Registration No. 2-89548
811-3970
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. 18 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 19 X
SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC.
(Exact name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York 10048
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code
(212) 720-9218
Francis J. McNamara, III
Secretary
Smith Barney Shearson California Municipals Fund Inc.
One Boston Place
Boston, Massachusetts 02108
(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)
on pursuant to Rule 485(b)
_____ 60 days after filing pursuant to Rule 485(a)
X on April 29, 1994 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 ended
February 28, 1994 will be filed on or before April 29, 1994.
SMITH BARNEY SHEARSON CALIFORNIA 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; The Fund's
Performance
4. General Description of
Registrant
Cover Page; Prospectus
Summary; Variable Pricing System;
Investment Objective and
Management Policies; Additional
Information
5. Management of the Fund
Management of the Fund;
Distributor;
Additional Information
6. Capital Stock and Other
Securities
Variable Pricing System;
Dividends, Distributions and
Taxes; Additional Information
7. Purchase of Securities Being
Offered
Variable Pricing System;
Purchase of Shares; Valuation of
Shares; Redemption of Shares;
Exchange Privilege; Distributor;
Additional Information
8 Redemption or Repurchase
Variable Pricing System; Purchase
of Shares; Redemption of Shares
9. Legal Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover Page
11. Table of Contents
Contents
12. General Information
Distributor
13. Investment Objectives and
Policies
Investment Objective and
Management Policies
14. Management of the Fund
Management of the Fund;
Distributor
15. Control Persons and Principal
Holders of Securities
Management of the Fund
16. Investment Advisory and Other
Services
Management of the Fund;
Distributor
17. Brokerage Allocation
Investment Objective and
Management Policies
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>
- ------------------------------------------------------------------------------
- --
April 29, 1994
SMITH BARNEY SHEARSON
California
Municipals
Fund Inc.
Prospectus begins
on page one.
(LOGO OF SMITH BARNEY SHEARSON APPEARS
HERE)
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
PROSPECTUS
April 29, 1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson California Municipals Fund Inc. (the "Fund") is a non-
diversified municipal fund that seeks to provide California investors with as
high a level of dividend income exempt from Federal income tax and California
state personal income tax as is consistent with prudent investment management
and preservation of capital.
This Prospectus concisely sets forth certain information about the Fund,
including sales charges, distribution and service fees and expenses, which
pro-
spective investors will find helpful in making an investment decision. Invest-
ors are encouraged to read this Prospectus carefully and retain it for future
reference.
Additional information about the Fund is contained in a Statement of Addi-
tional Information dated April 29, 1994, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing your Smith Barney Shearson Financial Consultant. The Statement of Addi-
tional 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 SHEARSON INC.
Distributor
GREENWICH STREET ADVISORS
Investment Adviser
THE BOSTON COMPANY ADVISORS, INC.
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 SHEARSON
California Municipals Fund Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS 9
- ---------------------------------------------------
VARIABLE PRICING SYSTEM 12
- ---------------------------------------------------
THE FUND'S PERFORMANCE 13
- ---------------------------------------------------
MANAGEMENT OF THE FUND 19
- ---------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 21
- ---------------------------------------------------
CALIFORNIA MUNICIPAL SECURITIES 27
- ---------------------------------------------------
PURCHASE OF SHARES 29
- ---------------------------------------------------
REDEMPTION OF SHARES 32
- ---------------------------------------------------
VALUATION OF SHARES 35
- ---------------------------------------------------
EXCHANGE PRIVILEGE 36
- ---------------------------------------------------
DISTRIBUTOR 42
- ---------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 43
- ---------------------------------------------------
ADDITIONAL INFORMATION 46
- ---------------------------------------------------
</TABLE>
2
<PAGE>
SMITH BARNEY SHEARSON
California 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 Prospec-
tus. See "Table of Contents."
BENEFITS TO INVESTORS The Fund offers investors several important benefits:
. Dividends consisting primarily of income which is exempt from Federal
income tax and California state personal income tax.
. A professionally managed portfolio comprised primarily of investment-grade
California municipal bonds.
. Investment liquidity through convenient purchase and redemption
procedures.
. A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of municipal
obligations.
. Different methods for purchasing shares that allow investment flexibility
and a wider range of investment alternatives.
. Automatic dividend reinvestment feature, plus exchange privilege within
the same class of shares of most other funds in the Smith Barney Shearson
Group of Funds.
INVESTMENT OBJECTIVE The Fund is an open-end, non-diversified, management
investment company that seeks to provide California investors with as high a
level of dividend income exempt from Federal income taxes and California state
personal income tax 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
Califor-
nia, local governments in the State of California and certain other municipal
issuers such as the Commonwealth of Puerto Rico ("California Municipal Securi-
ties") that pay interest which is excluded from gross income for Federal
income
tax purposes and exempt from California state personal income taxes.
Intermedi-
ate- and long-term securities have remaining maturities at the time of
purchase
of between three and twenty years. See "Investment Objective and Management
Policies."
3
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
VARIABLE PRICING SYSTEM The Fund offers two classes of shares ("Classes")
designed to provide investors with the flexibility of selecting an investment
best suited to their needs. These Classes, Class A shares and Class B shares,
differ principally in terms of the sales charges and rate of expenses to which
they are subject. See "Variable Pricing System."
CLASS A SHARES These shares are offered at net asset value per share plus a
max-
imum initial sales charge of 4.50%. The Fund pays an annual service fee of
.15%
of the value of average daily net assets of this Class. See "Purchase of
Shares."
CLASS B SHARES These shares are offered at net asset value per share subject
to
a maximum contingent deferred sales charge ("CDSC") of 4.50% of redemption
pro-
ceeds, declining by .50% after the first year and by 1% each year thereafter
to
zero. The Fund pays an annual service fee of .15% and an annual distribution
fee of .50% of the value of average daily net assets of this Class. See "Pur-
chase of Shares."
CLASS B CONVERSION FEATURE Class B shares will convert automatically to Class
A
shares, based on relative net asset value, eight years after the date of
origi-
nal purchase. Upon conversion, these shares will no longer be subject to an
annual distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System--Class B Shares."
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith
Barney Shearson Inc. ("Smith Barney Shearson"), or a broker that clears
securi-
ties transactions through Smith Barney Shearson on a fully disclosed basis (an
"Introducing Broker"). Smith Barney Shearson recommends that single
investments
of $250,000 or more should be made in Class A shares. See "Purchase of
Shares."
INVESTMENT MINIMUMS Investors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
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 not less than $100. See
"Purchase of Shares."
4
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A shares are redeemable at
net asset value and Class B Shares are redeemable at net asset value less any
applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND Greenwich Street Advisors, a division of Mutual Manage-
ment Corp. serves as the Fund's investment adviser. Mutual Management Corp.
provides investment advisory and management services to investment companies
affiliated with Smith Barney Shearson. Smith Barney Shearson is a wholly owned
subsidiary of Smith Barney Shearson Holdings Inc., which is in turn a wholly
owned subsidiary of The Travelers Inc. ("Travelers") (formerly Primerica
Corpo-
ration), a diversified financial services holding company principally engaged
in the businesses of providing investment, consumer finance and insurance
serv-
ices.
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston Com-
pany, Inc. ("TBC"), which in turn is a 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 in the Smith Barney Shearson Group of Funds and
certain money market funds. Certain exchanges may be subject to a sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of each Class is quoted daily in the
finan-
cial section of most newspapers and is also available from your Smith Barney
Shearson Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are declared
daily and paid on the last business day of the Shearson Lehman Brothers state-
ment 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 distribu
5
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
tion reinvestments will become eligible for conversion to Class A shares on a
pro-rata basis. See "Dividends, Distributions and Taxes" and "Variable Pricing
System."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund
will achieve its investment objective. Assets of the Fund also may be invested
in the municipal securities of non-California municipal issuers. Dividends
paid
by the Fund which are derived from interest attributable to California Munici-
pal Securities will be excluded from gross income for Federal income tax pur-
poses and exempt from California state personal income taxes (but not from
Cal-
ifornia state franchise tax or California state corporate income tax). Divi-
dends derived from interest on obligations of non-California municipal issuers
will be exempt from Federal income taxes, but may be subject to California
state personal income taxes. Dividends derived from certain municipal securi-
ties (including California Municipal Securities), however, may be a specific
tax 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 Cali-
fornia municipal securities than is a municipal bond fund that does not empha-
size these issuers. See "California Municipal Securities" in the Prospectus
and
"Special Considerations Relating to California Municipal Securities" in the
Statement of Additional Information for further details about the risks of
investing in California 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 Stan-
dard & Poor's Corporation ("S&P"), or in unrated obligations of comparable
quali-
6
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
ty. 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 prin-
cipal 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 futures
as hedging devices, 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 the Fund's operating expenses:
<TABLE>
<CAPTION>
CLASS A CLASS B
- -----------------------------------------------------------------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% --
Maximum CDSC (as a percentage of redemption proceeds) -- 4.50%
- -----------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees .55% .55%
12b-1 fees* .15 .65
Other expenses**
- -----------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES % %
- -----------------------------------------------------------------------
</TABLE>
* Upon conversion, Class B shares will no longer be subject to a distribution
fee.
** All expenses are based on data for the Fund's fiscal year ended February
28,
1994.
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
pay actual charges of less than 4.50% depending on the amount purchased and,
in
the case of Class B shares, the length of time the shares are held. See "Pur-
chase of Shares" and "Redemption of Shares." Management fees paid by the Fund
include investment advisory fees paid to Greenwich Street Advisors at the
7
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
following annual rates: .35% of the value of the Fund's average daily net
assets up to $500 million and .32% of the value of its average daily net
assets
in excess of $500 million, and administration fees paid to Boston Advisors at
the following annual rates: .20% of the value of the Fund's average daily net
assets up to $500 million and .18% of the value of its average daily net
assets
in excess of $500 million. The nature of the services for which the Fund pays
management fees is described under "Management of the Fund." Smith Barney
Shearson receives an annual 12b-1 service fee of .15% of the value of average
daily net assets of Class A shares. Smith Barney Shearson also receives with
respect to Class B shares an annual 12b-1 fee of .65% of the value of average
daily net assets of Class B shares, consisting of a .50% distribution fee and
a
.15% service fee. "Other expenses" in the above table include fees for share-
holder services, custodial fees, legal and accounting fees, printing costs and
registration fees.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumu-
lative expenses that would be incurred over various periods with respect to a
hypothetical $1,000 investment in the Fund assuming a 5% total return. The
example assumes payment by the Fund of operating expenses at the levels set
forth in the above table. The example should not be considered a
representation
of past or future expenses and actual expenses may be greater or less than
those shown. Moreover, while the example assumes a 5% annual return, the
Fund's
actual performance will vary and may result in an actual return greater or
less
than 5%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares** $ $ $ $
Class B shares:
Assumes complete redemption at end of each
time period*** $ $ $ $
Assumes no redemption $ $ $ $
- ----------------------------------------------------------------------------
</TABLE>
* 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.
** Assumes deduction at the time of purchase of the maximum 4.50% sales
charge.
*** Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
8
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers & Lybrand, independent
accountants, whose report thereon appears in the Fund's Annual Report dated
February 28, 1994. The information set forth below should be read in conjunc-
tion with the financial statements and related notes that also appear in the
Fund's 1994 Annual Report, which is incorporated by reference into the State-
ment of Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR*:
<TABLE>
<CAPTION>
2/28/94 2/28/93 2/29/92 2/28/91 2/28/90 2/28/89
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of year $15.78 $15.66 $15.61 $15.33 $15.49
- ------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .97 1.04 1.07 1.09 1.12
Net gains on securities
(both realized and
unrealized) 1.25 .40 .17 .26 (.13)
- ------------------------------------------------------------------------------
Total from investment
operations 2.22 1.44 1.24 1.35 .99
Less distributions:
Dividends from net
investment income (.97) (1.05) (1.07) (1.07) (1.12)
Distributions from net
realized capital gains (.29) (.27) (.12) -- (.03)
Distributions from
capital (.04) -- -- -- --
- ------------------------------------------------------------------------------
Total distributions (1.30) (1.32) (1.19) (1.07) (1.15)
Net asset value, end of
year $16.70 $15.78 $15.66 $15.61 $15.33
- ------------------------------------------------------------------------------
Total Return++ 14.76% 9.50% 8.29% 9.02% 6.67%
- ------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) 423,504 364,707 334,607 328,856 313,008
Ratio of net investment
income to average net
assets 6.04% 6.54% 6.85% 6.95% 7.19%
Ratio of operating
expenses to average net
assets .70% .65% .65% .72% .67%
Portfolio turnover rate 72% 86% 53% 35% 27%
- ------------------------------------------------------------------------------
</TABLE>
* The Fund commenced operations on April 9, 1984. Those shares in existence
prior to November 6, 1992 were designated as Class A shares.
** Annualized expense ratios before waiver of fees and voluntary reimbursement
of expenses by investment adviser and sub-investment adviser and
administrator were .82% and .95%, respectively, for the fiscal year ended
February 28, 1986 and the fiscal period ended February 28, 1985.
++ Total returns do not reflect any sales charge.
9
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR*:
<TABLE>
<CAPTION>
2/29/88 2/28/87 2/28/86 2/28/85*
<S> <C> <C> <C> <C>
Net Asset Value, beginning of year $16.54 $16.16 $13.94 $14.25
- ------------------------------------------------------------------------------
Income from investment operations:
Net Investment income $1.09 $1.14 $1.21 $1.14
Net gains on securities (both
realized and unrealized) (.98) .71 2.22 (.31)
- ------------------------------------------------------------------------------
Total from investment operations .11 1.85 3.43 .83
Less distributions:
Dividends from net investment income (1.09) (1.14) (1.21) (1.14)
Distributions from net realized
capital gains (.07) (.33) -- --
Distributions from capital -- -- -- --
- ------------------------------------------------------------------------------
Total distributions (1.16) (1.47) (1.21) (1.14)
Net Asset Value, end of year $15.49 $16.54 $16.16 $13.94
- ------------------------------------------------------------------------------
Total Return++ 1.09% 12.13% 25.80% 7.15%+
- ------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) 156,434 207,825 111,714 39,729
Ratio of net investment income to
average net assets 7.26% 6.99% 8.08% 9.31%+
Ratio of operating expenses to
average net assets .64% .67% .73%** .33%**
Portfolio turnover rate 22% 16% 14% 32%
- ------------------------------------------------------------------------------
</TABLE>
* The Fund commenced operations on April 9, 1984. Those shares in existence
prior to November 6, 1992 were designated as Class A shares.
** Annualized expense ratios before waiver of fees and voluntary reimbursement
of expenses by investment adviser and sub-investment adviser and
administrator were .82% and .95%, respectively, for the fiscal year ended
February 28, 1986 and the fiscal period ended February 28, 1985.
+ Annualized.
++ Total returns do not reflect any sales charge.
10
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD*
<TABLE>
<CAPTION>
2/28/94 2/28/93*
<S> <C> <C>
Net Asset Value, beginning of period $15.84
- --------------------------------------------------------------------------
Income from investment operations:
Net investment income .29
Net gains on securities (both realized and unrealized) 1.15
- --------------------------------------------------------------------------
Total From investment operations 1.44
Less distributions:
Dividends From net investment income (.28)
Distributions from net realized capital gains (.29)
Distributions from capital (.01)
- --------------------------------------------------------------------------
Total distributions (.58)
Net Asset Value, end of period $16.70
- --------------------------------------------------------------------------
Total Return++ 10.35%+
- --------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000s) 37,924
Ratio of net investment income to average net assets 5.44%+
Ratio of operating expenses to average net assets 1.30%+
Portfolio turnover Rate 72%
- --------------------------------------------------------------------------
</TABLE>
*The Fund commenced selling Class B shares on November 6, 1992.
+Annualized.
++ Total returns do not reflect CDSC.
11
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
VARIABLE PRICING SYSTEM
The Fund offers individual investors two methods of purchasing shares, thus
enabling investors to choose the Class that best suits their needs, given the
amount of purchase and intended length of investment.
Class A Shares. Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 4.50% imposed at the time of purchase. The
ini-
tial sales charge may be reduced or waived for certain purchases. Class A
shares are subject to an annual service fee of .15% of the value of the Fund's
average daily net assets attributable to Class A. The annual service fee is
used by Smith Barney Shearson to compensate its Financial Consultants for
ongo-
ing services provided to shareholders. The sales charge is used to compensate
Smith Barney Shearson for expenses incurred in selling Class A shares. See
"Purchase of Shares."
Class B Shares. Class B shares are sold at net asset value per share subject
to a maximum 4.50% CDSC, which is assessed only if the shareholder redeems
shares within the first five years of investment. This results in 100% of the
investor's assets' being used to acquire shares of the Fund. After the first
year after the purchase of a share, the CDSC declines to 4.00%; for each year
of investment thereafter within this five-year time frame, the applicable CDSC
declines by 1%; in year six, the applicable CDSC is reduced to 0%. See "Pur-
chase of Shares" and "Redemption of Shares."
Class B shares are subject to an annual service fee of .15% and an annual
distribution fee of .50% of the value of the Fund's average daily net assets
attributable to the Class. Like the service fee applicable to Class A shares,
the Class B service fee is used to compensate Smith Barney Shearson Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
Shearson for expenses incurred in selling those shares, including expenses
such
as sales commissions, Smith Barney Shearsons' branch office overhead expenses
and marketing costs associated with Class B shares, such as preparation of
sales literature, advertising and printing and distributing prospectuses,
statements of additional information and other materials to prospective
invest-
ors in Class B shares. A Financial Consultant may receive different levels of
compensation for selling different Classes. Class B shares are subject to a
distribution fee and a higher transfer agency fee than Class A shares which,
in
turn, will cause Class B shares to have a higher expense ratio and pay lower
dividends than Class A shares.
12
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
VARIABLE PRICING SYSTEM (CONTINUED)
Eight years after the date of purchase, Class B shares will convert
automati-
cally to Class A shares, based on the relative net asset values of shares of
each Class, and will no longer be subject to a distribution fee. In addition,
a
certain portion of Class B shares that have been acquired through the
reinvest-
ment of dividends and distributions ("Class B Dividend Shares") will be con-
verted at that time. That portion will be a percentage of the total number of
Class B Dividend Shares owned by the shareholder, equal to the ratio of the
total number of Class B shares converting at the time to the total number of
Class B shares (other than Class B Dividend Shares owned by the shareholder).
The first of these conversions will commence on or about September 30, 1994.
The conversion of Class B shares into Class A shares is subject to the
continu-
ing availability of an opinion of counsel to the effect that such conversions
will not constitute taxable events for Federal tax purposes.
THE FUND'S PERFORMANCE
YIELD
From time to time, the Fund may advertise its 30-day "yield" and "equivalent
taxable yield" for each Class. The yield of a Class of the Fund refers to the
income generated by an investment in those shares over the 30-day period iden-
tified in the advertisement and is computed by dividing the net investment
income per share earned by the Class during the period by the maximum public
offering price per share on the last day of the period. This income is
"annualized" by assuming that the amount of income is generated each month
over
a one-year period and is compounded semi-annually. The annualized income is
then shown as a percentage of the net asset value.
The Fund's equivalent taxable yield demonstrates the yield on a taxable
investment necessary to produce an after-tax yield equal to the Fund's tax-
exempt yield for each class of shares. 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, refer to the
table under "Dividends, Distributions and Taxes."
The Fund's yield for Class A and Class B shares for the 30-day period ended
February 28, 1994 was % and %, respectively. The equivalent taxable
13
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
THE FUND'S PERFORMANCE (CONTINUED)
yield for Class A and Class B shares for the same period was % and %,
respectively assuming the payment of Federal income taxes at a rate of 31% and
California income taxes at a rate of 9.30%.
TOTAL RETURN
From time to time, the Fund may advertise its "average annual total return"
over various periods of time for each Class. Such total return figures show
the
average percentage change in the value of an investment in the Class from the
beginning date of the measuring period to the end of the measuring period.
These figures reflect changes in the price of the Fund's shares and assume
that
any income dividends and/or capital gains distributions made by the Fund with
respect to that Class during the period were reinvested in shares of that
Class
of the Fund. Class A total return figures include the maximum initial 4.50%
sales charge and Class B total return figures include any applicable CDSC.
These figures also take into account the service and distribution fees, if
any,
payable with respect to the Classes.
Total return figures will be given for the recent one-, five- and ten-year
periods, or for the life of a Class to the extent it has not been in existence
for any such periods, and may be given for other periods as well, such as on a
year-by-year basis. When considering average annual total return figures for
periods longer than one year, it is important to note that the average annual
total return for any one year in the period might have been greater or less
than the average for the entire period. "Aggregate total return" figures may
be
used for various periods, representing the cumulative change in the value of
an
investment in a Class for the specific period (again reflecting changes in
share prices and assuming reinvestment of dividends and distributions). Aggre-
gate total return may be calculated either with or without the effect of the
maximum 4.50% sales charge for the Class A shares or any applicable CDSC for
Class B shares and may be shown by means of schedules, charts or graphs, and
may indicate subtotals of the various components of total return (that is,
changes in the value of initial investment, income dividends and capital gains
distributions). Because of the differences in sales charges and distribution
fees, the performance for each of the Classes will differ.
In reports or other communications to shareholders or in advertising mate-
rial, performance of the Classes may be compared with that of other
14
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
THE FUND'S PERFORMANCE (CONTINUED)
mutual funds or Classes of shares of other funds as listed in the rankings
pre-
pared by Lipper Analytical Services, Inc. or similar independent services that
monitor the performance of mutual funds, or other industry or financial publi-
cations such as Barron's, Business Week, CDA Investment Technologies, Inc.,
Forbes, Fortune, Institutional Investor, Investors Daily, Kiplinger's Personal
Finance, Morningstar Mutual Fund Values, Money, The Wall Street Journal, The
New York Times and USA Today. Performance figures are based on historical
earn-
ings and are not intended to indicate future performance. To the extent that
any advertisement or sales literature of the Fund describes the expenses or
performance of a Class it will also disclose such information for the other
Class. The Statement of Additional Information contains a description of the
methods used to determine performance. Performance figures may be obtained
from
your Smith Barney Shearson Financial Consultant.
From the Fund's commencement of operations on April 9, 1984, through
February
28, 1994, an investment in shares of the Fund (now designated as Class A
shares) of $10,000 (after deducting the maximum sales charge of 4.50%) grew to
$ when all dividends and capital gains distributions were reinvested.
This represents an aggregate total return of %. Previous and current
con-
ditions affecting the prices of Municipal Bonds held by the Fund may be
differ-
ent from conditions affecting the prices of the Fund's security holdings in
the
future and, therefore, the results shown should not necessarily be considered
representative of the return which may be realized by an investment in the
Class A shares today.
15
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
THE FUND'S PERFORMANCE (CONTINUED)
(CLASS A SHARES)(1)
<TABLE>
<CAPTION>
VALUE OF
VALUE OF REINVESTED
INITIAL DIVIDENDS AND
$10,000 CAPITAL GAINS TOTAL PERIOD
PERIOD ENDED INVESTMENT DISTRIBUTIONS VALUE CHANGE
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
April 9, 1984(2) $ 9,550(3) -- $ 9,550 --
February 1985 9,342 $ 815 10,157 +6%
February 1986 10,830 1,948 12,778 +26
February 1987 11,085 3,243 14,328 +12
February 1988 10,381 4,103 14,484 +1
February 1989 10,274 5,176 15,450 +7
February 1990 10,461 6,382 16,843 +9
February 1991 10,495 7,744 18,239 +8
February 1992 10,575 9,397 19,972 +10
February 1993 11,192 11,728 22,920 +15
February 1994
- -----------------------------------------------------------
</TABLE>
(1) Does not reflect the Class A annual service fee of .15% of average daily
net
assets of the Class.
(2) Commencement of operations.
(3) Based on the current maximum sales charge of 4.50% of the offering price.
16
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
THE FUND'S PERFORMANCE (CONTINUED)
CLASS A SHARES
Illustration of an Assumed Investment of $10,000
with Income Dividends and Capital Gains Distributions Reinvested
From April 9, 1984(/1/) through February 28, 1994
This period was one in which municipal bond prices fluctuated, and the results
shown should not be considered as a representation of the dividend income or
capital gain or loss which may be realized from an investment made in the
Class
A shares today.
