Inc., Smith Barney Government and Agencies Fund
Inc., Smith Barney Managed Governments Fund Inc., Smith Barney New York
Municipal Money Market Fund, Smith Barney California Municipal Money
Market Fund, Smith Barney Income Funds, Smith Barney Equity Funds, Smith
Barney Investment Funds Inc., Smith Barney Precious Metals and Minerals
Fund Inc., Smith Barney Telecommunications Trust, Smith Barney Arizona
Municipals Fund Inc., Smith Barney New Jersey Municipals Fund Inc., The
USA High Yield Fund N.V., Garzarelli Sector Analysis Portfolio N.V., The
Advisors Fund L.P., Smith Barney Fundamental Value Fund Inc., Smith
Barney Series Fund, Consulting Group Capital Markets Funds, Smith Barney
Income Trust, Smith Barney Adjustable Rate Government Income Fund, Smith
Barney Florida Municipals Fund, Smith Barney Oregon Municipals Fund,
Smith Barney Funds, Inc., Smith Barney Muni Funds, Smith Barney World
Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney Tax Free Money
Fund, Inc., Smith Barney Variable Account Funds, Smith Barney U.S.
Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited, (Bermuda), Smith Barney International Fund
(Luxembourg) and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Shearson Holdings Inc.), which in
turn is a wholly owned subsidiary of The Travelers Inc. (formerly known
as Primerica Corporation) ("Travelers"). On June 1, 1994, Smith Barney
changed its name from Smith Barney Inc. to its current name. The
information required by this Item 29 with respect to each director,
officer and partner of Smith Barney is incorporated by reference to
Schedule A of FORM BD filed by Smith Barney pursuant to the Securities
Exchange Act of 1934 (SEC File No. 812-8510).
Item 30. Location of Accounts and Records
(1) Smith Barney New York Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(3) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(4) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(5) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
None.
485(b) Certification
The Registrant hereby certifies that it meets all requirements for
effectiveness pursuamt to Rule 485(b) under the Securities Act of
1933, as amended.
The Registrant further represents pursuant to Rule 485(b)(2)(iv)
that the resignation of Robert E. Borgesen was not due to any
disagreement with the Registrant on any matter relating to its
operations, policies or practices. Mr. Borgesen resigned due to
health reasons.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, SMITH BARNEY NEW YORK MUNICIPALS FUND INC., has duly caused
this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, all in the City of New
York, State of New York the 7th day of November, 1994.
SMITH BARNEY NEW YORK
MUNICIPALS FUND INC.
By:/s/ Heath B.
McLendon*
Heath B. McLendon, Chief
Executive Officer
Signature Title Date
/s/ Heath B. McLendon*
Heath B. McLendon Director
Chairman of the Board
(Chief Executive Officer)
11/7/94
Lewis Daidone Treasurer (Chief Financial
and Accounting Officer)
11/7/94
/s/ Herbert Barg*
Herbert Barg Director
11/7/94
/s/ Alfred J. Bianchetti*
Alfred J. Bianchetti Director
11/7/94
/s/ Martin Brody
Martin Brody Director
11/7/94
/s/ Dwight B. Crane*
Dwight B. Crane Director
11/7/94
/s/ James J. Crisona*
James J. Crisona Director
11/7/94
/s/ Robert A. Frankel*
Robert A. Frankel Director
11/7/94
Signature Title Date
/s/ Dr. Paul Hardin*
Dr. Paul Hardin Director
11/7/94
/s/ Stephen E. Kaufman
Stephen E. Kaufman Director
11/7/94
/s/ Joseph J. McCann*
Joseph J. McCann Director
11/7/94
______________________
Burt N. Dorsett Director
______________________
Elliott S. Jaffe Director
______________________
Cornelius C. Rose, Jr. Director
*Signed by Lee D. Augsburger, their
duly authorized attorney-in-fact,
pursuant to power of attorney dated
April 22, 1993
/s/ Lee D. Augsburger______
Lee D. Augsburger
g:\shared\domestic\client\shearson\funds/nymu/pea#21
EXHIBIT 1(b)
SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC.
ARTICLES OF AMENDMENT
Smith Barney Shearson New York Municipals Fund Inc., a Maryland
corporation having its principal office in the State of Maryland in
Baltimore City (hereinafter called the "Corporation"), hereby certifies to
the State Department of Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the Corporation, as
amended, are hereby further amended by deleting Article II and inserting in
lieu thereof the following:
ARTICLE II
NAME
The name of the corporation (hereinafter called
the "Corporation") is Smith Barney New York
Municipals Fund Inc.
