AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28,
2000
SECURITIES ACT FILE NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. [_]
SMITH BARNEY MUNI FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
388 Greenwich Street, New York, New York 10013
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 816-6474
(REGISTRANT'S AREA CODE AND TELEPHONE NUMBER)
CHRISTINA T. SYDOR, ESQ.
Smith Barney Muni Funds
388 Greenwich Street,
New York, New York 10013
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPIES TO:
BURTON M. LEIBERT, ESQ. W. BRUCE McCONNEL,
ESQ.
Willkie Farr & Gallagher
Drinker Biddle & Reath
787 Seventh Avenue
One Logan Square
New York, NY 10019-6099 18th and
Cherry Streets
Philadelphia ,
Pennsylvania 19103-6997
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: Registrant proposes
that the
Registration Statement become effective on March 29, 2000 pursuant
to Rule
488 under the Securities Act of 1933, as amended.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Beneficial Interest ($.001 par value) of the National
Portfolio, a
Series of the Registrant
___________________
The Registrant has registered an indefinite amount of securities
under the
Securities Act of 1933 pursuant to Section 24(f) under the
Investment Company
Act of 1940, as amended; accordingly, no fee is payable herewith
because of
reliance upon Section 24(f).
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PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
SHEPMYERS INVESTMENT COMPANY
R.D. 1, Route 194 South
Hanover, Pennsylvania 17331
March 29, 2000
Dear Shareholders:
You are cordially invited to attend the Special
Meeting of Shareholders of Shepmyers Investment
Company ("Shepmyers" or the "Fund") which will be held
on April 12, 2000 at 11:00 a.m., at The Altland House,
Route 30, Center Square, Abbottstown, Pennsylvania,
17331.
You are being asked to vote on an Agreement and
Plan of Reorganization (the "Reorganization") whereby
all or substantially all of the assets of Shepmyers
would be transferred in a tax-free reorganization to
the National Portfolio (the "National Portfolio," the
"Portfolio" and collectively with Shepmyers, the
"Funds"), an open-end diversified series of Smith
Barney Muni Funds ("Muni Funds"), in exchange for
Class A shares of beneficial interest of the National
Portfolio. If the Reorganization is approved and
consummated, you would no longer be a shareholder of
Shepmyers, but would become a shareholder of the
National Portfolio. The National Portfolio is managed
by SSB Citi Fund Management LLC ("SSB Citi") and has
similar investment objectives and policies to your
Fund (except as described in this Proxy
Statement/Prospectus). Unlike your Fund, the National
Portfolio provides its shareholders with the
opportunity to purchase, redeem and exchange shares 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). No sales charges will be assessed on the
issuance of National Portfolio shares in the
Reorganization.
After careful review, the members of Shepmyers'
Board have unanimously approved the proposed
Reorganization to be considered at the Special
Meeting. The Shepmyers Board believes that the
proposal set forth in the attached Notice of the
Special Meeting is important and recommends that you
read the enclosed materials carefully and vote for the
proposal.
Your vote is important. Please take a moment now
to sign and return your proxy card in the enclosed
postage-paid return envelope. For more information,
please call (717) 637-8931 and ask for Mrs. Kuhn.
Respectfully,
/s/_Paul E. Spears
Paul E. Spears
Chairman of the
Board and President
Shepmyers
Investment Company
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD IN THE
ENCLOSED POSTAGE-PAID RETURN ENVELOPE TO ENSURE A
QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT
REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
SHEPMYERS INVESTMENT COMPANY
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held
on April 12, 2000
A Special Meeting of Shareholders (the
"Special Meeting") of Shepmyers Investment Company
(the "Fund") will be held at The Altland House, Route
30, Center Square, Abbottstown, Pennsylvania, on April
12, 2000 at 11:00 a.m. Eastern time, for the following
purposes:
1. To consider and act upon a proposal
(the "Proposal") to approve an Agreement and
Plan of Reorganization (the "Reorganization
Agreement") between the Fund and the National
Portfolio of Smith Barney Muni Funds ("National
Portfolio") 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 National Portfolio (the "Shares") and
the Fund shall liquidate and distribute pro rata
to its shareholders the Shares, terminate as a
closed-end management investment company under
the Investment Company Act of 1940, as amended,
and then dissolve as a corporation under
Pennsylvania law; and
2. 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 Special
Meeting or any adjournments thereof.
Only holders of record of shares of the Fund at
the close of business on February 25, 2000, are
entitled to vote at the Special Meeting and at any
adjournments thereof. The proposed Reorganization and
related matters are described in the attached Combined
Proxy Statement / Prospectus. Attached as Appendix A
to the Combined Proxy Statement / Prospectus is a copy
of the Reorganization Agreement.
Your Directors Unanimously Recommend That You Vote In
Favor Of The Proposal.
In the event that the necessary vote required to
approve the Proposal is not obtained at the Special
Meeting, the persons named as proxies may propose one
or more adjournments of the Special Meeting in
accordance with applicable law to permit further
solicitation of proxies. If the Special Meeting cannot
be organized because a quorum has not attended, the
persons named as proxies may propose to adjourn the
meeting for at least fifteen days. Those
shareholders who attend the adjourned meeting,
although less than a quorum, will nevertheless
constitute a quorum for acting upon the Proposal.
Notice of the adjourned meeting will not be given,
except by announcement at the special meeting on April
12, 2000, unless a new record date is fixed for the
adjourned meeting. Any adjournment will require the
affirmative vote of the holders of a majority of the
Fund's shares present in person or by proxy at the
Special 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 (717) 637 - 8931 and ask for
Mrs. Kuhn. Proxies may be revoked at any time before
they are exercised by submitting to the Fund a written
notice of revocation or a subsequently executed proxy
or by attending the Special Meeting and voting in
person.
/s/
W. Bruce McConnel
__________________
___________________
W. Bruce McConnel
Secretary
March 29, 2000
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IMPORTANT--WE URGE YOU TO SIGN AND DATE THE ENCLOSED
PROXY CARD 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 MAY SAVE THE NECESSITY AND EXPENSE OF
FURTHER SOLICITATIONS TO ENSURE A QUORUM AT THE
SPECIAL MEETING. IF YOU CAN ATTEND THE SPECIAL MEETING
AND WISH TO VOTE YOUR SHARES IN PERSON AT THAT TIME,
YOU WILL BE ABLE TO DO SO.
SHEPMYERS INVESTMENT COMPANY
IMPORTANT NEWS
FOR SHEPMYERS' 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 Shepmyers
Investment Company, a closed-end diversified
management investment company ("Shepmyers" or
the "Fund"), would be transferred in a tax-free
reorganization to the National Portfolio (the
"National Portfolio," the "Portfolio" and
collectively with Shepmyers, the "Funds"), an
open-end diversified series of Smith Barney Muni
Funds ("Muni Funds"), in exchange for Class A
shares of beneficial interest of the National
Portfolio. If the Agreement and Plan of
Reorganization is approved and consummated, you
would no longer be a shareholder of Shepmyers,
but would become a shareholder of the National
Portfolio, which has similar investment
objectives and policies to your Fund, except as
described in this Proxy Statement/Prospectus.
Q: WHAT ARE THE BENEFITS OF THE PROPOSED
REORGANIZATION?
A: The Board of Directors of Shepmyers' believes
that you may benefit from the proposed
Reorganization. The National Portfolio is an
open-end fund providing its shareholders with
the opportunity to purchase, redeem and exchange
their shares at net asset value per share 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). In contrast, there is no secondary
market for shares of Shepmyers' and the shares
are not liquid. Nor are Shepmyers' shares
offered for public sale. As of March 31, 1999
the National Portfolio's net expense ratio is
0.66% which is lower than Shepmyers' net expense
ratio of 0.83% as of December 31, 1999. The
proposed Reorganization provides Shepmyers'
shareholders the investment management expertise
of SSB Citi Fund Management LLC ("SSB Citi"), an
affiliate of Salomon Smith Barney, Inc.
("Salomon Smith Barney").
Q: WHO IS SSB Citi?
A: Unlike your Fund, which is managed by The
Rittenhouse Trust Company ("RTC"), SSB Citi
manages the National Portfolio. SSB Citi is a
subsidiary of Citigroup Inc. As of December 31,
1999, SSB Citi Asset Management Group, which is
comprised of Citigroup Inc.'s primary asset
management business platforms, had assets under
management of approximately $351 billion. SSB
Citi Asset Management Group has a 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 Inc.'s businesses
provide a broad range of financial services
including 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.
Q: HOW DO THE BOARD MEMBERS OF SHEPMYERS RECOMMEND
THAT I VOTE?
A: After careful consideration, the Board of
Directors of Shepmyers, including all members
who are disinterested directors, recommend that
you vote FOR the proposed reorganization on the
enclosed proxy card.
Q: WHOM DO I CALL FOR MORE INFORMATION?
A: Please call Mrs. Kuhn at (717) 637-8931.
TABLE OF CONTENTS
Approval of Agreement and Plan of Reorganization 11
Synopsis 11
Special Fund Operating Expenses 17
Principal Risk Factors 19
The Proposed Transaction 24
Additional Information 34
Appendix A A-1
ADDITIONAL MATERIALS
The following additional materials, which have
been incorporated by reference into the Statement of
Additional Information dated March 29, 2000 relating
to this Combined Proxy Statement/Prospectus and the
Reorganization, will be sent to all shareholders of
Shepmyers Investment Company requesting a copy of such
Statement of Additional Information.
The Statement of Additional Information for the
National Portfolio of Smith Barney Muni Funds is
dated July 29, 1999.
PROXY STATEMENT/PROSPECTUS
March 29, 2000
RELATING TO THE REORGANIZATION OF
SHEPMYERS INVESTMENT COMPANY ("SHEPMYERS"),
Post Office Box 339
Hanover, Pennsylvania 17331
(717) 637-8931
INTO
THE NATIONAL PORTFOLIO ("NATIONAL PORTFOLIO"),
A SERIES OF SMITH BARNEY MUNI FUNDS ("MUNI FUNDS"),
388 Greenwich Street
New York, New York 10013
(212) 816-6474
General
This Proxy Statement/Prospectus is furnished to
shareholders of Shepmyers in connection with
Shepmyers' Special Meeting of Shareholders on April
12, 2000. At the Special Meeting, the proposal (the
"Proposal") to be considered is a proposed
reorganization in which all or substantially all of
the assets of Shepmyers would be acquired by the
National Portfolio, in exchange solely for Class A
voting shares of beneficial interest (the "Shares" or
"Class A shares") of the National Portfolio and the
assumption by the National Portfolio of the stated
liabilities of Shepmyers (collectively, the
"Reorganization"). Shares of the National Portfolio
thereby received would then be distributed to the
shareholders of Shepmyers in complete liquidation of
Shepmyers. As a result of the Reorganization, each
shareholder of Shepmyers would receive that number of
full and fractional Shares of the National Portfolio
having an aggregate net asset value computed as of the
close of business day preceding the closing of the
Reorganization (the "Valuation Date") equal to the
aggregate net asset value of such shareholder's shares
of Shepmyers held as of the Valuation Date.
Shareholders of Shepmyers are being asked to vote on
an Agreement and Plan of Reorganization pursuant to
which such transactions would be consummated.
This Proxy Statement/Prospectus, which should be
retained for future reference, sets forth concisely
the information about the National Portfolio that a
prospective investor should know before investing.
For a more detailed discussion of the investment
objectives, policies, restrictions and risks of the
National Portfolio, see the Prospectus for the
National 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
National Portfolio's Annual Report to shareholders for
the year ended March 31, 1999 and the National
Portfolio's Semiannual Report to shareholders for the
period ended September 30, 1999.
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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 Proxy Statement/
Prospectus 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. The Statement
of Additional Information dated March 29, 2000 has
been filed with the Securities and Exchange Commission
(the "SEC" or the "Commission") and is incorporated by
reference into this Proxy Statement/Prospectus.
Shepmyers' Annual Report for the year ended December
31, 1999 is available upon request and without charge
by writing to or calling Shepmyers at the address or
phone number listed above. Shareholder inquiries
regarding Shepmyers or the National Portfolio may also
be made by calling the phone number listed above. The
information contained herein concerning Shepmyers has
been provided by, and is included herein in reliance
upon, Shepmyers. The information contained herein
concerning the National Portfolio has been provided
by, and is included herein in reliance upon, the
National Portfolio.
The National Portfolio is a diversified series
of Muni Funds, an open-end management investment
company organized as a Massachusetts business trust.
Shepmyers is a diversified closed-end management
investment company organized as a Pennsylvania
corporation. The principal investment objective of the
National Portfolio is to pay its shareholders as high
a level of income exempt from Federal income taxes as
is consistent with prudent investing. The principal
investment objective of Shepmyers is to seek as high a
level of income and capital gains, net of federal
income tax, as is consistent with the preservation of
capital.
In the descriptions of the Proposal below, the
word "fund" is sometimes used to mean investment
companies or series thereof in general, and not the
National Portfolio or Shepmyers whose Proxy Statement
this is. In addition, in this Proxy
Statement/Prospectus, for simplicity, actions are
described as being taken by the National Portfolio,
although the actions are actually taken by Muni Funds
on behalf of the National Portfolio.
