As filed with the Securities and Exchange
Commission on July 23, 1999
Registration No. 33-12792
811-5066
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 23
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended
Amendment No. 24 [X]
SMITH BARNEY ARIZONA MUNICIPALS FUND INC.
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices) (Zip Code)
(212)816-6474
(Registrant's telephone number, including Area Code)
Christina T. Sydor
388 Greenwich Street, New York, New York 10013
(Name and address of agent for service)
Continuous(Approximate Date of Proposed Public Offering)It is proposed
that this filing becomes effective (check appropriate
box):
[ ] Immediately upon filing pursuant to paragraph b
[ ] on (date) pursuant to paragraph b
[ ] 60 days after filing pursuant to paragraph (a)(1)
[x] on September 30, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:[ ] This post-effective
amendment designates a new effective date for a previously filed
post-effective amendment
PART A-Prospectus
<PAGE>
[Logo]
Smith Barney Mutual Funds
Prospectus Smith Barney
Mutual Funds
- ------------------------------------------------------------------------------
September 30, 1999 Arizona Municipals Fund
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Arizona Municipals Fund
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Investments, risks and performance................. 4
More on the fund's investments..................... 8
Management......................................... 9
Choosing a class of shares to buy.................. 10
Comparing the fund's classes....................... 11
Sales charges...................................... 12
More about deferred sales charges.................. 15
Buying shares...................................... 16
Exchanging shares.................................. 17
Redeeming shares................................... 18
Other things to know about
share transactions............................... 20
Dividends, distributions and
taxes............................................ 22
Share price........................................ 23
Financial highlights............................... 24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
1
<PAGE>
- --------------------------------------------------------------------------------
Investments, risks and performance
- --------------------------------------------------------------------------------
Investment objective
The fund seeks to provide Arizona investors with the maximum amount of income
exempt from federal and Arizona state income taxes as is consistent with the
preservation of capital.
Principal investment strategies
Key investments The fund invests at least 80% of its net assets in Arizona
municipal securities. Arizona municipal securities include securities issued by
the State of Arizona and certain other municipal issuers, political
subdivisions, agencies and public authorities that pay interest which is exempt
from Arizona personal income taxes.
The fund invests primarily in intermediate-term and long-term investment grade
municipal securities, which have remaining maturities at the time of purchase of
from three to more than twenty years. Investment grade securities are rated in
any of the four highest long-term rating categories, or if unrated, of
comparable quality. The fund may invest up to 20% of its assets in below
investment grade securities or unrated securities of equivalent quality
(commonly known as "junk bonds").
Selection process The manager selects securities primarily by identifying
undervalued sectors and individual securities, while also selecting securities
it believes will benefit from changes in market conditions. In selecting
individual securities, the manager:
. Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit
opportunities in the municipal bond market
. May trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial development,
based on their apparent relative values.
. Considers the yield available for securities with different maturities and a
security's maturity in light of the outlook for the issuer and its sector
and interest rates
. Identifies individual securities with the most potential for added value,
such as those involving unusual situations, new issuers, the potential for
credit upgrades, unique structural characteristics or innovative features
2
<PAGE>
- --------------------------------------------------------------------------------
Investments, risks and performance
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. Interest rates rise, causing the value of the fund's 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
. Arizona municipal securities fall out of favor with investors. The fund will
suffer more than a national municipal fund from adverse events affecting
Arizona municipal issuers
. Unfavorable legislation affects the tax-exempt status of municipal bonds
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal and
Arizona state taxation. The fund may realize taxable gains on the sale of its
securities or on transactions in futures contracts. Some of the fund's income
may be subject to the federal alternative minimum tax. In addition,
distributions of the fund's income and gains will be taxable to investors in
states other than Arizona.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the extent
the fund invests its assets in fewer issuers, the fund will be more susceptible
to negative events affecting those issuers.
Who may want to invest
The fund may be an appropriate investment if you are an Arizona taxpayer and:
. Are in a high federal tax bracket seeking income exempt from Arizona and
federal taxation
. Currently have exposure to other asset classes and are seeking to broaden your
investment portfolio
. Are willing to accept the risks of municipal securities, including the risks
of concentrating in a single state
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
This bar chart shows the performance of the fund's Class A shares for each of
the past 10 calendar years. Class B, L and Y shares would have different
performance because of their different expenses. The performance information in
the chart does not reflect sales charges, which would reduce your return.
[BAR CHART]
% Total Return: Class A Shares
89 12.7%
90 8.31%
91 8.92%
92 12.02%
93 9.65%
94 1.93%
95 8.58%
96 3.02%
97 8.08
98
Calendar years ended December 31
Quarterly returns (past 10 years): Highest: xx% in ___ quarter 199X; Lowest:
xx% in ___ quarter 199X. Year to date: xx% through 6/30/99
Risk return table
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged
index of municipal bonds and the [______ Arizona Municipal Fund Average (the
"______ Average")], an average composed of the fund's peer group of mutual
funds. This table assumes imposition of the maximum sales charge applicable to
the class, redemption of shares at the end of the period, and reinvestment of
distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns -- Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Class 1 year 5 years 10 years Since Inception Inception date
A 06/01/87
B n/a 11/06/92
L n/a n/a 12/08/94
Y n/a n/a [xx/xx/98]
Lehman Index * n/a
[_____ Average] * n/a
*Index comparisons begin on June 30, 1987.
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Shareholder fees
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(fees paid directly from your investment) Class A Class B Class L Class Y
Maximum sales charge (load) imposed on 4.00% None 1.00% None
purchases
(as a % of offering price)
Maximum deferred sales charge (load) (as a % of None* 4.50% 1.00% None
the lower of net asset value at purchase or
redemption)
- ---------------------------------------------------------------------------------------------------
Annual fund operating expenses
- ---------------------------------------------------------------------------------------------------
(expenses deducted from fund assets)
Management fee 0.50% 0.50% 0.50% 0.50%
Distribution and service (12b-1) fees 0.15% 0.65% 0.70% None
Other expenses ---- ---- ---- ----
Total annual fund operating expenses ---- ---- ---- ----
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
5
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Arizona municipal securities Arizona municipal securities include debt
obligations issued by certain non-Arizona governmental issuers such as Puerto
Rico, the Virgin Islands and Guam. The interest on Arizona municipal securities
is exempt from federal income tax and Arizona personal income tax. As a result,
the interest rate on these bonds normally is lower than it would be if the bonds
were subject to taxation. The Arizona municipal securities in which the fund
invests include general obligation bonds, revenue bonds and municipal leases.
These securities may pay interest at fixed, variable or floating rates. The fund
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. The fund
also may invest up to 20% of its net assets in municipal securities of non-
Arizona issuers. These will generally be exempt from federal, but not Arizona,
income taxes.
