As filed with the Securities and Exchange Commission
on September 24, 1997
Registration No. 333-12709
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
[ x ] Pre-Effective Amendment No. 1 [ ] Post-Effective Amendment No.
SMITH BARNEY MUNI FUNDS
(Exact name of Registrant as specified in Charter)
Area Code and Telephone Number: (800) 224-7523
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices) (Zip Code)
Christina T. Sydor, Esq.
Smith Barney Inc.
388 Greenwich Street New York, New York 10013 (22nd floor)
(Name and address of agent for service)
copy to:
John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Approximate date of proposed public offering: As soon as possible
after the effective date of this Registration Statement.
Registrant has registered an indefinite amount of securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended; accordingly, no fee is payable herewith. Registrant's
Rule 24f-2 Notice for the fiscal period ended March 31, 1997 was
filed with the Securities and Exchange Commission on May 9, 1997.
Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on
such date as the Commission, by action pursuant to said Section
8(a), may determine.
SMITH BARNEY MUNI FUNDS
CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement contains the following pages and
documents:
Front Cover
Contents Page
Cross-Reference Sheet
Letter to Shareholders
Notice of Special Meeting
Instructions for Signing Proxy Card
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
SMITH BARNEY MUNI FUNDS
FORM N-14 CROSS REFERENCE SHEET
Pursuant to Rule 481(a) Under the Securities Act of 1933
Prospectus/Proxy
Part A Item No. and Caption Statement Caption
Item 1. Beginning of Registration Cover Page; Cross
Statement and Outside Front Reference Sheet
Cover Page of Prospectus
Item 2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
Item 3. Synopsis Information and Risk Factors Fee Table; Summary;
Risk Factors; Comparison
of Investment Objectives
and Policies
Item 4. Information About the Transaction Summary: Reasons for the
Reorganization;
Information about the
Reorganization; Information
on Shareholders' Rights;
Exhibit A (Plan of Reorganization)
Item 5. Information About the Registrant Cover Page; Summary;
Information about
the Reorganization; Comparison
of Investment Objectives and
Policies; Information on
Shareholders' Rights;
PerformanceInformation for the
National Portfolio; Additional
Information About the National
Portfolio and the Ohio Portfolio
Item 6. Information About the Summary; Information
Company Being Acquired About the Reorganization;
Comparison of Investment
Objectives and Policies;
Information on Shareholders'
Rights; Additional Information
About the National Portfolio
and the Ohio Portfolio
Item 7. Voting Information Summary; Information About
the Reorganization; Information on
Shareholders' Rights; Voting
Information
Item 8. Interest of Certain Persons Financial Statements and Experts;
and Experts; Legal Matters
Item 9. Additional Information Not Applicable
Required for Reoffering By
Persons Deemed to be Underwriters
Statement of Additional
Part B Item No. and Caption Information Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. Additional Information Cover Page; Statement of
About the Registrant Additional Information of
Smith Barney Muni Funds
dated July 29, 1997
Item 13. Additional Information Cover Page; Statement of
About the Company Being Additional Information of
Acquired Smith Barney Muni Funds
dated July 29, 1997
Item 14. Financial Statements Annual Report of Smith Barney
Muni Funds dated March 31, 1997
Part C Item No. and Caption Other Information Caption
Item 15. Indemnification Incorporated by Reference to
Part A Caption " Information on
Shareholders' Rights - Liability
of Trustees"
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
SMITH BARNEY MUTUAL FUNDS
Investing for your future. Every day.
To Shareholders Of Smith Barney Muni Funds -
Ohio Portfolio
Your Vote is Important
Dear Shareholder:
The Board of Trustees of Smith Barney Muni Funds (the "Fund") reviewed
and has unanimously endorsed a proposal for a reorganization of the Smith
Barney Muni Funds - Ohio Portfolio ("Ohio Portfolio"), a separate investment
portfolio of the Fund, which it judges to be in the best interests the Ohio
Portfolio shareholders.
Under the terms of the proposed reorganization, Smith Barney Muni Funds
- - National Portfolio ("National Portfolio"), would acquire all or
substantially all of the Ohio Portfolio's assets and liabilities. The Ohio
Portfolio would be liquidated and you would become a shareholder of the
National Portfolio having received shares with an aggregate net asset value
equivalent to the aggregate net asset value of your Ohio Portfolio investment
at the time of the transaction. No sales charge would be imposed in the
transaction. The transaction would, in the opinion of counsel, be free from
Federal income taxes to you, the Ohio Portfolio and the National Portfolio.
The Board of Trustees believes that the proposed reorganization is in
the best interests of Ohio Portfolio shareholders and should provide benefits
due, in part, to the substantially higher expense ratio and substantially
lower performance that would result if management were to discontinue its
voluntary practice of waiving a portion of the Ohio Portfolio's fees and
expenses, including the management fee.
Please complete, sign and mail the enclosed proxy card...today!
To consider this transaction, we have called a Special Meeting of
Shareholders to be held on November 21, 1997. We strongly urge your
participation by asking you to review, complete and return your proxy promptly
in the postage-paid envelope provided.
For more details about the proposed transaction, please refer to the
enclosed proxy statement. On behalf of the Board, I thank you for your
participation as a shareholder. If you sign and date your proxy card, but do
not provide voting instructions, your shares will be voted FOR the
reorganization proposal.
We thank you for your timely response and look forward to continuing to
serve your investment needs with Smith Barney Mutual Funds. If you have any
questions, please call your Financial Consultant, who will be pleased to
assist you.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS
BE RECEIVED PROMPTLY.
Sincerely,
Heath B. McLendon
Chairman of the Board
October 3, 1997
SMITH BARNEY MUNI FUNDS - OHIO PORTFOLIO
388 Greenwich Street
New York, New York 10013
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On November 21, 1997
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Smith Barney Muni Funds - Ohio Portfolio (the "Ohio Portfolio"),
will be held at 388 Greenwich Street, New York, New York, 22nd Floor on
November 21, 1997, commencing at 10:00 a.m. for the following purposes:
1. To consider and act upon the Plan of Reorganization (the "Plan")
dated as of November 12, 1996 and amended as of September 3, 1997,
providing for: (i) the acquisition of all or substantially all of the
assets of the Ohio Portfolio by the National Portfolio, a separate
series of Smith Barney Muni Funds (the "National Portfolio"), in
exchange for shares of the National Portfolio and the assumption by the
National Portfolio of all stated liabilities of the Ohio Portfolio; (ii)
the distribution of such shares of the National Portfolio to
shareholders of the Ohio Portfolio in liquidation of the Ohio Portfolio;
and (iii) the subsequent termination of the Ohio Portfolio.
2. To transact any other business which may properly come before the
Meeting or any adjournment thereof.
The Trustees of the Smith Barney Muni Funds have fixed the close
of business on September 22, 1997 as the record date for the determination
of shareholders of the Ohio Portfolio entitled to notice of and to vote
at this Meeting or any adjournment thereof (the "Record Date").
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND IN PERSON ARE
URGED TO SIGN AND RETURN WITHOUT DELAY THE ENCLOSED
PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE,
SO THAT THEIR SHARES MAY BE REPRESENTED AT THE MEETING.
INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXIES ARE
SET FORTH ON THE FOLLOWING PAGE. PROXIES MAY BE REVOKED
AT ANY TIME BEFORE THEY ARE EXERCISED BY THE SUBSEQUENT
EXECUTION AND SUBMISSION OF A REVISED PROXY, BY GIVING
WRITTEN NOTICE OF REVOCATION TO THE OHIO PORTFOLIO AT ANY
TIME BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON
AT THE MEETING.
By Order of the Board of Trustees
Christina T. Sydor
Secretary
September [24], 1997
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance
to you and avoid the time and expense involved in validating your vote if you
fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in
the registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the
party signing should conform exactly to the name shown on the registration
on the proxy card.
3. All Other Accounts: The capacity of the individual signing
the proxy card should be indicated unless it is reflected in the form
of registration. For example:
Registration Valid Signatures
Corporate Accounts
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
Fund Accounts
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA John B. Smith
(2) John B. Smith John B. Smith, Jr.,
Executor
PROSPECTUS/PROXY STATEMENT DATED September [24], 1997
SMITH BARNEY MUNI FUNDS - NATIONAL PORTFOLIO
388 Greenwich Street
New York, New York 10013
(800) 224-7523
SMITH BARNEY MUNI FUNDS - OHIO PORTFOLIO
388 Greenwich Street
New York, New York 10013
(800) 224-7523
This Prospectus/Proxy Statement is being furnished to shareholders of
the Ohio Portfolio, a separate series of Smith Barney Muni Funds (the "Ohio
Portfolio"), in connection with a proposed Plan of Reorganization (the
"Plan"), to be submitted to shareholders for consideration at a Special
Meeting of Shareholders to be held on November 21, 1997 at 10:00 a.m. New York
City time, at the offices of Smith Barney Inc., located at 388 Greenwich
Street, 22nd Floor, New York, New York, and any adjournments thereof (the
"Meeting").
The Plan provides for all or substantially all of the assets of the Ohio
Portfolio to be acquired by the National Portfolio, a separate series of Smith
Barney Muni Funds (the "National Portfolio"), in exchange for shares of the
National Portfolio and the assumption by the National Portfolio of all stated
liabilities of the Ohio Portfolio (hereinafter referred to as the
"Reorganization"). (The Ohio Portfolio and the National Portfolio are
sometimes referred to hereinafter collectively as the "Portfolios" and
individually as a "Portfolio.") Following the Reorganization, shares of the
National Portfolio will be distributed to shareholders of the Ohio Portfolio
in liquidation of the Ohio Portfolio and the Ohio Portfolio will be
terminated. As a result of the Reorganization, each shareholder of the Ohio
Portfolio will receive that number of shares of the National Portfolio having
an aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares of the Ohio Portfolio. Holders of Class A shares in the
Ohio Portfolio will receive Class A shares of the National Portfolio, and no
sales charge will be imposed on the Class A shares of the National Portfolio
received by the Ohio Portfolio Class A shareholders. Holders of Class B and
Class C shares in the Ohio Portfolio will receive Class B and Class C shares,
respectively, of the National Portfolio, and no contingent deferred sales
charge ("CDSC") will be imposed upon them in connection with the consummation
of the Reorganization. However, any CDSC which is applicable to a
shareholder's investment will continue to apply, and in calculating the
applicable CDSC payable upon the subsequent redemption of Class B or Class C
shares of the National Portfolio, the period during which an Ohio Portfolio
shareholder held Class B or Class C shares of the Ohio Portfolio will be
counted. Holders of Class Y shares in the Ohio Portfolio will receive Class Y
shares of the National Portfolio. This Reorganization is being structured as
a tax-free reorganization.
The National Portfolio and the Ohio Portfolio are separate series of
Smith Barney Muni Funds, an open-end management investment company. The
National Portfolio is a diversified fund, whereas the Ohio Portfolio is non-
diversified. Each Portfolio seeks as high a level of income exempt from
Federal income taxes as is consistent with prudent investing, although the
Ohio Portfolio also seeks income exempt from the personal income taxes of the
State of Ohio. The Ohio Portfolio shareholders would no longer be invested in
a fund that seeks to take advantage of the Ohio state income tax exemption if
they become shareholders of the National Portfolio. Smith Barney Mutual Funds
Management Inc. (the "Manager"), a subsidiary of Smith Barney Holdings Inc.,
serves as investment manager to both the National Portfolio and the Ohio
Portfolio.
The investment policies of the National Portfolio are similar to those
of the Ohio Portfolio. Certain differences in the investment policies of the
Ohio and National Portfolios are described under "Comparison of Investment
Objectives and Policies" in this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the National Portfolio
that a prospective investor should know before investing. Certain relevant
documents listed below, which have been filed with the Securities and Exchange
Commission ("SEC"), are incorporated by reference. A Statement of Additional
Information dated October 3, 1997 relating to this Prospectus/Proxy Statement
and the Reorganization has been filed with the SEC and is incorporated by
reference into this Prospectus/Proxy Statement. A copy of such Statement of
Additional Information is available upon request and without charge by calling
1 (800) 224-7523, writing to the Ohio Portfolio at the address listed on the
cover page of this Prospectus/Proxy Statement, or by contacting a Smith Barney
Financial Consultant.
The Prospectus of Smith Barney Muni Funds - National Portfolio dated
July 29, 1997 and the Prospectus of Smith Barney Muni Funds - Ohio Portfolio
dated July 29, 1997 are incorporated in their entirety by reference and a copy
of the Prospectus for the National Portfolio is included herewith. Also
included as Exhibit A to this Prospectus/Proxy Statement is a copy of the Plan
of Reorganization for the Reorganization.