(MAC CHART)
17
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
THE FUND'S PERFORMANCE (CONTINUED)
The following total return figures assume that the maximum 4.50% sales charge
was deducted from the investment at the time of purchase.
The average annual total returns for Class A shares were as follows for the
periods indicated:
% for the period beginning on March 1, 1994 through February 28,
1994;
% per annum during the five-year period beginning on March 1, 1989
through February 28, 1994; and
% per annum during the period from the Fund's commencement of opera-
tions on April 9, 1984 through February 28, 1994.
The following aggregate total return figures do not assume that the maximum
4.50% sales charge has been deducted from the investment at the time of pur-
chase. If the maximum sales charge had been deducted at the time of purchase,
the Fund's aggregate total return for Class A shares for those same periods
would have been %, % and %, respectively.
The Fund's aggregate total return for Class A shares was as follows for the
periods indicated:
% for the one-year period beginning on March 1, 1993 through Febru-
ary 28, 1994;
% for the five-year period beginning on March 1, 1989 through Febru-
ary 28, 1994; and
% for the period from the Fund's commencement of operations on April
9, 1984 through February 28, 1994.
18
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
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 its distributor, investment adviser and administrator, custo-
dian and transfer agent. The day-to-day operations of the Fund are delegated
to
the Fund's investment adviser and administrator. The Statement of Additional
Information contains general background information regarding each Director
and
executive officer of the Fund.
INVESTMENT ADVISER--GREENWICH STREET ADVISORS
Greenwich Street Advisors, located at Two World Trade Center, New York, New
York 10048, serves as the Fund's investment adviser. Greenwich Street Advisors
(through predecessor entities) has been in the investment counselling business
since 1934 and is a division of Mutual Management Corp., which was
incorporated
in 1978. Greenwich Street Advisors renders investment advice to investment
com-
pany clients which had aggregate assets under management as of April 30, 1994,
in excess of $ billion.
Subject to the supervision and direction of the Fund's Board of Directors,
Greenwich Street Advisors manages the Fund's portfolio in accordance with the
Fund's investment objective and policies, makes investment decisions for the
Fund, places orders to purchase and sell securities and employs professional
portfolio managers and securities analysts who provide research services to
the
Fund. For the fiscal year ended February 28, 1994, the Fund paid investment
advisory fees to Greenwich Street Advisors in an amount equal to . % of the
value of the average daily net assets of the Fund.
PORTFOLIO MANAGEMENT
Joseph P. Deane, Managing Director of Greenwich Street Advisors, has served
as Vice President and Investment Officer of the Fund since and manages the
day-to-day operations of the Fund including making all investment decisions.
Mr. Dean's management discussion and analysis, and additional performance
information regarding the fund during the fiscal year ended February 28, 1994,
is included in the Annual Report dated February 28, 1994. A copy of the
19
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
Annual Report may be obtained upon request and without charge from your Smith
Barney Shearson Financial Consultant or by writing or calling the Fund at the
address or phone number listed on page one of the Prospectus.
ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's administrator. Boston Advisors provides investment
manage-
ment and investment administrative services to investment companies that had
aggregate assets under management as of March 31, 1994, in excess of $
bil-
lion.
Boston Advisors calculates the net asset value of the Fund's shares and gen-
erally assists in all aspects of the Fund's administration and operation. For
the fiscal year ended February 28, 1994, the Fund received administration fees
in an amount equal to . % of the value of the average daily net assets of the
Fund.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is to provide California investors with
as high a level of dividend income exempt from Federal income taxes and Cali-
fornia state personal income tax as is consistent with prudent investment man-
agement 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 out-
standing 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 California Municipal Securities, which pay interest which is excluded from
gross income for Federal income tax purposes and which is exempt from Califor-
nia state personal income tax.
The Fund may invest up to 20% of its net assets in municipal securities of
non-California municipal issuers, the interest on which is excluded from gross
income for Federal income tax purposes (not including the possible applicabil-
ity of a Federal alternative minimum tax), but which is subject to California
state personal income tax. When Greenwich Street Advisors believes that market
20
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
conditions warrant adoption of a temporary defensive investment posture, the
Fund may invest without limit in non-California municipal issuers and in "Tem-
porary 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 will be considered to be of investment grade if deemed by
Greenwich Street Advisors 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
compara-
ble unrated securities. Securities in the fourth highest rating category,
though considered to be investment grade, have speculative characteristics.
Securities rated as low as D are extremely speculative and are in actual
default of interest and/or principal payments.
The Fund's average weighted maturity will vary from time to time based on
the
judgment of Greenwich Street Advisors. The Fund intends to focus on intermedi-
ate- 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.
Low and Comparable Unrated Securities.While the market values of low-rated
and comparable unrated securities tend to react less to fluctuations in inter-
est 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 developments and changes in economic conditions (including reces-
sion) 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 pro-
longed period of rising interest rates, the ability of issuers of low-rated
and
comparable unrated securities to service their payment obligations, meet pro-
jected 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
subor-
dinated to the prior
21
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
payment of senior indebtedness. The Fund may incur additional expenses to the
extent it is required to seek recovery upon a default in payment of principal
or interest on its portfolio holdings.
While the market for municipal securities is considered to be generally ade-
quate, the existence of limited markets for particular low-rated and
comparable
unrated securities may diminish the Fund's ability to (a) obtain accurate mar-
ket 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 is rela-
tively new and has not fully weathered a major economic recession. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
Fixed-income securities, including low-rated securities and comparable
unrated 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 the 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. A description of
the rating systems of Moody's and S&P is contained in the Statement of Addi-
tional Information.
The Funds 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
prop-
erty or equipment. Although lease obligations do not constitute general
obliga-
tions of the municipality for which the municipality's taxing power is
pledged,
a lease obligation is ordinarily backed by the municipality's covenant to bud-
get for, appropriate and make the payments due under the lease obligation.
How-
ever, certain lease obligations contain "non-appropriation" clauses which pro-
vide that the municipality has no obligation to make lease or installment pur-
chase 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 obliga-
tions,
22
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Greenwich Street Advisors will consider such factors as it deems appropriate,
which may include: (a) whether the lease can be canceled; (b) the ability of
the lease obligee to direct the sale of the underlying assets; (c) the general
creditworthiness of the lease obligor; (d) the likelihood that the
municipality
will discontinue appropriating funding for the leased property in the event
such property is no longer considered essential by the municipality; (e) the
legal recourse of the lease obligee in the event of such a failure to
appropri-
ate 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 limits 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 pur-
poses of the Federal individual and corporate alternative minimum taxes. Indi-
vidual and corporate shareholders may be subject to a Federal alternative
mini-
mum tax to the extent the Fund's dividends are derived from interest on those
bonds. Dividends derived from interest income on California Municipal Securi-
ties 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 "regu-
lated 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 and California state franchise 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 sin-
gle 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.
23
<PAGE>
SMITH BARNEY SHEARSON
California 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
dif-
ficulties. In addition, the Fund also 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. Notwithstanding the
foregoing, the Fund shall not invest more than 10% of its assets in securities
(excluding those subject to Rule 144A under the Securities Act of 1993, as
amended) that are restricted. The Fund also is authorized to borrow an amount
of up to 10% of its total assets (including the amount borrowed) valued at
mar-
ket less liabilities (not including the amount borrowed) in order to meet
anticipated redemptions and to pledge its assets to the same extent in connec-
tion 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 Informa-
tion.
CERTAIN PORTFOLIO STRATEGIES
In attempting to achieve its investment objective, the Fund may employ,
among
others, the following portfolio strategies.
When-Issued Securities. New issues of California 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
within 15 to 45 days after the date of the commitment to purchase. The payment
obligation and the interest rate that will be received on when-issued securi-
ties are fixed at the time the buyer enters into the commitment. California
Municipal Securities, like other investments made by the Fund, may decline or
appreciate in value before their actual delivery to the Fund. Due to fluctua-
tions 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 segre-
gated account with the Fund's custodian consisting of cash, obligations issued
or guaranteed by the United States government or its agencies or
instrumentali-
ties ("U.S. gov-
24
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ernment securities") or other high grade debt obligations in an amount equal
to
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 California
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
Greenwich
Street Advisors believes that market conditions warrant, including when
accept-
able California Municipal Securities are not available, the Fund may take a
temporary defensive posture and invest without limitation in Temporary Invest-
ments. Tax-exempt securities eligible for short-term investment by the Fund
are
municipal notes 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
outstand-
ing debt securities rated within the three highest grades of Moody's or S&P,
and certain taxable short-term instruments having quality characteristics com-
parable to those for tax-exempt investments. To the extent the Fund holds Tem-
porary Investments, it may not achieve its investment objective. Since the
com-
mencement of its operations, the Fund has not found it necessary to make tax-
able Temporary Investments and it is not expected that such action will be
nec-
essary.
Financial Futures and Options Transactions. The Fund may enter into
financial
futures contracts and invest in options on financial futures contracts that
are
traded on a U.S. exchange or board of trade. Such investments, if any, by the
Fund will be made solely for the purpose of hedging against the changes in the
value of its portfolio securities due to anticipated changes in interest rates
and market conditions and where the transactions are economically appropriate
to the reduction of risks inherent in the management of the Fund. The futures
contract or options on futures contracts that may be entered into by the Fund
will be restricted to those that are either based on a municipal bond index or
relate to debt securities the prices of which are anticipated by Greenwich
Street Advisors to correlate with the prices of the Municipal Bonds owned or
to
be purchased by the Fund.
In entering into a financial futures contract, the Fund will be required to
deposit with the broker through which it undertakes the transaction an amount
25
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
of cash or cash equivalents equal to approximately 5% of the contract amount.
This amount, which is known as "initial margin," is subject to change by the
exchange or board of trade on which the contract is traded, and members of the
exchange or board of trade may charge a higher amount. Initial margin is in
the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. In accordance with a process
known
as "marking-to-market," subsequent payments known as "variation margin," to
and
from the broker will be made daily as the price of the index or securities
underlying the futures contract fluctuates, making the long and short
positions
in the futures contract more or less valuable. At any time prior to the
expira-
tion of a futures contract, the Fund may elect to close the position by taking
an opposite position, which will operate to terminate the Fund's existing
posi-
tion in the contract.
A financial futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of a specified property at
a specified price, date, time and place. Unlike the direct investment in a
futures contract, an option on a financial futures contract gives the
purchaser
the right, in turn for the premium paid, to assume a position in the financial
futures contract at a specified exercise price at any time prior to the
expira-
tion date of the option. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will
be accompanied 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 contract. The poten-
tial loss related to the purchase of an option on financial futures contracts
is limited to the premium paid for the option (plus transaction costs). The
value of the option may change daily and that change would be reflected in the
net asset value of the Fund.
Regulations of the Commodity Futures Trading Commission applicable to the
Fund require that its transactions in financial futures contracts and options
on financial futures contracts be engaged in for bona fide hedging purposes or
other permitted purposes, and that no such transactions may be entered into by
the Fund if the aggregate initial margin deposits and premiums paid by the
Fund
exceed 5% of the market value of its assets. In addition, the Fund will, with
respect to its purchases of financial futures contracts, establish a
segregated
account consisting of cash or cash equivalents in an amount equal to the
26
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
total market value of the futures contracts, less the amount of initial margin
on deposit for the contracts. The Fund's ability to trade in financial futures
contracts and options on financial futures contracts may be limited to some
extent by the requirements of the Internal Revenue Code of 1986, as amended,
applicable to a regulated investment company that are described below under
"Dividends, Distributions and Taxes."
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 (de-
termined by marking to market daily) of the loaned securities. The risks in
lending portfolio securities, as with other extensions of secured credit, con-
sist of possible delays in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the bor-
rower fail financially. Loans will be made to firms deemed by Greenwich Street
Advisors to be of good standing and will not be made unless, in the judgment
of
Greenwich Street Advisors, the consideration to be earned from such loans
would
justify the risk.
CALIFORNIA MUNICIPAL SECURITIES
As used in the Prospectus, the term "California Municipal Securities" gener-
ally refers to intermediate- and long-term debt obligations issued by the
State
of California and local governments in the State of California, together with
certain other governmental issuers such as the Commonwealth of Puerto Rico, 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 California state personal income
tax, and for that reason generally is fixed at a lower rate than it would be
if
it were subject to such taxes. Interest income on certain municipal securities
(including California Municipal Securities) is a specific tax preference item
for purposes of the Federal individual and corporate alternative minimum
taxes.
27
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
CALIFORNIA MUNICIPAL SECURITIES (CONTINUED)
CLASSIFICATIONS
The two principal classifications of California Municipal Securities are
"general obligation bonds" and "revenue bonds." General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue bonds are payable from the
reve-
nues 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 Cali-
fornia Municipal Securities, provided the interest paid thereon qualifies as
excluded from gross income for Federal income tax purposes and as exempt from
California state personal income tax. Private activity bonds generally do not
carry the pledge of the credit of the issuing municipality.
SPECIAL CONSIDERATIONS
On July 6, 1992, Moody's, citing the State's deteriorating financial posi-
tion, lowered California's general obligation bond rating from Aa1 to Aa. On
July 15, 1992, S&P, citing the State's deteriorating financial position, low-
ered California's general obligations bond ratings from AA to A+. Investors
should be aware that certain California constitutional amendments, legislative
measures, executive orders, administrative regulations and voter initiatives
could result in certain adverse consequences affecting California Municipal
Securities. For instance, certain provisions of the California Constitution
and
statutes that limit the taxing and spending authority of California governmen-
tal entities may impair the ability of the issuers of some California
Municipal
Securities to maintain debt service on their obligations. Other measures
affecting the taxing or spending authority of California or its political sub-
divisions may be approved or enacted in the future. Some of the significant
financial considerations relating to the Fund's investments in California
Municipal Securities are summarized in the Statement of Additional
Information.
28
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
PURCHASE OF SHARES
Purchases of shares must be made through a brokerage account maintained with
Smith Barney Shearson or with an Introducing Broker. When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A or Class
B
shares. No maintenance fee will be charged in connection with a brokerage
account through which an investor purchases or holds shares. Purchases are
effected at the public offering price next determined after a purchase order
is
received by Smith Barney Shearson or an Introducing Broker (the "trade date").
Payment for Fund shares is generally due to Smith Barney Shearson or an Intro-
ducing Broker on the fifth business day (the "settlement date") after the
trade
date. Investors who make payment prior to the settlement date may permit the
payment to be held in their brokerage accounts or may designate a temporary
investment (such as a money market fund in the Smith Barney Shearson Group of
Funds) for such payment until the settlement date. The Fund reserves the right
to reject any purchase order and to suspend the offering of shares for a
period
of time.
Purchase orders received by Smith Barney Shearson or an Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New
York time, on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day. Purchase orders
received after the close of regular trading on the NYSE are priced as of the
time the net asset value is next determined. See "Valuation of Shares."
Systematic Investment Plan. The Fund offers shareholders a Systematic
Invest-
ment Plan under which shareholders may authorize Smith Barney Shearson or an
Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid automati-
cally from cash held in the shareholder's Smith Barney Shearson brokerage
account or through the automatic redemption of the shareholder's shares of a
Smith Barney Shearson money market fund. For further information regarding the
Systematic Investment Plan, shareholders should contact their Smith Barney
Shearson Financial Consultants.
Minimum Investments. The minimum initial investment in the Fund is $1,000,
and
the minimum subsequent investment is $200, except that the minimum initial and
subsequent investments for the Systematic Investment Plan are both $100. There
are no minimum investment requirements for Smith Barney Shearson and its
affil-
iates. The Fund reserves the right to vary at any time the initial and subse-
quent investment minimums. Certificates for Fund shares are
29
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
issued upon request to the Fund's transfer agent, The Shareholder Services
Group, Inc. ("TSSG"), a subsidiary of First Data Corporation.
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value
of that Class plus a sales charge, which is imposed in accordance with the
fol-
lowing schedule:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET ASSET VALUE
- ---------------------------------------------------------------------
<S> <C> <C>
Less than $25,000 4.50% 4.71%
$25,000 but under $50,000 4.00% 4.17%
$50,000 but under $100,000 3.50% 3.63%
$100,000 but under $250,000 3.00% 3.09%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 1.50% 1.52%
$1,000,000 or more** 0.00% 0.00%
- ---------------------------------------------------------------------
</TABLE>
* Smith Barney Shearson has adopted guidelines directing its Financial
Consultants and Introducing Brokers that single investments of $250,000 or
more should be made in Class A shares.
** No sales charge is imposed on purchases of Class A shares of $1 million or
more; however, a CDSC of .75% is imposed for the first year after purchase.
The CDSC on Class A shares is payable to Smith Barney Shearson which, with
Boston Advisors, compensates Smith Barney Shearson Financial Consultants
upon the sale of these shares. The CDSC is waived in the same circumstances
in which the CDSC applicable to Class B shares is waived. See "Redemption
of
Capital Shares--Contingent Deferred Sales Charge--Class B Shares--Waiver of
CDSC."
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are available to investors who are eligible to combine
their purchases of Fund shares to receive volume discounts. Investors eligible
to receive volume discounts include individuals and their immediate families,
tax-qualified employee benefit plans and trustees or other professional
fiduci-
aries (including a bank or an investment adviser registered with the SEC under
the Investment Advisers Act of 1940, as amended) purchasing shares for one or
more trust estates or fiduciary accounts even though more than one beneficiary
is involved. The initial sales charge also is reduced to 1% for Smith Barney
Shearson Personal Living Trust program participants for whom Smith Barney
Shearson acts as Trustee. Reduced sales charges on Class A shares also are
available under a combined right of accumulation, under which an investor
30
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
may combine the value of Class A shares already held in the Fund and in any of
the funds in the Smith Barney Shearson Group of Funds listed below (except
those sold without a sales charge), along with the value of the Class A shares
being purchased, to qualify for a reduced sales charge. For example, if an
investor owns Class A shares of the Fund and other funds in the Smith Barney
Shearson Group of Funds that have an aggregate value of $22,000, and makes an
additional investment in Class A shares of the Fund of $4,000, the sales
charge
applicable to the additional investment would be 4%, rather than the 4.50%
nor-
mally charged on a $4,000 purchase. Investors interested in further
information
regarding reduced sales charges should contact their Smith Barney Shearson
Financial Consultants.
Class A shares may be offered without any applicable sales charges to: (a)
employees of Smith Barney Shearson and its affiliates and employee benefit
plans for such employees and their immediate families when orders on their
behalf are placed by such employees; (b) accounts managed by registered
invest-
ment advisory subsidiaries of Travelers; (c) directors, trustees or general
partners of any investment company for which Smith Barney Shearson serves as
distributor; (d) any other investment company in connection with the combina-
tion of such company with the Fund by merger, acquisition of assets or other-
wise; (e) shareholders who have redeemed Class A shares in the Fund (or Class
A
shares of another fund in the Smith Barney Shearson Group of Funds that are
sold with a maximum sales charge of at least 4.50%) and who wish to reinvest
their redemption proceeds in the Fund, provided the reinvestment is made
within
30 days of the redemption; and (f) any client of a newly employed Smith Barney
Shearson Financial Consultant (for a period up to 90 days from the
commencement
of the Financial Consultant's employment with Smith Barney Shearson), on the
condition the purchase 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)
when purchased, such shares were sold with a sales charge.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value
of that Class. No initial sales charge is imposed at the time of purchase. A
CDSC is imposed, however, on certain redemptions of Class B shares. See "Re-
demption of Shares" which describes the CDSC in greater detail.
31
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
Smith Barney Shearson has adopted guidelines, in view of the relative sales
charges and distribution fees applicable to the Classes, directing Financial
Consultants and Introducing Brokers that all purchases of shares of $250,000
or
more should be for Class A shares. Smith Barney Shearson reserves the right to
vary these guidelines at any time.
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day that the Fund calculates net
asset value. See "Valuation of Shares." Redemption requests received in proper
form prior to the close of regular trading on the NYSE are priced at the net
asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value as next determined. If a shareholder holds shares in more than one
Class,
any request for redemption must specify the Class of shares 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
Shearson, or if the shareholder's account is not with Smith Barney Shearson,
from the shareholder directly.
The Fund normally transmits redemption proceeds for credit to the sharehold-
er's account at Smith Barney Shearson or to the Introducing Broker at no
charge
(other than any applicable CDSC) within seven days after receipt of a redemp-
tion request. Generally, these funds will not be invested for the
shareholder's
benefit without specific instruction and Smith Barney Shearson will benefit
from the use of temporarily uninvested funds. A shareholder who pays for Fund
shares by personal check will be credited with the proceeds of a redemption of
those shares only after the purchase check has been collected, which may take
up to 10 days or more. A shareholder who anticipates the need for more immedi-
ate access to his or her investment should purchase shares with Federal funds,
by bank wire or a certified or cashier's check.
A Fund account that is reduced by a shareholder to a value of $500 or less
may be subject to redemption by the Fund, but only after the shareholder has
been given at least 30 days in which to increase the account balance to more
than $500.
Shares may be redeemed in one of the following ways:
32
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introduc-
ing Broker. A shareholder desiring to redeem Fund shares represented by
certif-
icates must also present the certificates to Smith Barney Shearson or the
Introducing Broker endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
the certificates are received by the Fund's transfer agent in proper form.
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request for redemption to:
Smith Barney Shearson California Municipals Fund Inc.
Class A or B (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to the Fund's transfer agent or your Smith Bar-
ney Shearson Financial Consultant 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 regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or 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 a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or a 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 periodic cash payments of at least $50 monthly.
33
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
Any applicable CDSC will not be waived on amounts withdrawn by a shareholder
that exceed 2% per month of the value of the shareholder's shares subject to
the CDSC at the time the withdrawal plan commences. For further information
regarding the automatic cash withdrawal plan, shareholders should contact
their
Smith Barney Shearson Financial Consultants.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
Class
B shares, however effected, that causes the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder for
the purchase of Class B shares ("purchase payments") during the preceding five
years. No charge is imposed to the extent that the net asset value of the
Class
B shares redeemed does not exceed (a) the current net asset value of Class B
shares purchased through reinvestment of dividends or capital gains distribu-
tions, plus (b) the current net asset value of Class B shares purchased more
than five years prior to the redemption, plus (c) increases in the net asset
value of the shareholder's Class B shares above the purchase payments made
dur-
ing the preceding five years.
In circumstances in which the CDSC is imposed, 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 the purposes of
determining
the number of years since a purchase payment, all purchase payments during a
month will be aggregated and deemed to have been made on the last day of the
preceding Smith Barney Shearson statement month.
The following table sets forth the rates of the charge for redemptions of
Class
B shares by investors:
<TABLE>
<CAPTION>
YEARS 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>
34
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
Class B shares will automatically convert to Class A shares eight years after
the date on which they were purchased and thereafter will not longer be
subject
to any distribution fee. The first of these conversions will commence on or
about September 30, 1984. See "Variable Pricing System--Class B Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not already been effected. In the case of redemptions of Class B shares of
other funds in the Smith Barney Shearson Group of Funds issued in exchange for
Class B shares of the Fund, the term "purchase payments" refers to the
purchase
payments for the shares given in exchange. In the event of an exchange of
Class
B shares of funds with differing CDSC schedules, the shares will be, in all
cases, subject to the higher CDSC schedule. See "Exchange Privilege."
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
2%
per month of the value of the shareholders' shares at the time the withdrawal
plan commences (see above); (c) redemption of shares following the death or
disability of the shareholders; (d) involuntary redemptions; (e) redemption
proceeds from other funds in the Smith Barney Shearson Group of Funds that are
reinvested within 30 days of the redemption; and (f) redemptions of shares in
connection with a combination of any investment company with the Fund by merg-
er, acquisition of assets or otherwise.
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 currently is
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday, Memo-
rial 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.
The net asset value per share of a Class is determined as of the close of
regular trading on the NYSE and is computed by dividing the value of the
Fund's
net assets attributable to that Class by the total number of shares of that
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
35
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
VALUATION OF SHARES (CONTINUED)
determined by or under the direction of the Fund's Board of Directors. Short-
term investments that mature in 60 days or less are valued at amortized cost
whenever the Directors determine that amortized cost reflects fair value of
those investments. Amortized cost involves valuing an instrument at its cost
initially 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.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class in the
following funds in the Smith Barney Shearson Group of Funds, to the extent
shares are offered for sale in the shareholder's state of residence:
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- -
<C> <S>
Municipal Bond Funds
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND, an
intermediate-term municipal bond fund investing in investment-
grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermadiate- and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an intermediate-
and long-term municipal bond fund investing in medium- and
lower-
rated securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
Arizona investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS
FUND, an intermediate-term municipal bond fund designed for
California investors.