This Proxy Statement/Prospectus, the Notice of
Special Meeting and the proxy card are first being
mailed to shareholders on or about March 29, 2000 or
as soon as practicable thereafter. Any Shepmyers
shareholder giving a proxy has the power to revoke it
by mail (addressed to the Secretary at the principal
executive office of Shepmyers at the address for
Shepmyers shown at the beginning of this Proxy
Statement/Prospectus) or in person at the Special
Meeting, by executing a superseding proxy or by
attending the Special Meeting and voting in person.
All properly executed proxies received in time
for the Special Meeting will be voted as specified in
the proxy or, if no specification is made, in favor of
the Proposal.
The presence at the Special Meeting, in person
or by proxy, of the holders of a majority of the
shares of Shepmyers entitled to be cast shall be
necessary and sufficient to constitute a quorum for
the transaction of business. If the Special Meeting
cannot be organized because a quorum has not attended,
the persons named as proxies may propose to adjourn
the meeting for at least fifteen days. Those
shareholders who attend the adjourned meeting,
although less than a quorum, will nevertheless
constitute a quorum for acting upon the Proposal.
Notice of the adjourned meeting will not be given,
except by announcement at the meeting on April 12,
2000, unless a new record date is fixed for the
adjourned meeting. Any such adjournment as to a matter
will require the affirmative vote of the holders of a
majority of Shepmyers' shares present in person or by
proxy at the Special 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.
Abstentions and broker non-votes are not counted
as votes cast. Broker non-votes are proxies received
by Shepmyers 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. Only votes cast FOR or AGAINST the Proposal
will be counted to determine whether the Proposal has
been approved.
The approval of the Agreement and Plan of
Reorganization requires the affirmative vote of a
majority of the votes cast by Shepmyers' shares at a
meeting at which a quorum is present.
Holders of record of the shares of Shepmyers at
the close of business on February 25, 2000 (the
"Record Date"), will be entitled to one vote per share
on all business of the Special Meeting. As of February
25, 2000 there were 768,238 shares of Shepmyers
outstanding.
To the best of Muni Funds' knowledge, as of
February 4, 2000 no person owned beneficially more
than 5% of the National Portfolio's outstanding
shares.
PRINCIPAL SHAREHOLDERS
The following table sets forth information
concerning persons known by the Company to own
beneficially more than 5% of its Shares on December
31, 1999:
Amount and Nature of
Beneficial Ownership
Name and Address
Sole Voting or
Investment Power
Shared Voting or
Investment Power
Percent of
Class
CoreStates
(Hamilton) Bank
46,456(1)(a)
186,580(1)(a,b)
30.3%
12 East Market
Street
York, PA 17404
First National
Trust Co.
46,456(2)
6.0%
1 F.N.B. Blvd.
Hermitage, PA
16148
Paul E. and
Josephine F. Spears
118,152(5)
15.4%
106 Oak Street
Hanover, PA 17331
Charlotte S. DeVan
130,185(1)(a),(3)
17.0%
213 Eichelberger
St.
Hanover, PA 17331
Lawrence S. DeVan
7,500
87,911(3)
12.4%
200 Round Hill Road
Greenwich, CT
06831
Robert P. Myers
112,311(4)
14.6%
P.O. Box 389
Belgrade, MT 59714
PNC Bank
40,806(3)
5.3%
1600 Market Street,
6th fl.
Philadelphia, PA
19103
(1)(a) CoreStates (Hamilton) Bank serves as
Trustee U/A dated 2/6/40 executed by H.D.
Sheppard for the benefit of Charlotte S.
DeVan with respect to 46,456 Shares; and
CoreStates (Hamilton) Bank serves as
Trustee with Charlotte S. DeVan UDT
Lawrence B. Sheppard dated 4/21/59 with
respect to 100,000 Shares. CoreStates
(Hamilton) Bank has shared voting and
investment power with Charlotte S. DeVan
with regard to the 100,000 Shares.
(1)(b) Jean MacInnes shares voting and investment
power with CoreStates (Hamilton) Bank,
Successor Trustee to Edna Powl Myers for
Robert Clinton Myers, 2nd et al U/A dated
5/5/63 with respect to 83,660 Shares; and
Lawrence S. DeVan has shared voting and
investment power over 2,920 shares with
CoreStates(Hamilton) Bank.
(2) First National Trust Co. (successor to the
trust business of First National Bank of
Pennsylvania) is the successor trustee to
S.E. Bank N.A. U/A dated 2/6/40 executed
by H.D. Sheppard for the benefit of Alma
S. Tolhurst. First National Trust Co. has
sole voting and investment power over all
46,456 Shares.
(3) Lawrence S. DeVan has shared investment
power over 14,000 and 30,185 of these
Shares with his father W. Todd DeVan and
his mother Charlotte S. DeVan,
respectively, has shared voting and
investment power over 2,920 of these
Shares with CoreStates (Hamilton) Bank and
has shared voting and investment power
over 40,806 of these Shares with PNC Bank.
(4) Robert P. Myers has voting and investment
power over 13, 374 Shares; and has voting
and investment power over 98,937 Shares as
Executor of the estate of Henrietta Myers
Miller.
(5) Paul E. Spears and Josephine F. Spears
share voting and investment power as
Tenants By Entirety over all 118,152
Shares.
Based on the value of Shepmyers as of
February 4, 2000 and the value of the
National Portfolio as of February 4, 2000
none of the persons listed in the above
chart will own more than 1% of the
outstanding shares of the National
Portfolio upon consummation of the
proposed transaction.
As stated in the Notice of Special Meeting of
Shareholders attached hereto, only holders of Common
Stock on the Record Date will be entitled to notice of
and to vote at the Special 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 National Portfolio. As of December
31, 1999, the Directors and Officers of Shepmyers' as
a group beneficially owned 45.13% of the outstanding
shares of Shepmyers.
Shepmyers and the National Portfolio provide
periodic reports to their respective 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 Shepmyers or the National Portfolio
and a copy of any more recent semi-annual report,
without charge, by calling Shepmyers at (717) 637 -
8931 (ask for Mrs. Kuhn) or the National Portfolio at
(800) 451-2010 or writing to Shepmyers or the National
Portfolio, c/o Smith Barney Muni Funds, at the
addresses shown at the beginning of this Proxy
Statement/Prospectus for their respective reports.
Shares of the Funds are subject to investment
risks including the possible loss of principal, are
not bank deposits and are not endorsed by, insured by,
guaranteed by, obligations of or otherwise supported
by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, The
Rittenhouse Trust Company or any of its affiliates or
any other governmental agency or bank.
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The Board of Directors/Trustees of each of
Shepmyers and Muni Funds, including all of the
Directors/Trustees who are not "interested persons"
(as defined in the Investment Company Act of 1940, as
amended (the "1940 Act") of Shepmyers or Muni Funds
(the "Non-Interested Directors/Trustees" or "Non-
Interested Board Members"), approved on January 21,
2000 and December 17, 1999, respectively, an Agreement
and Plan of Reorganization (the "Plan") between Muni
Funds and Shepmyers. The Plan provides for (a) the
transfer of all or substantially all of the assets of
Shepmyers to the National Portfolio, an open-end
diversified series of Muni Funds, in exchange for the
Shares of the National Portfolio and the assumption by
the National Portfolio of all of Shepmyers' stated
liabilities; (b) the distribution of such National
Portfolio shares to the shareholders of Shepmyers in
complete liquidation of Shepmyers; (c) the termination
of Shepmyers as a diversified closed-end management
investment company; and (d) the dissolution of
Shepmyers as a corporation under Pennsylvania law
(collectively, the "Reorganization"). As a result of
the Reorganization, each shareholder of Shepmyers will
become a shareholder of the National Portfolio and
will hold, immediately after the closing of the
Reorganization (the "Closing"), that number of full
and fractional Shares of the National Portfolio
having an aggregate net asset value computed as of the
Valuation Date equal to the aggregate net asset value
of such shareholder's shares of Shepmyers as of the
Valuation Date. The Closing is expected to occur on
April 14, 2000, or on such later date as the parties
may agree in writing (the "Closing Date").
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 National Portfolio and the Plan the
form of which is attached to this Proxy
Statement/Prospectus as Exhibit A. Shepmyers
shareholders should read this entire Proxy
Statement/Prospectus carefully.
Introduction
The Rittenhouse Trust Company ("RTC") located at
Three Radnor Corporate Center, Suite 450, Radnor,
Pennsylvania is the investment advisor for Shepmyers.
SSB Citi, located at 388 Greenwich Street, New York,
New York, 10013, is the investment adviser for the
National Portfolio. If the Plan is consummated,
Shepmyers shareholders will become shareholders of the
National Portfolio and, therefore, may benefit from
the open-end nature of the National Portfolio. In
addition, if the Plan is consummated, Shepmyers
shareholders may benefit from access to the investment
management expertise of SSB Citi and will be able to
enjoy certain shareholder privileges not currently
available, 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 National Portfolio's prospectus and in certain
instances to the payment of a sales charge), access to
Salomon Smith Barney's professional service
representatives and automatic cash withdrawal.
Shepmyers shareholders, as shareholders of the
National Portfolio, could possibly earn more annual
income and greater total return and bear lower fees
and expenses as compared with Shepmyers. See
"Capitalization and Performance" and "Special Fund
Operating Expenses," respectively. The National
Portfolio declares dividends daily and pays dividends
monthly. Shepmyers declares 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 assets and stated liabilities of
Shepmyers will be equal to the net asset value of
Shepmyers as of the
The aggregate net asset value of the Shares of
the National Portfolio issued in exchange for the
Valuation Date. Immediately following the transfer of
Shares to Shepmyers, the Shares will be distributed
pro rata to the shareholders of record of Shepmyers on
the Closing Date and the shares of Shepmyers will be
cancelled.
For the reasons described below under "Reasons
for the Proposed Transaction," the Board recommends
approval of the Plan. If the Plan is not approved,
Shepmyers will continue in existence pending further
consideration by the Board.
Comparison of Investment Objectives and Policies
The investment objectives and policies of the
Funds are generally similar. Both the National
Portfolio and Shepmyers are diversified investment
companies which means that, with respect to 75% of
their total assets, not more than 5% may be invested
in the securities of one issuer (except U.S.
government securities) and not more than 10% of the
outstanding voting securities of any one issuer may be
owned. Both the National Portfolio and Shepmyers
intend to conduct their operations to qualify as a
"regulated investment company" for purposes of the
Internal Revenue Code. Qualification will relieve them
of any liability for Federal income tax to the extent
their respective earnings are distributed to
shareholders. To so qualify, among other requirements,
the funds will limit their investments so that, at the
close of each quarter of the taxable year, (a) not
more than 25% of the market value of their total
assets respectively 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 funds will be invested in the securities of a
single issuer and they will not own more than 10% of
the outstanding voting securities of a single issuer.
The National 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"). While the relative
proportions of the types of Shepmyers' portfolio
securities will vary from time to time, not less than
50% of the portfolio will be invested in obligations
issued by states, territories and possessions of the
United States and the District of Columbia, and their
political subdivisions, duly constituted authorities
and corporations, the interest on which is exempt from
Federal income tax in the opinion of bond counsel to
the issuers. Shepmyers investment practice has been
to invest substantially all of its assets in such
municipal obligations. Whereas all municipal bonds
purchased by the National Portfolio must, at the time
of purchase, be investment-grade municipal securities
and at least two-thirds of the National Portfolio's
municipal bonds must be rated within the three highest
ratings categories by a nationally recognized
statistical rating organization ("NRSRO"), Shepmyers
has no similar stated policies. However, Shepmyers'
practice has been to invest substantially all of its
assets in municipal obligations described above such
that its average bond rating by an NRSRO is
investment-grade. Also, Shepmyers historically has
invested in municipal bonds with a shorter average
maturity than those of the National Portfolio. At
December 31, 1999, Shepmyers' portfolio had an average
maturity of 7.69 years, whereas the portfolio of the
National Portfolio had an average maturity of 20.8
years as of the same date. The National Portfolio may
invest up to 15% of its net assets in illiquid
securities; Shepmyers is not subject to such
limitation. However in actual practice, Shepmyers
does not invest in illiquid securities. 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 Shepmyers and the National Portfolio are generally
substantially similar, except as described in the
section entitled "Principal Risk Factors."
The National Portfolio and Shepmyers have
substantially similar fundamental policies with
respect to issuing senior securities, engaging in
industry concentration, making loans, underwriting
securities, and purchasing or selling commodities or
commodity contracts. However, the National Portfolio
and Shepmyers have different fundamental policies with
respect to borrowing and investing in real estate.
The National Portfolio may not borrow money, except
from banks for temporary or emergency purposes and by
entering into reverse repurchase agreements, forward
roll transactions and other similar strategies
limited so that no more than 33 1/3% of its total
assets is derived from such transactions. Shepmyers
may not borrow money except for temporary or emergency
purposes and then only in an amount not exceeding 10%
of its total assets. Neither the National Portfolio
nor Shepmyers may purchase or sell real estate. The
National Portfolio may invest in securities of issuers
engaged in the real estate business or the business of
investing in real estate and securities which are
secured by real estate or interests therein, may hold
or sell real estate received in connection with
securities it holds or may trade in futures contracts
and options in futures contracts. Shepmyers'
fundamental restriction against investing in real
estate does not prevent its investment in municipal
bonds secured by real estate or interests therein.
