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. 22 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 23 X
SMITH BARNEY 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 March 1, 1995 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, 1994 was filed on February 27, 1995.
CALCULATION OF REGISTRATION FEE UNDER
THE SECURITIES ACT OF 1933 (1)
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Securities Amount Being Price per Offering Registration
Being Registered Registered(1) Unit(2) Price(3) Fee
Shares of Common
Stock par value
$.01 per share 2,061,813 $16.67 $289,998 $100
of Smith Barney
New York Municipals
Fund Inc.
1) The shares being registered as set forth in this table are in
addition to the indefinite number of shares of common stock which the
Registrant has registered under the Securities Act of 1933, as amended (the
"1933 Act"), pursuant to Rule 24f-2 under the Investment Company Act of
1940, as amended (the "1940 Act"). The Registrant's Rule 24f-2 Notice for
its fiscal year ended December 31, 1994, was filed on February 27, 1995.
(2) Based on the Registrant's closing price of $16.67 on February 7, 1995
pursuant to Rule 457 (d) under the 1933 Act and Rule 24e-2(a) under the
1940 Act.
(3) In response to Rule 24e-2 (b) under the 1940 Act: (1) the
calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2; (2) 8,568,201 shares of common stock were redeemed by the
Registrant during the fiscal year ended December 31, 1994; (3) 6,523,784
of such shares are being used for reductions pursuant to Rule 24f-2 during
the current fiscal year; and (4) 2,044,417 shares are being used for
reduction in this amendment pursuant to Rule 24e-2(a).
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
8 Redemption or Repurchase
Purchase of Shares; Redemption of
Shares; Minimum Account Size
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
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 R O S P E C T U S
S M I T H B A R N E Y
New York
Municipals
Fund Inc.
M A R C H 1 , 1 9 9 5
PROSPECTUS BEGINS ON PAGE ONE
[LOGO]
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- ---------------------------------------------------------------------------
PROSPECTUS MARCH 1, 1995
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 bond 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 March 1, 1995, 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 OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
----------------------------------------------------------------
FINANCIAL HIGHLIGHTS 12
----------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 16
----------------------------------------------------------------
NEW YORK MUNICIPAL SECURITIES 22
----------------------------------------------------------------
VALUATION OF SHARES 25
----------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 25
----------------------------------------------------------------
PURCHASE OF SHARES 28
----------------------------------------------------------------
EXCHANGE PRIVILEGE 36
----------------------------------------------------------------
REDEMPTION OF SHARES 40
----------------------------------------------------------------
MINIMUM ACCOUNT SIZE 42
----------------------------------------------------------------
PERFORMANCE 42
----------------------------------------------------------------
MANAGEMENT OF THE FUND 44
----------------------------------------------------------------
DISTRIBUTOR 46
----------------------------------------------------------------
ADDITIONAL INFORMATION 47
----------------------------------------------------------------
</TABLE>
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.
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 rates 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."
3
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 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 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
4
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 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.
5
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 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 $50. 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 $50. 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 adviser. SBMFM provides investment advisory and
management
services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of
6
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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. ("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, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. 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
7
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 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. See "Investment Objective and Management Policies."
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"), which are often referred to as "junk bonds," 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 certain portfolio
strategies by the Fund, such as the use of when-issued securities, municipal
bond index futures contracts and put and call options on interest rate
8
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
futures contracts as hedging devices and municipal leases and securities
lending.
See "Investment Objective and Management Policies -- Certain Portfolio
Strategies."
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.
<TABLE>
<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 --
Other expenses*** 0.07 0.10 0.09 0.07
-------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.77% 1.30%
1.34% 0.62%
-------------------------------------------------------------------------------------
<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 Y shares, "Other expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares had been sold as of
December 31, 1994.
</TABLE>
9
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 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.
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.
10
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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."
<TABLE>
<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 $ 81 $ 132
Class B 58 71 81 141
Class C 24 42 73 161
Class Y 6 20 35 77
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A $ 48 $ 64 $ 81 $ 132
Class B 13 41 71 142
Class C 14 42 73 161
Class Y 6 20 35 77
--------------------------------------------------------------------------------
<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.
11
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING INFORMATION HAS BEEN AUDITED BY COOPERS &
LYBRAND L.L.P.,
INDEPENDENT ACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE
FUND'S ANNUAL
REPORT DATED DECEMBER 31, 1994. 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 YEAR:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
12/31/94 12/31/93# 12/31/92*
<S> <C> <C> <C>
Operating performance:
Net Asset Value, beginning of year $ 17.68 $ 17.12 $ 16.77
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.97 1.02 1.12
Net realized and unrealized gain/(loss) on
investments (2.12) 0.80 0.39
- -------------------------------------------------------------------------------------
Total from investment operations (1.15) 1.82 1.51
- -------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.97) (1.03) (1.12)
Distributions in excess of net investment income (0.02) (0.23) (0.03)
Distributions from net capital gains (0.10) -- (0.01)
Distributions from capital --
- -------------------------------------------------------------------------------------
Total distributions (1.0) (1.26) (1.16)
- -------------------------------------------------------------------------------------
Net Asset Value, end of year $ 15.44 $ 17.68 $ 17.12
- -------------------------------------------------------------------------------------
Total return+ (6.62)% 10.93% 9.36%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $466,884 $575,166 $535,514
Ratio of operating expenses to average net assets 0.77% 0.78% 0.67%
Ratio of net investment income to average net
assets 5.91% 5.83% 6.56%
Portfolio turnover rate 36% 20% 30%
- -------------------------------------------------------------------------------------
<FN>
* Any shares outstanding prior to November 6, 1992 were designated as Class A
shares.
+ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charge.
# 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)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
YEAR
ENDED ENDED ENDED ENDED ENDED
ENDED ENDED
12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86
12/31/85
<S> <C> <C> <C> <C> <C>
<C>
15.94
$ $ 16.26 $ 15.97 $ 15.37 $ 16.71 $ 15.48 $ 13.90
-------------------------------------------------------------------------------------
1.15 1.16 1.16 1.15 1.14 1.20 1.24
0.84 (0.32) 0.26 0.61 (1.33) 1.52 1.58
-------------------------------------------------------------------------------------
1.99 0.84 1.42 1.76 (0.19) 2.72 2.82
-------------------------------------------------------------------------------------
(1.16) (1.16) (1.13) (1.16) (1.14) (1.20) (1.24)
-- -- -- -- (0.01) (0.29) --
-- -- -- -- -- -- --
-------------------------------------------------------------------------------------
(1.16) (1.16) (1.13) (1.16) (1.15) (1.49) (1.24)
-------------------------------------------------------------------------------------
$ 16.77 $ 15.94 $ 16.26 $ 15.97 $ 15.37 $ 16.71 $
15.48
-------------------------------------------------------------------------------------
12.98% 5.41% 9.18% 11.82% (1.09)% 18.13%
21.03%
-------------------------------------------------------------------------------------
$469,139 $428,304 $442,563 $429,703 $202,265 $218,980
$125,365
0.64% 0.64% 0.66% 0.64% 0.68% 0.68%
0.81%
7.04% 7.31% 7.17% 7.50% 7.22% 7.25%
8.20%
31% 18% 7% 27% 22% 11%
20%
-------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/94 12/31/93# 12/31/92*
<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 0.89 0.94 0.17
Net realized and unrealized gain/(loss) on
investments (2.13) 0.80 0.20
- -------------------------------------------------------------------------------------
Total from investment operations (1.24) 1.74 0.37
- -------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.88) (0.95) (0.15)
Distributions in excess of net investment income (0.02) -- --
Distributions from net capital gains (0.10) (0.23) (0.03)
Distributions from capital -- -- (0.00)++
- -------------------------------------------------------------------------------------
Total distributions (1.00) (1.18) (0.18)
- -------------------------------------------------------------------------------------
Net Asset Value, end of period $ 15.44 $ 17.68 $ 17.12
- -------------------------------------------------------------------------------------
Total return++ (7.17)% 10.33% 2.23%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $150,765 $137,126 $18,125
Ratio of operating expenses to average net assets 1.30% 1.31%
1.30%**
Ratio of net investment income to average net
assets 5.39% 5.31% 5.94%**
Portfolio turnover rate 36% 20% 30%
- -------------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class B shares 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 charge.