Below investment grade securities Below investment grade securities, also known
as "junk bonds", are considered speculative with respect to the issuer's ability
to pay interest and principal, involve a high risk of loss and are susceptible
to default or decline in market value because of adverse economic and business
developments. The market value for these securities tends to be very volatile,
and they are less liquid than investment grade debt securities.
Derivative contracts The fund may, but need not, use derivative contracts, such
as financial futures and options on financial futures, for any of the following
purposes:
. To hedge against the economic impact of adverse changes in the market value of
portfolio securities because of changes in interest rates
. As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in futures can have a big impact on a fund's interest
rate exposure. Therefore, using futures can disproportionately increase losses
and reduce opportunities for gains when interest rates are changing. The fund
may not fully benefit from or may lose money on futures if changes in their
value do not correspond accurately to changes in the value of the fund's
holdings. The other parties to certain futures present the same types of default
risk as issuers of fixed income securities. Futures can also make a fund less
liquid and harder to value, especially in declining markets.
Defensive investing The fund 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 fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
6
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment adviser and administrator (the manager) is SSBC
Fund Management Inc., an affiliate of Salomon Smith Barney Inc. The manager's
address is 388 Greenwich Street, New York, New York 10013. The manager selects
the fund's investments and oversees its operations. The manager and Salomon
Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses produce a
broad range of financial services -- asset management, banking and consumer
finance, credit and charge cards, insurance, investments, investment banking and
trading -- and use diverse channels to make them available to consumer and
corporate customers around the world.
Joseph Deane, investment officer of SSBC Fund Management Inc. and managing
director of Salomon Smith Barney, has been responsible for the day-to-day
management of the fund's portfolio since February 1999. Mr. Deane has 29
years of securities business experience.
Management fees During the fiscal year ended May 31, 1999, the manager received
an advisory fee and an administrative fee equal to 0.30% and [0.20%],
respectively, of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by its other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
7
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain dealer
representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
-------------------------------- -----------------
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
Uniform Gift to Minors Accounts $250 $15 million $50
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key .Initial sales . No initial sales . Initial sales . No initial or
features charge charge charge is lower deferred sales
.You may qualify . Deferred sales than Class A charge
for reduction or charge declines . Deferred sales . Must invest at
waiver of initial over time charge for only 1 least $15 million
sales charge . Converts to year . Lower annual
. Lower annual Class A after 8 . Does not expenses than the
expenses than years convert to other classes
Class B and Class . Higher annual Class A
L expenses than . Higher annual
Class A expenses than
Class A
Initial sales Up to 4.00%; None 1.00% None
charge reduced for large
purchases and
waived for certain
investors. No
charge for
purchases of
$500,000 or more
Deferred 1% on purchases Up to 4.50% 1% if you None
sales charge of $500,000 or charged when redeem within 1
more if you you redeem year of purchase
redeem within 1 shares. The
year of purchase charge is reduced
over time and
there is no
deferred sales
charge after 6
years
Annual 0.15% of average 0.65% of average 0.70% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
Exchang Class A shares of Class B shares of Class L shares of Class Y shares of
privilege* most Smith most Smith most Smith most Smith Barney
Barney funds Barney funds Barney funds funds
- --------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
9
<PAGE>
- --------------------------------------------------------------------------------
Sales charges
- --------------------------------------------------------------------------------
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
- -----------------------------------------------------------
Less than $25,000 4.00 4.17
- -----------------------------------------------------------
$25,000 but less than $50,000 3.50 3.63
- -----------------------------------------------------------
$50,000 but less than $100,000 3.00 3.09
- -----------------------------------------------------------
$100,000 but less than $250,000 2.50 2.56
- -----------------------------------------------------------
$250,000 but less than $500,000 1.50 1.52
- -----------------------------------------------------------
$500,000 or more -0- -0-
- -----------------------------------------------------------
INVESTMENTS OF $500,000 OR MORE You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
* by you, or
* by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
10
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney funds over a 13-month period and pay the same sales charge, if any, as if
all shares had been purchased at once. You may include purchases on which you
paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD
. Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
11
<PAGE>
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- -----------------------------------------------------------------
6th
Year after purchase 1st 2nd 3rd 4th 5th through
8th
- -----------------------------------------------------------------
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
- ----------------------------------------------------------------------------------------
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total have converted into Class A
Class B shares you own shares
(excluding shares issued as
a dividend)
- -----------------------------------------------------------------------------------------
</TABLE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other
Smith Barney mutual funds on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
Class Y Shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
12
<PAGE>
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
13
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a You should contact your Salomon Smith Barney Financial
Salomon Consultant or dealer representative to open a brokerage account and
Smith make arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will be
Consultant rejected:
or dealer
represen- . Class of shares being bought
tative . Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Through Certain investors who are clients of the selling group are eligible to
the fund's buy shares directly from the fund.
transfer
agent . Write the transfer agent at the following address:
Smith Barney Arizona Municipals Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
. For more information, call the transfer agent at
1-800-451-2010.
- -------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith Barney
plan brokerage account or Smith Barney money market fund to buy
shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer representative
or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
<S> <C>
Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney funds.
offers a Be sure to read the prospectus of the Smith Barney fund you are
distinctive exchanging into. An exchange is a taxable transaction.
family of
funds . You may exchange shares only for shares of the same class of
tailored to another Smith Barney fund. Not all Smith Barney funds offer all
help meet classes.
the
varying . Not all Smith Barney funds may be offered in your state of
needs of residence. Contact your Salomon Smith Barney Financial Consultant,
both large dealer representative or the transfer agent.
and small
investors . You must meet the minimum investment amount for each fund.
. If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers
(documents transferring ownership of certificates) before the
exchange is effective.
. The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the time
additional of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be measured
from the date of your original purchase. If the fund you exchange
into has a higher deferred sales charge, you will be subject to that
charge. If you exchange at any time into a fund with a lower
charge, the sales charge will not be reduced.
- ------------------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible, you
may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010 between
9:00 a.m. and 5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net asset
value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- ------------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent at
the address on the following page.
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption proceeds
will not be sent to you until your original check clears, which
may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will
be paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Smith Barney Arizona Municipals Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is
registered
16
<PAGE>
By If you do not have a brokerage account, you may be eligible
telephone to redeem shares in amounts up to $10,000 per day through
the transfer agent. You must complete an authorization form
to authorize telephone redemptions. If eligible, you may
request redemptions by telephone on any day the New York
Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next
determined.
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You must submit a
new authorization form to change the bank account
designated to receive wire transfers and you may be asked to
provide certain other documents.
-------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales
charge will be waived if your automatic payments do not
exceed 1% per month of the value of your shares subject to a
deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include a
signature guarantee if you:
. Are redeeming over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
18
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
19
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund pays dividends each month from its net investment income. The
fund generally makes capital gain distributions, if any, once a year, typically
in December. The fund may pay additional distributions and dividends at other
times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend.