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/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
(Cover, continued)
TABLE OF CONTENTS
Page
Additional Materials
Fee Tables
Summary
Risk Factors
Reasons for the Reorganization
Information about the Reorganization
Performance Information for the National Portfolio
Comparison of Investment Objectives and Policies
Information on Shareholders' Rights
Additional Information About the National Portfolio
and the Ohio Portfolio
Other Business
Voting Information
Financial Statements and Experts
Legal Matters
Exhibit A: Plan of Reorganization Appendix
ADDITIONAL MATERIALS
The following additional materials, which have been
incorporated by reference into the Statement of Additional
Information dated September [ ], 1997 relating to this
Prospectus/Proxy Statement and the Reorganization, will be sent
to all shareholders requesting a copy of such Statement of
Additional Information.
1. Statement of Additional Information
of Smith Barney Muni Funds dated July 29, 1997.
2. Annual Report of Smith Barney Muni
Funds - National Portfolio dated March 31, 1997.
3. Annual Report of Smith Barney Muni
Funds - Ohio Portfolio dated March 31, 1997.
FEE TABLES
Following are tables showing the current costs and expenses of the Class
A, B, C and Y shares of the National Portfolio and the Ohio Portfolio for the
fiscal year ended March 31, 1997 and the pro forma costs and expenses expected
to be incurred by each such Class of the National Portfolio after giving
effect to the Reorganization, each based on the maximum sales charge or
maximum contingent deferred sales charge ("CDSC") that may be incurred at the
time of purchase or redemption:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CLASS A SHARES National Ohio
Portfolio Portfolio Pro Forma***
Shareholder Transaction Expenses
Maximum sales charge
imposed on purchases 4.00% 4.00% 4.00%
(as a percentage of
offering price)
Maximum CDSC None* None* None*
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees 0.45% 0.17%** 0.45%
12b-1 fees 0.15 0.15 0.15
Other expenses 0.10 0.46 0.10
Total Portfolio Operating 0.70% 0.78%** 0.70%
Expenses
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but will
be subject to a CDSC of 1.00% on redemptions made within 12 months.
** "Management fees" have been restated to reflect the management fee waiver
currently in effect for the Fund. During the fiscal year ended March 31,
1997, the Manager voluntarily waived its fees, which would otherwise be
equal to 0.45% of the value of the Fund's average daily net assets,
thereby decreasing the amount paid by the Fund in respect of management
fees to 0.00% of the value of the Fund's average daily net assets. This
had the effect of lowering the Fund's overall expenses and increasing the
returns available to investors. If the Manager had not elected to waive
fees and reimburse expenses, the total operating expenses for Class A
shares for the fiscal year ended March 31, 1997 would have been 1.22% of
average daily net assets.
*** The pro forma financial figures are intended to provide shareholders with
information about the continuing impact of the Reorganization as if the
Reorganization had taken place as of April 1, 1997.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CLASS B SHARES National Ohio
Portfolio Portfolio Pro Forma***
Shareholder Transaction Expenses
Maximum sales charge
imposed on purchases None None None
(as a percentage of
offering price)
Maximum CDSC 4.50% 4.50% 4.50%
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees 0.45% 0.17%** 0.45%
12b-1 fees 0.65* 0.65* 0.65*
Other expenses 0.10 0.48** 0.10
Total Portfolio Operating 1.20% 1.30%** 1.20%
Expenses
* Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee.
** "Management fees" have been restated to reflect the management fee waiver
currently in effect for the Fund. During the fiscal year ended March 31,
1997, the Manager voluntarily waived its fees, which would otherwise be
equal to 0.45% of the value of the Fund's average daily net assets,
thereby decreasing the amount paid by the Fund in respect of management
fees to 0.00% of the value of the Fund's average daily net assets. This
had the effect of lowering the Fund's overall expenses and increasing the
returns available to investors. If the manager had not elected to waive
fees and reimburse expenses, the total operating expenses for Class B
shares for the fiscal year ended March 31, 1997 would have been 1.74% of
average daily net assets.
*** The pro forma financial figures are intended to provide shareholders with
information about the continuing impact of the Reorganization as if the
Reorganization had taken place as of April 1, 1997.
</TABLE>
<TABLE>
<S> <C> <C> <C>
CLASS C SHARES National Ohio
Portfolio Portfolio Pro Forma***
Shareholder Transaction Expenses
Maximum sales charge
imposed on purchases None None None
(as a percentage of
offering price)
Maximum CDSC 1.00% 1.00% 1.00%
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees 0.45% 0.17%** 0.45%
12b-1 fees 0.70* 0.70* 0.70
Other expenses 0.12 0.47** 0.12
Total Portfolio Operating 1.27% 1.34%** 1.27%
Expenses
* Class C shares do not have a conversion feature and, therefore, are
subject to an ongoing distribution fee. As a result, long-term
shareholders of Class C shares may pay more than the economic equivalent
of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
** "Management fees" have been restated to reflect the management fee waiver
currently in effect for the Fund. During the fiscal year ended March 31,
1997, the Manager voluntarily waived its fees, which would otherwise be
equal to 0.45% of the value of the Fund's average daily net assets,
thereby decreasing the amount paid by the Fund in respect of management
fees to 0.00% of the value of the Fund's average daily net assets. This
had the effect of lowering the Fund's overall expenses and increasing the
returns available to investors. If the Manager had not elected to waive
fees and reimburse expenses, the total operating expenses for Class C
shares for the fiscal year ended March 31, 1997 would have been 1.78% of
average daily net assets.
*** The pro forma financial figures are intended to provide shareholders with
information about the continuing impact of the Reorganization as if the
Reorganization had taken place as of April 1, 1997.
</TABLE>
<TABLE>
<S> <C> <C> <C>
CLASS Y SHARES National Ohio
Portfolio Portfolio Pro Forma**
Shareholder Transaction Expenses
Maximum sales charge
imposed on purchases None None None
(as a percentage of
offering price)
Maximum CDSC None None None
(as a percentage of
original cost or redemption
proceeds, whichever is lower)
Annual Portfolio Operating Expenses
(as a percentage of average
net assets)
Management fees 0.45% 0.17%* 0.45%
12b-1 fees -- -- --
Other expenses 0.10+ 0.46+* 0.10
Total Portfolio Operating 0.55% 0.63%* 0.55%
Expenses
+ "Other Expenses" for National Portfolio and Ohio Portfolio Class Y shares
have been estimated because no National Portfolio or Ohio Portfolio Class
Y shares were outstanding for the period ended March 31, 1997.
* "Management fees" have been restated to reflect the management fee waiver
currently in effect for the Fund. During the fiscal year ended March 31,
1997, the Manager voluntarily waived its fees, which would otherwise be
equal to 0.45% of the value of the Fund's average daily net assets,
thereby decreasing the amount paid by the Fund in respect of management
fees to 0.00% of the value of the Fund's average daily net assets. This
had the effect of lowering the Fund's overall expenses and increasing the
returns available to investors. If the Manager had not elected to waive
fees and reimburse expenses, the total operating expenses for Class Y
shares for the fiscal year ended March 31, 1997 would have been 1.07% of
average daily net assets.
** The pro forma financial figures are intended to provide shareholders with
information about the continuing impact of the Reorganization as if the
Reorganization had taken place as of April 1, 1997
</TABLE>
Examples
The following examples are intended to assist an investor in
understanding the various costs that an investor will bear directly or
indirectly. The examples assume payment of operating expenses at the levels
set forth in the tables above.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
An investor would pay the
following expenses on a $1,000
investment, assuming (1) 5.00%
annual return and (2) redemption
at the end of each time period: 1 Year 3 Years 5 Years 10 Years
Class A
National Portfolio $47 $61 $77 $124
Ohio Portfolio 48 64 82 133
Pro Forma 47 61 77 124
Class B
National Portfolio $57 $68 $76 $132
Ohio Portfolio 58 71 81 142
Pro Forma 57 68 76 132
Class C
National Portfolio $23 $40 $70 $153
Ohio Portfolio 24 42 73 161
Pro Forma 23 40 70 153
Class Y
National Portfolio $ 6 $18 $31 $69
Ohio Portfolio 6 20 35 79
Pro Forma 6 18 31 69
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
An investor would pay the
following expenses on the
same annual return and no
redemption: 1 Year 3 Years 5 Years 10Years
Class A
National Portfolio $47 $61 $77 $124
Ohio Portfolio 48 64 82 133
Pro Forma 47 61 77 124
Class B
National Portfolio $12 $38 $66 $132
Ohio Portfolio 13 41 71 142
Pro Forma 12 38 66 132
Class C
National Portfolio $13 $40 $70 $153
Ohio Portfolio 14 42 73 161
Pro Forma 13 40 70 153
Class Y
National Portfolio $6 $18 $31 $69
Ohio Portfolio 6 20 35 79
Pro Forma 6 18 31 69
</TABLE>
The examples also provide a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, each Portfolio's actual return will vary and may
be greater or less than 5.00%. These examples should not be considered
representations of past or future expenses and actual expenses may be greater
or less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectuses of the National Portfolio and the Ohio Portfolio dated July 29,
1997, the Statement of Additional Information of Smith Barney Muni Funds dated
July 29, 1997, and the Plan, a copy of which is attached to this
Prospectus/Proxy Statement as Exhibit A.
Proposed Reorganization. The Plan provides for the transfer of all or
substantially all of the assets of the Ohio Portfolio in exchange for shares
of the National Portfolio and the assumption by the National Portfolio of all
stated liabilities of the Ohio Portfolio. The Plan also calls for the
distribution of shares of the National Portfolio to the Ohio Portfolio
shareholders in liquidation of the Ohio Portfolio. As a result of the
Reorganization, each shareholder of the Ohio Portfolio will become the owner
of that number of full and fractional shares of the National Portfolio having
an aggregate net asset value equal to the aggregate net asset value of the
shares of the Ohio Portfolio held by the shareholder, as of the close of
business on the date that the Ohio Portfolio's assets are exchanged for shares
of the National Portfolio. (Shareholders of Class A, Class B, Class C and
Class Y shares of the Ohio Portfolio will receive Class A, Class B, Class C
and Class Y shares, respectively, of the National Portfolio.) See
"Information About the Reorganization."
For the reasons set forth below under "Reasons for the Reorganization,"
the Board of Trustees of Smith Barney Muni Funds (the "Fund"), including all
of the Trustees who are "interested persons" of the Fund within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act") (the
"Independent Trustees"), have unanimously concluded that the Reorganization
would be in the best interests of the shareholders of the Ohio Portfolio and
that the interests of the Ohio Portfolio's shareholders will not be diluted as
a result of the Reorganization, and therefore has submitted the Plan for
approval by the Ohio Portfolio's shareholders. The Board of Trustees of the
Fund (the "Board") reached similar conclusions with respect to the National
Portfolio and also approved the Reorganization with respect to the National
Portfolio.
Approval of the Reorganization will require the affirmative vote of a
majority of the shares of the Ohio Portfolio represented in person or by proxy
at the Meeting. The presence in person or by proxy of the holders of record
of one-third of the shares of the Ohio Portfolio will constitute a quorum at
the Meeting. For purposes of voting with respect to the Reorganization, the
Class A, Class B, Class C and Class Y shares, if any, of the Ohio Portfolio
will vote together as a single class.
Tax Consequences. Prior to the Reorganization, as described more fully
below under "Information about the Reorganization--Federal Income Tax
Consequences," the Fund will have received an opinion from counsel to the
effect that, upon the Reorganization, no gain or loss will be recognized by
the Ohio Portfolio or its shareholders for Federal income tax purposes; the
holding period and tax basis of shares of the National Portfolio that are
received by each Ohio Portfolio shareholder will be the same as the holding
period and tax basis of the shares of the Ohio Portfolio previously held by
such shareholder; and that the holding period and tax basis of the assets of
the Ohio Portfolio in the hands of the National Portfolio as a result of the
Reorganization will be the same as in the hands of the Ohio Portfolio
immediately prior to the Reorganization.
Investment Objectives and Policies. The Ohio Portfolio and the National
Portfolio both seek as high a level of income exempt form Federal income taxes
as is consistent with prudent investing. In addition, the Ohio Portfolio
invests primarily in obligations issued by the State of Ohio and its political
subdivisions, agencies and instrumentalities. The Ohio Portfolio shareholders
will no longer be invested in a fund which seeks to provide income eligible
for their state tax exemption if they become shareholders of the National
Portfolio, since the National Portfolio generally does not seek income exempt
from Ohio taxes.