# 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>
14
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
PERIOD
ENDED
12/31/94*
<S> <C>
Operating performance:
Net Asset Value, beginning of period $ 15.19
- -------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
Net realized and unrealized gain/(loss) on
investments 0.35+++
- -------------------------------------------------------------------
Total from investment operations 0.47
- -------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.12)
Distributions in excess of net investment income (0.00)++
Distributions from net capital gains (0.10)
- -------------------------------------------------------------------
Total distributions: (0.22)
- -------------------------------------------------------------------
Net Asset Value, end of period $ 15.44
- -------------------------------------------------------------------
Total return+ 3.08%
- -------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 285
Ratio of net investment income to average net
assets 1.34%**
Ratio of operating expenses to average net assets 5.35%**
Portfolio turnover rate 36%
- -------------------------------------------------------------------
<FN>
* The Fund commenced selling Class C shares on November 10, 1994.
** Annualized.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
++ Amount represents less than $0.01 per Class C share.
+++ The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the Fund for the period because of the timing of purchases and withdrawals of
shares in relation to fluctuating market value of the portfolio.
</TABLE>
AS OF DECEMBER 31, 1994, NO CLASS Y SHARES HAD BEEN SOLD AND,
ACCORDINGLY, NO
COMPARABLE FINANCIAL INFORMATION IS AVAILABLE AT THIS TIME FOR
THAT CLASS.
15
<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. Unrated securities in which the Fund invests 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 which are sometimes referred to as "junk
bonds." Securities in the fourth highest rating category, though considered to
be investment-grade, have speculative characteristics. Securities rated as low
as D are extremely speculative and are in actual default of interest and/or
principal payments.
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-
16
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 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. A description of the rating systems of
Moody's and S&P is contained in the Statement of Additional Information.
The value of debt securities varies inversely to changes in the direction of
interest
rates. When interest rates rise, the value of debt securities generally
falls, and when interest rates fall, the value of debt securities generally
rises.
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
17
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
will
discontinue appropriating funding for the leased property in the event such
property is no longer considered essential by the municipality; (e) the legal
recourse of the lease obligee in the event of such a failure to appropriate
funding; (f) whether the security is backed by a credit enhancement such as
insurance; and (g) any limitations which are imposed on the lease obligor's
ability to utilize substitute property or services rather than those covered by
the lease obligation.
The Fund may invest without limit in 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.
18
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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
(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
19
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 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.
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 United
States securities 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
when 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
20
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- ---------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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.
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.
21
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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. 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 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
22
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
NEW YORK MUNICIPAL SECURITIES (CONTINUED)
(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 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
23
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
NEW YORK MUNICIPAL SECURITIES (CONTINUED)
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
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.
24
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
NEW YORK MUNICIPAL SECURITIES (CONTINUED)
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 reflects the fair value of those investments.
Amortized cost involves valuing an investment at its original cost to the Fund
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. Further information regarding the Fund's valuation
policies is contained in the Statement of Additional Information.
- --------------------------------------------------------------------
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.
25
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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 4.00% 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 Class 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
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
26
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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
27
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Federal individual and corporate alternative minimum 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.
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.
<TABLE>
<CAPTION>
NEW
YORK
STATE
&
NEW
YORK COMBINED
FEDERAL CITY COMBINED EFFECTIVE
TAXABLE INCOME MARGINAL MARGINAL MARGINAL MARGINAL
TAX-EXEMPT YIELDS
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
28
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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.
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 $50. 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
29
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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
Systematic Investment Plan, Smith Barney or TSSG is authorized through
preauthorized transfers of $50 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
The
sales charges applicable to purchases of Class A shares of the Fund are as
follows:
<TABLE>
<CAPTION>
DEALERS
SALES CHARGE SALES CHARGE
REALLOWANCE
AS % OF AS % OF AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNTED
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>
30
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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
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.
31
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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
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 Alternative -- 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
32
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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.
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. 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:
33
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
(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 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.
<TABLE>
<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
34
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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."
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.
35
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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 case of
all
other shareholders) of the shareholder's status or holdings, as the case may
be.
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
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.
<TABLE>
<C> <S>
FUND NAME
- ----------------------------------------------------------------------------
GROWTH FUNDS
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
</TABLE>
36
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
GROWTH AND INCOME FUNDS
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Funds, Inc. -- Utilities Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
TAXABLE FIXED-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 Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
TAX-EXEMPT 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 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
</TABLE>
37
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
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
INTERNATIONAL FUNDS
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
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 the 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
38
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
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.
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
39
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- ---------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
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.
- --------------------------------------------------------------------
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
40
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
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 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 corporations, 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 $50 monthly or quarterly. The withdrawal plan
will be carried over on exchanges between funds or Classes
41
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
of the Fund. Any applicable CDSC will not be waived on amounts withdrawn by a
share
holder 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.
- --------------------------------------------------------------------
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.
42
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PERFORMANCE (CONTINUED)
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 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
43
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
PERFORMANCE (CONTINUED)
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 investment 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 its predecessor) has been in the
investment counseling business since 1934 and is a registered investment
adviser. SBMFM renders investment advice to investment companies that had
aggregate assets under management as of January 31, 1995 in excess of $51.9
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
44
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
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, 1994, the Fund paid investment advisory fees to
Mutual Management Corp. and SBMFM in an amount equal to 0.34% 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 on
January 23, 1986 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, 1994, is included
in the Annual Report dated December 31, 1994. 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% of net
assets up to $500 million; and 0.18% of net assets in excess of $500 million.
For the fiscal year ended December 31, 1994, the Fund paid administration fees
equal to 0.19% of the value of the average daily net assets of the Fund.
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 investment
companies that had aggregate assets under management as of January 31, 1995 in
excess of $69.7 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
45
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
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
46
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
shareholder 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
services 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
47
<PAGE>
SMITH BARNEY
NEW YORK MUNICIPALS FUND INC.
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
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 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.
-------------------
48
<PAGE>
[LOGO]
SMITH BARNEY
NEW YORK
MUNICIPALS
FUND INC.
388 Greenwich Street
New York, New York 10013
Fund 13, 194, 486, 468
FD 0208 C5
[LOGO]
Smith Barney
NEW YORK MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 1995
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 March 1, 1995, as amended or sup-
plemented 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 23
Redemption of Shares 24
Distributor 25
Valuation of Shares 26
Exchange Privilege 27
Performance Data (See in the Prospectus "Performance") 28
Taxes (See in the Prospectus "Dividends, Distributions and Taxes") 31
Additional Information 33
Financial Statements 34
Appendices 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 names of the Directors and executive officers of the Fund, together
with information as to their principal business occupations during the
past five years, are shown below. Each Director who is an "interested per-
son" 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 (Age 71). Private Investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Director (Age 72). Retired; formerly Senior Con-
sultant to Dean Witter Reynolds Inc. His address is 19 Circle End Drive,
Ramsey, New Jersey 17466.
Martin Brody, Director (Age 73). Vice Chairman of the Board of Restaurant
Associates Industries Corp.; a Director of Jaclyn, Inc. His address is HMK
Associates, Three ADP Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Director (Age 57). Professor, Graduate School of Business
Administration, Harvard University; a Director of Peer Review Analysis,
Inc. His address is Graduate School of Business Administration, Harvard
University, Boston, Massachusetts 02163.
Burt N. Dorsett, Director (Age 64). Managing Partner of Dorsett McCabe
Management, Inc., an investment counseling firm; Director of Research Cor-
poration Technologies, Inc., a non-profit patent- clearing and licensing
firm. His address is 201 East 62nd Street, New York, New York 10021.
Elliot S. Jaffe, Director (Age 68). 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 (Age 62). Attorney. His address is 277 Park
Avenue, New York, New York 10017.