Investment restrictions of each Fund which are
fundamental policies may not be changed without the
approval of the applicable Fund's shareholders.
Comparison of Closed-End and Open-End Investment
Companies
Generally, closed-end funds, such as Shepmyers,
neither redeem their outstanding stock nor engage in
the continuous public 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 (though closed-end fund shares
frequently trade at a discount from net asset value).
There is no established market for shares of Shepmyers
and, therefore, no assurance that a shareholder can
liquidate his or her position at a time or price that
is acceptable. In contrast, open-end funds, such as
the National 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 Shepmyers 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 meet
redemption requests.
Investment Objective and Policies of the National
Portfolio
The National Portfolio seeks as high a level of
income exempt from Federal income taxes and national
personal income taxes as is consistent with prudent
investing.
The National Portfolio invests at least 80% of
its net assets in municipal securities which are debt
obligations issued by any of the 50 states and their
political subdivisions, agencies and public
authorities. The National 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 National 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 nationally recognized statistical rating
organizations ("NRSRO").
SSB Citi, the National Portfolio's investment
manager, selects securities primarily by identifying
sectors and individual securities it believes are
undervalued, while also selecting securities it
believes will benefit from changes in market
conditions. In selecting individual securities, SSB
Citi:
- - uses fundamental credit analysis to estimate
the relative value and attractiveness of
various securities and sectors and to seek 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;
- - seeks to identify 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 potential impact of
supply/demand imbalances for obligations of
different states, the yield available for
securities of 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 Shepmyers
Shepmyers' primary objective is to seek as high
a level of income and capital gains, net of federal
income tax as is consistent with the preservation of
capital. The Fund is a diversified investment company
maintaining a diversified portfolio of municipal
bonds. The Board of Directors may change the Fund's
investment objective without shareholder approval. The
Fund's fundamental policies may not be changed without
the approval of a majority of the Fund's shareholders.
Shepmyers deems the policies described in this
paragraph and the following paragraph to be
fundamental and such policies may not be changed
without approval of a majority of Shepmyers'
outstanding voting securities. The Fund will not
issue any senior securities (except in connection with
permissible borrowings), purchase on margin, sell
securities short or invest in put, call, straddle or
spread options. The Fund will not borrow money except
for temporary or emergency purposes, and then only in
an amount up to 10% of its total assets. The Fund
will not underwrite any issue of securities and will
not concentrate more than 25% of the value of its
total assets in any one industry (except that the Fund
may invest more than 25% of its total assets in
municipal bonds). The Fund will not purchase or sell
real estate (this will not prevent investments in
municipal bonds secured by real estate or interests
therein) and will not purchase or sell commodities or
commodities contracts. The Fund will not make loans
to other persons except that it may purchase or hold
debt instruments or enter into repurchase agreements
pursuant to its investment objective and policies and
may lend portfolio securities in an amount up to 10%
of its total assets.
The Fund will not: (i) invest more than 10% of
its total assets at the time of purchase in securities
of any one issuer (for the purpose of this limitation,
identification of the "issuer" will be based upon a
determination of the source of assets and revenues
committed to meeting interest and principal payments
of each security); (ii) purchase more than 10% of the
outstanding publicly issued debt securities of any
issuer (for the purpose of this limitation,
identification of the "issuer" will be based upon a
determination of the source of assets and revenues
committed to meeting interest and principal payments
of each security); (iii) invest in companies for the
purpose of exercising control of management; (iv)
pledge, mortgage or hypothecate its assets to an
extent greater than 10% of its total assets; (v)
invest in securities of other investment companies
(except as part of a merger, consolidation or
reorganization or purchase of assets approved by the
Fund's shareholders); provided, that the Fund may
purchase shares of any registered, open-end investment
company that has a fundamental policy (which cannot be
changed without shareholder approval) limiting such
company's investments solely to federal tax-exempt
debt obligations (and put options with respect to such
obligations) and further provided, that immediately
after any such purchase, the Fund will not (a) own
more than 3% of the outstanding voting stock of any
one investment company; (b) invest more than 5% of its
total assets in securities of any one investment
company; or (c) invest more than 10% of its total
assets in the aggregate in securities of investment
companies; (vi) invest in interests in oil, gas, or
other mineral exploration or development programs; or
(vii) purchase more than 10% of the outstanding voting
securities of any one issuer, except that 25% of the
value of the Fund's total assets are not subject to
such limitation. Any investment policy or restriction
referred to in either this or the preceding paragraph
which involves a maximum percentage of securities or
assets shall not be considered to be violated unless
an excess over the percentage occurs immediately after
an acquisition of securities or utilization of assets
and results therefrom.
Shepmyers reserves freedom of action with
respect to certain investment policies, wherein no
shareholder approval of changes is required: (i) the
determination of quality and maturity of municipal
bonds for the Fund's investment portfolio and (ii) the
Fund may own, in addition to municipal obligations
described above, taxable obligations, preferred stock
(including convertible preferred stocks), other fixed
income securities and common stocks (including
warrants and rights to purchase common stocks).
Shepmyers generally does not acquire securities
for short-term resale or other disposition or for the
purpose of realizing short-term profits. The Fund's
investment objective has historically been pursued
with a relatively low portfolio turnover rate as
compared to the National Portfolio.
Investment Management Fees and Expenses
Shepmyers and Muni Funds retain RTC and SSB
Citi, respectively, pursuant to separate contracts, to
manage the daily investment and business affairs of
Shepmyers and the National Portfolio, respectively,
subject to the policies established by each Fund's
Board of Directors/Trustees.
The National Portfolio
The National Portfolio's investment adviser is
SSB Citi, an affiliate of Salomon Smith Barney. SSB
Citi selects the National Portfolio's investments and
oversees its operations. SSB Citi and Salomon Smith
Barney are subsidiaries of Citigroup Inc.
("Citigroup"). Citigroup businesses provide 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 SSB Citi
and managing director of Salomon Smith Barney, has
been responsible for the day-to-day management of the
National Portfolio since November 1987. The National
Portfolio commenced operations in August of 1986. Mr.
Coffey has 30 years of experience with SSB Citi or its
predecessors. During the fiscal year ended March 31,
1999, SSB Citi received an advisory fee equal to 0.45%
of the National Portfolio's average daily net assets.
Shepmyers
Shepmyers' investment adviser is RTC. RTC,
organized in 1985, is a registered investment advisor
and bank holding company under federal and
Pennsylvania law. RTC provides a wide range of
investment counseling services to individuals,
institutional clients and others. Shepmyers' prior
investment adviser, Rittenhouse Financial Services,
Inc. ("RFS"), was acquired by The John Nuveen Company.
George W. Connell, the sole shareholder of RFS, sold
all of the capital stock of RFS to The John Nuveen
Company in a transaction that closed on August 31,
1997. RTC was not acquired by The John Nuveen
Company, and Mr. Connell remains RTC's sole
shareholder. All obligations and liabilities of RFS
under Shepmyers' investment advisory agreement were
assumed by RTC without entering into a new investment
advisory agreement.
Pursuant to the advisory agreement, which went
into effect on April 30, 1996, Shepmyers pays RTC an
annual flat advisory fee of $25,000. Under the
advisory agreement, RTC 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 subject to the Fund's investment
policies RTC is authorized to conduct and maintain a
continuous review of the Fund's portfolio of
securities and investments, and 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 RTC may select, and take any action or non-
action that RTC reasonably deems appropriate. All
services provided to the Fund pursuant to the advisory
agreement will be furnished by and at the expense of
RTC in consideration of the investment advisory fee.
All decisions and selections are subject to review by
the Fund's Board of Directors.
For the annual period ended December 31, 1999,
Shepmyers' annualized total expense ratio (total
annual operating expenses as a percentage of average
net assets) was 0.83%, including waivers and
reimbursements. Shepmyers' expenses include investment
advisory fees, custodian fees, transfer agent and
dividend disbursing agent fees, legal and professional
fees, officers' salaries and directors' fees, clerical
fees, capital stock tax and insurance fees. As
demonstrated below, after taking into account certain
expense limitation arrangements, the National
Portfolio's annualized total expense ratio was 0.66%
for the fiscal year ended March 31, 1999.
Consequently, shareholders of Shepmyers may experience
a decrease in expenses with respect to the Shares
received pursuant to the Reorganization.
The expenses of Shepmyers and the National
Portfolio for the fiscal year ended December 31, 1999
and March 31, 1999, respectively, and estimated pro
forma expenses following the proposed Reorganization
are outlined below:
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Shepmyers
National
Portfolio (1)
Pro Forma
Combined
Maximum sales charge (load) imposed on
purchases
(as a % of offering price)
None
4.00%(2)
4.00% (2)
Management Fees
0.17%
0.45%
0.45%
Distribution (12b-1) Fees
0.00%
0.15%
0.15%
Other Expenses
0.66%
0.06%
0.06%
Total Annual Fund Operating Expenses
0.83%
0.66%
0.66%
(1) For the fiscal year ended March 31, 1999, the
Class A shares of the National Portfolio had
total annual fund operating expenses of 0.66%
(0.45% management fee and 0.21% other expenses)
(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. No contingent deferred sales charge
will be imposed upon former Shepmyers'
shareholders owning $500,000 or more of
Shepmyers' shares with respect to National
Portfolio shares received in connection with the
(3) Reorganization.
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 entire time period indicated in the relevant
row below and then redeem all of your shares at the
end of such period. 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 may be higher or lower,
based on these assumptions your costs would be:
Cost of
Investing in
Shepmyers
Cost of
Investing in
National
Portfolio
Pro Forma Costs
1 Year
$86
$465
$465
3 Years
$282
$603
$603
5 Years
$515
$753
$753
10 Years
$1295
$1,190
$1190
This example assumes reinvestment of all
dividends and distributions. This example should not
be considered a representation of past or future
expenses. The National Portfolio's cost of investing
includes the 4% sales charge (which has been waived in
this transaction). The cost of investing in the
National Portfolio without the 4% sales charge for the
periods shown would be $67, one year, $211, three
years, $368, five years, $822, ten years. 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 currently the
principal underwriter and distributor of the National
Portfolio. Because of the repeal of the Glass Steagel
Act, it is anticipated that Salomon Smith Barney will
become the principal underwriter and distributor
replacing CFBDS. A selling group consisting of
Salomon Smith Barney and other broker-dealers sells
shares of the National Portfolio to the public. The
National Portfolio has adopted Rule 12b-1 distribution
plans for its Class A, B and L shares. Under each
plan, the National 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 Shepmyers are
materially different than those of the National
Portfolio. Whereas Shepmyers is a closed-end fund
imposing no sales charges or Rule 12b-1 fees, the
National 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 National Portfolio. No sales charges will be
assessed on the issuance of National Portfolio shares
as part of the Reorganization. Additionally, whereas
there is no exchange privilege in Shepmyers,
shareholders of the National Portfolio may exchange
their shares for a corresponding class of shares of a
fund in the Smith Barney fund complex. Investors
should refer to the prospectus and statement of
additional information of the National Portfolio for a
fuller description of its policies and restrictions
with respect to the purchase, redemption and exchange
of shares.
Dividends and Other Distributions
The National Portfolio pays dividends each month
from its net investment income. These dividends are
generally tax-exempt for Federal income tax purposes,
but taxable for state income tax purposes except to
the extent of the National Portfolio's interest income
from bonds of the particular state and its
municipalities and authorities. The National Portfolio
generally makes capital gain distributions, if any,
once a year, typically in December. The National
Portfolio may pay additional distributions and
dividends at other times if necessary for the National
Portfolio to avoid a Federal tax. Capital gain
distributions and dividends are reinvested in
additional National Portfolio shares of the same class
held. The National 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.
Like the National Portfolio, Shepmyers
distributes to its shareholders substantially all 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 for federal income tax purposes, but they
are taxable for state income tax purposes except to
the extent they are derived from interest income on
bonds of the particular state and its municipalities
and authorities. The Fund expects to distribute tax
exempt interest income dividends quarterly and to
distribute substantially all of its income and
realized capital gains annually.
If the Plan is approved by Shepmyers'
shareholders, then as soon as practicable before the
Closing Date, Shepmyers will pay its shareholders a
cash distribution of all undistributed 2000 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 and Shepmyers will have each received
the opinion of Willkie Farr & Gallagher, each dated
the Closing Date and in connection with the
Reorganization, to the effect that, based upon certain
facts, assumptions and 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 Shepmyers 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, Shepmyers'
actual investment practices are substantially similar
to those of the National Portfolio. Accordingly, each
Fund shares similar risks in connection with their
investments in municipal securities.
Shareholders of Shepmyers and the National
Portfolio could lose money on their investment in the
Fund , or the Fund 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 Fund
defaults on its obligation to pay principal
and/or interest or the security's credit
rating is downgraded;
- - unfavorable legislation affects the tax-
exempt status of municipal bonds; or
- - the judgement of the Fund's investment
advisers' about the attractiveness, value or
income potential of a particular security
proves to be incorrect.
It is possible that some of the Funds' income
distributions may be, and distributions of the Funds'
gains generally will be, subject to Federal taxation.