</TABLE>
36
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- -
<C> <S>
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an intermediate-
and long-term municipal bond fund designed for Florida
investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Massachusetts investors.
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for New
Jersey investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK MUNICIPALS
FUND, an intermediate-term municipal bond fund designed for New
York investors investing in investment grade obligations.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for New
York investors.
Income Funds
A, B SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME FUND,
seeks high current income while limiting the degree of
fluctuation in net asset value resulting from movement in
interest rates.
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND, invests in a
portfolio of high quality debt securities that may be
denominated
in U.S. dollars or selected foreign currencies and that have
remaining maturities of not more than one year.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND, invests in
high quality, short-term debt securities denominated in U.S.
dollars as well as range of foreign currencies.
</TABLE>
37
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- -
<C> <S>
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND, invests
exclusively in securities issued by the United States Treasury
and other U.S. government securities.
A, B SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND, seeks
high current income primarily by allocating and reallocating its
assets among various types of fixed-income securities.
A, B SMITH BARNEY SHEARSON MANAGED GOVERNMENT FUND INC., invests in
obligations issued or guaranteed by the United States government
and its agencies and instrumentalities with emphasis on
mortgage-
backed government securities.
A, B SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a high
current return by investing in U.S. government securities.
A, B SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks maximum
current income consistent with prudent investment management and
preservation of capital by investing in corporate bonds.
A, B SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high current
income
by investing in high-yield corporate bonds, debentures and
notes.
A, B SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current income and
capital appreciation by investing in bonds, debentures and notes
of foreign and domestic issuers.
Growth and Income Funds
A*, B* SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current income and
capital appreciation by investing in convertible securities.
A*, B* SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks income and
long-term capital growth by investing in income-producing equity
securities.
</TABLE>
38
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- -
<C> <S>
A*, B* SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return by
investing in equity and debt securities of utilities companies.
A*, B* SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks high total
return consisting of current income and capital appreciation by
investing in a combination of equity, fixed-income and money
market securities.
A*, B* SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks total
return by investing in dividend-paying common stocks.
Growth Funds
A*, B* SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-term
appreciation of capital.
A*, B* SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks long-
term capital growth with current income as a secondary
objective.
A*, B* SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation by following a sector strategy.
A*, B* SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND, seeks
capital appreciation, with income as a secondary consideration.
A*, B* SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks above-
average capital growth.
A*, B* SMITH BARNEY SHEARSON--SPECIAL EQUITIES FUND, seeks long-term
capital appreciation by investing in equity securities primarily
of emerging growth companies.
A*, B* SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks long-term
capital growth by investing principally in the common stocks of
foreign and domestic issuers.
</TABLE>
39
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- -
<C> <S>
A*, B* SMITH BARNEY SHEARSON--EUROPEAN FUND, seeks long-term capital
appreciation by investing primarily in securities of issuers
based in European countries.
A*, B* SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND INC.,
seeks long-term capital appreciation by investing primarily in
precious metal- and mineral-related companies and gold bullion.
Money Market Funds
** SMITH BARNEY SHEARSON--MONEY MARKET FUND, invests in a
diversified portfolio of higher quality money market
instruments.
*** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND INC., invests in a
diversified portfolio of high quality money market instruments.
*** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND INC., invests
in short-term U.S. government and agency securities.
*** SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND INC., invests
in short-term high quality municipal obligations.
*** SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET FUND,
invests in short-term, high quality California municipal
obligations.
*** SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND, invests in
short-term, high quality New York municipal obligations.
- ------------------------------------------------------------------------------
- -
</TABLE>
* Shares of this fund are subject to a higher sales charge or CDSC than that
applicable to the Fund's shares.
** Shares of this money market fund may be exchanged for Class B shares of
the
Fund.
*** Shares of this money market fund may be exchanged for Class A shares of
the
Fund.
Tax Effect.The exchange of shares of one fund for shares of another fund is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
40
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Class A Exchanges. Class A shareholders of the funds in the Smith Barney
Shearson Group of Funds sold without a sales charge or with a maximum sales
charge of less than 4.50% will be subject to the appropriate "sales charge
dif-
ferential" upon the exchange of their shares for Class A shares of the Fund or
other fund sold with a higher sales charge. The "sales charge differential" is
limited to a percentage rate no greater than the excess of the sales charge
rate applicable to purchases of shares of the mutual fund being acquired in
the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For pur-
poses of the exchange privilege, shares obtained through automatic
reinvestment
of dividends, as described below, are treated as having paid the same sales
charges applicable to the shares on which the dividends were paid; however, if
no sales charge was imposed upon the initial purchase of the shares, any
shares
obtained through automatic reinvestment will be subject to a sales charge dif-
ferential upon exchange.
Class B Exchanges. Class B shareholders of the Fund who wish to exchange all
or a portion of their Class B shares for Class B shares in any of the funds
identified above may do so without imposition of any exchange fee. In the
event
a Class B shareholder wishes to exchange all or a portion of his or her shares
for shares in any of the funds imposing a CDSC higher 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
pur-
chased on the same date as the Class B shares of the Fund that have been
exchanged.
Additional Information Regarding the Exchange Privilege. Shareholders
exercis-
ing the exchange privilege with any of the other funds in the Smith Barney
Shearson Group of Funds should review the prospectus of that fund carefully
prior to making an exchange. Smith Barney Shearson reserves the right to
reject
any exchange request. The exchange privilege may be modified or terminated at
any time after written notice to shareholders. Although the exchange privilege
is an important benefit, excessive exchange transactions can be detrimental to
the Fund's performance and its shareholders. Greenwich Street Advisors 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, Greenwich
Street Advisors will notify Smith Barney Shearson, and Smith Barney Shearson
may, at its discretion, decide to limit additional purchases and/or exchanges
by the shareholder. Upon such a determination, Smith Barney Shearson will pro-
vide notice
41
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
in writing or by telephone to the shareholder at least 15 days prior to sus-
pending 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 in the Smith Barney
Shearson Group of Funds ordinarily available, which position the shareholder
would expect to maintain for a significant period of time. All relevant
factors
will be considered in determining what constitutes an abusive pattern of
exchanges. For further information regarding the exchange privilege or to
obtain the current prospectus for members of the Smith Barney Shearson Group
of
Funds, investors should contact their Smith Barney Shearson Financial Consul-
tant.
DISTRIBUTOR
Smith Barney Shearson is located at 388 Greenwich Street, New York, New York
10013 and serves as distributor of the Fund's shares. Smith Barney Shearson is
paid an annual service fee with respect to Class A and Class B shares of the
Fund at the rate of .15% of the value of average daily net assets of the
respective Class. Smith Barney Shearson is paid an annual distribution fee
with
respect to Class B shares at the rate of .50% of the value of the average
daily
net assets attributable to those shares. The fees are authorized pursuant to a
services and distribution plan (the "Plan") adopted by the Fund pursuant to
Rule 12b-1 under the 1940 Act and are used by Smith Barney Shearson to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B shares, to cover expenses primarily intended to result in the sale of
those shares. These expenses include: costs of printing and distributing the
Fund's Prospectus, Statement of Additional Information and sales literature to
prospective investors; an allocation of overhead and other Smith Barney
Shearsons' branch office distribution-related expenses; payments to and
expenses of Smith Barney Shearson Financial Consultants and other persons who
provide support services in connection with the distribution of the shares;
and
accruals for interest on the amount of the foregoing expenses that exceed dis-
tribution fees and, in the case of Class B shares, the CDSC received by Smith
Barney Shearson. The payments to Smith Barney Shearson Financial Consultants
for selling shares of a Class include a commission paid at the time of sale
and
a continuing fee for servicing shareholder accounts for as long as a share-
holder remains a holder of that Class. The service fee is credited at the rate
of
42
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
DISTRIBUTOR (CONTINUED)
.15% of the value of the average daily net assets of the particular Class of
shares that remain invested in the Fund. Smith Barney Shearson Financial Con-
sultants may receive different levels of compensation for selling one Class
over another.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson 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 Shearson, amount received under the
Plan and proceeds of the CDSC.
DIVIDENDS AND DISTRIBUTIONS AND TAXES
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 Shearson 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. Unless a shareholder
instructs that dividends and capital gains distributions on shares of any
Class
be paid in cash and credited to the shareholder's account, dividends and capi-
tal gains distributions will be reinvested automatically in additional shares
of the Class at net asset value, subject to no sales charge or CDSC. The
Fund's
earnings for Saturdays, Sundays and holidays are declared as dividends on the
next business day. Shares redeemed during the month are entitled to dividends
declared up to and including the date of redemption. In addition, in order to
avoid the application of a 4% nondeductible excise tax on certain
undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 in each year of any undistributed
ordi-
nary income or capital gains and expects to make any other 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 sharehold-
er's tax basis in his or her shares). The amount treated as a tax-free return
of capital
43
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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.
TAXES
The Fund has qualified and intends to continue to qualify each year as a
reg-
ulated investment company under the Code and will designate and pay exempt-
interest dividends derived from interest earned on qualifying tax-exempt obli-
gations. Such exempt-interest dividends may be excluded by shareholders of the
Fund from their gross income for Federal income tax purposes although (a) all
or a portion of such exempt-interest dividends will be a specific preference
item for purposes of the Federal individual and corporate alternative minimum
taxes to the extent they are derived from certain types of private activity
bonds issued after August 7, 1986 and (b) all exempt-interest dividends will
be
a component of the "current earnings" adjustment item for purposes of the Fed-
eral corporate alternative minimum tax. In addition, corporate shareholders
may
incur a greater Federal "environmental" tax liability through the receipt of
the Fund's dividends and distributions. Dividends derived from interest on
Cal-
ifornia Municipal Securities also will be exempt from California state
personal
income (but not corporate franchise or corporate income) 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 tax-
able securities) are taxable to shareholders as ordinary income, regardless of
how long they have held their Fund shares and whether such dividends or
distri-
butions are received in cash or reinstated in additional Fund shares.
Distribu-
tions of net realized long-term capital gains are taxable to shareholders as
long-term capital gains, regardless of how long they have held their Funds
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. The per share dividends and
distributions
44
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
on Class A shares will be higher than those on Class B shares as a result of
lower distribution and transfer agency fees applicable to Class A shares.
Statements as to the tax status of each shareholder's dividends and
distribu-
tions 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 state-
ments may set forth the dollar amount of income excluded or exempt from
Federal
income taxes or California state 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
pur-
poses of the Federal individual and corporate alternative minimum taxes.
Share-
holders should consult their tax advisors with specific reference to their own
tax situations.
TAX-EXEMPT INCOME VS. TAXABLE INCOME
The table below shows California taxpayers how to translate Federal and
Cali-
fornia State tax savings from investments such as the Fund into an equivalent
return from a taxable investment. To the extent that the equivalent taxable
yields, illustrated in this table, are based on an effective tax rate which
combines the Federal and California marginal income tax rates, the table is
not
applicable to individuals who do not pay California State income tax. 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>
COMBINED
FEDERAL CALIFORNIA COMBINED EFFECTIVE
TAXABLE INCOME* MARGINAL MARGINAL MARGINAL MARGINAL TAX
EXEMPT YIELDS
SINGLE JOINT RATE RATE RATE RATE 4.00% 5.00% 6.00%
7.00% 8.00% 9.00%
- ------------------------------------------------------------------------------
- ---------------------------
EQUIVALENT TAXABLE YIELDS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
$ 22,100 $ 36,900 15.00% 6.00% 21.00% 20.10% 5.01% 6.26% 7.51%
8.76% 10.01% 11.26%
53,500 89,150 28.00% 9.30% 37.30% 34.70% 6.13% 7.66% 9.19%
10.72% 12.25% 13.78%
106,190 140,000 31.00% 9.30% 40.30% 37.42% 6.39% 7.99% 9.59%
11.19% 12.78% 14.38%
212,380 250,000 36.00% 10.00% 46.00% 42.40% 6.94% 8.68% 10.42%
12.15% 13.89% 15.63%
250,000 424,760 39.60% 11.00% 50.60% 46.24% 7.44% 9.30% 11.16%
13.02% 14.88% 16.74%
- ------------------------------------------------------------------------------
- ---------------------------
</TABLE>
* Combined effective marginal tax rate represents the combined Federal and
California state income tax rates adjusted to account for the Federal
deduction of state taxes paid. The combined marginal income tax rate is
lower than the sum of the Federal and California state marginal rates
because the state taxes that shareholders of the Fund will pay are
deductible from Federal taxable income.
45
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
The Federal tax rates and California state tax rates shown are those pres-
ently in effect for 1994 and are subject to change. The calculations reflected
in the table assume that no income will be subject to the Federal or state
alternative minimum taxes.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on
February
17, 1984, and is registered with the SEC as a non-diversified, open-end
manage-
ment investment company. Prior to December 15, 1988, the Fund's name was
Shearson Lehman California Municipals Inc. and on December 15, 1988, November
19, 1992 and July 30, 1993, the Fund changed its name to SLH California
Municipals Fund Inc., Shearson Lehman Brothers California Municipals Fund Inc.
and Smith Barney Shearson California Municipals Fund Inc., respectively.
Each Class represents an identical interest in the Fund's investment portfo-
lio. 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 serv-
ice 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
Clas-
ses. The Directors, on an ongoing basis, will consider whether any such con-
flict exists and, if so, take appropriate action.
The Fund does not hold annual shareholder meetings. There normally will be
no
meetings of shareholders for the purpose of electing Directors unless and
until
such time as less than a majority of the Directors holding office have been
elected by shareholders. The Directors will call a meeting for any purpose
upon
written request of shareholders holding at least 10% of the Fund's outstanding
shares. When matters are submitted for shareholder vote, shareholders of each
Class will have one vote for each full share owned and a proportionate, frac-
tional 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.
46
<PAGE>
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
ADDITIONAL INFORMATION (CONTINUED)
Boston Safe Deposit and Trust Company, a wholly owned subsidiary of TBC, is
located at One Boston Place, Boston, Massachusetts 02108, and serves as custo-
dian 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. In addition, the Fund also plans to con-
solidate the mailing of its Prospectus so that a shareholder having multiple
accounts will receive a single Prospectus annually. Any shareholder who does
not want this consolidation to apply to his or her account should contact his
or her Financial Consultant or TSSG. Shareholders may make inquiries regarding
the Fund to their Smith Barney Shearson Financial Consultants.
-----------------------
No person has been authorized to give any information or to make any repre-
sentations other than those contained in this Prospectus, the Statement of
Additional Information and/or the Fund's official sales literature in connec-
tion with the offering of the Fund's shares, and, if given or made, such other
information or representations must not be relied upon as having been autho-
rized by the Fund. This Prospectus does not constitute an offer in any state
in
which, or to any person to whom, such offer may not lawfully be made.
47
<PAGE>
- ------------------------------------------------------------------------------
- --
SMITH BARNEY SHEARSON
California Municipals Fund Inc.
Two World Trade Center
New York, New York 10048
Fund 14
FD0209 F3
<PAGE>
Smith Barney Shearson
CALIFORNIA MUNICIPALS FUND INC.
Two World Trade Center
New York, New York 10048
(212) 720-9218
STATEMENT OF ADDITIONAL INFORMATION APRIL 29,
1994
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney Shearson
California Municipals Fund Inc. (the "Fund") dated April 29, 1994, as amended
or supplemented from time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund's Prospectus may be obtained from your Smith
Barney Shearson Financial Consultant or by writing or calling the Fund at the
address or telephone number set forth above. This Statement of Additional
Information, although not in itself a prospectus, is incorporated by reference
into the Prospectus in its entirety.
CONTENTS
For ease of reference, the same section headings are used in both the
Prospectus and this 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 "California Municipal
Securities")...........................................................
12
Purchase of Shares......................................................
22
Redemption of Shares....................................................
22
Distributor.............................................................
23
Valuation of Shares.....................................................
24
Exchange Privilege......................................................
25
Performance Data (See in the Prospectus "The Fund's Performance").......
26
Taxes (See in the Prospectus "Dividends, Distributions and Taxes")......
27
Custodian and Transfer Agent (See in the Prospectus "Additional Informa-
tion").................................................................
30
Financial Statements....................................................
31
Appendix................................................................
A-1
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the
organizations that provide services to the Fund. These organizations are as
follows:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
Smith Barney Shearson Inc.
("Smith Barney Shearson")................................ Distributor
Greenwich Street Advisors................................. Investment
Adviser
The Boston Company Advisors, Inc.
("Boston Advisors")...................................... 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
discussed in the Prospectus and in this Statement of Additional Information.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The Directors and executive officers of the Fund, together with information as
to their principal business occupations during the past five years, are set
forth below. Each Director who is an "interested person" of the Fund, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), is
indicated by an asterisk.
Herbert Barg, Director. Private investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
Alfred J. Bianchetti, Director. Retired; formerly Senior Consultant to Dean
Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey, New Jersey
17466.
Robert E. Borgesen, Director. Retired; formerly Vice President of Morgan
Guaranty Trust Company of New York. His address is 160 Southeast Crestwood
Circle, Stuart, Florida 34997.
Martin Brody, Director. Vice Chairman of the Board of Restaurant Associates
Corp.; a Director of Jaclyn, Inc. His address is HMK Associates, Three ADP
Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Director. Professor, Graduate School of Business
Administration, Harvard University; a Director of Peer Review Analysis, Inc.
His address is Graduate School of Business Administration, Harvard University,
Boston, Massachusetts 02163.
James J. Crisona, Director. Attorney; formerly a Justice of the Supreme
Court of the State of New York. His address is 118 East 60th Street, New York,
New York 10022.
Robert A. Frankel, Director. Management Consultant; retired Vice President
of The Reader's Digest Association, Inc. His address is 102 Grand Street,
Croton-on-Hudson, New York 10520.
Dr. Paul Hardin, Director. Chancellor of the University of North Carolina
at Chapel Hill; a Director of The Summit Bancorporation. His address is
University of North Carolina, 103 S. Building, Chapel Hill, North Carolina
27599.
Stephen E. Kaufman, Director. Attorney; Director of Michigan Energy
Resources Corp. His address is 277 Park Avenue, New York, New York 10172.
Joseph J. McCann, Director. Financial Consultant; formerly, Vice President
of Ryan Homes, Inc. His address is 200 Oak Park Place, Pittsburgh,
Pennsylvania 15243.
* Heath B. McLendon, Chairman of the Board and Investment Officer.
Executive Vice President of Smith Barney Shearson and Chairman of Smith Barney
Strategy Advisers Inc.; prior to July 1993. Senior Executive Vice President of
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"); Vice Chairman of
Shearson Asset Management, a member of the Asset Management Group of Shearson
Lehman Brothers; a Director of PanAgora Asset Management, Inc. and PanAgora
Asset Management Limited. His address is Two World Trade Center, New York, New
York 10048.
* Richard P. Roelofs, Executive Vice President. Managing Director of Smith
Barney Shearson; President of Smith Barney Shearson Strategy Advisers Inc.,
prior to July 1993. Senior Vice President of Shearson Lehman Brothers; Vice
President of Shearson Lehman Investment Strategy Advisors Inc., an investment
advisory affiliate of Shearson Lehman Brothers. His address is Two World Trade
Center, New York, New York 10048.
2
<PAGE>
Joseph P. Deane, Vice President and Investment Officer. Managing Director
of Greenwich Street Advisors; prior to July 1993, Managing Director of
Shearson Lehman Advisors. His address is Two World Trade Center, New York, New
York 10048.
David Fare, Investment Officer. Vice President of Greenwich Street
Advisors; prior to July 1993, Vice President of Shearson Lehman Advisors. His
address is Two World Trade Center, New York, New York 10048.
Vincent Nave, Treasurer. Senior Vice President of Boston Advisors and
Boston Safe. His address is One Boston Place, Boston, Massachusetts 02108.
Francis J. McNamara, III, Secretary. Senior Vice President and General
Counsel of Boston Advisors; prior to June 1989, Vice President and Associate
Counsel of Boston Advisors. His address is One Boston Place, Boston,
Massachusetts 02108.
Each Director also serves as a director, trustee or general partner of
other mutual funds for which Smith Barney Shearson serves as distributor. As
of March 1, 1994, the Directors and officers of the Fund as a group owned no
shares of the outstanding common stock of the Fund.
No director, officer or employee of Smith Barney Shearson, Boston Advisors
or any parent or subsidiary 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 Shearson, Boston
Advisors or any of their affiliates a fee of $2,000 per annum plus $500 per
meeting attended and reimburses them for travel and out-of-pocket expenses.
For the fiscal year ended February 28, 1994, such fees and expenses totalled
$ .
INVESTMENT ADVISER--GREENWICH STREET ADVISORS
ADMINISTRATOR--BOSTON ADVISORS
Greenwich Street Advisors serves as investment adviser to the Fund pursuant to
a written agreement dated October 26, 1988 (the "Advisory Agreement"), which
was most recently approved by the Board of Directors, including a majority of
those Directors who are not "interested persons" of the Fund or Greenwich
Street Advisors, on April 7, 1993. The services provided by Greenwich Street
Advisors under the Advisory Agreement are described in the Prospectus.
Greenwich Street Advisors pays the salaries of all officers and employees who
are employed by both it and the Fund. Greenwich Street Advisors bears all
expenses in connection with the performance of its services. Greenwich Street
Advisors is a division of Mutual Management Corp., which is in turn a wholly
owned subsidiary of Smith Barney Shearson Holdings Inc. ("Holdings"). Holdings
is a wholly owned subsidiary of The Travelers Inc. ("Travelers").
As compensation for Greenwich Street Advisors' services rendered to the
Fund, the Fund pays a fee computed daily and paid monthly at the following
annual rates: .35% of the value of the Fund's average daily net assets up to
$500 million and .32% of the value of its average daily net assets in excess
of $500 million. For the 1992, 1993 and 1994 fiscal years, such fees amounted
to $1,226,008, $1,376,158 and $ , respectively.
Prior to the close of business on May 21, 1993, Boston Advisors served as
sub-investment adviser and administrator to the Fund. Boston Advisors
currently serves as the Fund's administrator pursuant to a written agreement
dated May 22, 1993 (the "Administration Agreement"), which was most recently
approved by the Board of Directors, including a majority of the Directors who
are not "interested persons" of the Fund or
3
<PAGE>
Boston Advisors, on July 21, 1993. Boston Advisors is a wholly owned
subsidiary of The Boston Company, Inc., a financial services holding company,
which is in turn a wholly owned subsidiary of Mellon Bank Corporation.
Certain services provided to the Fund by Boston Advisors pursuant to the
Administration Agreement are described in the Prospectus under "Management 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 shareholders and prepares tax returns
and reports to and filings with the Securities and Exchange Commission (the
"SEC") and state blue sky authorities. Boston Advisors bears all expenses in
connection with the performance of its services.
As compensation for Boston Advisors' services rendered to the Fund, the
Fund pays a fee computed daily and paid monthly at the following annual rates:
.20% of the value of the Fund's average daily net assets up to $500 million
and .18% of the value of its average daily net assets in excess of $500
million. For the 1992, 1993 and 1994 fiscal years, such fees amounted to
$700,576, $786,376 and $ , respectively.
The Fund bears expenses incurred in its operations, including: taxes,
interest, brokerage fees and commissions, if any; fees of Directors who are
not officers, directors, shareholders or employees of Smith Barney Shearson
Boston Advisors; SEC fees and state blue sky qualification fees; charges of
custodian; transfer and dividend disbursing agent's fees; certain insurance
premiums; outside auditing and legal expenses; costs of any independent
pricing service; costs of maintaining corporate existence; costs attributable
to investor services (including allocated telephone and personnel expenses);
costs of preparation and printing of prospectuses for regulatory purposes and
for distribution to existing shareholders; costs of shareholders' reports and
shareholders' meetings and meetings of the Fund's Board of Directors and
officers.