Joseph J. McCann, Director (Age 64). Financial Consultant; formerly Vice
President of Ryan Homes, Inc. His address is 200 Oak Park Place, Pitts-
burgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer (Age 61).
Managing Director of Smith Barney, Chairman of Smith Barney Strategy Ad-
visers Inc. and President of SBMFM; prior to July 1993, Senior Executive
Vice President of Shearson Lehman Brothers Inc. ("Shearson Lehman Broth-
ers"), Vice Chairman of Shearson Asset Management, a Director of PanAgora
Asset Management, Inc. and PanAgora Asset Management Limited. His address
is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr., Director (Age 61). President, Cornelius C. Rose
Associates, Inc., Financial Consultants, and Chairman and Director of Per-
formance Learning Systems, an educational consultant. His address is P.O.
Box 355, Fair Oaks, Enfield, New Hampshire 03748.
James J. Crisona, Director Emeritus (Age 87). Attorney; formerly Justice
of the Supreme Court of the State of New York. His address is 118 East
60th Street, New York, New York 10022.
A Director Emeritus may attend meetings of the Fund's Board of Directors
but has no voting rights at such meetings.
Jessica M. Bibliowicz, President (Age 35). Executive Vice President of
Smith Barney; prior to 1994, Director of Sales and Marketing for Pruden-
tial Mutual Funds; prior to 1990, First Vice President, Asset Management
Division of Shearson Lehman Brothers. (Ms. Bibliowicz also serves as Pres-
ident of 26 other mutual funds of the Smith Barney Mutual Funds.) Her ad-
dress is 388 Greenwich Street, New York, New York 10013.
Lawrence T. McDermott, Vice President and Investment Officer (Age 45). In-
vestment Officer of SBMFM; prior to July 1993, Managing Director of Shear-
son Lehman Advisors, a predecessor to SBMFM. (Mr. McDermott also serves as
Vice President and Investment Officer of eight other funds of the Smith
Barney Mutual Funds.) His address is 388 Greenwich Street, New York, New
York 10013.
Karen L. Mahoney-Malcomson, Investment Officer (Age 36). Investment Of-
ficer of SBMFM; prior to July 1993, Senior Vice President of Shearson Leh-
man Advisors. Her address is 388 Greenwich Street, New York, New York
10013.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 37). Managing
Director of Smith Barney; Chief Financial Officer of the Smith Barney Mu-
tual Funds; Director and Senior Vice President of SBMFM. (Mr. Daidone also
serves as Senior Vice President and Treasurer of 41 other funds of the
Smith Barney Mutual Funds.) His address is 388 Greenwich Street, New York,
New York 10013.
Christina T. Sydor, Secretary (Age 44). Managing Director of Smith Barney;
General Counsel and Secretary of SBMFM. (Ms. Sydor also serves as Secre-
tary of 41 other funds of the Smith Barney Mutual Funds.) Her address is
388 Greenwich Street, New York, New York 10013.
Each Director also serves as a Director, trustee and/or general partner of
certain other mutual funds for which Smith Barney serves as distributor.
As of February 1, 1995, the Directors and officers of the Fund, as a
group, owned less than 1% of the outstanding common stock of the Fund.
No officer, director or employee of Smith Barney or any parent or subsid-
iary receives any compensation from the Fund for serving as an officer 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 each Director Emeritus $1,000
per annum plus $250 per meeting attended. All Directors are reimbursed for
travel and out-of-pocket expenses. For the fiscal year ended December 31,
1994, such fees and expenses totalled $44,217.
For the calendar year ended December 31, 1994, the Directors of the Fund
were paid the following compensation:
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
AGGREGATE COMPENSATION FROM THE
SMITH BARNEY
DIRECTOR (*) FROM THE FUND MUTUAL
FUNDS
<S> <C> <C>
Herbert Barg (13) $4,500 $ 77,850
Alfred Bianchetti (8) 4,500 38,850
Martin Brody (16) 3,500 111,675
Dwight B. Crane (18) 4,500 125,975
James J. Crisona (10)** 4,500 67,350
Burt N. Dorsett (12) 1,000 34,300
Elliot S. Jaffe (12) 1,000 33,300
Stephen E. Kaufman (10) 2,500 83,600
Joseph J. McCann (8) 4,500 51,100
Heath B. McLendon (29) N/A N/A
Cornelius C. Rose, Jr. (12) 1,000 33,300
<FN>
(*) Number of director/trusteeships held with other mutual funds of the
Smith Barney Mutual Funds.
** Director Emeritus.
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR -- SBMFM
SBMFM (formerly known as Smith, Barney Advisers, Inc.) serves as invest-
ment adviser to the Fund pursuant to a transfer of the investment advisory
agreement effective November 7, 1994, from its affiliate, Mutual Manage-
ment Corp. Mutual Management Corp. and SBMFM are both wholly owned subsid-
iaries of Smith Barney Holdings Inc. ("Holdings") which in turn is a
wholly owned subsidiary of The Travelers Inc. ("Travelers"). The advisory
agreement is dated July 30, 1993 (the "Advisory Agreement"), and was first
approved by the Board of Directors, including a majority of those Direc-
tors who are not "interested persons" of the Fund or SBMFM, on April 7,
1993. The services provided by SBMFM under the Advisory Agreement are de-
scribed in the Prospectus under "Management of the Fund." SBMFM pays the
salary of any officer and employee who is employed by both it and the
Fund.
As compensation for investment advisory services, the Fund pays SBMFM a
fee computed daily and paid monthly at the following annual rates of the
Fund's average daily net assets: 0.35% up to $500 million; and 0.32% in
excess of $500 million. For the 1992, 1993 and 1994 fiscal years the Fund
incurred $1,754,263, $2,218,952 and $2,300,014, respectively, in advisory
fees.
SBMFM also serves as administrator to the Fund pursuant to a written
agreement dated April 20, 1994, (the "Administration Agreement") 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. The services provided by SBMFM under the Admin-
istration Agreement are described in the Prospectus under "Management of
the Fund." SBMFM pays the salary of any officer and employee who is em-
ployed by both it and the Fund and bears all expenses in connection with
the performance of its services.
As compensation for administrative services rendered to the Fund, SBMFM
receives a fee paid at the following annual rates of average daily net as-
sets: 0.20% up to $500 million; and 0.18% in excess of $500 million. For
the period from April 20, 1994 to December 31, 1994, the Fund paid SBMFM
$918,362 in administration fees.
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors serves as sub-administrator to the Fund pursuant to a
written agreement (the "Sub- Administration Agreement") dated April 20,
1994, which was most recently approved by the Fund's Board of Directors,
including a majority of Directors who are not "interested persons" of the
Fund or Boston Advisors on July 20, 1994. Under the Sub-Administration
Agreement, 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. 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").
Prior to April 20, 1994, Boston Advisors served as the Fund's sub-
investment adviser and/or administrator. For the 1992 and 1993 fiscal
years, the Fund paid Boston Advisors $1,002,117 and $1,263,785, respec-
tively, in sub-investment advisory and/or administration fees. For the
fiscal period from January 1, 1994 through April 19, 1994, the Fund paid
Boston Advisors $391,021 in administration fees.
Certain services provided to the Fund by Boston Advisors pursuant to the
Sub-Administration Agreement are described in the Prospectus under "Man-
agement of the Fund." In addition to those services, Boston Advisors pays
the salaries of all officers and employees who are employed by both it and
the Fund, maintains office facilities for the Fund, furnishes the Fund
with statistical and research data, clerical help and accounting, data
processing, bookkeeping, internal auditing and legal services and certain
other services required by the Fund, prepares reports to the Fund's share-
holders, and prepares tax returns and reports to and filings with the Se-
curities and Exchange Commission (the "SEC") and state Blue Sky authori-
ties. Boston Advisors bears all expenses in connection with the perfor-
mance of its 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, SBMFM or
Boston Advisors; SEC fees and state Blue Sky qualification fees; charges
of custodian; transfer and dividend disbursing agent's fees; certain in-
surance premiums; outside auditing and legal expenses; costs of maintain-
ing corporate existence; costs of investor services (including allocated
telephone and personnel expenses); costs of preparing and printing of pro-
spectuses for regulatory purposes and for distribution to existing share-
holders; 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 fees paid pursuant to the Fund's services and
distribution plan, and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Fund, SBMFM and Bos-
ton Advisors will, to the extent required by state law, reduce their 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 SBMFM and Boston Advisors to reduce their fees in
any year that such expenses exceed 2.50% of the first $30 million of aver-
age 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 1992, 1993 and 1994 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 legal counsel.