The Fund may realize taxable gains on the sale of
their securities or on transactions in futures
contracts (though Shepmyers' practice has been not to
invest in futures contracts). Some of the Funds'
income may be subject to the Federal AMT.
The National Portfolio may not be an appropriate
investment for you if you:
- - are not a taxpayer in a high federal tax
bracket seeking income exempt from Federal
taxation;
- - currently do not have exposure to other asset
classes and are not seeking to broaden your
investment portfolio; or
- - are not willing to accept the risks of
municipal securities.
Although the two Funds are subject to
risks that are substantially similar, the National
Portfolio presents different risks for investors in
the following ways:
- - At December 31, 1999, Shepmyers' portfolio
had an average maturity of 7.69 years,
whereas the portfolio of the National
Portfolio had an average maturity of 20.8
years at the same date. Generally the longer
the time until maturity, the more sensitive
the price of a debt security is to interest
rate changes.
- - At December 31, 1999, approximately 50% of
Shepmyers' portfolio was invested with
issuers within the Commonwealth of
Pennsylvania, and the remaining percentage
was fairly evenly distributed among 20 other
states within the United States, whereas the
portfolio of the National Portfolio was
invested 12.2% in Illinois and 10.3% in Texas
with the remaining percentage distributed
among the majority of the other states. When
a fund invests a large portion of its assets
in the securities of issuers within one
state, the fund is likely to be especially
susceptible to economic, political and
regulatory events that affect that state.
- - At December 31, 1999, the average weighted
rating of Shepmyers' investments, including
insurance, was Aa1/AA+, whereas the average
weighted rating of the investments of the
National Portfolio as of the same date,
including insurance, was A+. The value of
debt securities depends, among other things,
on the ability of the issuer to make
principal and interest payments. Changes in
the economy are more likely to affect the
ability of the issuers of lower-rated
securities to make payments of principal and
interest than is the case with higher-rated
securities.
- - The portfolio turnover rate for the National
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 61%. The
portfolio turnover rate for Shepmyers for
the year ended December 31, 1999 was 18%.
- - More frequent trading of investments
increases the chance that a Fund will pay
investors short-term capital gains. These
gains are taxable at higher rates than long-
term capital gains. More frequent trading
could also result in higher brokerage
commissions and other transaction costs,
which could reduce the Funds return.
Please refer to the Prospectus and Statement of
Additional Information of the National Portfolio for a
more detailed discussion of the risks of investing in
the National Portfolio.
Principal Investments of the National Portfolio
The National Portfolio seeks to provide as high
a level of income exempt from Federal income taxes as
is consistent with prudent investing. The National
Portfolio has a fundamental policy that, under normal
market conditions, it will seek to invest 100% of its
total assets--and the National 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). The
National Portfolio may invest up to 20% of its assets
in taxable fixed income securities, but only in debt
securities obligations which are issued or guaranteed
by the full faith and credit of the United States
government. These securities will generally be subject
to federal and state taxation.
The National Portfolio principally invests in
the following securities:
National Municipal Securities. National
municipal securities include debt obligations issued
by certain non-National governmental issuers such as
Puerto Rico, the Virgin Islands and Guam. The interest
on these bonds is exempt from Federal 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 national municipal securities in which
the National Portfolio invests include general
obligation bonds, revenue bonds and municipal leases.
These securities may pay interest at fixed, variable
or floating rates. The National 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 National 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 National 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
National 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 National Portfolio may invest in inverse
floating rate securities ("inverse floaters"). 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 significant impact on the National 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 National 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 National 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
National Portfolio may invest in municipal bond
futures contracts (currently traded on the Chicago
Board of Trade) which are listed contracts based on
U.S government securities as a hedging policy in
pursuit of its investment objective; provided that
immediately thereafter not more than 33 1/3% of the
National Portfolio's net assets would be hedged or the
amount of margin deposits on the National 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 National Portfolio, as the holder of
long-term municipal securities, is to protect the
National Portfolio from fluctuations in interest rates
on tax-exempt securities without actually buying or
selling long-term municipal securities.
Defensive Investing. The National 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 National Portfolio takes a
temporary defensive position, it may be unable to
achieve its investment goal.
Principal Investments of Shepmyers
Consistent with Shepmyers' fundamental and non-
fundamental investment policies, Shepmyers invests
primarily in tax-free municipal obligations, but may
also own taxable obligations, preferred stock
(including convertible preferred stocks), other fixed
income securities and common stocks (including
warrants and rights to purchase common stocks).
Investment Practices of Shepmyers and the National
Portfolio
The National Portfolio has invested in a broader
array of securities, as Shepmyers has historically
invested substantially all of its assets in municipal
obligations and a portion of its assets in a tax-
exempt money market mutual fund. However, Shepmyers
and the National Portfolio are permitted to engage in
certain investments and investment techniques that are
substantially the same. The following is a brief
description of certain investments and investment
techniques in which Shepmyers and the National
Portfolio may engage. Please also refer to the
Section entitled "Principal Risk Factors" for a
discussion of some of the differences between the
Funds, including the average maturity of each Fund's
portfolio and the average credit rating of each Fund's
investment. The National Portfolio may explicitly
engage in certain additional investment practices, as
described above, and a more complete description is
contained in the prospectus of the National 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 Shepmyers dated March 29, 2000 (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 airport, 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, sport, 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 sewage or solid waste disposal.
The two principal classifications of municipal
obligations are "general obligation" and "revenue
obligation." General obligations are secured by a
municipal issuer's pledge of its full faith, credit,
and taxing power for the payment of principal and
interest. Revenue obligations are payable only from
the revenues derived from a particular facility or
class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific
revenue source. Although municipal authorities issue
IDBs, 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 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.
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 Shepmyers to the National
Portfolio in exchange for that number of full and
fractional Class A shares of the National Portfolio
having an aggregate net asset value equal to the
aggregate net asset value of Shepmyers' shares as of
the Valuation Date. The National Portfolio will assume
all of the stated liabilities of Shepmyers. In
connection with the Closing, Shepmyers will distribute
the Class A shares of beneficial interest of the
National Portfolio received in the exchange to the
shareholders of Shepmyers in complete liquidation of
Shepmyers. Shepmyers will then be terminated as a
diversified closed-end management investment company
and dissolved as a corporation under Pennsylvania law.
Upon completion of the Reorganization, each
shareholder of Shepmyers will own that number of full
and fractional Class A shares of the National
Portfolio having an aggregate net asset value equal to
the aggregate net asset value of such shareholder's
shares in Shepmyers as of the Valuation Date. Each
Shepmyers shareholder's account with the Muni Funds as
a National Portfolio shareholder will be significantly
different in material respects from the accounts
currently maintained by Investors Trust Company for
such shareholder, as noted in this Proxy
Statement/Prospectus. Shares of Shepmyers are
represented by physical certificates. However, in the
interest of economy and convenience, shares of the
National Portfolio issued to Shepmyers shareholders
will be in uncertificated form. Upon the issuance of
National Portfolio shares to Shepmyers' Shareholders
in liquidation of Shepmyers, the shares of Shepmyers
will be voided.
The obligations of Shepmyers and Muni Funds, on
behalf of the National Portfolio, under the Plan are
subject to various conditions, as stated therein. The
Plan may 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 Shepmyers.
Shepmyers and the National 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 National Portfolio, but
bind only the property of the National Portfolio as
provided in Muni Funds' Declaration of Trust.
Moreover, no series of Muni Funds other than the
National Portfolio is responsible for the obligations
of Muni Funds under the Plan, and all persons must
look only to the assets of the National 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 National Portfolio, and the Plan has been
signed by authorized officers of the National
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.
Shepmyers and the National Portfolio will bear
all of their respective expenses incurred in
connection with the Reorganization. Shareholders have
no rights of appraisal or dissenter's rights.
Reasons for the Proposed Transaction
In order to accommodate several major
shareholders of Shepmyers that expressed a desire to
liquidate their interests in the Fund, the Shepmyers'
Board discussed the relative advantages and
disadvantages of a corporate liquidation as opposed to
a possible merger with an open-end investment company
with similar investment objectives and policies. The
directors also
discussed their intentions individually with respect
to their holdings. A tax-free merger was generally
recognized as being preferable since it would allow
all shareholders to decide whether they wished to
remain invested or to redeem their shares.
Conversely, a corporate liquidation would force all
shareholders to accept cash in a taxable transaction.
The Board asked the adviser to contact several
open-end investment companies that the adviser
believed might be appropriate merger partners to
determine whether they were interested in discussing a
possible transaction. The National Portfolio was the
only suitable fund that expressed interest in pursuing
discussions. On July 29, 1999, the Board authorized
the commencement of negotiations with the National
Portfolio with respect to the Reorganization.
The proposed Reorganization was presented to the
Board of Directors for consideration and approval at a
meeting on January 21, 2000. At that meeting, the
Shepmyers' Board was presented with information
concerning the Reorganization and the National
Portfolio, including, among other things, the average
coupon, average yield and average maturity of the
National Portfolio's investments, the percentage of
National Portfolio's Investments that are callable,
the percentage of the National Portfolio's investments
that are priced at a discount, the percentage of the
National Portfolio's assets that are priced at a
premium, and the total return of the National
Portfolio, assuming reinvestment of dividends.
Information concerning Shepmyers' was then presented
by RTC. The Shepmyers' Board also reviewed drafts of
both the Reorganization Agreement and the related
Proxy Statement/Prospectus, which were provided to the
Board members prior to the meeting. For the reasons
discussed below, the Board of Directors has
unanimously determined that the proposed
Reorganization is in the best interests of Shepmyers
and its shareholders.
The proposed combination of Shepmyers and the
National Portfolio will allow the shareholders of
Shepmyers to participate in a professionally-managed
open-end investment company holding primarily high
quality bonds and which attempts to earn a high level
of consistent with prudent investment risk. The Board
of Shepmyers believes that Shepmyers shareholders will
benefit from the proposed Reorganization because the
National 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 National Portfolio, Shepmyers shareholders will be
able to purchase, redeem and exchange the Shares at
net asset value on any business day, subject only to
the various limitations set forth in the National
Portfolio's prospectus and in certain instances to the
payment of a sales load (this is intended to
discourage short-term trading in the National
Portfolio, which is intended for long-term
investment). Currently, Shepmyers' shareholders cannot
redeem or exchange their shares in Shepmyers.
Access to SSB Citi's Investment Advisory
Expertise. SSB Citi, an affiliate of Salomon Smith
Barney, is a subsidiary of Citigroup. As of June 30,
1999, SSB Citi Asset Management Group, which
comprises Citigroup Inc.'s primary asset management
business platforms, had assets under management of
approximately $347 billion. SSB Citi Asset Management
Group has a 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 provide a broad range of financial
services-including asset management, banking and
consumer finance, credit and charge cards, insurance,
investments, including investment banking and trading-
- -and use diverse channels to make such financial
services available to consumer and corporate customers
around the world.
Total Returns. Although past performance is not
necessarily indicative of future results, the National
Portfolio has produced better total returns than
Shepmyers as set forth in the table. For the 5 and 10
year periods ending December 31, 1999, the National
Portfolio has ranked in the top quartile of its fund
category with respect to {total return} as tracked by
Lipper Analytical Services in the section of this
Proxy/Prospectus entitled "Performance". According to
Lipper Analytical Services, the National Portfolio
ranked in the third quartile with respect to [total
return] for the one year period ending December 31,
1999.
Lower Fees and Expenses. If the proposed
transaction is approved, Shepmyers' 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.
Shepmyers has a higher annual ratio of operating
expenses to average net assets due to its relatively
small amount of assets. As of December 31, 1999,
Shepmyers had an annualized total expense ratio (as
defined above in the section entitled "Investment
Management Fees and Expenses") of 0.83%. As of March
31, 1999, the National Portfolio had an annualized
total expense ratio of 0.66%. As a result of the
Reorganization, Shepmyers' shareholders will be
investing in a Fund with an annualized total expense
ratio that is currently 17 % lower than Shepmyers.
Some of the fixed expenses currently paid by
Shepmyers, such as accounting, legal and printing
costs, would be spread over a larger asset base. Other
things being equal, Shepmyers 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 National Portfolio Shares,
the investment advisory expertise of SSB Citi, the
small size of Shepmyers and current market conditions,
the Board of Directors of Shepmyers believes the Fund
and its shareholders would benefit from a tax-free
reorganization with a larger diversified open-end fund
with similar investment objectives and policies.
Accordingly, it is recommended that the Shepmyers'
shareholders approve the Reorganization with the
National Portfolio.
The Board of Directors of Shepmyers, in
recommending the proposed transaction, considered a
number of factors, including the following:
(1) the greater liquidity of the National
Portfolio's Class A shares;
(2) the tax-free nature of the Reorganization;
(3) the lower expense ratio of the National
Portfolio;
(4) the compatibility of the National
Portfolio's investment objectives, policies
and restrictions with those of Shepmyers;
(5) the terms and conditions of the
Reorganization; and
(6) the expressed desire of certain major
shareholders of Shepmyers to obtain
liquidity for their investment.
Description of the Securities to be Issued
The National Portfolio is a 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
National Portfolio
General. The National 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 National
Portfolio is governed by Massachusetts state law and
federal law.
Shares of beneficial interest in the National
Portfolio have a par value of $.001 per share. The
number of authorized shares of the National 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.
