<PAGE>
ALTERMAN INVESTMENT FUND, INC.
182 Hilderbrand Drive, Suite 102
Atlanta, Georgia 30328
November 16, 1999
Dear Shareholders:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of Alterman Investment Fund, Inc. ("Alterman" or "Fund") which will be held on
December 7, 1999, at 11:00 a.m., at Alterman's offices at 182 Hilderbrand
Drive, Suite 102, Atlanta, Georgia 30328.
You are being asked to vote on an Agreement and Plan of Reorganization
whereby all or substantially all of the assets of Alterman would be
transferred in a tax-free reorganization to the Georgia Portfolio (the
"Georgia Portfolio," the "Portfolio" and collectively with Alterman, the
"Funds"), an open-end non-diversified series of Smith Barney Muni Funds ("Muni
Funds"), in exchange for Class A shares of beneficial interest of the Georgia
Portfolio. If the Agreement and Plan of Reorganization is approved and
consummated, you would no longer be a shareholder of Alterman, but would
become a shareholder of the Georgia Portfolio, which is managed by SSBC Fund
Management, Inc. ("SSBC") and has similar investment objectives and policies
to your Fund, except as described in the Proxy Statement/Prospectus. Unlike
your Fund, the Georgia Portfolio provides its shareholders with the
opportunity to purchase, redeem and exchange shares of the Georgia Portfolio
at net asset value on any business day subject only to the various limitations
set forth in its prospectus and in certain instances to the payment of a sales
charge. Of course, there would be no sales charges assessed on the issuance of
Georgia Portfolio shares as part of the proposed Reorganization.
Other business of the meeting will be (i) to elect five directors to hold
office until the next annual meeting of stockholders, (ii) to ratify the
selection by the board of directors of Alterman of Birnbrey, Minsk & Minsk LLC
as auditors of Alterman for fiscal 2000 and (iii) to transact such other
business as may come before the meeting.
After careful review, the members of Alterman's board have approved the
proposed reorganization and the other proposals to be considered at the Annual
Meeting. The board members of Alterman believe that the proposals set forth in
the notice of meeting for Alterman are important and recommend that you read
the enclosed materials carefully and then vote for each of the proposals.
Your vote is important. Please take a moment now to sign and return your
proxy card(s) in the enclosed postage-paid return envelope. For more
information, please call Kusiel (Sonny) Kaplan at (800) 861-1844.
Respectfully,
/s/ Paul Alterman
_____________________________________
Paul Alterman
President
Alterman Investment Fund, Inc.
----------------
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS
OF THE NUMBER OF SHARES YOU OWN.
<PAGE>
ALTERMAN INVESTMENT FUND, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Please take notice that an Annual Meeting of Shareholders (the "Annual
Meeting") of Alterman Investment Fund, Inc. will be held at the offices of
Alterman Investment Fund, Inc., 182 Hilderbrand Drive, Suite 102, Atlanta,
Georgia 30328, on December 7, 1999, at 11:00 a.m., Eastern time, for the
following purposes:
PROPOSAL 1: To approve an Agreement and Plan of Reorganization for the
Fund pursuant to which the Fund shall transfer all or substantially all of
its assets and all of its stated liabilities, in exchange for issued and
outstanding Class A voting shares of the Georgia Portfolio of Smith Barney
Muni Funds and the Fund shall liquidate and distribute pro rata to its
shareholders the Georgia Portfolio Shares received from the Georgia
Portfolio, terminate as a closed-end management investment company under
the Investment Company Act of 1940, as amended, and then dissolve as a
corporation under Delaware law.
PROPOSAL 2: To elect five (5) directors to hold office until the next
annual meeting of stockholders and until their successors shall be elected
and shall qualify, as shown in the enclosed Proxy Statement.
PROPOSAL 3: To ratify or reject the selection by the Board of Directors
of Birnbrey, Minsk & Minsk LLC as auditors of the Fund for fiscal 2000.
PROPOSAL 4: To transact such other business as may properly come before
the meeting or any adjournment(s) thereof.
The appointed proxies will vote in their discretion on any other business as
may properly come before the Annual Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on November
1, 1999 are entitled to vote at the Annual Meeting and at any adjournments
thereof.
In the event that the necessary quorum to transact business or the vote
required to approve a Proposal is not obtained at the Annual Meeting, the
persons named as proxies may propose one or more adjournments of the Annual
Meeting in accordance with applicable law to permit further solicitation of
proxies. Any such adjournment as to a matter will require the affirmative vote
of the holders of a majority of the Fund's shares present in person or by
proxy at the Annual Meeting. The persons named as proxies will vote in favor
of such adjournment those proxies which they are entitled to vote in favor of
the Proposal and will vote against any such adjournment those proxies to be
voted against the Proposal. For more information, please call Kusiel (Sonny)
Kaplan at (800) 861-1844.
By Order of the Board of Directors
/s/ C.H. Shepherd
_____________________________________
C.H. Shepherd
Secretary
November 16, 1999
----------------
IMPORTANT--WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
IT IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS
INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY
CARD(S) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE
A QUORUM AT THE ANNUAL MEETING. IF YOU CAN ATTEND THE ANNUAL MEETING AND WISH
TO VOTE YOUR SHARES IN PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
<PAGE>
November 16, 1999
ALTERMAN INVESTMENT FUND, INC.
IMPORTANT NEWS
FOR ALTERMAN SHAREHOLDERS
While we encourage you to read the full text of the enclosed Proxy
Statement/Prospectus, here's a brief overview of some matters affecting your
Fund that will be the subject of a shareholder vote.
Q & A: QUESTIONS AND ANSWERS
Q:WHAT IS HAPPENING?
A: You are being asked to vote on an Agreement and Plan of Reorganization
whereby all or substantially all of the assets of Alterman Investment Fund,
Inc., a closed-end diversified management investment company ("Alterman" or
the "Fund"), would be transferred in a tax-free reorganization to the
Georgia Portfolio (the "Georgia Portfolio," the "Portfolio" and
collectively with Alterman, the "Funds"), an open-end non-diversified
series of Smith Barney Muni Funds ("Muni Funds"), in exchange for Class A
shares of beneficial interest of the Georgia Portfolio. If the Agreement
and Plan of Reorganization is approved and consummated, you would no longer
be a shareholder of Alterman, but would become a shareholder of the Georgia
Portfolio, which has similar investment objectives and policies to your
Fund, except as described in the Proxy Statement/Prospectus.
Q:WHAT ARE THE BENEFITS OF THE PROPOSED REORGANIZATION?
A: The Board members of Alterman believe that you may benefit from the
proposed reorganization, in part, because the Georgia Portfolio is an open-
end fund providing its shareholders with the opportunity to purchase,
redeem and exchange shares of the Georgia Portfolio at net asset value on
any business day subject only to the various limitations set forth in its
prospectus and in certain instances to the payment of a sales charge.
Currently, the shares of Alterman held by its shareholders are not liquid,
and Alterman shareholders may not purchase, redeem or exchange Alterman
shares. The Georgia Portfolio may also offer the opportunity for higher
annual income and total return and for lower fees and expenses than
Alterman. If the reorganization is approved by Alterman shareholders, the
Georgia Portfolio's net expense ratio (which is currently .03% lower than
that of Alterman after taking into account certain expense limitation
arrangements) is expected to remain unchanged for the year ending March 31,
2000. The proposed reorganization also provides Alterman shareholders with
the opportunity of benefiting from the investment management expertise of
SSBC Fund Management, Inc. ("SSBC"), an affiliate of Salomon Smith Barney,
Inc. ("Salomon Smith Barney"). The following pages give you additional
information on the proposed reorganization on which you are being asked to
vote.
Q:WHO IS SSBC?
A: Unlike your Fund, which is managed by SunTrust Bank, the Georgia Portfolio
is managed by SSBC. SSBC is a subsidiary of Citigroup Inc. As of June 30,
1999, SSB Citi Asset Management Group, which is comprised of Citigroup
Inc.'s primary asset management business platforms, has assets under
management of approximately $347 billion. SSB Citi Asset Management Group
has a strong product balance among equities, fixed income and liquidity
products. SSB Citi Asset Management Group has investment centers in the
United States, Europe, Japan, Latin America, Asia Pacific and Australia and
has global research centers in New York, London, Tokyo, Singapore and
Melbourne. Citigroup businesses produce a broad range of financial
services--asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading--and use
diverse channels to make them available to consumer and corporate customers
around the world.
<PAGE>
Q:HOW DO THE BOARD MEMBERS OF ALTERMAN RECOMMEND THAT I VOTE?
A: AFTER CAREFUL CONSIDERATION, THE BOARD MEMBERS OF ALTERMAN, INCLUDING THOSE
WHO ARE NOT AFFILIATED WITH ALTERMAN, RECOMMEND THAT YOU VOTE FOR THE
PROPOSED REORGANIZATION ON THE ENCLOSED PROXY CARD(S).
Q: WILL ALTERMAN PAY FOR THIS PROXY SOLICITATION?
A: Although Salomon Smith Barney will bear a majority of the legal and
accounting costs, Alterman may also bear some portion of these expenses and
will bear the cost of preparing, printing and mailing the Proxy
Statement/Prospectus and proxy card(s) and other costs associated with the
solicitation.
Q:WHOM DO I CALL FOR MORE INFORMATION?
A:Please call Kusiel (Sonny) Kaplan at (800) 861-1844.
2
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PROPOSAL 1: Approval of Agreement and Plan of Reorganization................ 4
Synopsis.................................................................... 5
Annual Fund Operating Expenses.............................................. 9
Principal Risk Factors...................................................... 11
The Proposed Transaction.................................................... 15
PROPOSAL 2: Election of Directors........................................... 24
PROPOSAL 3: Selection of Independent Public Accountants..................... 29
Additional Information...................................................... 30
Exhibit A................................................................... A-1
Appendix A.................................................................. A-1
</TABLE>
i
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ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated November 15, 1999
relating to this Combined Proxy Statement/Prospectus and the Reorganization,
will be sent to all shareholders of Alterman Investment Fund, Inc. requesting
a copy of such Statement of Additional Information.
The Statement of Additional Information for the Georgia Portfolio of Smith
Barney Muni Funds, dated July 29, 1999.
ii
<PAGE>
PROXY STATEMENT/PROSPECTUS
NOVEMBER 15, 1999
RELATING TO THE ACQUISITION BY
THE GEORGIA PORTFOLIO ("GEORGIA PORTFOLIO"),
A SERIES OF SMITH BARNEY MUNI FUNDS ("MUNI FUNDS"),
388 Greenwich Street
New York, New York 10013
(212) 816-6474
OF THE ASSETS OF
ALTERMAN INVESTMENT FUND, INC. ("ALTERMAN"),
182 Hilderbrand Drive, Suite 102
Atlanta, Georgia 30328
(404) 237-9891
General
This Proxy Statement/Prospectus is furnished to shareholders of Alterman in
connection with Alterman's annual meeting on December 7, 1999. At the annual
meeting, one of the proposals to be considered is a proposed reorganization in
which all or substantially all of the assets of Alterman would be acquired by
the Georgia Portfolio, in exchange solely for Class A voting shares of
beneficial interest (the "Shares" or "Class A shares") of the Georgia
Portfolio and the assumption by the Georgia Portfolio of all of the stated
liabilities of Alterman (collectively, the "Reorganization"). Shares of the
Georgia Portfolio thereby received would then be distributed to the
shareholders of Alterman in complete liquidation of Alterman. As a result of
the Reorganization, each shareholder of Alterman would receive that number of
full and fractional shares of the Georgia Portfolio having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's
shares of Alterman held as of the close of business on the business day
preceding the closing of the Reorganization. Shareholders of Alterman are
being asked to vote on an Agreement and Plan of Reorganization pursuant to
which such transactions, as described more fully below, would be consummated.
This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely the information about the Georgia Portfolio
that a prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of
the Georgia Portfolio, see the prospectus for the Georgia Portfolio, dated
July 29, 1999, as supplemented from time to time, which is included herewith
and incorporated herein by reference. This Proxy Statement/Prospectus is also
accompanied by the Georgia Portfolio's annual report to shareholders for the
year ended March 31, 1999. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of Alterman, see the prospectus
for Alterman, dated August 14, 1992, which is incorporated herein by reference
and a copy of which may be obtained without charge by writing to Alterman, 182
Hilderbrand Drive, Suite 102, Atlanta, Georgia 30328, or by calling at (800)
861-1844. A Statement of Additional Information of Alterman and Muni Funds
dated November 15, 1999 containing additional information about the
Reorganization and the parties thereto has been
----------------
The Securities and Exchange Commission has not approved or disapproved these
securities nor passed upon the accuracy or adequacy of this proxy
statement/prospectus. Any representation to the contrary is a criminal
offense.
No person has been authorized to give any information or to make any
representations other than those contained in this combined prospectus/proxy
statement and in the materials expressly incorporated herein by reference and,
if given or made, such other information or representations must not be relied
upon as having been authorized by the funds.
<PAGE>
filed with the Securities and Exchange Commission (the "SEC" or the
"Commission") and is incorporated by reference into this Proxy
Statement/Prospectus. A copy of the Statement of Additional Information and
Alterman's annual report for the year ended April 30, 1999 are available upon
request and without charge by writing to or calling Alterman at the address or
phone number listed above. Shareholder inquiries regarding Alterman or the
Georgia Portfolio may also be made by calling the phone number listed above.
The information contained herein concerning Alterman has been provided by, and
is included herein in reliance upon, Alterman. The information contained
herein concerning the Georgia Portfolio has been provided by, and is included
herein in reliance upon, the Georgia Portfolio.
The Georgia Portfolio is a non-diversified series of Muni Funds, an open-end
management investment company organized as a Massachusetts business trust.
Alterman is a diversified closed-end management investment company organized
as a Delaware corporation. The principal investment objective of the Georgia
Portfolio is to pay its shareholders as high a level of income exempt from
Federal income taxes and Georgia personal income taxes as is consistent with
prudent investing. The principal investment objective of Alterman is to
receive current income, capital appreciation being a minor objective (not more
than 25% of Alterman's total assets will be invested for the primary purpose
of capital appreciation). Although not a part of its stated investment
objective, Alterman has also sought investments in securities with income
exempt from Federal income tax and Georgia personal income tax.
In the descriptions of the Proposal regarding the Reorganization below, the
word "fund" is sometimes used to mean investment companies or series thereof
in general, and not Alterman whose proxy statement this is. In addition, in
this Proxy Statement/ Prospectus, for simplicity, actions are described as
being taken by the Georgia Portfolio, although the actions are actually taken
by Muni Funds on behalf of the Georgia Portfolio.
This Proxy Statement/Prospectus, the Notice of Annual Meeting and the proxy
card(s) are first being mailed to shareholders on or about November 16, 1999
or as soon as practicable thereafter. Any Alterman shareholder giving a proxy
has the power to revoke it by mail (addressed to the Secretary at the
principal executive office of Alterman at the address for Alterman shown at
the beginning of this Proxy Statement/Prospectus) or in person at the Annual
Meeting, by executing a superseding proxy or by submitting a notice of
revocation to Alterman.
All properly executed proxies received in time for the Annual Meeting will
be voted as specified in the proxy or, if no specification is made, in favor
of the Proposals referred to in the Proxy Statement.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of a majority of the shares of Alterman entitled to be cast shall be
necessary and sufficient to constitute a quorum for the transaction of
business. In the event that the necessary quorum to transact business or the
vote required to approve any Proposal is not obtained at the Annual Meeting,
the persons named as proxies may propose one or more adjournments of the
Annual Meeting in accordance with applicable law to permit further
solicitation of proxies with respect to the Proposal that did not receive the
vote necessary for its passage or to obtain a quorum. Any such adjournment as
to a matter will require the affirmative vote of the holders of a majority of
Alterman's shares present in person or by proxy at the Annual Meeting. The
persons named as proxies will vote in favor of such adjournment those proxies
which they are entitled to vote in favor of that Proposal and will vote
against any such adjournment those proxies to be voted against that Proposal.
For purposes of determining the presence of a quorum for transacting business
at the Annual Meeting, abstentions and broker "non-votes" will be treated as
shares that are present but which have not been voted. Broker non-votes are
proxies received by Alterman from brokers or nominees when the broker or
nominee has neither received instructions from the beneficial owner or other
persons entitled to vote nor has discretionary power to vote on a particular
matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
Proposal 1 regarding the Reorganization requires the affirmative vote of the
holders of a majority in interest of Alterman's outstanding shares; Proposal 2
regarding the election of Directors requires the affirmative vote of the
holders of a plurality of Alterman's shares present in person or by proxy at
the Annual Meeting and entitled to vote thereat, a quorum being present; and
Proposal 3 regarding the Independent Public Accountants requires
2
<PAGE>
the affirmative vote of the holders of a majority in interest of Alterman's
shares present in person or by proxy at the Annual Meeting and entitled to
vote thereat, a quorum being present. Abstentions and broker non-votes will
have the effect of a "no" vote on Proposals 1 and 3, but will have no effect
on Proposal 2. Broker non-votes will, however, be utilized in determining the
voting securities "present" at the Annual Meeting.
Holders of record of the shares of Alterman at the close of business on
November 1, 1999 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of
the Annual Meeting. As of November 1, 1999, there were 787,769 shares of
Alterman outstanding.
To the best of Muni Funds' knowledge, as of November 5, 1999, except as set
forth on Appendix A, no person owned beneficially more than 5% of the Georgia
Portfolio's outstanding shares.
The following table sets forth certain information concerning each person
known to Alterman to be a beneficial owner of more than 5% of the outstanding
shares of Common Stock of Alterman as of November 1, 1999.
<TABLE>
<CAPTION>
Name and Address Amount of Beneficial
of Beneficial Owner Ownership (a)(b) Percent of Class
- ------------------- -------------------- ----------------
<S> <C> <C>
Rosalie Alterman 150,335 19.1%
182 Hilderbrand Drive, Suite 102
Atlanta, GA 30327
Estate of Sam P. Alterman 115,420 14.7%
182 Hilderbrand Drive, Suite 102
Atlanta, GA 30328
Estate of David Alterman 50,533 6.4%
182 Hilderbrand Drive, Suite 102
Atlanta, GA 30328
Estate of Malcolm Alterman 64,696 8.2%
182 Hilderbrand Drive, Suite 102
Atlanta, GA 30328
Paul Alterman 131,736 16.7%
182 Hilderbrand Drive, Suite 102
Atlanta, GA 30328
Daniel Alterman 49,200 6.3%
182 Hilderbrand Drive, Suite 102
Atlanta, GA 30328
Laura A. Cox 56,577 7.2%
5255 W. Bank Drive
Marietta, GA 30068
Paula A. Kaplan 83,878 10.6%
2746 Ridgewood Road, N.W.
Atlanta, GA 30327
Joanne A. Singer 76,098 9.6%
2793 Ridge Valley Road, N.W.
Atlanta, GA 30327
</TABLE>
- --------
(a) Includes the beneficial ownership of shares of Common Stock held by the
named individuals and their spouse or widow individually or as custodian
or trustee as follows: Estate of Sam P. Alterman--1,890 shares by estate
of deceased spouse disclaimed by the estate of Sam P. Alterman, 69,402
shares held by Alterman Real Estate, Ltd., a Georgia limited partnership
of which Alterman Real Estate Corp.