KPMG Peat Marwick LLP, independent accountants, 345 Park Avenue, New York,
New York 10154, serve as auditors of the Fund and will render an opinion
on the Fund's financial statements annually beginning with the fiscal year
ending December 31, 1995. Prior to KPMG Peat Marwick's appointment, Coo-
pers & Lybrand L.L.P., independent auditors, served as auditors of the
Fund and rendered an opinion on the financial statements for the fiscal
year ended December 31, 1994.
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 may not fully weather 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, it may invest in short-
term investments ("Temporary Investments") consisting of: (a) the follow-
ing 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 SBMFM's ability to pre-
dict correctly movements in the direction of interest rates. Such predic-
tions involve skills and techniques which may be different from those in-
volved in the management of a long-term municipal bond portfolio. In addi-
tion, 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 de-
gree of imperfection of correlation depends upon various circumstances,
such as variations in speculative market demand for futures contracts and
Municipal Bonds and technical influences on futures trading. The degree of
imperfection of correlation may be increased with respect to the Fund,
which will hold primarily New York Municipal securities rather than a se-
lection of the bonds constituting any index. The Fund's Municipal Bonds
and the bonds in the index may also differ in such respects as interest
rate levels, maturities and creditworthiness of issuers. A decision of
whether, when and how to hedge involves the exercise of skill and judgment
and even a well-conceived hedge may be unsuccessful 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. Futures con-
tract 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 traders 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 futures 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 fu-
tures 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).
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. If a per-
centage restriction is complied with at the time of investment, a later
increase or decrease in percentage resulting from a change in the value of
portfolio securities or in the amount of the Fund's assets will not con-
stitute 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 restrictions 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 involved.
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. The Fund also may execute
portfolio transactions through Smith Barney and its affiliates in accor-
dance with rules promulgated by the SEC.
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. Se-
curities may be sold in anticipation of a rise in interest rates (market
decline) or purchased in anticipation of a decline in interest rates (mar-
ket rise) and later sold. In addition, a security may be sold and another
security of comparable quality may be purchased at approximately the same
time to take advantage of what the Fund believes to be a temporary dispar-
ity in the normal yield relationship between the two securities. These
yield disparities may occur for reasons not directly related to the in-
vestment 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 1993 and 1994 fiscal years, the
Fund's portfolio turnover rates were 20% and 36%, respectively.
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.
The yields on Municipal Bonds are dependent on a variety of factors, in-
cluding general economic and monetary conditions, the financial condition
of the issuer, general conditions of the Municipal Bond market, the size
of a particular offering, maturity of the obligation offered and the rat-
ing of the issue. Municipal Bonds are subject to the provisions of bank-
ruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, that may
be enacted by Congress or state legislatures extending the time for pay-
ment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to
levy taxes. The possibility also exists that, as a result of litigation or
other conditions, the power or ability of any one or more issuers to pay,
when due, the principal of and interest on, its or their Municipal Bonds
may be materially and adversely affected.
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 is the third 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 nation's finance, insur-
ance, transportation, communications and services employment, and a very
small share of the nation's farming and mining activity. The State has a
declining proportion of its workforce engaged in manufacturing, and an in-
creasing 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 metropolitan area, accounts for a large
portion of 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 position. The re-
cession has been more severe in the State, owing to a significant re-
trenchment in the financial services industry, cutbacks in defense
spending, and an overbuilt real estate market. There can be no assurance
that the State economy will not experience worse-than-predicted results in
the 1994-95 fiscal year, 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. It stood at 7.7% in
1993. The total employment growth rate in the State has been below the na-
tional average since 1984. State per capita personal income remains above
the national average. State per capita income for 1993 was $24,623, which
is 18.3% above the 1993 national average of $20,817. During the past ten
years, total personal income in the State rose slightly faster than the
national average only in 1986 through 1989.
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 appro- priations or reappropriations and any new or modified rev-
enue 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 is required to submit to the Legislature quarterly bud-
get updates which include a revised cash-basis state financial plan, and
an explanation of any changes from the previous state financial plan.
The State's budget for the 1994-95 fiscal year was enacted by the Legisla-
ture on June 7, 1994, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropria-
tions for disbursements considered to be necessary for State operations
and other purposes, including all necessary appropriations for debt ser-
vice. The State financial plan for the 1994-95 fiscal year was formulated
on June 16, 1994 and is based upon the State's budget as enacted by the
Legislature and signed into law by the Governor (the "1994-95 State Finan-
cial Plan"). This delay in the enactment of the State's 1994-95 fiscal
year budget may reduce the effectiveness of several of the actions pro-
posed.
The State issued its second quarterly update to the cash basis 1994-95
State Financial Plan on October 28, 1994. The update projects a year-end
surplus of $14 million in the General Fund, with estimated receipts re-
duced by $267 million and estimated disbursements reduced by $281 million,
compared to the 1994-95 State Financial Plan as initially formulated.
The 1994-95 State Financial Plan is based on a number of assumptions and
projections. Because it is not possible to predict accurately the occur-
rence of all factors that may affect the 1994-95 State Financial Plan, ac-
tual 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 pro-
jected from a lower recurring receipts base and the spending required to
maintain State programs at current levels. To address any potential bud-
getary imbalance, the State may need to take significant actions to align
recurring receipts and disbursements in future fiscal years.
Recent Financial Results. The General Fund is the general operating fund
of the State and is used to account for all financial transactions, except
those required to be accounted for in another fund. It is the State's
largest fund and receives almost all State taxes and other resources not
dedicated to particular purposes. In the State's 1994-95 fiscal year, the
General Fund is expected to account for approximately 52% of total
governmental-fund receipts and 51% of total governmental-fund disburse-
ments.
The General Fund is projected to be balanced on a cash basis for the 1994-
95 fiscal year. Total receipts are projected to be $34.321 billion, an in-
crease of $2.092 billion over total receipts in the prior fiscal year.
Total General Fund disbursements are projected to be $34.248 billion, an
increase of $2.351 billion over the total amount disbursed and transferred
in the prior fiscal year.
The State's financial position on a GAAP (generally accepted accounting
principles) basis as of March 31, 1993 included an 1991-92 accumulated
deficit in its combined governmental funds of $681 million. Liabilities
totalled $12.864 billion and assets of $12.183 billion were available to
liquidate these liabilities.
The State's financial operations have improved during recent fiscal years.
During the period 1989-90 through 1991-92, the State incurred General Fund
operating deficits that were closed with receipts from the issuance of tax
and revenue anticipation notes. The national recession and then the lin-
gering economic slowdown in the New York and regional economy, resulted in
repeated shortfall in receipts and three budget deficits. For its 1992-93
and 1993-94 fiscal years, however, the State recorded balanced budgets on
a cash basis, with substantial fund balances in each year.
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 general obligation borrowing (i.e., borrowing for more than one year)
unless the borrowing is authorized in a specific amount for a single work
or purpose by the Legislature and approved by the voters. There is no lim-
itation on the amount of long-term general obligation debt that may be so
authorized and subsequently incurred by the State. The total amount of
long-term State general obligation debt authorized but not issued as of
December 31, 1993 was approximately $2.273 billion.