SECOND: The foregoing amendment to the charter of the
Corporation was approved by a majority of the entire Board of Directors of
the Corporation; the charter amendment is limited to a change expressly
permitted by Section 2-605 of Title 2 of Subtitle 6 of the Maryland General
Corporation Law to be made without action by the stockholders, and the
Corporation is registered as an open-end company under the Investment
Company Act of 1940.
The undersigned Chairman acknowledges these Articles of
Amendment to be the corporate act of the Corporation and states to the best
of his knowledge, information and belief that the matters and facts set
forth in these Articles with respect to authorization and approval are true
in all material respects and that this statement is made under the
penalties of perjury.
IN WITNESS WHEREOF, Smith Barney Shearson New York
Municipals Fund Inc. has caused these Articles of Amendment to be signed in
its name and on its behalf by its Chairman and witnessed by its Assistant
Secretary on October 14, 1994.
SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC.
By: Heath B. McLendon, Chairman
WITNESS:
By: /s/ Lee D. Augsburger
Lee D. Augsburger
Assistant Secretary
ARTICLES SUPPLEMENTARY
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
Smith Barney New York Municipals Fund Inc., a Maryland corporation
having its principal office in the State of Maryland in Baltimore City
(hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation is authorized to issue 500,000,000 shares
of capital stock, par value $.01 per share, with an aggregate par value of
$5,000,000. These Articles Supplementary do not increase the total
authorized capital stock of the Corporation or the aggregate par value
thereof. The Board of Directors hereby classifies and reclassifies all of
the unissued shares of capital stock of all classes of the Corporation in
such manner that the Corporation's capital stock will be classified into
five classes, each with a par value of $.01 per share, designated Class A
Common Stock, Class B Common Stock, Class C Common Stock, Class Y Common
Stock and Class Z Common Stock. The Corporation shall be authorized to
issue up to 500,000,000 shares of each such class of capital stock less, at
any time, the total number of shares of all other such classes of capital
stock then issued and outstanding. At no time may the Corporation cause to
be issued and outstanding more than 500,000,000 shares of its capital stock
of all such classes in the aggregate unless such number be hereafter
increased in accordance with the Maryland General Corporation Law.
SECOND: The shares of Class A Common Stock, Class B Common Stock and
Class C Common Stock classified hereby shall have the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as
currently set forth in the charter of the Corporation with respect to those
respective classes of capital stock. The Class Y Common Stock and the
Class Z Common Stock classified hereby shall have the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption as set
forth in Article V of the Corporation's Articles of Incorporation and shall
be subject to all provisions of its
<PAGE> 2
Articles of Incorporation relating to stock of the Corporation generally,
and those set forth as follows:
(1) The assets belonging to each of the Class Y Common Stock and Class Z
Common Stock shall be invested in the same investment portfolio of the
Corporation as the assets belonging to the Class A Common Stock, the Class
B Common Stock and the Class C Common Stock.
(2) The dividends and distributions of investment income and capital gains
with respect to each of the Class Y Common Stock and Class Z Common Stock
shall be in such amounts as may be declared from time to time by the Board
of Directors, and such dividends and distributions with respect to each
such class of capital stock may vary from dividends and distributions with
respect to each other class of capital stock to reflect differing
allocation of the expenses of the Corporation among the holders of each
such class and any resultant differences among the net asset values per
share of each such class, to such extent and for such purposes as the Board
of Directors may deem appropriate.
(3) The allocation of investment income, capital gains and losses,
expenses and liabilities of the Corporation among the Class Y Common Stock,
the Class Z Common Stock and any other class of the Corporation's stock
shall be determined conclusively by the Board of Directors in a manner that
is consistent with the order dated July 7, 1992 (Investment Company Act of
1940 Release No. 18832), as amended January 19, 1993 (Investment Company
Act Release No. 19216), and January 28, 1994 (Investment Company Act of
1940, Release No. 20042) issued by the Securities and Exchange Commission
in connection with the application for exemption filed by Smith Barney
Appreciation Fund, Inc. (formerly Shearson Lehman Brothers Appreciation
Fund Inc.) et al., and any existing or future amendment to such order or
any rule or interpretation under the
<PAGE> 3
Investment Company Act of 1940 that modifies or supersedes such
order.
