<PAGE>
SHEPMYERS INVESTMENT COMPANY
R.D. 1, Route 194 South
Hanover, Pennsylvania 17331
April 4, 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 18, 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.
<PAGE>
SHEPMYERS INVESTMENT COMPANY
----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on April 18, 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 18, 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 in person or by proxy, although less than a
quorum, will
<PAGE>
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 18, 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
April 4, 2000
----------------------
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.
<PAGE>
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 December
31, 1999 the National Portfolio's net expense ratio was 0.67% 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").
<PAGE>
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, recommends 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION........................... 6
SYNOPSIS................................................................... 6
ANNUAL FUND OPERATING EXPENSES............................................. 14
PRINCIPAL RISK FACTORS..................................................... 17
THE PROPOSED TRANSACTION................................................... 24
ADDITIONAL INFORMATION..................................................... 36
APPENDIX A................................................................. A-1
</TABLE>
<PAGE>
PROXY STATEMENT/PROSPECTUS
April 4, 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 18, 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 the 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.
----------------------
The Securities and Exchange Commission has not approved or disapproved these
securities nor passed upon the accuracy or adequacy of this proxy
statement/prospectus. Any representation to the contrary is a criminal
offense.
No person has been authorized to give any information or to make any
representations other than those contained in this combined prospectus/proxy
statement and in the materials expressly incorporated herein by reference and,
if given or made, such other information or representations must not be relied
upon as having been authorized by the funds.
<PAGE>
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 Semi-annual Report to
shareholders for the period ended September 30, 1999, the Statement of
Additional Information for the
National Portfolio of Smith Barney Muni Funds dated July 29, 1999 and the
Annual Report for Shepmyers Investment Company for the period ended December
31, 1999, which are also incorporated herein by reference.
The Statement of Additional Information dated April 4, 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.
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 seek 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 April 4, 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.
2
<PAGE>
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 vote 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 adjourn the meeting for at least fifteen days.
Those shareholders who attend the adjourned meeting in person or by proxy,
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 18, 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, but the
shares so abstaining or with respect to which broker non-votes are received
are counted as being present for purposes of determining the presence or
absence of a quorum. 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.
3
<PAGE>
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:
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Ownership
-----------------------------------
Sole Voting or Shared Voting or Percent
Name and Address Investment Power Investment Power of Class
---------------- ---------------- ---------------- --------
<S> <C> <C> <C>
CoreStates.................... 46,456(1)(a) 186,580(1)(a,b) 30.3%
(Hamilton) Bank
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. 118,152(5) 15.4%
Spears......................
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
</TABLE>
- -----------
(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.
4
<PAGE>
(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.
5
<PAGE>
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 20, 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, the Annual Report to Shareholders of
the National Portfolio for the fiscal year ended March 31, 1999 and the Semi-
annual Report to Shareholders of the National Portfolio for the period ended
September 30, 1999, 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.
6
<PAGE>
Introduction
The Rittenhouse Trust Company ("RTC") located at Three Radnor Corporate
Center, Suite 450, Radnor, Pennsylvania is the investment advisor for
Shepmyers. SSB Citi Fund Management LLC ("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. 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
The aggregate net asset value (as of the Valuation Date) of the shares of
the National Portfolio issued in exchange for the assets and liabilities of
Shepmyers will be equal to the net asset value of Shepmyers as of 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
7
<PAGE>
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
100% of its total assets-and the Fund 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 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 investment grade municipal obligations.
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
similar, except as described in this Proxy Statement/Prospectus.
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
8
<PAGE>
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
bank borrowing and other 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 offer. 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 current market 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.
9
<PAGE>
Investment Objective and Policies of the National Portfolio
The National Portfolio seeks as high a level of income exempt from Federal
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 and in certain other
governmental issuers such as Puerto Rico, the Virgin Islands and Guam. 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 a nationally recognized
statistical rating organization ("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 seeks 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.
10
<PAGE>
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 will 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.
11
<PAGE>
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 Inc. ("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 an
investment advisor and state-chartered bank 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
12
<PAGE>
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.
In October 1997, Joseph McLaughlin, Executive Vice President of RTC, became
Shepmyers' co-portfolio manager with George Connell, Chief Executive Officer
and sole shareholder of RTC. In January 1998, Mr. McLaughlin was appointed
President of RTC. Mr. Connell has been Shepmyers' portfolio manager since
Shepmyers became a closed-end management investment company. As co-portfolio
managers, Mr. McLaughlin and Mr. Connell are primarily responsible for the
day-to-day management of Shepmyers' portfolio.
Mr. McLaughlin had previously been a Vice President, portfolio manager and
Manager of the Private Client Group at RFS. Prior to joining RTC and RFS in
1992, Mr. McLaughlin had been a Vice President of JP Morgan since 1986.
Mr. Connell had previously been Principal Executive Officer, sole shareholder
and a director of RFS as well as President and a director of Rittenhouse
Capital Management, Inc. and President, Director and Principal of Rittenhouse
Financial Securities, Inc.
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'
13
<PAGE>
fees, clerical fees, capital stock tax and insurance fees. 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 and was 0.67% for the one-year period ended December 31, 1999.