The State may undertake short-term borrowings without voter approval (i)
in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued general obligation
bonds, by issuing bond anticipation notes. The State may also, pursuant to
specific constitutional authorization, directly guarantee certain obliga-
tions of the State of New York's authorities and public benefit corpora-
tions ("Authorities"). Payments of debt service on New York State general
obligation and New York State-guaranteed bonds and notes are legally en-
forceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-
purchase and contractual- obligation financings, which involve obligations
of public authorities or municipalities that are State- supported but are
not general obligations of the State. Under these financing arrangements,
certain public authorities and municipalities have issued obligations to
finance the construction and rehabilitation of facilities or the acquisi-
tion of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the
State. Although these financing arrangements involve a contractual agree-
ment by the State to make payments to a public authority, municipality or
other entity, the State's obligation to make such payments is generally
expressly made subject to appropriation by the Legislature and the actual
availability of money to the State for making the payments. The State has
also entered into a contractual-obligation financing arrangement with the
Local Government Assistance Corporation ("LGAC") in an effort to restruc-
ture the way the State makes certain local aid payments.
In 1990, as part of a State fiscal reform program, legislation was enacted
creating 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 these long-term obliga-
tions, which are to be amortized over no more than 30 years, was expected
to eliminate the need for continued short-term seasonal borrowing. The
legislation also dedicated revenues equal to one-quarter of the four cent
State sales and use tax to pay debt service on these bonds. The legisla-
tion also imposed a cap on the annual seasonal borrowing 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 the need for additional borrow-
ing and provided a schedule for reducing it to the cap. If borrowing above
the cap is thus permitted in any fiscal year, it is required by law to be
reduced to the cap by the fourth fiscal year after the limit was first ex-
ceeded. As of December 1994, LGAC had issued bonds to provide net proceeds
of $3.856 billion and has been authorized to issue its bonds to provide
net proceeds of up to an additional $315 million during the State's 1994-
95 fiscal year. The impact of this borrowing, together with the availabil-
ity of certain cash reserves, is that, for the first time in nearly 35
years, the 1994-95 State Financial Plan includes no short-term seasonal
borrowing.
In April 1993, legislation was enacted proposing significant constitu-
tional changes to the long-term financing practices of the State and the
Authorities.
The Legislature passed a proposed constitutional amendment that would per-
mit the State, 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 transpor-
tation 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, after its effective date, lease-purchase and
contractual-obligation financing mechanisms for State facilities. Public
hearings were held on the proposed constitutional amendment during 1993.
Following these hearings, in February 1994, the Governor and the State
Comptroller recommended a revised constitutional amendment which would
further tighten the ban on lease-purchase and contractual- obligation fi-
nancing, incorporate existing lease-purchase and contractual-obligation
debt under the proposed revenue bond cap while simultaneously reducing the
size of the cap. After considering these recommendations, the Legislature
passed a revised constitutional amendment which tightens the ban, and pro-
vides for a phase-in to a lower cap. Before the approved constitutional
amendment or any revised amendment enacted in 1994 can be presented to the
voters for their consideration, it must be passed by a separately elected
legislature. The amendment must therefore be passed by the newly elected
Legislature in 1995 prior to presentation to the voters at the earliest in
November 1995. The amendment could not become effective before January 1,
1996.
On January 13, 1992, Standard & Poor's Corporation ("Standard & Poor's")
reduced its ratings on the State's general obligation bonds from A to A-
and, in addition, reduced its ratings on the State's moral obligation,
lease purchase, guaranteed and contractual obligation debt. Standard &
Poor's also continued its negative rating outlook assessment on State gen-
eral obligation debt. On April 26, 1993, Standard & Poor's revised the
rating outlook assessment to stable. On February 14, 1994, Standard &
Poor's raised its outlook to positive and, on February 28, 1994, confirmed
its A- rating. On January 6, 1992, Moody's Investors Service, Inc.
("Moody's") reduced its ratings on outstanding limited-liability State
lease purchase and contractual obligations from A to Baa1. On February 28,
1994, Moody's reconfirmed its A rating on the State's general obligation
long-term indebtedness.
The State anticipates that its capital programs will be financed, in part,
by State and public authorities borrowings in 1994-95. The State expects
to issue $374 million in general obligation bonds (including $140 million
for purposes of redeeming outstanding bond anticipation notes) and $140
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $69 million in certificates of participa-
tion during the State's 1994-95 fiscal year for equipment purchases. The
projection of the State regarding its borrowings for the 1994-95 fiscal
year may change if circumstances require.
Principal and interest payments on general obligation bonds and interest
payments on bond anticipation notes and on tax and revenue anticipation
notes were $782.5 million for the 1993-94 fiscal year, and are estimated
to be $786.3 million for the 1994-95 fiscal year. These figures do not in-
clude interest payable on State General Obligation Refunding Bonds issued
in July 1992 ("Refunding Bonds") to the extent that such interest was paid
from an escrow fund established with the proceeds of such Refunding Bonds.
Principal and interest payments on fixed rate and variable rate bonds is-
sued by LGAC were $239.4 million for the 1993-94 fiscal year, and are es-
timated to be $289.9 million for 1994-95. State lease-purchase rental and
contractual obligation payments for 1993-94, including State installment
payments relating to certificates of participation, were $1.258 billion
and are estimated to be $1.495 billion in 1994-95.
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.
Litigation. Certain litigation pending against New York State or its of-
ficers 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: (1) the validity of agreements and treaties by which
various Indian tribes transferred title to New York State of certain land
in central and upstate New York; (2) certain aspects of New York State's
Medicaid policies, including its rates, regulations and procedures; (3)
contamination in the Love Canal area of Niagara Falls; (4) action against
New York State and New York City officials alleging inadequate shelter al-
lowances to maintain proper housing; (5) challenges to the practice of re-
imbursing certain Office of Mental Health patient care expenses from the
client's Social Security benefits; (6) alleged responsibility of New York
State officials to assist in remedying racial segregation in the City of
Yonkers; (7) action in which the State is a third party defendant, for in-
junctive or other appropriate relief, concerning liability for the mainte-
nance of stone groins constructed along certain areas of Long Island's
shoreline; (8) challenges by commercial insurers, employee welfare benefit
plans, and health maintenance organizations to Section 2807-c of the Pub-
lic Health Law, which imposes 13%, 11% and 9% surcharges on inpatient hos-
pital bills and a bad debt and charity care allowance on all hospital
bills and hospital bills paid by such entities; (9) challenge by a long
distance carrier to the constitutionality of Tax Law S.186-a(2-a) which
restricted certain deduction of local access service fees and (10) chal-
lenges to certain aspects of petroleum business taxes.
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. On June 30, 1994, the Court of Appeals
unanimously affirmed the rulings of the trial court and the Appellate Di-
vision in favor of the State.
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. As a result, the
State's Comptroller has developed a plan to restore the State's retirement
systems to prior funding levels. Such funding is expected to exceed prior
levels by $30 million in fiscal 1994-95, $63 million in fiscal 1995-96,
$116 million in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at
$241 million in fiscal 1998-99. Beginning in fiscal 2001-02, State contri-
butions required under the Comptroller's plan are projected to be less
than that required under the prior funding method. As a result of the
United States Supreme Court decision in the case of State of Delaware v.
State of New York, on January 21, 1994, the State entered into a settle-
ment agreement with Delaware. The State made an immediate $35 million pay-
ment to Delaware and agreed to make annual payments of $33 million in each
of the next five fiscal years. In return, Delaware has agreed to withdraw
its claims and its request for summary judgment. The State and Massachu-
setts have also executed a settlement agreement which provides for aggre-
gate payments by New York State of $23 million, payable over five consecu-
tive years. Litigation continues with respect to other parties and the
State may be required to make additional payments during the State's 1994-
95 fiscal year.
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 1994-95 fiscal year or thereafter. Adverse developments in
these proceedings or the initiation of new proceedings could affect the
ability of the State to maintain a balanced 1994-95 State Financial Plan.
An adverse decision in any of these proceedings could exceed the amount of
the 1994-95 State Financial Plan reserve for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced
1994-95 State Financial Plan. In its audited financial statements for the
fiscal year ended March 31, 1994, the State reported its estimated liabil-
ity for awarded and anticipated unfavorable judgments to be $675 million.