(4) Except as may otherwise be required by law pursuant to any applicable
order, rule, or interpretation issued by the Securities and Exchange
Commission, or otherwise, the holders of each of the Class Y Common Stock
and Class Z Common Stock shall have (i) exclusive voting rights with
respect to any matter, including any distribution plan adopted by the
Corporation pursuant to Rule 12b-1 under the Investment Company Act of 1940
(a "Plan") which affects only holders of such class, and (ii) no voting
rights with respect to any matter, including any Plan, which does not
affect holders of such class.
THIRD: The Board of Directors of the Corporation has classified
the shares described above pursuant to authority contained in the
Corporation's charter.
FOURTH: These Articles Supplementary will become effective at
9:01 A.M. on November 7, 1994.
The undersigned Chairman of the Board of the Corporation acknowledges
these Articles Supplementary to be the corporate act of the Corporation and
states that to the best of his knowledge, information and belief, the
matters and facts set forth in these Articles with respect to authorization
and approval are true in all material respects and that this statement is
made under penalties of perjury.
IN WITNESS WHEREOF, Smith Barney New York Municipals Fund Inc. has caused
these Articles Supplementary to be signed and filed in its name and on its
behalf by its Chairman of the Board, and witnessed by its Assistant
Secretary on , 1994.
SMITH BARNEY NEW YORK
MUNICIPALS FUND INC.
By: Heath B. McLendon, Chairman of the Board
WITNESS:
Lee D. Augsburger,
Assistant Secretary
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
ARTICLES OF AMENDMENT
Smith Barney New York Municipals Fund Inc., a Maryland corporation
having its principal office in the State of Maryland in Baltimore City
(hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended to provide
that the Corporation's "Class D Common Stock" is hereby redesignated as
"Class C Common Stock."
SECOND: The charter of the Corporation is hereby amended further to
provide that the class of shares of "Common Stock" of the Corporation that
has not been previously further designated is hereby designated as "Class A
Common Stock."
THIRD: The foregoing amendments to the charter of the Corporation
were approved by a majority of the entire Board of Directors of the
Corporation; the charter amendments are limited to changes expressly
permitted by Section 2-605 of Title 2 of Subtitle 6 of the Maryland General
Corporation Law to be made without action by the stockholders, and the
Corporation is registered as an open-end company under the Investment
Company Act of 1940.
FOURTH: These Articles of Amendment will become
effective at 9:00 A.M. on November 7, 1994.
The undersigned Chairman of the Board of the Corporation acknowledges
these Articles of Amendment to be the corporate act of the Corporation and
states to the best of his knowledge, information and belief that the
matters and facts set forth in these Articles with respect to authorization
and approval are true in all material respects and that this statement is
made under the penalties of perjury.
IN WITNESS WHEREOF, Smith Barney New York Municipals Fund Inc. has caused
these Articles of Amendment to be signed in its name and on its behalf by
its Chairman of the Board, and witnessed by its Assistant Secretary on
, 1994.
SMITH BARNEY NEW YORK
MUNICIPALS FUND INC.
By: Heath B. McLendon,
Chairman of theBoard
WITNESS:
Lee D. Augsburger,
Assistant Secretary
Shearson/Funds/NYMU/namechge.doc
EXHIBIT 9(a)
ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC.