Consequently, shareholders of Shepmyers may experience a decrease in the
expense ratio 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)
<TABLE>
<CAPTION>
National Pro Forma
Shepmyers Portfolio (1) Combined
--------- ------------- ---------
<S> <C> <C> <C>
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%
</TABLE>
- -----------
(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). For the one-year period
ended December 31, 1999, the National Portfolio had total annual fund
operating expenses of 0.67%.
(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 with
respect to National Portfolio shares received in connection with the
Reorganization.
14
<PAGE>
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:
<TABLE>
<CAPTION>
Cost of Investing in Cost of Investing in
Shepmyers National Portfolio Pro Forma Costs
-------------------- -------------------- ---------------
<S> <C> <C> <C>
1 Year............... $ 86 $ 465 $ 465
3 Years.............. $ 282 $ 603 $ 603
5 Years.............. $ 515 $ 753 $ 753
10 Years............. $1,295 $1,190 $1,190
</TABLE>
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
15
<PAGE>
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.
16
<PAGE>
Tax Consequences
Muni Funds will have received the opinion of Willkie Farr & Gallagher and
Shepmyers will have received the opinion of Drinker Biddle & Reath LLP, 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 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, for example:
. 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 Funds may realize taxable gains on the sale of their securities
or on transactions in futures contracts (though the Funds' practice has been
not to invest in futures contracts). Some of the Funds' income may be subject
to the Federal AMT (as defined in "Comparison of Investment Objectives and
Policies"), however Shepmyers has never purchased securities that would
generate income subject to the Federal AMT. Accordingly, no dividends
previously paid to Shepmyers shareholders have included income that is subject
to the Federal AMT, while dividends paid to National Portfolio shareholders
have in the past included, and are expected to include in the future, income
that 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;
17
<PAGE>
. 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 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 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 the year ended December 31, 1999 was 53%.
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.
18
<PAGE>
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:
Municipal Securities. Municipal securities include debt obligations issued
by certain 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
19
<PAGE>
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 seek 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).
20
<PAGE>
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 investments. 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 April 4, 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
21
<PAGE>
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 (e.g., the prime rate) changes. 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
22
<PAGE>
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
23
<PAGE>
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 (valued as of the Valuation
Date) 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.
24
<PAGE>
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. It is estimated that
Shepmyers expenses relating to the Reorganization will be approximately
$90,000.00. 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 have forced all
shareholders of Shepmyers 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
25
<PAGE>
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 income exempt from Federal income taxes as is
consistent with prudent investing. 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 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, 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 produced better total returns than
Shepmyers during the five-year and ten-year periods ended December 31, 1999,
as set forth in
26
<PAGE>
the table contained within the section of this Proxy/Prospectus entitled
"Capitalization and Performance." However, Shepmyers produced a better total
return than that of the National Portfolio during the one-year period ended
December 31, 1999. (See "Capitalization and Performance"). For the 5 and 10
year periods ended 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. According to Lipper Analytical Services, the
National Portfolio ranked in the third quartile with respect to total return
for the one year period ended December 31, 1999. Shepmyers' annual returns are
not tracked by Lipper Analytical Services.
Lower Fees and Expenses. If the proposed transaction is approved, Shepmyers'
shareholders may benefit from a lower expense ratio (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. For the one-year period
ended 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%. For the one-year period ended December 31, 1999, the
National Portfolio had an annualized total expense ratio of 0.67%. As a result
of the Reorganization, Shepmyers' shareholders will be investing in a Fund
with an annualized total expense ratio that, based on the one-year period
ended December 31, 1999, is 0.16% 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
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;
27
<PAGE>
(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 restated as of April 23, 1986. 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 at least two-thirds of the
remaining
28
<PAGE>
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 Muni Funds 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 Muni Funds, for any purpose, must be called upon the
written request of shareholders holding at least 25% of the Muni Funds'
outstanding shares and entitled to vote or, if the purpose for which the
meeting is called requires the vote of fewer than all series or shares of Muni
Funds, holding at least 25% of the shares of such series. On each matter
submitted to a vote of the shareholders of the Muni Funds, 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 Muni Funds' 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 of each Portfolio 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 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 Bylaws 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
29
<PAGE>
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 power 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
30
<PAGE>
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 directors of
the Fund shall not be personally liable for monetary damages for any action
taken or failure to take action, except to the extent that by law a directors'
liability for monetary damages may not be limited. 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.
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' share 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, but only to the extent of amounts distributed to such shareholder
in dissolution.
The foregoing is only a summary of certain characteristics of the operations
of the National Portfolio and Shepmyers. The foregoing is not a complete
31
<PAGE>
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 Muni Funds, on behalf
of the National Portfolio, of an opinion from Willkie Farr & Gallagher and
receipt by Shepmyers of an opinion from Drinker Biddle & Reath LLP, 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)
32
<PAGE>
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. Subject to market conditions at
the time of any rebalancing of Shepmyers' portfolio securities, 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 December 31, 1999 was 53%. 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
33
<PAGE>
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.