Greenwich Street Advisors and Boston Advisors have each agreed that if in
any fiscal year the aggregate expenses of the Fund (including fees payable
pursuant to the Advisory Agreement and the Administration Agreement, but
excluding interest, taxes, brokerage and, with the prior written consent of
the necessary state securities commissions, extraordinary expenses) exceed the
expense limitations of any state having jurisdiction over the Fund, Greenwich
Street Advisors and Boston Advisors will, to the extent required by state law,
reduce their management fees by the amount of such excess expenses, such
amount to be allocated between them in the proportion their respective fees
bear to the aggregate of such fees paid by the Fund. Such fee reductions, if
any, will be reconciled on a monthly basis. The most restrictive state expense
limitation presently applicable to the Fund would require Greenwich Street
Advisors and Boston Advisors to reduce their fees in any year that such
expenses exceed 2.5% of the first $30 million of average daily net assets, 2%
of the next $70 million of average daily net assets and 1.5% of the remaining
average daily 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. O'Melveny &
Myers acts as special California counsel for the Fund and has reviewed the
portions of the Prospectus and this Statement of Additional Information
concerning California taxes and the description of the special considerations
relating to investments in California municipal securities. The Directors who
are not "interested persons" of the Fund have selected Stroock & Stroock &
Lavan as their counsel.
4
<PAGE>
Coopers & Lybrand, independent accountants, One Post Office Square, Boston,
Massachusetts 02109, serve as auditors of the Fund and render an opinion on
the Fund's financial statements annually.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the policies it
employs to achieve that objective. The following discussion supplements the
description of the Fund's investment policies in the Prospectus. For purposes
of this Statement of Additional Information, obligations of non-California
municipal issuers, the interest on which is excluded from gross income for
Federal income tax purposes, together with obligations of the State of
California, local governments in the State of California and certain other
municipal issuers such as the Commonwealth of Puerto Rico ("California
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 invested
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,
instrumentality 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 security and would be treated
as an issue of such government or other entity.
USE OF 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 investments 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 Greenwich Street Advisors to evaluate
potential investments. Among the factors that will be considered are the long-
term ability of the issuer to pay principal and interest and general economic
trends. To the extent the Fund invests in lower-rated and comparable unrated
securities, the Fund's achievement of its investment objective may be more
dependent on Greenwich Street Advisors' credit analysis of such securities
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 require the
sale of such Municipal Bonds by the Fund, but Greenwich Street Advisors will
consider such event in its determination of whether the Fund should continue
to hold the Municipal Bonds. In addition, to the extent that the ratings
change as a result of changes in such organizations or their rating systems or
due to a corporate restructuring 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.
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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
outweighed by large uncertainties or major risk exposures to adverse
conditions 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.
Zero coupon securities involve special considerations. Zero coupon
securities are debt obligations which do not entitle the holder to any
periodic payments of interest prior to maturity of a specified cash payment
date when the securities begin paying current interest (the "cash payment
date") and therefore are issued and traded at a discount from their face
amounts or par values. The discount varies depending on the time remaining
until maturity or cash payment date, prevailing interest rates, liquidity of
the security and the perceived credit quality of the issuer. The discount, in
the absence of financial difficulties of the issuer, decreases as the final
maturity or cash payment date of the security approaches. The market prices of
zero coupon securities generally are more volatile than the market prices of
other debt securities that pay interest periodically and are likely to respond
to changes in interest rates to a greater degree than do debt securities
having similar maturities and credit quality. The credit risk factors
pertaining to low-rated securities also apply to low-rated zero coupon bonds.
Such zero coupon bonds carry an additional risk in that, unlike bonds which
pay interest throughout the period to maturity, the Fund will realize no cash
until the cash payment date unless a portion of such securities is sold and,
if the issuer defaults, the Fund may obtain no return at all on its
investment.
Current Federal income tax laws may require the holder of a zero coupon
security to accrue income with respect to that security prior to the receipt
of cash payments. To maintain its qualification as a registered investment
company and avoid liability for Federal income taxes, the Fund may be required
to distribute income accrued with respect to zero coupon securities and may
have to dispose of portfolio securities under disadvantageous circumstances in
order to generate cash to satisfy these distribution requirements.
TEMPORARY INVESTMENTS
When the Fund is maintaining a defensive position, the Fund may invest in
short-term investments ("Temporary Investments") consisting of: (a) the
following tax-exempt securities: notes of municipal issuers having, at the
time of purchase, a rating within the three highest grades of Moody's or S&P
or, if not rated, having an issue of outstanding Municipal Bonds rated within
the three highest grades by Moody's or S&P; and (b) the following taxable
securities: obligations of the United States government, its agencies or
instrumentalities ("U.S. government securities"), repurchase agreements, other
debt securities rated within the three highest grades by Moody's or 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 Investments 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 commencement of operations, the Fund has not found it necessary to
purchase taxable Temporary Investments.
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INVESTMENTS IN FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FINANCIAL FUTURES
CONTRACTS
The Fund may invest in financial futures contracts and options on financial
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 securities 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 Greenwich Street Advisors anticipates an extreme
change in interest rates or market conditions.
Municipal Bond Index Futures Contracts. A municipal bond index futures
contract is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specific dollar amount times the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. No physical delivery of the underlying municipal bonds in the index
is made. Municipal bond index futures contracts 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.
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 securities
without actually buying or selling long-term municipal securities.
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 nature 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 positions 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 futures contract.
There are several risks in connection with the use of futures contracts as
a hedging device. Successful use of futures contracts by the Fund is subject
to Greenwich Street ability to predict correctly movements in the direction of
interest rates. Such predictions involve skills and techniques which may be
different from those involved in the management of a long-term municipal bond
portfolio. In addition, there can be no assurance that there will be a
correlation between movements in the price of the municipal bond index and
movements in the price of the Municipal Bonds which are the subject of the
hedge. The degree of imperfection of correlation depends upon various
circumstances, such as variations in speculative market demand for futures
contracts and municipal securities, technical influences on futures trading,
and differences between the municipal securities being hedged and the
municipal securities underlying the futures contracts, in such respects as
interest rate levels, maturities and creditworthiness of issuers. A decision
of whether, when and how to hedge involves the 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.
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Although the Fund intends to purchase or sell futures contracts only if
there is an active market for such contracts, there is no assurance that a
liquid market will exist for the contracts at any particular time. Most
domestic futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and,
therefore, does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures 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 that the price of Municipal Bonds will, in fact,
correlate with the price movements in the municipal bond index futures
contract and thus provide an offset to losses on a futures contract.
If the Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of the Municipal Bonds held in its
portfolio and rates decrease instead, the Fund will lose part or all of the
benefit 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 securities may, but
will not necessarily, be at increased prices which reflect 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 or other high grade debt 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 collateralize the positions and thereby insure that the use of
such futures contracts 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 company. See "Taxes" below.
Options on Financial Futures Contracts. The Fund may purchase put and call
options on futures contracts which are traded on a domestic exchange or board
of trade as a hedge against changes in interest rates, and may enter into
closing transactions with respect to such options to terminate existing
positions. The Fund will sell put and call options on interest rate futures
contracts only as part of closing sale transactions to terminate its options
positions. There is no guarantee that such closing transactions can be
effected.
Options on futures contracts, as contrasted with the direct investment in
such contracts, gives the purchaser the right, in return for the premium paid,
to assume a position in 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 position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in
the writer's futures contract margin account, which represents the amount by
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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 contract. 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 futures contracts. 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 Greenwich Street Advisors, which could prove to be inaccurate. Even
if Greenwich Street Advisors' expectations are correct there may be an
imperfect correlation between the change in the value of the options and of
the Fund's portfolio securities.
Repurchase Agreements. The Fund may enter into 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 security 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 underlying debt obligation for
a relatively short period (usually not more than seven days) 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. This arrangement results in a fixed rate of return that
is not subject to market fluctuations 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. Repurchase agreements could involve
certain risks in the event of default or insolvency of the other party,
including possible delays or restrictions upon the Fund's ability to dispose
of the underlying securities, the risk of a possible decline in the value of
the underlying securities during the period in which the Fund seeks to assert
its rights to them, the risk of incurring expenses associated with asserting
those rights and the risk of losing all or part of the income from the
agreement. In evaluating these potential risks, Greenwich Street Advisors 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the protection
of shareholders. Restrictions 1 through 7 below may not be changed without the
approval of 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 are present in person
or 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
9
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contracts and options on futures contracts and other similar instruments;
and (c) issuing separate classes of shares.
2. Invest more than 25% of its total assets in securities, the issuers of
which are in the same industry. For purposes of this limitation, 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 temporary
or emergency (not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of
securities, in an amount not exceeding 10% of the value of the Fund's total
assets (including the amount borrowed) valued at market 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 any additional investments.
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 credits as
are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the box). For
purposes of this restriction, the deposit or payment by the Fund of initial
or maintenance margin in connection with futures contracts 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 securities
of issuers having a record, including predecessors, of less than three
years of continuous operation, except U.S. government securities. For
purposes of this restriction, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and 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.
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13. Engage in the purchase or sale of put, call, straddle or spread options
or in the writing of such options, except that the Fund may purchase and
sell options on interest rate futures contracts.
Certain restrictions listed above permit the Fund to engage in investment
practices that the Fund does not currently pursue. The Fund has no present
intention of altering its current investment 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 notice
to shareholders. If a percentage restriction is complied with at the time of
an investment, a later increase or decrease in the percentage of assets
resulting from a change in the values of portfolio securities or in the amount
of the Fund's assets will not constitute a violation of such restriction. In
order to permit the sale of the Fund's shares in certain states, the Fund may
make commitments more restrictive than the restrictions described 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 execution
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 normally 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 Greenwich Street Advisors in its best judgment and in a
manner deemed fair and reasonable to shareholders. The primary considerations
are availability of the desired security and the prompt execution of orders in
an effective manner at the most favorable prices. Subject to these
considerations, dealers that provide supplemental investment research and
statistical or other services to Greenwich Street Advisors may receive orders
for portfolio transactions by the Fund. Information so received enables
Greenwich Street Advisors to supplement their own research and analysis with
the views and information of other securities firms. Such information may be
useful to Greenwich Street Advisors 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 Greenwich Street Advisors in
carrying out its obligations to the Fund.
The Fund will not purchase Municipal Bonds during the existence of any
underwriting or selling group relating thereto of which Smith Barney Shearson
is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of this limitation in
comparison with other investment companies which have a similar investment
objective but which are not subject to such limitation.
While investment decisions for the Fund are made independently from those
of the other accounts managed by Greenwich Street Advisors, investments of the
type the Fund may make also may be made by those other accounts. When the Fund
and one or more other accounts managed by Greenwich Street Advisors 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 Greenwich Street Advisors to be equitable to each. In some
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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
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)
generally is not expected to exceed 100%, but the portfolio turnover rate will
not be a limiting factor whenever the Fund deems it desirable to sell or
purchase securities. Securities may be sold in anticipation of a rise in
interest rates (market decline) or purchased in anticipation of a decline in
interest rates (market 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 in order to take advantage of what the Fund
believes to be a temporary disparity in the normal yield relationship between
the two securities. These yield disparities may occur for reasons not directly
related to the investment quality of particular issues or the general movement
of interest rates, such as changes in the overall demand for or supply of
various types of tax-exempt securities. For the 1993 and 1994 fiscal years,
the Fund's portfolio turnover rates were 72% and %, respectively.
MUNICIPAL BONDS
GENERAL INFORMATION
Municipal Bonds generally are understood to include debt obligations issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, refunding of outstanding obligations, 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 operated facilities are included
within the term Municipal Bonds if the interest paid thereon qualifies as
excluded from gross income (but not necessarily 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 upon a variety of factors,
including general economic and monetary conditions, general money market
conditions, general conditions of the Municipal Bond market, the financial
condition of the issuer, the size of a particular offering, the maturity of
the obligation offered and the rating of the issue.
Municipal Bonds also are subject to the provisions of bankruptcy,
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 payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. There is also
the possibility 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 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
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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 strategy.
Municipal Bonds are subject to changes in value based upon the public's
perception of the creditworthiness of the issuers and changes, real or
anticipated, in the level of interest rates. In general, Municipal Bonds tend
to appreciate when interest rates decline and depreciate when interest rates
rise. Purchasing Municipal Bonds on a when-issued basis, therefore, can
involve the risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the transaction
itself. To account for this risk, a separate 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 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 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 securities to meet such
obligations may involve the realization of capital gains, which are not exempt
from Federal income taxes or California state personal income tax.
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 considered
to be advantageous.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES
Some of the significant financial considerations relating to the Fund's
investments in California Municipal Obligations are summarized below. This
summary information is derived principally from official statements and
prospectuses relating to securities offerings of the State of California and
various local agencies in California, available as of the date of this
Statement of Additional Information and does not purport to be a complete
description of any of the considerations mentioned herein. The accuracy and
completeness of the information contained in such official statements has not
been independently verified.
Economic Factors. The Governor's 1993-1994 Budget, introduced on January 8,
1993, proposed general fund expenditures of $37.3 billion, with projected
revenues of $39.9 billion. It also proposed special fund expenditures of $12.4
billion and special fund revenues of $12.1 billion. To balance the budget in
the face of declining revenues, the Governor proposed a series of revenue
shifts from local government, reliance on increased federal aid, and
reductions in state spending.
The Department of Finance of the State of California's May Revision of
General Fund Revenues and Expenditures (the "May Revision"), released on May
20, 1993, indicated that the revenue projections of the January budget
proposal were tracking well, with the full year 1992-1993 about $80 million
higher than the
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January projection. Personal income tax revenue was higher than projected,
sales tax was close to target, and bank and corporation taxes were lagging
behind projections. The May Revision projected the State would have an
accumulated deficit of about $2.75 billion by June 30, 1993. The Governor
proposed to eliminate this deficit over an 18-month period. He also agreed to
retain the 0.5% sales tax scheduled to expire June 30 for a six-month period,
dedicated to local public safety purposes, with a November election to
determine a permanent extension. Unlike previous years, the Governor's Budget
and May Revision did not calculate a "gap" to be closed, but rather set forth
revenue and expenditure forecasts and proposals designed to produce a balanced
budget.
The 1993-1994 budget act (the "1993-94 Budget Act") was signed by the
Governor on June 30, 1993, along with implementing legislation. The Governor
vetoed about $71 million in spending.
The 1993-94 Budget Act is predicated on general fund revenues and transfers
estimated at $40.6 billion, $400 million below 1992-93 (and the second
consecutive year of actual decline). The principal reasons for declining
revenue are the continued weak economy and the expiration (or repeal) of three
fiscal steps taken in 1991--a half cent temporary sales tax, a deferral of
operating loss carryforwards, and repeal by initiative of a sales tax on candy
and snack foods.
The 1993-94 Budget Act also assumes special fund revenues of $11.9 billion,
an increase of 2.9 percent over 1992-93.
The 1993-94 Budget Act includes general fund expenditures of $38.5 billion
(a 6.3 percent reduction from projected 1992-93 expenditures of $41.1
billion), in order to keep a balanced budget within the available revenues.
The 1993-94 Budget Act also includes special fund expenditures of $12.1
billion, a 4.2 percent increase. The 1993-94 Budget Act reflects the following
major adjustments:
1. Changes in local government financing to shift about $2.6 billion in
property taxes from cities, counties, special districts and redevelopment
agencies to school and community college districts, thereby reducing
general fund support by an equal amount. About $2.5 billion would be
permanent, reflecting termination of the State's "bailout" of local
governments following the property tax cuts of Proposition 13 in 1978 (See
"Constitutional, Legislative and Other Factors" below).
The property tax revenue losses for cities and counties are offset in
part by additional sales tax revenues and mandate relief. The temporary 0.5
percent sales tax has been extended through December 31, 1993, for
allocation to counties for public safety programs. A Constitutional
amendment will be placed on the ballot in a special statewide election in
November 1993 to extend the sales tax permanently for public safety
purposes.
Legislation also has been enacted to eliminate state mandates in order
to provide local governments flexibility in making their programs
responsive to local needs. Legislation provides mandate relief for local
justice systems which affect county audit requirements, court reporter
fees, and court consolidation; health and welfare relief involving advisory
boards, family planning, state audits and realignment maintenance efforts;
and relief in areas such as county welfare department self-evaluations,
noise guidelines and recycling requirements.
A lawsuit has been filed by Los Angeles County challenging the shift of
property taxes. Other counties or local agencies may join this action or
file separate suits.
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2. The 1993-94 Budget Act keeps K-12 Proposition 98 funding on a cash
basis at the same per-pupil level as 1992-93 by providing schools a $609
million loan payable from future years' Proposition 98 funds.
3. President Clinton's Fiscal Year 1994 budget proposals include about
$692 million of aid to the State from the federal government to offset
health and welfare costs associated with foreign immigrants living in the
State, which would reduce a like amount of general fund expenditures. About
$411 million of this amount is one-time funding. The receipt of this money
is dependent upon the inclusion of such funding for the State in the
President's budget that is ultimately approved.
4. Reductions of $600 million in health and welfare programs, which were
agreed upon by the California Legislature and the Governor.
5. Reductions of $400 million in support for higher education. These
reductions will be partly offset by fee increases at all three units of
higher education.
6. A 2-year suspension of the renters' tax credit ($390 million
expenditure reduction in 1993-94). A constitutional amendment will be
placed on the June 1994 ballot to restore the renters' tax credit after
1994-95.
7. Various miscellaneous cuts (totalling approximately $150 million) in
State government services in many agencies, up to 15 percent. The Governor
would suspend the 4 percent automatic budget reduction "trigger," as was
done in 1992-93, so cuts can be focused.
8. Miscellaneous one-time items, including deferral of payment to the
Public Employees Retirement Fund ($339 million) and a change in accounting
for debt service from accrual to cash basis, saving $107 million.
The 1993-94 Budget Act contains no general fund tax/revenue increases other
than a two year suspension of the renters' tax credit. The Governor continues
to predict that population growth in the 1990's will keep upward pressure on
major State programs, such as K-14 education, health and welfare and
corrections, outstripping projected revenue growth in an economy only very
slowly emerging from a deep recession.
The October 1993 Bulletin of the Department of Finance reports that General
Fund revenues for September were $128 million above projections, although the
report indicated $45 million of this represented a scheduled insurance tax
refund which was not processed in September. Through the first three months of
the fiscal year, revenues were $214 million, or 2.3 percent, above
projections, with all four major taxes (personal income, sales, bank and
corporation, and insurance) tracking projections well. Revenues for the first
quarter represent about 20 percent of annual receipts. The Department of
Finance also reports that the State will only receive approximately $450
million in aid from the Federal Government to offset the health and welfare
costs associated with foreign immigrants living in the State, substantially
less than the $692 million contemplated by the 1993-94 Budget Act.
Despite the encouraging financial results early in the fiscal year, the
Department's report of sluggish economic activity raises the possibility that
results later in the fiscal year may not meet original projections. A new
projection will be issued with the Governor's Budget in January 1994.
Constitutional, Legislative and Other Factors. Certain California
constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives could result in the adverse
effects
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described below. The following information constitutes only a brief summary,
does not purport to be a complete description, and is based on information
drawn from official statements and prospectuses relating to securities
offerings of the State of California and various local agencies in California
available as of the date of this Prospectus.
Certain of the California Municipal Obligations in which the Fund may
invest may be obligations of issuers which rely in whole or in part on
California State revenues for payment of these obligations. Property tax
revenues and a portion of the State's general fund surplus are distributed to
counties, cities and their various taxing entities and the State assumes
certain obligations theretofore paid out of local funds. Whether and to what
extent a portion of the State's general fund will be distributed in the future
to counties, cities and their various entities, is unclear.
On November 1, 1993, the United States Supreme Court agreed to review the
California court decisions in Barclays Bank International, Ltd v. Franchise
Tax Board and Colgate-Palmolive Company, Inc. v. Franchise Tax Board which
upheld California's worldwide combined reporting ("WWCR") method of taxing
corporations engaged in a unitary business operation against challenges under
the foreign commerce and due process clauses. In 1983, in Container
Corporation v. Franchise Tax Board, the Supreme Court held that the WWCR
method did not violate the foreign commerce clause in the case of a domestic-
based unitary business group with foreign-domiciled subsidiaries, but
specifically left open the question of whether a different result would obtain
for a foreign-based multinational unitary business. Barclays concerns a
foreign-based multinational and Colgate-Palmolive concerns a domestic-based
multinational in light of federal foreign policy developments since 1983. In a
brief filed at the Supreme Court's request, the Clinton Administration had
argued that the Court should not hear the Barclays case, even though there are
"serious questions" about the California Supreme Court's analysis and
holdings, because the recent changes in the law noted below means the issue in
Barclays "lacks substantial recurring importance." The Clinton Administration
had previously decided not to become involved in the Barclays petition. The
United States Government under the Bush Administration, along with various
foreign Governments, had appeared as amicus on behalf of Barclays before the
California Courts. It is unclear what position, if any, the Clinton
Administration will take in the case on the merits. The fiscal impact on the
State of California has been reported as follows: the State would have to
refund $1.730 billion to taxpayers ($530 million due to Barclays; $1.2 billion
due to Colgate), and cancel another $2.35 billion of pending assessments ($350
million due to Barclays; $1.9 billion due to Colgate), if the Supreme Court
ultimately strikes down the WWCR method and rules its decision has
retrospective effect.
In 1988, California enacted legislation providing for a water's-edge
combined reporting method if an election fee was paid and other conditions
met. On October 6, 1993, California Governor Pete Wilson signed Senate Bill
671 (Alquist) which modifies the unitary tax law by deleting the requirements
that a taxpayer electing to determine its income on a water's-edge basis pay a
fee and file a domestic disclosure spreadsheet and instead requiring an annual
information return. Significantly, the Franchise Tax Board can no longer
disregard a taxpayer's election. The Franchise Tax Board is reported to have
estimated state revenue losses from the Legislation as growing from $27
million in 1993-94 to $616 million in 1999-2000, but others, including
Assembly Speaker Willie Brown, disagree with that estimate and assert that
more revenue will be generated for California, rather than less, because of an
anticipated increase in economic activity and additional revenue generated by
the incentives in the Legislation. The United Kingdom has been encouraged by
the legislative developments in California and threatened retaliatory taxation
by the United Kingdom is on hold.
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Certain of the California Municipal Obligations may be obligations of
issuers who rely in whole or in part on ad valorem real property taxes as a
source of revenue. On June 6, 1978, California voters approved an amendment to
the California Constitution known as Proposition 13, which added Article XIIIA
to the California Constitution. The effect of Article XIIIA is to limit ad
valorem taxes on real property and to restrict the ability of taxing entities
to increase real property tax revenues. On November 7, 1978, California voters
approved Proposition 8, and on June 3, 1986, California voters approved
Proposition 46, both of which amended Article XIIIA.
Section 1 of Article XIIA limits the maximum ad valorem tax on real
property to 1% of full cash value (as defined in Section 2), to be collected
by the counties and apportioned according to law; provided that the 1%
limitation does not apply to ad valorem taxes or special assessments to pay
the interest and redemption charges on (a) any indebtedness approved by the
voters prior to July 1, 1978, or (b) any bonded indebtedness for the
acquisition or improvement of real property approved on or after July 1, 1978,
by two-thirds of the votes cast by the voters voting on the proposition.
Section 2 of Article XIIIA defines "full cash value" to mean "the County
Assessor's valuation of real property as shown on the 1975/76 tax bill under
"full cash value' or, thereafter, the appraised value of real property when
purchased, newly constructed, or a change in ownership has occurred after the
1975 assessment." The full cash value may be adjusted annually to reflect
inflation at a rate not to exceed 2% per year, or reduction in the consumer
price index or comparable local data, or reduced in the event of declining
property value caused by damage, destruction or other factors. The California
State Board of Equalization has adopted regulations, binding on county
assessors, interpreting the meaning of "change in ownership" and "new
construction" for purposes of determining full cash value of property under
Article XIIIA.