3
<PAGE>
and Paul Alterman are the sole general partners and the estate of the
deceased spouse of Sam P. Alterman is the sole limited partner and 40,000
shares held by the Sam P. Alterman Family Foundation, Inc., a non-profit
corporation of which Paul Alterman, Laura A. Cox and Daniel Alterman are
three of five trustees; Estate of David Alterman 1,105 shares by widow and
49,428 shares held under two marital trusts under the will of David Alterman,
in the amount of 11,894 shares and 37,534 shares, respectively; Estate of
Malcolm Alterman--includes 20,300 shares held by the Malcolm Alterman Limited
Partnership; Paul Alterman--69,402 shares held by Alterman Real Estate, Ltd.,
40,000 shares held by the Sam P. Alterman Family Foundation, Inc., 11,955
shares held as custodian for two minor children, and 100 shares held by his
wife; Daniel Alterman--40,000 shares held by the Sam P. Alterman Family
Foundation, of which he is one of five trustees; Laura Alterman Cox--40,000
shares held by the Sam P. Alterman Family Foundation, of which she is one of
five trustees, and 6,977 shares held as custodian for two minor children;
Paula A. Kaplan--12,300 held by her husband, and 12,853 shares held as co-
trustee of two trusts established under the will of Esther Alterman; and
Joanne A. Singer--1,120 shares held by husband and 12,853 shares held as co-
trustee of two trusts established under the will of Esther Alterman.
(b) Shares which are beneficially owned by the emancipated descendants of the
named individuals are not included in the table. Each of the named
individuals disclaims the beneficial ownership of shares held by their
emancipated descendants and the wives of their emancipated descendants.
As stated in the Notice of Annual Meeting of Stockholders, attached hereto,
only holders of Common Stock of the Record Date will be entitled to notice of
and to vote at the meeting or any adjournment thereof. The stock transfer book
will not be closed.
As of the Record Date, no Trustee of Muni Funds held shares of the Georgia
Portfolio. See "PROPOSAL 2: ELECTION OF DIRECTORS" regarding the number of
shares of Alterman owned directly or beneficially by the Directors of Alterman.
Each of Alterman and the Georgia Portfolio provides periodic reports to all
of its shareholders which highlight relevant information, including investment
results and a review of portfolio changes. You may receive an additional copy
of the most recent annual report for each of Alterman and the Georgia Portfolio
and a copy of any more recent semi-annual report, without charge, by calling
Alterman at (800) 861-1844 and the Georgia Portfolio at (800) 451-2010 or
writing to Alterman or the Georgia Portfolio, c/o Smith Barney Muni Funds, at
the addresses shown at the beginning of this Proxy Statement/Prospectus.
PROPOSAL 1: APPROVAL OF AGREEMENT
AND PLAN OF REORGANIZATION
The Board of Directors/Trustees of each of Alterman and Muni Funds, including
all of the Directors/Trustees who are not "interested persons" of Alterman or
Muni Funds (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) (the "Non-Interested Directors/Trustees" or "Non- Interested Board
Members"), approved on July 15, 1999 and June 17, 1999, respectively, an
Agreement and Plan of Reorganization (the "Plan"). Subject to its approval by
the shareholders of Alterman, the Plan provides for (a) the transfer of all or
substantially all of the assets of Alterman to the Georgia Portfolio, an open-
end non-diversified series of Muni Funds, in exchange for the Shares of the
Georgia Portfolio and the assumption by the Georgia Portfolio of all of
Alterman's stated liabilities; (b) the distribution of such Georgia Portfolio
shares to the shareholders of Alterman in complete liquidation of Alterman; (c)
the termination of Alterman as a diversified closed-end management investment
company; and (d) the dissolution of Alterman as a corporation under Delaware
law (collectively, the "Reorganization"). As a result of the Reorganization,
each shareholder of Alterman will become a shareholder of the Georgia Portfolio
and will hold, immediately after the closing of the Reorganization (the
"Closing"), that number of full and fractional shares of the Georgia Portfolio
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares held in Alterman as of the close of business on the
business day preceding the Closing (the "Valuation Date"). The Closing is
expected to occur on December 10, 1999, or on such later date as the parties
may agree in writing (the "Closing Date").
4
<PAGE>
SYNOPSIS
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is qualified by reference to the more
complete information contained elsewhere in this Proxy Statement/Prospectus,
the Prospectus of the Georgia Portfolio, the Prospectus of Alterman and the
Plan, the form of which is attached to this Proxy Statement/Prospectus as
Exhibit A. Alterman shareholders should read this entire Proxy
Statement/Prospectus carefully.
Introduction
SunTrust Bank, formerly known as Trust Company Bank, located at One Park
Place, Atlanta, Georgia 30303 ("SunTrust"), is the investment manager of
Alterman. SSBC, located at 388 Greenwich Street, New York, New York 10013, is
the investment manager of the Georgia Portfolio. If the Plan is consummated,
Alterman shareholders will become shareholders of the Georgia Portfolio and
may benefit from the open-end nature of the Georgia Portfolio and access to
the investment management expertise of SSBC and will be able to enjoy certain
shareholder privileges not currently available to them, such as the ability to
purchase, redeem and exchange shares at net asset value on any business day
(subject only to the various limitations set forth in the Georgia Portfolio's
prospectus and in certain instances to the payment of a sales charge), access
to professional service representatives, and automatic cash withdrawal.
Alterman shareholders, as shareholders of the Georgia Portfolio, may also be
presented with the opportunity for higher annual income and total return and
for lower fees and expenses as compared to Alterman. See "Capitalization and
Performance" and "Annual Fund Operating Expenses," respectively. The Georgia
Portfolio declares dividends daily and pays dividends monthly. Alterman
declares dividends quarterly and pays dividends quarterly. See "Dividends and
Other Distributions." It is a condition of the Reorganization that each Fund
receive an opinion of independent legal counsel that the Reorganization will
be tax-free. This means that shareholders will not realize any capital gain or
loss as a direct result of the Reorganization.
Proposed Transaction
The aggregate net asset value of the Shares issued in exchange for the
assets and stated liabilities of Alterman will be equal to the net asset value
of Alterman as of the Valuation Date. Immediately following the transfer of
Shares to Alterman, the Shares will be distributed pro rata to the
shareholders of record of Alterman on the Closing Date and the shares of
Alterman will be cancelled.
For the reasons described below under "Reasons for the Proposed
Transaction," the Board of Directors of Alterman, including the Non-Interested
Directors, has concluded the following:
-- the Reorganization is in the best interests of Alterman and its
shareholders; and
-- the interests of the existing shareholders of Alterman will not be
diluted as a result of the Reorganization.
Accordingly, the Directors recommend approval of the Plan. If the Plan is
not approved, Alterman will continue in existence unless other action is taken
by the Directors.
Comparison of Investment Objectives and Policies
The principal investment objective of the Georgia Portfolio is to pay its
shareholders as high a level of income exempt from Federal income taxes and
Georgia personal income taxes as is consistent with prudent investing. The
principal investment objective of Alterman is to receive current income,
capital appreciation being a minor objective (not more than 25% of Alterman's
total assets will be invested for the primary purpose of capital
appreciation). Whereas the Georgia Portfolio is a non-diversified open-end
fund, Alterman is a diversified closed-end fund. Whereas the Georgia
Portfolio, under normal market conditions, will seek to invest not less than
80% and up to 100% of its assets in municipal obligations the interest on
which is exempt from Federal income taxes (other than the Federal alternative
minimum tax ("AMT")), Alterman has no stated policies with
5
<PAGE>
respect to such investment practice. However, Alterman's investment practice
has been to invest substantially all of its assets in municipal obligations,
the interest on which is exempt from Federal income taxes (other than AMT) and
Georgia income taxes. Whereas all municipal bonds purchased by the Georgia
Portfolio must, at the time of purchase, be investment-grade municipal
securities and at least two-thirds of the Georgia Portfolio's municipal bonds
must be rated within the three highest ratings categories by a nationally
recognized statistical rating organization ("NRSRO"), Alterman has no stated
policies with respect to such investment practices. However, Alterman's
investment practice has been to invest substantially all of its assets in
municipal bonds such that its average bond rating by a NRSRO is AA. Also,
Alterman historically has invested in municipal bonds with a shorter average
maturity than those of the Georgia Portfolio. Whereas the Georgia Portfolio
will not invest more than 15% of its net assets in illiquid securities,
Alterman will invest in securities which have been publicly distributed and
for which a market exists. Whereas the Georgia Portfolio may engage in short-
term trading consistent with its investment objective, Alterman may not
acquire securities for short-term resale or other disposition or for the
purpose of realizing short-term profits. Despite the absence of stated
policies with respect to these and other investment practices discussed in
this proxy statement/prospectus, the actual investment practices of Alterman
substantially coincide with those of the Georgia Portfolio.
The Georgia Portfolio and Alterman have substantially similar fundamental
policies with respect to issuing senior securities, engaging in industry
concentration, making loans, underwriting securities, and purchasing or
selling real estate, real estate mortgages, commodities or commodity
contracts. Investment restrictions of each Fund which are fundamental policies
may not be changed without the approval of the applicable Fund's shareholders.
Investors should refer to the respective prospectuses and statements of
additional information of Alterman and the Georgia Portfolio for a fuller
description of each Fund's investment policies and restrictions.
Comparison of Closed-End and Open-End Investment Companies
Generally, closed-end funds, such as Alterman, neither redeem their
outstanding stock nor engage in the continuous sale of new securities.
Therefore, a closed-end fund operates with a relatively fixed capitalization.
Shareholders who wish to buy or sell shares generally must do so through a
broker-dealer, and pay or receive whatever price the market may bear. This
price may be more or less than the net asset value per share of the closed-end
fund's shares. There is no established market for shares of Alterman and,
therefore, no assurance that a shareholder will be able to liquidate his or
her position in the Alterman shares at a time or at a price that is
acceptable. In contrast, open-end funds, such as the Georgia Portfolio, issue
redeemable securities entitling shareholders to surrender those securities to
the fund and receive in return their proportionate share of the value of the
fund's net assets (less any redemption fee charged by the fund and any "sales
load" if purchased through a broker-dealer). Also, open-end funds generally
issue new shares at the fund's net asset value, subject to any applicable
sales load.
In addition to these structural distinctions between the two types of funds,
several other differences exist. These distinctions can give rise to
advantages and disadvantages to Alterman if, on the one hand, it remains a
closed-end fund or if, on the other hand, it converts to open-end status. An
advantage of being a closed-end fund is that assets may be fully invested in
accordance with both the fund's investment objectives and policies, whereas
open-end funds frequently maintain a portion of their assets in cash or cash
equivalents in order to facilitate meeting redemption requests. Based upon
information provided by SSBC, the Board has considered the advantages and
disadvantages to Alterman and its shareholders associated with the
Reorganization in general and with remaining closed-end or converting to open-
end form in particular and found the overall advantages of the Reorganization
to outweigh the disadvantages.
Investment Objective and Policies of the Georgia Portfolio
The Georgia Portfolio seeks as high a level of income exempt from Federal
income taxes and Georgia personal income taxes as is consistent with prudent
investing.
6
<PAGE>
The Georgia Portfolio invests at least 80% of its net assets in municipal
securities and at least 65% of its net assets in Georgia municipal securities.
Georgia municipal securities include securities issued by the State of Georgia
and certain other municipal issuers, political subdivisions, agencies and
public authorities that pay interest which is exempt from Georgia state
personal income taxes. The Georgia Portfolio focuses primarily on
intermediate-term and long-term municipal securities which have remaining
maturities at the time of purchase of from five to more than thirty years. The
Georgia Portfolio invests exclusively in municipal securities that are rated
investment grade at the time of purchase or are of comparable quality if
unrated. At least two-thirds of the municipal securities must be rated, at the
time of purchase, within the three highest investment grade rating categories
by a nationally recognized rating organization.
SSBC, the Georgia Portfolio's investment manager, selects securities
primarily by identifying undervalued sectors and individual securities, while
also selecting securities it believes will benefit from changes in market
conditions. In selecting individual securities, SSBC:
-- uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit
opportunities in the municipal bond market;
-- may trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial
development, based on their apparent relative values and their impact on
the level of dividends generated by the overall portfolio;
-- identifies individual securities with the most potential for added
value, such as those involving unusual situations, new issuers, the
potential for credit upgrades, unique structural characteristics or
innovative features; and
-- considers the yield available for securities with different maturities
and a security's maturity in light of the outlook for the issuer and its
sector and interest rates.
Investment Objective and Policies of the Alterman Fund
Alterman's primary objective is to receive current income, capital
appreciation being a minor objective (not more than 25% of Alterman's total
assets will be invested for the primary purpose of capital appreciation). The
Fund is a diversified company maintaining a diversified portfolio of municipal
bonds. The Fund's stockholders are given the opportunity to approve or
disapprove any recommended changes in Alterman's investment objectives.
Alterman will not issue any senior securities, engage in short sales,
purchase on margin (except such short-term credits as are necessary for the
clearance of transactions) or write put and call options. The Fund will not
borrow money except that, as a temporary measure for extraordinary or
emergency purposes, the Fund may borrow from banks up to 5% of its total
assets. The Fund will not underwrite securities of other issuers and will not
invest 25% or more of the value of its assets in any particular industry
(government or political subdivisions of governments that issue tax exempt
securities are not considered members of any industry). The Fund will not
purchase or sell real estate or real estate mortgage loans and will not
purchase or sell commodities or commodities contracts. The Fund will not make
loans to other persons except through the acquisition of publicly traded debt
securities for investment.
Alterman deems the following policies to be fundamental and such policies
may not be changed without approval of its stockholders: the Fund does not
intend, but reserves the right, to invest 25% or more of its assets in
industrial development bonds; the Fund may invest in securities of other
investment companies only in aggregate amounts of up to 10% of its total
assets and not more than 3% of the total outstanding voting securities of any
investment company, except that the Fund may acquire securities of other
investment companies in connection with a merger or similar combination; the
Fund will not invest in issuers for the purpose of exercising control of such
issuer; and with respect to 75% of the value of its total assets, the Fund
limits its holdings in the securities of any one issuer, except as otherwise
permitted under the 1940 Act, to an amount not greater in value than 5% of the
value of its total assets and not more than 10% of the outstanding voting
securities of such issuer.
7
<PAGE>
Alterman reserves freedom of action with respect to the following areas,
wherein no stockholder approval of policy changes is required, (i) the
determination of grade and maturity of municipal bonds for the Fund's
investment portfolio and (ii) pending investment in tax free municipal bonds
or distribution as dividends, the Fund's assets and net proceeds thereof (or
interest earned thereon) may be invested in short-term securities such as
certificates of deposit, commercial paper, United States government securities
or may be retained in cash in conformity with the requirements of the 1940
Act.
Alterman does not acquire securities for short-term resale or other
disposition or for the purpose of realizing short-term profits. Therefore, the
Fund's investment objectives are pursued with little portfolio turnover,
except as required by prudent investment management and as may be required to
maintain regulated investment company status for Federal income tax purposes.
Investment Management Fees and Expenses
Alterman and Muni Funds retain SunTrust and SSBC, respectively, pursuant to
separate contracts, to manage the daily investment and business affairs of
Alterman and the Georgia Portfolio, respectively, subject to the policies
established by each Fund's Board of Directors/Trustees. The expenses of each
Fund, which are discussed in greater detail below, are paid out of gross
investment income. Shareholders pay no direct charges or fees for investment
services. See "Annual Fund Operating Expenses."
The Georgia Portfolio
The Georgia Portfolio's investment adviser is SSBC, an affiliate of Salomon
Smith Barney. SSBC selects the Georgia Portfolio's investments and oversees
its operations. SSBC and Salomon Smith Barney are subsidiaries of Citigroup
Inc. Citigroup businesses produce a broad range of financial services--asset
management, banking and consumer finance, credit and charge cards, insurance,
investments, investment banking and trading--and use diverse channels to make
them available to consumer and corporate customers around the world.
Peter M. Coffey, investment officer of SSBC and managing director of Salomon
Smith Barney, has been responsible for the day-to-day management of the
Georgia Portfolio since it commenced operations in April 1994. Mr. Coffey has
30 years of experience with SSBC or its predecessors. During the fiscal year
ended March 31, 1999, SSBC received an advisory fee equal to .35% of the
Georgia Portfolio's average daily net assets (after taking into account
certain expense limitation arrangements). See "Annual Fund Operating
Expenses."
Alterman Fund
Alterman's investment adviser is SunTrust. SunTrust, incorporated in 1891,
is a commercial bank and a registered bank holding company under federal and
Georgia law. Through its investment banking department, SunTrust provides a
wide range of investment counseling services to individuals, corporations,
correspondent banks and others. SunTrust of Georgia holds one hundred (100%)
percent of the outstanding stock of SunTrust. The Trust Company of Georgia was
organized in 1974 for the purpose of becoming a multi-bank holding company.
Pursuant to the advisory agreement, which went into effect on August 20, 1980,
Alterman pays SunTrust based upon a monthly advisory fee of one-twelfth of
.1125% of the current market value of the Fund's portfolio securities. Under
the advisory agreement, SunTrust furnishes investment advice to the Fund with
respect to the investment and reinvestment of the assets comprising the Fund's
investment portfolio. The advisory agreement further provides that SunTrust,
as agent and attorney-in-fact with respect to the Fund's investment portfolio,
may, when it deems appropriate, without prior consultation with the Fund and
at the Fund's risk, buy, sell, exchange, convert or otherwise trade in, retain
or reinvest in securities and other investments, place orders for the
execution of such investment transactions with or through such brokers,
dealers, issuers or other persons as SunTrust may select, and take any action
or non-action that SunTrust reasonably deems appropriate. All services
provided to the Fund pursuant to the advisory agreement will be furnished by
and at the
8
<PAGE>
expense of SunTrust in consideration for the investment advisory fee. In order
to avoid any potential conflict of interest, no investment transactions for
the Fund are made through the Bond Department of SunTrust. All decisions and
selections are subject to review by the Fund's Board of Directors.
For the year ended April 30, 1999, Alterman's annualized total expense ratio
(total annual operating expenses as a percentage of average net assets) was
0.67%, including waivers and reimbursements. As demonstrated below, after
taking into account certain expense limitation arrangements, the Georgia
Portfolio's annualized total expense ratio was .64% for the fiscal year ended
March 31, 1999. Consequently, shareholders of Alterman may experience a
decrease in expenses with respect to the Shares received pursuant to the
Reorganization. If the Reorganization is approved by Alterman shareholders,
the Georgia Portfolio's net expense ratio is expected to remain unchanged for
the fiscal year ending March 31, 2000.
The expenses of Alterman and the Georgia Portfolio for the fiscal year ended
April 30, 1999 and March 31, 1999, respectively, and pro forma expenses
following the proposed Reorganization are outlined below:
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
Georgia
Alterman Portfolio(1) Pro Forma
-------- ------------ ---------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases
(as a % of offering price).................... NONE 4.00%(2) 4.00%
Management Fee................................. .11% .45% .45%
Distribution (12b-1) Fees...................... NONE .15% .15%
Other Expenses................................. .56% .14% .14%
Total Annual Fund Operating Expenses........... .67% .74% .74%
</TABLE>
- --------
(1) For the fiscal year ended March 31, 1999, the Class A shares of the
Georgia Portfolio had total annual fund operating expenses of 0.64% (.35%
management fee and .14% other expenses) after taking into account certain
expense limitation arrangements.
(2) Class A shares purchased in amounts of $500,000 or more are not subject to
an initial sales charge, but are subject to a deferred sales charge of
1.00% for 12 months from the date of purchase.