Although other litigation is pending against New York State, except as de-
scribed above, no current litigation involves New York State's authority,
as a matter of law, to contract indebtedness, issue its obligations, or
pay such indebtedness when it matures, or affects New York State's power
or ability, as a matter of law, to impose or collect significant amounts
of taxes and revenues.
Authorities. The fiscal stability of New York State is related, in part,
to the fiscal stability of its Authorities, which generally have responsi-
bility for financing, constructing and operating revenue- producing public
benefit facilities. Authorities are not subject to the constitutional re-
strictions on the incurrence of debt which apply to the State itself, and
may issue bonds and notes within the amounts of, and as otherwise re-
stricted by, their legislative authorization. The State's access to the
public credit markets could be impaired, and the market price of its out-
standing debt may be materially and adversely affected, if any of the Au-
thorities were to default on their respective obligations, particularly
with respect to debt that are State-supported or State-related. As of Sep-
tember 30, 1993, date of the latest data available, there were 18 Authori-
ties that had outstanding debt of $100 million or more. The aggregate out-
standing debt, including refunding bonds, of these 18 Authorities was
$63.5 billion. As of March 31, 1994, aggregate public authority debt out-
standing as State-supported debt was $21.1 billion and as State-related
debt was $29.4 billion.
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, New
York State has provided financial assistance through appropriations, in
some cases of a recurring nature, to certain of the 18 Authorities for op-
erating and other expenses and, in fulfillment of its commitments on moral
obligation indebtedness or otherwise, for debt service. This operating as-
sistance is expected to continue to be required in future years. In addi-
tion, certain statutory arrangements provide for State local assistance
payments otherwise payable to localities to be made under certain circum-
stances to certain Authorities. The State has no obligation to provide ad-
ditional assistance to localities whose local assistance payments have
been paid to Authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected locali-
ties could seek additional State funds.
New York City and Other Localities. The fiscal health of the State of New
York may also be impacted by the fiscal health of its localities, particu-
larly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City's indepen-
dently audited operating results for each of its 1981 through 1993 fiscal
years, which end on June 30, show a General Fund surplus reported in ac-
cordance with GAAP. In addition, the City's financial statements for the
1993 fiscal year received an unqualified opinion from the City's indepen-
dent auditors, the eleventh consecutive year the City has received such an
opinion.
In 1975, New York City suffered a fiscal crisis that impaired the borrow-
ing ability of both the City and New York 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.
In 1975, Standard & Poor's suspended its A rating of City bonds. This sus-
pension remained in effect until March 1981, at which time the City re-
ceived an investment grade rating of BBB from Standard & Poor's. On July
2, 1985, Standard & Poor's revised its rating of City bonds upward to BBB+
and on November 19, 1987, to A-. On July 2, 1993, Standard & Poor's recon-
firmed its A- rating of City bonds, continued its negative rating outlook
assessment and stated that maintenance of such rating depended upon the
City's making further progress towards reducing budget gaps in the outly-
ing years. Moody's ratings of City bonds were revised in November 1981
from B (in effect since 1977) to Ba1, in November 1983 to Baa, in December
1985 to Baa1, in May 1988 to A and again in February 1991 to Baa1. On Jan-
uary 17, 1995, Standard and Poor's placed the City's general obligation
bonds on its CreditWatch list which may portend a rating downgrade from
the agency in the upcoming months.
New York City is heavily dependent on New York State and federal assis-
tance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to
make up its budget deficits. To help alleviate the City's financial diffi-
culties, 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 derived in the City and from State per capita aid otherwise pay-
able by the State to the City. Failure by the State to continue the impo-
sition 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 autho-
rizing MAC's long-term debt. The occurrence of an event of default may re-
sult in the acceleration of the maturity of all or a portion of MAC's
debt. As of December 31, 1993, MAC had outstanding an aggregate of approx-
imately $5.204 billion of its bonds. MAC bonds and notes constitute gen-
eral 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. New York 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
period. This means that the Control Board's powers of approval are sus-
pended, but the Board continues to have oversight responsibilities.
The staffs of OSDC and the Control Board issued periodic reports on the
City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compli-
ance with the financial plan, as modified, by the City and its Covered Or-
ganizations (i.e., those which receive or may receive monies from the City
directly, indirectly or contingently). OSDC staff reports issued during
the mid-1980's noted that the City's budgets benefited from a rapid rise
in the City's economy, which boosted the City's collection of property,
business and income taxes. These resources were used to increase the
City's workforce and the scope of discretionary and mandated City ser-
vices. Subsequent OSDC staff reports examined the 1987 stock market crash
and the 1989-92 recession, which affected the City's region more severely
than the nation, and attributed an erosion of City revenues and increasing
strain on City expenditures to that recession. According to a recent OSDC
staff report, the City's economy is now slowly recovering, but the scope
of that recovery is uncertain and unlikely, in the forseeable future, to
match the expansion of the mid-1980's. Also, staff reports of OSDC and the
Control Board have indicated that the City's recent balanced budgets have
been accomplished, in part, through the use of non-recurring resources,
tax increases and additional State assistance; that the City has not yet
brought its long-term expenditures in line with recurring revenues; and
that the City is therefore likely to continue to face future projected
budget gaps requiring the City to increase revenues and/or reduce expendi-
tures. According to the most recent staff reports of OSDC and the Control
Board, during the four-year period covered by the current financial plan,
the City is relying on obtaining substantial resources from initiatives
needing approval and cooperation of its municipal labor unions, Covered
Organizations and City Council, as well as the state and federal govern-
ments, among others.
Although the City has balanced its budget since 1981, estimates of the
City's revenues and expenditures, which are based on numerous assumptions,
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 materialize that re-
duce expected revenues or increase projected expenditures, then, to avoid
operating deficits, the City may be required to implement additional ac-
tions, including increases in taxes and reductions in essential City ser-
vices. 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 fiscal year 1994. The City's capital financing
program projects long-term financing requirements of approximately $17
billion for the City's fiscal years 1995 through 1998. 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 $1.8 billion in fiscal year 1994.
Certain localities, in addition to the City, could have financial problems
leading to requests for additional New York State assistance during the
State's 1994-95 fiscal year and thereafter. The potential impact on the
State of such requests by localities is not included in the projections of
the State's receipts and disbursements in the State's 1994-95 fiscal year.
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 New York 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 New York State resources in amounts that cannot yet be de-
termined.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1992, the total indebtedness of all locali-
ties in New York State was approximately $35.2 billion, of which $19.5
billion was debt of New York City (excluding $5.9 billion in MAC debt); a
small portion (approximately $71.6 million) of the $35.2 billion of in-
debtedness represented borrowing to finance budgetary deficits and was is-
sued pursuant to enabling New York State legislation. State law requires
the Comptroller to review and make recommendations concerning the budgets
of those local government units other than New York City authorized by
State law to issue debt to finance deficits during the period that such
deficit financing is outstanding. Seventeen localities had outstanding in-
debtedness for deficit financing at the close of their fiscal year ending
in 1992.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If New York State, New York City or any of the Authorities
were to suffer serious financial difficulties jeopardizing their respec-
tive access to the public credit markets, the marketability of notes and
bonds issued by localities within New York State could be adversely af-
fected. Localities also face anticipated and potential problems resulting
from certain pending litigation, judicial decisions and long-range eco-
nomic trends. The longer range problems of declining urban population, in-
creasing expenditures and other economic trends could adversely affect lo-
calities and require increasing New York State assistance in the future.