April 20, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Smith Barney Shearson New York Municipals Fund Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, confirms its
agreement with Smith, Barney Advisors, Inc. ("SBA") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Charter dated February 23, 1983, as amended
from time to time (the "Charter"), in its Prospectus and Statement of
Additional Information as from time to time in effect and in such manner
and to such extent as may from time to time be approved by the Board of
Directors of the Fund (the "Board"). Copies of the Fund's Prospectus,
Statement of Additional Information and Charter have been or will be
submitted to SBA. Greenwich Street Advisors, a division of Mutual
Management Corp. ("Greenwich Street Advisors") serves as the Fund's
investment adviser and the Fund desires to employ and hereby appoints SBA
to act as its administrator. SBA accepts this appointment and agrees to
furnish the services to the Fund for the compensation set forth below. SBA
is hereby authorized to retain third parties and is hereby authorized to
delegate some or all of its duties and obligations hereunder to such
persons provided that such persons shall remain under the general
supervision of SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Fund's operations except
those performed by the Fund's investment adviser under its investment
advisory agreement; (b) supply the Fund with office facilities (which may
be in SBA's own offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of shares of the
Fund, (ii) applicable contingent deferred sales charges and similar fees
and charges and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationary
and office supplies; and (c) prepare reports to shareholders of the Fund,
tax returns and reports to and filings with the Securities and Exchange
Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month a
fee for the previous month at an annual rate of .20 of 1.00% of the Fund's
average daily net assets. The fee for the period from the date the Fund's
initial registration statement is declared effective by the SEC to the end
of the month during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period
bears to the full monthly period. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. For the purpose of determining fees payable to SBA, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
SBA will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of the members of the Board of
the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc. or its affiliates or any person who is an affiliate of any
person to whom duties may be delegated hereunder; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities commissions, extraordinary
expenses) exceed the expense limitations of any state having jurisdiction
over the Fund, SBA will reimburse the Fund for that excess expense to the
extent required by state law in the same proportion as its respective fees
bear to the combined fees for investment advice and administration. The
expense reimbursement obligation of SBA will be limited to the amount of
its fees hereunder. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the services
listed in paragraph 2 above, and SBA shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect SBA against
liability to the Fund or to its shareholders to which SBA would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by reason of SBA's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other investment
companies, and the Fund has no objection to SBA so acting. In addition,
the Fund understands that the persons employed by SBA or its affiliates to
assist in the performance of its duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of SBA or its affiliates to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers, directors,
employees, affiliates, controlling persons, agents (including persons to
whom responsibilities are delegated hereunder) ("indemnitees") against any
loss, claim, expense or cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this Agreement or from the
performance or failure to perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee violated the standard
of care in paragraph 6 above. This indemnification shall be limited by the
1940 Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the 1940
Act and the rules, regulations and interpretations thereof as in effect
from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Charter and
Bylaws. The execution and delivery of this Agreement has been duly
authorized by the Fund, SBA and Boston Advisors, and signed by an
authorized officer of each, acting as such. Neither the authorization by
the Board members of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Fund as provided in the
Charter and Bylaws.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by singing and returning to us the enclosed
copy hereof.
Very truly yours,
Smith Barney Shearson
New York Municipals Fund Inc.
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: /s/ Christina T. Sydor
Name: Christina T. Sydor
Title: Secretary
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliations - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution Funds - Calculate income on purchase and sales, calculate
change in income due to variable rate change, combine all daily income
less expenses to arrive at net income, calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual,
semi-annual and quarterly portfolio of investments and financial
statements included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting
(for money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with
outside printers for annual and semi-annual reports, prospectuses,
statements of additional information, proxy statements and special
letters or supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the
Fund;
Determine expenses properly chargeable to the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's
Board (e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market
funds;
Recommend valuation to be used for securities which
are not readily saleable;
Function as a liaison with the Fund's outside auditors
and arrange for audits;
Provide accounting, financial and tax support relating
to portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue
Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and
related regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with
the appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder
communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the
Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder
meetings;
Maintain Articles of Incorporation and By-Laws of the
Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and
procedures to improve overall compliance by the Fund and its various
agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
shared\domestic\clients\shearson\fund\nymu\admin1
shared\domestic\clients\shearson\fund\nymu\admin1
EXHIBIT 9(b)
FORM OF SUB-ADMINISTRATION AGREEMENT
SUB-ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC.