Example. This Example is intended to help you compare the cost of investing
in each of the Funds. The Example assumes that you invest $10,000 in each Fund
for the time periods indicated and then redeem all of your shares at the end
of those periods. The Example also assumes that your investment has a 5%
return each year and that each Fund's annual operating expenses remain the
same. Although your actual costs maybe higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
Assumes Shares are not Georgia
sold at the end of each period: Alterman Portfolio Pro Forma
- ------------------------------- -------- --------- ---------
<S> <C> <C> <C>
1 Year............................................ $ 67 $ 473 $ 473
3 Years........................................... $201 $ 627 $ 627
5 Years........................................... $335 $ 795 $ 795
10 Years.......................................... $670 $1,282 $1,282
</TABLE>
This example assumes reinvestment of all dividends and distributions. This
example should not be considered a representation of past or future expenses.
Actual Fund expenses can vary from year to year and may be higher or lower
than those shown.
Distribution of Shares and Other Services
CFBDS, Inc. ("CFBDS"), a registered broker-dealer and an indirect wholly-
owned subsidiary of Signature Financial Group, Inc., is the principal
underwriter and distributor of the Georgia Portfolio. A selling group
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<PAGE>
consisting of Salomon Smith Barney and other broker-dealers sells shares of
the Georgia Portfolio to the public. The Georgia Portfolio has adopted Rule
12b-1 distribution plans for its Class A, B and L shares. Under each plan, the
Georgia Portfolio pays distribution and service fees. These fees are an
ongoing expense and, over time, may cost shareholders more than other types of
sales charges.
Purchase, Redemption and Exchange Information
The purchase, redemption and exchange procedures and privileges with respect
to Alterman are materially different than those of the Georgia Portfolio.
Whereas Alterman is a closed-end fund imposing no sales charges or Rule 12b-1
fees, the Georgia Portfolio is an open-end fund imposing sales charges and
Rule 12b-1 fees. The sales charges and the Rule 12b-1 fees are used to pay for
the distribution and shareholder services provided to shareholders of the
Georgia Portfolio. No sales charges will be assessed on the issuance of
Georgia Portfolio shares as part of the Reorganization. Additionally, whereas
there is no exchange privilege in Alterman, shareholders of the Georgia
Portfolio may exchange their shares for a corresponding class of shares of a
fund in the Smith Barney fund complex. Although sales charges and Rule 12b-1
fees are not imposed by Alterman, Alterman's Board of Directors believes that
the greater liquidity of the Georgia Portfolio's Shares, access to the
investment management expertise of SSBC and the potential for higher annual
income and total return and for lower fees and expenses provide benefits of at
least equal significance. Investors should refer to the respective
prospectuses and statements of additional information of Alterman and the
Georgia Portfolio for a fuller description of each Fund's policies and
restrictions with respect to the purchase, redemption and exchange of shares.
Dividends and Other Distributions
The Georgia Portfolio pays dividends each month from its net investment
income. The Georgia Portfolio generally makes capital gain distributions, if
any, once a year, typically in December. The Georgia Portfolio may pay
additional distributions and dividends at other times if necessary for the
Georgia Portfolio to avoid a Federal tax. Capital gain distributions and
dividends are reinvested in additional Georgia Portfolio shares of the same
class held. The Georgia Portfolio expects distributions to be primarily from
income. Shareholders do not pay a sales charge on reinvested distributions or
dividends. Alternatively, shareholders can instruct their Salomon Smith Barney
Financial Consultant, dealer representative or the transfer agent to have
their distributions and/or dividends paid in cash.
Alterman distributes to its shareholders at least 90% of its tax-exempt
interest income, less certain deductions. The Fund is not taxed on either the
distributed or undistributed portion of its net tax-exempt interest income.
Dividends designated by the Fund as paid out of net tax-exempt interest
income, to the extent of such income, are not taxable to its shareholders. The
Fund expects to distribute dividends as often as deemed appropriate, and
possibly at irregular intervals, but in any event at least annually,
substantially all of its income and its capital gains for each of its taxable
years. In the event the Fund should sustain capital losses upon sales of its
assets, subsequent capital gains may be retained by the Fund rather than
distributed to shareholders, at least to the extent of such capital losses.
If the Plan is approved by Alterman's shareholders, then as soon as
practicable before the Closing Date, Alterman will pay its shareholders a cash
distribution of all undistributed 1999 net investment income, the excess of
its interest income excludable from gross income under section 103(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), over its deductions
disallowed under sections 265 and 171(a)(2) of the Code and undistributed
realized net capital gains.
Tax Consequences
Muni Funds will have received the opinion of Willkie Farr & Gallagher,
counsel to the Georgia Portfolio, and Alterman will have received the opinion
of Hunton & Williams, counsel to Alterman, each dated the Closing Date and in
connection with the Reorganization, to the effect that, based upon certain
facts, assumptions and
10
<PAGE>
representations, the Reorganization will constitute a tax-free reorganization
within the meaning of section 368(a)(1) of the Code. If the Reorganization
constitutes a tax-free reorganization, no gain or loss will be recognized by
Alterman or its shareholders as a direct result of the Reorganization. See
"The Proposed Transaction--Federal Income Tax Consequences."
PRINCIPAL RISK FACTORS
Despite the absence of stated policies with respect to various investment
practices, Alterman's actual investment practices coincide to a substantial
extent with those of the Georgia Portfolio. Accordingly, each Fund shares
similar risks in connection with their investments in municipal securities.
Shareholders of the Georgia Portfolio could lose money on their investment
in the Georgia Portfolio, or the Georgia Portfolio may not perform as well as
other investments, if:
-- interest rates rise, causing the value of its portfolio to decline;
-- the issuer of a security owned by the Georgia Portfolio defaults on its
obligation to pay principal and/or interest or the security's credit
rating is downgraded;
-- the Georgia municipal securities fall out of favor with investors (in
such event, the Georgia Portfolio will suffer more than a national
municipal fund from adverse events affecting Georgia municipal issuers);
-- unfavorable legislation affects the tax-exempt status of municipal
bonds; and
-- SSBC's judgment about the attractiveness, value or income potential of a
particular security proves to be incorrect.
It is possible that some of the Georgia Portfolio's income distributions may
be, and distributions of the Georgia Portfolio's gains generally will be,
subject to Federal and Georgia state taxation. The Georgia Portfolio may
realize taxable gains on the sale of its securities or on transactions in
futures contracts. Some of the Georgia Portfolio's income may be subject to
the Federal AMT. In addition, distributions of the Georgia Portfolio's income
and gains will be taxable to investors in states other than Georgia.
The Georgia Portfolio is classified as "non-diversified," which means it may
invest a larger percentage of its assets in one issuer than a diversified fund
such as Alterman. To the extent the Georgia Portfolio concentrates its assets
in fewer issuers, the Georgia Portfolio will be more susceptible to negative
events affecting those issuers. The Georgia Portfolio intends to conduct its
operations, however, so as to qualify as a "regulated investment company" for
purposes of the Code, which will relieve the Georgia Portfolio of any
liability for Federal income tax to the extent its earnings are distributed to
shareholders. To so qualify, among other requirements, the Georgia Portfolio
will limit its investments so that, at the close of each quarter of the
taxable year, (a) not more than 25% of the market value of the Georgia
Portfolio's total assets will be invested in the securities of a single issuer
and (b) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer and the Georgia Portfolio will not own more than
10% of the outstanding voting securities of a single issuer. The Georgia
Portfolio's assumption of large positions in the obligations of a small number
of issuers may cause the Georgia Portfolio's share price to fluctuate to a
greater extent than that of a diversified company such as Alterman as a result
of changes in the financial condition or in the market's assessment of the
issuers.
The Georgia Portfolio may not be an appropriate investment if you:
-- are not a Georgia taxpayer in a high federal tax bracket seeking income
exempt from Georgia and Federal taxation;
-- currently do not have exposure to other asset classes and are not
seeking to broaden your investment portfolio; or
11
<PAGE>
-- are not willing to accept the risks of municipal securities, including
the risks of concentrating in a single state.
Please refer to each Fund's prospectus and the Georgia Portfolio's statement
of additional information for a more detailed discussion of the risks of
investing in the applicable Fund.
Principal Investments of the Georgia Portfolio
The Georgia Portfolio seeks to provide as high a level of income exempt from
Federal income taxes and from Georgia personal income taxes as is consistent
with prudent investing. The Georgia Portfolio has a fundamental policy that,
under normal market conditions, it will seek to invest 100% of its total
assets--and the Georgia Portfolio will invest not less than 80% of its total
assets--in municipal obligations the interest on which is exempt from Federal
income taxes (other than the AMT). It is also a fundamental policy that, under
normal market conditions, the Georgia 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 Georgia in the opinion
of bond counsel to issuers. The Georgia Portfolio 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.
The Georgia Portfolio principally invests in the following securities.
Georgia Municipal Securities. Georgia municipal securities include debt
obligations issued by certain non-Georgia governmental issuers such as Puerto
Rico, the Virgin Islands and Guam. The interest on these bonds is exempt from
Federal income tax and Georgia personal income tax. As a result, the interest
rate on these bonds normally is lower than it would be if the bonds were
subject to taxation. The Georgia municipal securities in which the Georgia
Portfolio invests include general obligation bonds, revenue bonds and
municipal leases. These securities may pay interest at fixed, variable or
floating rates. The Georgia Portfolio may also hold zero coupon securities
which pay no interest during the life of the obligation but trade at prices
below their stated maturity value.
Other Debt Securities. The Georgia Portfolio may invest up to 35% of its
assets in municipal securities of non-Georgia issuers. These will generally be
exempt from Federal, but not Georgia income taxes. The Georgia Portfolio may
also invest up to 20% of its assets in debt securities which are issued or
guaranteed by the full faith and credit of the U.S. government. These
securities will generally be subject to federal and state taxation.
Derivative Contracts. The Georgia Portfolio may, but need not, use
derivative contracts, such as financial futures, for any of the following
purposes, (i) to hedge against the economic impact of adverse changes in the
market value of portfolio securities due to changes in interest rates or (ii)
as a substitute for buying or selling securities.
A futures contract will obligate or entitle the Georgia Portfolio to deliver
or receive an asset or cash payment based on the change in value of one or
more securities. The other parties to certain futures present the same types
of default risk as issuers of fixed income securities.
The Georgia Portfolio may invest in inverse floating rate securities. These
securities pay interest at a rate which moves in the opposite direction from
movements in market interest rates. Even a small investment in futures or in
certain inverse floaters with leverage features can have a big impact on the
Georgia Portfolio's interest rate exposure. Therefore, using futures or
inverse floaters can disproportionately increase losses and reduce
opportunities for gains when interest rates are changing. The Georgia
Portfolio may not fully benefit from or may lose money on futures or inverse
floaters used for hedging purposes if changes in their value do not correspond
accurately to changes in the value of the Georgia Portfolio's holdings.
Futures and inverse floaters can also make a fund less liquid and harder to
value, especially in declining markets.
Municipal Bond Index Futures Contracts. The Georgia Portfolio may invest in
municipal bond futures contracts (currently traded on the Chicago Board of
Trade) which are enlisted contracts based on U.S.
12
<PAGE>
government securities as a hedging policy in pursuant of its investment
objective; provided that immediately thereafter not more than 33 1/3% of the
Georgia Portfolio's net assets would be hedged or the amount of margin
deposits on the Georgia Portfolio's existing futures contracts would not
exceed 5% on the value of its total assets. A municipal bond index futures
contract is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a fund specific dollar amount
multiplied by the difference between the value of the index at the close of
the last trading day of the contract and the price at which the index contract
was originally written. No physical delivery of the underlying municipal bonds
in the index is made. Municipal bond index futures contracts are based on an
index of 40 tax-exempt, long-term municipal bonds with an original issue size
of at least $50 million and a rating of A- or higher by S&P or A or higher by
Moody's which began trading in mid-1985. The purpose of the acquisition or
sale of a municipal bond index futures contract by the Georgia Portfolio, as
the holder of long-term municipal securities, is to protect the Georgia
Portfolio from fluctuations in interest rates on tax-exempt securities without
actually buying or selling long-term municipal securities.
Defensive Investing. The Georgia Portfolio may depart from its principal
investment strategies in response to adverse market, economic or political
conditions by taking temporary defensive positions in all types of money
market and short-term debt securities. If the Georgia Portfolio takes a
temporary defensive position, it may be unable to achieve its investment goal.
Principal Investments of Alterman
Consistent with Alterman's fundamental and non-fundamental investment
policies, Alterman invests in tax free municipal securities and pending such
investment or distribution of dividends, the Fund's assets and net proceeds
thereof (or interest earned thereon) may be invested in short-term securities
such as certificates of deposit, commercial paper, U.S. government securities
or may be retained in cash in conformity with the 1940 Act.
Investment Practices of Alterman and the Georgia Portfolio
Alterman and the Georgia Portfolio may engage in certain investments and
investment techniques that are substantially the same. The following is a
brief description of these investment practices. The Georgia Portfolio may
explicitly engage in certain additional investment practices, as described
above, and a more complete description is contained in the prospectus of the
Georgia Portfolio, dated July 29, 1999, as supplemented from time to time, a
copy of which is included herewith, and in the Statement of Additional
Information of the Muni Funds and Alterman dated November 15, 1999 (relating
to the proposed Reorganization) which is incorporated herein by reference.
Municipal Obligations. In general, municipal obligations are debt
obligations (bonds or notes) issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies
and instrumentalities the interest on which is exempt from Federal income tax
in the opinion of bond counsel to the issuer. Municipal obligations are issued
to obtain funds for various public purposes, many of which may enhance the
quality of life, including the construction of a wide range of public
facilities, such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets, water and sewer works, gas, and electric
utilities. They may also be issued to refund outstanding obligations, to
obtain funds for general operating expenses, or to obtain funds to loan to
other public institutions and facilities and in anticipation of the receipt of
revenue or the issuance of other obligations. In addition, the term "municipal
obligations" includes certain types of industrial development bonds ("IDBs")
issued by public authorities to obtain funds to provide various privately-
operated facilities for business and manufacturing, housing, sports,
convention or trade show facilities, airport, mass transit, port and parking
facilities, air or water pollution control facilities, and certain facilities
for water supply, gas, electricity or sewerage or solid waste disposal.
The two principal classifications of municipal obligations are "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
13
<PAGE>
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. Although IDBs are issued by municipal authorities, they are generally
secured by the revenues derived from payments of the industrial user. The
payment of the principal and interest on IDBs is dependent solely on the
ability of the user of the facilities financed by the bonds to meet its
financial obligations and the pledge, if any, of real and personal property so
financed as security for such payment.
Short-Term Instruments. Among the types of short-term instruments in which
each Fund may invest are floating- or variable-rate 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). Each Fund
may purchase participation interests 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
fund.
Investments in participation interests in variable-rate tax-exempt
securities (such as IDBs) purchased from banks give the purchaser an undivided
interest in the tax-exempt security in the proportion that the Fund
participation interest bears to the total principal amount of the tax-exempt
security with a demand repurchase feature. Participation interests are
frequently backed by an irrevocable letter of credit or guarantee of a bank
that the investment adviser, under the supervision of each Fund's Board, has
determined meets the prescribed quality standards for the fund. The Funds
generally have the right to sell the instrument back to the bank and draw on
the letter of credit on demand on seven days' notice or less, for all or any
part of the applicable Fund's participation interest in the tax-exempt
security, plus accrued interest. Banks will retain a service and letter of
credit fee and a fee for issuing repurchase commitments in an amount equal to
the excess of the interest paid on the tax-exempt securities over the
negotiated yield at which the instruments were purchased by a Fund.
Illiquid securities. Each Fund may invest a portion of its assets in
securities for which there is not an active trading market, or which have
resale restrictions. These types of securities generally offer a higher return
than more readily marketable securities, but carry the risk that a Fund may be
not be able to dispose of them at an advantageous time or price.
Municipal Leases. Each Fund may invest in "municipal leases," which
generally are participations in intermediate- and short-term debt obligations
issued by municipalities consisting of leases or installment purchase
contracts for property or equipment. Although lease obligations do not
constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. In addition
to the "non-appropriation" risk, these securities represent a relatively new
type of financing that has not yet developed the depth of marketability
associated with more conventional bonds. Although "non-appropriation" lease
obligations are often secured by the underlying property, disposition of the
property in the event of foreclosure might prove difficult.
Private Activity Bonds. Each Fund may invest in private activity bonds.
Interest income on certain types of private activity bonds issued after August
7, 1986 to finance non-governmental activities is a specific tax preference
item for purposes of the federal individual and corporate alternative minimum
taxes. Individual and corporate shareholders may be subject to a Federal AMT
to the extent that the applicable Fund's dividends are derived from interest
on those bonds.
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<PAGE>
Repurchase agreements. As a means of earning taxable income for periods as
short as overnight, each Fund may enter into repurchase agreements with
selected banks and broker/dealers. Under a repurchase agreement, a Fund
acquires securities, subject to the seller's agreement to repurchase at a
specified time and price. Income from repurchase agreements will be taxable
when distributed to shareholders.
When-Issued Securities. Each Fund may purchase municipal bonds on a "when-
issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). The payment obligation and the interest rate that
will be received on the municipal bonds purchased on a when-issued basis are
each fixed at the time the buyer enters into the commitment. Although a Fund
will purchase municipal bonds on a when-issued basis only with the intention
of actually acquiring the securities, the Fund may sell these securities
before the settlement date if it is deemed advisable as a matter of investment
strategy.
Zero Coupon Securities. Each Fund may invest in zero coupon bonds. Zero
coupon securities are debt obligations which do not entitle the holder to any
periodic payments of interest prior to maturity of a specified cash payment
date when the securities begin paying current interest (the "cash payment
date") and therefore are issued and traded at a discount from their face
amounts or par values. The discount varies depending on the time remaining
until maturity or cash payment date, prevailing interest rates, liquidity of
the security and the perceived credit quality of the issuer. The discount, in
the absence of financial difficulties of the issuer, decreases as the final
maturity or cash payment date of the security approaches. The market prices of
zero coupon securities generally are more volatile than the market prices of
other debt securities that pay interest periodically and are likely to respond
to changes in interest rates to a greater degree than do debt securities
having similar maturities and credit quality. The credit risk factors
pertaining to low-rated securities also apply to low-rated zero coupon bonds.
Such zero coupon bonds carry an additional risk in that, unlike bonds which
pay interest throughout the period to maturity, a Fund will realize no cash
until the cash payment date unless a portion of such securities is sold and,
if the issuer defaults, the applicable Fund may obtain no return at all on its
investment.
THE PROPOSED TRANSACTION
Description of the Plan. As stated above, the Plan provides for the transfer
of all or substantially all of the assets of Alterman to the Georgia Portfolio
in exchange for that number of full and fractional Class A shares of the
Georgia Portfolio having an aggregate net asset value equal to the aggregate
net asset value of each Alterman shareholder's shares held in Alterman as of
the close of business on the business day preceding the date of the Closing.
The Georgia Portfolio will assume all of the stated liabilities of Alterman.
In connection with the Closing, Alterman will distribute Class A shares of
beneficial interest of the Georgia Portfolio received in the exchange to the
shareholders of Alterman in complete liquidation of Alterman. Alterman will
then be terminated as a diversified closed-end management investment company
and dissolved as a corporation under Delaware law.