Voting Rights. The National 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
National 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 National 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 National Portfolio issued to Shepmyers'
shareholders will be validly issued, fully paid and
nonassessable when issued, transferable without
restrictions and will have no preemptive rights.
Shepmyers
General. Shepmyers is a diversified closed-end
management investment company under the 1940 Act.
Shepmyers was organized as a corporation on December
20, 1932 under the laws of the Commonwealth of
Pennsylvania and elected to become a closed-end
management investment company on December 29, 1977.
Shepmyers is governed by its Articles of Incorporation
and By-Laws, and its operations are subject to
oversight by its Board of Directors. Shepmyers is
governed by Pennsylvania state law and federal law.
Stock. Shepmyers' Articles of Incorporation
provide that it is authorized to issue 2,000,000
shares of Common Stock, $.50 par value. Holders of
Shepmyers' Common Stock have no preemptive rights.
Directors. The By-laws of Shepmyers provide that
there shall be nine Directors, and each Director is
elected for a term of one year, and until his or her
successor shall be elected and shall qualify.
Vacancies on the Board of Directors may be filled by
the Directors remaining in office until the next
succeeding annual election or until a successor is
chosen. The Board of Directors has all of the powers
and authority granted by law to the Fund (except as to
certain matters specifically provided by law or by the
Fund's By-laws) and has the power to do all lawful
things which the Board believes are expedient in the
management of the Fund.
Voting Rights. Shepmyers holds annual
shareholders' 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 Shepmyers' shareholders may be called by
the Board of Directors, the President or by
shareholders holding at least 20% of Shepmyers'
outstanding shares. On each matter submitted to a
vote of Shepmyers shareholders, each shareholder is
entitled to one vote for each whole share owned in the
shareholder's name on Shepmyers' books. Except as
otherwise required by Pennsylvania law, Shepmyers' By-
laws provide that for matters requiring a majority
shareholder vote, a majority of votes cast by 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.
Dissolution. In the event of the dissolution of
Shepmyers, the shareholders of Shepmyers are entitled
to receive, after Shepmyers has made arrangements to
pay all claims and obligations in accordance with
Pennsylvania law, any remaining assets. The assets so
distributed to shareholders of Shepmyers will be
distributed among the shareholders in proportion to
the number of shares held by them and recorded on the
books of Shepmyers.
Liability of Directors. The By-laws of Shepmyers
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. Shepmyers 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 acted with willful
misconduct or recklessness in respect of the act or
failure to act that gave rise to the action, suit or
proceeding. 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 Pennsylvania
corporate law, each Shepmyers shareholder has the
right, upon written verified demand to inspect, for
any proper purpose, Shepmyers' stock register, books
and records of account, and records of the proceedings
of the incorporators, shareholders and directors and
to make copies and extract therefrom.
Shareholder Liability. Under Pennsylvania law,
shareholders of a Pennsylvania corporation may be held
personally liable for unpaid shares subscribed for
and/or held by such shareholder. Shareholders of a
dissolved corporation may also be liable for certain
claims against a dissolved corporation if certain
Pennsylvania law dissolution procedures were not
followed, but only to the extent of amounts
distributed to such shareholder in dissolution or to
the extent of the shareholder's pro rata share of the
claim, whichever is less.
The foregoing is only a summary of certain
characteristics of the operations of the National
Portfolio and Shepmyers. 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
Pennsylvania law governing the National Portfolio and
Shepmyers, respectively, for a more thorough
description.
Federal Income Tax Consequences
The Reorganization is conditioned upon the
receipt by both Shepmyers and Muni Funds, on behalf of
the National 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 Shepmyers]
for Federal income tax purposes: (i) the transfer to
the National Portfolio of all or substantially all of
the assets of Shepmyers in exchange for Shares and the
assumption by the National Portfolio of all of the
stated liabilities of Shepmyers, followed by the
distribution of such Shares to Shepmyers' shareholders
in exchange for their shares of Shepmyers in complete
liquidation of Shepmyers, will constitute a
"reorganization" within the meaning of Section
368(a)(1) of the Code, and the National Portfolio and
Shepmyers 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 Shepmyers upon
the transfer of all or substantially all of its assets
to the National Portfolio in exchange solely for
Shares and the assumption by the National Portfolio of
all of the stated liabilities of Shepmyers, or upon
the distribution of Shares to the shareholders of
Shepmyers; (iii) the basis of the assets of Shepmyers
in the hands of the National Portfolio will be the
same as the basis of such assets of Shepmyers
immediately prior to the transfer; (iv) the holding
period of the assets of Shepmyers in the hands of the
National Portfolio will include the period during
which such assets were held by Shepmyers; (v) no gain
or loss will be recognized by the National Portfolio
upon the receipt of the assets of Shepmyers in
exchange for Shares and the assumption by the National
Portfolio of all of the stated liabilities of
Shepmyers; (vi) no gain or loss will be recognized by
the shareholders of Shepmyers upon the receipt of
Shares solely in exchange for their shares of
Shepmyers as part of the transaction; (vii) the
aggregate basis of Shares received by a shareholder of
Shepmyers will be the same as the aggregate basis of
the shares of Shepmyers exchanged therefor; and (viii)
the holding period of Shares received by a shareholder
of Shepmyers will include the holding period during
which the shares of Shepmyers exchanged therefor were
held, provided that at the time of the exchange the
shares of Shepmyers were held as capital assets by the
shareholder.
While neither Shepmyers 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
Shepmyers to its shareholders prior to the Closing of
the Reorganization will be taxable or tax exempt, as
the case may be, to Shepmyers' shareholders in the
same manner as if the Reorganization had not been
contemplated or entered into by Shepmyers and Muni
Funds.
Liquidation and Termination of Shepmyers
If the Reorganization is effected, Shepmyers
will be liquidated and terminated as a diversified
closed-end management investment company and dissolved
as a corporation under Pennsylvania law.
Portfolio Securities
If the Reorganization is effected, SSB
Citi will analyze and evaluate the portfolio
securities of Shepmyers being transferred to the
National Portfolio. Consistent with the National
Portfolio's investment objective and policies, any
restrictions imposed by the Code and the best
interests of the National Portfolio's shareholders
(including former Shepmyers shareholders), SSB Citi
will determine the extent and duration that
Shepmyers' portfolio securities will be maintained by
the National Portfolio. It is not currently
anticipated that there would be a significant
rebalancing of Shepmyers' portfolio securities
following the consummation of the Reorganization.
Subject to market conditions at the time of any such
rebalancing, the disposition of Shepmyers' 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 Shepmyers' 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 Shepmyers and its
shareholders.
Portfolio Turnover
The portfolio turnover rate for the National
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 61%. The portfolio turnover rate
for Shepmyers for the year ended December 31, 1999 was
18 %.
Capitalization and Performance
Pro Forma Capitalization (unaudited)
The following table sets forth the unaudited
capitalization of the National Portfolio and Shepmyers
as of December 31, 1999 as adjusted giving effect to
the Reorganization discussed herein. Due to the net
asset value of Shepmyers being less than ten percent
of the National Portfolio's value, pro forma financial
statements were not required to be and have not been
prepared for inclusion in the Statement of Additional
Information filed in connection with the
Reorganization.
National
Portfolio
Shepmyers
Pro Forma
Adjustment
s
National
Portfolio
Combined'
(Actual)
(Actual)
Net Assets........................
$456,463,1
47
$14,796,48
8
$105,966
$471,365,6
01
Net Asset Value Per
Share....
$12.71
$19.26
- ----------
$12.71
Shares
Outstanding.............
35,914,586
768,238
395,904
37,078,728
(1) Assumes the Reorganization had been consummated on
December 31, 1999 and is for information purposes
only. No assurance can be given as to how many
shares of the National Portfolio will be received
by shareholders of Shepmyers on the date the
Reorganization takes place, and the foregoing
should not be relied upon to reflect the number of
shares of the National Portfolio that actually
will be received on or after such date.
PERFORMANCE
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.
The following table reflects the average annual
total return for the 1, 5 and 10-year (or since
inception) periods ending December 31, 1999, and the
30-day SEC yield for the National Portfolio as of
December 31, 1999:
Average Annual Total
Return:
Shepmyers
National Portfolio
1-year
(0.38)%
1.45%
5-year
4.44%
5.43%
10-year / since
inception
4.92%
7.76% (1)
(1) Since inception on April 4, 1994
For the calendar years ended December 31, 1997, 1998,
and 1999, Shepmyers had total returns of
- - 0.38%, 5.24%, and 5.09%, respectively. Shepmyers
paid dividends totaling $1.009674 per share in the
calendar year ended December 31, 1997, $0.9315 per
share in the calendar year ended December 31, 1998,
and $0.9497 per share in the calendar year ended
December 31, 1999. During the same periods, the
National Portfolio and had total returns of 6.94%,
3.67% and 2.26%, respectively and paid per share
dividends of *1 $.7333 , *2 $.9713 and *3 $0.8735,
respectively.
*1 Includes cap. gain dvd. Of 0.00073 per share.
*2 Includes cap. gain dvd. Of 0.1853 per share.
*3 Includes cap. Gain dvd. Of 0.0725 per share.
Additional Information about the National Portfolio
and Shepmyers
As noted above, additional information about
Shepmyers, the National Portfolio of Muni Funds and
the Reorganization has been filed with the SEC and may
be obtained without charge by writing to Shepmyers
Investment Company, P.O. Box 339, Hanover,
Pennsylvania 17331 or by calling (717) 637 - 8931 and
asking for Mrs. Kuhn.
Shepmyers 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 file 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 Shepmyers or Muni Funds at the
addresses set forth above.
The Board Members of Shepmyers Recommend that
the Shareholders of the Fund Vote
in Favor of this Proposal.
ADDITIONAL INFORMATION
General
The majority of the cost of preparing, printing
and mailing the enclosed proxy card 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 Shepmyers. In addition
to solicitation by mail, certain officers, employees
and representatives of Shepmyers 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 Special 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 Special Meeting.
Other Matters to come before the Special Meeting
No Board member is aware of any matters that
will be presented for action at the Special 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
Shepmyers.
Please complete, sign and return the enclosed
proxy card promptly. No postage is required if mailed
in the United States.
INDEX OF EXHIBITS AND APPENDICES
Exhibit A: Form of Agreement and Plan of
Reorganization
Prospectus of the National Portfolio dated July 29,1999 is
incorporated by reference to Muni Funds N-1A Registration
Statement
PART B
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 28, 2000
AQUISTION OF THE ASSETS OF
SHEPMYERS INVESTMENT COMPANY
Post Office Box 339
Hanover, Pennsylvania
(717) 637 - 8931
By and in Exchange for Shares of
THE NATIONAL PORTFOLIO
("National 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 Shepmyers to the National Portfolio, a series of
Muni Funds in exchange for Class A shares of the National
Portfolio and the assumption by the National Portfolio of stated
liabilities of Shepmyers, 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 National
Portfolio, dated July 29, 1999.
2. Annual Report of the National Portfolio for the year
ended March 31, 1999.
3. Annual Report of Shepmyers for the year ended December
31, 1999.
This Statement of Additional Information is not a
prospectus. A combined Prospectus/Proxy Statement, dated
February 28, 2000, relating to the above referenced matter
may be obtained without charge by calling or writing
Shepmyers or the National 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.
FINANCIAL STATEMENTS
The Annual Report of the National Portfolio for the year
ended March 31, 1999 and the Annual Report of Shepmyers for the
year ended December 31, 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
Shepmyers at (800) 451 - 2010, and the National Portfolio at
(800) as applicable.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
(NOT REQUIRED)
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Reference is made to ARTICLE V of Registrant's Declaration of
Trust for a complete statement of its terms. Section 5.2 of ARTICLE V
provides: "No Trustee,officer, employee or agent of the Trust shall be
liable to the Trust, its
Shareholders, or to any Shareholder, Trustee, officer, employee or
agent thereoffor any action or failure to act (including without limitation the
failure to compel in any way any former or acting Trustee to redress any
breach of trust)except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or its duties."
ITEM 16. EXHIBITS
1. (a) Restated Declaration of Trust dated as of April 23,
1986 is incorporated herein by reference to Exhibit 1 to Pre-Effective
Amendment No. 1
to the Registration Statement on Form N-1A (File No. 2-99861).
(b) Instrument of the Trustees Establishing and
Designating Classes of Shares of Certain Series of the Trust is
incorporated herein by reference to
Exhibit 1(b) to Post-Effective Amendment No. 24 on Form N-1A.
(c) Instrument of the Trustees, dated June 12, 1998,
establishing and designating classes of certain series of the Trust is
incorporated by reference
to Exhibit 1(a) to Post-Effective Amendment No. 40 on Form N-1A.
2. Bylaws of the Trust are incorporated by reference to
Exhibit 2 to Pre-Effective Amendment No. 2 on Form N-1A.
3. Not applicable.
4. Form of Agreement and Plan of Reorganization is filed
herewith as Exhibit A.
5. Not applicable.
6. (a) Management Agreement between the National Portfolio
& MutualManagement Corp. is incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 18 on Form N-1A.
(b) Management Agreement between the Limited Term
Portfolio and Mutual Management Corp. is incorporated by reference to Exhibit
5(c) to Post-Effective Amendment No. 18 on Form N-1A.