The Portfolios have similar investment policies. Each of the Portfolios
may invest in municipal obligations of varying maturities, and each typically
invests in securities with remaining maturities of 5 to 30 years. The
Portfolios have substantially the same policies pertaining to the credit
ratings of the municipal obligations in which they invest. For a more
extensive discussion of the similarities and differences between the
investment policies and restrictions of the National Portfolio and the Ohio
Portfolio, see "Comparison of Investment Objectives and Policies."
While the Ohio Portfolio may invest up to 15% of its net assets in
illiquid securities, the National Portfolio is currently subject to a 10%
restriction in this regard. The Board of Trustees has reviewed the 10%
restriction and has recommended that it be increased to 15%, the maximum limit
under SEC staff interpretations.
The Ohio Portfolio is a "non-diversified" fund under the 1940 Act,
whereas the National Portfolio is a "diversified" fund. Under the 1940 Act,
with respect to 75% of a diversified fund's assets, no more than 5% of the
fund's assets may be invested in one issuer. With respect to municipal
securities, the issuers consist of either a particular state (for a general
obligation bond or note) or the particular facility which backs the payment
obligation under a revenue bond. At certain times, a non-diversified fund can
take advantage of favorable investment opportunities by investing more heavily
in one issuer, involving more than 5% of the fund's assets. This could
provide additional flexibility for the investment of a non-diversified fund's
assets. However, such flexibility is usually viewed as more useful to a single
state municipal bond fund (such as the Ohio Portfolio), which has less
flexibility to make investments in municipal issuers outside the state.
Because the National Portfolio may invest more broadly among issuers in
various states, there are more issuers from which to choose. In addition, the
diversified status of the National Portfolio may be viewed as providing a
lower risk profile, since credit risks involved with investments in particular
issuers will be limited by the greater level of diversification. Moreover,
the ability of the Ohio Portfolio to utilize its non-diversified status is
limited somewhat by certain asset diversification requirements that must be
met under Subchapter M of the Internal Revenue Code in order for it to obtain
"flow-through" tax treatment. The asset diversification requirements under
Subchapter M are similar to the requirements for a diversified status under
the 1940 Act, except that the Subchapter M diversification requirements
limiting investments in the same issuer to no more than 5% of a fund's assets
and to 10% of the issuer's voting securities are applicable only with respect
to 50% (rather than 75%) of the assets of the fund, and must be met only on a
quarterly basis (rather than at all times when an investment is made).
Purchase and Redemption Procedures. Purchases of shares of the National
Portfolio and the Ohio Portfolio may be made through a brokerage account
maintained with Smith Barney Inc. ("Smith Barney"), the Fund's distributor, a
broker that clears securities transactions through Smith Barney on a fully
disclosed basis (an "Introducing Broker") or an investment dealer in the
selling group, at their respective public offering prices (net asset value
next determined plus any applicable sales charge). Class A shares of both
Portfolios are subject to a maximum initial sales charge of 4.00% of the
public offering price. Purchases of Class A shares of both Portfolios, which
when combined with current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no sales charge, but will be subject to a CDSC of 1.00% on
redemptions within 12 months. Class B shares of both Portfolios are offered at
net asset value subject to a maximum CDSC of 4.50% of redemption proceeds,
declining by .50% the first year after purchase and by 1.00% each year
thereafter to zero. The Class B shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A shares. Class C
shares of both Portfolios are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A shares, and a CDSC is payable
upon certain redemptions. Class Y shares of both Portfolios are sold without
an initial sales charge or CDSC, and are available only to investors investing
a minimum of $5,000,000.
Class A shares, except as set forth in the preceding paragraph, and
Class Y shares of both Portfolios may be redeemed, at their respective net
asset values per share next determined, without charge. Class B shares of
both Portfolios may be redeemed at their net asset value per share subject to
a CDSC of 4.50% on the lower of the original cost or redemption proceeds,
declining by 0.50% the first year after purchase and by 1.00% each year
thereafter. Class C shares of both Portfolios may be redeemed at their net
asset value per share, subject to a CDSC of 1.00% if such shares are redeemed
during the first 12 months following their purchase. Shares of both Portfolios
held by Smith Barney as custodian must be redeemed by submitting a written
request to a Smith Barney Financial Consultant. All other shares may be
redeemed through a Smith Barney Financial Consultant, Introducing Broker or
dealer in the selling group or by forwarding a written request for redemption
to the transfer agent, First Data Investor Services Group, Inc. ("First
Data"). See "Redemption of Shares" in the accompanying Prospectus of the
National Portfolio.
Exchange Privileges. The exchange privileges available to shareholders
of the National Portfolio are identical to those available to shareholders of
the Ohio Portfolio. Shareholders of both the Ohio Portfolio and the National
Portfolio may exchange at net asset value all or a portion of their shares for
shares of the same Class in certain funds of the Smith Barney Mutual Funds.
Any exchange will be a taxable event for which a shareholder may have to
recognize a gain or a loss under Federal income tax provisions. No initial
sales charge is imposed on the shares being acquired, and no CDSC is imposed
on the shares being disposed of, through an exchange. However, a sales charge
differential may apply to exchanges of Class A shares with other Smith Barney
Mutual Funds. With respect to Class B and Class C shares of the Portfolios,
the Class B and Class C shares acquired in the exchange will be deemed to have
been purchased on the same date as the Class B and Class C shares that were
exchanged. See "Exchange Privilege" in the accompanying Prospectus of the
National Portfolio.
Dividends. The dividend and distribution policies of both Portfolios
are identical. Each Portfolio's policy is to declare and pay dividends monthly
from substantially all of the Portfolio's net investment income, and both
Portfolios declare and distribute any realized capital gains annually. Unless
a shareholder otherwise instructs, dividends and capital gains distributions
are reinvested automatically in additional shares of the same Class at net
asset value, subject to no sales charge or CDSC. The distribution option
currently in effect for a shareholder of the Ohio Portfolio will remain in
effect after the Reorganization. After the Reorganization, however, the former
Ohio Portfolio shareholders may change their distribution option at any time
by contacting a Smith Barney Financial Consultant. See "Dividends,
Distributions and Taxes" in the accompanying prospectus of the National
Portfolio.
Shareholder Voting Rights. Both the National and Ohio Portfolios are
separate series of Smith Barney Muni Funds, a Massachusetts business trust.
Shareholders of both Portfolios have identical voting rights. Neither
Portfolio holds meetings of shareholders annually, and as permitted by
Massachusetts law, normally no meeting of shareholders is held for the purpose
of electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders. At that time, the
Trustees of the Fund then in office will call a shareholders' meeting for the
election of Trustees. For purposes of voting with respect to the
Reorganization, the Class A, Class B, Class C and Class Y shares, if any, of
the Ohio Portfolio shall vote together as a single class.
In addition, under the laws of the Commonwealth of Massachusetts,
shareholders of the Portfolios do not have appraisal rights in connection with
a combination or acquisition of the assets of their Portfolio by another
entity. Shareholders of the Ohio Portfolio will continue to have the right to
redeem their shares at net asset value (subject to any applicable CDSC) prior
to the date of the Reorganization.
RISK FACTORS
Due to the similarities of the investment objectives and policies of the
National Portfolio and the Ohio Portfolio, the investment risks are also
similar. Such risks are generally those typically associated with investing
primarily in municipal obligations. In addition, the Ohio Portfolio's
investment risks include those risks typically associated with investing
primarily in obligations issued by a single state and its political
subdivisions, agencies and instrumentalities. Such risks are discussed under
the caption "Comparison of Investment Objectives and Policies."
REASONS FOR THE REORGANIZATION
The Board of Trustees of the Fund has determined that it is advantageous
to combine the Ohio Portfolio with the National Portfolio. Both Portfolios
seek as high a level of income exempt from Federal income tax as is consistent
with prudent investing, although the Ohio Portfolio also seeks income exempt
from the personal income taxes of Ohio. Both Portfolios have similar
investment policies and the same Manager and shareholder servicing agent. In
reaching this conclusion, the Trustees considered a number of factors as
described below.
Among the factors considered by the Board was the Manager's
representation that the Ohio Portfolio does not have sufficient assets to
justify maintaining it as a stand-alone fund. At a September 4, 1996 meeting,
the Board of Trustees was advised that the Ohio Portfolio, which had been in
existence for more than two years, had only $8.9 million in assets as of June
28, 1996. In contrast, the assets of the National Portfolio reached $397
million as of June 28, 1996. The Board was also informed that the Ohio
Portfolio's assets had been growing at a very slow rate and that there was no
foreseeable potential for significant future growth. In addition, the Manager
reminded the Trustees that it had been subsidizing the Ohio Portfolio by
waiving its management fee and absorbing expenses since the Ohio Portfolio's
inception and noted that it may be unwilling to continue such subsidies
indefinitely. The Board considered that without these subsidies the Ohio
Portfolio would have had substantially higher expense ratios and, as a result,
significantly lower performance. Specifically, the Board of Trustees was
shown financial information as of June 28, 1996 which indicated that, without
Smith Barney's subsidies, the total expenses of each of the Ohio Portfolio's
Classes would be more than five times greater--going from 0.30% to 1.58%--for
Class A shares, and more than doubled--going from 0.83% to 2.14%--for Class B
shares and from 0.89% to 2.20% for Class C shares. The Trustees were also
shown pro forma information which indicated that the total expense ratio of
the Class A shares of the combined fund (assuming the same level of assets of
each Portfolio as of June 28, 1996) would be 0.70%--a decrease of 0.88% from
the unsubsidized total expense ratio of Class A shares of the Ohio Portfolio,
and the total expense ratio of the Class B shares of the combined fund would
be 1.19%--a decrease of 0.95% from the unsubsidized total expense ratio of the
Class B shares of the Ohio Portfolio. With respect to Class C shares, the pro
forma information showed that the total expense ratio of Class C shares of the
combined fund would be 1.27%--a decrease of 0.93% from the unsubsidized total
expense ratio of the Class C shares of the Ohio Portfolio.
The Board of Trustees also considered that the Reorganization would
permit the shareholders of the Ohio Portfolio to pursue similar investment
goals in a larger fund. A larger fund should enhance the ability of the
Manager to effect portfolio transactions on more favorable terms and give the
Manager greater investment flexibility and the ability to select a larger
number of portfolio securities, with the attendant benefits of increased
diversification. In addition, the larger aggregate asset base could
potentially result in lower overall expense ratios through the spreading of
both fixed and variable costs of Portfolio operations over a larger asset
base. As a general rule, economies can be expected to be realized with
respect to fixed expenses, such as costs of printing and fees for professional
services, although expenses that are based on the value of assets or the
number of shareholder accounts, such as custody assets, would be largely
unaffected by the Reorganization. In addition, the Trustees were advised that
the Reorganization would not have a material impact on the operating costs of
the National Portfolio and would be effected as a tax-free reorganization.
In light of the foregoing, the Board of Trustees of the Fund, including
all of the Independent Trustees, determined that it is in the best interests
of the Ohio Portfolio and its shareholders to combine with the National
Portfolio. The Trustees also determined that a combination of the Ohio
Portfolio and the National Portfolio would not result in a dilution of the
interests of the Ohio Portfolio shareholders.
The Board of Trustees also determined that it is advantageous to the
National Portfolio to acquire the assets of the Ohio Portfolio. Among other
reasons, the Board considered that (1) the impact of the Reorganization on the
current expenses of the National Portfolio will be minimal; and (2) the
Reorganization will be effected as a tax-free reorganization. Accordingly,
the Trustees of the Fund, including a majority of the non-interested Trustees,
determined that the Reorganization is in the best interests of the National
Portfolio's shareholders and that the interests of National Portfolio
shareholders will not be diluted as a result of the Reorganization.
INFORMATION ABOUT THE REORGANIZATION
Plan of Reorganization. The following summary of the Plan is qualified
in its entirety by reference to the Plan, which is attached as Exhibit A
hereto. The Plan provides that the National Portfolio will acquire all or
substantially all of the assets of the Ohio Portfolio in exchange for shares
of the National Portfolio and the assumption by the National Portfolio of all
stated liabilities of the Ohio Portfolio on December 5, 1997, or such later
date as may be agreed upon by the parties (the "Closing Date").