Upon completion of the Reorganization, each shareholder of Alterman will own
that number of full and fractional Class A shares of the Georgia Portfolio
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares held in Alterman immediately as of the close of
business on the business day preceding the Closing. Each Alterman
shareholder's account with the Muni Funds as a Georgia Portfolio shareholder
will be significantly different in material respects to the accounts currently
maintained by Wachovia Bank of Georgia, N.A. for such shareholder, as noted in
this Proxy Statement/Prospectus. Shares of Alterman are represented by
physical certificates. However, in the interest of economy and convenience,
shares of the Georgia Portfolio issued to Alterman shareholders will be in
uncertificated form.
The obligations of Alterman and Muni Funds, on behalf of the Georgia
Portfolio, under the Plan are subject to various conditions, as stated
therein. Among other things, the Plan requires that all filings be made with,
and all authority be received from, the SEC and state securities commissions
as may be necessary in the opinion of counsel to permit the parties to carry
out the transactions contemplated by the Plan. Alterman and the Georgia
Portfolio are in the process of making the necessary filings. To provide
against unforeseen events, the Plan may
15
<PAGE>
be terminated or amended at any time prior to the Closing by action of the
Board of Directors/Trustees of either Fund, notwithstanding the approval of
the Plan by the shareholders of Alterman. However, no amendment may be made
that materially adversely affects the interests of the shareholders of
Alterman without obtaining the approval of Alterman shareholders. Alterman and
the Georgia Portfolio may at any time waive compliance with certain of the
covenants and conditions contained in the Plan.
The Plan provides that the obligations of Muni Funds are not personally
binding upon any of the Trustees, shareholders, nominees, officers, agents, or
employees of Muni Funds or the Georgia Portfolio, but bind only the property
of the Georgia Portfolio as provided in Muni Funds' Declaration of Trust.
Moreover, no series of Muni Funds other than the Georgia Portfolio is
responsible for the obligations of Muni Funds under the Plan, and all persons
must look only to the assets of the Georgia Portfolio to satisfy the
obligations of Muni Funds under the Plan. The execution and the delivery of
the Plan have been authorized by Muni Funds' Board of Trustees, on behalf of
the Georgia Portfolio, and the Plan has been signed by authorized officers of
the Georgia Portfolio acting as such, and neither such authorization by such
Trustees, nor such execution and delivery by such officers, shall be deemed to
have been made by any of them individually or to impose any liability on any
of them personally. For a complete description of the terms and conditions of
the Reorganization, see the Plan at Exhibit A.
The Georgia Portfolio will bear all the expenses it incurs in connection
with the Reorganization. Salomon Smith Barney will assume and pay a majority
of the legal and accounting expenses that are solely and directly related to
the Reorganization, within the meaning of Revenue Ruling 73-54, which expenses
are estimated to be approximately $40,000. Accordingly, Alterman will bear
relatively limited expenses relating to the Reorganization. Shareholders have
no rights of appraisal.
Reasons for the Proposed Transaction
At meetings on November 10, 1998, January 1999, May 7, 1999, and June 8,
1999, the Board of Directors of Alterman considered its strategic
alternatives, including a business combination with an open-end management
investment company. On May 7, 1999, the Board authorized the commencement of
negotiations with the Georgia Portfolio with respect to the Reorganization.
Prior to that, representatives of Alterman received presentations by
representatives of SSBC and other mutual fund complexes. The proposed
Reorganization was presented to the Board of Directors for consideration and
approval at a meeting on July 15, 1999. At that meeting, the Board reviewed
information and representations presented to it by Hunton & Williams, counsel
to Alterman, including information concerning the differences between closed-
end and open-end management investment companies, Alterman's operations and
performance to date, and the possible effects of conversion on Alterman.
Alterman's Board was also informed that the proposal to open-end the Fund
would not involve a significant change of investment style for the Fund,
except that the average maturity of the Georgia Portfolio is longer than that
of Alterman and that the Georgia Portfolio may be invested from time to time
in bonds that, while investment grade, have lower ratings from a NRSRO than
the bonds invested in by Alterman. Alterman's Board was further informed that
the Georgia Portfolio's annualized total expense ratio (after taking into
account certain expense limitation arrangements) was lower than that of
Alterman as of their respective fiscal year ends. For the reasons discussed
below, the Board of Directors of Alterman, including all of the Non-Interested
Directors, has unanimously determined that the interests of the shareholders
of Alterman will not be diluted as a result of the proposed Reorganization,
and that the proposed Reorganization is in the best interests of Alterman and
its shareholders.
The proposed combination of Alterman and the Georgia Portfolio will allow
the shareholders of Alterman to participate in a professionally-managed open-
end investment company holding primarily high quality bonds and to earn a high
level of return consistent with a high degree of principal stability. The
Directors of Alterman believe that Alterman shareholders will benefit from the
proposed Reorganization because the Georgia Portfolio is guided by similar
investment objectives and policies as the Fund, and offers the following
benefits:
Greater Liquidity of Shares. As shareholders of the Georgia Portfolio,
Alterman shareholders will be able to purchase, redeem and exchange the Shares
at net asset value on any business day subject only to the
16
<PAGE>
various limitations set forth in the Georgia Portfolio's prospectus and in
certain instances to the payment of a sales load, which is intended to
discourage short-term trading in the Georgia Portfolio which is intended for
long-term investment. Currently, Alterman shareholders cannot transfer, redeem
or exchange their shares in Alterman.
Access to SSBC's Investment Advisory Expertise. SSBC, an affiliate of
Salomon Smith Barney, is a subsidiary of Citigroup Inc. As of June 30, 1999,
SSB Citi Asset Management Group, which is comprised of Citigroup Inc.'s
primary asset management business platforms, has assets under management of
approximately $347 billion. SSB Citi Asset Management Group has a strong
product balance among equities, fixed income and liquidity products. SSB Citi
Asset Management Group has investment centers in the United States, Europe,
Japan, Latin America, Asia Pacific and Australia and has global research
centers in New York, London, Tokyo, Singapore and Melbourne. Citigroup
businesses produce a broad range of financial services--asset management,
banking and consumer finance, credit and charge cards, insurance, investments,
investment banking and trading--and use diverse channels to make them
available to consumer and corporate customers around the world.
Opportunity for Higher Annual Income and Return. The Board of Alterman
anticipates that Georgia Portfolio would normally achieve a higher level of
income and return over a year's time than Alterman. This would occur for
various reasons. First, the Georgia Portfolio will invest in a portfolio of
municipal securities as selected by SSBC the income from which will be exempt
from federal and Georgia personal taxes in pursuit of its investment
objective, which may potentially generate higher income. Second, as discussed
in detail below, the total operating expenses of the Georgia Portfolio
(assuming the continuation of waivers and reimbursements by SSBC on behalf of
the Georgia Portfolio) are projected to be lower than the total operating
expenses to be incurred by Alterman.
The Georgia Portfolio has generally produced better total returns than
Alterman over comparable one-, three-, and five-year or since inception
periods. In addition, the average term of the securities held by the Georgia
Portfolio has historically been longer than the average term of the securities
held by Alterman. During each of these periods, the Shares of the Georgia
Portfolio have ranked in the top quartile of its fund category as tracked by
Lipper Analytical Services. Past performance is not necessarily indicative of
future results.
Lower Fees and Expenses. If the proposed transaction is approved, Alterman
shareholders may benefit from lower fees and lower total fund expenses (after
taking into account certain expense limitation arrangements). Please refer to
"Investment Management Fees and Expenses" and "Annual Fund Operating Expenses"
set forth above.
Alterman has higher gross operating expenses due to its relatively small
level of assets. As of April 30, 1999, Alterman had gross annual operating
expenses of 0.67%. As of March 31, 1999, the Georgia Portfolio had gross
annual operating expenses of 0.64% (after taking into account certain expense
limitation arrangements). As a result of the Reorganization, Alterman
shareholders will be investing in a Fund with expenses that are currently .03%
lower than Alterman's expense ratio. If the Reorganization is approved by
Alterman shareholders, the Georgia Portfolio's net expense ratio is expected
to remain unchanged for the year ending March 31, 2000.
Some of the fixed expenses currently paid by the Georgia Portfolio, such as
accounting, legal and printing costs, would be spread over a larger asset
base. Other things being equal, shareholders should benefit from economies of
scale through lower expense ratios and higher net income distributions.
Due to a combination of factors, including the greater liquidity of the
Georgia Portfolio Shares, the investment advisory expertise of SSBC, the small
size of Alterman and current market conditions, the Board of Directors of
Alterman believes the Fund and its shareholders would benefit from a tax-free
reorganization with a larger non-diversified open-end fund with similar
investment objectives and policies. Accordingly, it is recommended that the
Alterman shareholders approve the Reorganization with the Georgia Portfolio.
17
<PAGE>
The Board of Directors of Alterman, in recommending the proposed
transaction, considered a number of factors, including the following:
(1) the greater liquidity of the Georgia Portfolio's Class A shares;
(2) the current and continuing capabilities and resources of SSBC and its
affiliates in the areas of marketing, investment management,
administration and shareholder service which are and will continue to
be available to the Georgia Portfolio;
(3) the tax-free nature of the Reorganization;
(4) the current and potentially higher income levels, higher annual return
and lower expense ratio of the Georgia Portfolio;
(5) the positive compatibility of the Georgia Portfolio's investment
objectives, policies and restrictions with those of Alterman;
(6) the terms and conditions of the Reorganization and that it should not
result in a dilution of Alterman shareholder interests; and
(7) the relatively limited costs and expenses to Alterman of the proposed
Reorganization.
Description of the Securities to be Issued
The Georgia Portfolio is a non-diversified series of Muni Funds, an open-end
Massachusetts business trust established under a Declaration of Trust, dated
August 14, 1985, as amended. Muni Funds' authorized capital consists of an
unlimited number of shares of beneficial interest, par value $0.001 per share.
The Trustees are authorized to divide the shares into separate series.
Information on Shareholders' Rights
Georgia Portfolio
General. The Georgia Portfolio, a series of Muni Funds, is a diversified
open-end management investment company under the 1940 Act. Muni Funds was
organized on August 14, 1985 under the laws of The Commonwealth of
Massachusetts and is an entity commonly known as a Massachusetts business
trust. 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, the
Portfolio is governed by Massachusetts state law and federal law.
Shares of beneficial interest in the Georgia Portfolio have a par value of
$.001 per share. The number of authorized shares of the Georgia Portfolio that
may be issued is unlimited. The Board of Trustees of Muni Funds has authorized
the issuance of multiple series of shares, each representing shares in a
corresponding portfolio, and may authorize the issuance of additional series
of shares in the future. In each portfolio of Muni Funds, 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 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.
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<PAGE>
Voting Rights. The Georgia Portfolio does not hold 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 the Portfolio, for any purpose, must be called upon the
written request of shareholders holding at least 25% of the Portfolio's
outstanding shares. On each matter submitted to a vote of the shareholders of
the 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 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 the Georgia Portfolio, the shareholders of the Portfolio are entitled to
receive, when, and as declared by the Trustees, as the case may be, the excess
of its assets over its liabilities. The assets so distributed to shareholders
of the 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 Portfolio.
Liability of Trustees. Under the Declaration of Trust and By-Laws of 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
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 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 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.
Muni Funds' Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of Muni Funds and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed
by Muni Funds. The Declaration of Trust also provides for indemnification out
of the property of Muni Funds for all losses and expenses of any shareholder
held personally liable for the obligations of Muni Funds. Shares of the
Georgia Portfolio issued to Alterman shareholders will be fully paid and
nonassessable when issued, transferable without restrictions and will have no
preemptive rights.
Alterman
General. Alterman is a diversified closed-end management investment company
under the 1940 Act. Alterman was organized as a corporation on April 29, 1955
under the laws of the State of Delaware and elected to become a closed-end
management investment company in 1980. Alterman is governed by its Certificate
of Incorporation and By-Laws, and its operations are subject to oversight by
its Board of Directors. Therefore, Alterman is governed by Delaware state law
and federal law.
Stock. Alterman's Certificate of Incorporation provides that it is
authorized to issue 800,000 shares of Common Stock, $2.50 par value. Holders
of Alterman's Common Stock have no preemptive rights.
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<PAGE>
Directors. The Certificate of Incorporation and By-laws of Alterman provide
that there shall be from three to fifteen Directors, and each Director is
elected for a term of one year, and until his or her successor shall be
elected and shall qualify. A Director may be removed with or without cause by
a majority vote of Alterman's stockholders at a special meeting of
stockholders duly called in compliance with Alterman's By-laws. Vacancies on
the Board of Directors may be filled by the Directors remaining in office,
except for vacancies occurring by stockholder vote at a special meeting, if
otherwise provided in such proceeding.
Voting Rights. Alterman holds annual stockholders meetings for the purpose
of electing Directors and for the transaction of other business as may be
properly brought before the meeting. A special meeting of Alterman
stockholders may be called by the Board of Directors, the Chairman of the
Board of Directors, the President, any Vice-President or upon the written
request of stockholders holding at least 40% of Alterman's outstanding shares.
On each matter submitted to a vote of the Alterman stockholders, each
stockholder is entitled to one vote for each whole share owned and a
proportionate, fractional vote for each fractional share outstanding in the
stockholder's name on Alterman's books. Except as otherwise required by
Delaware law, Alterman's Certificate of Incorporation and By-laws provide that
for matters requiring a majority stockholder vote, a majority of shares
represented in person or by proxy and entitled to vote at a meeting of
stockholders at which a quorum is present shall decide such matter, and
Directors are elected by a plurality of the votes cast at such meeting.
Dissolution. In the event of the dissolution of Alterman, the stockholders
of Alterman are entitled to receive, after Alterman has made arrangements to
pay all claims and obligations in accordance with Delaware law, any remaining
assets. The assets so distributed to stockholders of Alterman will be
distributed among the stockholders in proportion to the number of shares held
by them and recorded on the books of Alterman.
Liability of Directors. The By-laws of Alterman provide that each director
or officer, whether or not then in office, shall be indemnified against all
costs and expenses reasonably incurred by or imposed upon him or her in
connection with or arising out of any action, suit, or proceeding in which he
or she may be involved by reason of his or her being or having been a director
or officer of the corporation, such expenses to include the cost of reasonable
settlements (other than amounts paid to the corporation itself) made with a
view to curtailment of costs of litigation. Alterman shall not, however,
indemnify any director or officer with respect to matters as to which he or
she may be finally adjudged in any such action, suit, or proceeding to have
been derelict in the performance of his or her duty as such director or
officer, nor in respect of any matter on which any settlement or compromise is
effected, if the total expense, including the cost of such settlement, shall
substantially exceed the expense which might reasonably be incurred by such
director or officer in conducting such litigation to a final conclusion. The
foregoing right of indemnification shall not be exclusive of other rights to
which any director or officer may be entitled as a matter of law.
Rights of Inspection. Under Delaware corporate law, each Alterman
stockholder has the right, upon written demand under oath, to inspect, for any
proper purpose, Alterman's stock ledger, a list of its stockholders, and its
other books and records, and to make copies and extract therefrom.
Stockholder Liability. Under Delaware law, stockholders of a Delaware
corporation may be held personally liable for unpaid shares subscribed for
and/or held by such stockholder. Stockholders may also be liable for certain
claims against a dissolved corporation if certain Delaware law dissolution
procedures were not followed, but only to the extent of amounts distributed to
such stockholder in dissolution.
The foregoing is only a summary of certain characteristics of the operations
of the Georgia Portfolio and Alterman. The foregoing is not a complete
description of the documents cited. Shareholders should refer to the
provisions of the trust and corporate documents and Massachusetts and Delaware
law governing the Georgia Portfolio and Alterman, respectively, for a more
thorough description.
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<PAGE>
Federal Income Tax Consequences
The Reorganization is conditioned upon the receipt by Alterman of an opinion
from Hunton & Williams and the receipt by Muni Funds, on behalf of the Georgia
Portfolio, of an opinion from Willkie Farr & Gallagher, each dated the Closing
Date, substantially to the effect that, based upon certain facts, assumptions
and representations of the parties (including the principal shareholders of
Alterman), for Federal income tax purposes: (i) the transfer to the Georgia
Portfolio of all or substantially all of the assets of Alterman in exchange
solely for Shares and the assumption by the Georgia Portfolio of all of the
stated liabilities of Alterman, followed by the distribution of such Shares to
Alterman shareholders in exchange for their shares of Alterman in complete
liquidation of Alterman, will constitute a "reorganization" within the meaning
of Section 368(a)(1) of the Code, and the Georgia Portfolio and Alterman will
each be "a party to a reorganization" within the meaning of Section 368(b) of
the Code; (ii) no gain or loss will be recognized by Alterman upon the
transfer of all or substantially all of its assets to the Georgia Portfolio in
exchange solely for Shares and the assumption by the Georgia Portfolio of all
of the stated liabilities of Alterman, or upon the distribution of Shares to
the shareholders of Alterman; (iii) the basis of the assets of Alterman in the
hands of the Georgia Portfolio will be the same as the basis of such assets of
Alterman immediately prior to the transfer; (iv) the holding period of the
assets of Alterman in the hands of the Georgia Portfolio will include the
period during which such assets were held by Alterman; (v) no gain or loss
will be recognized by the Georgia Portfolio upon the receipt of the assets of
Alterman in exchange for Shares and the assumption by the Georgia Portfolio of
all of the stated liabilities of Alterman; (vi) no gain or loss will be
recognized by the shareholders of Alterman upon the receipt of Shares solely
in exchange for their shares of Alterman as part of the transaction; (vii) the
aggregate basis of Shares received by a shareholder of Alterman will be the
same as the aggregate basis of the shares of Alterman exchanged therefor; and
(viii) the holding period of Shares received by a shareholder of Alterman will
include the holding period during which the shares of Alterman exchanged
therefor were held, provided that at the time of the exchange the shares of
Alterman were held as capital assets by the shareholder.
While neither Alterman nor Muni Funds is aware of any adverse state or local
tax consequences of the proposed Reorganization, they have not requested any
ruling or opinion with respect to such consequences and shareholders may wish
to consult their own tax adviser with respect to such matters. The dividend(s)
required by the Plan to be declared and distributed by Alterman to its
shareholders prior to the Closing of the Reorganization will be taxable or tax
exempt, as the case may be, to Alterman shareholders in the same manner as if
the Reorganization had not been contemplated or entered into by Alterman and
Muni Funds.
Liquidation and Termination of Alterman
If the Reorganization is effected, Alterman will be liquidated and
terminated as a diversified closed-end management investment company and
dissolved as a corporation under Delaware law.
Portfolio Securities
If the Reorganization is effected, SSBC will analyze and evaluate the
portfolio securities of Alterman being transferred to the Georgia Portfolio.
Consistent with the Georgia Portfolio's investment objective and policies, any
restrictions imposed by the Code and the best interests of the Georgia
Portfolio's shareholders (including former Alterman shareholders), SSBC will
determine the extent and duration to which the Alterman portfolio securities
will be maintained by the Georgia Portfolio. It is not currently anticipated
that there would be a significant rebalancing of the Alterman portfolio
securities following the consummation of the Reorganization. Subject to market
conditions at the time of any such rebalancing, the disposition of Alterman
portfolio securities may result in a capital gain or loss. The actual tax
consequences of any disposition of portfolio securities will vary depending
upon the specific security(ies) being sold. To the extent securities in the
Alterman portfolio are disposed of prior to the Reorganization, the tax
consequences and other costs and expenses associated with such disposition
will be borne solely by Alterman and its shareholders.