April 20, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02210
Dear Sirs:
Smith Barney Shearson New York Municipals Fund Inc. (the
"Fund"), a corporation organized under the laws of the State of Maryland
and Smith, Barney Advisers, Inc. ("SBA") confirm their agreement with The
Boston Company Advisors, Inc. ("Boston Advisors") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Charter dated February 23, 1983, as amended
from time to time (the "Charter"), in its Prospectus and Statement of
Additional Information as from time to time in effect, and in such manner
and to such extent as may from time to time be approved by the Board of
Directors of the Fund (the "Board"). Copies of the Fund's Prospectus,
Statement of Additional Information and Charter have been or will be
submitted to you. The Fund employs SBA as its administrator, and the Fund
and SBA desire to employ and hereby appoint Boston Advisors as the Fund's
sub-administrator. Boston Advisors accepts this appointment and agrees to
furnish the services to the Fund, for the compensation set forth below,
under the general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and SBA,
Boston Advisors will: (a) assist in supervising all aspects of the Fund's
operations except those performed by the Fund's investment adviser under
the Fund's investment advisory agreement; (b) supply the Fund with office
facilities (which may be in Boston Advisor's own offices), statistical and
research data, data processing services, clerical, accounting and
bookkeeping services, including, but not limited to, the calculation of (i)
the net asset value of shares of the Fund, (ii) applicable contingent
deferred sales charges and similar fees and changes and (iii) distribution
fees, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; and (c)
prepare reports to shareholders of the Fund, tax returns and reports to and
filings with the Securities and Exchange Commission (the "SEC") and state
blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of each
month a fee for the previous month calculated in accordance with the terms
set forth in Appendix B, and as agreed to from time to time by the Fund,
SBA and Boston Advisors. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly
period and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Boston Advisors, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of the Board members
of the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc., Boston Advisors of their affiliates; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and its Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston Advisory
will reimburse the Fund for that excess expense to the extent required by
state law in the same proportion as its respective fees bear to the
combined fees for investment advice and administration. The expense
reimbursement obligation of Boston Advisors will be limited to the amount
of its fees hereunder. Such expense reimbursement, if any, will be
estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in rendering
the services listed in paragraph 2 above. Boston Advisors shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed to protect or purport
to protect Boston Advisors against liability to the Fund or to its
shareholders to which Boston Advisors would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of Boston Advisor's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without the
written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or more
other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of Boston
Advisors or its affiliates to engage in and devote time and attention to
other businesses or to render services of whatever kind of nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including reasonable
attorney's fees) resulting or arising in connection with this Agreement or
from the performance or failure to perform any act hereunder, provided that
not such indemnification shall be available if the indemnitee violated the
standard of care in paragraph 6 above. This indemnification shall be
limited by the 1940 Act, and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance with the requirements
of the 1940 Act and the rules, regulations and interpretations thereof as
in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Charter and
Bylaws. The execution and delivery of this Agreement has been duly
authorized by the Fund, SBA and Boston Advisors, and signed by an
authorized officer of each, acting as such. Neither the authorization by
the Board Members of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Fund as provided in the
Charter.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us the
enclosed copy hereof.
Very truly yours,
Smith Barney Shearson
New York Municipals Fund Inc.
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
Smith, Barney Advisers, Inc.
By: /s/ Christina T. Sydor
Name: Christina T. Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By: _______________________
Name:
Title
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act" ), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliation - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income
less expenses to arrive at net income; calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian reports;
Pricing - Determine N.A.V. for the Fund using market value
of all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent - N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio mangers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board, tax authorities, statistical and performance reporting
companies and the Fund's auditors; interface with Fund's auditors;
prepare monthly reconciliation packages, including expense pro forma;
prepare amortization schedules for premium and discount bonds based on
the effective yield method; prepare vault reconciliation reports to
indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting (for
money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.).
Publications
Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide an Assistant Treasurer for the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
Monitor mark-to-market comparisons for money market funds;
Recommend valuations to be used for securities which are not
readily saleable;
Function as a liaison with the Fund's outside auditors and
arrange for audits;
Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's
structure or operations;
Prepare and file forms with the Internal Revenue Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
Prepare and file proxy statements;
Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
Provide an Assistant Secretary for the Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder meetings;
Maintain Articles of Incorporation or Master Trust
Agreements and By-Laws of the Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel
and performing on-going testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with prospectus guidelines and
limitations, 1940 Act requirements and Internal Revenue Code
requirements. The Department may also act as liaison to the SEC during
its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-
going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
shared\domestic\clients\shearson\fund\nymu\subadmin
shared\domestic\clients\shearson\fund\nymu\subadmin
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Smith Barney New York Municipals Fund Inc.:
We hereby consent to the following with respect to
Post-Effective Amendment No. 21 to the Registration Statement on
Form N-1A (File No. 2-87001) under the Securities Act of 1933,
as amended, of Smith Barney New York Municipals Fund Inc.
(formerly Smith Barney Shearson New York Municipals Fund Inc.):
1. The incorporation by reference of our report dated February
11, 1994 accompanying the Annual Report for the fiscal year
ended December 31, 1993 of Smith Barney New York Municipals Fund
Inc., in the Statement of Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the Prospectus.