Prior to the Closing Date, the Ohio Portfolio will endeavor to discharge
all of its known liabilities and obligations. The National Portfolio will not
assume any liabilities or obligations of the Ohio Portfolio other than those
reflected in an unaudited statement of assets and liabilities of the Ohio
Portfolio prepared as of the close of regular trading on the New York Stock
Exchange, Inc. (the "NYSE"), currently 4:00 p.m. New York City time, on the
Closing Date. The number of full and fractional Class A, Class B, Class C and
Class Y shares of the National Portfolio to be issued to the Ohio Portfolio
shareholders will be determined on the basis of the National Portfolio's and
the Ohio Portfolio's relative net asset values per share for Class A, Class B,
Class C and Class Y shares, respectively, computed as of the close of regular
trading on the NYSE on the Closing Date. The net asset value per share of
each Class will be determined by dividing assets, minus liabilities, by the
total number of outstanding shares.
Both the Ohio Portfolio and the National Portfolio utilize the same
procedures to determine the value of their respective portfolio securities.
This method of valuation will be employed for the Reorganization and will be
consistent with the requirements set forth in each Portfolio's Prospectus,
Rule 22c-1 under the 1940 Act, and with the interpretation of such rule by the
SEC's Division of Investment Management.
At or prior to the Closing Date, the Ohio Portfolio will, and the
National Portfolio may, declare a dividend or dividends which, together with
all previous such dividends, shall have the effect of distributing to their
respective shareholders all taxable income for the taxable year ending on or
prior to the Closing Date (computed without regard to any deduction for
dividends paid). In addition, the Ohio Portfolio's dividend will include all
of its net capital gains realized in the taxable year ending on or prior to
the Closing Date (after reductions for any capital loss carry forward).
On or as soon after the Closing Date as conveniently practicable, the
Ohio Portfolio will liquidate and distribute pro rata to shareholders of
record as of the close of business on the Closing Date the full and fractional
shares of the National Portfolio received by the Ohio Portfolio. Such
liquidation and distribution will be accomplished by the establishment of
accounts in the names of the Ohio Portfolio's shareholders on the share
records of the National Portfolio's shareholder servicing agent. Each account
will represent the respective pro rata number of full and fractional shares of
the National Portfolio due to each of the Ohio Portfolio's shareholders.
After such distribution has been made and the winding up of its affairs the
Ohio Portfolio will be terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan. Notwithstanding approval of the Ohio Portfolio's
shareholders, the Plan may be terminated at any time at or prior to the
Closing Date by the Board.
As of February 28, 1997, Smith Barney Inc. ("Smith Barney"), the
distributor of the Portfolios and an affiliate of the Manager, owned 11.2% of
the outstanding shares of the Ohio Portfolio. The 1940 Act generally
prohibits an "affiliated person" from selling a security or other property to
a fund or from purchasing a security from a fund, and when funds have common
affiliated persons, transfers of securities between the funds are generally
prohibited. These provisions could be deemed to prohibit the transfers
contemplated by the Plan in view of Smith Barney's ownership of a significant
number of shares of the Ohio Portfolio.
However, the 1940 Act also provides that the SEC shall issue an order
granting an exemption from these prohibitions if, among other requirements,
evidence establishes that (1) the terms of the proposed transaction, including
the consideration to be paid or received, are reasonable and fair and do not
involve overreaching on the part of any person concerned, (2) the proposed
transaction is consistent with the investment policies of each fund, and (3)
the proposed transaction is consistent with the general purposes of the 1940
Act. The Fund, the Manager and Smith Barney have filed an application with
the SEC for such an order, and the Fund believes that the applicants meet the
applicable standards for the receipt of the order. However, there can be no
assurance that the SEC will issue the order. The Portfolios do not intend to
effect the Reorganization without receiving the order from the SEC.
Pursuant to the Fund's Declaration of Trust, approval of the
Reorganization will require the affirmative vote of a majority of the shares
of the Ohio Portfolio represented in person or by proxy and entitled to vote
at a meeting of shareholders at which a quorum is present, as determined in
accordance with the By-Laws. According to the By-Laws, the presence in person
or by proxy of the holders of record of one-third of the shares of the Ohio
Portfolio issued and outstanding and entitled to vote will constitute a
quorum. For purposes of voting on the Reorganization, the Class A, Class B,
Class C and Class Y shares, if any, of the Ohio Portfolio will vote together
as a single class.
Description of the National Portfolio's Shares. Full and fractional
shares of the respective classes of shares of the National Portfolio will be
issued to the Ohio Portfolio in accordance with the procedures detailed in the
Plan and as described in the National Portfolio's Prospectus. Generally, the
National Portfolio does not issue share certificates to shareholders unless a
specific request is submitted to the National Portfolio's shareholder
servicing agent. The shares of the National Portfolio to be issued to the
Ohio Portfolio shareholders and registered on the shareholder records of the
shareholder servicing agent will have no preemptive rights. See "Information
on Shareholders Rights" and the Prospectus of the National Portfolio for
additional information with respect to the shares of the National Portfolio.
Federal Income Tax Consequences. For Federal income tax purposes, the
exchange of assets of the Ohio Portfolio for shares of the National Portfolio
is intended to qualify as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"). As a condition to
the closing of the Reorganization, the Ohio Portfolio and the National
Portfolio will receive an opinion from Sullivan & Cromwell to the effect that,
on the basis of certain assumptions by counsel and certain representations by
the Ohio and National Portfolios, as well as the existing provisions of the
Code, U.S. Treasury regulations issued thereunder, current administrative
rules, pronouncements and court decisions, for Federal income tax purposes,
upon consummation of the Reorganization, the following will apply:
(1) the transfer of all or substantially all of the Ohio
Portfolio's assets in exchange for the National Portfolio's
shares and the assumption by the National Portfolio of all
stated liabilities of the Ohio Portfolio will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C)
of the Code, and the National Portfolio and the Ohio
Portfolio will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the National Portfolio
upon the receipt of the assets of the Ohio Portfolio in
exchange solely for the National Portfolio's shares and the
assumption by the National Portfolio of all stated
liabilities of the Ohio Portfolio;
(3) no gain or loss will be recognized by the Ohio Portfolio
upon the transfer of the Ohio Portfolio's assets to the
National Portfolio in exchange solely for the National
Portfolio's shares and the assumption by the National
Portfolio of all stated liabilities of the Ohio Portfolio or
upon the distribution (whether actual or constructive) of
the National Portfolio's shares to the Ohio Portfolio's
shareholders;
(4) no gain or loss will be recognized by shareholders of the
Ohio Portfolio upon the exchange, pursuant to the
Reorganizaiton, of their Ohio Portfolio shares for the
National Portfolio shares;
(5) the aggregate tax basis of the National Portfolio shares to
be received by each Ohio Portfolio shareholder pursuant to
the Reorganization will be the same as the aggregate tax
basis of the Ohio Portfolio shares surrendered in exchange
therefor and the holding period of the National Portfolio
shares to be received by each Ohio Portfolio shareholder
will include the period during which the shares of the Ohio
Portfolio which are surrendered in exchange therefor were
held by such shareholder (provided the Ohio Portfolio shares
were held as capital assets on the date of the
Reorganization); and
(6) the tax basis of the Ohio Portfolio's assets to be acquired
by the National Portfolio will be the same as the tax basis
of such assets to the Ohio Portfolio immediately prior to
the Reorganization. The holding period of the assets of the
Ohio Portfolio in the hands of the National Portfolio will
include the period during which such assets were held by the
Ohio Portfolio.
The foregoing opinion may state that no opinion is expressed as to the
effect of the Reorganization on the National Portfolio, the Ohio Portfolio or
the Ohio Portfolio's shareholders in respect of any asset as to which
unrealized gain or loss is required to be recognized for U.S. federal income
tax purposes at the end of each year under a mark-to-market system of
accounting. The opinion may further state that the tax consequences described
therein may not apply to the Ohio Portfolio shareholders that acquired shares
upon the exercise of employee stock options or otherwise as compensation, that
hold their shares as part of a "straddle" or "conversion transaction" or that
are insurance companies, securities dealers, financial institutions or foreign
persons.
Shareholders of the Ohio Portfolio should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
Federal income tax consequences of the Reorganization, shareholders of the
Ohio Portfolio should also consult their tax advisors as to state and local
tax consequences, if any, of the Reorganization.
Capitalization. The following table, which is unaudited, shows the
capitalization of the National Portfolio and the Ohio Portfolio as of August
29, 1997 and on a pro forma basis as of that date, giving effect to the
proposed acquisition of assets at net asset value:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(In thousands, except
per share values)
(Unaudited) National Ohio Pro forma for
Portfolio Portfolio Reorganization
Net Assets $384,896,084 $7,353,254 $392,249,338
Net asset value per share
Class A $14.03 $12.61 $14.03
Class B 14.04 12.57 14.04
Class C 14.01 12.58 14.01
Shares outstanding
Class A 25,365,435 241,550 25,582,537
Class B 1,003,409 274,793 1,249,431
Class C 1,057,568 67,765 1,118,416
</TABLE>
As of the Record Date, there were 241,550 outstanding Class A shares, 270,856
outstanding Class B shares, and 67,765 outstanding Class C shares of the Ohio
Portfolio and 25,130,553 outstanding Class A shares, 1,012,652 outstanding
Class B shares, and 1,060,505 outstanding Class C shares of the National
Portfolio. As of the Record Date, there were no outstanding Class Y shares of
either the Ohio Portfolio or the National Portfolio. As of the Record Date,
the officers and Trustees of Smith Barney Muni Funds as a group beneficially
owned less than 1% of the outstanding shares of the Ohio Portfolio and the
National Portfolio, respectively. Except as set forth below, to the best
knowledge of the Trustees of the Fund, as of the Record Date, no shareholder
or "group" (as that term is used in Section 13(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), owned beneficially or of record 5% or more
of a Class of shares of the Portfolios except as indicated below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percentage of Class Owned of Record
or Beneficially
Name and Portfolio and As of the Upon Consummation
Address Class Record Date of the Reorganization
Smith Barney Inc. Ohio Class A 29.28 less than 1%
c/o Sam Harris
Capital Market
388 Greenwich Street
New York, NY 10013
Anne C. Eiselstein TTEE Ohio Class A 5.39 less than 1%
FBO William E. Eiselstein
U/A/D 10/18/96
P.O. Box 344
South Point, OH 45680-0344
Robert Burnett Ohio Class B 5.37 1.04
Sub 1
18078 Williamsburg Oval
Strongsville, OH 44136-7093
Merle E. Troutwine and Ohio Class C 20.32 1.10
Dorothy D. Troutwine JTWROS
1229 Broadway
Greenville, OH 45331-2450
Plaford E. Meredith Ohio Class C 13.70 less than 1%
5063 Waterloo Road
Atwater, OH 44201-9345
Sandhya R. Nuthakki Ohio Class C 7.28 less than 1%
Municipal Bond Account
4625 Schrubb Drive
Kettering, OH 45429-1984
Catherine Dare Ohio Class C 6.58 less than 1%
1110 Main Street
Hamilton, OH 45013-1604
Nancy L. Schardt Ohio Class C 5.90 less than 1%
1648 West Alex-Bell Road
Dayton, OH 45459-1246
James R. Sheele National Class B 19.99 16.12
P.O. Box 2477
Williston, ND 58802-2477
</TABLE>
PERFORMANCE INFORMATION FOR THE NATIONAL PORTFOLIO
Management's Discussion and Analysis of Market Conditions and
Portfolio Review (through March 31, 1997)
The National Portfolio's Performance and Investment Strategy
For the year ended March 31, 1997, the Class A shares of the National
Portfolio generated a total return of 5.41%. In comparison, the National
Portfolio's Lipper Analytical Services, Inc. peer group average posted a total
return of 4.81% for the same period. Lipper Analytical Services, Inc. is an
independent fund tracking organization.
Over the past fiscal year (ended March 31, 1997), the National Portfolio
distributed dividends totaling $0.79 per Class A share; based on its net asset
value (NAV) of $13.60 as of March 31, 1997 for Class A shares, this equates to
an annualized distribution rate of 5.81%. For an individual in the federal
income tax bracket of 36%, the National Portfolio's tax-free yield of 5.81% is
equivalent to a taxable yield of 9.06%. According to the Internal Revenue
Service, approximately 10% of U.S. taxpayers fall into the 36% federal income
tax bracket.