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<PAGE>
Portfolio Turnover
The portfolio turnover rate for the Georgia Portfolio (i.e., the ratio of
the lesser of annual sales or purchases to the monthly average value of the
portfolio) (excluding from both the numerator and the denominator securities
with maturities at the time of acquisition of one year or less), for the year
ended March 31, 1999 was 48%. The portfolio turnover rate for Alterman for the
year ended April 30, 1999 was 11%.
Capitalization and Performance
Pro Forma Capitalization (unaudited)
The following table sets forth the unaudited capitalization of the Georgia
Portfolio and Alterman as of April 30, 1999 as adjusted giving effect to the
Reorganization discussed herein:(1)
<TABLE>
<CAPTION>
Georgia
Georgia Pro Forma Portfolio
Portfolio Alterman Adjustments Combined
----------- ----------- ----------- -----------
(Actual) (Actual)
<S> <C> <C> <C> <C>
Net Assets...................... $56,178,795 $22,325,772 115,724 $78,620,291
Net Asset Value Per Share....... $ 13.39 $ 28.34 -- $ 13.39
Shares Outstanding.............. 4,196,035 787,769 887,764 5,871,568
</TABLE>
- --------
(1) Assumes the Reorganization had been consummated on December 10, 1999, and
is for information purposes only. No assurance can be given as to how many
shares of the Georgia Portfolio will be received by shareholders of
Alterman on the date the Reorganization takes place, and the foregoing
should not be relied upon to reflect the number of shares of the Georgia
Portfolio that actually will be received on or after such date.
Total return is a measure of the change in value of an investment in a fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the fund rather than
paid to the investor in cash. The formula for total return used by a fund is
prescribed by the SEC and includes three steps: (1) adding to the total number
of shares of the fund that would be purchased by a hypothetical $1,000
investment in the fund all additional shares that would have been purchased if
all dividends and distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the redeemable value of the
hypothetical initial investment as of the end of the period by multiplying the
total number of shares owned at the end of the period by the net asset value
per share on the last trading day of the period; and (3) dividing this account
value for the hypothetical investor by the amount of the initial investment,
and annualizing the result for periods of less than one year. Total return may
be stated with or without giving effect to any expense limitations in effect
for a fund.
22
<PAGE>
The following table reflects the average annual total return for the 1, 5
and 10 year periods ending April 30, 1999 for Alterman and March 31, 1999 for
the Georgia Portfolio, and the 30-day SEC yield for the Georgia Portfolio as
of October 29, 1999:
<TABLE>
<CAPTION>
Alterman GEORGIA Portfolio(1)
-------- --------------------
<S> <C> <C>
Average Annual Total Return:
1-year............................................ 3.31% 5.62%
3-year............................................ 3.40% 8.41%
5-year............................................ 3.61% N/A
10-year/Since inception........................... 5.92% 8.34%(2)
30-day SEC Yield.................................. N/A 5.09%(3)
</TABLE>
- --------
(1) If SSBC had not temporarily waived fees and reimbursed expenses, the
cumulative total return of the Georgia Portfolio for the one year and
since inception periods would have been lower.
(2) Since inception on April 4, 1994.
(3) This reflects the yield for the Class A shares of the Georgia Portfolio.
Investment Manager
SSBC is the investment manager for the Georgia Portfolio pursuant to an
investment management agreement with Muni Funds, on behalf of the Georgia
Portfolio. SunTrust is the investment manager for Alterman pursuant to an
investment management agreement with Alterman.
Additional Information about the Georgia Portfolio and Alterman
As noted above, additional information about Alterman, the Georgia Portfolio
of Muni Funds and the Reorganization has been filed with the SEC and may be
obtained without charge by writing to Alterman Investment Fund, Inc., 182
Hilderbrand Drive, Suite 102, Atlanta, Georgia 30328, or by calling (800) 861-
1844.
Alterman and Muni Funds are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act, and in
accordance therewith, files reports, proxy material and/or other information
about the applicable Fund with the Securities and Exchange Commission.
Such reports, proxy material and/or other information can be inspected and
copied at the Public Reference Room maintained by the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates and without
charge from Alterman or Muni Funds at the addresses set forth above.
The Board Members of Alterman Recommend that the Shareholders of the Fund Vote
in Favor of this Proposal.
23
<PAGE>
PROPOSAL 2: ELECTION OF DIRECTORS
Five directors are to be elected. The proxyholders intend to vote for the
five persons named below as directors for a one-year term of office.
Management recommends that the five nominees named below be elected to the
Board of Directors for one-year terms of office. The five nominees have
consented to being named in the proxy statement and to serve if elected.
Unless otherwise directed in the proxy form, the proxyholders intend to vote
in favor of electing the five nominees as directors for one-year terms of
office and until their respective successors are elected and shall qualify.
Although management does not contemplate the possibility, in the event any
nominee is not a candidate or is unable to serve as a director at the time of
the election, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill such vacancy.
The current members of the Board of Directors, who own of record and
beneficially approximately 18% of the voting securities of Alterman, have
informed Alterman that they intend to vote for the election of the five
nominees named below.
The name and age of each nominee, the term of office for which he is
proposed to be elected, his principal occupation, the period during which he
has served as a director, the number of shares of Alterman Common Stock
beneficially owned directly or indirectly by each nominee as of the close of
business on November 1, 1999, and the percentage of outstanding shares of
Alterman's Common Stock such ownership represented at November 1, 1999
(according to information received by Alterman) are as set out below.
<TABLE>
<CAPTION>
Shares of
Common
Stock
Owned as of Percent of
Principal Director Term November 1, Outstanding
Name Occupation Age Since Expires 1999(1) Shares
- ---- ------------------------ --- -------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Perry Alterman* General Manager, 62 1991 1999 10,269(2) 1.3(2)
Cumberland Real Estate
(family real estate
holdings)
Daniel Alterman*(3) Partner, Alterman Real 45 1998 1999 49,200 6.3
Estate, Ltd.
Kusiel Kaplan*(3) General Manager, 80 1998 1999 71,025 9.0
Alterman Enterprises,
Ltd.
Stanley Friedman(3) Management of personal 68 1998 1999 7,000(2) 0.8
investments
Joel F. Fryer Senior State Judge, 70 1980 1999 None 0
State of Georgia
All offices and 165,688(2) 19.7(2)
Directors as a Group (7
persons)
</TABLE>
- --------
* The named individual is an "interested person" as defined in the 1940 Act
due to the extent of such person's holdings of Alterman Common Stock and/or
position as an officer of Alterman.
(1) Includes the beneficial ownership of shares of Common Stock held by the
named individuals and their wives individually or as custodian for their
minor children as follows: 1,300 shares held by Perry Alterman as
custodian for minor children. As to Daniel Alterman, includes 40,000
shares held by the Sam P. Alterman Family Foundation of which he is one of
five trustees. As to Kusiel Kaplan, includes 58,725 shares held by wife.
(2) Shares which are beneficially owned by the emancipated descendants of
Perry Alterman and Daniel Alterman and by or for the benefit of such
emancipated descendants are not included in the table. Messrs. Perry and
Daniel Alterman disclaim the beneficial ownership of the shares held by
their brothers and their brothers' wives, emancipated descendants and by
or for the benefit of their and their brothers' emancipated descendants.
As to Mr. Friedman, includes 6,000 shares held in two corporations of
which Mr. Friedman is a shareholder.
(3) Upon the resignation of Paul Alterman from the board of directors on
November 20, 1997, the board of directors elected Daniel Alterman to fill
the remaining term of the position left vacant by such resignation.
Effective March 17, 1998 the Board of Directors elected Kusiel Kaplan to
serve as a director of Alterman to fill the remaining term of the vacancy
created by the death of Malcolm Alterman (who had served as a director
since 1986) and elected Stanley Friedman to serve as a director to fill
the remaining term of the vacancy created by the death of Al Garber (who
had served as a director since 1980).
24
<PAGE>
C.H. Shepherd, 81, has been Controller of Alterman since May 27, 1982 and
Secretary of Alterman since August 19, 1980 and will continue to serve as
Controller and Secretary until his successor is elected and qualifies.
Alterman has no standing audit, nominating or compensation committees.
During fiscal 1999, a total of four meetings of Alterman's Board of
Directors were held. No director participated in fewer than 75% of the total
number of Board meetings.
During the past five years, the current directors of Alterman have been
engaged in the principal occupation shown in the table above. Perry Alterman
and Daniel Alterman are cousins. Mr. Kaplan is the husband of Paula Alterman
Kaplan, an owner of approximately 10.6% of the outstanding Common Stock of
Alterman.
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon a review of Forms 3, 4 or 5, or written statements representing
that no Form 5 was required, furnished to Alterman by Alterman's directors,
officers subject to the provisions of Section 16 of the Securities Exchange
Act of 1934, as amended ("Exchange Act") and persons holding ten percent (10%)
or more of the outstanding Common Stock of Alterman, Alterman believes that
all filing requirements of such persons under Section 16 of the Exchange Act
during the fiscal year ended April 30, 1999 have been satisfied.
Investment Adviser's Agreement with Suntrust Bank
On August 19, 1980, the stockholders approved the Investment Adviser's
Agreement (the "Adviser's Agreement") between Alterman and SunTrust.
SunTrust does not serve as investment adviser for any other "investment
companies" as defined in the 1940 Act, as amended, but is responsible for the
management of investments of many private investment portfolios. None of the
nominees to the Board of Directors or present officers of Alterman are
officers, employees, or directors of SunTrust.
Under the Adviser's Agreement, SunTrust furnishes Alterman investment advice
with respect to the investment and reinvestment of the assets comprising
Alterman's investment portfolio. The Adviser's Agreement further provides that
SunTrust, as agent and attorney-in-fact with respect to Alterman's investment
portfolio, may, when it deems appropriate, without prior consultation with
Alterman and at the risk of Alterman, buy, sell, exchange, convert or
otherwise trade in, retain or reinvest in securities and other investments,
place orders for the execution of such investment transactions with or through
such brokers, dealers, issuers or other persons as SunTrust may select, and
take any action or non-action that SunTrust reasonably deems appropriate. All
services provided Alterman pursuant to the Adviser's Agreement are furnished
by SunTrust.
Under the Adviser's Agreement, Alterman is required to pay SunTrust for its
services furnished under the Adviser's Agreement, within fifteen days after
the close of each calendar month, an amount equal to one-twelfth ( 1/12) of
.1125% of the market value of Alterman's portfolio securities at the close of
each preceding calendar month. In addition, Alterman has agreed to indemnify
SunTrust in the absence of willful misfeasance, bad faith or gross negligence.
During fiscal 1999, Alterman paid advisory fees aggregating $24,858 to
SunTrust pursuant to the Adviser's Agreement.
In order to avoid any potential conflict of interest in connection with the
rendering of investment advice and the execution of investment transactions,
no investment transactions are made through the Bond Department of SunTrust.
The Adviser's Agreement was entered into and became effective on August 20,
1980 and provides that it shall remain in effect for two years from such date,
and from year to year thereafter so long as continuance is specifically
approved at least annually by the Board of Directors of Alterman or by vote of
the holders of a majority of the voting securities of Alterman. In addition,
under the provisions of the Adviser's Agreement and
25
<PAGE>
of the 1940 Act the Adviser's Agreement may not be extended unless such
extension is approved annually by a majority of the directors of Alterman who
are not parties to the contract or "interested persons" of any such party at a
meeting called for the purpose of considering approval of the Adviser's
Agreement. On May 27, 1982 the Board of Directors of Alterman unanimously
approved an extension of the Adviser's Agreement through August 20, 1983, and
a one-year extension was unanimously approved in each subsequent year. On May
7, 1999, the Board of Directors of Alterman unanimously approved an extension
of the Adviser's Agreement through August 20, 2000.
The Adviser's Agreement further provides that each party has the right to
terminate the Adviser's Agreement without penalty upon sixty (60) days written
notice to the other party, and that the Adviser's Agreement will automatically
terminate in the event of its "assignment" as that term is defined under the
1940 Act, unless an order is issued by the Securities and Exchange Commission
conditionally or unconditionally exempting such assignment from the provisions
of Section 15(a) of the 1940 Act in which event the Adviser's Agreement shall
remain in full force and effect.
The address of SunTrust, a bank organized under the laws of the State of
Georgia and a member of the Federal Reserve System, is One Park Place, N.E.,
Atlanta, Georgia 30303.
26
<PAGE>
SunTrust of Georgia, a bank holding company, owns 100% of the outstanding
stock of SunTrust. The address of SunTrust of Georgia is One Park Place,
Atlanta, Georgia 30303.
The following table sets forth certain information concerning the directors
of SunTrust:
<TABLE>
<CAPTION>
Position
With Position
SunTrust With Principal
Name Bank Registrant Occupation Address
- ---- ------------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Mary B. Bullock Director None President, Agnes Scott College
Agnes Scott College 141 East College Ave.
Decatur, GA 30030
William M. Chace Director None President, Emory University
Emory University Atlanta, GA 30322
Gaylord O. Coan Director None Chief Executive Officer, Gold Kist, Inc.
Gold Kist, Inc. P.O. Box 2210
Atlanta, GA 30301
A.D. Correll Director None Chairman, Georgia-Pacific
Chief Executive Officer, Corporation
Georgia-Pacific P.O. Box 105605
Corporation Atlanta, GA 30348
R.W. Courts, II Director None President, Atlantic Realty Company
Atlantic Realty Company 50 Hurt Plaza
Atlanta, GA 30303
A.W. Dahlberg Director None Chairman, President, The Southern Company
and Chief Executive 270 Peachtree Street, NE
Officer, Suite 2200
The Southern Company Atlanta, GA 30303
Larry L. Gellerstedt, Director None President, and American Business
III Chief Executive Officer, Products, Inc.
American Business P.O. Box 105684
Products, Inc. Atlanta, GA 30348
John T. Glover Director None President, Post Properties, Inc.
Post Properties, Inc. 3350 Cumberland Circle
Suite 2200
Atlanta, GA 30339
L. Phillip Humann Director None President, SunTrust Banks, Inc.
SunTrust Banks, Inc. P.O. Box 4418
Atlanta, GA 30302
William B. Johnson Director None Chairman of the Board, W.B. Johnson Properties,
and President, L.L.C.
W.B. Johnson Properties, 3424 Peachtree Road,
L.L.C. N.E.
Suite 2075
Atlanta, GA 30326
M. Douglas Ivester Director None Chairman of the Board, The Coca-Cola Company
Officer, P.O. Drawer 1734
and Chief Executive Atlanta, GA 30301
Officer,
The Coca-Cola Company
J. Hicks Lanier Director None Chairman of the Board Oxford Industries, Inc.
and President, 222 Piedmont Avenue,
Oxford Industries, Inc. N.E.
Atlanta, Georgia
J.L. Lanier, Jr. Director None Chairman of the Board, Dan River, Inc.
Dan River, Inc. P.O. Box 261
Danville, VA 24543
Robert R. Long Chairman None President, SunTrust Bank, Atlanta,
and President SunTrust Bank, Atlanta P.O. Box 4418
Atlanta, GA 30302
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Position
With Position
SunTrust With Principal
Name Bank Registrant Occupation Address
- ---- -------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Dennis M. Love Director None President and Chief Printpack, Inc.
Executive Officer, P.O. Box 43687
Printpack, Inc. Atlanta, GA 30378
Charles H. McTier Director None President, Robert Woodruff
Robert Woodruff Foundation
Foundation 50 Hurt Plaza
Suite 1200
Atlanta, GA 30301
Larry L. Prince Director None Chairman of the Board, Genuine Parts Company
Genuine Parts Company 2999 Circle 75 Parkway
Atlanta, GA 30339
R. Randall Rollins Director None Chairman of the Board, Rollins, Inc.
Rollins, Inc. P.O. Box 647
Atlanta, GA 30301
</TABLE>
Portfolio Transactions and Brokerage
The Adviser's Agreement provides that SunTrust will recommend and implement
investment decisions for Alterman. Subject to the written direction of the
Directors and President of Alterman, SunTrust will select the brokerage firms
which effect securities transactions for Alterman. Alterman paid no
commissions during its last fiscal year.
The Adviser's Agreement provides that in placing orders for the execution of
portfolio transactions for Alterman, SunTrust may allocate such transactions
to such brokers and dealers for execution on such markets, at such prices and
at such commission rates as in the good faith judgment of SunTrust will be in
the best interests of Alterman. SunTrust may take into consideration in the
selection of brokers and dealers not only available prices and rates of
brokerage commissions but also other relevant factors (including execution
capabilities, research and other services such as account evaluation, analysis
and reporting and market information services), which are expected to enhance
the general portfolio management capabilities of SunTrust. Accordingly,
transactions in securities may be effected on behalf of Alterman with brokers
and dealers at prices and rates of commissions that may be in excess of those
which another broker might have charged for effecting the same transaction, in
recognition of the value of brokerage, research or other services provided by
the executing broker. Moreover, research services furnished by brokers through
whom securities transactions are effected on behalf of Alterman may be used by
SunTrust in servicing all of its accounts generally, and not all of such
services may be used by SunTrust in connection with Alterman. While there will
be no agreement or formula for the allocation of brokerage business on the
basis of such factors, all else being equal, the Board of Directors has
designated certain brokers which have in the past provided brokerage and other
services to Alterman as brokers to be selected in future investment
transactions.
SunTrust performs various trust and investment advisory services for various
other clients. Under the Adviser's Agreement, SunTrust may give advice and
take action with respect to any of its other clients, which may differ from
advice given or the timing or nature of action taken with respect to Alterman,
so long as it is the policy of SunTrust, to the extent practical, to allocate
investment opportunities to Alterman over a period of time on a fair and
equitable basis relative to other clients.
In addition, SunTrust has no obligation to purchase or sell, or to recommend
for purchase or sale, for Alterman, any security or other investment which
SunTrust, its principals, affiliates or employees may purchase or sell for its
or their own accounts or for the account of any other clients, if in the
opinion of SunTrust such transaction or investment appears unsuitable,
impractical or undesirable for Alterman.
28
<PAGE>
Executive Compensation
During the fiscal year ended April 30, 1999 no executive officer received
from Alterman aggregate remuneration in excess of $60,000. Messrs. Max
Alterman, Malcolm Alterman, Paul Alterman, Perry Alterman, Daniel Alterman and
Kusiel Kaplan received no remuneration from Alterman during their respective
tenure as directors or officers. Mr. Fryer received $7,000 for fiscal year
April 30, 1999 and Mr. Friedman received $7,000 for fiscal year April 30,
1999, Mr. Friedman received $7,000 since becoming a director in March, 1998
and Mr. C. H. Shepherd, who is an officer but not a director of Alterman,
received no remuneration as an officer. Mr. Shepherd receives $1,524 per month
in exchange for certain bookkeeping and related regulatory compliance services
rendered to Alterman. Directors who are not "interested persons" of Alterman,
as defined in the 1940 Act, receive $500 per month plus $200 per directors
meeting attended in person.
The Board Members of Alterman Recommend that the Shareholders
of the Fund Vote in Favor of this Proposal.
PROPOSAL 3: SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The independent certified public accountants selected by the Directors and
ratified by the stockholders of Alterman to audit the financial and accounting
matters of Alterman for fiscal 1999 was Birnbrey, Minsk & Minsk LLC. Pursuant
to the 1940 Act, a majority of the entire Board of Directors of Alterman,
including a majority of those members of the Board of Directors of Alterman
who are not officers or employees or investment advisors or interested persons
of the investment advisor of Alterman, selected Birnbrey, Minsk & Minsk LLC as
Alterman's independent public accountant for fiscal year 2000 subject to
termination without penalty upon the vote of a majority of the outstanding
voting securities of Alterman at a meeting called for such purpose. The
selection of Birnbrey, Minsk & Minsk LLC as Alterman's independent public
accountant for fiscal year 2000 will be submitted for ratification or
rejection by the holders of a majority of the shares voted at the meeting. The
proxyholders named in the accompanying form of proxy intend to vote "FOR"
ratification of Birnbrey, Minsk & Minsk LLC as the independent auditors of
Alterman for fiscal 2000 unless contrary action is specified by the
stockholders in the space provided in the form of proxy.