3. The reference to our firm under the heading "Counsel and
Auditors" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
November 2, 1994
EXHIBIT 15
AMENDED SERVICES AND DISTRIBUTION PLAN
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
This Services and Distribution Plan (the "Plan") is adopted in
accordance with rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by Smith Barney New York Municipals Fund
Inc., a corporation organized under the laws of the State of Maryland (the
"Fund"), subject to the following terms and conditions:
Section 1. Annual Fee
(a) Class A Service Fee. The Fund will pay to the distributor of its
shares, Smith Barney Inc., a corporation organized under the laws of the
State of Delaware ("Distributor"), a service fee under the Plan at the
annual rate of .15% of the average daily net assets of the Fund
attributable to the Class A shares (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .15% of the
average daily net assets of the Fund attributable to the Class B shares
(the "Class B Service Fee").
(c) Service Fee for Class C shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .15% of the
average daily net assets of the Fund attributable to the Class C shares
(the "Class C Service Fee," and collectively with the Class A Service Fee
and the Class B Service Fee, the "Service Fees").
(d) Distribution Fee for Class B shares. In addition to the Class B
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .50% of the average daily net assets of the fund
attributable to the Class B Distribution Fee, the "Distribution Fees").
(e) Distribution Fee for Class C shares. In addition to the Class C
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .55% of the average daily net assets of the Fund
attributable to the Class C shares (the "Class C Distribution Fee," and
collectively with the Class B Distribution Fee, the "Distribution Fees").
(f) Payment of Fees. The Service Fees and Distribution Fees will be
calculated daily and paid monthly by the Fund with respect to the foregoing
classes of the fund's shares (each a "Class" and together the "Classes") at
the annual rates indicated above.
Section 2. Expenses Covered by the Plan
With respect to expenses incurred by each Class its respective
Service Fees and/or Distribution Fees may be used for; (a) costs of
printing and distributing the Fund's prospectus, statement of additional
information and reports to prospective investors in the Fund; (b) costs
involved in preparing, printing and distributing sales literature
pertaining o the Fund; (c) an allocation of overhead and other branch
office distribution-related expenses of the Distributor; (d) payments made
to, and expenses of Smith Barney Financial Consultants and other persons
who provide support services in connection with the distribution of the
Fund's shares, including but not limited to, office space and equipment,
telephone
facilities, answering routine inquires regarding the Fund, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Fund's Transfer agent; and (e) accruals for
interest on the amount of the foregoing expenses that exceed the
Distribution Fee and, in the case of Class B shares, the contingent
deferred sales charge received by the Distributor; provided, however, that
the Distribution Fees may be used by the Distributor only to cover expenses
primarily intended to result in the sale of the Fund's Class B and C
shares, including without limitation, payments to Distributor's financial
consultants ant the time of the sale of Class B and C shares. In addition,
Service Fees are intended to be used by the Distributor primarily to pay
its financial consultants for servicing shareholder accounts, including a
continuing fee to each such financial consultant, which fee shall begin to
accrue immediately after the sale of such shares.
Section 3. Approval of Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of the Plan, with respect to a Class until the
Plan has been approved by a vote of a least a majority of the outstanding
voting securities of the Class. The Plan will be deemed to have been
approved with respect to a class so longer as a majority of the outstanding
voting securities of the Class votes for the approval of the Plan,
notwithstanding that: (a) the Plan has not been approved by a major of the
outstanding voting securities of any other Class, or (b) the Plan has not
been approved by a majority of the outstanding voting securities of the
Fund.
Section 4. Approval of Directors
Neither the Plan nor any related agreements will take effect until
approved by a majority of both (a) the full Board of Directors of the Fund
and (b) those Directors who are not interested persons of the Fund and who
have not direct or indirect financial interest in the operation of the Plan
or in any agreements related to it (the "Qualified Directors"), cast in
person at a meeting called for the purpose of voting on the Plan and the
related agreements.
Section 5. Continuance of the Plan
The Plan will continue in effect with respect to each Class until
November 7, 1995, and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is
specifically approved at least annually by the Directors of the Fund and by
a majority of the Qualified Directors.
Section 6. Termination
The Plan may be terminated at any time with respect to a Class (i) by
the Fund without the payment of any penalty, by the vote of a majority of
the outstanding voting securities of such Class or (ii) by a vote of the
Qualified Directors. The Plan may remain in effect with respect to a
particular Class even if the Plan has been terminated in accordance with
this Section 6 with respect to any other Class.