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Transaction Federal tax status Arizona tax status
- -----------------------------------------------------------------------------------------------------
Redemption or Usually capital gain or loss; Usually capital gain or loss
exchange of shares long-term only if shares owned more
than one year
- -----------------------------------------------------------------------------------------------------
Long-term capital gain Taxable gain Taxable gain
distributions
Short-term capital gain Ordinary income Ordinary income
distributions
- -----------------------------------------------------------------------------------------------------
Dividends Exempt if from interest on tax- Exempt if from interest on
exempt securities, otherwise Arizona municipal securities,
ordinary income otherwise ordinary income
- -----------------------------------------------------------------------------------------------------
</TABLE>
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain
distributions are taxable to you as long-term capital gain regardless of how
long you have owned your shares. You may want to avoid buying shares when the
fund is about to declare a capital gain distribution or a taxable dividend,
because it will be taxable to you even though it may actually be a return of a
portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
20
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If a market quotation or a valuation from the pricing service is not readily
available or if a security's value has been materially affected by events
occurring after the close of the Exchange or market on which the security is
principally traded, that security may be valued by another method that the
fund's board believes accurately reflects fair value. A fund that uses fair
value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities. A security's
valuation may differ depending on the method used for determining fair value.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the Exchange closes
early, you must place your order prior to the actual closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request). The information
for the prior period was audited by other auditors. No information is
present for Class Y shares because no Class Y shares were outstanding
during these fiscal years.
21
<PAGE>
For a Class A share of capital stock outstanding throughout each year
ended May 31(1):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ $ 10.21 $ 9.95 $ 10.09 $ 9.82
- ----------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(2) 0.50 0.53 0.53 0.54
Net realized and unrealized 0.40 0.26 (0.15) 0.33
gain/(loss)
- --------------------------------------------------------------------------------------
Total income from operations 0.90 0.79 0.38 0.87
- --------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.52) (0.53) (0.52) (0.54)
Net realized gain (0.05) -- -- (0.06)
Capital -- -- --
- --------------------------------------------------------------------------------------
Total distributions (0.57) (0.53) (0.52) (0.60)
- --------------------------------------------------------------------------------------
Net asset value, end of year $ 10.54 $ 10.21 $ 9.95 $ 10.09
- --------------------------------------------------------------------------------------
Total return(2) 9.00% 8.06% 3.82% 9.38%
- --------------------------------------------------------------------------------------
Net assets, end of year (000)'s $46,183 $37,304 $40,917 $43,222
- --------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses/(2)/ 0.85% 0.88% 0.82% 0.82%
Net investment income 4.87 5.17% 5.20% 5.37%
- --------------------------------------------------------------------------------------
Portfolio turnover rate 42% 27% 22% 21%
- --------------------------------------------------------------------------------------
</TABLE>
(1) Certain prior year numbers have been restated to reflect current year's
presentation. Net investment income, net realized gains and net assets
were not affected by this change.
(2) The investment adviser waived all or part of its fees for the two years
ended May 31, 1996. If such fees had not been waived, the per share
effect on net investment income and the expense ratios would have been as
follows:
Per Share Decreases Expenses Ratios
to Net Investment Income Without Fee Waivers
------------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
Class A $0.02 $0.04 0.99% 1.01%
22
<PAGE>
- --------------------------------------------------------------------------------
For a Class B share of capital stock outstanding throughout each year
ended May 31(1):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of $ $ 10.21 $ 9.95 $ 10.09 $ 9.82
year
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income/(2)/ 0.45 0.48 0.48 0.49
Net realized and unrealized 0.40 0.26 (0.15) 0.33
gain/(loss)
- ------------------------------------------------------------------------------
Total income from operations 0.85 0.74 0.33 0.82
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.47) (0.48) (0.47) (0.49)
Net realized gain (0.05) -- -- --
Capital -- -- -- --
- ------------------------------------------------------------------------------
Total distributions (0.52) (0.48) (0.47) (0.55)
- ------------------------------------------------------------------------------
Net asset value, end of year $ 10.54 $10.21 $ 9.95 $ 10.09
- ------------------------------------------------------------------------------
Total return 8.46% 7.53% 3.30% 8.78%
- ------------------------------------------------------------------------------
Net assets, end of year (000)'s $19,721 $9,886 $22,369 $22,838
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(2) 1.38% 1.39% 1.33% 1.33%
Net investment income 4.35 4.66% 4.69% 4.85%
- ------------------------------------------------------------------------------
Portfolio turnover rate 42% 27% 22% 21%
- ------------------------------------------------------------------------------
</TABLE>
(1) Certain prior year numbers have been restated to reflect current year's
presentation. Net investment income, net realized gains and net assets were
not affected by this change.
(2) The investment adviser waived all or part of its fees for the two years
ended May 31, 1996. If such fees had not been waived, the per share effect
on net investment income and the expense ratios would have been as follows:
Per Share Decreases Expenses Ratios
to Net Investment Income Without Fee Waivers
1996 1995 1996 1995
Class B $0.02 $0.03 1.50% 1.52%
23
<PAGE>
- --------------------------------------------------------------------------------
For a Class L share of capital stock outstanding throughout each year
ended May 31(1):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995(2)
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ $10.21 $ 9.95 $10.09 $ 9.28
- -----------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(3) 0.45 0.47 0.48 0.24
Net realized and unrealized 0.39 0.26 (0.15) 0.86
gain/(loss)
- -----------------------------------------------------------------------------------
Total income (loss) from operations 0.84 0.73 0.33 1.10
- -----------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.47) (0.47) (0.47) (0.23)
Net realized gain (0.05) -- -- (0.06)
- -----------------------------------------------------------------------------------
Total distributions (0.52) (0.47) (0.47) (0.29)
- -----------------------------------------------------------------------------------
Net asset value, end of year $10.53 $10.21 $ 9.95 $ 10.09
- -----------------------------------------------------------------------------------
Total return 8.30% 7.49% 3.26% 12.10%(4
- -----------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 875 $ 822 $ 554 $ 386
- -----------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(3) 1.42% 1.42% 1.39% 1.38%(5)
Net investment income (loss) 4.30 4.63% 4.63% 4.81%(5)
- -----------------------------------------------------------------------------------
Portfolio turnover rate 42% 27% 22% 21%
- -----------------------------------------------------------------------------------
</TABLE>
(1) Certain prior year numbers have been restated to reflect current year's
presentation. Net investment income, net realized gains and net assets were
not affected by this change.
(2) For the period from December 8, 1994 (inception date) to May 31, 1995.
(3) The investment adviser waived all or part of its fees for the two years
ended May 31, 1996. If such fees had not been waived, the per share effect
on net investment income and the expense ratios would have been as follows:
Per Share Decreases Expenses Ratios
to Net Investment Income Without Fee Waivers
1996 1995 1996 1995
Class L $0.02 $0.01 $1.56 1.56%(5)
(4) Not annualized.