Legislation enacted by the California Legislature to implement Article
XIIIA (Statutes of 1978, Chapter 292, as amended) provides that
notwithstanding any other law, local agencies may not levy any ad valorem
property tax except to pay debt service on indebtedness approved by the voters
prior to July 1, 1978, and that each county will levy the maximum tax
permitted by Article XIIIA of $4.00 per $100 assessed valuation (based on the
former practice of using 25%, instead of 100%, of full cash value as the
assessed value for tax purposes). The legislation further provided that, for
the 1978/79 fiscal year only, the tax levied by each county was to be
apportioned among all taxing agencies within the county in proportion to their
average share of taxes levied in certain previous years. The apportionment of
property taxes for fiscal years after 1978/79 has been revised pursuant to
Statutes of 1979, Chapter 282, which provides relief funds from State moneys
beginning in fiscal year 1979/80 and is designed to provide a permanent system
for sharing State taxes and budget funds with local agencies. Under Chapter
282, cities and counties receive more of the remaining property tax revenues
collected under Proposition 13 instead of direct State aid. School districts
receive a correspondingly reduced amount of property taxes, but receive
compensation directly from the State and are given additional relief. Chapter
282 does not affect the derivation of the base levy ($4.00 per $100 of
assessed valuation) and the bonded debt tax rate.
On November 6, 1979, an initiative known as "Proposition 4" or the "Gann
Initiative" was approved by the California voters, which added Article XIIIB
to the California Constitution. Under Article XIIIB, State and local
governmental entities have an annual "appropriations limit" and are not
allowed to spend certain monies called "appropriations subject to limitation"
in an amount higher than the "appropriations limit." Article XIIIB does not
affect the appropriation of moneys which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of
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January 1, 1979, or bonded indebtedness subsequently approved by the voters.
In general terms, the "appropriations limit" is required to be based on
certain 1978/79 expenditures, and is to be adjusted annually to reflect
changes in consumer prices, population and certain services provided by these
entities. Article XIIIB also provides that if these entities' revenues in any
year exceed the amounts permitted to be spent, the excess is to be returned by
revising tax rates or fee schedules over the subsequent two years.
At the November 8, 1988 general election, California voters approved an
initiative known as Proposition 98. This initiative amends Article XIIIB to
require that (a) the California Legislature establish a prudent state reserve
fund in an amount as it shall deem reasonable and necessary and (b) revenues
in excess of amounts permitted to be spent and which would otherwise be
returned pursuant to Article XIIIB by revision of tax rates or fee schedules,
be transferred and allocated (up to a maximum of 4%) to the State School Fund
and be expended solely for purposes of instructional improvement and
accountability. No such transfer or allocation of funds will be required if
certain designated state officials determine that annual student expenditures
and class size meet certain criteria as set forth in Proposition 98. Any funds
allocated to the State School Fund shall cause the appropriation limits
established in Article XIIIB to be annually increased for any such allocation
made in the prior year.
Proposition 98 also amends Article XVI to require that the State of
California provide a minimum level of funding for public schools and community
colleges. Commencing with the 1988-89 fiscal year, state monies to support
school districts and community college districts shall equal or exceed the
lesser of (i) an amount equalling the percentage of state general revenue
bonds for school and community college districts in fiscal year 1986-87, or
(ii) an amount equal to the prior year's state general fund proceeds of taxes
appropriated under Article XIIIB plus allocated proceeds of local taxes, after
adjustment under Article XIIIB. The initiative permits the enactment of
legislation, by a two-thirds vote, to suspend the minimum funding requirement
for one year.
On June 30, 1989, the California Legislature enacted Senate Constitutional
Amendment 1, a proposed modification of the California Constitution to alter
the spending limit and the education funding provisions of Proposition 98.
Senate Constitutional Amendment 1, on the June 5, 1990 ballot as Proposition
111, was approved by the voters and took effect on July 1, 1990. Among a
number of important provisions, Proposition 111 recalculates spending limits
for the State and for local governments, allows greater annual increases in
the limits, allows the averaging of two years' tax revenues before requiring
action regarding excess tax revenues, reduces the amount of the funding
guarantee in recession years for school districts and community college
districts (but with a floor of 40.9% of State general fund tax revenues),
removes the provision of Proposition 98 which included excess moneys
transferred to school districts and community college districts in the base
calculation for the next year, limits the amount of State tax revenue over the
limit which would be transferred to school districts and community college
districts, and exempts increased gasoline taxes and truck weight fees from the
State appropriations limit. Additionally, Proposition 111 exempts from the
State appropriations limit funding for capital outlays.
Article XIIIB, like Article XIIIA, may require further interpretation by
both the Legislature and the courts to determine its applicability to specific
situations involving the State and local taxing authorities. Depending upon
the interpretation, Article XIIIB may limit significantly a governmental
entity's ability to budget sufficient funds to meet debt service on bonds and
other obligations.
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On November 4, 1986, California voters approved an initiative statute known
as Proposition 62. This initiative (a) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution
or ordinance adopted by a two-thirds vote of the governmental entity's
legislative body and by a majority vote of the electorate of the governmental
entity, (b) requires that any special tax (defined as taxes levied for other
than general governmental purposes) imposed by a local governmental entity be
approved by a two-thirds vote of the voters within that jurisdiction, (c)
restricts the use of revenues from a special tax to the purposes or for the
service for which the special tax was imposed, (d) prohibits the imposition of
ad valorem taxes on real property by local governmental entities except as
permitted by Article XIIIA, (e) prohibits the imposition of transaction taxes
and sales taxes on the sale of real property by local governments, (f)
requires that any tax imposed by a local government on or after August 1, 1985
be ratified by a majority vote of the electorate within two years of the
adoption of the initiative or be terminated by November 15, 1988, (g) requires
that, in the event a local government fails to comply with the provisions of
this measure, a reduction in the amount of property tax revenue allocated to
such local government occurs in an amount equal to the revenues received by
such entity attributable to the tax levied in violation of the initiative, and
(h) permits these provisions to be amended exclusively by the voters of the
State of California.
In September 1988, the California Court of Appeal in City of Westminster v.
County of Orange 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal. Ct. App.
1988), held that Proposition 62 is unconstitutional to the extent that it
requires a general tax by a general law city, enacted on or after August 1,
1985 and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is not
possible to predict the impact of this decision on charter cities, on special
taxes or on new taxes imposed after the effective date of Proposition 62.
On November 8, 1988, California voters approved Proposition 87. Proposition
87 amended Article XVI, Section 16, of the California Constitution by
authorizing the California Legislature to prohibit redevelopment agencies from
receiving any of the property tax revenue raised by increased property tax
rates levied to repay bonded indebtedness of local governments which is
approved by voters on or after January 1, 1989. It is not possible to predict
whether the California Legislature will enact such a prohibition nor is it
possible to predict the impact of Proposition 87 on redevelopment agencies and
their ability to make payments on outstanding debt obligations.
Certain California Municipal Obligations in which the Fund may invest may
be obligations that are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect
such revenues and, consequently, payment on those California Municipal
Obligations.
The Federally sponsored Medicaid program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such
hospital met applicable requirements for participation. California law now
provides that the State of California shall selectively contract with
hospitals to provide acute inpatient services to Medi-Cal patients. Medi-Cal
contracts currently apply only to acute inpatient services. Generally, such
selective contracting is made on a flat per diem payment basis for all
services to Medi-Cal beneficiaries, and generally such payment has not
increased in relation to inflation, costs
or other factors. Other reductions or limitations may be imposed on payment
for services rendered to Medi-Cal beneficiaries in the future.
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Under this approach, in most geographical areas of California, only those
hospitals which enter into a Medi-Cal contract with the State of California
will be paid for non-emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice
under certain circumstances and is obligated to make contractual payments only
to the extent the California legislature appropriates adequate funding
therefor.
In February 1987, the Governor of the State of California announced that
payments to Medi-Cal providers for certain services (not including hospital
acute inpatient services) would be decreased by 10% through June 1987.
However, a federal district court issued a preliminary injunction preventing
application of any cuts until a trial on the merits can be held. If the
injunction is deemed to have been granted improperly, the State of California
would be entitled to recapture the payment differential for the intended
reduction period. It is not possible to predict at this time whether any
decreases will ultimately be implemented.
California enacted legislation in 1982 that authorizes private health plans
and insurers to contract directly with hospitals for services to beneficiaries
on negotiated terms. Some insurers have introduced plans known as "preferred
provider organizations" ("PPOs"), which offer financial incentives for
subscribers who use only the hospitals which contract with the plan. Under an
exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly
from projections. Often, HMO or PPO contracts are enforceable for a stated
term, regardless of provider losses or of bankruptcy of the respective HMO or
PPO. It is expected that failure to execute and maintain such PPO and HMO
contracts would reduce a hospital's patient base or gross revenues.
Conversely, participation may maintain or increase the patient base, but may
result in reduced payment and lower net income to the contracting hospitals.
Such California Municipal Obligations may also be insured by the State of
California pursuant to an insurance program implemented by the Office of
Statewide Health Planning and Development for health facility construction
loans. If a default occurs on insured California Municipal Obligations, the
State Treasurer will issue debentures payable out of a reserve fund
established under the insurance program or will pay principal and interest, on
an unaccelerated basis from unappropriated State funds. At the request of the
Office of Statewide Health Planning and Development, Arthur D. Little, Inc.
prepared a study in December 1983 to evaluate the adequacy of the reserve fund
established under the insurance program and, based on certain formulations and
assumptions found the reserve fund substantially underfunded. In September of
1986, Arthur D. Little, Inc. prepared an update of the study and concluded
that an additional 10% reserve be established for "multi-level" facilities.
For the balance of the reserve fund, the update recommended maintaining the
current reserve calculation method. In March 1990, Arthur D. Little, Inc.
prepared a further review of the study and recommended that separate reserves
continue to be established for "multi-level" facilities at a reserve level
consistent with those that would be required by an insurance company.
Certain California Municipal Obligations in the Fund may be obligations
which are secured in whole or in part by a mortgage or deed of trust on real
property. California has five principal statutory provisions which limit the
remedies of a creditor secured by a mortgage or deed of trust. Two limit the
creditor's right to obtain a deficiency judgment, one limitation being based
on the method of foreclosure and the other on the type of debt secured. Under
the former, a deficiency judgment is barred when the foreclosure is
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accomplished by means of a nonjudicial trustee's sale. Under the latter, a
deficiency judgment is barred when the foreclosed mortgage or deed of trust
secures certain purchase money obligations. Another California statute,
commonly known as the "one form of action" rule, requires creditors secured by
real property to exhaust their real property security by foreclosure before
bringing a personal action against the debtor. The fourth statutory provision
limits any deficiency judgment obtained by a creditor secured by real property
following a judicial sale of such property to the excess of the outstanding
debt over the fair value of the property at the time of the sale, thus
preventing the creditor from obtaining a large deficiency judgment against the
debtor as the result of low bids at a judicial sale. The fifth statutory
provision gives the debtor the right to redeem the real property from any
judicial foreclosure sale as to which a deficiency judgment may be ordered
against the debtor.
Upon the default of a mortgage or deed of trust with respect to California
real property, the creditor's nonjudicial foreclosure rights under the power
of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing of a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue payments. Under standard loan servicing
procedures, the filing of the formal notice of default does not occur unless
at least three full monthly payments have become due and remain unpaid. The
power of sale is exercised by posting and publishing a notice of sale for at
least 20 days after expiration of the three-month reinstatement period.
Therefore, the effective minimum period for foreclosing on a mortgage could be
in excess of seven months after the initial default. Such time delays in
collections could disrupt the flow of revenues available to an issuer for the
payment of debt service on the outstanding obligations if such defaults occur
with respect to a substantial number of mortgages or deeds of trust securing
an issuer's obligations.
In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a mortgage for such
private sale to constitute "state action," and could hold that the private-
right-of-sale proceedings violate the due process requirements of the Federal
or State Constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain California Municipal Obligations in the Fund may be obligations
which finance the acquisition of single family home mortgages for low and
moderate income mortgagors. These obligations may be payable solely from
revenues derived from the home mortgages, and are subject to California's
statutory limitations described above applicable to obligations secured by
real property. Under California antideficiency legislation, there is no
personal recourse against a mortgagor of a single family residence purchased
with the loan secured by the mortgage, regardless of whether the creditor
chooses judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single-family owner-
occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and cannot
in any event exceed six months' advance interest on the amount prepaid in
excess of 20% of the original principal amount of the mortgage loan. This
limitation could affect the flow of revenues available to an issuer for debt
service on the outstanding debt obligations which financed such home
mortgages.
Additional Considerations. With respect to Municipal Obligations issued by
the State of California and its political sub-divisions, the Fund cannot
predict what legislation, if any, may be proposed in the California State
Legislature as regards the California State personal income tax status of
interest on such obligations, or
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which proposals, if any, might be enacted. Such proposals, if enacted, might
materially adversely affect the availability of California Municipal
Obligations for investment by the Fund and the value of the Fund's portfolio.
In such an event, the Trustees would reevaluate the Fund's investment
objective and policies and consider changes in its structure or possible
dissolution.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the Prospectus
applies to purchases made by any "purchaser," which is defined to include the
following: (a) an individual; (b) an individual's immediate family purchasing
shares for his or her own account; (c) a trustee or other fiduciary purchasing
shares for a single trust estate or single fiduciary 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 enumerated in Section 501(c)(3) or (13) of the Code;
(f) any other organized group of persons, provided the organization has been
in existence for at least six months and was organized for a purpose other
than the purchase of investment company securities at a discount; or (g) a
trustee or other professional fiduciary (including a bank, or an investment
adviser registered with the SEC under the Investment Advisers Act of 1940)
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 their Smith Barney Shearson
Financial Consultants.
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 in the Smith Barney
Shearson Group of Funds that are sold with a sales charge, including the
purchase being made, of any "purchaser" (as defined above) is $25,000 or more.
The funds in the Smith Barney Shearson Group of Funds that are sold with a
sales charge are shown under "Exchange Privilege" in the Prospectus. The
reduced sales charge is subject to confirmation of the shareholder's holdings
through a check of appropriate records. The Fund reserves the right to
terminate or amend the combined right of accumulation at any time after notice
to shareholders. For further information regarding the right of accumulation,
shareholders should contact their Smith Barney Shearson Financial Consultants.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The public
offering price per Class A share of the Fund is equal to the net asset value
per share at the time of purchase plus a sales charge based on the aggregate
amount of the investment. The public offering price per Class B share (and
Class A share purchases, including applicable rights of accumulation, equaling
or exceeding $1 million), is equal to the net asset value per share at the
time of purchase and no sales charge is imposed at the time of purchase. A
contingent deferred sales charge ("CDSC"), however, is imposed on certain
redemptions of Class B shares and Class A shares when purchased in amounts
equalling or exceeding $1 million. The method of computing the public offering
price is shown in the Fund's financial statements incorporated by reference
into this Statement of Additional Information.
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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 and holiday closings), (b) when
trading in the markets the Fund normally utilizes is restricted, or an
emergency, as determined by the SEC, exists making disposal of the Fund's
investments or determination of net asset value not reasonably practicable or
(c) for such other periods as the SEC by order may permit for protection of
the Fund's shareholders.
DISTRIBUTIONS IN KIND
If the Fund's Board of Directors determines that it would be detrimental to
the best interests of the remaining shareholders of the Fund to make a
redemption payment wholly in cash, the Fund may pay, in accordance with rules
adopted by the SEC, any portion of a redemption in excess of the lesser of
$250,000 or 1% of the Fund's net assets by a distribution in kind of portfolio
securities in lieu of cash. Portfolio securities issued in a distribution in
kind will be readily marketable, although shareholders receiving distributions
in kind may incur brokerage commissions when subsequently disposing of those
securities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 and who wish to
receive specific amounts of cash periodically. Withdrawals of at least $50
monthly 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 2% per month of the value of a shareholder's 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, the
value of the shareholder's investment will be reduced and continued withdrawal
payments may reduce the shareholder's investment and 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 shareholder 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 distributions on
shares in the Withdrawal Plan are reinvested automatically at net asset value
in additional shares of the Fund. All applications for participation in the
Withdrawal Plan must be received by TSSG as Withdrawal Plan agent no later
than the eighth day of the month to be eligible for participation beginning
with that month's withdrawal. The Withdrawal Plan will not be carried over on
exchanges between funds or classes of the Fund ("Classes"). A new Withdrawal
Plan application is required to establish the Withdrawal Plan in the new fund
or Class. For additional information, shareholders should contact their Smith
Barney Shearson Financial Consultants.
DISTRIBUTOR
Smith Barney Shearson serves as the Fund's distributor on a best efforts basis
pursuant to a written agreement (the "Distribution Agreement"). For the 1992,
1993 and 1994 fiscal years, Smith Barney Shearson received
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$1,638,252, $1,713,689 and $ , respectively, in sales charges from the sale
of the Fund's Class A shares, and did not reallow any portion thereof to
dealers. For the period from November 6, 1992 through February 28, 1993, and
the fiscal year ended February 29, 1994 Smith Barney Shearson received $9,030
and $ , representing CDSC on redemption of the Fund's Class B shares.
Smith Barney Shearson forwards investors' funds for the purchase of shares
five business days after placement of purchase orders (i.e., the "settlement
date"). When payment is made by the investor before settlement date, unless
otherwise directed by the investor, the funds will be held as a free credit
balance in the investor's brokerage account, and Smith Barney Shearson 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 the Smith Barney Shearson--Money Market Fund) in
the Smith Barney Shearson Group of Funds. If the investor instructs Smith
Barney Shearson to invest the funds in a money market fund in the Smith Barney
Shearson Group of Funds, the amount of the investment will be included as part
of the average daily net assets of both the Fund and the money market fund,
and affiliates of Smith Barney Shearson which serve the funds in an investment
advisory capacity will benefit from the fact that they are receiving
investment management fees from both such investment companies, computed on
the basis of their average daily net assets. The Fund's Board of Directors has
been advised of the benefits to Smith Barney Shearson resulting from five-day
settlement procedures and will take such benefits into consideration when
reviewing the Advisory and Distribution Agreements for continuance.
DISTRIBUTION ARRANGEMENTS
Shares of the Fund are distributed on a best efforts basis by Smith Barney
Shearson as exclusive sales agent of the Fund pursuant to the Distribution
Agreement. To compensate Smith Barney Shearson for the services it provides
and for the expense it bears under the Distribution Agreement, the Fund has
adopted a services and distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund pays Smith Barney Shearson a
service fee, accrued daily and paid monthly, calculated at the annual rate of
.15% of the value of the Fund's average daily net assets attributable to the
Class A and Class B shares. In addition, Class B shares pay a distribution fee
intended to compensate Smith Barney Shearson for its initial expense of paying
financial consultants a commission upon sales of the respective shares. The
Class B distribution fees are calculated at the annual rate of .50% 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 February 28, 1993, the
Fund's Class A and Class B shares paid $187,628 and $8,827, respectively, in
service fees. For the same period, the Fund's Class B shares paid $29,426 in
distribution fees. For the fiscal year ended February 28, 1994, the Fund's
Class A and Class B shares paid $ and $ , respectively in service fees.
For the same period the Fund's Class B shares paid $ in distribution fees.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Fund's Board of Directors,
including a majority of the 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 distribution
fees without shareholder approval, and all material amendments of the Plan
also must be approved by the Directors and Independent Directors in the manner
described above. The Plan may be terminated at any time with respect to a
Class, without penalty, by vote of a majority of the Independent Directors or
by a vote of a majority of the outstanding voting securities of the Class (as
defined
24
<PAGE>
in the 1940 Act). Pursuant to the Plan, Smith Barney Shearson will provide the
Fund's Board of Directors periodic reports of amounts expended under the Plan
and the purpose for which such expenditures were made.
VALUATION OF SHARES
The Prospectus discusses the time at which the net asset value of shares of
each Class of the Fund is determined for purposes of sales and redemptions.
Because of the differences in distribution fees and Class-specific expenses,
the per share net asset value of each Class will differ. The following is a
description of the procedures used by the Fund in valuing its assets.
The valuation of the Fund's assets is made by Boston Advisors after
consultation with an independent pricing service (the "Service") approved by
the Fund's Board of Directors. When, in the judgment of the Service, quoted
bid prices for investments are readily available and representative of the bid
side of the market, these investments are valued at the mean between the
quoted bid 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 investments are liquid and
may be readily sold. The Service may employ electronic data processing
techniques and/or a matrix system to determine valuations. 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
interest of the Fund to do so.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund in the Smith Barney Shearson
Group of Funds may exchange all or part of their shares for shares of the same
Class of other funds in the Smith Barney Shearson Group of 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 another fund
will be subject to the higher applicable CDSC of the two funds and, for
purposes of calculating CDSC rates and conversion periods, will be
deemed to have been held since the date the shares being exchanged were
purchased.
25
<PAGE>
Dealers other than Smith Barney Shearson must notify TSSG of the investor's
prior ownership of Class A shares of Smith Barney Shearson High Income Fund
and the account number in order to accomplish an exchange of shares of the
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 resident 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 any Smith
Barney Shearson Financial Consultant.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange are redeemed at the then-current net asset value
and, subject to any applicable CDSC, the proceeds immediately invested, at a
price as described above, in shares of the fund being acquired. Smith Barney
Shearson reserves the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time after 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. 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 Class.
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:
a-b
YIELD = 2 [(---- + 1)/6/ - 1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimubrsement).
c = the average daily number of shares outstanding during the
period 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 of shares is
computed by dividing 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 yields on municipal securities are dependent upon a variety of factors,
including general economic and monetary conditions, conditions of the
municipal securities market, size of a particular offering, maturity
26
<PAGE>
of the obligation offered and rating of the issue. Investors should recognize
that in periods of declining interest rates the Fund's yield for each Class of
shares will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the Fund's yield for each Class of shares
will tend to be somewhat lower. In addition, when interest rates are falling,
the inflow of net new money to the Fund from the continuous sale of its shares
will likely be invested in portfolio instruments producing lower yields than
the balance of the Fund's portfolio, thereby reducing the current yield of the
Fund. In periods of rising interest rates, the opposite can be expected to
occur.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return figures 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 a 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and distri-
butions.
These total return figures assume that the maximum 4.50% sales charge
assessed by the Fund has been deducted from the investment at the time of
purchase.
The average annual total returns for Class B shares for the periods
indicated were as follows:
% per annum for the one-year period beginning on March 1, 1993 through
February 28, 1994.
% per annum during the period the Fund commenced selling Class B shares
on November 6, 1992 through February 28, 1994.
Average annual total return figures assume that the maximum applicable CDSC
assessed by the Fund has been deducted from the hypothetical investment. If
the maximum applicable CDSC had not been deducted from the investment at the
time of redemption the average annual total return for the Class B shares
would have been % and %, respectively.
AGGREGATE TOTAL RETURN
Aggregate total return figures represent the cumulative 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 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 aggregate total return for Class B shares for the periods indicated were
as follows:
27
<PAGE>
% for the period from March 1, 1993 through February 28, 1994.
% for the period from November 6, 1992 through February 28, 1994.
The aggregate total return figure does not assume that the maximum 4.5% CDSC
assessed by the Fund has been deducted from the investment at the time of
purchase. If the maximum CDSC had been deducted at the time of purchase, the
Fund's aggregate total return for the same period would have been ( )% and
%, respectively.
A Class' performance will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and operating expenses and
the expenses exclusively attributable to the Class. Consequently, any given
performance quotation should not be considered representative of the Class'
performance for any specified period in the future. Because the 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' performance with that of
other mutual funds should give consideration to the quality and maturity of
the respective investment companies' portfolio securities.
TAXES
As described above and in the Prospectus, the Fund is designed to provide
investors with current income which is excluded from gross income for Federal
income tax purposes and exempt from California state personal income taxes.
The Fund is not intended to constitute a balanced investment program and is
not designed for investors seeking capital gains or maximum tax-exempt income
irrespective of fluctuations in principal. Investment in the Fund would not be
suitable for tax-exempt institutions, qualified retirement plans, H.R. 10
plans and individual retirement accounts because such investors would not gain
any additional tax benefit from the receipt of tax-exempt income.
The 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 consult
their own tax advisors as to the tax consequences of an investment in the
Fund.