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 a sales charge, including
the purchase being made, of any "purchaser" is $25,000 or more. The re-
duced sales charge is subject to confirmation of the shareholder's hold-
ings through a check of appropriate records. The Fund reserves the right
to terminate or amend the combined right of accumulation at any time after
written notice to shareholders. For further information regarding the
right of accumulation, shareholders should contact a Smith Barney Finan-
cial Consultant.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The public
offering price per Class A and Class Y share of the Fund is equal to the
net asset value per share at the time of purchase plus, for Class A
shares, an initial sales charge based on the aggregate amount of the in-
vestment. The public offering price for a Class B, Class C share (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 im-
posed on certain redemptions of Class B, Class C shares, and Class A
shares when purchased in amounts exceeding $500,000. The method of comput-
ing the public offering price is shown in the Fund's financial statements,
incorporated by reference in their entirety into this Statement of Addi-
tional 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 Board of Directors of the Fund determines that it would be detri-
mental to the best interests of the remaining shareholders of the Fund to
make a redemption payment wholly in cash, the Fund may pay, in accordance
with SEC rules, any portion of a redemption in excess of the lesser of
$250,000 or 1% of the Fund's net assets by a distribution in kind of port-
folio securities in lieu of cash. Securities issued as a distribution in
kind may incur brokerage commissions when shareholders subsequently sell
those securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 and who wish
to receive specific amounts of cash monthly or quarterly. Withdrawals of
at least $50 may be made under the Withdrawal Plan by redeeming as many
shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. Any applicable 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. Effective November 7,
1994, Withdrawal Plans should be set up with a Smith Barney Financial Con-
sultant. A shareholder who purchases shares directly through TSSG may con-
tinue 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. For
additional information, shareholders should contact a Smith Barney Finan-
cial Consultant.
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"), which was most recently approved by the Fund's Board of Directors
on July 20, 1994. For the 1992, 1993 and 1994 fiscal years, Smith Barney
or its predecessor Shearson Lehman Brothers received $2,199,014,
$5,438,327 and $623,121, 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 a money market fund (other than
Smith Barney Exchange Reserve Fund) of the Smith Barney Mutual Funds. If
the investor instructs Smith Barney to invest the funds in a Smith Barney
money market fund, the amount of the investment will be included as part
of the average daily net assets of both the Fund and the money market
fund, and affiliates of Smith Barney that serve the funds in an investment
advisory or administrative capacity will benefit from the fact they are
receiving fees from both such investment companies for managing those as-
sets, 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 re-
sulting from these settlement procedures and will take such benefits into
consideration when reviewing the Advisory, Administration and Distribution
Agreements for continuance.
For the fiscal year ended December 31, 1994, Smith Barney incurred distri-
bution expenses totaling approximately $1,718,550, consisting of approxi-
mately $9,000 for advertising, $13,000 for printing and mailing of Pro-
spectuses, $723,550 for support services, $859,000 to Smith Barney Finan-
cial Consultants, and $114,000 in accruals for interest on the excess of
Smith Barney expenses incurred in distributing the Fund's shares over the
sum of the distribution fees and CDSC received by Smith Barney from the
Fund.
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, the Fund pays Smith Barney a dis-
tribution fee with respect to the Class B and Class C shares primarily in-
tended to compensate Smith Barney for its initial expense of paying its
Financial Consultants a commission upon sales of those 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 incurred $848,117 and $122,937, respectively in ser-
vice fees. For the same period the Class B shares incurred $409,790 in
distribution fees. For the fiscal year ended December 31, 1994, the Class
A, Class B and Class C shares incurred $781,465, $226,302 and $51, respec-
tively, in service fees. For the same period, the Class B and Class C
shares incurred $754,341 and $188, respectively, 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 with respect to a
Class at any time, 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, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. Because of the
differences in distribution fees and Class-specific expenses, the per
share net asset value of each Class may differ. The following is a 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. This
privilege is available to shareholders residing in any state in which the
Fund shares being acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current 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-b/ cd +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 A and Class B yield for the 30-day period ended December
31, 1994 was 5.90% and 5.63%, respectively. The tax equivalent yield for
Class A and Class B shares for this period was 10.31% and 9.84%, respec-
tively, 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 yields on municipal securities are dependent upon a variety of fac-
tors, including general economic and monetary conditions, conditions of
the municipal securities market, size of a particular offering, maturity
of the obligation offered and rating of the issue. Investors should recog-
nize that, in periods of declining interest rates, the Fund's yield for
each Class of shares will tend to be somewhat higher than prevailing mar-
ket 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 in-
terest rates are falling, the inflow of net new money to the Fund from the
continuous sale of its shares will likely be invested in portfolio 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.
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 A shares assuming the
maximum applicable sales charge was as follows for the periods indicated:
(10.36)% for the one-year period beginning January 1, 1994 through Decem-
ber 31, 1994;
5.31% for the five-year period beginning January 1, 1990 through December
31, 1994;
8.38% for the ten-year period beginning January 1, 1985 through December
31, 1994;
8.22% during the period from the Fund's commencement of operations on Jan-
uary 23, 1984 through December 31, 1994.
These average total return figures do not assume that the maximum 4.00%
sales charge has been deducted from the investment at the time of pur-
chase. If the sales charge had not been deducted at the time of purchase,
the average total return for its Class A shares for those same periods
would have been: (6.62)%, 6.17%, 8.82%, and 8.62%, respectively.
The Fund's average annual total return for Class B shares assuming the
maximum applicable CDSC was as follows for the periods indicated:
(11.10)% per annum for the one-year period beginning January 1, 1994
through December 31, 1994;
0.91% per annum during the period from commencement (November 6, 1992)
through December 31, 1994.
These average total return figures assume that the maximum 4.5% CDSC has
been deducted from the investment at time of redemption. If the CDSC had
not been deducted at the time of redemption, the average total return for
Class B shares for those same periods would have been: (7.17)% and 2.16%.
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:
(6.62)% for the one-year period beginning January 1, 1994 through December
31, 1994;
34.91% for the five-year period beginning January 1, 1990 through December
31, 1994;
132.91% for the ten-year period beginning January 1, 1985 through December
31, 1994;
147.10% for the period from the Fund's commencement of operations on Janu-
ary 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 (10.36)%, 29.51%, 123.59%, and 137.22%, respectively. The total
return figures 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:
(7.17)% for the one year period beginning January 1, 1994 through December
31, 1994;
4.70% for the period from commencement (November 6, 1992) through December
31, 1994.
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 redemption. If
the maximum CDSC had been deducted at the time of redemption, the Fund's
aggregate total return for the same periods would have been (11.10)% and
1.96%, respectively.
The Fund's aggregate total return for Class C shares was as follows for
the period indicated:
3.08% for the period from commencement (November 10, 1994) through Decem-
ber 31, 1994.
This figure does not assume that the maximum 1.00% CDSC assessed by the
Fund has been deducted from the investment at the time of redemption. If
the maximum CDSC had been deducted at the time of redemption, the Fund's
aggregate total return for the same periods would have been 2.08%.
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
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.
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 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, then the share-
holder may be subject to a 31% "backup withholding" tax with respect to
(a) taxable dividends and distributions, and (b) any proceeds of any re-
demptions 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. Shareholders are urged to consult their tax
advisors with specific reference to their own Federal, state and local tax
situations.
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.
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.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended December 31, 1994 ac-
companies this Statement of Additional Information and is incorporated
herein by reference in its entirety.
APPENDIX A
Description of S&P and Moody's ratings:
S&P RATINGS FOR MUNICIPAL BONDS
S&P's Municipal Bond ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue
bonds. General obligation bonds are usually secured by all resources
available to the municipality and the factors outlined in the rating 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.
APPENDIX B
On February 23, 1995, 6.1% of the market value of the Fund's assets were
in bonds which had ratings (as rated by S & P) below investment grade.
These holdings were composed as follows: 2.6% rated BB; .4% rated B and
3.1% in non-rated securities.
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
MARCH 1, 1995
SMITH BARNEY
A Member of Travelers Group
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, 1994
and the Report of Independent Accountants dated February 8, 1995 are
incorporated by reference to the Definitive 30b-2 filed on February 27,
1995 as Accession # 0000053798-95-000094.
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 incorporated
by reference to Post-Effective Amendment No. 21 filed on November 7, 1994
("Post-Effective Amendment No. 21").
(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 ("Post-
Effective Amendment No. 16").
(5)(a) Investment Advisory Agreement between the Registrant and
Greenwich Street Advisors dated July 30, 1993, is incorporated by reference
to Post-Effective Amendment No. 19.