(5) Annualized.
24
<PAGE>
Salomon Smith Barney(SM)
a member of citigroup [Symbol]
Arizona Municipals Fund
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public
reference room may be obtained by calling 1-800-SEC-0330. You can get the same
information free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-5066)
[FD0238 6/99]
PART B-Statement of Additional Information
September 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY ARIZONA MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is not
a prospectus and is meant to be read in conjunction with
the Prospectus of the Smith Barney Arizona Municipals
Fund Inc. (the "fund") dated September 30, 1999, as
amended or supplemented from time to time (the
"prospectus"), and is incorporated by reference in its
entirety into the prospectus. Additional information
about the fund's investments is available in the fund's
annual and semi-annual reports to shareholders that are
incorporated herein by reference. The prospectus and
copies of the reports may be obtained free of charge by
contacting a Salomon Smith Barney Financial Consultant,
or by writing or calling Salomon Smith Barney at the
address or telephone number above.
TABLE OF CONTENTS
Directors and Executive Officers of the Fund 2
Investment Objective and Management Policies 5
Investment
Restrictions..................................13
Risk Factors and Special Considerations Relating
to Municipal Securities...................15
Portfolio
Transactions..................................16
Portfolio
Turnover...........................................17
Purchase of Shares......................................17
Determination of Net Asset
Value.................................................................23
Redemption of Shares 24
Investment Management and Other Services 27
Valuation of Shares 31
Exchange Privilege 31
Performance Information 32
Dividends, Distributions and Taxes 37
Additional Information 41
Financial Statements.......................42
Other
Information..................................42
Appendix A..................................44
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The names of the directors of the fund and executive
officers of the fund, together with information as to
their principal business occupations, are set forth
below. The executive officers of the fund are employees
of organizations that provide services to the fund.
Each director who is an "interested person" of the fund,
as defined in the 1940 Act, is indicated by an asterisk.
The address of the "non-interested" directors and
executive officers of the fund is 388 Greenwich Street,
New York, New York 10013.
Herbert Barg (Age 76). Director
Private Investor. Director or trustee of 18 investment
companies associated with Citigroup Inc. ("Citigroup")
His address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
*Alfred J. Bianchetti (Age 76). Director
Retired; formerly Senior Consultant to Dean Witter
Reynolds Inc. Director or trustee of 13 investment
companies associated with Citigroup. His address is 19
Circle End Drive, Ramsey, New Jersey 07466.
Martin Brody (Age 77). Director
Consultant, HMK Associates; Retired Vice Chairman of the
Board of Restaurant Associates Corp. Director or trustee
of 22 investment companies associated with Citigroup.
His address is c/o HMK Associates, 30 Columbia Turnpike,
Florham Park, New Jersey 07932.
Dwight B. Crane (Age 61). Director
Professor, Harvard Business School. Director or trustee
of 25 investment companies associated with Citigroup.
His address is c/o Harvard Business School, Soldiers
Field Road, Boston, Massachusetts 02163.
Burt N. Dorsett (Age 68). Director
Managing Partner of Dorsett McCabe Management. Inc., an
investment counseling firm; Director of Research
Corporation Technologies, Inc., a nonprofit patent
clearing and licensing firm. Director or trustee of 13
investment companies associated with Citigroup. His
address is 201 East 62nd Street, New York, New York
10021.
Elliot S. Jaffe (Age 73). Director
Chairman of the Board and President of The Dress Barn,
Inc. Director or trustee of 13 investment companies
associated with Citigroup. His address is 30 Dunnigan
Drive, Suffern, New York 10901.
Stephen E. Kaufman (Age 67). Director
Attorney. Director or trustee of 15 investment companies
associated with Citigroup. His address is 277 Park
Avenue, New York, New York 10172.
Joseph J. McCann (Age 68). Director
Financial Consultant; Retired Financial Executive, Ryan
Homes, Inc. Director or trustee of 13 investment
companies associated with Citigroup. His address is 200
Oak Park Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon (Age 66). Chairman of the Board,
President and Chief Executive Officer
Managing Director of Salomon Smith Barney Inc.;
President of SSBC Fund Management, Inc. ("SSBC" or the
"manager") and Travelers Investment Adviser, Inc.
("TIA"); Chairman or Co-Chairman of the Board and
director or trustee of 64 investment companies
associated with Citigroup. His address is 388 Greenwich
Street, New York, New York 10013.
Cornelius C. Rose, Jr. (Age 65). Director
President, Cornelius C. Rose Associates, Inc., financial
consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. Director or
trustee of 13 investment companies associated with
Citigroup. His address is Meadowbrook Village, Building
4, Apt 6, West Lebanon, New Hampshire 03784.
Lewis E. Daidone (Age 41). Senior Vice President and
Treasurer
Managing Director of Salomon Smith Barney; Chief
Financial Officer of the Smith Barney Mutual funds;
Director and Senior Vice President of SSBC and TIA.
Senior Vice President and Treasurer of 59 investment
companies associated with Citigroup.
Joseph P. Deane (Age 51). Vice President and Investment
Officer
Investment Officer of SSBC; Managing Director of
Salomon Smith Barney.
Paul Brook (Age 45). Controller
Director of Salomon Smith Barney; from 1997-1998
Managing Director of AMT Capital Services Inc.; prior to
1997 Partner with Ernst & Young LLP. Controller or
Assistant Treasurer of 43 investment companies
associated with Citigroup.
Christina T. Sydor (Age 48). Secretary
Managing Director of Salomon Smith Barney; General
Counsel and Secretary of SSBC and TIA. Secretary of 59
investment companies associated with Citigroup.
As of September , 1999, the directors and officers of
the funds, as a group, owned less than 1% of the
outstanding shares of beneficial interest of the fund.
To the best knowledge of the directors, as of September
, 1999, the following shareholders or "groups" (as
such term is defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended) owned beneficially or
of record more than 5% of the shares of the following
classes:
Shareholder
Class
Shares Held
No officer, director or employee of Salomon Smith Barney
or any of its affiliates receives any compensation from
the fund for serving as an officer of the funds or
director of the fund. The fund pays each director who
is not an officer, director or employee of Salomon Smith
Barney or any of its affiliates a fee of $ per annum plus $ per in-
person meeting and $ per telephonic meeting. Each director emeritus
who is not an officer, director or employee of Salomon Smith Barney or
its affiliates receives a fee of $ per
annum plus $ per in-person meeting and $
per telephonic meeting. All directors are reimbursed
for travel and out-of-pocket expenses incurred to attend
such meetings.