Section 7. Amendments
The Plan may to be amended with respect to any Class so as to
increase materially the amounts of the Fees described in Section 1 above,
unless the amendment is approved by a vote of the holders of at least a
majority of the outstanding voting securities of that class. No material
amendment to the Plan may be made unless approved by the Fund's Board of
Directors in the manner described in Section 4 above.
Section 8. Selection of Certain Directors
While the Plan is in effect, the selection and nomination of the
Fund's Directors who are not interested persons of the Fund will be
committed to the discretion of the Directors then in office who are not
interested persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, a person
authorized to direct the disposition of monies paid or payable by the Fund
pursuant to the Plan or any related agreement will prepare and furnish to
the Fund's Board of Directors and the Board will review, at least
quarterly, written reports complying with the requirements of the Rule,
which sets out the amounts expended under the Plan and the purposes for
which those expenditures were made.
Section 10. Preservation of Materials
The Fund will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 9 above, for a period of
not less than six years (the first two years in an easily accessible place)
from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms
As used in the Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning
that those terms have under the 1940 Act by the Securities and Exchange
Commission.
IN WITNESS WHEREOF, the Fund execute the Plan as of November 7, 1994.
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
By: /s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board
g\shared\domestic\clients\shearson\funds\nymu\12b1pln2.doc6:38 PM
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 0
<NAME> SBS NEW YORK MUNICIPALS CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 666,263,073
<INVESTMENTS-AT-VALUE> 666,622,019
<RECEIVABLES> 15,413,124
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 27,844
<TOTAL-ASSETS> 682,062,987
<PAYABLE-FOR-SECURITIES> 11,677,933
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,452,453
<TOTAL-LIABILITIES> 13,130,386
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 666,352,939
<SHARES-COMMON-STOCK> 31,643,658
<SHARES-COMMON-PRIOR> 32,534,995
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,066,508)
<ACCUMULATED-NET-GAINS> 3,287,224
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 358,946
<NET-ASSETS> 668,932,601
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,557,118
<OTHER-INCOME> 0
<EXPENSES-NET> 3,046,643
<NET-INVESTMENT-INCOME> 19,510,475
<REALIZED-GAINS-CURRENT> (654,772)
<APPREC-INCREASE-CURRENT> (54,864,986)
<NET-CHANGE-FROM-OPS> (36,009,283)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16,584,434
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,653,290
<NUMBER-OF-SHARES-REDEEMED> 4,181,076
<SHARES-REINVESTED> 636,449
<NET-CHANGE-IN-ASSETS> (43,359,074)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3,941,996
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,169,552
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,046,643
<AVERAGE-NET-ASSETS> 690,152,714
<PER-SHARE-NAV-BEGIN> 17.68
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> (1.36)
<PER-SHARE-DIVIDEND> 0.52
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.29
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 0
<NAME> SBS NEW YORK MUNICIPALS CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 666,263,073
<INVESTMENTS-AT-VALUE> 666,622,019
<RECEIVABLES> 15,413,124
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 27,844
<TOTAL-ASSETS> 682,062,987
<PAYABLE-FOR-SECURITIES> 11,677,933
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,452,453
<TOTAL-LIABILITIES> 13,130,386
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 666,352,939
<SHARES-COMMON-STOCK> 9,415,829
<SHARES-COMMON-PRIOR> 7,758,193
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,066,508)
<ACCUMULATED-NET-GAINS> 3,287,224
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 358,946
<NET-ASSETS> 668,932,601
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,557,118
<OTHER-INCOME> 0
<EXPENSES-NET> 3,046,643
<NET-INVESTMENT-INCOME> 19,510,475
<REALIZED-GAINS-CURRENT> (654,772)
<APPREC-INCREASE-CURRENT> (54,864,986)
<NET-CHANGE-FROM-OPS> (36,009,283)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,992,549
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,887,904
<NUMBER-OF-SHARES-REDEEMED> 380,518
<SHARES-REINVESTED> 150,250
<NET-CHANGE-IN-ASSETS> (43,359,074)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3,941,996
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,169,552
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,046,643
<AVERAGE-NET-ASSETS> 690,152,714
<PER-SHARE-NAV-BEGIN> 17.68
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> (1.38)
<PER-SHARE-DIVIDEND> 0.46
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.29
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