(c) Management Agreement between the New York Portfolio
and Mutual Management Corp. is incorporated by reference to Exhibit 5(e) to
Post-Effective Amendment No. 18 on Form N-1A.
(d) Management Agreement between the Florida Portfolio
and Mutual Management Corp. is incorporated by reference to Exhibit (5)(h) to
Post-Effective Amendment No. 16 on Form N-1A.
(e) Management Agreement between the Georgia Portfolio
and Mutual Management Corp. is incorporated by reference to Exhibit 5(m) to
Post-Effective Amendment No. 27 on Form N-1A.
(f) Management Agreement between the Pennsylvania
Portfolio and Mutual Management Corp. is incorporated by reference to Exhibit
5(q) to Post-Effective Amendment No. 27 on Form N-1A.
(g) Form of Management Agreement between California
Money Market Portfolio (and New York Money Market Portfolio) and Mutual
Management Corp. is
incorporated by reference to Exhibit 5(s) to Post-Effective
Amendment No. 34 on Form N-1A.
7. (a) Distribution Agreement between Registrant and Smith
Barney,Harris Upham & Co. Incorporated is incorporated by reference to
Exhibit 6 to Post-Effective Amendment No. 7 on Form N-1A.
(b) Distribution Agreement between Registrant and
CFBDS, Inc. is incorporated by reference to Exhibit e.2 to Post-Effective
Amendment No. 41 on Form N-1A.
(c) Broker Dealer Contract between the Mutual
Management Corp. and CFBDS, Inc. is incorporated by reference to
Exhibit e.2. to Post-Effective Amendment No. 41 on Form N-1A.
8. Not applicable.
9. Custodian Agreement between Registrant and Provident
National Bank is incorporated by reference to Exhibit 8 to Pre-Effective
Amendment No. 1 on Form N-1A.
10. (a) Plan of Distribution pursuant to Rule 12b-1 on
behalf of the California Money Market Portfolio is incorporated by reference to
Exhibit 15 to Post-Effective Amendment No. 21 on Form N-1A.
(b) Plan of Distribution pursuant to Rule 12b-1 on
behalf of the Georgia Portfolio is incorporated by reference to
Exhibit 15(f) to
Post-Effective Amendment No. 27 on Form N-1A.
(c) Plan of Distribution pursuant to Rule 12b-1 on
behalf of the Pennsylvania Portfolio is incorporated by reference to Exhibit
15(j) to Post-Effective Amendment No. 27 on Form N-1A.
(d) Form of Plan of Distribution pursuant to Rule 12b-1
on behalf of Class A shares of each Portfolio, except the California Money
Market and the NewYork Money Market Portfolios is incorporated by reference to
Exhibit 15(n) to
Post-Effective Amendment No. 34 on Form N-1A.
(e) Form of Amended and Restated Shareholder Services
and
Distribution Plan pursuant to Rule 12b-1 is incorporated by
reference to Exhibit m.5 to Post-Effective Amendment No. 41 on Form N-1A.
(f) Amended and Restated Plan pursuant to Rule 18f-3 is
incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 40 on
Form N-1A.
11. Form of Opinion and Consent of Willkie Farr & Gallagher.
Filedherewith.
12. (a) Form of Opinion and Consent of Willkie Farr &
Gallagher supporting the tax matters and consequences to shareholders
discussed in theprospectus. Filed herewith.
(b) Form of Opinion and Consent of Willkie Farr &
Gallagher and Drinker Biddle & Reath supporting the tax matters
and consequences to shareholders discussed in the prospectus.
Filed herewith.
13. Transfer Agency Agreement between Registrant and
Provident Financial Processing Corp. is incorporated by reference to
Exhibit 9 to Post-Effective
Amendment No. 12 on Form N-1A.
14. (a) Consent of KPMG LLP. Filed herwith
(b) Consent of Beard & Company Inc. Filed herewith.
(c) Consent of Ernst & Young Filed herewith
15. Schedule of Computation of Performance Quotations is
incorporated by reference to Exhibit 16 to Post-Effective Amendment
No. 5 on Form N-1A.
16. Powers of Attorney. (Incorporated by reference to Post-
Effective Amendment No. 41 of Registrant's filing on Form N-1A.)
17. Form of proxy card. Filed herewith.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any
public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any person or
party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities
Act [17 CFR 230.145c], the reoffering prospectus will contain the information
called for by
the applicable registration form for reofferings by persons who
may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The undersigned registrant agrees that every
prospectus that is filed under paragraph (1) above will be filed as a part of
an amendment to the registration statement and will not be used until the
amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to
be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly caused
this amendment to the Registration Statement on Form N-14 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 28th day of February, 2000.
SMITH BARNEY MUNI FUNDS
By: /s/ Heath B. McLendon
-------------------------
- -------------
Heath B. McLendon
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Heath B. McLendon President, Chief Executive February 28, 2000
- --------------------- Officer and
Trustee
Heath B. McLendon
/s/ Lee Abraham* Trustee February 28, 2000
- -------------------------------------
Lee Abraham
/s/ Allan J. Bloostein* Trustee February 28, 2000
Allan J. Bloostein
/s/ Jane F. Dasher* Trustee February 28, 2000
- -------------------------------------
Jane F. Dasher
/s/ Donald R. Foley* Trustee February 28, 2000
- -------------------------------------
Donald R. Foley
/s/ Paul Hardin III* Trustee February 28, 2000
- -------------------------------------
Paul Hardin III
/s/ Richard E. Hanson* Trustee February 28, 2000
- -------------------------------------
Richard E. Hanson
/s/ Roderick C. Rasmussen* Trustee February 28, 2000
- -------------------------------------
Roderick C. Rasmussen
/s/ John P. Toolan* Trustee February 28, 2000
- -------------------------------------
John P. Toolan
/s/ Lewis E. Daidone Senior Vice President February 28, 2000
- ---------------- and Treasurer
Lewis E. Daidone
*By: /s/ Christina T. Sydor Secretary February 28, 2000
--------------------------------
Christina T. Sydor
Pursuant to Power of Attorney
Exhibit Index
Exhibit Description
- ------- -----------
4 Form of Agreement and Plan of Reorganization
(Exhibit A)
11 Form of Opinion and consent of Willkie, Farr and
Gallagher, counsel to
National Portfolio
12(a) Form of Opinion and consent of Willkie, Farr and
Gallagher, tax
counsel to National Portfolio
12(b) Form of Opinion and consent of Drinker Biddle &
Reath tax counsel to
Shepmeyers
14(a) Consent of KPMG LLP
14(b) Consent of Beard & Company Inc.
14(c) Consent of Ernst and Young
17 Form of proxy card
EXHIBIT A
FORM OF AGREEMENT AND
PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION
(the "Agreement") is made as of this , day of
2000, between 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 National Portfolio (the "Acquiring Fund"),
and Shepmyers Investment Company, a Pennsylvania
corporation with its principal place of business
at RD 1, Route 194, South Hanover, Pennsylvania
17331 (the "Acquired Fund").
This Agreement is intended to be and is
adopted as a plan of reorganization 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 for Class A voting
shares of beneficial interest ($.001 par value
per share) of the Acquiring Fund, (the "Acquiring
Fund Shares"), and 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.
This agreement is also intended to be a
plan of asset transfer within the meaning of 15
Pa. C.S. Section 1932.
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 simultaneously deliver to the
Acquired Fund that number of full and fractional
(to the third decimal place) 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
simultaneously 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 property and
assets, (except cash in an amount necessary to
pay any unpaid dividends and distributions
described in Section 1.4) 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 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. In
addition, the shareholders of the Acquired Fund
shall have the right to receive any unpaid
dividends or other distributions payable to them
which were declared by the Acquired Fund before
the Closing. Such distribution will be
accomplished by the transfer of the Acquiring
Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund
to open accounts on the share records of the
Acquiring Fund in the 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 file an
application pursuant to Section 8(f) of the
Investment Company Act of 1940, as amended (the
"1940 Act") for an order declaring that the
Acquired Fund has ceased to be an investment
company and, upon receipt of such order, shall
make all filings and take all other steps as
shall be necessary and proper to effect its
complete dissolution under Pennsylvania law.
After the Closing, the Acquired Fund shall not
conduct any business except in connection with
its liquidation, deregistration, and dissolution.
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 Pennsylvania 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 Pennsylvania 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.
1.9 Approval of this Agreement by the
Acquired Fund shareholder shall be deemed to
constitute approval of a proposal for the
voluntary dissolution of the Acquired Fund as
required by 15 Pa.Cis. - 1974.
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.
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 Net
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.
2.5 The Acquiring Fund shall deliver
a copy of its valuation report to the Acquired
Fund prior to Closing.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions
contemplated by this Agreement shall be April 14,
2000, 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. Investors Trust Company, 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. Investors 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 shareholders of the Acquired Fund or provide
evidence satisfactory to the Acquired Fund that
such Acquiring Fund Shares have been credited to
the accounts of the shareholders of the
Acquired Fund 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:
(a) The Acquired Fund is a corporation
duly organized and validly existing under the
laws of, and duly authorized to conduct business
in, the Commonwealth of Pennsylvania with power
under the Acquired Fund's Articles of
Incorporation, as amended, and otherwise to own
all of its properties and assets, to carry on its
business as it is now being conducted and to
consummate the transactions contemplated herein,
and has all necessary federal, state and local
authorizations to carry on its business as now
being conducted and to consummate the
transactions contemplated by this Agreement.
(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 or will be 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 law or of
the Acquired Fund's Articles 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 material obligation, or
the imposition of any material penalty, under any
material 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,
administrative or other 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 that might form the basis
for the institution of such proceedings that
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 that materially
and adversely affects its business or its ability
to consummate the transactions herein
contemplated.
(f) The Statement of Assets and
Liabilities, (including Investments), Statement
of Operations, and Statement of Changes in Net
Assets, and the Financial Highlights of the
Acquired Fund at and for the year ended December
31, 1999, a copy of which is attached hereto as
Schedule 4.1(f), have been audited by Beard &
Company, 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 December 31, 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 (after giving
effect to 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.
(i) For each taxable year of its
operation since it became a closed-end investment
management company (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 1.1 and,
subject to the approval of its shareholders, 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, except
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 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 Board of
Directors of the Acquired Fund, and, subject to
the approval of the Acquired Fund Shareholders,
this Agreement constitutes a legal valid and
binding obligation of the Acquired Fund,
enforceable against the Acquired Fund in
accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, arrangement,
moratorium and other laws relating to or
affecting creditors' rights and subject 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 information provided by the
Acquired Fund in the Proxy Statement/Prospectus
to be included in the Registration Statement
conforms in all material respects to the
applicable requirements of the 1933 Act, the 1934
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.
(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.
(p) The statement delivered pursuant to
Section 7.2 hereof shall list all of the assets
transferred to the Acquiring Fund hereunder.
(q) At both Valuation Time and Closing
there shall be no known material liabilities of
the Acquired Fund, whether accrued, absolute,
contingent, or otherwise, not reflected in the
net asset value per share of the Acquired Shares
pursuant to this Agreement.
4.2. Muni Funds, on behalf of the Acquiring
Fund, represents and warrants to the Acquired
Fund as follows:
(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, to carry on its business as it is now
being conducted and to consummate the
transactions contemplated herein, and has all
necessary federal, state and local authorizations
to carry on its business as now being conducted
and to consummate the transactions contemplated
by this Agreement.
(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 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 material obligation,
or the imposition of any material penalty, under
any material 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,
administrative or other 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 that might form
the basis for the institution of such proceedings
that 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 that 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, a copy of which is attached hereto as
Schedule 4.2(f) have been audited by KPMG LLP,
independent certified public accountants, and are
in accordance with GAAP consistently applied, and
such statements 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
(after giving effect to 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.
(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, shall be registered under the 1933 Act
and under applicable state securities laws, shall
be duly and validly issued, fully paid and non-
assessable, and shall have been offered for sale
and sold in conformity with all applicable
federal and state securities laws and no
shareholder of the Acquiring Fund shall have any
preemptive right of subscription or purchase in
respect thereto (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 written notice prior to the Closing.
(m) The execution, delivery
and performance of this Agreement have been duly
authorized by all necessary action on the part of
the Trustees of the Muni Funds and this Agreement
constitutes a legal 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,
arrangement, moratorium and other laws relating
to or affecting creditors' rights and subject 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.), that 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 Registration
Statement and 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, (i) comply in all material
respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act, the rules and
regulations thereunder, and state securities
laws, and (ii) 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.
(q) The Acquiring Fund
agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the
1933 Act and the 1940 Act and such of the state
securities laws as may be necessary in order to
continue its operations after the Closing Date.
(r) At both the Valuation Time
and the Closing, there shall be no known material
liabilities of the Acquiring Fund, whether
accrued, absolute, contingent or otherwise, not
reflected in the net asset value per share of the
Acquiring Shares to be issued pursuant to this
Agreement.
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 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 April 12,
2000 or such later date as shall be agreed upon
by the parties.