For the fiscal year ended May 31, 1999, the directors of
the fund were paid the following compensation:
Name of Person
Aggregate
Compensati
on
from Fund
Total
Pension or
Retirement
Benefits
Accrued
As part of
Fund
Expenses
Compensati
on
From Fund
And Fund
Complex
Paid to
Directors
Number of
Funds for
Which
Directors
Serve Within
Fund Complex
Herbert Barg **
$0
$105,425
18
Alfred
Bianchetti * **
0
51,200
13
Martin Brody **
0
132,500
22
Dwight B. Crane
**
0
139,975
25
Burt N. Dorsett
**
0
51,200
13
Elliot S. Jaffe
**
0
47,550
13
Stephen E.
Kaufman **
0
96,400
15
Joseph J. McCann
**
0
51,200
13
Heath B.
McLendon *
- -
0
64
Cornelius C.
Rose, Jr. **
0
51,200
13
* Designates an "interested" director.
** Designates member of Audit Committee.
Upon attainment of age 80, fund directors are
required to change to emeritus status. Directors
emeritus are entitled to serve in emeritus status
for a maximum of 10 years. A director emeritus
may attend meetings but has no voting rights.
During the fund's last fiscal year, aggregate
compensation paid by the fund to directors
achieving emeritus status totaled $ .
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment objective
and the policies it employs to achieve that objective.
The following discussion supplements the description of
the fund's investment policies in the prospectus.
The fund is an open-end diversified management
investment company that seeks to provide Arizona
investors with the maximum amount of income exempt from
federal and Arizona state income taxes as is consistent
with the preservation of capital. Its investments
consist primarily of intermediate- and long-term
investment-grade municipal securities issued by the
State of Arizona and its political subdivisions,
agencies, authorities and instrumentalities, and certain
other municipal issuers such as the Commonwealth of
Puerto Rico, the Virgin Islands and Guam ("Arizona
Municipal Securities") that pay interest which is
excluded from gross income for federal income tax
purposes and exempt from Arizona state personal income
taxes. There can be no assurance that the fund's
investment objective will be achieved.
The fund will operate subject to an investment policy
providing that, under normal market conditions, the fund
will invest at least 80% of its net assets in Arizona
Municipal Securities. The fund may invest up to 20% of
its net assets in Other Municipal Securities, the
interest on which is excluded from gross income for
federal income tax purposes (not including the possible
applicability of a federal alternative minimum tax), but
which is subject to Arizona state personal income tax.
For temporary defensive purposes, the fund may invest
without limit in non-Arizona municipal issuers and in
"Temporary Investments" as described below.
Diversified Classification
The fund is classified as a diversified fund under the
Investment Company Act of 1940, as amended (the "1940
Act"). In order to be classified as a diversified
investment company under the 1940 Act, the fund may not,
with respect to 75% of its assets, invest more than 5%
of its total assets in the securities of any one issuer
(except U.S. government securities) or own more than 10%
of the outstanding voting securities of any one issuer.
For the purposes of diversification under the 1940 Act,
the identification of the issuer of Municipal Bonds
depends upon the terms and conditions of the security.
When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are
separate from those of the government creating the
issuing entity and the security is backed only by the
assets and revenues of such entity, such entity is
deemed to be the sole issuer. Similarly, in the case of
a private activity bond, if that bond is backed only by
the assets and revenues of the nongovernmental user,
then such nongovernmental user is deemed to be the sole
issuer. If, however, in either case, the creating
government or some other entity guarantees a security,
such a guarantee would be considered a separate security
and is to be treated as an issue of such government or
other entity.
Use of Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Ratings Group
("S&P") and other nationally recognized statistical
ratings organizations ("NRSROs") represent the opinions
of those agencies as to the quality of the Municipal
Bonds and short-term investments which they rate. It
should be emphasized, however, that such ratings are
relative and subjective, are not absolute standards of
quality and do not evaluate the market risk of
securities. These ratings will be used by the fund as
initial criteria for the selection of portfolio
securities, but the fund also will rely upon the
independent advice of the manager to evaluate potential
investments. Among the factors that will be considered
are the long-term ability of the issuer to pay principal
and interest and general economic trends. To the extent
the fund invests in lower-rated and comparable unrated
securities, the fund's achievement of its investment
objective may be more dependent on the manager's credit
analysis of such securities than would be the case for
a portfolio consisting entirely of higher-rated
securities. The Appendix contains further information
concerning the ratings of Moody's and S&P and their
significance.
Subsequent to its purchase by the fund, an issue of
Municipal Bonds may cease to be rated or its rating may
be reduced below the rating given at the time the
securities were acquired by the fund. Neither event will
require the sale of such Municipal Bonds by the fund,
but the manager will consider such event in its
determination of whether the fund should continue to
hold such Municipal Bonds. In addition, to the extent
the ratings change as a result of changes in such
organizations, in their rating systems or because of a
corporate restructuring of Moody's, S&P or any NRSRO,
the fund will attempt to use comparable ratings as
standards for its investments in accordance with its
investment objective and policies.
The fund generally will invest at least 80% of its total
assets in investment grade debt obligations rated no
lower than Baa, MIG 3 or Prime-1 by Moody's or BBB, SP-
2 or A-1 by S&P, or have the equivalent rating by any
NRSRO or in unrated obligations of comparable quality.
Unrated obligations will be considered to be of
investment grade if deemed by the manager to be
comparable in quality to instruments so rated, or if
other outstanding obligations of the issuers thereof are
rated Baa or better by Moody's or BBB or better by S&P.
The balance of the fund's assets may be invested in
securities rated as low as C by Moody's or D by S&P or
have the equivalent rating by any NRSRO, or deemed by
the manager to be comparable unrated securities, which
are sometimes referred to as "junk bonds." Securities
in the fourth highest rating category, though considered
to be investment grade, have speculative
characteristics. Securities rated as low as D are
extremely speculative and are in actual default of
interest and/or principal payments. It should be
emphasized that ratings are relative and subjective and
are not absolute standards of quality.
The fund generally may invest up to 20% of its total
assets in securities rated below Baa, MIG 3 or Prime-1
(P-1) by Moody's or BBB, SP-2 or A-1 by S&P, or in
unrated securities of comparable quality or the
equivalent from any other NRSRO. Such securities (a)
will likely have some quality and protective
characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or
major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in
accordance with the terms of the obligations.
Low and Comparable Unrated Securities. While the market
values of low-rated and comparable unrated securities
tend to react less to fluctuations in interest rate
levels than the market values of higher rated
securities, the market values of certain low-rated and
comparable unrated municipal securities also tend to be
more sensitive than higher-rated securities to short-
term corporate and industry developments and changes in
economic conditions (including recession) in specific
regions or localities or among specific types of
issuers, In addition, low-rated securities and
comparable unrated securities generally present a higher
degree of credit risk. During an economic downturn or
a prolonged period of rising interest rates, the ability
of issuers of low-rated and comparable unrated
securities to service their payment obligations, meet
projected goals or obtain additional financing may be
impaired. The risk of loss because of default by such
issuers is significantly greater because low-rated and
comparable unrated securities generally are unsecured
and frequently are subordinated to the prior payment of
senior indebtedness. The fund may incur additional
expenses to the extent it is required to seek recovery
upon a default in payment of principal or interest on
its portfolio holdings.