The Fund has qualified and intends to continue to qualify each year as a
"regulated investment company" under the Code. Provided that the Fund (a)
qualifies as a regulated investment company and (b) distributes at least 90%
of its taxable net investment income and net realized short-term capital
gains) and 90% of its tax-exempt interest income (reduced by certain
expenses), the Fund will not be liable for Federal and California state income
or franchise taxes to the extent its taxable net investment income and its net
realized short-and long-term capital gains, if any, are distributed to its
shareholders. 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 and California state 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 for
Federal and California state income tax purposes, any loss on the sale or
exchange of such share, to the extent of such exempt-interest dividend, may be
disallowed. In addition, the Code may require a shareholder, if he or she
receives exempt-interest dividends, to treat as taxable income a portion of
certain otherwise non-taxable social security and railroad retirement benefit
payments. Furthermore, that portion of any exempt-interest dividends paid by
the Fund which
28
<PAGE>
represents income derived from private activity bonds held by the Fund may not
retain its Federal tax-exempt status in the hands of a shareholder who is a
"substantial user" of a facility financed by such bonds or a "related person"
thereof. Similar rules are applicable for California state personal income tax
purposes. Moreover, as noted in the Fund's Prospectus, (a) some or all of the
Fund's dividends and distributions may be a specific tax preference item, or a
component of an adjustment item, for purposes of the Federal individual and
corporate alternative minimum taxes and (b) the receipt of the Fund's
dividends and distributions may affect a corporate shareholder's Federal
"environmental" tax liability. In addition, the receipt of Fund dividends and
distributions may affect a foreign corporate shareholder's Federal "branch
profits" tax liability and the Federal and California state "excess net
passive income" tax liability of a shareholder of a Subchapter S corporation.
Shareholders should consult their own tax advisors as to whether they are (a)
substantial users with respect to a facility or related to such users within
the meaning of the Code and (b) subject to a Federal alternative minimum tax,
the Federal environmental tax, the Federal branch profits tax or the Federal
and California state excess net passive income tax.
As described above and in the Fund's Prospectus, the Fund may invest in
exchange-traded municipal bond index futures contracts and options on interest
rates futures contracts. The Fund anticipates that these investment activities
will not prevent the Fund from qualifying as a regulated investment company.
As a general rule, these investment activities will increase or decrease the
amount of long-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 and California state income tax purposes, gain or loss on the
futures contracts and options described above (collectively referred to herein
as "section 1256 contracts") 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 end for their fair market value. As a result,
the Fund will be recognizing gains or losses before they are 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 positions in such contracts 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 such 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 of the Fund
for the 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 by the Fund will be distributed
annually as described in the Prospectus. Such distributions ("capital gain
dividends") will be taxable to shareholders as long-term capital gains,
regardless of how long they have held Fund shares, and will be designated as
capital gain dividends in a written notice mailed to shareholders after the
close of the Fund's taxable year. If a shareholder receives a capital gain
dividend with respect to any share and 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 other six-month rule described above relating to
exempt-interest dividends) on the sale or exchange of such share will be
treated as a long-term capital loss to the extent of the capital gain
dividend.
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<PAGE>
If a shareholder incurs a sales charge when acquiring shares of the Fund,
disposes of those shares within 90 days and then acquires shares in a mutual
fund for which the otherwise applicable sales charge is reduced by reason of a
reinvestment right (i.e., exchange privilege), the original sales charge will
not be taken into account when computing gain/loss on original shares to the
extent the subsequent sales charge is reduced. Instead, it will be added to
the tax basis in the newly acquired shares. The portion of the original sales
charge that does not increase the shareholder's tax basis in the original
shares will be treated as incurred with respect to the second acquisition and,
as a general rule, will increase the shareholder's tax basis in the newly
acquired shares. Furthermore, the same rule also applies to a disposition of
the newly acquired 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 in a family of mutual
funds.
Each shareholder will receive after the close of the calendar year an
annual statement as to the Federal income tax and California state personal
income tax status of his or her dividends and distributions from the Fund for
the prior calendar year. Dividends attributable to California Municipal
Securities and any other obligations which, when held by an individual, the
interest therefrom would be exempt from taxation by California, will be exempt
from California state personal income taxation ("California exempt-interest
dividends"). Any dividends attributable to interest on municipal obligations
that are not California Municipal Securities generally will be taxable as
ordinary dividends for California state personal income tax purposes even if
such dividends are excluded from gross income for Federal income tax purposes.
These statements also will designate the amount of exempt-interest dividends
that is a specific preference item for purposes of the Federal individual and
corporate alternative minimum taxes. Each shareholder also will receive, if
appropriate, 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. 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 or exempt from Federal income taxation or
California state personal income taxation and the dollar amount subject to
Federal income taxation or California state personal income taxation, if any,
will vary for each shareholder depending upon the size and duration of each
shareholder's investment in the Fund. In the event the Fund earns taxable net
investment income, it intends to designate as taxable dividends the same
percentage of each day's dividend as its actual 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 taxable dividend or 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 dividend or distribution payment, any such
payment will be a taxable dividend or distribution payment.
If a shareholder fails to furnish the Fund with a correct taxpayer
identification number, fails to fully report dividend or interest income or
fails to certify to the Fund that he or she has provided a correct taxpayer
identification number and that he or she is not subject to "backup
withholding," then the shareholder may be subject to a 31% backup withholding
tax with respect to (a) any taxable dividends and distributions and (b) the
proceeds of any redemption 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.
30
<PAGE>
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substitute
for careful tax planning. Further, it should be noted that, for California
state tax purposes, the portion of any Fund dividends constituting California
exempt-interest dividends is exempt from income for California state personal
income tax purposes only. Dividends (including California exempt-interest
dividends) paid to shareholders subject to California state franchise tax or
California state corporate income tax may therefore be taxed as ordinary
dividends to such shareholders, notwithstanding that all or a portion of such
dividends is exempt from California state personal income tax. Potential
shareholders in the Fund, including, in particular, corporate shareholders
which may be subject to either California franchise tax or California
corporate income tax, should consult their tax advisors with respect to (a)
the application of such corporate and franchise taxes to the receipt of Fund
dividends and as to their own California state tax situation in general, (b)
the application of other state and local taxes to the receipt of Fund
dividends and distributions and (c) their own specific tax situations.
CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston Place,
Boston, Massachusetts 02108, and pursuant to a custody agreement, serves as
the Fund's custodian. 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
market value of securities held in custody and also receives certain
securities transaction charges. The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and
pursuant to a transfer agency agreement, 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 dividends and distributions payable by the Fund. For
these services, TSSG receives a monthly fee computed on the basis of the
number of shareholder accounts it maintains for the Fund during the month, and
is reimbursed for certain out-of-pocket expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended February 28, 1994
accompanies this Statement of Additional Information and is incorporated
herein by reference in its entirety.
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<PAGE>
APPENDIX
Description of S&P and Moody's ratings:
S&P RATINGS FOR MUNICIPAL BONDS
S&P's Municipal Bond Ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue bonds.
General obligation bonds are usually secured by all resources available to the
municipality and the factors outlined in the rating definitions 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
particularly, the competitive position of the municipal enterprise under
review and the basic security covenants. Although a rating reflects S&P's
judgment 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. Quality of
management appears superior.
Revenue Bonds--Debt service coverage has been, and is expected to remain,
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 covenant, earnings
test for issuance of additional bonds and debt service reserve requirements)
are rigorous. There is evidence of superior management.
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 capacity 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 because:
General Obligation Bonds--There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
A-1
<PAGE>
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.
Stability of the pledged revenues could show some variations because of
increased 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
revenues 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
categories, 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 rated 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 elements
are likely to change,
A-2
<PAGE>
such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A
Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security 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 payments 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 interest and
principal payments may be very moderate and therefore 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 default
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.
A-3
<PAGE>
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 security
ranks in the higher end of its generic rating category; the modifier 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 and long-
term credit risk. Loans bearing the designation MIG 1 or VMIG 1 are of the
best quality, enjoying strong protection from established cash flows of funds
for their servicing, 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
undeniable strength of the preceding grades. Liquidity and cash flow may be
tight 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 on-going 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 allowance 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) economic
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 customer 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.
A-4
<PAGE>
SMITH BARNEY SHEARSON
CALIFORNIA
MUNICIPALS
FUND INC.
STATEMENT OF
ADDITIONAL INFORMATION
MAY 1, 1994
Smith Barney Shearson
California Municipals Fund Inc.
Two World Trade Center (SMITH BARNEY
SHEARSON
New York, New York 10048 Fund 14 LOGO APPEARS HERE)
SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A:
To be filed by Amendment
Included in Part B:
To be filed by Amendment
Included in Part C:
To be filed by Amendment
(b) Exhibits
All references are to the Registrant's Registration Statement on Form N-1A
as filed with the Securities and Exchange Commission on February 21, 1984.
File Nos. 2-89548 and 811-3970 (the "Registration Statement").
(1)(a) Registrant's Articles of Incorporation dated February 16, 1984 are
incorporated by reference to the Registration Statement.
(b) Articles of Amendment dated October 28, 1987, to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No. 5
filed on March 1, 1988 ("Post-Effective Amendment No. 5").
(c) Articles of Amendment dated December 14, 1988, to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No. 5
filed on March 1, 1988 ("Post-Effective Amendment No. 5).
(d) Articles of Amendment and Articles Supplementary to Articles of
Incorporation dated November 2, 1992 are incorporated by reference to Post-
Effective Amendment No. 17 filed on July 1, 1993 ("Post-Effective Amendment
No. 17").
(2)(a) Registrant's By-Laws are incorporated by reference to the
Registration Statement.
(b) Amendments to Registrant's By-Laws are incorporated by reference
to Post-Effective Amendment No. 5.
(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 filed on October
23, 1992 ("Post-Effective Amendment No. 16").
(5) Investment Advisory Agreement between the Registrant and Greenwich
Street Advisors dated July 30, 1993 is filed herein.
(6) Distribution Agreement between the Registrant and Smith Barney
Shearson Inc. dated July 30, 1993 is filed herein.
(7) Not Applicable.
(8) Custodian Agreement with Boston Safe Deposit and Trust Company is
incorporated by reference to Pre-Effective Amendment No. 1.
(9) (a) Transfer Agency Agreement between the Registrant and The
Shareholders Services Group, Inc. dated August 2, 1993 is filed herein.
(b) Administration Agreement between the Registrant and The Boston
Company Advisors, Inc. dated May 21, 1993 is filed herein.
(10) Opinion of "'Melveny & Myers, special state counsel, will be filed
by Amendment.
(11)(a) Consent of Independent Accountants will be filed by Amendment.
(b) Consent of Morningstar Mutual Fund Values is incorporated by
reference to Post-Effective Amendment No. 16.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Services and Distribution Plan pursuant to Rule 12b-1 is filed
herein.
(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 10 filed on June 28, 1989.
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 February 11, 1994
Common Stock Class A - 6,863
par value $.001 per Class B - 3,011
share
Item 27. Indemnification
The response to this item is incorporated by reference to Post-Effective
Amendment No. 16.
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Greenwich Street Advisors
Greenwich Street Advisors, through its predecessors, has been in the
investment counseling business since 1934 and is a division of Mutual
Management Corp. ("MMC"). MMC was incorporated in 1978 and is a wholly owned
subsidiary of Smith Barney Shearson Holdings Inc. ("Holdings"), which is in
turn a wholly owned subsidiary of The Travelers Inc. (formerly known as
Primerica Corporation) ("Travelers").
The list required by this Item 28 of officers and directors of MMC and
Greenwich Street Advisors, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by MMC on behalf of Greenwich
Street Advisors pursuant to the Advisers Act (SEC File No. 801-14437).
Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Advisors, a member of the Asset Management Group of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"), served as the Registrant's
investment adviser. On the Closing, Travelers and Smith Barney, Harris Upham
& Co. Incorporated acquired the domestic retail brokerage and asset management
businesses 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)
1/27/94
Item 29. Principal Underwriters
Smith Barney Shearson Inc. ("Smith Barney Shearson") currently acts as
distributor for Smith Barney Shearson Managed Municipals Fund Inc., Smith
Barney Shearson New York Municipals Fund Inc., Smith Barney Shearson
California Municipals Fund Inc., Smith Barney Shearson Massachusetts
Municipals Fund, Smith Barney Shearson Global Opportunities Fund, Smith Barney
Shearson Aggressive Growth Fund Inc., Smith Barney Shearson Appreciation Fund
Inc., Smith Barney Shearson Small Capitalization Fund, Smith Barney Shearson
Worldwide Prime Assets Fund, Smith Barney Shearson Short-Term World Income
Fund, Smith Barney Shearson Principal Return Fund, Smith Barney Shearson
Municipal Money Market Fund Inc., Smith Barney Shearson Daily Dividend Fund
Inc., Smith Barney Shearson Government and Agencies Fund Inc., Smith Barney
Shearson Managed Governments Fund Inc., Smith Barney Shearson New York
Municipal Money Market Fund, Smith Barney Shearson California Municipal Money
Market Fund, Smith Barney Shearson Income Funds, Smith Barney Shearson Equity
Funds, Smith Barney Shearson Investment Funds Inc., Smith Barney Shearson
Precious Metals and Minerals Fund Inc., Smith Barney Shearson
Telecommunications Trust, Smith Barney Shearson Arizona Municipals Fund Inc.,
Smith Barney Shearson New Jersey Municipals Fund Inc., The USA High Yield Fund
N.V., Garzarelli Sector Analysis Portfolio N.V., The Advisors Fund L.P., Smith
Barney Shearson Fundamental Value Fund Inc., Smith Barney Shearson Series
Fund, The Trust for TRAK Investments, Smith Barney Shearson Income Trust,
Smith Barney Shearson FMA R Trust, Smith Barney Shearson Adjustable Rate
Government Income Fund, Smith Barney Shearson Florida Municipals Fund, Smith
Barney Funds, Inc., Smith Barney Equity 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), and various series of unit investment trusts.
Smith Barney Shearson is a wholly owned subsidiary of Smith Barney
Shearson Holdings Inc., which in turn is a wholly owned subsidiary of The
Travelers Inc. The information required by this Item 29 with respect to each
director, officer and partner of Smith Barney Shearson is incorporated by
reference to Schedule A of FORM BD filed by Smith Barney Shearson pursuant to
the Securities Exchange Act of 1934 (SEC File No. 812-8510).
1/27/94
Item 30. Location of Accounts and Records
(1) Smith Barney Shearson California Municipals Fund Inc.
Two World Trade Center
New York, New York 10048
(2) Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
(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
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant, SMITH BARNEY SHEARSON
CALIFORNIA 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 Boston, Commonwealth of
Massachusetts on the 25th day of February, 1994.
SMITH BARNEY SHEARSON
CALIFORNIA MUNICIPALS FUND INC.
By: /s/ Heath B. McLendon*
Heath B. McLendon, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement and the above Power of Attorney
has been signed below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Heath B. McLendon* hairman of the Board
2/25/94
Heath B. McLendon (Chief Executive Officer)
/s/ Vincent Nave* Treasurer (Chief Financial 2/25/94
Vincent Nave and Accounting Officer)
/s/ Herbert Barg* Director
2/25/94
Herbert Barg
/s/ Alfred J. Bianchetti* Director
2/25/94
Alfred J. Bianchetti
________________ Director
Robert E. Borgesen
/s/ Martin Brody* Director 2/25/94
Martin Brody
/s/ Dwight B. Crane* Director
2/25/94
Dwight B. Crane
/s/ James J. Crisona* Director
2/25/94
James J. Crisona
Signature Title Date
/s/ Robert A. Frankel* Director
2/25/94
Robert A. Frankel
/s/ Dr. Paul Hardin* Director
2/25/94
Dr. Paul Hardin
/s/ Stephen E. Kaufman* Director
2/25/94
Stephen E. Kaufman
/s/ Joseph J. McCann* Director
2/25/94
Joseph J. McCann
*Signed by Lee D. Augsburger, their
duly authorized attorney-in-fact,
pursuant to power of attorney dated
June 30, 1993
/s/ Lee D. Augsburger______
Lee D. Augsburger
g:\shared\domestic\clients\shearson\fund\camu\12b-1
EXHIBIT 5
ADVISORY AGREEMENT
SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC.
July 30, 1993
The Greenwich Street Advisors Division of
Mutual Management Corp.
Two World Trade Center
New York, New York 10048
Dear Sirs:
Smith Barney Shearson California Municipals Fund Inc. (the "Company"), a
corporation organized under the laws of the state of Maryland, confirms its
agreement with the Greenwich Street Advisors Division of Mutual Management
Corp. (the "Adviser"), as follows:
1. Investment Description; Appointment
The Company desires to employ its capital by investing and reinvesting
in investments of the kind and in accordance with the investment objective(s),
policies and limitations specified in its Articles of Incorporation, as
amended from time to time (the "Articles of Incorporation"), in the prospectus
(the "Prospectus") and the statement of additional information (the
"Statement") filed with the Securities and Exchange Commission as part of the
Company's Registration Statement on Form N-1A, as amended from time to time,
and in the manner and to the extent as may from time to time be approved by
the Board of Directors of the Company (the "Board"). Copies of the
Prospectus, the Statement and the Articles of Incorporation have been or will
be submitted to the Adviser. The Company agrees to provide copies of all
amendments to the Prospectus, the Statement and the Articles of Incorporation
to the Adviser on an on-going basis. The Company desires to employ and hereby
appoints the Adviser to act as the investment adviser to the Company. The
Adviser accepts the appointment and agrees to furnish the services for the
compensation set forth below.
2. Services as Investment Adviser
Subject to the supervision, direction and approval of the Board of the
Company, the Adviser will (a) manage the Company's holdings in accordance with
the Company's investment objective(s) and policies as stated in the Articles
of Incorporation, the Prospectus and the Statement; (b) make investment
decisions for the Company; (c) place purchase and sale orders for portfolio
transactions for the Company; and (d) employ professional portfolio managers
and securities analysts who provide research services to the Company. In
providing those services, the Adviser will conduct a continual program of
investment, evaluation and, if appropriate, sale and reinvestment of the
Company's assets.
3. Brokerage
In selecting brokers or dealers to execute transactions on behalf of the
Company, the Adviser will seek the best overall terms available. In assessing
the best overall terms available for any transaction, the Adviser will
consider factors it deems relevant, including, but not limited to, the breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on
a continuing basis. In selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms available, the Adviser
is authorized to consider the brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934), provided
to the Company and/or other accounts over which the Adviser or its affiliates
exercise investment discretion.
4. Information Provided to the Company
The Adviser will keep the Company informed of developments materially
affecting the Company's holdings, and will, on its own initiative, furnish the
Company from time to time with whatever information the Adviser believes is
appropriate for this purpose.
5. Standard of Care
The Adviser shall exercise its best judgment in rendering the services
listed in paragraphs 2 and 3 above. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Company in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Adviser against any liability to the Company or to its shareholders to which
the Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or by
reason of the Adviser's reckless disregard of its obligations and duties under
this Agreement.
6. Compensation
In consideration of the services rendered pursuant to this Agreement,
the Company will pay the Adviser on the first business day of each month a fee
for the previous month at the annual rate of: .35 of 1.00% of the first $500
million of the Company's average daily net assets; and .32 of 1.00% of the
Company's average daily net assets in excess of $500 million. The fee for the
period from the Effective Date (defined below) of the Agreement to the end of
the month during which the Effective Date occurs shall be prorated according
to the proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
the Adviser, the value of the Company's net assets shall be computed at the
times and in the manner specified in the Prospectus and/or the Statement.
7. Expenses
The Adviser will bear all expenses in connection with the performance of
its services under this Agreement. The Company will bear certain other
expenses to be incurred in its operation, including, but not limited to,
investment advisory and administration fees; fees for necessary professional
and brokerage services; fees for any pricing service; the costs of regulatory
compliance; and costs associated with maintaining the Company's legal
existence and shareholder relations.
8. Reduction of Fee
If in any fiscal year the aggregate expenses of the Company (including
fees pursuant to this Agreement and the Company's administration agreements,
but excluding interest, taxes, brokerage and extraordinary expenses) exceed
the expense limitation of any state having jurisdiction over the Company, the
Adviser will reduce its fee to the Company by the proportion of such excess
expense equal to the proportion that its fee thereunder bears to the aggregate
of fees paid by the Company for investment advice and administration in that
year, to the extent required by state law. A fee reduction pursuant to this
paragraph 8, if any, will be estimated, reconciled and paid on a monthly
basis.
9. Services to Other Companies or Accounts
The Company understands that the Adviser now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts, and as investment adviser to other investment companies, and the
Company has no objection to the Adviser's so acting, provided that whenever
the Company and one or more other investment companies advised by the Adviser
have available funds for investment, investments suitable and appropriate for
each will be allocated in accordance with a formula believed to be equitable
to each company. The Company recognizes that in some cases this procedure may
adversely affect the size of the position obtainable for the Company. In
addition, the Company understands that the persons employed by the Adviser to
assist in the performance of the Adviser's duties under this Agreement will
not devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the right of the Adviser or any
affiliate of the Adviser to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
10. Term of Agreement
This Agreement shall become effective as of the "Closing Date" as that
term is defined in that certain Asset Purchase Agreement executed among Smith
Barney, Harris Upham & Co. Incorporated, Primerica Corporation and Shearson
Lehman Brothers Inc., dated March 12, 1993 (the "Effective Date") and shall
continue for an initial two-year term and shall continue thereafter so long as
such continuance is specifically approved at least annually by (i) the Board
of the Company or (ii) a vote of a "majority" (as that term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of the Company's
outstanding voting securities, provided that in either event the continuance
is also approved by a majority of the Board who are not "interested persons"
(as defined in the 1940 Act) of any party to this Agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable, without penalty, on 60 days' written notice, by the
Board of the Company or by vote of holders of a majority of the Company's
shares, or upon 90 days' written notice, by the Adviser. This Agreement will
also terminate automatically in the event of its assignment (as defined in the
1940 Act and the rules thereunder).
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning the
enclosed copy of this Agreement.
Very truly yours,
SMITH BARNEY SHEARSON
CALIFORNIA MUNICIPALS FUND INC.
By:___________________________________
Name:
Title:
Accepted:
THE GREENWICH STREET ADVISORS DIVISION
OF MUTUAL MANAGEMENT CORP.
By:__________________________________
Name:
Title:
4
shared/domestic/clients/shearson/funds/camu/advis.doc
EXHIBIT 6
DISTRIBUTION AGREEMENT
SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC.
July 30, 1993
Smith Barney Shearson Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, Smith Barney Shearson California Municipals Fund
Inc., a Corporation organized under the laws of the State of Maryland has
agreed that Smith Barney Shearson Inc.("SBS") shall be, for the period of this
Agreement, the distributor of shares (the "Shares") of the Fund.
1. Services as Distributor
1.1 SBS will act as agent for the distribution of Shares covered
by the registration statement, prospectus and statement of additional
information then in effect under the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended (the "1940
Act").
1.2 SBS agrees to use its best efforts to solicit orders for the
sale of Shares and will undertake such advertising and promotion as it
believes is reasonable in connection with such solicitation.
1.3 All activities by SBS as distributor of the Shares shall
comply with all applicable laws, rules, and regulations, including, without
limitation, all rules and regulations made or adopted by the Securities and
Exchange Commission (the "SEC") or by any securities association registered
under the Securities Exchange Act of 1934.
1.4 SBS will provide one or more persons during normal business
hours to respond to telephone questions concerning the Fund.
1.5 SBS will transmit any orders received by it for purchase or
redemption of Shares to The Shareholder Services Group, Inc. ("TSSG"), the
Fund's transfer and dividend agent, or any successor to TSSG of which the Fund
has notified SBS in writing.
1.6 Whenever in their judgment such action is warranted for any
reason, including, without limitation, market, economic or political
conditions, the Fund's officers may decline to accept any orders for, or make
any sales of, the Shares until such time as those officers deem it advisable
to accept such orders and to make such sales.
1.7 SBS will act only on its own behalf as principal should it
choose to enter into selling agreements with selected dealers or others.
1.8 The Fund will pay to SBS an annual fee in connection with the
offering and sale of the Shares under this Agreement. The annual fee paid to
SBS, will be calculated daily and paid monthly by the Fund at an annual rate
set forth in the Services and Distribution Plan (the "Plan") based on the
average daily net assets of the Fund; provided that payment shall be made in
any month only to the extent that such payment shall not exceed the sales
charge limitations established by the National Association of Securities
Dealers, Inc.