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
together with any amendments and supplements
thereto and the documents contained or
incorporated therein by reference, (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 and any supplement or amendment to the
Registration Statement with the Commission as
soon as practicable. 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. Each of the
parties has cooperated and shall continue to
cooperate with the other, and has furnished and
shall continue to furnish the other with the
information relating to itself that is required
by the 1933 Act, the 1934 Act, the 1940 Act, the
rules and regulations under each of those Acts
and state securities laws, to be included in the
Registration Statement.
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 reasonable
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, the
1934 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 reasonable action,
as the Aquired 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, file an application pursuant to
Section 8(f) of the 1940 Act for an order
declaring that the Acquired Fund has ceased to be
an investment company and, upon receipt of such
order, shall make all filings and take all other
steps as shall be necessary to deregister as a
closed-end management investment company under
the 1940 Act and dissolve and terminate its
corporate existence under Pennsylvania 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.
5.13. Each party will notify the other
party hereto of any material adverse change in
such party's business, prospects, results of
operations or financial condition as soon as
practicable following such change.
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 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 that may result in material
liability on the part of any such person or
entity and (ii) no facts known to the Acquired
Fund which the Acquired Fund reasonably believes
might result in such litigation. As of the
Valuation Time and the Closing, there shall have
been no material adverse change in the financial
condition of the Acquiring Fund since March 31,
1999 other than those changes occurring in the
ordinary course of business as an investment
company.
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, made in this Agreement are true and
correct in all material respects on and as of the
Closing Date, except as they may be affected by
the transactions contemplated by this Agreement,
that the Acquiring Fund has performed and
complied in all material respects with each of
its agreements and covenants required by this
Agreement to be performed or complied with by it
prior to or at the Valuation Time and the Closing
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 formed in
accordance with its organizational documents
under Massachusetts law 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, arrangement, moratorium and laws
of general applicability relating to or affecting
creditors' rights and subject to general equity
principles in any proceeding, whether at law or
in equity, provided, however, that no opinion
need be given as to the enforceability of any
provision of the Agreement relating to
indemnification.
(d) The execution and delivery of the
Agreement did not, and the consummation of the
transactions contemplated herein will not,
violate the Acquiring Fund's Declaration of
Trust, as amended, or By-laws; or other
organizational documents.
(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.
(f) The Acquiring Shares are duly
authorized and, upon delivery to the Acquired
Fund following receipt by the Acquiring Fund of
the Assets of the Acquired Fund as provided in
the Agreement, will be validly issued, fully paid
and non-assessable (recognizing that, under
Massachusetts law, Acquiring Fund Shareholders,
under certain circumstances could be held
personally liable for the obligation of the
Acquired Fund) and will not be subject to any
preemptive rights arising under Massachusetts Law
or under the Declaration of Trust or other
organizational documents.
(g) To such counsel's knowledge, no
shareholder of the Acquiring Fund has any option
or warrant to subscribe or purchase in respect to
the Acquiring Shares.
(h) The execution and delivery of the
Agreement did not, and the compliance by the
Acquiring Fund with all the provisions of the
Agreement will not, violate any material contract
known to such counsel;
(i) No consent, approval,
authorization, order, registration or
qualification of or with any federal or
Massachusetts governmental agency or body, or any
federal or Massachusetts court, is required for
the Acquiring Fund to enter into the Agreement or
to comply with all of the provisions of the
Agreement, except such as have been obtained
under the 1933 Act, the 1934 Act, the 1940 Act,
the rules and regulations thereunder and such
consents, approvals, authorizations,
registrations or qualifications as may be
required under state securities or Blue Sky laws.
Such opinion may state that it is solely
for the benefit of the Acquired Fund, its
directors and its officers. Such counsel may rely
on certificates of officers or trustees of the
Acquiring Fund and as to matters governed by the
laws of the Commonwealth of Massachusetts on an
opinion of Massachusetts counsel. 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.
6.5 The Acquiring Fund shall have duly
executed and delivered to the Acquired Fund an
assumption of stated liabilities certificate and
other instruments as the Acquired Fund may deem
necessary or desirable dated as of the Closing
pursuant to which the Acquiring Fund will assume
all of the stated liabilities of the Acquired
Fund in connection with the transactions
contemplated by this agreement.
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, that
may result in material liability on the part of
any such person or entity and (ii) no facts known
to the Acquiring Fund that 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 in all material respects 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
Drinker Biddle & Reath LLP, 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 Pennsylvania
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, arrangement, moratorium and laws
of general applicability relating to or affecting
creditors' rights and subject to general equity
principles in any proceeding, whether at law or
in equity, provided, however, that no opinion
need be given as to the enforceability of any
provision of the Agreement relating to
indemnification.
(d) The execution and delivery of
the Agreement did not and the consummation of the
transactions contemplated herein will not,
violate the Acquired Fund's Articles of
Incorporation, as amended, or By-laws; or other
organizational documents.
(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 Commonwealth of Pennsylvania for the
exchange of the Acquired Fund's assets for
Acquiring Fund Shares, pursuant to the Agreement
have been obtained or made.
(f) The execution and delivery of
the Agreement did not, and the compliance by the
Acquired Fund with all the provisions of the
Agreement will not, violate any material contract
known to such counsel.
(g) No consent,
approval, authorization, order, registration or
qualification of or with any federal or
Pennsylvania governmental agency or body, or any
federal or Pennsylvania court, is required for
the Acquired Fund to enter into the Agreement or
to comply with all of the provisions of the
Agreement, except such as have been obtained
under the 1933 Act, the 1934 Act, the 1940 Act,
the rules and regulations thereunder and such
consents, approvals, authorizations,
registrations or qualifications as may be
required under state securities or Blue Sky laws.
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 Commonwealth of Massachusetts may
rely on an opinion of Massachusetts 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 Board of Trustees of the Acquiring Fund and
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 Articles of Incorporation, as amended, and
By-Laws, applicable Pennsylvania 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
(without limiting the generality of the
foregoing, the Commission shall not have issued
any unfavorable advisory report under Section
25(b) of the 1940 Act nor instituted any
proceeding seeking to enjoin consummation of the
transactions contemplated by this Agreement under
Section 25(c) of the 1940 Act).
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.
8.5. The Acquired Fund and the Acquiring
Fund shall have each received an opinion of
Willkie Farr & Gallagher, each} dated the Closing
Date, 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 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 of its Assets to the Acquiring Fund in
exchange solely for Acquiring Fund Shares and the
assumption by the Acquiring Fund of all of the
stated liabilities of the Acquired Fund, or upon
the distribution of such 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 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 Acquiring Fund 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 Acquiring
Fund Shares solely in exchange for their shares
of the Acquired Fund as part of the transaction;
(vii) the aggregate basis of Acquiring Fund
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 such
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 Willkie Farr & Gallagher of
representations it shall request of the Acquired
Fund (including its principal shareholders) if
more than 50% of its shares are owned by
shareholders who each own 5% or more of its
shares and the Acquiring Fund. 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. Each Fund (in such capacity , the
"Indemnifying Party") agree to respectively
indemnify and hold harmless the other fund and
each of the other Fund's respective trustees,
directors and officers (such other Fund and its
trustees, directors and officers, in such
capacity, collectively the "Indemnified Party")
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 Indemnified
Party 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 indemnifying Party of
any of its respective representations,
warranties, covenants or agreements set forth in
this Agreement. The Indemnified Party further
agrees to accept full responsibility for and to
indemnify and hold harmless the Indemnified Party
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 Indemnified
Party 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 Indemnifying
Party including (but not limited to) any and all
financial information (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 Shepmyers each 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 and the Acquired
Fund shall each bear their respective expenses
which are incured in connection with the
Reorganization.
11. ENTIRE AGREEMENT
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.
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) either party if the Closing
shall not have occurred on or before April 14,
2000, unless such date is extended by mutual
agreement of the parties, (iii) 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, (iv) the Acquiring
Fund if any of the conditions set forth in
Sections 7 or 8 are not met as of the Closing, or
(v) the Acquired Fund if any of the conditions
set forth in Sections 6 or 8 are not met as of
the Closing. 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. AMENDMENT AND WAIVER
At any time prior to or (to the
fullest extent permitted by law) after approval
of this Agreement by the shareholders of the
Acquired Fund, (a) the parties hereto may, by
written agreement authorized by their respective
Boards of Directors or Trustees, as the case may
be, or their respective Presidents or any Vice
Presidents, and with or without the approval of
their shareholders, amend any of the provisions
of this Agreement, and (b) either party may waive
any breach by the other party or the failure to
satisfy any of the conditions to its obligations
(such waiver to be in writing and authorized by
the President or any Vice President of the
waiving party with or without the approval of
such party's shareholders).
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, Post Office Box 339, Hanover,
Pennsylvania 17331 with a copy to Drinker Biddle
& Reath LLP, One Logan Square, 18th and Cherry
Streets, Philadelphia, PA 19103-6997, Attn.: W.
Bruce McConnel, III, 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 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
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 the 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.
16. OTHER
16.1 Announcements No announcements or
similar publicity with respect to this Agreement
or the transactions contemplated herein shall be
made at any time and in any manner unless
specifically agreed upon and approved by each of
the parties and their respective investment
advisers; provided, that nothing herein shall
prevent either party upon notice to the other
party from making such public announcements as
such party's counsel may consider advisable in
order to satisfy the parties' legal and
contractual obligations.
16.2 Further Assurances.
Subject to the terms and conditions herein
provided, each of the parties hereto shall use
its best efforts to take, or cause to be taken,
such action, to execute and deliver, or cause to
be executed and delivered, such additional
documents and instruments and to do, or cause to
be done, all things necessary, proper or
advisable under the provisions of this Agreement
and under applicable law to consummate and make
effective the transactions contemplated by this
Agreement.
16.3 Termination of Representations
and Warranties. The representations and
warranties of the parties set forth in this
Agreement shall terminate upon the delivery of
the Assets to the Acquiring Fund and the issuance
of the Acquiring Fund Shares at the Closing.
Notwithstanding anything herein to the contrary,
Section 9 shall not terminate as of, and shall
remain in full force and effect after, the
Closing.
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 of Shepmyers Investment Company
SHEPM
YERS INVESTMENT COMPANY
_____________________________________ By :
_________________________________
Name:
Name:
Title:
Title:
Attest: SMITH
BARNEY MUNI FUNDS on behalf of Smith Barney Muni
Funds
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_____________________________________
By: _________________________________
Name:
Name:
Title:
Title:
Attest:
Article I. APPENDIX A
5% SHAREHOLDERS OF THE NATIONAL PORTFOLIO
As of , 2000 the following shareholders
beneficially owned 5% or
more of a class of shares of the National
Portfolio:
February 28, 2000
Smith Barney Muni Funds
National Portfolio
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We have acted as counsel to the National Portfolio
(the "National Portfolio"), a series of Smith Barney
Muni Funds, a Massachusetts business trust ("Muni
Funds"), in connection with the proposed acquisition
by the National Portfolio of all or substantially all
of the assets and stated liabilities of Shepmyers
Investment Company ("Shepmyers"), a Pennsylvania
corporation, in exchange for shares of beneficial
interest of the National Portfolio (the "Shares"),
pursuant to an Agreement and Plan of Reorganization to
be executed by Muni Funds, on behalf of the National
Portfolio, and by Shepmyers (the "Plan").
We have examined Muni Funds' Registration Statement on
Form N-14 substantially in the form in which it is to
become effective (the "Registration Statement"), Muni
Funds' Declaration of Trust and Bylaws, and the Plan.
We have also examined and relied upon other documents
and certificates with respect to factual matters as we
have deemed necessary to render the opinions expressed
herein. We have assumed, without independent
verification, the genuineness of all signatures, the
authenticity of all documents submitted to us as
originals and the conformity with originals of all
documents submitted to us as copies. We have further
assumed that the Plan constitutes the legal, valid and
binding obligation of Shepmyers, enforceable against
Shepmyers in accordance with its terms.
We are members of the bar of the State of New York and
do not purport to be experts on, or to express any
opinion herein, concerning any law, other than the
laws of the State of New York and the federal laws of
the United States of America. Anything in this
opinion to the contrary notwithstanding, we render or
imply no opinion with respect to compliance with any
applicable securities or anti-fraud statutes, rules,
regulations or other similar laws of any state
(including The Commonwealth of Massachusetts) or the
United States of America. In rendering the opinions
herein, we assume that there will be no material
changes in the facts and conditions on which we base
such opinions between the date hereof and the time of
issuance of Shares pursuant to the Plan.
Based upon the foregoing, we are of the opinion that:
(a) Muni Funds is duly organized and validly
existing under the laws of The
Commonwealth of Massachusetts;
(b) The Shares of the National Portfolio to be
issued as contemplated in the Plan have
been duly authorized, and, subject to the
receipt by the National Portfolio of
consideration equal to the net asset value
thereof (but in no event less than the par
value thereof), when issued in accordance
with the Plan, will be validly issued,
fully paid and nonassessable Shares of the
National Portfolio under the laws of The
Commonwealth of Massachusetts.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement, to the
references to us in the Prospectus/Proxy Statement
included as part of the Registration Statement and to
the filing of this opinion as an exhibit to any
application made by or on behalf of Muni Funds on
behalf of the National Portfolio or any distributor or
dealer in connection with the registration or
qualification of the National Portfolio or the Shares
under the securities laws of any state or other
jurisdiction.