While the market for municipal securities is considered
to be generally adequate, the existence of limited
markets for particular low-rated and comparable unrated
securities may diminish the fund's ability to (a) obtain
accurate market quotations for purposes of valuing such
securities and calculating its net asset value and (b)
sell the securities at fair value either to meet
redemption requests or to respond to changes in the
economy or in the financial markets. The market for
certain low-rated and comparable unrated securities has
not fully weathered a major economic recession. Any such
recession, however, would likely disrupt severely the
market for such securities and adversely affect the
value of the securities and the ability of the issuers
of such securities to repay principal and pay interest
thereon.
Fixed-income securities, including low-rated securities
and comparable unrated securities, frequently have call
or buy-back features that permit their issuers to call
or repurchase the securities from their holders, such as
the fund. If an issuer exercises these rights during
periods of declining interest rates, the fund may have
to replace the security with a lower yielding security,
thus resulting in a decreased return to the fund.
Municipal Bonds Municipal Bonds generally are
understood to include debt obligations issued to obtain
funds for various public purposes, including
construction of a wide range of public facilities,
refunding of outstanding obligations, payment of general
operating expenses and extensions of loans to public
institutions and facilities. Private activity bonds
issued by or on behalf of public authorities to finance
various privately operated facilities are included
within the term Municipal Bonds if the interest paid
thereon qualifies as excluded from gross income (but not
necessarily from alternative minimum taxable income) for
federal income tax purposes in the opinion of bond
counsel to the issuer.
The yield on Municipal Bonds is dependent on a variety
of factors, including general economic and monetary
conditions, general money market factors, general
conditions of the Municipal Bond market, the financial
condition of the issuer, the size of a particular
offering, maturity of the obligation offered and the
rating of the issue.
Municipal Bonds also may be subject to the provisions of
bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the federal
Bankruptcy Code, and laws, if any, which may be enacted
by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing
other constraints upon enforcement of such obligations
or upon the ability of municipalities to levy taxes.
The possibility also exists that, as a result of
litigation or other conditions, the power or ability of
any one or more issuers to pay, when due, the principal
of and interest on its or their Municipal Bonds may be
materially and adversely affected.
Municipal Leases. The fund may invest without limit in
"municipal leases", which are obligations issued by
state and local governments or authorities to finance
the acquisition of equipment or facilities. The
interest on such obligations is, in the opinion of
counsel to the issuers, excluded from gross income for
federal income tax purposes. 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. There is no limitation on the percentage of
the fund's assets that may be invested in municipal
lease obligations. In evaluating municipal lease
obligations, the manager will consider such factors as
it deems appropriate, which may include: (a) whether
the lease can be canceled; (b) the ability of the lease
obligee to direct the sale of the underlying assets; (c)
the general creditworthiness of the lease obligor; (d)
the likelihood that the municipality will discontinue
appropriating funding for the leased property in the
event such property is no longer considered essential by
the municipality; (e) the legal recourse of the lease
obligee in the event of such a failure to appropriate
funding; (f) whether the security is backed by a credit
enhancement such as insurance; and (g) any limitations
which are imposed on the lease obligor's ability to
utilize substitute property or services rather than
those covered by the lease obligation.
The fund may invest without limit in debt obligations
which are repayable out of revenue streams generated
from economically-related projects or facilities or debt
obligations whose issuers are located in the same state.
Sizeable investments in such obligations could involve
an increased risk to the fund should any of the related
projects or facilities experience financial
difficulties.
Private Activity Bonds. The fund may invest without
limit 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 alternative minimum tax to the
extent the fund's dividends are derived from interest on
those bonds. Dividends derived from interest income on
Municipal Securities are a component of the "current
earnings" adjustment item for purposes of the federal
corporate alternative minimum tax.
Zero Coupon Bonds. The fund may also 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 on a
specified cash payment date when the securities begin
paying current interest (the "cash payment date") and
therefore are issued and traded at a discount from their
face amounts or par values. The discount varies
depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of
the security and the perceived credit quality of the
issuer. The discount, in the absence of financial
difficulties of the issuer, decreases as the final
maturity or cash payment date of the security
approaches. The market prices of zero coupon securities
generally are more volatile than the market prices of
other debt securities that pay interest periodically and
are likely to respond to changes in interest rates to a
greater degree than do debt securities having similar
maturities and credit quality. The credit risk factors
pertaining to low-rated securities also apply to low-
rated zero coupon bonds. Such zero coupon bonds carry
an additional risk in that, unlike bonds which pay
interest throughout the period to maturity, the fund
will realize no cash until the cash payment date unless
a portion of such securities is sold and, if the issuer
defaults, the fund may obtain no return at all on its
investment.
When-Issued Securities. The fund may purchase Municipal
Bonds on a "when-issued" basis (i.e., for delivery
beyond the normal settlement date at a stated price and
yield). The payment obligation and the interest rate
that will be received on the Municipal Bonds purchased
on a when-issued basis are each fixed at the time the
buyer enters into the commitment. Although the fund will
purchase Municipal Bonds on a when-issued basis only
with the intention of actually acquiring the securities,
the fund may sell these securities before the settlement
date if it is deemed advisable as a matter of investment
strategy.
Municipal Bonds are subject to changes in value based
upon the public's perception of the creditworthiness of
the issuers and changes, real or anticipated, in the
level of interest rates. In general, Municipal Bonds
tend to appreciate when interest rates decline and
depreciate when interest rates rise. Purchasing
Municipal Bonds on a when-issued basis, therefore, can
involve the risk that the yields available in the market
when the delivery takes place may actually be higher
than those obtained in the transaction itself. To
account for this risk, a separate account of the fund
consisting of cash or liquid debt securities equal to
the amount of the when-issued commitments will be
established on the fund's books. For the purpose of
determining the adequacy of the securities in the
account, the deposited securities will be valued at
market or fair value. If the market or fair value of
such securities declines, additional cash or securities
will be placed in the account on a daily basis so the
value of the account will equal the amount of such
commitments by the fund. Placing securities rather than
cash in the segregated account may have a leveraging
effect on the fund's net assets. That is, to the extent
the fund remains substantially fully invested in
securities at the same time it has committed to purchase
securities on a when-issued basis, there will be greater
fluctuations in its net assets than if it had set aside
cash to satisfy its purchase commitments. Upon the
settlement date of the when-issued securities, the fund
will meet obligations from then-available cash flow,
sale of securities held in the segregated account, sale
of other securities or, although it normally would not
expect to do so, from the sale of the when-issued
securities themselves (which may have a value greater or
less than the fund's payment obligations). Sales of
securities to meet such obligations may involve the
realization of capital gains, which are not exempt from
federal income tax.