Alterman expects that representatives of Birnbrey, Minsk & Minsk LLC will be
present at the Annual Meeting of Stockholders with the opportunity to make a
statement if they desire to do so and that they will be available to respond
to appropriate questions.
The members of the current Board of Directors, who own of record
approximately 18% of the voting securities of Alterman, have informed Alterman
that they intend to vote for ratification of the selection of Birnbrey, Minsk
& Minsk LLC as auditors of Alterman for fiscal 2000.
The Board Members of Alterman Recommend that the Shareholders
of the Fund Vote in Favor of this Proposal.
29
<PAGE>
ADDITIONAL INFORMATION
General
The majority of the cost of preparing, printing and mailing the enclosed
proxy card(s) and Proxy Statement/Prospectus and all other costs incurred in
connection with the solicitation of proxies, including any additional
solicitation made by letter, telephone or telegraph, will be paid by Alterman.
In addition to solicitation by mail, certain officers, employees and
representatives of Alterman and certain financial services firms and their
representatives, who will receive no extra compensation for their services,
may solicit proxies personally.
To participate in the Annual Meeting, the shareholder may submit the proxy
card originally sent with the Proxy Statement/Prospectus or attend in person.
Any proxy given by a shareholder is revocable until voted at the Annual
Meeting.
Proposals of Shareholders
If the Reorganization is not completed and Alterman holds an annual meeting
of stockholders in 2000, appropriate proposals of stockholders intended to be
at such meeting must be received by Alterman by March 9, 2000 for inclusion in
its proxy statement and form of proxy relating to that meeting. If the date of
the next annual meeting is advanced by more than 30 calendar days or delayed
by more than 90 calendar days from the date of the annual meeting to which the
proxy statement relates, Alterman shall, in a timely manner, inform its
stockholders of the change, and the date by which proposals of stockholders
must be received.
Other Matters to come before the Annual Meeting
No Board member is aware of any matters that will be presented for action at
the Annual Meeting other than the matters set forth herein. Should any other
matters requiring a vote of shareholders arise, the proxy in the accompanying
form will confer upon the person or persons entitled to vote the shares
represented by such proxy the discretionary authority to vote the shares as to
any such other matters in accordance with their best judgment in the interest
of Alterman.
Please complete, sign and return the enclosed proxy card(s) promptly. No
postage is required if mailed in the United States.
By order of the Boards of Directors,
/s/ C.H. Shepherd
_____________________________________
C.H. Shepherd
Secretary
30
<PAGE>
INDEX OF EXHIBITS AND APPENDICES
<TABLE>
<C> <S>
Exhibit A: Form of Agreement and Plan of Reorganization
Appendix A: 5% Shareholders of the Georgia Portfolio
</TABLE>
<PAGE>
[This page is intentionally left blank]
<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this th day of , 1999, between and among Smith Barney Muni Funds,
a Massachusetts business trust with its principal place of business at 388
Greenwich Street, New York, New York 10013 ("Muni Funds"), on behalf of the
Georgia Portfolio (the "Acquiring Fund"), and Alterman Investment Fund, Inc.,
a Delaware corporation with its principal place of business at 182 Hilderbrand
Drive, Suite 102, Atlanta, Georgia 30328 (the "Acquired Fund"), and solely for
purposes of section 10 hereof, Salomon Smith Barney, Inc.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the 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 to the Acquiring Fund in exchange solely for
Class A voting shares of beneficial interest ($.001 par value per share) of
the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of all of the stated liabilities of the Acquired Fund and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND STATED
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund
agrees to transfer to the Acquiring Fund all or substantially all of the
Acquired Fund's assets as set forth in section 1.2, and the Acquiring Fund
agrees in exchange therefor (i) to deliver to the Acquired Fund that number of
full and fractional Acquiring Fund Shares determined by dividing the value of
the Acquired Fund's net assets transferred to the Acquiring Fund, computed in
the manner and as of the time and date set forth in section 2.1, by the net
asset value of one Acquiring Fund Share, computed in the manner and as of the
time and date set forth in section 2.2; and (ii) to assume all of the stated
liabilities of the Acquired Fund, as set forth in section 1.3. Such
transactions shall take place at the closing provided for in section 3.1 (the
"Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(collectively "Assets") shall consist of all assets, including, without
limitation, all cash, cash equivalents, securities, commodities and futures
interests and dividends or interest or other receivables that are owned by or
owed to the Acquired Fund and any deferred or prepaid expenses shown on the
unaudited statement of assets and liabilities of the Acquired Fund prepared as
of the effective time of the closing (the "Effective Time Statement"),
prepared in accordance with generally accepted accounting principles ("GAAP")
applied consistently with those of the Acquired Fund's most recent audited
balance sheet. The assets shall constitute at least 90% of the fair market
value of the net assets, and at least 70% of the fair market value of the
gross assets, held by Acquired Fund immediately before the Closing (excluding
for these purposes assets used to pay the dividends and other distributions
paid pursuant to section 1.4).
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date as defined in
section 3.1, other than those liabilities and obligations which would
otherwise be discharged at a later date in the ordinary course of business.
Upon Closing, the Acquiring Fund shall assume only those stated liabilities of
the Acquired Fund reflected in the Effective Time Statement, which
A-1
<PAGE>
the Acquiring Fund shall have the right to review prior to finalization, and
shall not assume any other liabilities, whether absolute or contingent, known
or unknown, accrued or unaccrued, not reflected thereon.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income
(computed without regard to any deduction for dividends paid), the excess of
its interest income excludable from gross income under section 103(a) of the
Code over its deductions disallowed under sections 265 and 171(a)(2) of the
Code, and realized net capital gain, if any, for the current taxable year
through the Closing Date.
1.5. Immediately after the transfer of assets provided for in section 1.1
(the "Liquidation Time"), the Acquired Fund will distribute to the Acquired
Fund's shareholders of record, determined as of the Valuation Time (the
"Acquired Fund Shareholders"), on a pro rata basis, the Acquiring Fund Shares
received by the Acquired Fund pursuant to section 1.1 and will completely
liquidate. Such distribution and liquidation 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 names of the Acquired Fund Shareholders.
The aggregate net asset value of Acquiring Fund Shares to be so credited to
Acquired Fund Shareholders shall be equal to the aggregate net asset value of
the Acquired Fund shares owned by such shareholders as of the Valuation Time.
All issued and outstanding shares of the Acquired Fund will simultaneously be
cancelled on the books of the Acquired Fund, although share certificates
representing interests in shares of the Acquired Fund will represent a number
of Acquiring Fund Shares after the Closing Date as determined in accordance
with section 2.3. The Acquiring Fund will not issue certificates representing
Acquiring Fund Shares in connection with such exchange. The Acquired Fund will
then, as soon as practicable, terminate as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and dissolve and terminate its corporate existence under Delaware law.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund until its dissolution
in accordance with Delaware law including, without limitation, the
responsibility for filing of regulatory reports, tax returns, or other
documents with the Securities and Exchange Commission (the "Commission"), any
state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund; provided, however, that notwithstanding
any dissolution in accordance with Delaware law, the Acquired Fund shall
remain responsible for the filing of any regulatory reports, tax returns or
other documents in connection with its termination and deregistration as a
management investment company under the 1940 Act and any applicable state
laws.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder, shall be available to the Acquiring Fund from and
after the Closing Date and shall be turned over to the Acquiring Fund as soon
as practicable following the Closing Date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. on the business day immediately
preceding the Closing Date, as defined in Section 3.1 (such time and date
being hereinafter called the "Valuation Time") after the declaration and
payment of any dividends and/or other distributions on that date, using the
valuation procedures set forth in the Acquiring Fund's Declaration of Trust,
as amended, and then-current prospectus or statement of additional
information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share computed as of the Valuation Time using the valuation
procedures referred to in section 2.1.
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2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of the Acquired Fund
determined in accordance with section 2.1 by the net asset value of an
Acquiring Fund Share determined in accordance with section 2.2.
2.4. All computations of value at the Valuation Time shall be made by or
under the direction of each Fund's respective accounting agent, if applicable,
in accordance with its regular practice and the requirements of the 1940 Act
and shall be subject to confirmation by each Fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall be
[INSERT], 1999, or such later date as the parties may agree in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously as of 4:00 P.M., Eastern time, on the Closing Date,
unless otherwise agreed to by the parties. The Closing shall be held at the
offices of the Acquired Fund or at such other place and time as the parties
may agree.
3.2. Acquired Fund shall deliver to Acquiring Fund on the Closing Date the
Effective Time Statement.
3.3. Wachovia Bank of Georgia, N.A., as custodian for the Acquired Fund,
shall deliver at the Closing a certificate of an authorized officer stating
that (a) the Assets shall have been delivered in proper form to PNC Bank,
National Association, custodian for the Acquiring Fund, prior to or on the
Closing Date and (b) all necessary taxes in connection with the delivery of
the Assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made. Acquired Fund's
portfolio securities represented by a certificate or other written instrument
shall be presented by Custodian for Acquired Fund to Custodian for Acquiring
Fund for examination no later than five business days preceding the Closing
Date and transferred and delivered by the Acquired Fund as of the Closing Date
by the Acquired Fund for the account of Acquiring Fund duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof.
Acquired Fund's portfolio securities and instruments deposited with a
securities depository, as defined in Rule 17f-4 under the 1940 Act, shall be
delivered as of the Closing Date by book entry in accordance with the
customary practices of such depositories and Custodian for Acquiring Fund. The
cash to be transferred by the Acquired Fund shall be delivered by wire
transfer of federal funds on the Closing Date.
3.4. American Stock Transfer & Trust Company (the "Transfer Agent"), on
behalf of the Acquired Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Acquired Fund Shareholders and the number and percentage ownership (to
three decimal places) of outstanding Acquired Fund 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
on the Closing Date to the Acquired Fund or provide evidence satisfactory to
the Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the Closing,
each party shall deliver to the other such bills of sale, checks, assignments,
share certificates, if any, receipts or other documents as such other party or
its counsel may reasonably request to effect the transactions contemplated by
this Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the New
York Stock Exchange or another primary trading market for portfolio securities
of the Acquiring Fund or the Acquired Fund shall be closed to trading or
trading thereupon shall be restricted, or (b) trading or the reporting of
trading on such Exchange or elsewhere shall be disrupted so that, in the
judgment of the Board of Trustees of Muni Funds and Board of Directors of
Acquired Fund, accurate appraisal of the value of the net assets with respect
to the Acquiring Fund Shares or the Acquired Fund Shares 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.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Fund represents and warrants to the Acquiring Fund as
follows:
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(a) The Acquired Fund is a corporation duly organized and validly
existing under the laws of the State of Delaware with power under the
Acquired Fund's Certificate of Incorporation, as amended, to own all of its
properties and assets and to carry on its business as it is now being
conducted;
(b) The Acquired Fund is registered with the Commission as a closed-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act and such as may be required by state corporate and securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, the Acquired Fund is not, and the execution,
delivery and performance of this Agreement by the Acquired Fund will not
result, in violation of Delaware law or of the Acquired Fund's Certificate
of Incorporation, as amended, or By-Laws, or of any material agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquired Fund will not
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquired Fund is a party or by which it is
bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any properties or assets
held by it. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquired Fund at and for the year ended April 30, 1999,
has been audited by Birnbrey, Minsk & Minsk LLC, independent certified
public accountants, and are in accordance with GAAP consistently applied,
and such statements (copies of which have been furnished to the Acquiring
Fund) present fairly, in all material respects, the financial position,
results of operations, changes in net assets and financial highlights of
the Acquired Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquired Fund required to be reflected
on a statement of assets and liabilities (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(g) Since April 30, 1999, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred except as otherwise disclosed
to and accepted in writing by the Acquiring Fund. For purposes of this
subsection (g), a decline in net asset value per share of the Acquired Fund
due to declines in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or the redemption of
Acquired Fund shares by Acquired Fund Shareholders shall not constitute a
material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other tax
returns and reports of the Acquired Fund required by law to have been filed
by such dates (including any extensions) shall have been filed and are or
will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquired Fund's knowledge, no such return
is currently under audit and no unpaid assessment has been asserted with
respect to such returns;
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(i) For each taxable year of its operation beginning on or after May 1,
1982 (including the taxable year ending on the Closing Date), the Acquired
Fund has met the requirements of Subchapter M of the Code for qualification
as a regulated investment company and has elected to be treated as such,
has been eligible to and has computed its federal income tax under Section
852 of the Code, and will have distributed all of its investment company
taxable income and net capital gain (as defined in the Code) that has
accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and applicable state securities laws, (ii) are, and on the Closing
Date will be, duly and validly issued and outstanding, fully paid and non-
assessable, and (iii) will be held at the time of the Closing by the
persons and in the amounts set forth in the records of the Transfer Agent,
as provided in section 3.3. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of the
Acquired Fund shares, nor is there outstanding any security convertible
into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to section 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act and the 1940 Act, except those restrictions as to which the Acquiring
Fund has received notice and necessary documentation at or prior to the
Closing;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Directors of the Acquired Fund, and, subject to the
approval of the Acquired Fund Shareholders, this Agreement constitutes a
valid and binding obligation of the Acquired Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity
principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(n) The current prospectus and statement of additional information of the
Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
only insofar as it relates to the Acquired Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquiring Fund for use therein.
4.2. Muni Funds, on behalf of the Acquiring Fund, represents and warrants to
the Acquired Fund as follows:
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(a) Muni Funds is a business trust duly organized and validly existing
under the laws of The Commonwealth of Massachusetts with power under the
Trust's Declaration of Trust, as amended, to own all of its properties and
assets and to carry on its business as it is now being conducted;
(b) Muni Funds is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) Muni Funds is not, and the execution, delivery and performance of
this Agreement by the Trust will not result, in violation of Massachusetts
law or of the Trust's Declaration of Trust, as amended, or By-Laws, or of
any material agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which it is bound,
and the execution, delivery and performance of this Agreement by the
Acquiring Fund will not result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquiring Fund is a party
or by which it is bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any properties or assets
held by it. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquiring Fund at and for the year ended March 31, 1999
has been audited by KPMG LLP, independent certified public accountants, and
are in accordance with GAAP consistently applied, and such statements
(copies of which have been furnished to the Acquired Fund) present fairly,
in all material respects, the financial position, results of operations,
changes in net assets and financial highlights of the Acquiring Fund as of
such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquiring Fund required to be reflected on a statement
of assets and liabilities (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
(g) Since March 31, 1999, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquired Fund. For purposes of
this subsection (g), a decline in net asset value per share of the
Acquiring Fund due to declines in market values of securities in the
Acquiring Fund's portfolio, the discharge of Acquiring Fund liabilities, or
the redemption of Acquiring Fund shares by Acquiring Fund shareholders
shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other tax
returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquiring Fund's knowledge, no
such return is currently under audit and no unpaid assessment has been
asserted with respect to such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will do so for the taxable year including the Closing
Date;
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(j) All issued and outstanding shares of the Acquiring Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and applicable state securities laws and (ii) are, and on the
Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable (recognizing that, under Massachusetts law, Acquiring
Fund Shareholders, under certain circumstances, could be held personally
liable for the obligations of the Acquired Fund). The Acquiring Fund does
not have outstanding any options, warrants or other rights to subscribe for
or purchase any of the Acquiring Fund shares, nor is there outstanding any
security convertible into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-
assessable (recognizing that, under Massachusetts law, Acquiring Fund
Shareholders, under certain circumstances, could be held personally liable
for the obligations of the Acquired Fund);
(l) At the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Trustees of the Muni Funds and this Agreement will
constitute a valid and binding obligation of the Muni Funds, on behalf of
the Acquiring Fund, enforceable in accordance with its terms, subject, as
to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each covenants to operate its
business in the ordinary course between the date hereof and the Closing Date,
it being understood that (a) such ordinary course of
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business will include (i) the declaration and payment of customary dividends
and other distributions and (ii) such changes as are contemplated by the
Funds' normal operations; and (b) each Fund shall retain exclusive control of
the composition of its portfolio until the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. The Acquired Fund covenants to call a meeting of the Acquired Fund
Shareholders entitled to vote thereon to consider and act upon this Agreement
and to take all other reasonable action necessary to obtain approval of the
transactions contemplated herein. Such meeting shall be scheduled for no later
than [INSERT], 1999, subject to the Commission having declared the
Registration Statement effective by such time to allow for a timely mailing of
the Proxy Statement for such meeting.
5.4. The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
5.5. The Acquired Fund covenants that it will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Acquired Fund Shares and will
provide the Acquiring Fund with a list of affiliates of the Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all actions, and do or
cause to be done, all things reasonably necessary, proper, and/or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.7. The Acquiring Fund covenants to prepare the Registration Statement on
Form N-14 (the "Registration Statement"), in compliance with the 1933 Act, the
1934 Act and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider, among other things, approval of this Agreement and
the transactions contemplated herein. The Acquired Fund covenants to prepare
the Proxy Statement to be included in the Registration Statement in compliance
with the 1934 Act and the 1940 Act in connection with the meeting of the
Acquired Fund Shareholders to consider, among other things, approval of this
Agreement and the transactions contemplated herein. The Acquiring Fund will
file the Registration Statement, including the Proxy Statement, with the
Commission. The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus, which will include
the Proxy Statement referred to in section 4.1(o), all to be included in the
Registration Statement, in compliance in all material respects with the 1933
Act, the 1934 Act and the 1940 Act.
5.8. The Acquired Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Fund, execute and deliver or cause
to be executed and delivered all such assignments and other instruments, and
will take or cause to be taken such further action as the Acquiring Fund may
reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Fund's title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and
such of the state securities laws as it deems appropriate in order to continue
its operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause
to be executed and delivered all such assignments, assumption agreements,
releases, and other instruments, and will take or cause to be taken such
further action, as the
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Acquired Fund may reasonably deem necessary or desirable in order to (i) vest
and confirm to the Acquired Fund title to and possession of all Acquiring Fund
shares to be transferred to Acquired Fund pursuant to this Agreement and (ii)
assume the stated liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired Fund
shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing, terminate and deregister as a
closed-end management investment company under the 1940 Act and dissolve and
terminate its corporate existence under Delaware law.