This opinion is furnished by us as counsel to the
National Portfolio, is solely for the benefit of Muni
Funds and its Trustees and its officers in connection
with the above described acquisition of assets and may
not be relied upon for any other purpose or by any
other person.
Very truly yours,
/s/ WILLKIE FARR & GALLAGHER
February , 2000
The National Portfolio
Smith Barney Muni Funds
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
You have asked us for our opinion concerning
certain federal income tax consequences to (a)
Shepmyers Investment Company ("Shepmyers"), a
Pennsylvania corporation, (b) the National Portfolio
(the "National Portfolio"), a series of Smith Barney
Muni Funds, a Massachusetts business trust ("Muni
Funds"), and (c) holders of shares of common stock in
Shepmyers ("Shepmyers Shareholders") when the
Shepmyers Shareholders receive beneficial interests of
the National Portfolio (the "Shares") in exchange for
their interests in Shepmyers pursuant to an
acquisition by the National Portfolio of all or
substantially all of the assets of Shepmyers in
exchange for the Shares and the assumption by the
National Portfolio of the stated liabilities of
Shepmyers (the "Reorganization"), all pursuant to an
agreement and plan of reorganization (the "Plan"). As
used herein, the term "Closing Date" has the same
meaning as used in the Plan.
We have reviewed such documents and materials as we
have considered necessary for the purpose of rendering
this opinion. In addition, we have assumed the
genuineness of all signatures, the capacity of each
party executing a document so to execute that
document, the authenticity of all documents submitted
to us as originals and the conformity to original
documents of all documents submitted to us as
certified or photostatic copies.
We have made inquiry as to the underlying facts which
we considered to be relevant to the conclusions set
forth in this letter. The opinions expressed in this
letter are based upon certain factual statements
relating to Shepmyers and the National Portfolio set
forth in the Registration Statement on Form N-14 (the
"Registration Statement") filed by Muni Funds, on
behalf of the National Portfolio, with the Securities
and Exchange Commission and representations made in
letters from Shepmyers (including the principal
shareholders of Shepmyers), and Muni Funds, on behalf
of the National Portfolio, addressed to us for our use
in rendering this final opinion. We have no reason to
believe that these representations and facts are not
valid, but we have not attempted to verify
independently any of these representations and facts,
and this opinion is based upon the assumption that
each of them is accurate. Capitalized terms used
herein and not otherwise defined shall have the
meaning given them in the Registration Statement.
The conclusions expressed herein are based upon the
Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations issued thereunder,
published rulings and procedures of the Internal
Revenue Service and judicial decisions, all as in
effect on the date of this letter.
Based upon the foregoing, we are of the opinion that
for federal income tax purposes:
(i) the transfer to the National Portfolio of
all or substantially all of the assets of
Shepmyers in exchange solely for the
Shares and the assumption by the National
Portfolio of all of the stated liabilities
of Shepmyers, followed by the distribution
of such Shares to the Shepmyers
Shareholders in exchange for their common
stock of Shepmyers in complete liquidation
of Shepmyers, will constitute a
"reorganization" within the meaning of
Section 368(a)(1) of the Code, and the
National Portfolio and Shepmyers 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
Shepmyers upon the transfer of all or
substantially all of its assets to the
National Portfolio in exchange solely for
the Shares and the assumption by the
National Portfolio of all of the stated
liabilities of Shepmyers, or upon the
distribution of the Shares to the
Shepmyers Shareholders;
(iii) the basis of the assets of Shepmyers in
the hands of the National Portfolio will
be the same as the basis of such assets of
Shepmyers immediately prior to the
transfer;
(iv) the holding period of the assets of
Shepmyers in the hands of the National
Portfolio will include the period during
which such assets were held by Shepmyers;
(v) no gain or loss will be recognized by the
National Portfolio upon the receipt of the
assets of Shepmyers in exchange for the
Shares and the assumption by the National
Portfolio of all of the stated liabilities
of Shepmyers;
(vi) no gain or loss will be recognized by the
Shepmyers Shareholders upon the receipt of
the Shares solely in exchange for their
shares of Shepmyers as part of the
transaction;
(vii) the aggregate basis of the Shares received
by a Shepmyers Shareholder will be the
same as the aggregate basis of the shares
of Shepmyers exchanged therefor; and
(viii) the holding period of the Shares received
by a Shepmyers Shareholder will include
the holding period during which the shares
of Shepmyers exchanged therefor were held,
provided that at the time of the exchange
the shares of Shepmyers were held as
capital assets by the shareholder.
Very truly yours,
Form of Drinker Biddle & Reath LLP Tax Opinion
_________ __, 2000
Shepmyers Investment Company
Route 194 South
P.O. Box 339
Hanover, PA 17331
Re: Agreement and Plan of Reorganization by and between
Shepmyers Investment Company and Smith Barney Muni Funds
Dear Ladies and Gentlemen:
You have asked for our opinion as to certain Federal income tax
consequences of the transactions contemplated in the above-referenced
Agreement and Plan of Reorganization (the "Reorganization Agreement").
Background
Shepmyers Investment Company (the "Transferor Fund") is a closed-end
management investment company registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940, as amended
(the "Act"). Smith Barney Muni Funds ("SBMF") is an open-end management
investment company registered with the SEC under the Act.
SBMF has several portfolios, one
of which is the National Portfolio (the "Surviving Fund").
At the Effective Time of the Reorganization (as defined in the
Reorganization Agreement), it is contemplated that the Transferor Fund will
transfer all of its assets and liabilities to the Surviving Fund in exchange
for Shares of the Surviving Fund. The Transferor Fund will then distribute the
Shares to the shareholders of the Transferor Fund in exchange for all
outstanding shares of the Transferor Fund, and the existence of the Transferor
Fund will be terminated. All of the above steps constitute the "Transactions."
For purposes of this opinion, we have relied on certain written
representations of officers of the Transferor Fund and SBMF and shareholders of
the Transferor Fund, and have assumed such representations to be true. We have
also assumed that the Reorganization Agreement substantially in the form
included as Appendix A to the Combined Proxy Statement/Prospectus (the "Proxy
Statement"), a draft of which is part of the Registration Statement filed with
the SEC on Form N-14, has been duly authorized by the parties and approved by
the shareholders of the Transferor Fund, and the appropriate documents have
been filed with the appropriate government agencies.
Conclusions
Based upon the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury Department regulations in effect as of the date hereof,
current published administrative positions of the Internal Revenue Service
contained in revenue rulings and procedures, and judicial decisions, and upon
the assumptions and representations referred to herein and the documents
provided to us by you (including the Proxy Statement and the Reorganization
Agreement), it is our opinion for Federal income tax purposes that:
(i) the acquisition of the assets and assumption of the liabilities of the
Transferor Fund by the Surviving Fund in return for Shares of the
Surviving Fund followed by the distribution of such shares to the
shareholders of the Transferor Fund, as provided in the Reorganization
Agreement, will constitute a
"reorganization" within the meaning of section 368(a)(1)(C) or 368(a)(1)(D) of
the Code, and each such Fund will be "a party to the reorganization" within the
meaning of section 368(b) of the Code;
(ii) in accordance with sections 361(a), 361(c)(1) and 357(a) of the Code, no
gain or loss will be recognized by the Transferor Fund as a result of the
Transactions;
(iii) in accordance with section 1032(a) of the Code, no gain or loss will be
recognized by the Surviving Fund as a result of the Transactions;
(iv) in accordance with section 354(a)(1) of the Code, no gain or loss will be
recognized by the shareholders of the Transferor Fund upon the receipt of the
Shares of the Surviving Fund in exchange for their shares of the Transferor
Fund;
(v) in accordance with section 358(a)(1) of the Code, the tax basis of the
Shares of the Surviving Fund received by the shareholders of the
Transferor Fund will be the same as the tax basis of the shares of the
Transferor Fund exchanged therefor in the Transactions;
(vi) in accordance with section 362(b) of the Code, the tax basis of the assets
received by the Surviving Fund in the Transactions will be the same as the tax
basis of such assets in the hands of the Transferor Fund immediately before the
Transactions;
(vii) in accordance with section 1223(1) of the Code, the holding period of the
Shares of the Surviving Fund received by the shareholders of the Transferor
Fund will include the holding period of the shares of the Transferor Fund
exchanged therefor, provided that at the time of the exchange the shares of
the Transferor Fund were held as capital assets;
(viii) in accordance with section 1223(2) of the Code, the holding period
of the
Surviving Fund with respect to the assets acquired in the Transactions will
include the period during which such assets were held by the Transferor Fund;
and (ix) in accordance with section 381(a) of the Code, the Surviving Fund will
succeed to the tax attributes of the Transferor Fund described in section
381(c) of the Code.
This opinion represents our best legal judgment, but it has no binding
effect or official status of any kind, and no assurance can be given that
contrary positions may not be taken by the Internal Revenue Service or a court
concerning the issues. We express no opinion relating to any Federal
income tax matter except on the basis of the facts described above.
Additionally, we
express no opinion on the tax consequences under foreign, state or local laws.
In issuing our opinion, we have relied solely upon existing provisions of the
Code, existing and proposed regulations thereunder, and current administrative
positions and judicial decisions. Such laws, regulations, administrative
positions and judicial decisions are subject to change at any time. Any such
change could affect the validity of the opinion set forth above. Also, future
changes in Federal income tax laws and the interpretation thereof can have
retroactive effect.
Please note that W. Bruce McConnel , a member of this firm, is the
Secretary of the Transferor Fund.
Very truly yours,
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
Smith Barney Muni Funds - National Portfolio:
We consent to the incorporation by reference, of our
report dated May 12, 1999 with respect to the Smith
Barney Muni Funds - National Portfolio in Part B
under the heading "Financial Statements" of the
proxy statement/prospectus and the reference to our
firm under the heading "Representations and
Warranties" in Exhibit A in the proxy
statement/prospectus and "Auditors" in the Statement
of Additional Information.
KPMG
LLP
New York, New York
February 25, 2000
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our Firm and our report,
dated January 31, 2000, relating to the statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations, changes in net assets and financial highlights for the year
then ended of Shepmyers Investment Company in the Statement of Additional
Information which will accompany the Proxy Statement/Prospectus in the
Registration Statement on Form N-14.
Harrisburg, Pennsylvania
February 18, 2000
Consent of Independent Auditors
We consent to the use of our report dated January 29, 1999 in the
Registration Statement (Form N-14) and related Proxy Statement/Prospectus
of Shepmyers Investment Company dated February 25, 2000.
/s/Ernst & Young LLP
Harrisburg, Pennsylvania
February 21, 2000
[Front of card]
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF SHEPMEYERS
INVESTMENT COMPANY
The undersigned hereby appoints Shirley J. Kuhn
and James E. Harvey, and each of them, attorneys with
full power of substitution and revocation to attend
the Special Meeting of Shareholders of Shepmeyers
Investment Company on April 12, 2000, and any
adjournment thereof (the "Meeting"), and to vote all
Shares which the undersigned would be entitled to vote
if personally present upon the following matters, as
set forth in the Notice of Special Meeting of
Shareholders and related Proxy Statement/Prospectus,
and upon such other business as may properly come
before the Meeting.
(1) To approve an Agreement and Plan of Reorganization
between Shepmyers Investment Company (the"Fund")
and Smith Barney Muni Funds, on behalf of the
National Portfolio (the "National Portfolio"),
pursuant to which the Fund shall transfer all or
substantially all of its assets and all of its
stated liabilities to the National Portfolio, in
exchange for issued and outstanding Class A voting
shares of the National Portfolio (the "Shares") and
the Fund shall liquidate and distribute pro rata to
its shareholders the Shares, terminate as a closed-
end management investment company under the
Investment Company Act of 1940, as amended, and
then dissolve as a corporation under Pennsylvania
law.
(2) In their discretion, the proxies are authorized
to vote upon such other business as may properly come
before the Meeting.
FOR [ ] AGAINST [ ]
ABSTAIN [ ]
(Continued, and to be signed, on other side)
[Back of card]
ALL PROXIES WILL BE VOTED, AND WILL BE VOTED IN
ACCORDANCE WITH THE INSTRUCTIONS NOTED HEREON. IN THE
ABSENCE OF INSTRUCTIONS, THIS PROXY WILL BE TREATED AS
GRANTING AUTHORITY TO VOTE IN FAVOR OF THE ELECTION OF
DIRECTORS (INCLUDING AUTHORITY TO VOTE CUMULATIVELY)
AND WILL BE VOTED FOR PROPOSAL 1 ABOVE.
(PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE
ENCLOSED ADDRESSED ENVELOPE)
(PLEASE DATE, SIGN AND RETURN THIS PROXY
IN
THE ENCLOSED ADDRESSED ENVELOPE)
Dated:_____________________
The undersigned hereby revokes any proxy or proxies
heretofore given to vote such shares
at said Meeting or any adjournment hereof.
The undersigned hereby acknowledges receipt of the
Notice of Special Meeting of Shareholders
and the Combined Prospectus/Proxy Statement dated
March 30, 2000. When shares are held by joint
tenants, both should sign. When signing as attorney
or executor, administrator, trustee or guardian,
please give full title as such. If a corporation,
please sign in full corporate name by president or
other authorized officer. If a partnership, please
sign in partnership name by authorized person.