The annual fee paid to SBS under this Section 1.8 maybe used by SBS to
cover any expenses primarily intended to result in the sale of Shares,
including, but not limited to, the following:
(a) cost of payments made to SBS Financial Consultants and other
employees of SBS or other broker-dealers that engage in the distribution of
the Fund's Shares;
(b) payments made to, and expenses of, persons who provide
support services in connection with the distribution of the Fund's Shares,
including, but not limited to, office space and equipment, telephone
facilities, answering routine inquiries regarding the Fund, processing
shareholder transactions and providing any other shareholder services;
(c) costs relating to the formulation and implementation of
marketing and promotional activities, including, but not limited to, direct
mail promotions and television, radio, newspaper, magazine and other mass
media advertising;
(d) costs of printing and distributing prospectuses and reports
of the Fund to prospective shareholders of the Fund;
(e) costs involved in preparing, printing and distributing sales
literature pertaining to the Fund; and
(f) costs involved in obtaining whatever information, analyses
and reports with respect to marketing and promotional activities that the Fund
may, from time to time, deem advisable;
except that distribution expenses shall not include any expenditures in
connection with services which SBS, any of its affiliates, or any other person
have agreed to bear without reimbursement.
1.9 SBS shall prepare and deliver reports to the Treasurer of the Fund
and to the sub-investment advisor and/or administrator of the Fund on a
regular, at least quarterly, basis, showing the distribution expenses incurred
pursuant to this Agreement and the Plan and the purposes therefor, as well as
any supplemental reports as the Trustees, from time to time, may reasonably
request.
2. Duties of the Fund
2.1 The Fund agrees at its own expense to execute any and all
documents, to furnish any and all information and to take any other actions
that may be reasonably necessary in connection with the qualification of the
Shares for sale in those states that SBS may designate.
2.2 The Fund shall furnish from time to time for use in
connection with the sale of the Shares, such information reports with respect
to the Fund and its Shares as SBS may reasonably request, all of which shall
be signed by one or more of the Fund's duly authorized officers; and the Fund
warrants that the statements contained in any such reports, when so signed by
the Fund's officers, shall be true and correct. The Fund shall also furnish
SBS upon request with (a) annual audits of the Fund's books and accounts made
by independent certified public accountants regularly retained by the Fund;
(b) semi-annual unaudited financial statements pertaining to the Fund; (c)
quarterly earnings statements prepared by the Fund; (d) a monthly itemized
list of the securities in the Fund's portfolio; (e) monthly balance sheets as
soon as practicable after the end of each month; and (f) from time to time
such additional information regarding the Fund's financial condition as SBS
may reasonably request.
3. Representations and Warranties
The Fund represents to SBS that all registration statements,
prospectuses and statements of additional information filed by the Fund with
the SEC under the 1933 Act and the 1940 Act with respect to the Shares have
been carefully prepared in conformity with the requirements of the 1933 Act,
the 1940 Act and the rules and regulations of the SEC thereunder. As used in
this Agreement, the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration statement,
prospectus and statement of additional information filed by the Fund with the
SEC and any amendments and supplements thereto which at any time shall have
been filed with the SEC. The Fund represents and warrants to SBS that any
registration statement, prospectus and statement of additional information,
when such registration statement becomes effective, will include all
statements required to be contained therein in conformance with the 1933 Act,
the 1940 Act and the rules and regulations of the SEC; that all statements of
fact contained in any registration statement, prospectus or statement of
additional information will be true and correct when such registration
statement becomes effective; and that neither any registration statement nor
any prospectus or statement of additional information when such registration
statement becomes effective will include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of the
Fund's Shares. The Fund may, but shall not be obligated to, propose from time
to time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus or statement of additional
information as, in the light of future developments, may, in the opinion of
the Fund's counsel, be necessary or advisable. If the Fund shall not propose
such amendment or amendments and/or supplement or supplements within fifteen
days after receipt by the Fund of a written request from SBS to do so, SBS
may, at its option, terminate this Agreement. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus or
statement of additional information without giving SBS reasonable notice
thereof in advance; provided, however, that nothing contained in this
Agreement shall in any way limit the Fund's right to file at any time such
amendments to any registration statement and/or supplements to any prospectus
or statement of additional information, of whatever character, as the Fund may
deem advisable, such right being in all respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes SBS and dealers to use any prospectus or
statement of additional information furnished by the Fund from time to time,
in connection with the sale of the Shares. The Fund agrees to indemnify,
defend and hold SBS, its several officers and directors, and any person who
controls SBS within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims,
demands or liabilities and any such counsel fees incurred in connection
therewith) which SBS, its officers and directors, or any such controlling
person, may incur under the 1933 Act or under common law or otherwise, arising
out of or based upon any untrue statement, or alleged untrue statement, of a
material fact contained in any registration statement, any prospectus or any
statement of additional information or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated
in any registration statement, any prospectus or any statement of additional
information or necessary to make the statements in any thereof not misleading;
provided, however, that the Fund's agreement to indemnify SBS, its officers or
directors, and any such controlling person shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of any statements or
representations made by SBS or its representatives or agents other than such
statements and representations as are contained in any prospectus or statement
of additional information and in such financial and other statements as are
furnished to SBS pursuant to paragraph 2.2 of this Agreement; and further
provided that the Fund's agreement to indemnify SBS and the Fund's
representations and warranties herein before set forth in paragraph 3 of this
Agreement shall not be deemed to cover any liability to the Fund or its
shareholders to which SBS would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties,
or by reason of SBS's reckless disregard of its obligations and duties under
this Agreement. The Fund's agreement to indemnify SBS, its officers and
directors, and any such controlling person, as aforesaid, is expressly
conditioned upon the Fund's being notified of any action brought against SBS,
its officers or directors, or any such controlling person, such notification
to be given by letter or by telegram addressed to the Fund at its principal
office in New York, New York and sent to the Fund by the person against whom
such action is brought, within ten days after the summons or other first legal
process shall have been served. The failure so to notify the Fund of any such
action shall not relieve the Fund from any liability that the Fund may have to
the person against whom such action is brought by reason of any such untrue,
or alleged untrue, statement or omission, or alleged omission, otherwise than
on account of the Fund's indemnity agreement contained in this paragraph 4.1.
The Fund will be entitled to assume the defense of any suit brought to enforce
any such claim, demand or liability, but, in such case, such defense shall be
conducted by counsel of good standing chosen by the Fund and approved by SBS.
In the event the Fund elects to assume the defense of any such suit and
retains counsel of good standing approved by SBS, the defendant or defendants
in such suit shall bear the fees and expenses of any additional counsel
retained by any of them; but if the Fund does not elect to assume the defense
of any such suit, or if SBS does not approve of counsel chosen by the Fund,
the Fund will reimburse SBS, its officers and directors, or the controlling
person or persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by SBS or them. The Fund's
indemnification agreement contained in this paragraph 4.1 and the Fund's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
SBS, its officers and directors, or any controlling person, and shall survive
the delivery of any of the Fund's Shares. This agreement of indemnity will
inure exclusively to SBS's benefit, to the benefit of its several officers and
directors, and their respective estates, and to the benefit of the controlling
persons and their successors. The Fund agrees to notify SBS promptly of the
commencement of any litigation or proceedings against the Fund or any of its
officers or trustees in connection with the issuance and sale of any of the
Fund's Shares.
4.2 SBS agrees to indemnify, defend and hold the Fund, its
several officers and Directors, and any person who controls the Fund within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) that the Fund, its officers or
Directors or any such controlling person may incur under the 1933 Act, or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its officers or Directors, or such controlling
person resulting from such claims or demands shall arise out of or be based
upon any untrue, or alleged untrue, statement of a material fact contained in
information furnished in writing by SBS to the Fund and used in the answers to
any of the items of the registration statement or in the corresponding
statements made in the prospectus or statement of additional information, or
shall arise out of or be based upon any omission, or alleged omission, to
state a material fact in connection with such information furnished in writing
by SBS to the Fund and required to be stated in such answers or necessary to
make such information not misleading. SBS's agreement to indemnify the Fund,
its officers or Directors, and any such controlling person, as aforesaid, is
expressly conditioned upon SBS being notified of any action brought against
the Fund, its officers or Directors, or any such controlling person, such
notification to be given by letter or telegram addressed to SBS at its
principal office in New York, New York and sent to SBS by the person against
whom such action is brought, within ten days after the summons or other first
legal process shall have been served. SBS shall have the right to control the
defense of such action, with counsel of its own choosing, satisfactory to the
Fund, if such action is based solely upon such alleged misstatement or
omission on SBS's part, and in any other event the Fund, its officers or
Directors or such controlling person shall each have the right to participate
in the defense or preparation of the defense of any such action. The failure
to so notify SBS of any such action shall not relieve SBS from any liability
that SBS may have to the Fund, its officers or Directors, or to such
controlling person by reason of any such untrue, or alleged untrue, statement
or omission, or alleged omission, otherwise than on account of SBS's indemnity
agreement contained in this paragraph 4.2. SBS agrees to notify the Fund
promptly of the commencement of any litigation or proceedings against SBS or
any of its officers or directors in connection with the issuance and sale of
any of the Fund's Shares.
4.3 In case any action shall be brought against any indemnified
party under paragraph 4.1 or 4.2, and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses
of separate counsel to such indemnified party if (i) the indemnifying party
and the indemnified party shall have agreed to the retention of such counsel
or (ii) the indemnified party shall have concluded reasonably that
representation of the indemnifying party and the indemnified party by the same
counsel would be inappropriate due to actual or potential differing interests
between them in the conduct of the defense of such action.
5. Effectiveness of Registration
None of the Fund's Shares shall be offered by either SBS or the Fund
under any of the provisions of this Agreement and no orders for the purchase
or sale of the Shares under this Agreement shall be accepted by the Fund if
and so long as the effectiveness of the registration statement then in effect
or any necessary amendments thereto shall be suspended under any of the
provision of the 1933 Act or if and so long as a current prospectus as
required by Section 5(b) (2) of the 1933 Act is not on file with the SEC;
provided, that nothing contained in this paragraph 5 shall in any way restrict
or have an application to or bearing upon the Fund's obligation to repurchase
its Shares from any shareholder in accordance with the provisions of the
Fund's prospectus, statement of additional information or Articles of
Incorporation dated Date of Articles of Incorporation, as amended from time to
time.
6. Notice to SBS
The Fund agrees to advise SBS immediately in writing:
(a) of any request by the SEC for amendments to the registration
statement, prospectus or statement of additional information then in effect or
for additional information;
(b) In the event of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement, prospectus or
statement of additional information then in effect or the initiation of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement
or a material fact made in the registration statement, prospectus or statement
of additional information then in effect or that requires the making of a
change in such registration statement, prospectus or statement of additional
information in order to make the statements therein not misleading; and
(d) of all actions of the SEC with respect to any amendment to
any registration statement, prospectus or statement of additional information
which may from time to time be filed with the SEC.
7. Term of the Agreement
This Agreement shall become effective as of the "Closing Date" as that
term is defined in that certain Asset Purchase Agreement executed among SBS,
Primerica Corporation and Shearson Lehman Brothers Inc., dated March 12, 1993
and continues for successive annual periods thereafter so long as such
continuance is specifically approved at least annually by (a) the Fund's Board
of Directors or (b) by a vote of a majority (as defined in the 1940 Act) of
the Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Directors of the Fund who
are not interested persons (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable, without penalty, on 60
days' notice by the Fund's Board of Directors, by vote of the holders of a
majority of the Fund's Shares, or on 90 days' notice by SBS. This Agreement
will also terminate automatically in the event of its assignment (as defined
in the 1940 Act).
8. Miscellaneous
The Fund recognizes that directors, officers and employees of SBS may
from time to time serve as directors, trustees, officers and employees of
corporations and business trusts (including other investment companies) and
that such other corporations and trusts may include the name "Smith Barney
Shearson" as part of their name, and that SBS or its affiliates may enter into
distribution or other agreements with such other corporations and trusts. If
SBS ceases to act as the distributor of the Shares, the Fund agrees that, at
SBS's request, the Fund's license to use the word ""Smith Barney Shearson""
will terminate and that the Fund will take all necessary action to change the
name of the Fund to a name not including the words "Smith Barney Shearson."
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance
of this Agreement by signing and returning to us the enclosed copy of this
Agreement.
Very truly yours,
SMITH BARNEY SHEARSON CALIFORNIA
MUNICIPALS FUND INC.
By: _____________________
Title
Accepted:
SMITH BARNEY SHEARSON INC.
By: __________________________
Authorized Officer
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Page: 3
8
EXHIBIT 9(a)
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of August 2, 1993, between Smith Bareny Shearson
California Municipals Fund Inc., (the "Fund"), a corporation organized under
the laws of Maryland and having its principal place of business at Two World
Trade Center, New york, New York 10048 and THE SHAREHOLDER SERVICES GROUP,
INC. (MA) (the "Transfer Agent"), a Massachusetts corporation with principal
offices at One Exchange Place, 53 State Street, Boston, Massachusetts 02109.
W I T N E S S E T H
That for and in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and the Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement, the following words
and phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, Partnership Agreement, or similar
organizational document as the case may be, of the Fund as the same may be
amended from time to time.
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Fund, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Fund as indicated in a certificate furnished to the Transfer Agent pursuant to
Section 4(c) hereof as may be received by the Transfer Agent from time to
time.
(c) "Board of Directors" shall mean the Board of Directors, Board
of Trustees or, if the Fund is a limited partnership, the General Partner(s)
of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time deposit, or
cause to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement.
(f) "Fund" shall mean the entity executing this Agreement, and if
it is a series fund, as such term is used in the 1940 Act, such term shall
mean each series of the Fund hereafter created, except that appropriate
documentation with respect to each series must be presented to the Transfer
Agent before this Agreement shall become effective with respect to each such
series.
(g) "1940 Act" shall mean the Investment Company Act of 1940.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by the Transfer Agent from a person
reasonably believed by the Transfer Agent to be an Authorized Person;
(i) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any supplements
thereto if any, which has become effective under the Securities Act of 1933
and the 1940 Act.
(j) "Shares" refers collectively to such shares of capital stock,
beneficial interest or limited partnership interests, as the case may be, of
the Fund as may be issued from time to time and, if the Fund is a closed-end
or a series fund, as such terms are used in the 1940 Act any other classes or
series of stock, shares of beneficial interest or limited partnership
interests that may be issued from time to time.
(k) "Shareholder" shall mean a holder of shares of capital stock,
beneficial interest or any other class or series, and also refers to partners
of limited partnerships.
(l) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by the Transfer Agent to be an
Authorized Person and actually received by the Transfer Agent. Written
Instructions shall include manually executed originals and authorized
electronic transmissions, including telefacsimile of a manually executed
original or other process.
2. Appointment of the Transfer Agent. The Fund hereby appoints and
constitutes the Transfer Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Fund and as shareholder servicing agent for
the Fund. The Transfer Agent accepts such appointments and agrees to perform
the duties hereinafter set forth.
3. Compensation.
(a) The Fund will compensate or cause the Transfer Agent to be
compensated for the performance of its obligations hereunder in accordance
with the fees set forth in the written schedule of fees annexed hereto as
Schedule A and incorporated herein. The Transfer Agent will transmit an
invoice to the Fund as soon as practicable after the end of each calendar
month which will be detailed in accordance with Schedule A, and the Fund will
pay to the Transfer Agent the amount of such invoice within thirty (30) days
after the Fund's receipt of the invoice.
In addition, the Fund agrees to pay, and will be billed
separately for, reasonable out-of-pocket expenses incurred by the Transfer
Agent in the performance of its duties hereunder. Out-of-pocket expenses shall
include, but shall not be limited to, the items specified in the written
schedule of out-of-pocket charges annexed hereto as Schedule B and
incorporated herein. Unspecified out-of-pocket expenses shall be limited to
those out-of-pocket expenses reasonably incurred by the Transfer Agent in the
performance of its obligations hereunder. Reimbursement by the Fund for
expenses incurred by the Transfer Agent in any month shall be made as soon as
practicable but no later than 15 days after the receipt of an itemized bill
from the Transfer Agent.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A, a revised fee schedule executed and
dated by the parties hereto.
4. Documents. In connection with the appointment of the Transfer Agent
the Fund shall deliver or caused to be delivered to the Transfer Agent the
following documents on or before the date this Agreement goes into effect, but
in any case within a reasonable period of time for the Transfer Agent to
prepare to perform its duties hereunder:
(a) If applicable, specimens of the certificates for Shares of
the Fund;
(b) All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the Fund;
(c) A signature card bearing the signatures of any officer of the
Fund or other Authorized Person who will sign Written Instructions or is
authorized to give Oral Instructions.
(d) A certified copy of the Articles of Incorporation, as
amended;
(e) A certified copy of the By-laws of the Fund, as amended;
(f) A copy of the resolution of the Board of Directors
authorizing the execution and delivery of this Agreement;
(g) A certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of each Shareholder, and the number
of Shares of the Fund held by each, certificate numbers and denominations (if
any certificates have been issued), lists of any accounts against which stop
transfer orders have been placed, together with the reasons therefore, and the
number of Shares redeemed by the Fund; and
(h) An opinion of counsel for the Fund with respect to the
validity of the Shares and the status of such Shares under the Securities Act
of 1933, as amended.
5. Further Documentation. The Fund will also furnish the Transfer
Agent with copies of the following documents promptly after the same shall
become available:
(a) each resolution of the Board of Directors authorizing the
issuance of Shares;
(b) any registration statements filed on behalf of the Fund and
all pre-effective and post-effective amendments thereto filed with the
Commission;
(c) a certified copy of each amendment to the Articles of
Incorporation or the By-laws of the Fund;
(d) certified copies of each resolution of the Board of Directors
or other authorization designating Authorized Persons; and
(e) such other certificates, documents or opinions as the
Transfer Agent may reasonably request in connection with the performance of
its duties hereunder.
6. Representations of the Fund. The Fund represents to the Transfer
Agent that all outstanding Shares are validly issued, fully paid and
non-assessable. When Shares are hereafter issued in accordance with the terms
of the Fund's Articles of Incorporation and its Prospectus, such Shares shall
be validly issued, fully paid and non-assessable.
7. Distributions Payable in Shares. In the event that the Board of
Directors of the Fund shall declare a distribution payable in Shares, the Fund
shall deliver or cause to be delivered to the Transfer Agent written notice of
such declaration signed on behalf of the Fund by an officer thereof, upon
which the Transfer Agent shall be entitled to rely for all purposes,
certifying (i) the identity of the Shares involved, (ii) the number of Shares
involved, and (iii) that all appropriate action has been taken.
8. Duties of the Transfer Agent. The Transfer Agent shall be
responsible for administering and/or performing those functions typically
performed by a transfer agent; for acting as service agent in connection with
dividend and distribution functions; and for performing shareholder account
and administrative agent functions in connection with the issuance, transfer
and redemption or repurchase (including coordination with the Custodian) of
Shares in accordance with the terms of the Prospectus and applicable law. The
operating standards and procedures to be followed shall be determined from
time to time by agreement between the Fund and the Transfer Agent and shall
initially be as described in Schedule C attached hereto. In addition, the
Fund shall deliver to the Transfer Agent all notices issued by the Fund with
respect to the Shares in accordance with and pursuant to the Articles of
Incorporation or By-laws of the Fund or as required by law and shall perform
such other specific duties as are set forth in the Articles of Incorporation
including the giving of notice of any special or annual meetings of
shareholders and any other notices required thereby.
9. Record Keeping and Other Information. The Transfer Agent shall
create and maintain all records required of it pursuant to its duties
hereunder and as set forth in Schedule C in accordance with all applicable
laws, rules and regulations, including records required by Section 31(a) of
the 1940 Act. All records shall be available during regular business hours
for inspection and use by the Fund. Where applicable, such records shall be
maintained by the Transfer Agent for the periods and in the places required by
Rule 31a-2 under the 1940 Act.
Upon reasonable notice by the Fund, the Transfer Agent shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of its duties under this Agreement
for reasonable visitation by the Fund, or any person retained by the Fund as
may be necessary for the Fund to evaluate the quality of the services
performed by the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set forth in Schedule C,
the Transfer Agent shall perform such other duties and functions, and shall be
paid such amounts therefor, as may from time to time be agreed upon in writing
between the Fund and the Transfer Agent. The compensation for such other
duties and functions shall be reflected in a written amendment to Schedule A
or B and the duties and functions shall be reflected in an amendment to
Schedule C, both dated and signed by authorized persons of the parties hereto.
11. Reliance by Transfer Agent; Instructions
(a) The Transfer Agent will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice
of any change of authority of any person until receipt of a Written
Instruction thereof from the Fund pursuant to Section 4(c). The Transfer
Agent will also have no liability when processing Share certificates which it
reasonably believes to bear the proper manual or facsimile signatures of the
officers of the Fund and the proper countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may apply to any Authorized
Person of the Fund for Written Instructions and may seek advice from legal
counsel for the Fund, or its own legal counsel, with respect to any matter
arising in connection with this Agreement, and it shall not be liable for any
action taken or not taken or suffered by it in good faith in accordance with
such Written Instructions or in accordance with the opinion of counsel for the
Fund or for the Transfer Agent. Written Instructions requested by the
Transfer Agent will be provided by the Fund within a reasonable period of
time. In addition, the Transfer Agent, its officers, agents or employees,
shall accept Oral Instructions or Written Instructions given to them by any
person representing or acting on behalf of the Fund only if said
representative is an Authorized Person. The Fund agrees that all Oral
Instructions shall be followed within one business day by confirming Written
Instructions, and that the Fund's failure to so confirm shall not impair in
any respect the Transfer Agent's right to rely on Oral Instructions. The
Transfer Agent shall have no duty or obligation to inquire into, nor shall the
Transfer Agent be responsible for, the legality of any act done by it upon the
request or direction of a person reasonably believed by the Transfer Agent to
be an Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance or sale
of any Shares or the sufficiency of the amount to be received therefor; (ii)
the legality of the redemption of any Shares, or the propriety of the amount
to be paid therefor; (iii) the legality of the declaration of any dividend by
the Board of Directors, or the legality of the issuance of any Shares in
payment of any dividend; or (iv) the legality of any recapitalization or
readjustment of the Shares.
12. Acts of God, etc. The Transfer Agent will not be liable or
responsible for delays or errors by acts of God or by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties, mechanical breakdown, insurrection, war,
riots, or failure or unavailability of transportation, communication or power
supply, fire, flood or other catastrophe.
13. Duty of Care and Indemnification. Each party hereto (the
"Indemnifying Party') will indemnify the other party (the "Indemnified Party")
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses of any sort or kind (including reasonable counsel fees
and expenses) resulting from any claim, demand, action or suit or other
proceeding (a "Claim") unless such Claim has resulted from a negligent failure
to act or omission to act or bad faith of the Indemnified Party in the
performance of its duties hereunder. In addition, the Fund will indemnify the
Transfer Agent against and hold it harmless from any Claim, damages,
liabilities or expenses (including reasonable counsel fees) that is a result
of: (i) any action taken in accordance with Written or Oral Instructions, or
any other instructions, or share certificates reasonably believed by the
Transfer Agent to be genuine and to be signed, countersigned or executed, or
orally communicated by an Authorized Person; (ii) any action taken in
accordance with written or oral advice reasonably believed by the Transfer
Agent to have been given by counsel for the Fund or its own counsel; or (iii)
any action taken as a result of any error or omission in any record (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) delivered, or caused to be delivered by the Fund to the
Transfer Agent in connection with this Agreement.
In any case in which the Indemnifying Party may be asked to indemnify or
hold the Indemnified Party harmless, the Indemnifying Party shall be advised
of all pertinent facts concerning the situation in question. The Indemnified
Party will notify the Indemnifying Party promptly after identifying any
situation which it believes presents or appears likely to present a claim for
indemnification against the Indemnifying Party although the failure to do so
shall not prevent recovery by the Indemnified Party. The Indemnifying Party
shall have the option to defend the Indemnified Party against any Claim which
may be the subject of this indemnification, and, in the event that the
Indemnifying Party so elects, such defense shall be conducted by counsel
chosen by the Indemnifying Party and satisfactory to the Indemnified Party,
and thereupon the Indemnifying Party shall take over complete defense of the
Claim and the Indemnified Party shall sustain no further legal or other
expenses in respect of such Claim. The Indemnified Party will not confess any
Claim or make any compromise in any case in which the Indemnifying Party will
be asked to provide indemnification, except with the Indemnifying Party's
prior written consent. The obligations of the parties hereto under this
Section shall survive the termination of this Agreement.