5.12. The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions precedent
to effect the transactions contemplated by this Agreement as promptly as
practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of Muni Funds, with respect to the
Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than Acquired Fund, its adviser or any of their affiliates) against the
Acquired Fund, the Acquiring Fund or their advisers, directors, trustees or
officers arising out of this Agreement and (ii) no facts known to the Acquired
Fund which the Acquired Fund reasonably believes might result in such
litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Muni Funds, with respect to the Acquiring Fund, made in this Agreement are
true and correct on and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request;
6.3. The Acquired Fund shall have received on the Closing Date an opinion of
Willkie Farr & Gallagher, in a form reasonably satisfactory to the Acquired
Fund, and dated as of the Closing Date, to the effect that:
(a) Muni Funds has been duly formed and is an existing business trust;
(b) the Acquiring Fund has the power to carry on its business as
presently conducted in accordance with the description thereof in the Muni
Funds' registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
Muni Funds, on behalf of the Acquiring Fund, and constitutes a valid and
legally binding obligation of Muni Funds, on behalf of the Acquiring Fund,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and laws of
general applicability relating to or affecting creditors' rights and to
general equity principles;
(d) the execution and delivery of the Agreement did not, and the exchange
of the Acquired Fund's assets for Acquiring Fund Shares pursuant to the
Agreement will not, violate the Acquiring Fund's Declaration of Trust, as
amended, or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquiring Fund under the Federal laws of the United States or the laws of
The Commonwealth of Massachusetts for the exchange of the Acquired Fund's
assets for Acquiring Fund Shares, pursuant to the Agreement have been
obtained or made; and
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<PAGE>
Such opinion may state that it is solely for the benefit of the Acquired Fund,
its Directors and its officers. Such counsel may rely as to matters governed
by the laws of The Commonwealth of Massachusetts on an opinion of
Massachusetts counsel and/or certificates of officers or Trustees of the
Acquiring Fund. Such opinion also shall include such other matters incident to
the transaction contemplated hereby, as the Acquired Fund may reasonably
request.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the Acquired Fund of all of the obligations to be performed by it hereunder on
or before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of the Acquired Fund, contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the same force
and effect as if made on and as of the Closing Date; and there shall be (i) no
pending or threatened litigation brought by any person (other than Acquiring
Fund, its adviser or any of their affiliates) against the Acquiring Fund, the
Acquired Fund or their advisers, directors/trustees or officers arising out of
this Agreement and (ii) no facts known to the Acquiring Fund which the
Acquiring Fund reasonably believes might result in such litigation.
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing
Date, certified by the Treasurer of the Acquired Fund;
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated
as of the Closing Date, to the effect that the representations and warranties
of the Acquired Fund made in this Agreement are true and correct on and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquiring
Fund shall reasonably request;
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Hunton & Williams, in a form reasonably satisfactory to the Acquiring Fund,
and dated as of the Closing Date, to the effect that:
(a) the Acquired Fund is a duly incorporated, validly existing Delaware
corporation;
(b) the Acquired Fund has the corporate power to carry on its business as
presently conducted in accordance with the description thereof in the
Acquired Fund's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by the
Acquired Fund and constitutes a valid and legally binding obligation of the
Acquired Fund enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the exchange
of the Acquired Fund's assets for Acquiring Fund Shares pursuant to the
Agreement will not, violate the Acquired Fund's Certificate of
Incorporation, as amended, or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquired Fund under the Federal laws of the United States or the laws of
the State of Delaware for the exchange of the Acquired Fund's assets for
Acquiring Fund Shares, pursuant to the Agreement have been obtained or
made; and
A-10
<PAGE>
Such opinion may state that it is solely for the benefit of the Acquiring
Fund, its Trustees and its officers. Such counsel may rely on certificates of
officers or Directors of the Acquired Fund and, as to matters governed by the
laws of the State of Delaware, on an opinion of Delaware counsel. Such opinion
also shall include such other matters incident to the transaction contemplated
hereby, as the Acquiring Fund may reasonably request.
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Fund's
Certificate of Incorporation, as amended, and By-Laws, applicable Delaware law
and the 1940 Act, and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Acquired
Fund may waive the conditions set forth in this section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions
contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that either
party hereto may for itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act; and
8.5. The Acquired Fund shall have received an opinion of Hunton & Williams
and the Acquiring Fund shall have received an opinion of Willkie Farr &
Gallagher, each dated the Closing Date, substantially to the effect that,
based upon certain facts, assumptions and representations, for Federal income
tax purposes: (i) the transfer to the Acquiring Fund of all or substantially
all of the assets of the Acquired Fund in exchange solely for Shares and the
assumption by the Acquiring Fund of all of the stated liabilities of the
Acquired Fund, followed by the distribution of such Shares to the Acquired
Fund shareholders in exchange for their shares of the Acquired Fund in
complete liquidation of the Acquired Fund, will constitute a "reorganization"
within the meaning of Section 368(a)(1) 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; (ii) no gain or loss will be recognized
by the Acquired Fund upon the transfer of all or substantially all of its
assets to the Acquiring Fund in exchange solely for Shares and the assumption
by the Acquiring Fund of all of the stated liabilities of the Acquired Fund,
or upon the distribution of Shares to the shareholders of the Acquired Fund;
(iii) the basis of the assets of the Acquired Fund in the hands of the
Acquiring Fund will be the same as the basis of such assets of the Acquired
Fund immediately prior to the transfer; (iv) the holding period of the assets
of the Acquired Fund in the hands of the Acquiring
A-11
<PAGE>
Fund will include the period during which such assets were held by the
Acquired Fund; (v) no gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Acquired Fund in exchange for Shares and
the assumption by the Acquiring Fund of all of the stated liabilities of the
Acquired Fund; (vi) no gain or loss will be recognized by the shareholders of
the Acquired Fund upon the receipt of Shares solely in exchange for their
shares of the Acquired Fund as part of the transaction; (vii) the aggregate
basis of Shares received by a shareholder of the Acquired Fund will be the
same as the aggregate basis of the shares of the Acquired Fund exchanged
therefor; and (viii) the holding period of Shares received by a shareholder of
the Acquired Fund will include the holding period during which the shares of
the Acquired Fund exchanged therefor were held, provided that at the time of
the exchange the shares of the Acquired Fund were held as capital assets by
the shareholder. The delivery of such opinion is conditioned upon receipt by
each of Hunton & Williams and Willkie Farr & Gallagher of representations it
shall request of the Acquired Fund (including its principal shareholders) and
the Acquiring Fund, respectively. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
condition set forth in this section 8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's directors and officers from and against
any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs
of investigation) to which jointly and severally the Acquired Fund or any of
its directors or officers may become subject, insofar as any such loss, claim
damage liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's trustees and officers from and against
any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs
of investigation) to which jointly and severally the Acquiring Fund or any of
its trustees or officers may become subject, insofar as any such loss, claim
damage liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement. The Acquired
Fund further agrees to accept full responsibility for and to indemnify and
hold harmless the Acquiring Fund and each of the Acquiring Fund's trustees and
officers from and against any and all losses, claims, damages, liabilities or
expenses (including, without limitation, the payment of reasonable legal fees
and reasonable costs of investigation) to which jointly and severally the
Acquiring Fund or any of its trustees or officers may become subject, insofar
as any such loss, claim damage liability or expense (or actions with respect
thereto) arises out of or is based on any and all statements, misstatements
and/or omissions relating to the Acquired Fund, including (but not limited to)
any and all financial information relating to the Acquired Fund (whether pro
forma, audited or unaudited), either included in or incorporated by reference
into the Proxy Statement and Registration Statement referred to in Sections
4.1(o) and 5.7, respectively.
10. FEES AND EXPENSES
10.1. Muni Funds, on behalf of the Acquiring Fund, and Alterman represents
and warrants to the other that it has no obligations to pay any brokers or
finders fees in connection with the transactions provided for herein.
10.2. The Acquiring Fund shall bear all of the expenses it incurs in
connection with the Reorganization. The first $40,000 in legal and accounting
expenses of the Reorganization incurred by the Acquired Fund will be borne
solely by Salomon Smith Barney and legal and accounting expenses in excess of
$40,000 incurred by the Acquired Fund will be borne equally by Salomon Smith
Barney and by the Acquired Fund. Any such expenses which are so borne by
Salomon Smith Barney and the Acquired Fund will be solely and directly related
to the Reorganization within the meaning of Revenue Ruling 73-54, 1973-1 C.B.
187.
A-12
<PAGE>
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
11.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, or
(ii) by either party if the Closing shall not have occurred on or before
, unless such date is extended by mutual agreement of the parties, or
(iii) by either party if the other party shall have materially breached its
obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective directors/trustees or
officers, except for any such material breach or intentional
misrepresentation, as to each of which all remedies at law or in equity of the
party adversely affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund Shareholders called by the Acquired Fund pursuant
to section 5.3 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund
Shares to be issued to the Acquired Fund shareholders under this Agreement to
the detriment of such shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly
given if delivered by hand (including by Federal Express or similar express
courier) or transmitted by facsimile or three days after being mailed by
prepaid registered or certified mail, return receipt requested, addressed to
the Acquired Fund, 182 Hilderbrand Drive, Suite 102, Atlanta, Georgia 30328,
with a copy to Hunton & Williams, NationsBank Plaza, Suite 4100, 600 Peachtree
Street, N.E., Atlanta, Georgia 30308-2216, Attn.: David M. Carter, Esq., or to
the Acquiring Fund, 388 Greenwich Street, New York, New York 10013, with a
copy to Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York
10019-6099, Attn.: Burton M. Leibert, Esq., or to any other address that the
Acquired Fund or the Acquiring Fund shall have last designated by notice to
the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any
person, firm or corporation, other than the parties hereto and the
A-13
<PAGE>
shareholders of the Acquiring Fund and the Acquired Fund and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
15.4. Muni Funds is organized as a Massachusetts business trust, and
references in this Agreement to Muni Funds mean and refer to the its Trustees
from time to time serving under the Declaration of Trust on file with the
Secretary of State of The Commonwealth of Massachusetts, as the same may be
amended from time to time, pursuant to which Muni Funds conducts its business.
It is expressly agreed that the obligations of Muni Funds hereunder shall not
be binding upon any of its Trustees, shareholders, nominees, officers, agents,
or employees of Muni Funds or the Acquiring Fund personally, but bind only the
property of the Acquiring Fund as provided in the Muni Funds' Declaration of
Trust. Moreover, no series of Muni Funds other than the Acquiring Fund shall
be responsible for the obligations of Muni Funds hereunder, and all persons
shall look only to the assets of the Acquiring Fund to satisfy the obligations
of Muni Funds hereunder. The execution and the delivery of this Agreement have
been authorized by Muni Funds' Board of Trustees, on behalf of the Acquiring
Fund, and this Agreement has been signed by authorized officers of the
Acquiring Fund acting as such, and neither such authorization by such
Trustees, nor such execution and delivery by such officers, shall be deemed to
have been made by any of them individually or to impose any liability on any
of them personally, but shall bind only the property of the Acquiring Fund as
provided in Muni Funds' Declaration of Trust.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its principles of conflicts of laws.
A-14
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Attest: ALTERMAN INVESTMENT FUND, INC.
_____________________________________ By: _________________________________
Name:
Title:
Its: ________________________________
Attest: SMITH BARNEY MUNI FUNDS on behalf of
the Georgia Portfolio
_____________________________________
Name: By: _________________________________
Title:
Its: ________________________________
Attest: Solely with respect to section 10
hereof:
SALOMON SMITH BARNEY, INC.
_____________________________________
Name:
Title: By: _________________________________
Its: ________________________________
A-15
<PAGE>
[This page is intentionally left blank]
<PAGE>
APPENDIX A
5% SHAREHOLDERS OF THE GEORGIA PORTFOLIO
As of November 5, 1999 the following shareholders beneficially owned 5% or
more of a class of shares of the Georgia Portfolio:
Georgia Portfolio Class A
Joseph W. Hamilton, 6.3%
2540 Woodward Way
Atlanta, GA 30305-3562
Georgia Portfolio Class L
Richard D. Bryant, Bruce Bryant, 5.4%
Christy B. Weaver, Executors
Estate of Jean P. Bryant
PO Box 226
Macon, GA 31202
A-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 15, 1999
Acquisition of the Assets of
ALTERMAN INVESTMENT FUND, INC. ("Alterman")
182 Hilderbrand Drive, Suite 102
Atlanta, Georgia 30328
(404) 237-9891
By and in Exchange for Shares of
THE GEORGIA PORTFOLIO
("Georgia Portfolio")
a series of
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
(212) 816-6474
This Statement of Additional Information, relating specifically to the
proposed transfer of all or substantially all of the assets of Alterman to the
Georgia Portfolio, a series of Muni Funds, in exchange for Class A shares of the
Georgia Portfolio and the assumption by the Georgia Portfolio of stated
liabilities of Alterman, 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 for the Georgia Portfolio, dated
July 29, 1999.
2. Annual Report of the Georgia Portfolio for the year ended March 31,
1999.
3. Annual Report of Alterman for the year ended April 30, 1999.
This Statement of Additional Information is not a prospectus. A combined
Prospectus/Proxy Statement, dated November 15, 1999, relating to the above-
referenced matter may be obtained without charge by calling or writing Alterman
or the Georgia Portfolio at the applicable telephone number or address set forth
above. This Statement of Additional Information should be read in conjunction
with the combined Prospectus/Proxy Statement.
B-1
<PAGE>
FINANCIAL STATEMENTS
The Annual Report of the Georgia Portfolio for the year ended March 31,
1999 and the Annual Report of Alterman for the year ended April 30, 1999, each
including audited financial statements, notes to the financial statements and
report of the independent auditors, are incorporated by reference herein. To
obtain a copy of the Annual Reports without charge, please call Alterman at
(800) 861-1844 or the Georgia Portfolio at (800) 451-2010, as applicable.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following tables set forth the unaudited pro forma condensed Statement
of Assets and Liabilities as of April 30, 1999, and the unaudited pro forma
condensed Statement of Operations for the twelve month period ended April 30,
1999 for the Georgia Portfolio and Alterman as adjusted giving effect to the
Reorganization.
PRO FORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Georgia Portfolio Alterman Pro forma Georgia Portfolio
(Actual) (Actual) Adjustments (As adjusted)
------------------ -------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Investments, at value $ 55,926,942 $ 22,174,734 $ -- $ 78,101,676
Cash 16,283 16,283
Other assets less liabilities 251,853 134,755 $ 208,748 595,356
----------------- -------------- ------------------- -------------------
Net assets $ 56,178,795 $ 22,325,772 $ 208,748 $ 78,713,315
================= ============== =================== ===================
Shares outstanding 4,196,035 787,769 879,544 5,863,348
Net asset value per share $ 13.39 $ 28.34 $ 13.42
</TABLE>
_________________________
B-2
<PAGE>
COMBINED ASSETS AND LIABILITIES
AT APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Georgia Portfolio Alterman Pro forma Georgia Portfolio
(Actual) (Actual) Adjustments (As adjusted)
------------------ --------------- --------------- -------------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value $ 55,926,941.90 $ 22,174,734.00 $ -- $ 78,101,675.90
Cash (283,128.32) 16,283.00 -- (266,845.32)
Receivable for Fund shares sold 23,459.94 -- -- 23,459.94
Receivable for securities sold -- -- -- --
Interest receivable 909,114.59 343,231.00 -- 1,252,345.59
Prepaid Expenses -- 272.00 -- 272.00
----------------- --------------- -------------- -------------------
Total Assets $ 56,576,388.11 $ 22,534,520.00 $ 79,110,908.11
Liabilities:
Payable for fund shares purchased 23,192.11 -- -- 23,192.11
Payable for securities purchased 186,056.72 -- -- 186,056.72
Management fees payable 129,506.69 3,928.00 (3,928.00) 129,506.69
Distribution fees payable 6,483.10 -- -- 6,483.10
Servicing fees payable 991.39 -- -- 991.39
Dividend payable 208,262.03 204,820.00 (204,820.00) 208,262.03
Accrued expenses and other liabilities (156,899.24) -- -- (156,899.24)
----------------- --------------- -------------- -------------------
Total Liabilities 397,592.80 208,748.00 (208,748.00) 397,592.80
Total Net Assets $ 56,178,795.31 $ 22,325,772.00 $ 78,713,315.31
Net assets:
Par value of shares of beneficial interest $ 4,196.29 $ 1,969,423.00 -- $ 1,973,619.29
Capital paid in excess of par 54,009,203.26 389,555.00 -- 54,398,758.26
Net Assets transferred at 1980 Reorg. -- 17,957,417.00 -- 17,957,417.00
Undistributed/Overdistributed NII (11,825.24) 596,364.00 208,748 793,238.76
Accumulated net realized gain/(loss) (104,287.00) 705,937.00 -- 601,650.00
Net unrealized appreciation of investments 2,281,508.00 707,076.00 -- 2,988,584.00
----------------- --------------- -------------- -------------------
Total Net Assets $ 56,178,795.31 $ 22,325,722.00 $ 78,713,315.31
Outstanding Shares: 4,196,034.74 787,769.00
A 2,612,166.01 787,769.000 879,544.089 4,279,479.09
B 1,037,740.44 -- -- 1,037,740.44
L 546,128.29 -- -- 546,128.29
Y -- -- -- --
NAV:
A $ 13.39 $ 28.34 2.11650
B $ 13.39 -- --
L $ 13.38 -- --
Y -- -- --
</TABLE>
B-3
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Georgia
Portfolio Alterman Pro Forma Georgia
(actual) (actual) Adjustments Portfolio
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income
Interest Income 2,431,531 1,095,629 3,527,160
Total Investment Income
Expenses:
Management Fee $221,437 $24,858 $80,144 $326,439 (2)
Distribution 175,473 0 102,594 278,067
Custody, Accounting, Legal
& Auditing 19,964 70,061 (60,025) 30,000
Shareholder Servicing 25,897 8,220 (11,337) 22,780
Shareholder Communications 12,190 0 0 12,190
Pricing Service 7,418 0 0 7,418
Registration 3,976 0 0 3,976
Trustees\Directors 1,766 14,000 (14,000) 1,766
Taxes & licenses 9,799 (9,799) 0
Office Rent & Expenses 14,916 (14,916) 0
Other 3,606 7,775 (5,000) 6,381
---------------------------------------------------------------------------
Total Expenses 471,727 149,629 67,661 689,017
Management Fee Waivers (48,063) 0 48,063 0
---------------------------------------------------------------------------
Net Expenses $423,664 $149,629 $115,724 $689,017
---------------------------------------------------------------------------
Net investment income (loss) $2,007,867 $946,000 $115,724 $2,838,143
Net Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain (loss) from Investments 26,950 26,978 53,928
Net unrealized appreciation (depreciation) 2,281,508 161,626 2,443,134
---------------------------------------------------------------------------
Net increase in assets from operations $4,316,325 $1,134,604 $5,335,205
===========================================================================
</TABLE>
Assumptions for projected expenses:
(1) For asset based expenses, the net assets of Alterman Investment Fund
at 4/30/99 are assumed to be average net assets for the year ended
4/30/99.
(2) Based on combined net assets at an annual rate of .45%.
(3) Based on combined net assets at an annual rate of .15%, .65%, .70% for
Class A, B, and L, respectively. Assumes assets of Alterman to be
merged into Class A
(4) Assumes combined entity's expense will equal current Georgia plus
approximately $10,000.
(5) Based on combined net assets at an annual rate of .024%, .045%, and
.038% for Class A, B, and L, respectively.
(6) The fund currently discontinued waivers.
(7) Assuming 65 bps expense cap, management fees taken would be
approximately 40 bps.