The National Portfolio seeks to provide investors with as high a level
of current income exempt from federal income taxes as is consistent with a
prudent investment approach. The National Portfolio has a bias towards good
quality and higher coupon bonds, and Management tends to emphasize income
rather than seeking total return through capital gains. It is noteworthy that
the National Portfolio's superior long-term total return performance has been
accomplished with minimal capital gains distributions. In addition, as a
general rule, Management pays closer attention to the coupon, maturity and
call structures of the National Portfolio's holdings rather than the specific
purpose for which these municipal bonds are being issued.
During the past fiscal year (ended March 31, 1997), the National
Portfolio retained its high-quality orientation, broad sector diversification
and good call protection. As of March 31, 1997, the National Portfolio's
average weighted maturity was approximately 19 years and approximately 97% of
the National Portfolio's holdings were rated investment grade (BBB/Baa and
higher) by either Standard & Poor's Rating Service or Moody's Investor
Service, Inc., with approximately 41% of the National Portfolio's investments
rated AAA. Standard & Poor's Rating Service and Moody's Investor Services,
Inc. are two major credit reporting and bond rating agencies. As of March 31,
1997, the National Portfolio's largest holdings were concentrated in hospital
bonds (14.9%), single-family mortgage bonds (8.8%), escrowed to maturity bonds
(8.7%) and pollution-control bonds (8.7%).
Market and Economic Overview
The U.S. bond market experienced considerable volatility throughout the
year ended March 31, 1997. In early 1996, a significant bond market sell-off
was precipitated by a pick-up in inflationary fears that was caused by
unexpected strength in the U.S. economy and concerns that the Federal Reserve
Board ("Fed") would tighten rates in response. In retrospect, those concerns
were unfounded because Fed monetary policy did not change throughout 1996. In
fact, as U.S. economic growth moderated and concerns about Fed tightening
eased, bond prices improved significantly.
After his now-infamous remarks regarding "irrational exuberance" in the
stock market in December, Fed chairman Alan Greenspan continued to warn
investors about the possible re-emergence of higher inflation in the U.S.
economy. In response to a steady stream of strong economic reports, the Fed
raised the federal funds rate by 25 basis points, or 0.25%, in late March of
this year. The federal funds rate is the interest rate banks charge each other
for overnight loans and is a closely watched indicator of the direction of
interest rates.
HISTORICAL PERFORMANCE (UNAUDITED)
Growth of $10,000 Invested in Class A Shares of
the National Portfolio vs.
Lehman Long Bond Index +
March 1987 -- March 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Lehman Long
Date National Portfolio Bond Index
3/87 $9,600 $10,000
9/87 $9,366
3/88 $9,464 $10,154
9/88 $10,795
3/89 $10,484 $11,224
9/89 $11,938
3/90 $11,452 $12,470
9/90 $12,686
3/91 $12,464 $13,649
9/91 $14,626
3/92 $13,822 $15,202
9/92 $16,306
3/93 $15,709 $17,428
9/93 $18,874
3/94 $16,166 $17,627
9/94 $17,826
3/95 $17,172 $19,154
9/95 $20,127
3/96 $18,689 $20,914
9/96 $21,818
3/97 $19,700 $22,232
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares on March
31, 1987, assuming deduction of the maximum 4.00% sales charge at the time
of investment and reinvestment of dividends (after deduction of applicable
sales charges through November 6, 1994, and thereafter at net asset value)
and capital gains (at net asset value) through March 31, 1997. The Lehman
Long Bond Index is a broad based, total return index, comprised of 8,000
actual bonds which are all investment grade, fixed rate, long term
maturities (greater that twenty-two years) and are selected from issues
larger than $50 million dated since January 1984. The index is unmanaged
and is not subject to the same management and trading expenses as a mutual
fund. The performance of the Portfolio's other classes may be greater or
less than the Class A shares' performance indicated on this chart,
depending on whether greater or lesser sales charges and fees were incurred
by shareholders investing in other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion, which summarizes the investment objectives,
policies and restrictions of the National Portfolio and the Ohio Portfolio, is
based upon and qualified in its entirety by the discussions, objectives,
policies and restrictions in the Prospectuses of the National Portfolio and
the Ohio Portfolio. For a full discussion of these issues as they relate to
the National Portfolio, refer to the Prospectus which accompanies this
Prospectus/Proxy Statement under the caption "Investment Objective and
Management Policies" and for a discussion of these issues as they relate to
the Ohio Portfolio, refer to the Ohio Portfolio Prospectus under the same
caption.
Investment Objective. The principal investment objective of the
National Portfolio and of the Ohio Portfolio is that each seeks as high a
level of income exempt from Federal income taxes as is consistent with prudent
investing, although the Ohio Portfolio also seeks income exempt from the
personal income taxes of Ohio. Both the National Portfolio's and the Ohio
Portfolio's investment objective is fundamental and, as such, may be changed
only by the "vote of a majority of the outstanding voting securities," as
defined in the 1940 Act.
Investment Policies. The investment policies of the National Portfolio
and the Ohio Portfolio described below under "Primary Investments" are non-
fundamental (except as otherwise noted) and, as such, may be changed by the
Board without shareholder approval, provided such change is not prohibited by
any fundamental investment restriction, or by applicable law, and any such
change will first be disclosed in the then current prospectus.
Primary Investments. The National Portfolio and the Ohio Portfolio
invest primarily in municipal obligations. Each Portfolio invests in
municipal obligations of varying maturities but typically invests in
securities with remaining maturities of 5 to 30 years. The Portfolios operate
subject to a fundamental policy that, under normal market conditions, the
Portfolios will seek to invest at least 100% of their assets and the
Portfolios will not invest less than 80% of their assets in municipal
obligations the interest on which is exempt from Federal income taxes (other
than the alternative minimum tax). The Ohio Portfolio also operates subject to
a fundamental policy providing that, under normal market conditions, the
Portfolio will invest at least 65% of its total assets in municipal
obligations the interest on which is also exempt from the personal income
taxes of the State of Ohio. Such obligations are issued to raise money for a
variety of public projects that enhance the quality of life including health
facilities, housing, airports, schools, highways and bridges. In addition,
both Portfolios may invest up to 20% of their assets in taxable fixed-income
securities but only in obligations issued or guaranteed by the full faith and
credit of the United States.
Municipal bonds purchased for both Portfolios must, at the time of
purchase, be investment-grade municipal bonds and at least two-thirds of the
Portfolios' municipal bonds must be rated in the category of A or better.
Investment grade bonds are those rated Aaa, Aa, A and Baa by Moody's Investors
Service, Inc. ("Moody's") and AAA, AA, A and BBB by Standard & Poor's
Corporation ("S&P") or have an equivalent rating by any nationally recognized
statistical rating organization; pre-refunded bonds escrowed by U.S. Treasury
obligations will be considered AAA-rated even though the issuer does not
obtain a new rating. Up to one-third of the assets of the Portfolios may be
invested in municipal bonds rated Baa or BBB or in unrated municipal bonds if,
based upon credit analysis by the Manager, it is believed that such securities
are at least of comparable quality to those securities in which the Portfolio
may invest. After the Portfolios purchase a municipal bond, the issuer may
cease to be rated or its rating may be reduced below the minimum required for
purchase. Such an event would not require the elimination of the issue from
the Portfolio but the Manager will consider such an event in determining
whether the Portfolio should continue to hold the security. The Portfolios'
short-term municipal obligations will be limited to high grade obligations
(obligations that are secured by the full faith and credit of the United
States or are rated MIG1 or MIG2, VMIG1 or VMIG2 or Prime-1 or Aa or better by
Moody's or SP-1+, SP-1, SP-2, or A-1 or AA or better by S&P or have an
equivalent rating by any nationally recognized statistical rating organization
or obligations determined by the Manager to be equivalent). Among the types of
short-term instruments in which the Portfolios may invest are floating or
variable rate term demand instruments, tax-exempt commercial paper (generally
having a maturity of less than nine months), and other types of notes
generally having maturities of less than three years, such as Tax Anticipation
Notes, Revenue Anticipation Notes, Tax and Revenue Anticipation Notes and Bond
Anticipation Notes. Demand instruments usually have an indicated maturity of
more than one year, but contain a demand feature that enables the holder to
redeem the investment on no more than 30 days' notice; variable rate demand
instruments provide for automatic establishment of a new interest rate on set
dates; floating rate demand instruments provide for automatic adjustment of
their interest rates whenever some other specified interest rate changes
(e.g., the prime rate). The Portfolios may purchase participation interests
("Participations") in variable rate tax-exempt securities (such as Industrial
Development Bonds) owned by banks. Participations are frequently backed by an
irrevocable letter of credit or guarantee of a bank that the Manager has
determined meets the prescribed quality standards for the Portfolios.
Participations will be purchased only if management believes interest income
on such Participations will be tax-exempt when distributed as dividends to
shareholders.
Municipal Obligations. Municipal Obligations are classified as general
obligation and revenue. General obligations are secured by a municipal
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue obligations are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases
from the proceeds of a special excise tax or other specific revenue source,
but not from general taxing power. Notes are short-term obligations of
issuing municipalities or agencies and are sold in anticipation of a bond
sale, collection of taxes or receipt of other revenues.
In attempting to achieve their respective investment objectives, the
Portfolios may employ, among others, the following portfolio strategies:
Illiquid Securities. The National Portfolio and the Ohio Portfolio may
invest up to 10% and 15%, respectively, of the value of its net assets in
illiquid securities, including those that are not readily marketable or for
which there is no established market.
Municipal Bond Index Futures. Each Portfolio may invest in municipal
bond index futures (currently traded on the Chicago Board of Trade) or in
listed contracts based on U.S. government securities as a hedging policy in
pursuit of its investment objective; provided that immediately thereafter not
more than 33 1/3% of its net assets would be hedged or the amount of margin
deposit on the Portfolio's existing futures contracts would not exceed 5% of
the value of its total assets. Since any income would be taxable, it is
anticipated that such investments would be made only in those circumstances
when the Manager anticipates the possibility of an extreme change in interest
rates or in market conditions but does not wish to liquidate the Portfolio's
securities.
Temporary Investments. Each of the Portfolios may invest up to 20% of
its assets in taxable fixed income securities, but only in obligations issued
or guaranteed by the full faith and credit of the United States, and may
invest more than 20% of its assets in U.S. Government securities during
periods when in the Manager's opinion a temporary defensive posture is
warranted, including any period when the Portfolio's monies available for
investment exceed the municipal obligations available for purchase that meet
the Portfolio's rating, maturity and other investment criteria.
When-Issued Securities. Each Portfolio may purchase new issues of
Municipal Obligations on a when-issued basis, which means that delivery and
payment for such securities normally take place within 45 days after the date
of the commitment to purchase. Each Portfolio will not accrue income with
respect to a when-issued security prior to its stated delivery date. When-
issued securities may decline in value before this actual delivery to a
Portfolio. Each Portfolio will establish a segregated account with the
Portfolio's custodian consisting of cash or other liquid high grade debt
securities in an amount equal to the purchase price of the Portfolio's when-
issued commitments. The Portfolio generally will purchase Municipal
Obligations on a when-issued basis only with the intention of actually
acquiring the securities, but the Portfolio may sell such securities before
the delivery date if it is deemed advisable.
The Portfolios may also engage in short-term trading consistent with
their investment objectives.
Restrictions. The Portfolios have adopted the following fundamental
investment restrictions. Fundamental restrictions may not be changed without
the approval of the holders of a "majority of the outstanding voting
securities" of the respective Portfolio, as defined in the 1940 Act.
1. Neither Portfolio may invest more than 25% of its total assets taken at
market value in any one industry, except that securities of the U.S.
Government, its agencies and instrumentalities, and, for the National
Portfolio, Municipal Obligations, are not considered an industry for purposes
of this limitation.
2. Neither Portfolio may borrow money, except that the Portfolios may
borrow from banks for temporary purposes (such as facilitating redemptions or
for extraordinary or emergency purposes) in an amount not exceeding 10% of the
value of such Portfolio's total assets at the time the borrowing is made (not
including the amount borrowed) and no investments will be made while
borrowings exceed 5% of total assets. Each Portfolio is further prohibited
from pledging or mortgaging its assets, except to secure permitted borrowing.
3. Neither Portfolio may make loans, except to the extent the purchase of
bonds or other evidences of indebtedness or the entry into repurchase
agreements or deposits with banks, including the Portfolio's custodian, may be
considered loans (the National Portfolio has no intention of entering into
repurchase agreements).
4. Neither Portfolio may purchase securities on margin.
5. Neither Portfolio may make short sales of securities.
6. Neither Portfolio may purchase or hold any real estate, except that it
may invest in securities secured by real estate or interests therein or issued
by persons (other than real estate investment trusts) which deal in real
estate or interests therein.