14. Consequential Damages. In no event and under no circumstances
shall either party under this Agreement be liable to the other party for
indirect loss of profits, reputation or business or any other special damages
under any provision of this Agreement or for any act or failure to act
hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the date first written
above and shall continue until Augusst 2, 1994, and thereafter shall
automatically continue for successive annual periods ending on the anniversary
of the date first written above, provided that it may be terminated by either
party upon written notice given at least 60 days prior to termination.
(b) In the event a termination notice is given by the Fund, it
shall be accompanied by a resolution of the Board of Directors, certified by
the Secretary of the Fund, designating a successor transfer agent or transfer
agents. Upon such termination and at the expense of the Fund, the Transfer
Agent will deliver to such successor a certified list of shareholders of the
Fund (with names and addresses), and all other relevant books, records,
correspondence and other Fund records or data in the possession of the
Transfer Agent, and the Transfer Agent will cooperate with the Fund and any
successor transfer agent or agents in the substitution process.
16. Confidentiality. Both parties hereto agree that any non public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other
party, except as may be required by applicable law or at the request of the
Commission or other governmental agency. The parties further agree that a
breach of this provision would irreparably damage the other party and
accordingly agree that each of them is entitled, without bond or other
security, to an injunction or injunctions to prevent breaches of this
provision.
17. Amendment. This Agreement may only be amended or modified by a
written instrument executed by both parties.
18. Subcontracting. The Fund agrees that the Transfer Agent may, in
its discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
Transfer Agent shall not relieve the Transfer Agent of its responsibilities
hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Fund or the Transfer
Agent, shall be sufficiently given if addressed to that party and received by
it at its office set forth below or at such other place as it may from time to
time designate in writing.
To the Fund:
Smith Barney Shearson California Municipals Fund Inc.
Two World Trade Center, Floor 100
New York, NY 10048
Attention: Richard Roelofs
To the Transfer Agent:
The Shareholder Services Group
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Robert F. Radin, President
with a copy to TSSG Counsel
(b) Successors. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns,
provided, however, that this Agreement shall not be assigned to any person
other than a person controlling, controlled by or under common control with
the assignor without the written consent of the other party, which consent
shall not be unreasonably withheld.
(c) Governing Law. This Agreement shall be governed exclusively
by the laws of the State of New York without reference to the choice of law
provisions thereof. Each party hereto hereby agrees that (i) the Supreme
Court of New York sitting in New York County shall have exclusive jurisdiction
over any and all disputes arising hereunder; (ii) hereby consents to the
personal jurisdiction of such court over the parties hereto, hereby waiving
any defense of lack of personal jurisdiction; and (iii) appoints the person to
whom notices hereunder are to be sent as agent for service of process.
(d) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) Captions. The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(f) Use of Transfer Agent's Name. The Fund shall not use the
name of the Transfer Agent in any Prospectus, Statement of Additional
Information, shareholders' report, sales literature or other material relating
to the Fund in a manner not approved prior thereto in writing; provided, that
the Transfer Agent need only receive notice of all reasonable uses of its name
which merely refer in accurate terms to its appointment hereunder or which are
required by any government agency or applicable law or rule. Notwithstanding
the foregoing, any reference to the Transfer Agent shall include a statement
to the effect that it is a wholly owned subsidiary of First Data Corporation.
(g) Use of Fund's Name. The Transfer Agent shall not use the
name of the Fund or material relating to the Fund on any documents or forms
for other than internal use in a manner not approved prior thereto in writing;
provided, that the Fund need only receive notice of all reasonable uses of its
name which merely refer in accurate terms to the appointment of the Transfer
Agent or which are required by any government agency or applicable law or
rule.
(h) Independent Contractors. The parties agree that they are
independent contractors and not partners or co-venturers.
(i) Entire Agreement; Severability. This Agreement and the
Schedules attached hereto constitute the entire agreement of the parties
hereto relating to the matters covered hereby and supersede any previous
agreements. If any provision is held to be illegal, unenforceable or invalid
for any reason, the remaining provisions shall not be affected or impaired
thereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers, as of the day and
year first above written.
SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND
By: /s/ Richard P. Roelofs
Title: President
THE SHAREHOLDER SERVICES GROUP, INC.
By: /s/ Michael G. McCarthy
Title Vice President
A-1
Transfer Agent Fee
Schedule A
Class A shares
The Fund shall pay the Transfer Agent an annualized fee of $11.00 per
shareholder account that is open during any monthly period. Such fee shall be
billed by the Transfer Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
Class B shares
The Fund shall pay the Transfer Agent an annualized fee of $12.50 per
shareholder account that is open during any monthly period. Such fee shall be
billed by the Transfer Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
Class C shares
The Fund shall pay the Transfer Agent an annualized fee of $8.50 per
shareholder account that is open during any monthly period. Such fee shall be
billed by the Transfer Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
Class D shares
The Fund shall pay the Transfer Agent an annualized fee of $9.50 per
shareholder account that is open during any monthly period. Such fee shall be
billed by the Transfer Agent monthly in arrears on a prorated basis of 1/12 of
the annualized fee for all accounts that are open during such a month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing cycle.
Such fee shall be billed by the Transfer Agent monthly in arrears.
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for applicable out-
of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first
class)
direct pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including
all lease, maintenance and line costs
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment and
any
expenses incurred in connection with such terminals and
lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction costs, including,
but not
limited to exit fees harged by third party record keeping
vendors
- Third party audit reviews
- Insurance
- Such other miscellaneous expenses reasonably incurred by the
Transfer
Agent in performing its duties and responsibilities under
this
Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with the Transfer Agent. In addition,
the Fund will promptly reimburse the Transfer Agent for any other unscheduled
expenses incurred by the Transfer Agent whenever the Fund and the Transfer
Agent mutually agree that such expenses are not otherwise properly borne by
the Transfer Agent as part of its duties and obligations under the Agreement.
C-1
Schedule C
DUTIES OF THE TRANSFER AGENT
1. Shareholder Information. The Transfer Agent or its agent
shall maintain a record of the number of Shares held by each holder of record
which shall include name, address, taxpayer identification and which shall
indicate whether such Shares are held in certificates or uncertificated form.
2. Shareholder Services. The Transfer Agent or its agent will
investigate all inquiries from shareholders of the Fund relating to
Shareholder accounts and will respond to all communications from Shareholders
and others relating to its duties hereunder and such other correspondence as
may from time to time be mutually agreed upon between the Transfer Agent and
the Fund. The Transfer Agent shall provide the Fund with reports concerning
shareholder inquires and the responses thereto by the Transfer Agent, in such
form and at such times as are agreed to by the Fund and the Transfer Agent.
3. Share Certificates.
(a) At the expense of the Fund, it shall supply the Transfer
Agent or its agent with an adequate supply of blank share certificates to meet
the Transfer Agent or its agent's requirements therefor. Such Share
certificates shall be properly signed by facsimile. The Fund agrees that,
notwithstanding the death, resignation, or removal of any officer of the Fund
whose signature appears on such certificates, the Transfer Agent or its agent
may continue to countersign certificates which bear such signatures until
otherwise directed by Written Instructions.
(b) The Transfer Agent or its agent shall issue replacement Share
certificates in lieu of certificates which have been lost, stolen or
destroyed, upon receipt by the Transfer Agent or its agent of properly
executed affidavits and lost certificate bonds, in form satisfactory to the
Transfer Agent or its agent, with the Fund and the Transfer Agent or its agent
as obligees under the bond.
(c) The Transfer Agent or its agent shall also maintain a record
of each certificate issued, the number of Shares represented thereby and the
holder of record. With respect to Shares held in open accounts or
uncertificated form, i.e., no certificate being issued with respect thereto,
the Transfer Agent or its agent shall maintain comparable records of the
record holders thereof, including their names, addresses and taxpayer
identification. The Transfer Agent or its agent shall further maintain a stop
transfer record on lost and/or replaced certificates.
C-2
4. Mailing Communications to Shareholders; Proxy Materials. The
Transfer Agent or its agent will address and mail to Shareholders of the Fund,
all reports to Shareholders, dividend and distribution notices and proxy
material for the Fund's meetings of Shareholders. In connection with meetings
of Shareholders, the Transfer Agent or its Agent will prepare Shareholder
lists, mail and certify as to the mailing of proxy materials, process and
tabulate returned proxy cards, report on proxies voted prior to meetings, act
as inspector of election at meetings and certify Shares voted at meetings.
5. Sales of Shares
(a) Suspension of Sale of Shares. The Transfer Agent or its
agent shall not be required to issue any Shares of the Fund where it has
received a Written Instruction from the Fund or official notice from any
appropriate authority that the sale of the Shares of the Fund has been
suspended or discontinued. The existence of such Written Instructions or such
official notice shall be conclusive evidence of the right of the Transfer
Agent or its agent to rely on such Written Instructions or official notice.
(b) Returned Checks. In the event that any check or other order
for the payment of money is returned unpaid for any reason, the Transfer Agent
or its agent will: (i) give prompt notice of such return to the Fund or its
designee; (ii) place a stop transfer order against all Shares issued as a
result of such check or order; and (iii) take such actions as the Transfer
Agent may from time to time deem appropriate.
6. Transfer and Repurchase
(a) Requirements for Transfer or Repurchase of Shares. The
Transfer Agent or its agent shall process all requests to transfer or redeem
Shares in accordance with the transfer or repurchase procedures set forth in
the Fund's Prospectus.
The Transfer Agent or its agent will transfer or repurchase Shares
upon receipt of Oral or Written Instructions or otherwise pursuant to the
Prospectus and Share certificates, if any, properly endorsed for transfer or
redemption, accompanied by such documents as the Transfer Agent or its agent
reasonably may deem necessary.
The Transfer Agent or its agent reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the endorsement on
the instructions is valid and genuine. The Transfer Agent or its agent also
reserves the right to refuse to transfer or repurchase Shares until it is
satisfied that the requested transfer or repurchase is legally authorized, and
it shall incur no liability for the refusal, in good faith, to make transfers
or repurchases which the Transfer Agent or its agent, in its good judgement,
deems improper or unauthorized, or until it is reasonably satisfied that there
is no basis to any claims adverse to such transfer or repurchase.
C-3
(b) Notice to Custodian and Fund. When Shares are redeemed, the
Transfer Agent or its agent shall, upon receipt of the instructions and
documents in proper form, deliver to the Custodian and the Fund or its
designee a notification setting forth the number of Shares to be repurchased.
Such repurchased shares shall be reflected on appropriate accounts maintained
by the Transfer Agent or its agent reflecting outstanding Shares of the Fund
and Shares attributed to individual accounts.
(c) Payment of Repurchase Proceeds. The Transfer Agent or its
agent shall, upon receipt of the moneys paid to it by the Custodian for the
repurchase of Shares, pay such moneys as are received from the Custodian, all
in accordance with the procedures described in the written instruction
received by the Transfer Agent or its agent from the Fund.
The Transfer Agent or its agent shall not process or effect any
repurchase with respect to Shares of the Fund after receipt by the Transfer
Agent or its agent of notification of the suspension of the determination of
the net asset value of the Fund.
7. Dividends
(a) Notice to Agent and Custodian. Upon the declaration of each
dividend and each capital gains distribution by the Board of Directors of the
Fund with respect to Shares of the Fund, the Fund shall furnish or cause to be
furnished to the Transfer Agent or its agent a copy of a resolution of the
Fund's Board of Directors certified by the Secretary of the Fund setting forth
the date of the declaration of such dividend or distribution, the ex-dividend
date, the date of payment thereof, the record date as of which shareholders
entitled to payment shall be determined, the amount payable per Share to the
shareholders of record as of that date, the total amount payable to the
Transfer Agent or its agent on the payment date and whether such dividend or
distribution is to be paid in Shares of such class at net asset value.
On or before the payment date specified in such resolution of the
Board of Directors, the Custodian of the Fund will pay to the Transfer Agent
sufficient cash to make payment to the shareholders of record as of such
payment date.
(b) Insufficient Funds for Payments. If the Transfer Agent or
its agent does not receive sufficient cash from the Custodian to make total
dividend and/or distribution payments to all shareholders of the Fund as of
the record date, the Transfer Agent or its agent will, upon notifying the
Fund, withhold payment to all Shareholders of record as of the record date
until sufficient cash is provided to the Transfer Agent or its agent.
C-4
Exhibit 1 to Schedule C
Summary of Services
The services to be performed by the Transfer Agent or its agent shall be
as follows:
A. DAILY RECORDS
Maintain daily the following information with respect to each
Shareholder account as received:
o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male, female, joint tenant,
etc.
o Dividend code (reinvestment)
o Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
o Answer written inquiries relating to Shareholder accounts
(matters relating to portfolio management, distribution of Shares and other
management policy questions will be referred to the Fund).
o Process additional payments into established Shareholder
accounts in accordance with Written Instruction from the Agent.
o Upon receipt of proper instructions and all required
documentation, process requests for repurchase of Shares.
o Identify redemption requests made with respect to accounts
in which Shares have been purchased within an agreed-upon period of time for
determining whether good funds have been collected with respect to such
purchase and process as agreed by the Agent in accordance with written
instructions set forth by the Fund.
o Examine and process all transfers of Shares, ensuring that
all transfer requirements and legal documents have been supplied.
C-5
o Issue and mail replacement checks.
o Open new accounts and maintain records of exchanges between
accounts
C. DIVIDEND ACTIVITY
o Calculate and process Share dividends and distributions as
instructed by the Fund.
o Compute, prepare and mail all necessary reports to
Shareholders or various authorities as requested by the Fund. Report to the
Fund reinvestment plan share purchases and determination of the reinvestment
price.
D. MEETINGS OF SHAREHOLDERS
o Cause to be mailed proxy and related material for all
meetings of Shareholders. Tabulate returned proxies (proxies must be
adaptable to mechanical equipment of the Agent or its agents) and supply daily
reports when sufficient proxies have been received.
o Prepare and submit to the Fund an Affidavit of Mailing.
o At the time of the meeting, furnish a certified list of
Shareholders, hard copy, microfilm or microfiche and, if requested by the
Fund, Inspection of Election.
E. PERIODIC ACTIVITIES
o Cause to be mailed reports, Prospectuses, and any other enclosures
requested by the Fund (material must be adaptable to mechanical equipment of
Agent or its agents).
o Receive all notices issued by the Fund with respect to the
Preferred Shares in accordance with and pursuant to the Articles of
Incorporation and the Indenture and perform such other specific duties as are
set forth in the Articles of Incorporation including a giving of notice of a
special meeting and notice of redemption in the circumstances and otherwise in
accordance with all relevant provisions of the Articles of Incorporation.
- -18-
g/shared/domestic/clients/shearson/funds/camu/tranag
EXHIBIT 9(b)
SHEARSON LEHMAN BROTHERS CALIFORNIA MUNICIPALS FUND INC.
ADMINISTRATION AGREEMENT
May 21, 1993
The Boston Company Advisors, Inc.
One Exchange Place
Boston, Massachusetts 02109
Dear Sirs:
Shearson Lehman Brothers California Municipals Fund Inc. a Maryland
Corporation organized under the laws of the State of Maryland, confirms its
agreement with The Boston Company Advisors, Inc. ("Boston Advisors") as
follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in
its Articles of Incorporation, as amended from time to time, in its Prospectus
and Statement of Additional Information as from time to time in effect, and in
such manner and to the extent as may from time to time be approved by the
Board of Directors of the Fund. Copies of the Fund's Prospectus, Statement of
Additional Information and the Articles of Incorporation have been submitted
to Boston Advisors. The Fund employs Shearson Lehman Brothers Inc. on behalf
of Shearson Lehman Advisors (the "Adviser") as its investment adviser and
desires to employ and hereby appoints Boston Advisors as its administrator.
Boston Advisors accepts this appointment and agrees to furnish services for
the compensation set forth below.
2. Services as Administrator
Subject to the supervision and direction of the Board of Directors of
the Fund, Boston Advisors will (a) assist in supervising all aspects of the
Fund's operations except those performed by the Fund's Adviser under its
investment advisory agreement; (b) assist in the execution of cash management
decisions made by the Fund's Adviser(s) pursuant to instructions from Fund's
Adviser(s); (c) furnish such statistical or other factual information, advice
regarding economic factors and trends and advice as to occasional transactions
in specific securities (but without generally furnishing advice or making
recommendations regarding the purchase or sale of securities) as may be
requested by the Fund's Adviser(s) in connection with the selection of cash
equivalent investments as may be requested from time to time by the Fund's
Adviser(s); (d) supply the Fund with office facilities (which may be Boston
Advisors' own offices) statistical and research data, data processing
services, clerical, accounting and bookkeeping services, including but not
limited to, the calculation of net asset value of shares of the Fund, internal
auditing and legal services, internal executive and administrative services,
and stationary and office supplies; and (e) prepare reports to the
shareholders of the Fund, tax returns and reports to and filings with the
Securities and Exchange Commission and state Blue Sky authorities.
3. Compensation
In consideration of services rendered pursuant to this Agreement, the
Fund will pay Boston Advisors on the first business day of each month a fee
for the previous month at the following annual rates: .20% of the value of
the Fund's average daily net assets up to $500 million and .18% of the value
of its average daily net assets in excess of $500 million. Upon any
termination of this Agreement before the end of any month, the fee for such
part of the month shall be prorated according to the proportion which such
period bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
Boston Advisors, the value of the Fund's net assets shall be computed at the
times and in the manner specified in the Prospectus and Statement of
Additional Information as from time to time in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear certain
other expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of Directors of the Fund who are
not officers, directors, or employees of the Adviser or Boston Advisors;
Securities and Exchange Commission fees and state Blue Sky qualification fees;
charges of custodians and transfer and dividend disbursing agents; certain
insurance premiums; outside auditing and legal expenses, costs of maintenance
of corporate existence; costs attributable to investor services, including
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statement of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings, and meetings of the officers or Board of Directors of
the Fund; and any extraordinary expenses.
5. Reimbursement to the Fund
If in any fiscal year, the aggregate expenses of the Fund (including
fees pursuant to this Agreement and the Fund's investment advisory agreement,
but excluding interest, taxes, brokerage and, if permitted by state securities
commissions, extraordinary expenses) exceed the expense limitations of any
state having jurisdiction over the Fund, Boston Advisors will reimburse the
Fund for that excess expense to the extent required by state law in the same
proportion as its respective fees bear to the combined fees for investment
advice and administration. The expense reimbursement obligation of Boston
Advisors will be limited to the amount of fees hereunder. Such expense
reimbursement, if any, will be estimated, reconciled and paid on a monthly
basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in rendering the
services listed in paragraph 2 above. Boston Advisors shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates provided that
nothing in this Agreement shall be deemed to protect or purport to protect
Boston Advisors against liability to the Fund or to its shareholders to which
Boston Advisors would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
by reason of Boston Advisors' reckless disregard of its obligations and duties
under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically (unless terminated as
provided herein) for successive annual periods provided that such continuance
is specifically approved at least annually by the Board of Directors of the
Fund including a majority of the Board of Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940, as amended) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting such approval. This Agreement is terminable, without
penalty, on 60 days' written notice, by the Board of Directors of the Fund or
by vote of holders of a majority of the Fund's shares, or upon 90 days'
written notice, by Boston Advisors.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will continue to act
and may act in the future as administrator to one or more other investment
companies, and the Fund has no objection to Boston Advisors' so acting. The
Fund understands that the persons employed by Boston Advisors to assist in the
performance of Boston Advisors' duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of Boston Advisors or any affiliate of Boston Advisors to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning to us the enclosed
copy hereof.
Very truly yours,
Shearson Lehman Brothers California
Municipals Fund Inc.
By:
Title:
Accepted:
The Boston Company Advisors, Inc.
By:
Title:
g\shared\domestic\clients\shearson\funds\camu\admnagmt
EXHIBIT 15
SERVICES AND DISTRIBUTION PLAN
Smith Barney Shearson California Municipals Fund Inc.
This Services and Distribution Plan (the "Plan") is adopted in
accordance with Rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by Smith Barney Shearson California
Municipals Fund Inc., a corporation organized under the laws of the State of
Maryland (the "Fund"), subject to the following terms and conditions:
Section 1. Annual Fee.
(a) Class A Service Fee. The Fund will pay to the distributor of its
shares, Smith Barney Shearson Inc., a corporation organized under the laws of
the State of Delaware ("Distributor"), a service fee under the Plan at the
annual rate of .15% of the average daily net assets of the Fund attributable
to the Class A shares (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .15% of the
average daily net assets of the Fund attributable to the Class B shares (the
"Class B Service Fee").
(d) Distribution Fee for Class B shares. In addition to the Class B
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .50% of the average daily net assets of the Fund
attributable to the Class B shares (the "Class B Distribution Fee").
(f) Payment of Fees. The Service Fees and Distribution Fee will be
calculated daily and paid monthly by the Fund with respect to the foregoing
classes of the Fund's shares (each a "Class" and together the "Classes") at
the annual rates indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its respective
Service Fees and/or Distribution Fee may be used for: (a) costs of printing
and distributing the Fund's prospectus, statement of additional information
and reports to prospective investors in the Fund; (b) costs involved in
preparing, printing and distributing sales literature pertaining to the Fund;
(c) an allocation of overhead and other branch office distribution-related
expenses of the Distributor; (d) payments made to, and expenses of, Smith
Barney Shearson Financial Consultants and other persons who provide support
services in connection with the distribution of the Fund's shares, including
but not limited to, office space and equipment, telephone facilities,
answering routine inquires regarding the Fund, processing shareholder
transactions and providing any other shareholder services not otherwise
provided by the Fund's transfer agent; and (e) accruals for interest on the
amount of the foregoing expenses that exceed the Distribution Fee and, in the
case of Class B shares, the contingent deferred sales charge received by the
Distributor; provided, however, that the Distribution Fee may be used by the
Distributor only to cover expenses primarily intended to result in the sale of
the Fund's Class B shares, including without limitation, payments to
Distributor's financial consultants at the time of the sale of Class B shares.
In addition, Service Fees are intended to be used by the Distributor primarily
to pay its financial consultants for servicing shareholder accounts, including
a continuing fee to each such financial consultant, which fee shall begin to
accrue immediately after the sale of such shares.
Section 3. Approval of Shareholders
The Plan will not take effect, and no fees will be payable in accordance
with Section 1 of the Plan, with respect to a Class until the Plan has been
approved by a vote of at least a majority of the outstanding voting securities
of the Class. The Plan will be deemed to have been approved with respect to a
Class so long as a majority of the outstanding voting securities of the Class
votes for the approval of the Plan, notwithstanding that: (a) the Plan has
not been approved by a majority of the outstanding voting securities of any
other Class, or (b) the Plan has not been approved by a majority of the
outstanding voting securities of the Fund.
Section 4. Approval of Directors.
Neither the Plan nor any related agreements will take effect until
approved by a majority of both (a) the full Board of Directors of the Fund and
(b) those Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to it (the "Qualified Directors"), cast in person at a
meeting called for the purpose of voting on the Plan and the related
agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class until July
30, 1994, and thereafter for successive twelve-month periods with respect to
each Class; provided, however, that such continuance is specifically approved
at least annually by the Directors of the Fund and by a majority of the
Qualified Directors.
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class (i) by
the Fund without the payment of any penalty, by the vote of a majority of the
outstanding voting securities of such Class or (ii) by a vote of the Qualified
Directors. The Plan may remain in effect with respect to a particular Class
even if the Plan has been terminated in accordance with this Section 6 with
respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class so as to increase
materially the amounts of the fees described in Section 1 above, unless the
amendment is approved by a vote of the holders of at least a majority of the
outstanding voting securities of that Class. No material amendment to the
Plan may be made unless approved by the Fund's Board of Directors in the
manner described in Section 4 above.
Section 8. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the Fund's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in office who are not interested persons of
the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, a person
authorized to direct the disposition of monies paid or payable by the Fund
pursuant to the Plan or any related agreement will prepare and furnish to the
Fund's Board of Directors and the Board will review, at least quarterly,
written reports, complying with the requirements of the Rule, which sets out
the amounts expended under the Plan and the purposes for which those
expenditures were made.
Section 10. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 9 above, for a period of not less
than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the Fund executed the Plan as of July 30, 1993.
SMITH BARNEY SHEARSON
CALIFORNIA MUNICIPALS FUND INC.
By:____________________________________
Heath B. McLendon
Chairman of the Board
g:\shared\domestic\clients\shearson\fund\camu\12b-1