B-4
<PAGE>
- --------------------------------------------------------------------------------
Combined Schedule of Investments April 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GEORGIA PRO FORMA
GEORGIA ALTERMAN COMBINED
FACE FACE FACE
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Acworth Housing Authority Revenue, 6.125% due 3/1/17 $500,000 $532,500 $500,000 $532,500
Albany Dougherty County, Inner City Authority, 5.100% due 1/1/07 $200,000 $208,630 200,000 208,630
Albany Dougherty Payroll Development Authority, 5.200% due 5/15/28 1,000,000 997,500 1,000,000 997,500
Athens Water & Sewer Revenue, 10.000% due 7/1/01 140,000 141,445 140,000 141,445
Atlanta Ad Valorem Property Tax Refunding, 5.000% due 12/1/20 500,000 495,625 500,000 495,625
Atlanta Urban Residential Finance Authority, Multi-Family
Housing Revenue:
Cascade Pines Housing Project, 6.250% due 9/1/10 1,180,000 1,268,500 1,180,000 1,268,500
New Community, Series A-1, 5.450% due 11/20/17 1,000,000 1,028,750 1,000,000 1,028,750
Shamrock Garden Apartments Project, 6.250% due 4/1/19 500,000 500,625 500,000 500,625
Atlanta Water Revenue, 5.500% due 11/1/19 1,000,000 1,068,750 1,000,000 1,068,750
Bartow County School District, 5.200 % due 5/1/07 250,000 267,295 250,000 267,295
Bibb County Development Authority Revenue, 5.000% due 10/1/08 1,000,000 990,000 1,000,000 990,000
Burke County Development Authority PCR, 7.500% due 1/1/03 285,000 305,663 285,000 305,663
Butts County COP, 6.750% due 12/1/14 250,000 286,250 250,000 286,250
Camden County Joint Development Authority PCR, 5.000% due 1/1/12 200,000 197,750 200,000 197,750
Carroll County School District, 3.850% due 4/1/03 300,000 301,311 300,000 301,311
Carroll County Water Authority, Water & Sewer Revenue,
5.250% due 7/1/18 1,015,000 1,035,300 1,015,000 1,035,300
Cartersville Development Authority Revenue Refunding,
6.125% due 5/1/27 500,000 543,750 500,000 543,750
Clayton County Water Authority Revenue 5.100% due 5/1/16 1,000,000 1,027,500 1,000,000 1,027,500
Chatam County School District, 4.500% due 8/1/05 500,000 512,395 500,000 512,395
Chatam County School District, 5.300% due 8/1/09 200,000 211,910 200,000 211,910
Clarke County Hospital Authority, 5.500% due 1/1/00 500,000 507,640 500,000 507,640
Clayton County Hospital Authority, 6.800% due 8/1/04 505,000 549,480 505,000 549,480
Clayton County Water and Sewer Authority, 6.100% due 5/1/00 310,000 318,519 310,000 318,519
Clayton County Water and Sewer AuthorIty, 6.100% due 5/1/01 175,000 182,665 175,000 182,665
Cobb-Marietta Counties Coliseum and Exhibit Hall Authority,
10.250% due 2/1/02 135,000 145,125 135,000 145,125
Cobb-Marietta Counties Coliseum and Exhibit Hall Authority,
5.625% due 10/1/26 1,100,000 1,205,875 1,100,000 1,205,875
Cobb-Marietta Counties Coliseum and Exhibit Hail Authority,
7.750% due 2/1/07 680,000 777,750 680,000 777,750
Cobb County Housing Authority Refunding, 6.875% due 10/1/17 240,000 254,700 240,000 254,700
Colquitt County Development Authority Revenue,
zero coupon due 12/1/21 1,875,000 527,344 1,875,000 527,344
Columbia County Courthouse, 5.625% due 2/1/17 1,000,000 1,061,250 1,000,000 1,061,250
Cobb County Hospital Authority, 5.500% due 4/1/04 500,000 529,730 500,000 529,730
Cobb County Hospital Authority, 3.900% due 4/1/06 400,000 392,308 400,000 392,308
Cobb County School District, 5.000% due 2/1/03 300,000 313,356 300,000 313,356
Cobb County Water & Sewer Revenue, 4.600% due 7/1/00 200,000 203,110 200,000 203,110
Columbia County School District, 4.500% due 4/1/02 385,000 393,485 385,000 393,485
Columbus Hospital Authority, 5.200% due 6/1/04 320,000 337,270 320,000 337,270
Columbus Water and Sewer Revenue, 8.000% due 5/1/00 300,000 306,936 300,000 306,936
Columbus Water and Sewer Revenue, 6.300% due 5/1/07 505,000 555,081 505,000 555,081
Coweta County Board of Education, 5.250% due 8/1/99 200,000 200,980 200,000 200,980
Coweta County School District, 5.100% due 2/1/00 300,000 304,350 300,000 304,350
De Kalb County, 5.300% due 1/1/01 395,000 406,246 395,000 406,246
De Kalb County, 5.800% due 1/1/02 150,000 158,427 150,000 158,427
De Kalb County, 5.000% due 11/1/06 755,000 793,716 755,000 793,716
De Kalb County, 7.150% due 1/1/07 310,000 323,907 310,000 323,907
</TABLE>
B-5
<PAGE>
- --------------------------------------------------------------------------------
Combined Schedule of Investments April 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GEORGIA PRO FORMA
GEORGIA ALTERMAN COMBINED
FACE FACE FACE
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
De Kalb County Housing Authority, Multi-Family Housing Revenue,
7.050% due 1/1/39 $1,000,000 $1,127,500 $1,000,000 $1,127,500
De Kalb County Housing Authority, Multi-Family Housing Revenue,
7.750% due 1/1/26 300,000 318,366 300,000 318,366
De Kalb County School District, 4.500% due 7/1/99 $ 400,000 $ 400,866 400,000 400,868
De Kalb County School District, 5.600% due 7/1/09 300,000 322,122 300,000 322,122
Douglas County School District, 5.000% due 1/1/05 195,000 208,262 195,000 208,262
Douglasville-Douglas County Water & Sewer Authority Revenue,
5.625% due 6/1/15 625,000 682,031 625,000 682,031
Downtown Savannah Development Authority, 4.000% due 8/1/00 760,000 783,507 760,000 783,507
Downtown Savannah GO, 4.500% due 8/1/07 250,000 252,963 250,000 252,963
Effingham County Development Authority, 5.625% due 7/1/18 1,000,000 1,015,000 1,000,000 1,015,000
Fayette County Water Revenue, 5.000% due 10/1/08 255,000 268,273 255,000 268,273
Federated Georgia Municipal, Cash Trust 530,442 530,442 530,442 530,442
Floyd County Hospital Authority, 5.100% due 7/1/06 475,000 497,539 475,000 497,539
Forsyth County School District, 5.250% due 7/1/09 200,000 216,630 200,000 216,630
Forsyth County School District Refunding, 5.100% due 7/1/11 500,000 525,625 500,000 525,625
Fulco Hospital Authority Revenue, 4.875% due 11/15/15 1,000,000 988,750 1,000,000 988,750
Fulton County Multi-Family Housing Authority Revenue,
6.300 due 7/1/16 1,000,000 1,070,000 1,000,000 1,070,000
Fulton County Hospital Authority, 4.600% due 10/1/02 250,000 256,003 250,000 256,003
Fulton County Housing Authority, 6.600% due 3/1/28 155,000 163,912 155,000 163,912
Fulton County School District, 5.375% due 1/1/18 1,000,000 1,062,500 1,000,000 1,062,500
Fulton County Water & Sewer Revenue:
6.375% due 1/1/14 290,000 338,938 290,000 338,938
6.375% due 1/1/14 10,000 11,626 10,000 11,626
5.000% due 1/1/18 1,000,000 990,000 1,000,000 990,000
Georgia Local Government, 4.750% due 6/1/28 2,000,000 1,887,500 2,000,000 1,887,500
Georgia Municipal Electric Authority Revenue, 7.250% due 1/1/24 600,000 783,000 600,000 783,000
Georgia Municipal Electric Authority Revenue, 5.500% due 1/1/20 1,000,000 1,051,250 1,000,000 1,051,250
Georgia Municipal Gas Authority Revenue, 5.000% due 11/1/13 500,000 506,875 500,000 506,875
Georgia Municipal Gas Authority Revenue, 6.300% due 7/1/09 500,000 544,375 500,000 544,375
Georgia State General Obligation, 4.400% due 7/1/01 270,000 275,319 270,000 275,319
Georgia State General Obligation, 6.800% due 11/1/04 200,000 213,654 200,000 213,654
Georgia State HFA:
4.300% due 12/1/05 185,000 185,289 185,000 185,289
4.450% due 12/1/07 250,000 250,700 250,000 250,700
Series A, 6.600% due 12/1/23 350,000 368,812 350,000 368,812
Series A-1, 5.300% due 6/1/17 1,000,000 1,018,750 1,000,000 1,018,750
Series A-2, 6.550% due 12/1/27 500,000 530,625 500,000 530,625
Georgia State Public Improvements, Series D, 5.250% due 10/1/14 500,000 532,500 500,000 532,500
Georgia State Residential Finance Authority, 7.250% due 12/1/21 285,000 302,812 285,000 302,812
Georgia State Tollway Authority Revenue Refunding,
5.000% due 7/1/10 1,000,000 1,055,000 1,000,000 1,055,000
Griffin - Spalding County School District, 5.050% due 2/1/07 250,000 260,325 250,000 260,325
Gwinnett County Recreational Authority, 5.1 00% due 2/1/00 200,000 202,806 200,000 202,806
Gwinnett County Water & Sewer Revenue, 5.050% due 8/1/04 225,000 237,150 225,000 237,150
Hall County School District, 6.000% due 12/1/03 150,000 163,175 150,000 163,175
Henry County School District, 5.500% due 8/1/02 750,000 792,953 750,000 792,953
Hogansville Combined Public Utility System, 5.850% due 10/1/15 1000,000 1,097,500 1,000,000 1,097,500
Houston County School District, 5.050% due 3/1/08 250,000 259,675 250,000 259,675
</TABLE>
B-6
<PAGE>
- --------------------------------------------------------------------------------
Combined Schedule of Investments April 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GEORGIA PRO FORMA
GEORGIA ALTERMAN COMBINED
FACE FACE FACE
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LaGrange Water & Sewer Revenue, 6.900% due 1/1/01 $ 400,000 $ 417,304 $400,000 $417,304
Lawrenceville Housing Authority, 6.250% due 12/1/29 $1,000,000 $1,086,250 1,000,000 1,086,250
Macon Water Authority, Water & Sewer Revenue, 4.500% due 10/01/02 250,000 255,483 250,000 255,483
Macon Water Authority, Water & Sewer Revenue, 5.250% due 10/1/15 500,000 516,875 500,000 516,875
Marietta General Obligations, 5.000% due 1/1/00 275,000 278,240 275,000 278,240
Marietta General Obligations, 5.000% due 1/1/01 235,000 240,903 235,000 240,903
Marietta General Obligations School Buildings, 9.300% due 1/1/01 300,000 327,252 300,000 327,252
Metro Atlanta Rapid Transit Authority Revenue, 5.600% due 7/1/00 180,000 184,802 180,000 184,802
Metro Atlanta Rapid Transit Authority Revenue, 6.250% due 7/1/20 250,000 289,375 250,000 289,375
Milledgeville Water & Sewer Revenue, FSA-Insured,
6.000% due 12/1/21 500,000 565,625 500,000 565,625
Monroe County Development Authority PCR, 6.800% due 1/1/12 500,000 585,000 500,000 585,000
Monroe County Development Authority PCR, 5.250% due 1/1/15 1,080,000 1,127,250 1,080,000 1,127,250
Muni Gas Authority, 4.200% due 6/1/08 300,000 298,050 300,000 298,050
Muscogee County School District, 4.250% due 11/1/99 300,000 301,557 300,000 301,557
Paulding County, 5.550% due 8/1/09 300,000 317,235 300,000 317,235
Peachtree City Water & Sewer Authority, 5.375% due 3/1/22 1,000,000 1,027,500 1,000,000 1,027,500
Private Colleges & Universities Authority Revenue,
5.750% due 10/1/02 200,000 213,214 200,000 213,214
Private Colleges & Universities Authority Revenue:
Agnes Scott College Project, 4.750% due 6/1/28 1,000,000 936,250 1,000,000 936,250
Emory University Project, Series A, 5.000% due 11/1/15 1,000,000 1,002,500 1,000,000 1,002,500
Emory University Project, 4.250% due 11/1/05 200,000 201,722 200,000 201,722
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue,
10.250% 7/1/09 485,000 650,506 485,000 650,506
Puerto Rico Commonwealth Highway & Transportation Authority
5.000% due 7/1/36 1,500,000 1,471,875 1,500,000 1,471,875
Puerto Rico Commonwealth, Public Improvement, 4.500% due 7/1/23 2,290,000 2,115,388 2,290,000 2,115,388
Puerto Rico Electric Power Authority Revenue, 4.500% due 7/1/18 2,200,000 2,079,000 2,200,000 2,079,000
Puerto Rico Housing Bank and Finance Agency, 7.500% due 12/1/06 500,000 583,750 500,000 583,750
Puerto Rico Housing Bank and Finance Agency, 6.250% due 4/1/29 330,000 352,275 330,000 352,275
Puerto Rico Industrial Tourist Educational, Medical & Environmental
Control Facility Finance Authority, 5.625% due 7/1/27 750,000 754,688 750,000 754,688
Puerto Rico Industrial Tourist Educational, Medical & Environmental
Control Facility Finance Authority, 6.700% due 5/1/24 500,000 541,250 500,000 541,250
Richmond County Development Authority, 5.400% due 2/1/33 2,000,000 2,007,500 2,000,000 2,007,500
Richmond County Water and Sewer Revenue, 9.875% due 4/1/02 145,000 160,588 145,000 160,588
Richmond County Water and Sewer Revenue, 4.900% due 10/1/08 250,000 260,815 250,000 260,815
Rockdale County Development Authority, 7.500% due 1/1/26 1,000,000 1,063,750 1,000,000 1,063,750
Rockdale County School District 4,750% due 1/1/01 225,000 229,754 225,000 229,754
Rockdale County School District 6.000% due 1/1/04 250,000 272,220 250,000 272,220
Rockdale County Water and Sewer Revenue, 4.700% due 7/1/06 250,000 259,690 250,000 259,690
Savannah EDA, 6,200% due 9/1/04 500,000 524,355 500,000 524,355
Savannah Hospital Authority Revenue, 7.000% due 1/1/11 500,000 561,875 500,000 561,875
Savannah Hospital Authority Revenue, 5.250 due 7/1/14 725,000 747,656 725,000 747,656
Savannah EDA, PCR, 6.150% due 3/1/17 500,000 557,500 500,000 557,500
Savannah EDA. 5.850% due 1/1/09 515,000 559,058 515,000 559,058
Savannah EDA, zero coupon due 12/1/21 1,000,000 292,500 1,000,000 292,500
Savannah Water and Sewer Authority, 4.650% due 12/1/08 500,000 509,535 500,000 509,535
South Fulton Jail Authority, 5.550% due 12/1110 225,000 244,771 225,000 244,771
Tift County Development Authority, 5.250% due 2/1/08 300,000 312,645 300,000 312,645
Tri City Hospital Authority Revenue. South Fulton Hospital
10.250% due 7/1/06 620.000 796.700 620,000 796,700
</TABLE>
B-7
<PAGE>
- --------------------------------------------------------------------------------
Combined Schedule of Investments April 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GEORGIA PRO FORMA
GEORGIA ALTERMAN COMBINED
FACE FACE FACE
SECURITY AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Troup County School District, 5.125% due 7/1/03 $500,000 $526,535 $500,000 $526,535
Virgin Islands HFA, 6.450% due 3/1/16 $235,000 $248,512 235,000 248,512
Virgin Islands Public Financing Authority Revenue,
5.500% due 10/1/18 1,000,000 1,018,750 1,000,000 1,018,750
Warner Robins Water & Sewer Authority, 5.600% due 711/99 440,000 441,747 440,000 441,747
Washington Wilkes Payroll Development,
zero coupon due 12/1/21 2,000,000 562,500 2,000,000 562,500
------------------------ ----------------------- -----------------------
TOTAL INVESTMENTS $57,185,000 $55,926,942 $21,340,442 $22,174,734 $78,525,442 $78,101,676
======================== ======================= =======================
</TABLE>
It is not currently anticipated that there would be a significant rebalancing of
the Alterman portfolio securities following the consummation of the
Reorganization.
B-8
<PAGE>
THE ANNUAL REPORT AND STATEMENT OF ADDITIONAL INFORMATION OF
THE GEORGIA PORTFOLIO DATED MARCH 31, 1999 AND JULY 29, 1999,
RESPECTIVELY, ARE INCORPORATED BY REFERENCE
TO THE MOST RECENT FILINGS THEREOF BY
SMITH BARNEY MUNI FUNDS
B-9
<PAGE>
THE ANNUAL REPORT AND PROSPECTUS OF ALTERMAN DATED APRIL 30, 1999
AND AUGUST 14, 1992, RESPECTIVELY, ARE INCORPORATED BY REFERENCE
TO THE MOST RECENT FILINGS THEREOF BY ALTERMAN
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/ Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
B-10
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
ALTERMAN INVESTMENT FUND, INC.
The undersigned stockholder(s) of Alterman Investment Fund, Inc. a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated November 16, 1999, and hereby
appoints Perry Alterman and Daniel Alterman, and either of them, proxies and
attorneys-in-fact, with full power of substitution, on behalf and in the name of
the undersigned, to represent the undersigned at the 1999 Annual Meeting of
Stockholders of Alterman Investment Fund, Inc. to be held on December 7, 1999
at 11:00 a.m., local time, at 182 Hilderbrand Drive, Suite 102, Atlanta, Georgia
30328 and at any adjournment or adjournments thereof, and to vote all shares of
Common Stock which the undersigned would be entitled to vote if then and there
personally present on the matters set forth on the reverse side.
This Proxy, when properly executed, will be voted in accordance with the
directions given by the undersigned stockholder. If no direction is made, it
will be voted FOR Proposal 1, FOR Proposal 2 and FOR Proposal 3, and as the
proxies deem advisable on such other matters as may come before the meeting.
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
ALTERMAN INVESTMENT FUND, INC.
__________________________
Please detach and Mail in the Envelope Provided
PLEASE VOTE BY CHECKING [X] THE APPROPRIATE BOXES BELOW.
FOR AGAINST ABSTAIN
1. To approve an Agreement and
Plan of Reorganization with the [ ] [ ] [ ]
Georgia Portfolio of Smith Barney
Muni Funds, as described in the
accompanying Proxy Statement/
Prospectus.
<TABLE>
<CAPTION>
FOR all nominees listed WITHHOLD authority
to left (except as marked to vote for all
to the contrary at left) nominees listed at left
<S> <C> <C>
2. To elect the nominees listed
below to serve as [ ] [ ]
directors of Alterman
Investment Fund, Inc. for the
ensuing year.
Perry Alterman, Daniel Alterman,
Kusiel Kaplan, Stanley Friedman,
Joel J. Fryer
</TABLE>
Instruction: To withhold authority to vote for any individual nominee, mark
"FOR" hereon, and write that nominee's name in the space below.
_____________________________
FOR AGAINST ABSTAIN
3. To approve ratification of the selection of
Bimbrey, Minsk & Minsk LLC as auditors [ ] [ ] [ ]
of Alterman Investment Fund, Inc. for
fiscal 2000.
4. In their discretion, upon such other matters which may properly come before
the meeting or any adjournment or adjournments thereof.
DATED:________, 1999
PLEASE COMPLETE, DATE, SIGN AND
RETURN THIS PROXY PROMPTLY.
SIGNATURE___________________
____________________________
Signature, if held jointly
NOTE: (This Proxy should be marked, dated and signed by the stockholder(s)
exactly as his or her name appears hereon, and returned promptly in the
enclosed envelope. Persons signing in a fiduciary capacity should so
indicate, if shares are held by joint tenants or as community property,
both should sign.)