<TABLE>
<CAPTION>
National
National Pro Forma Portfolio
Portfolio Shepmyers Adjustments Combined
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
(Actual) (Actual)
Net Assets.................... $456,463,147 $14,796,488 $105,966 $471,365,601
Net Asset Value Per Share..... $ 12.71 $ 19.26 -- $ 12.71
Shares Outstanding............ 35,914,586 768,238 395,904 37,078,728
</TABLE>
- -----------
(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.
34
<PAGE>
The following table reflects the average annual total return for the 1, 5
and 10-year periods ending December 31, 1999, without sales charges and the
30-day SEC yield as of December 31, 1999:
<TABLE>
<CAPTION>
National
Average Annual Total Return:(2) Shepmyers Portfolio(1)
- ------------------------------- --------- ------------
<S> <C> <C>
1-year................................................... (0.38)% (4.61)%
5-year................................................... 4.44% 6.56%
10-year.................................................. 4.92% 6.94%
30-day SEC yield......................................... 4.38% 5.65%
</TABLE>
- -----------
(1) This reflects information for the Class A Shares of the National
Portfolio.
(2) The average annual total return with sales charges for the one, five and
10 year periods ending December 31, 1999, were (8.45)%, 5.68% and 6.5%. As
previously stated, shareholders of Shepmyers are not being assessed a
sales charge in connection with the issuance of Class A Shares of the
National Portfolio.
For the calendar years ended December 31, 1999, 1998, and 1997, Shepmyers
had total returns of -0.38%, 5.24%, and 5.09%, respectively. Shepmyers paid
dividends totaling *1, $1.037674 per share in the calendar year ended December
31, 1997, *2, $0.9735 per share in the calendar year ended December 31, 1998
and *3, $1.0197 per share in the calendar year ended December 31, 1999. During
the one-year periods ended December 31, 1999, 1998 and 1997, the National
Portfolio had total returns of (4.61)%, 5.64% and 10.58%, respectively,
without sales charges, and paid per share dividends of *4, $0.9610, *5,
$0.9713 and *6, $0.7333, respectively.
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.
- -----------
*1 includes long-term capital gains distributions of $0.047674 per share, and
tax-exempt interest distributions of $0.99 per share.
*2 includes long-term capital gains distributions of $0.0235 per share, and
tax-exempt interest distributions of $0.95 per share.
*3 includes long-term capital gains distributions of $0.0997 per share, and
tax-exempt interest distributions of $0.92 per share.
*4 includes long-term capital gains distributions of $0.1600 per share, and
tax-exempt interest distributions of $0.8010 per share.
*5 includes long-term capital gains distributions of $.1853 per share, and
tax-exempt interest distributions of $0.7860 per share.
*6 includes long-term capital gains distributions of $0.0073 per share, and
tax-exempt interest distributions of $0.7260 per share.
35
<PAGE>
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 of Directors of Shepmyers Unanimously Recommends 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
36
<PAGE>
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" or the "Trust"), 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
EXA-1
<PAGE>
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
EXA-2
<PAGE>
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, and share certificates that previously represented interests in
shares of the Acquired Fund will cease to represent either shares in the
Acquired Fund or in the Acquiring Fund 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 shareholders shall be
deemed to constitute approval of a proposal for the voluntary dissolution of
the Acquired Fund as required by 15 Pa.C.S. (S)1974.
EXA-3
<PAGE>
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 20, 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
EXA-4
<PAGE>
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
EXA-5
<PAGE>
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
EXA-6
<PAGE>
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
EXA-7
<PAGE>
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, and
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"),
EXA-8
<PAGE>
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 Fund 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,
EXA-9
<PAGE>
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
EXA-10
<PAGE>
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
EXA-11
<PAGE>
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.
EXA-12
<PAGE>
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 18, 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.
EXA-13
<PAGE>
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.
EXA-14
<PAGE>
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.
EXA-15
<PAGE>
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;
EXA-16
<PAGE>
(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.
EXA-17
<PAGE>
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.
EXA-18
<PAGE>
(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 in accordance with its
Declaration of Trust and By-Laws and in accordance with applicable
Massachusetts law and the 1940 Act 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 each party shall have
provided the other with certified copies of the resolutions evidencing such
approval. 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).
EXA-19
<PAGE>
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 Acquiring Fund shall have received an opinion of Willkie Farr &
Gallagher and the Acquired Fund shall have received the opinion of Drinker
Biddle & Reath LLP, 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
EXA-20
<PAGE>
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 and Drinker Biddle & Reath LLP of
representations it shall request of the Acquired Fund (including its principal
shareholders). 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 Indemnifying 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 incurred 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.
EXA-21
<PAGE>
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 May 5,
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.
EXA-22
<PAGE>
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.
EXA-23
<PAGE>
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.
EXA-24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Attest of Shepmyers Investment Company SHEPMYERS INVESTMENT COMPANY
_______________________________________ By : ________________________________
Name: Name:
Title:
Title:
Attest of Smith Barney Muni Funds SMITH BARNEY MUNI FUNDS on behalf of
the NATIONAL PORTFOLIO
_______________________________________
Name: By: _________________________________
Title: Name:
Attest: Title:
EXA-25
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 4, 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
April 4, 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)