When the fund engages in when-issued transactions, it
relies on the seller to consummate the trade. Failure of
the seller to do so may result in the fund's incurring
a loss or missing an opportunity to obtain a price
considered advantageous.
Repurchase Agreements. The fund may agree to purchase
securities from a bank or recognized securities dealer
and simultaneously commit to resell the securities to
the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities
("repurchase agreements"). The fund would maintain
custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer
to pay the repurchase price on the date agreed to would
be, in effect, secured by such securities. If the value
of such securities were less than the repurchase price,
plus interest, the other party to the agreement would be
required to provide additional collateral so that at all
times the collateral is at least 102% of the repurchase
price plus accrued interest. Default by or bankruptcy of
a seller would expose the fund to possible loss because
of adverse market action, expenses and/or delays in
connection with the disposition of the underlying
obligations. The financial institutions with which the
fund may enter into repurchase agreements will be banks
and non-bank dealers of U.S. Government securities that
are on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers
are deemed creditworthy by the fund's manager. The
manager will continue to monitor creditworthiness of the
seller under a repurchase agreement, and will require
the seller to maintain during the term of the agreement
the value of the securities subject to the agreement to
equal at least 102% of the repurchase price (including
accrued interest). In addition, the manager will
require that the value of this collateral, after
transaction costs (including loss of interest)
reasonably expected to be incurred on a default, be
equal to 102% or greater than the repurchase price
(including accrued premium) provided in the repurchase
agreement or the daily amortization of the difference
between the purchase price and the repurchase price
specified in the repurchase agreement. The manager will
mark-to-market daily the value of the securities.
Temporary Investments. When the Fund is maintaining a
defensive position, the Fund may invest in short-term
investments ("Temporary Investments") consisting of tax-
exempt securities in the form of notes of municipal
issuers having, at the time of purchase, a rating within
the three highest grades of Moody's, S&P or another
NRSRO or, if not rated, having an issue of outstanding
municipal bonds of Arizona issuers rated within the
three highest grades by Moody's S&P or the equivalent
from another NRSRO and certain taxable short-term
instruments having quality characteristics comparable to
those for tax-exempt investments. The Fund may invest
in Temporary Investments for defensive reasons in
anticipation of a market decline. At no time will more
than 20% of the Fund's total assets be invested in
Temporary Investments unless the Fund has adopted a
defensive investment policy. The Fund intends, however,
to purchase tax-exempt Temporary Investments pending the
investing of the proceeds of the sale of portfolio
securities or shares of the Fund's common stock, or in
order to have highly liquid securities available to meet
anticipated redemptions. For the fiscal year ended May
31, 1997, the Fund did not invest in taxable Temporary
Investments.
From time to time on a temporary basis, the Fund may
invest in fixed-income obligations on which the interest
is subject to Federal income tax. Except when the Fund
is in a "defensive" investment position, it will not
purchase a taxable security if, as a result, more than
20% of its total assets would be invested in taxable
securities. This limitation is a fundamental policy of
the Fund, that is, it may not be changed without a
majority vote of the shareholders of the outstanding
securities of the Fund. Temporary taxable investments of
the Fund may consist of U.S. government securities,
commercial paper rated A-1 by S&P or Prime-1 by Moody's,
corporate obligations rated AAA or AA by S&P or Aaa or
Aa by Moody's or the equivalent from another NRSRO,
certificates of deposit or bankers' acceptances of
domestic banks or thrift institutions with at least $1
billion in assets, or repurchase agreements with certain
banks or dealers. Repurchase agreements may be entered
into with respect to any securities eligible for
investment by the Fund, including municipal securities.
Financial Futures Contracts and Related Options. The
fund may purchase and sell financial futures contracts
and related options. Financial futures contracts are
commodities contracts which obligate the long or short
holder to take or make delivery at a future date of a
specified quantity of a financial instrument such as
Treasury bonds or bills (although they generally and
settled in cash) or the cash value of a securities
index. A "sale" of a futures contract means the
undertaking of a contractual obligation to deliver the
securities or the index value called for by the contract
at a specified price on a specified date. A
"purchase" of a futures contract means the acquisition
of a contractual obligation to acquire the securities or
cash value of an index at a specified price on a
specified date. Currently, futures contracts are
available on several types of fixed-income securities
including Treasury bonds, notes and bills, commercial
paper and certificates of deposit, as well as municipal
bond indices.
The fund will engage in financial futures transactions
as a hedge against the effects of fluctuating interest
rates and other market conditions. For example, if the
fund owned long-term bonds, and interest rates were
expected to rise, it could sell futures contracts
("short hedge") which would have much the same effect
as selling some of the long-term bonds that it owned.
If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value
of the fund's futures contracts should increase, thus
keeping the net asset value of the fund from declining
as much as it otherwise would have.
If the fund anticipated a decline in long-term interest
rates, the fund could hold short-term municipal
securities and benefit from the income earned by holding
such securities while purchasing futures contracts
("long hedge") in an attempt to gain the benefit of
rising long-term bond prices, because the value of the
futures contracts should rise with the long-term bonds.
In so doing, the fund could take advantage of the
anticipated rise in the value of long-term bonds without
actually buying them.
The fund could accomplish similar results by selling
bonds with long maturities and investing in bonds with
short maturities when interest rates are expected to
rise or by buying bonds with long maturities and selling
bonds with short maturities when interest rates are
expected to decline. However, by using futures
contracts, the fund could accomplish the same results
more easily and more quickly due to the generally
greater liquidity in the financial futures markets than
in the municipal securities markets.
The fund also may purchase and write call and put
options on financial futures contracts. An option on
futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any
time during the period of the option. Upon exercise,
the writer of the option delivers to the holder the
futures position together with the accumulated balance
in the writer's futures margin account (the amount by
which the market price of the futures contract varies
from the exercise price). The fund will be required to
deposit or pay initial margin and maintenance margin
with respect to put and call options on futures
contracts written by it.
The fund also may purchase and write call and put
options on securities indices. Options on indices are
similar to options on securities except that settlement
is made in cash. No physical delivery of the underlying
securities in the index is made. Unlike options on
specific securities, gain or loss depends on the price
movements in the securities included in the index rather
than price movements in individual securities. When the
fund writes an option on a securities index, it will be
required to deposit and maintain with a custodian
portfolio securities equal in value to 100% of the
exercise price in the case of a put, or the contract
value in the case of a call. In addition, when the
contract value of a call option written by the fund
exceeds the exercise price, the fund will segregate cash
or cash equivalents equal in value to such excess.