7. Neither Portfolio may purchase or sell commodities and commodity
contracts, except that each may invest in or sell municipal bond index futures
contracts as described above, provided that immediately thereafter not more
than 33 1/3% of its net assets would be hedged or the amount of margin
deposits on the Portfolio's existing futures contracts would not exceed 5% of
the value of its total assets.
8. Neither Portfolio may underwrite the securities of other issuers.
9. Neither Portfolio may write or purchase puts, calls, straddles, or
spread options.
10. The National Portfolio may not with respect to 75% of the value of its
total assets, purchase securities of any issuer if immediately thereafter more
than 5% of total assets at market value would be invested in the securities of
any issuer (except that this limitation does not apply to obligations issued
or guaranteed either by the U. S. Government or its agencies or
instrumentalities).
11. The National Portfolio may not invest in securities issued by other
investment companies, except as permitted by Section 12(d)(1) of the 1940 Act
or in connection with a merger, consolidation, acquisition or reorganization.
12. The National Portfolio may not purchase or hold the securities of any
issuer, if to its knowledge, Trustees or officers of the Fund individually
owning more than .5% of the securities of that issuer own in the aggregate
more than 5% of such securities.
Other Restrictions. As a matter of operating policy, the Portfolios may
not (1) purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that each Portfolio
may invest in securities of issuers which operate, invest in, or sponsor such
programs; or (2) invest more than 5% of their assets in unseasoned issuers,
including their predecessors, which have been in operation for less than three
years.
INFORMATION ON SHAREHOLDERS' RIGHTS
General. The National Portfolio is a diversified fund under the 1940
Act and the Ohio Portfolio is a non-diversified fund under the 1940 Act. The
Portfolios are both series of Smith Barney Muni Funds, an open-end management
investment company. Smith Barney Muni Funds was organized on August 14, 1985
under the laws of Massachusetts and is an entity commonly known as a
Massachusetts business trust. Smith Barney Muni Funds is governed by its
Declaration of Trust and By-Laws, and its operations are subject to oversight
by its Board of Trustees. Therefore, each Portfolio is governed by
Massachusetts state law and federal law.
Shares of beneficial interest in both of the Portfolios have a par value
of $.001 per share. The number of authorized shares of each Portfolio that may
be issued is unlimited. The Board of Trustees of Smith Barney Muni Funds has
authorized the issuance of twenty series of shares, each representing shares
in one of twenty portfolios, and may authorize the issuance of additional
series of shares in the future. In each Portfolio, Class A shares, Class B
shares, Class C shares and Class Y shares represent interests in the assets of
the Portfolio and have identical voting, dividend, liquidation and other
rights on the same terms and conditions except that expenses related to the
distribution of a particular class of shares are borne solely by such class of
shares. Each class has exclusive voting rights with respect to provisions of
the Portfolio's Rule 12b-1 distribution plan, if any, which pertains to that
class.
Trustees. The Declaration of Trust of Smith Barney Muni Funds provides
that the term of office of each Trustee shall be from the time of his or her
election until the termination of the trust or until such Trustee sooner dies,
resigns or is removed. A Trustee may be removed with cause by written
instrument, signed by at least two-thirds of the remaining Trustees. Vacancies
on the Board of Trustees may be filled by the Trustees remaining in office. A
meeting of shareholders will be required for the purpose of electing
additional Trustees whenever fewer than a majority of the Trustees then in
office were elected by shareholders.
Voting Rights. Neither Portfolio holds a meeting of shareholders
annually, and there normally is no meeting of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders. A meeting of
shareholders of a Portfolio, for any purpose, must be called upon the written
request of shareholders holding at least 25% of such Portfolio's outstanding
shares. On each matter submitted to a vote of the shareholders of a Portfolio,
each shareholder is entitled to one vote for each whole share owned and a
proportionate, fractional vote for each fractional share outstanding in the
shareholder's name on the Portfolio's books. With respect to matters relating
to Smith Barney Muni Funds requiring a majority shareholder vote as described
in the Declaration of Trust, a majority of shares represented in person or by
proxy and entitled to vote at a meeting of shareholders at which a quorum is
present shall decide such matter. In cases where the vote is submitted to the
holders of one or more but not all series or classes, a majority of the
outstanding shares of the particular series or class affected by the matter
shall decide such matter.
Liquidation or Termination. In the event of the liquidation or
termination of either of the Portfolios, the shareholders of the Portfolio are
entitled to receive, when, and as declared by the Trustees, as the case may
be, the excess of the assets over the liabilities belonging to the liquidated
or terminated Portfolio. The assets so distributed to shareholders of the
liquidated or terminated Portfolio will be distributed among the shareholders
in proportion to the number of shares of the particular class held by them and
recorded on the books of the liquidated or terminated Portfolio.
Liability of Trustees. Under the Declaration of Trust and By-Laws of
Smith Barney Muni Funds, a Trustee will be personally liable only for his or
her own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee. The
Declaration of Trust of Smith Barney Muni Funds further provides that Trustees
and officers will be indemnified for the expenses of litigation against them
unless it is determined that the person did not act in good faith in the
reasonable belief that the person's actions were in or not opposed to the best
interest of Smith Barney Muni Funds or the person's conduct is determined to
constitute willful misfeasance, bad faith, gross negligence or reckless
disregard of the person's duties.
Rights of Inspection. Shareholders of Smith Barney Muni Funds have the
same inspection rights as are permitted shareholders of a Massachusetts
corporation under Massachusetts corporate law. Currently, each shareholder of
a Massachusetts corporation is permitted to inspect the records, accounts and
books of a corporation for any legitimate business purpose.
Shareholder Liability. Under Massachusetts law, shareholders of a
Massachusetts business trust may, under certain circumstances, be held
personally liable for the obligations of such Massachusetts business trust.
Smith Barney Muni Funds' Declaration of Trust, however, disclaims shareholder
liability for acts or obligations of Smith Barney Muni Funds and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Fund. The Declaration of Trust also provides
for indemnification out of the property of the Fund for all losses and
expenses of any shareholder held personally liable for the obligations of the
Fund. Shares of the National Portfolio issued to the shareholders of the Ohio
Portfolio in the Reorganization will be fully paid and nonassessable when
issued, transferable without restrictions and will have no preemptive rights.
The foregoing is only a summary of certain characteristics of the
operations of the National and Ohio Portfolios. The foregoing is not a
complete description of the documents cited. Shareholders should refer to the
provisions of the trust documents and Massachusetts law governing the
Portfolios for a more thorough description.
ADDITIONAL INFORMATION ABOUT
THE NATIONAL PORTFOLIO
AND THE OHIO PORTFOLIO
The Ohio Portfolio. Information about the Ohio Portfolio is
incorporated herein by reference from its current Prospectus dated July 29,
1997, and in the Statement of Additional Information dated July 29, 1997,
which have been filed with the SEC. A copy of such Prospectus and Statement
of Additional Information is available upon request and without charge by
writing to Smith Barney Muni Funds on behalf of the Ohio Portfolio at 388
Greenwich Street, New York, New York 10013 or by calling (800) 224-7523.
The National Portfolio. Information concerning the operation and
management of the National Portfolio is incorporated herein by reference from
its current Prospectus dated July 29, 1997, a copy of which is enclosed
herewith, and the Statement of Additional Information dated July 29, 1997,
which has been filed with the SEC. A copy of such Statement of Additional
Information is available upon request and without charge by writing to Smith
Barney Muni Funds on behalf of the National Portfolio at 388 Greenwich Street,
New York, New York 10013 or by calling (800) 224-7523.
Both the National Portfolio and the Ohio Portfolio are subject to the
informational requirements of the Exchange Act and in accordance therewith
file reports and other information including proxy material, reports and
charter documents with the SEC. These reports can be inspected and copies
obtained at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the New York Regional Office of
the SEC, 75 Park Place, New York, New York 10007. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, SEC, Washington, D.C. 20549 at prescribed rates.
OTHER BUSINESS
The Board does not intend to present any other business at the Meeting.
If, however, any other matters are properly brought before the Meeting, the
persons named in the accompanying form of proxy will vote thereon in
accordance with their judgment.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board to be used at the Special Meeting of
Shareholders to be held at 10:00 a.m. New York City time on November 21, 1997,
at 388 Greenwich Street, New York, New York 10013 and at any adjournments
thereof. This Prospectus/Proxy Statement, along with a Notice of the Meeting
and a proxy card, is first being mailed to shareholders of the Ohio Portfolio
on or about October 3, 1997. Only shareholders of record as of the close of
business on the Record Date will be entitled to notice of, and to vote at, the
Meeting or any adjournment thereof. The holders of one-third of the shares of
the Ohio Portfolio issued and outstanding and entitled to vote at the close of
business on the Record Date present in person or represented by proxy will
constitute a quorum for the Meeting. For purposes of determining a quorum for
transacting business at the Meeting, abstentions and broker "non-votes" (that
is, proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other persons entitled to
vote shares on a particular matter with respect to which the brokers or
nominees do not have discretionary power) will be treated as shares that are
present but which have not been voted. For this reason, abstentions and
broker "non-votes" will have the effect of a "no" vote for purposes of
obtaining the requisite approval of the Plan. If the enclosed form of proxy
is properly executed and returned in time to be voted at the Meeting, the
proxies named therein will vote the shares represented by the proxy in
accordance with the instructions marked thereon. Unmarked proxies will be
voted FOR the proposed Reorganization and FOR any other matters deemed
appropriate. A proxy may be revoked at any time on or before the Meeting by
written notice to the Secretary of Smith Barney Muni Funds, 388 Greenwich
Street, New York, New York 10013. Unless revoked, all valid proxies will be
voted in accordance with the specifications thereon or, in the absence of such
specifications, FOR approval of the Plan and the Reorganization contemplated
thereby.
Approval of the Reorganization will require the affirmative vote of a
majority of the shares of the Ohio Portfolio represented in person or by proxy
and entitled to vote at a meeting of shareholders at which a quorum is
present. For purposes of voting on the Reorganization, the Class A, Class B,
Class C and Class Y shares, if any, of the Ohio Portfolio shall vote together
as a single class. Shareholders of the Ohio Portfolio are entitled to one
vote for one share. Fractional shares are entitled to proportional voting
rights.
Proxy solicitations will be made primarily by mail, but proxy
solicitations may also be made by telephone, telegraph or personal interviews
conducted by officers or employees of Smith Barney and its affiliates and/or
by First Data, the transfer agent of the Fund. In addition, Applied Mailing
Systems, Inc., an affiliate of the transfer agent ("Applied Mailing") or an
agent of Applied Mailing, may call shareholders of the Ohio Portfolio to ask
if they would be willing to have their votes recorded by telephone. The
telephone voting procedure is designed to authenticate the shareholder's
identity by asking the shareholder to provide his social security number, in
the case of an individual, or a taxpayer identification number, in the case of
an entity. The shareholder's telephone vote will be recorded and a
confirmation will be sent to the shareholder to ensure that the vote has been
taken in accordance with the shareholder's instructions. Shareholders voting
by telephone may vote for or against any proposal. Although a shareholder's
vote may be taken by telephone, each shareholder will receive a copy of this
Prospectus/Proxy Statement and may vote by mail using the enclosed proxy card.
The aggregate cost of solicitation of the shareholders of the Ohio Portfolio
is expected to be approximately $10,000. Expenses of the Reorganization,
including the costs of proxy solicitation, the preparation of this
Prospectus/Proxy Statement and enclosures attached hereto and reimbursement of
expenses for forwarding solicitation material to beneficial owners of shares
of the Ohio Prospectus will be borne by Smith Barney.
In the event that sufficient votes to approve the Reorganization are not
received by November 21, 1997, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies.
In determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any such adjournment will require an affirmative vote by the
holders of a majority of the shares present in person or by proxy and entitled
to vote at the Meeting. The persons named as proxies will vote upon such
adjournment after consideration of the best interests of all shareholders.
The votes of the shareholders of the National Portfolio are not being
solicited by this Prospectus/Proxy Statement.
FINANCIAL STATEMENTS AND EXPERTS
The statements of assets and liabilities, including the schedules of
investments, of the Ohio Portfolio and the National Portfolio as of March 31,
1997, and the related statements of operations for the year then ended,
changes in net assets for each of the years in the two-year period then ended
and financial highlights for each of the years in the five-year period then
ended, have been incorporated by reference into the Statement of Additional
Information dated September [24], 1997 relating to this Prospectus/Proxy
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants and upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the Federal income tax implications of
the Reorganization, and the issuance of shares of the National Portfolio, will
be passed upon by Sullivan & Cromwell, 125 Broad Street, New York, NY 10004.