(5)(b) Transfer and Assumption of Investment Advisory Agreement dated
as of November 7, 1994 among the Registrant, Mutual Management Corporation
and Smith Barney Mutual Funds Management Inc. filed herein.
(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 20, 1994 , between the
Registrant and Smith, Barney Advisers, Inc.("SBA") is incorporated by
reference to Post-Effective Amendment No. 21.
(b) Sub-Administration Agreement dated April 20, 1994 , between the
Registrant, SBA and The Boston Company Advisors, Inc. is incorporated by
reference to Post-Effective Amendment No. 21.
(c) Transfer Agency and Registrar Agreement dated August 23, 1993
between the Registrant and The Shareholder Services Group, Inc. is
incorporated by reference to Post-Effective Amendment No. 2 as filed on
March 1, 1994.
(10) Opinion of Counsel as to the Legality of Securities being
Offered.
(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
between the Registrant and Smith Barney Inc. as incorporated by reference
to Post-Effecctive Amendment No. 21.
(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 December 31, 1994
Common Stock Class A- 10,369
par value $.01 per Class B- 5,211
share Class C- 8
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").
SBMFM was incorporated in December 1968 under the laws of the State of
Delaware. SBMFM 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 SBMFM. The list required by this Item 28 of officers
and directors of 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 SBMFM on behalf of Greenwich Street Advisors pursuant to the Advisers
Act (SEC File No. 801-8314).
Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Advisors, a member of the Asset Management Division 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 Managed Governments
Fund Inc., 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., 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 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 pursuant 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 resignations of Robert Frankel and Paul Hardin were not due to any
disagreement with the Registrant on any matter relating to its operations,
policies or practices. Messrs. Frankel and Hardin resigned because of
increased board responsibilities for other investment companies and a
desire to reduce travel and minimize scheduling conflicts with other
professional obligations.
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 28th day of February, 1995.
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)
/s/ Lewis Daidone
Lewis Daidone Treasurer (Chief Financial
and Accounting Officer)
/s/ Herbert Barg*
Herbert Barg Director
/s/ Alfred J. Bianchetti*
Alfred J. Bianchetti Director
Martin Brody Director
/s/ Dwight B. Crane*
Dwight B. Crane Director
/s/ James J. Crisona*
James J. Crisona Director
Signature Title Date
/s/ Burt N. Dorsett*
Burt N. Dorsett Director
/s/ Dr. Paul Hardin*
Dr. Paul Hardin Director
/s/Elliott S. Jaffe*
Elliott S. Jaffe Director
Stephen E. Kaufman Director
/s/ Joseph J. McCann*
Joseph J. McCann Director
/s/Cornelius C. Rose, Jr.*
Cornelius C. Rose, Jr. Director
*Signed by Lee D. Augsburger, their
duly authorized attorney-in-fact,
pursuant to power of attorney dated
Apil 22, 1993.
/s/ Lee D. Augsburger
Lee D. Augsburger
g:\shared\domestic\client\shearson\funds/nymu/pea#22
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TRANSFER AND ASSUMPTION OF
INVESTMENT ADVISORY AGREEMENT
for
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
TRANSFER AND ASSUMPTION OF INVESTMENT ADVISORY AGREEMENT, made as of
the 7th day of November, 1994, by and among Smith Barney New York
Municipals Fund Inc., a Maryland corporation (the "Company"), Mutual
Management Corp., a New York corporation ("MMC"), and Smith Barney Mutual
Funds Management Inc. ("SBMFM") a Delaware corporation.
WHEREAS, the Company is registered with the Securities and Exchange
Commission as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Company, and MMC entered into an Investment Advisory
Agreement on July 30, 1993, under which MMC serves as the investment
adviser (the "Investment Adviser") for the Company; and
WHEREAS, MMC desires that its interest, rights, responsibilities and
obligations in and under the Investment Advisory Agreement be transferred
to SBMFM and SBMFM desires to assume MMC's interest, rights,
responsibilities and obligations in and under the Investment Advisory
Agreement; and
WHEREAS, this Agreement does not result in a change of actual control
or management of the Investment Adviser to the Company and, therefore, is
not an "assignment" as defined in Section 2(a)(4) of the Act nor an
"assignment" for the purposes of Section 15(a)(4) of the Act.
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Assignment. Effective as of November 7, 1994 (the "Effective
Date"), MMC hereby transfers to SBMFM all of MMC's interest, rights,
responsibilities and obligations in and under the Investment Advisory
Agreement dated July 30, 1993, to which MMC is a party with the Company.
2. Assumption and Performance of Duties. As of the Effective
Date, SBMFM hereby accepts all of MMC's interest and rights, and assumes
and agrees to perform all of MMC's responsibilities and obligations in, and
under the Investment Advisory Agreement; SBMFM agrees to subject to all of
the terms and conditions of said Agreement; and SBMFM shall indemnify and
hold harmless MMC from any claim or demand made thereunder arising or
incurred after the Effective Date.
3. Representation of SBMFM. SBMFM represents and warrants that:
(1) it is registered as an investment adviser under the Investment Advisers
Act of 1940, as amended; and (2) Smith Barney Holdings Inc. is its sole
shareholder.
4. Consent. The Company hereby consents to this transfer by MMC
to SBMFM of MMC's interest, rights, responsibilities and obligations in and
under the Investment Advisory Agreement and to the acceptance and
assumption by SBMFM of the same. The Company agrees, subject to the terms
and conditions of said Agreement, to look solely to SBMFM for the
performance of the Investment Adviser's responsibilities and obligations
under said Agreement from and after the Effective Date, and to recognize as
inuring solely to SBMFM the interest and rights heretofore held by MMC
thereunder.
5. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers hereunto duly attested.
Attest:
/s/Christine T. Sydor By: /s/Heath B. McLendon
Secretary Smith Barney New York Municipals Fund
Inc.
Attest:
By:
Secretary Mutual Management Corp.
Attest:
By:
Secretary Smith Barney Mutual Funds
Management Inc.
shared/domestic/clients/shearson/fund/nymu
Smith Barney
388 Greenwich Street
New York, New York 10013
February 28, 1995
Smith Barney New York Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
Re: Post-Effective Amendment No. 22 to the Registration Statement on Form
N-1A for shares registered for Smith Barney New York Municipals Fund Inc.
File Nos. 2-87001 and 811-3869
Gentlemen:
In connection with the registration of 2,061,813 shares of beneficial
interest, $.01 par value (the "Shares"), by Smith Barney New York
Municipals Fund Inc., a Maryland Corporation (the "Fund"), pursuant to
Post-Effective Amendment No. 22 to the Registration Statement under the
Securities Act of 1933, as amended (the "1933 Act"), and in reliance upon
Rule 24e-2 under the Investment Company Act of 1940, as amended (the "1940
Act"), you have requested that the undersigned provide the required legal
opinion.
The undersigned is Deputy General Counsel and First Vice President of
Smith Barney Inc., the Fund's distributor, and in such capacity, from time
to time and for certain purposes , acts as counsel to the Fund. I have
examined copies of the Fund's Articles of Incorporation, its By-Laws,
resolutions adopted by its Board of Directors, and such other records and
documents as I have deemed necessary for purposes of this opinion.
On the basis of the foregoing, I am of the opinion that the Shares
when sold in accordance with the terms of the Fund's current Prospectus and
Statement of Additional Information will, at the time of sale, be validly
issued, fully paid and non-assessable. This opinion is for the limited
purposes expressed above and should not be deemed to be and expression of
opinion as to compliance with the 1933 Act, the 1940 Act or applicable
State "blue sky" laws in connection with the sales of the Shares.
Very truly yours,
/s/ Lee D. Augsburger
Lee D. Augsburger
Deputy General Counsel and
First Vice President
g:/shared/domestic/clients/shearson/funds/gold/24e2op
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. 22 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
8, 1995 accompanying the Annual Report for the fiscal year ended
December 31, 1994 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.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 24, 1995