In rendering its opinion as to the issuance of the shares, Sullivan & Cromwell
may rely on an opinion of Massachusetts counsel as to certain matters under
Massachusetts law.
THE BOARD OF TRUSTEES OF THE FUND, INCLUDING THE "INDEPENDENT"
TRUSTEES, UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN, AND ANY
UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE
VOTED IN FAVOR OF APPROVAL OF THE PLAN.
EXHIBIT A
PLAN OF REORGANIZATION
THIS PLAN OF REORGANIZATION (the "Plan") is adopted as of the 12th day
of November 1996, and amended as of the 3rd day of September, 1997, by Smith
Barney Muni Funds ("Smith Barney Muni Funds"), a Massachusetts business trust
with its principal place of business at 388 Greenwich Street, New York, New
York 10013, on behalf of the National Portfolio (the "Acquiring Fund") and the
Ohio Portfolio (the "Acquired Fund").
This Plan is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United
States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all or
substantially all of the assets of the Acquired Fund in exchange for Class A,
Class B, Class C and Class Y shares of beneficial interest of the Acquiring
Fund (collectively, the "Acquiring Fund Shares" and each, an "Acquiring Fund
Share") and the assumption by the Acquiring Fund of all stated liabilities of
the Acquired Fund and the distribution, after the Closing Date herein referred
to, of Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund and the termination of the Acquired Fund, all
upon the terms and conditions hereinafter set forth in this Plan.
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING FUND
SHARES AND ASSUMPTION OF THE ACQUIRED FUND'S SCHEDULED LIABILITIES AND
LIQUIDATION AND TERMINATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth, the Acquired
Fund agrees to transfer its assets as set forth in paragraph 1.2 to the
Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of Class A Acquiring Fund Shares,
including fractional Class A Acquiring Fund Shares, determined by dividing the
value of the Acquired Fund's net assets attributable to its Class A shares,
computed in the manner and as of the time and date set forth in paragraph 2.1,
by the net asset value of one Class A Acquiring Fund Share, computed in the
manner and as of the time and date set forth in paragraph 2.2 (ii) to deliver
to the Acquired Fund the number of Class B Acquiring Fund Shares, including
fractional Class B Acquiring Fund Shares, determined by dividing the value of
the Acquired Fund's net assets attributable to its Class B shares, computed in
the manner and as of the time and date set forth in paragraph 2.1, by the net
asset value of one Class B Acquiring Fund Share, computed in the manner and as
of the time and date set forth in paragraph 2.2; (iii) to deliver to the
Acquired Fund the number of Class C Acquiring Fund Shares, including
fractional Class C Acquiring Fund Shares, determined by dividing the value of
the Acquired Fund's net assets attributable to its Class C shares, computed in
the manner and as of the time and date set forth in paragraph 2.1, by the net
asset value of one Class C Acquiring Fund Share, computed in the manner and as
of the time and date set forth in paragraph 2.2; and (iv) to deliver to the
Acquired Fund the number of Class Y Acquiring Fund Shares, including
fractional Class Y Acquiring Fund Shares, determined by dividing the value of
the Acquired Fund's net assets attributable to its Class Y shares computed in
the manner and as of the time and date set forth in paragraph 2.1, by the net
asset value of one Class Y Acquiring Fund Share, computed in the manner and as
of the time and date set forth in paragraph 2.2.; and (iv) to assume certain
scheduled liabilities of the Acquired Fund, as set forth in paragraph 1.3.
Such transactions shall take place at the closing provided for in paragraph
3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring
Fund shall consist of all or substantially all of its property, including,
without limitation, all cash, securities and dividends or interest receivables
which are owned by the Acquired Fund and any deferred or prepaid expenses
shown as an asset on the books of the Acquired Fund on the closing date
provided in paragraph 3.1 (the "Closing Date").
1.3. The Acquired Fund will endeavor to discharge all its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund
shall assume all liabilities, expenses, costs, charges and reserves reflected
on an unaudited Statement of Assets and Liabilities of the Acquired Fund as of
the Valuation Date (as defined in paragraph 2.1), in accordance with generally
accepted accounting principles consistently applied from the prior audited
period. The Acquiring Fund shall assume only those liabilities of the
Acquired Fund reflected in that unaudited Statement of Assets and Liabilities
and shall not assume any other liabilities, whether absolute or contingent,
not reflected thereon.
1.4. As provided in paragraph 3.3, as soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), the Acquired Fund will
liquidate and distribute pro rata to the Acquired Fund's shareholders of
record determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), the Acquiring Fund Shares it receives pursuant
to paragraph 1.1. Shareholders of Class A, Class B, Class C and Class Y
shares of the Acquired Fund shall receive Class A, Class B, Class C and Class
Y shares, respectively, of the Acquiring Fund. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Acquired Fund on the books of the
Acquiring Fund to open accounts on the share records of the Acquiring Fund in
the name of the Acquired Fund's shareholders and representing the respective
pro rata number of the Acquiring Fund Shares due such shareholders. All
issued and outstanding shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund, although share certificates
representing interests in the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance with
paragraph 1.1. The Acquiring Fund shall not issue certificates representing
the Acquiring Fund Shares in connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent. Acquiring Fund Shares will be issued in
the manner described in the Acquiring Fund's current prospectus and statement
of additional information.
1.6. Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund Shares
on the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7. The Acquired Fund shall, following the Closing Date and the making
of all distributions pursuant to paragraph 1.4, be terminated under the laws
of the Commonwealth of Massachusetts and in accordance with its governing
documents.
2. VALUATION
2.1. The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of regular trading on the New York Stock Exchange, Inc. (the "NYSE") on
the Closing Date (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures set forth in the Acquiring Fund's then
current prospectus or statement of additional information.
2.2. The net asset value of Acquiring Fund Shares shall be the net
asset value per share computed as of the close of regular trading on the NYSE
on the Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then current prospectus or statement of additional
information.
2.3. All computations of value shall be made by Smith Barney Mutual
Funds Management Inc. in accordance with its regular practice as pricing agent
for the Acquired Fund and the Acquiring Fund, respectively.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be December 5, 1997, or such later date as
the Acquired Fund and the Acquiring Fund may adopt by resolution of Smith
Barney Muni Funds' Board of Trustees. All acts taking place at the Closing
shall be deemed to take place simultaneously as of the close of business on
the Closing Date unless otherwise provided. The Closing shall be held as of
5:00 p.m. at the offices of Smith Barney Inc., 388 Greenwich Street, New York,
New York 10013, or at such other time and/or place as Smith Barney Muni Funds
may adopt by resolution of its Board of Trustees.
3.2. In the event that on the Valuation Date (a) the NYSE or another
primary trading market for portfolio securities of the Acquiring Fund or the
Acquired Fund shall be closed to trading or trading thereon shall be
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
shall be disrupted so that accurate appraisal of the value of the net assets
of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3. The Acquired Fund shall deliver at the Closing a list of the names
and addresses of the Acquired Fund's shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited to the
Acquired Fund's account on the Closing Date.
3.4. The Closing is contingent upon receipt by Smith Barney Muni Funds
of a favorable opinion of Sullivan & Cromwell, addressed to Smith Barney Muni
Funds and satisfactory to Christina T. Sydor, Esq., as Secretary of Smith
Barney Muni Funds, based upon certain assumptions by counsel and certain
representations by the Acquiring Fund and the Acquired Fund substantially to
the effect that for federal income tax purposes:
(a) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund Shares and the assumption by
the Acquiring Fund of all stated liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C)
of the Code, and the Acquiring Fund and the Acquired Fund will each be a
"party to a reorganization" within the meaning of Section 368(b) of the
Code; (b) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange solely for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of
all stated liabilities of the Acquired Fund; (c) no gain or loss will be
recognized by the Acquired Fund upon the transfer of the Acquired Fund's
assets to the Acquiring Fund in exchange solely for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of all stated
liabilities of the Acquired Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to the Acquired
Fund's shareholders; (d) no gain or loss will be recognized by
shareholders of the Acquired Fund upon the exchange, pursuant to the
Reorganization, of their Acquired Fund shares for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of all stated
liabilities of the Acquired Fund; (e) the aggregate tax basis for the
Acquiring Fund Shares to be received by each of the Acquired Fund's
shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization, and (provided that the Acquired
Fund shares were held as capital assets on the date of the
Reorganization) the holding period of the Acquiring Fund Shares to be
received by each Acquired Fund shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by
such shareholder and (f) the tax basis of the Acquired Fund's assets to
be acquired by the Acquiring Fund will be the same as the tax basis of
such assets to the Acquired Fund immediately prior to the
Reorganization, and the holding period of the assets of the Acquired
Fund in the hands of the Acquiring Fund will include the period during
which those assets were held by the Acquired Fund.
The foregoing opinion may state that no opinion is expressed as to the
effect of the Reorganization on the National Portfolio, the Ohio Portfolio or
the Ohio Portfolio shareholders in respect of any asset as to which unrealized
gain or loss is required to be recognized for U.S. federal income tax purposes
at the end of each year under a mark-to-market system of accounting. The
opinion may further state that the tax consequences described therein may not
apply to the Ohio Portfolio shareholders that acquired shares upon the
exercise of employee stock options or otherwise as compensation, that hold
their shares as part of a "straddle" or "conversion transaction" or that are
insurance companies, securities dealers, financial institutions or foreign
persons.
4. BROKERAGE FEES AND EXPENSES
4.1. No brokers or finders will be entitled to receive any payments in
connection with the transactions provided for herein.
4.2. Except as may be otherwise provided herein, Smith Barney will pay
the expenses incurred in connection with entering into and carrying out the
provisions of this Plan, including the expenses of: (i) counsel and
independent accountants associated with the Reorganization; (ii) printing and
mailing the Prospectus/Proxy Statement and soliciting proxies in connection
with the meeting of shareholders of the Acquired Fund; (iii) any special
pricing fees associated with the valuation of the Acquired Fund's or the
Acquiring Fund's portfolio on the Closing Date; (iv) expenses associated with
preparing this Plan and preparing and filing the Registration Statement under
the 1933 Act covering the Acquiring Fund Shares to be issued in the
Reorganization; (v) registration or qualification fees and expenses of
preparing and filing such forms, if any, necessary under applicable state
securities laws to qualify the Acquiring Fund Shares to be issued in
connection with the Reorganization. The Acquired Fund shall be liable for:
(i) all fees and expenses related to the liquidation and termination of the
Acquired Fund; and (ii) fees and expenses of the Acquired Fund's custodian and
transfer agent incurred in connection with the Reorganization. The Acquiring
Fund shall be liable for any fees and expenses of the Acquiring Fund's
custodian and transfer agent incurred in connection with the Reorganization.
Consistent with the provisions of paragraph 1.3, the Acquired Fund,
prior to the Closing, shall pay for or include in the unaudited Statement of
Assets and Liabilities prepared pursuant to paragraph 1.3 all of its known and
reasonably estimated expenses associated with the transactions contemplated by
this Plan.
5. TERMINATION
5.1. This Plan and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Trustees of Smith
Barney Muni Funds, at any time prior to the Closing Date if circumstances
should develop that, in the opinion of the Board, make proceeding with the
Plan inadvisable.
5.2. In the event of any such termination, the Acquired Fund and the
Acquiring Fund shall each bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 4.
6. GOVERNING LAW
This Plan shall be governed by and construed in accordance with the laws
of the State of New York.
STATEMENT OF ADDITIONAL INFORMATION dated September [24], 1997
NATIONAL PORTFOLIO
a separate investment portfolio of
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
(800) 224-7523
OHIO PORTFOLIO
a separate investment portfolio of
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
(800) 224-7523
This Statement of Additional Information, relating specifically to the
proposed transfer of all or substantially all of the assets of the Ohio
Portfolio (the "Acquired Fund") to the National Portfolio (the "Acquiring
Fund") in exchange for Class A, Class B, Class C and Class Y shares of the
Acquiring Fund and the assumption by the Acquiring Fund of certain scheduled
liabilities of the Acquired Fund, consists of this cover page and the
following described documents, each of which accompanies this Statement of
Additional Information and is incorporated herein by reference.
1. Statement of Additional Information of Smith Barney Muni Funds dated
July 29, 1997.
2. Annual Report of Smith Barney Muni Funds, National Portfolio for the
fiscal year ended March 31, 1997.
3. Annual Report of Smith Barney Muni Funds, Ohio Portfolio for the
fiscal year ended March 31, 1997.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated October 3 , 1997, relating to the above-
referenced matter may be obtained without charge by calling or writing either
the Acquiring Fund or the Acquired Fund at the telephone numbers or addresses
set forth above or by contacting any Smith Barney Financial Consultant or by
calling toll-free 1-800-224-7523. This Statement of Additional Information
should be read in conjunction with the Prospectus/Proxy Statement dated
September [24], 1997.
The date of this Statement of Additional Information is September [24], 1997.
PROSPECTUS OF SMITH BARNEY MUNI FUNDS - NATIONAL PORTFOLIO DATED JULY 29, 1997
IS INCORPORATED BY REFERENCE TO POST EFFECTIVE AMENDMENT NO. 39 TO THE SMITH
BARNEY MUNI FUNDS REGISTRATION STATEMENT ON FORM N1-A FILED ON JULY 28, 1997.
REFERENCE NOS. 2-99861 AND 811-4395.
ACCESSION NUMBER: 91155-27-334
STATEMENT OF ADDITIONAL INFORMATION OF SMITH BARNEY MUNI FUNDS DATED JULY
29,1997 IS INCORPORATED BY REFERENCE TO POST EFFECTIVE AMENDMENT NO. 39 TO
THE SMITH BARNEY MUNI FUNDS REGISTRATION STATEMENT ON FORM N-1A FILED ON JULY
28, 1997
ACCESSION NUMBER: 91155-27-334
ANNUAL REPORT OF SMITH BARNEY MUNI FUNDS - NATIONAL PORTFOLIO FOR THE FISCAL
YEAR ENDED MARCH 31, 1997.
ACCESSION NUMBER: 91155-97-276
ANNUAL REPORT OF SMITH BARNEY MUNI FUNDS - OHIO PORTFOLIO FOR THE FISCAL YEAR
ENDED MARCH 31, 1997.
ACCESSION NUMBER: 91155-97-276
PART C
OTHER INFORMATION
Item 15. Indemnification
The response to this item is incorporated by reference to
"Liability of Trustees" under the caption "Comparative Information
on Shareholder's Rights" in Part A of this Registration Statement.
Item 16. Exhibits
(1) (a) Restated Declaration of Trust dated
as of April 23, 1986 is incorporated herein by
reference to Exhibit 1 to Pre-Effective Amendment No.
1 to the Trust's Registration Statement on Form N-1A,
File Nos. 2-99861 and 811-4395, filed with the
Securities and Exchange Commission (the "SEC") on June
18, 1986 (the " Initial Registration Statement").
(b) Instrument of the Trustees
Establishing and Designating Classes of shares of
Certain Series of the Trust is incorporated herein by
reference to Exhibit 1(b) to Post-Effective Amendment
No. 24 to the Initial Registration Statement filed
with the SEC on December 21, 1992
(2) By-laws of the Trust are incorporated by
reference to Exhibit 2 to Pre-Effective Amendment No. 2 to
the Initial Registration Statement filed with the SEC on
July 29, 1986.
(3) Not applicable.
(4) Plan of Reorganization (included as Exhibit A to
Registrant's Prospectus/Proxy Statement contained in Part A
of this Registration Statement).
(5) Not applicable.
(6) Management Agreement between The National
Portfolio and Mutual Management Corp. is incorporated by
reference to Exhibit 5(c) to Post-Effective Amendment No. 18
to the Initial Registration Statement filed with the SEC on
May 31, 1991.
(7) Distribution Agreement between Smith Barney Muni
Funds and Smith Barney, Harris Upham & Co. Incorporated is
incorporated by reference to Exhibit 6 to Post-Effective
Amendment No. 7 to the Initial Registration Statement filed
with the SEC on February 17, 1989.
(8) Not Applicable
(9) Custodian Agreement between Smith Barney Muni
Funds and Provident National Bank is incorporated by
reference to Exhibit 8 to Pre-Effective Amendment No. 1 to
the Initial Registration Statement filed with the SEC on
June 18, 1986.
(10) Rule 12b-1 Plan incorporated by reference to the
Initial Registration Statement.
(11) Opinion and consent of Sullivan & Cromwell with
respect to validity of shares. (filed herewith).
(12) Opinion and consent of Sullivan & Cromwell with
respect to tax matters (filed herewith).
(13) Not Applicable
(14) Consent of KPMG Peat Marwick LLP (filed
herewith).
(15) Not Applicable.
(16) Not Applicable.
(17) (a) Form of Proxy Card (filed herewith).
(17) (b) Registrant's Declaration pursuant to
Rule 24f-2 is incorporated by reference to the Initial
Registration Statement.
(17) (c) Powers of Attorney**
** Incorporated by reference to Registrant's Form N-14 (File No. 333-12709)
Filed with the Commission on September 25, 1996.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new registration statement
for the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
SMITH BARNEY MUNI FUNDS, has duly caused this Pre-Effective Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York on the
24th day of September, 1997.
SMITH BARNEY MUNI FUNDS
By: \s\ Heath B. McLendon
Heath B. McLendon
Chief Executive Officer
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
\s\ Heath B. McLendon Chairman of the Board and September 24, 1997
Heath B. McLendon Chief Executive Officer (Trustee)
\s\ Lewis E. Daidone Senior Vice President and September 24, 1997
Lewis E. Daidone Treasurer (Chief Financial and
Accounting Officer)
\s\ Donald R. Foley* Trustee September 24, 1997
Donald R. Foley
\s\ Paul Hardin* Trustee September 24, 1997
Paul Hardin
\s\ Francis P. Martin* Trustee September 24, 1997
Francis P. Martin
\s\Roderick C. Rasmussen*Trustee September 24, 1997
Roderick C. Rasmussen
\s\ John P. Toolan* Trustee September 24, 1997
John P. Toolan
* Pursuant to Power of Attorney previously filed.
EXHIBIT INDEX
Exhibit Number Description
(11) Opinion and consent of Sullivan & Cromwell
with respect to validity of shares.
(12) Opinion and consent of Sullivan & Cromwell
with respect to tax matters.
(14) Consent of KPMG Peat Marwick LLP
(17)(a) Form of Proxy Card
September 23, 1997
Smith Barney Muni Funds,
388 Greenwich Street,
New York, New York 10013
Dear Sirs:
In connection with the registration under the Securities Act
of 1933 (the "Act") of shares (the "Shares") of beneficial
interest, par value $.001 per share, of Smith Barney Muni Funds, a
Massachusetts business trust (the "Trust"), we, as your counsel,
have examined such trust records, certificates and other
documents, and such questions of law, as we have considered
necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in
our opinion, when the Shares are issued and sold in accordance
with the Trust's Registration Statement on Form N-14 (File No. 33-
12709) under the Act in connection with the acquisition by the
Trust on behalf of the National Portfolio of all or substantially
all of the assets, and the assumption of certain liabilities, of
the Ohio Portfolio, another series of the Trust, and in accordance
with the Declaration of Trust and By-laws of the Trust, the Shares
will be validly issued, fully paid and nonassessable by the Trust.
Under Massachusetts law, shareholders of a Massachusetts
business trust may, under certain circumstances, be held
personally liable for the obligations of Smith Barney Muni Funds.
The Declaration of Trust provides, however, that if a shareholder,
as such, of Smith Barney Muni Funds is made a party to any suit or
proceeding to enforce any personal liability, Smith Barney Muni
Funds shall indemnify and hold each such shareholder harmless from
and against all claims and liabilities to which such shareholder
may become subject by reason of his being or having been a
shareholder. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder's liability is limited to
circumstances in which Smith Barney Muni Funds itself would be
unable to meet its obligations.
The foregoing opinion is limited to the laws of the
Commonwealth of Massachusetts, and we are expressing no opinion as
to the effect of the laws of any other jurisdiction. With respect
to all matters of Massachusetts law we have, with your approval,
relied upon the opinion dated September 23, 1997 of Goodwin,
Procter & Hoar, and our opinion is subject to the same
assumptions, qualifications and limitations with respect to such
matters as are contained in such opinion of Goodwin, Procter &
Hoar. We believe you and we are justified in relying on such
opinion for such matters.
Also, we have relied as to certain matters on information
obtained from public officials, officers of the Trust and other
sources believed by us to be responsible.
We hereby consent to the filing of this opinion as an
exhibit to the Trust's Registration Statement. In giving such consent,
we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
September 23, 1997
Ohio Portfolio,
Smith Barney Muni Funds,
388 Greenwich Street,
New York, New York 10013.
National Portfolio,
Smith Barney Muni Funds,
388 Greenwich Street,
New York, New York 10013.
Ladies and Gentlemen:
We have acted as counsel to Smith Barney Muni Funds, a
Massachusetts business trust (the "Fund"), in connection with the
Plan of Reorganization (the "Agreement"), included as Exhibit A to
the Fund's Registration Statement on Form N-14, between the Ohio
Portfolio ("Target") and the National Portfolio ("Aquiror"), each
a series of the Fund, and we render this opinion to you pursuant
to Section 3.4 of the Agreement. Capitalized terms not defined
herein have the meanings specified in the Agreement.
For purposes of the opinion set forth below, we have relied,
with your consent, upon the accuracy and completeness of (i) the
statements and representations contained in the Agreement and in
the Prospectus/Proxy Statement to be distributed to the
shareholders of Target in connection with the Reorganization and
(ii) the statements and representations contained in the letter of
representation from the Fund to us dated September [ ], 1997.
With your consent, we have not attempted to verify independently
the accuracy of any information in these documents and have
assumed that the statements (including the facts underlying
statements phrased as "expectations" or "anticipations") and
representations contained therein will be true on the Closing Date.
In addition, in connection with this opinion, we have assumed
with your consent, that the Reorganization will be effected in
accordance with the Agreement.
On the basis of the foregoing, and our consideration of such
other matters as we have considered necessary, we advise you
that, in our opinion:
1. The Reorganization will constitute a reorganization
with in the meaning of Section 368(a)(1)(C) of the Code, and each
of Target and Acquiror will be a "party to a reorganization"
within the meaning of Section 368(b) of the Code.
2. Acquiror will not recognize gain or loss upon the
receipt of Target assets in exchange solely for Acquiror shares
and the assumption of all stated Target liabilities.
3. Target will not recognize gain or loss upon the
transfer of Target assets in exchange solely for Acquiror shares
and the assumption of all stated Target liabilities, or upon the
distribution (whether actual or constructive) of Acquiror shares
to Target shareholders.
4. Target shareholders will not recognize gain or loss
upon the exchange, pursuant tot he Reorganization, of their Target
shares for Acquiror shares or upon the assumption by Aquiror of
all stated Target liabilities.
5. The basis of Acquiror shares to be received by Target
shareholders pursuant to the Reorganization will be the same as
the basis of Target shares surrendered in exchange therefor, and
the holding period of Acquiror shares to be received by Target
shareholders will include the holding period of Target shares
surrendered in exchange therefor (provided that Target shares are
capital assets in the hands of such shareholders on the Closing
Date).
6. The basis of Target assets to be acquired by Acquiror
will be the same as the basis of such assets to Target immediately
prior to the Reorganization, and the holding period of Target
assets to be acquired by Acquiror will include Target's holding
period therefor.
We express no opinion as to the effect of the Reorganization
on Acquiror, Target or Target shareholders in respect of any asset
as to which unrealized gain or loss is required to be recognized
for U.S. federal income tax purposes at the end of each year under
a mark-to-market system of accounting.
The tax consequences described above may not apply to Target
shareholders that acquired shares upon the exercise of employee
stock options or otherwise as compensation, that hold their shares
as part of a "straddle" or "conversion transaction" or that are
insurance companies, securities dealers, financial institutions or
foreign persons.
We hereby consent to the reference to us under the headings
"Information about the Reorganization -- Federal Income Tax
Consequences" and "Legal Matters" in the Prospectus/Proxy
Statement pertaining to the Agreement and to the filing of this
opinion as an exhibit to the Fund's Registration Statement on Form
N-14 filed with the Securities and Exchange Commission. In giving
this consent, we do not hereby admit that we are within the
category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
the Ohio and National Portfolios of Smith Barney Muni Funds:
We consent to the use of our reports dated May 14, 1997 and May
16, 1997 for the Ohio and National Portfolios, respectively, of
Smith Barney Muni Funds, incorporated herein by reference and to
the references to our Firm under the heading "Financial
Statements and Experts" in the Prospectus/Proxy Statement.
KPMG Peat Marwick LLP
New York, New York
September 24, 1997