Regulations of the Commodity Futures Trading Commission
applicable to the fund require that its transactions in
financial futures contracts and options on financial
futures contracts be engaged in for bona fide hedging
purposes, or if the fund enters into futures contracts
for speculative purposes, that the aggregate initial
margin deposits and premiums paid by the fund will not
exceed 5% of the market value of its assets. In
addition, the fund will, with respect to its purchases
of financial futures contracts, establish a segregated
account consisting of cash, cash equivalents, U.S.
government securities or debt securities of any grade
(provided such assets are liquid, unencumbered and
marked to market daily) in an amount equal to the total
market value of the futures contracts, less the amount
of initial margin on deposit for the contracts. The
fund's ability to trade in financial futures contracts
and options on financial futures contracts may be
limited to some extent by the requirements of the
Internal Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company.
There are certain risks associated with the use of
futures contracts and related options. There is no
assurance that the fund will be able to close out its
futures positions at any time, in which case it would be
required to maintain the margin deposits on the
contract. The costs incurred in connection with futures
transactions could reduce the fund's yield. There can
be no assurance that hedging transactions will be
successful, as they depend on the manager's ability to
predict changes in interest rates. Furthermore, there
may be an imperfect correlation (or no correlation)
between the price movements of the futures contracts and
price movements of the fund's portfolio securities being
hedged. This lack of correlation could result from
differences between the securities being hedged and the
securities underlying the futures contracts in interest
rate levels, maturities and creditworthiness of issuers,
as well as from variations in speculative market demand
for futures contracts and debt securities. Where
futures contracts are purchased to hedge against an
increase in the price of long-term securities, but the
long-term market declines and the fund does not invest
in long-term securities, the fund would realize a loss
on the futures contracts, which would not be offset by
a reduction in the price of the securities purchased.
Where futures contracts are sold to hedge against a
decline in the value of long-term securities in the
fund's portfolio, but the long-term market advances, the
fund would lose part or all of the benefit of the
advance due to offsetting losses in its futures
positions. Options on futures contracts and index
options involve risks similar to those risks relating to
transactions in financial futures contracts, described
above. The use of futures contracts and related options
may be expected to result in taxable income to the fund
and its shareholders.
Options on Debt Securities. In connection with its
hedging activities, the fund may purchase and sell put
and call options on debt securities on national
securities exchanges. The fund proposes to purchase put
options as a defensive measure to minimize the impact of
market price declines on the value of certain of the
securities in the fund's portfolio. The fund may write
listed call options only if the calls are "covered"
throughout the life of the option. A call is
"covered" if the fund owns the optioned securities or
maintains in a segregated account with the fund's
custodian cash, cash equivalents, U.S. government
securities or debt securities of any grade (provided
such assets are liquid, unencumbered and market to
market daily) with a value sufficient to meet its
obligations under the call. When the fund writes a
call, it receives a premium and gives the purchaser the
right to buy the underlying security at any time during
the call period (usually not more than fifteen months)
at a fixed exercise price regardless of market price
changes during the call period. If the call is
exercised, the fund would forego any gain from an
increase in the market price of the underlying security
over the exercise price. The fund may purchase a call
on securities only to effect a "closing purchase
transaction," which is the purchase of a call covering
the same underlying security, and having the same
exercise price and expiration date as a call previously
written by the fund on which it wishes to terminate its
obligations.
The fund also may write and purchase put options
("puts"). When the fund writes a put, it receives a
premium and gives the purchaser of the put the right to
sell the underlying security to the fund at the exercise
price at any time during the option period. When the
fund purchases a put, it pays a premium in return for
the right to sell the underlying security at the
exercise price at any time during the option period. If
any put is not exercised or sold, it will become
worthless on its expiration date. The fund will not
purchase puts if more than 10% of its net assets would
be invested in premiums on puts.
The fund may write puts only if the puts are
"secured." A put is "secured" if the fund maintains
cash, cash equivalents, U.S. government securities or
debt securities of any grade (provided such assets are
liquid, unencumbered and marked to market daily) with a
value equal to the exercise price in a segregated
account or holds a put on the same underlying security
at an equal or greater exercise price. The aggregate
value of the obligations underlying puts written by the
fund will not exceed 50% of its net assets. The fund
also may write "straddles," which are combinations of
secured puts and covered calls on the same underlying
security.
The fund will realize a gain (or loss) on a closing
purchase transaction with respect to a call or put
previously written by the fund if the premium, plus
commission costs, paid to purchase the call or put is
less (or greater) than the premium, less commission
costs, received on the sale of the call or put. A gain
also will be realized if a call or put which the fund
has written lapses unexercised, because the fund would
retain the premium.
The fund's option positions may be closed out only on an
exchange which provides a secondary market for options
of the same series, but there can be no assurance that
a liquid secondary market will exist at a given time for
any particular option. In this regard, trading in
options on U.S. government securities is relatively new,
so that it is impossible to predict to what extent
liquid markets will develop or continue. The use of
option may be expected to result in taxable income to
the fund.
When-Issued Purchases and Firm Commitment Agreements.
When the fund purchases new issues of municipal
securities on a when-issued basis, a segregated account
equal to the amount of the commitment will be
established by the fund's custodian. The segregated
assets may consist of cash or debt securities of any
grade having a value equal to or greater than the fund's
purchase commitments, provided such securities have been
determined by SSBC to be liquid and unencumbered, and
marked to market daily, pursuant to guidelines
established by the Directors. If the value of
securities in the account should decline, additional
cash or securities will be placed in the account so that
the market value of the account will equal the amount of
such commitments by the fund on a daily basis.
Securities purchased on a when-issued basis and the
securities held in the fund's portfolio are subject to
changes in market value based upon various factors,
including changes in the level of market interest rates.
Generally, the value of such securities will fluctuate
inversely to changes in interest rates (i.e., they will
appreciate in value when market interest rates decline,
and decrease in value when market interest rates rise).
For this reason, placing securities rather than cash in
a segregated account may have a leveraging effect on the
fund's net assets. That is, to the extent the fund
remains substantially fully invested in securities at
the same time that it has committed to purchase
securities on a when-issued basis, there will be greater
fluctuations in its net assets than if it had set aside
cash to satisfy its purchase commitment.
Upon the settlement date of the when-issued securities,
the fund ordinarily will meet its obligation to purchase
the securities from available cash flow or from use of
the cash (or liquidation of securities) held in the
segregated account or sale of other securities. Although
it normally would not expect to do so, the fund also may
meet its obligation from the sale of the when-issued
securities themselves (which may have a current market
value greater or less than the fund's payment
obligation). Sale of securities to meet such obligations
carries with it a greater potential for the realization
of net capital gains, which are not exempt from federal
income tax.
When the fund engages in when-issued transactions, it
relies on the seller to consummate the trade. Failure of
the seller to do so may result in the fund's incurring
a loss of opportunity to obtain a price considered to be
advantageous.
The fund also may enter into firm commitment agreements
for the purchase of securities at an agreed-upon price
on a specified future date. During the time that the
fund is obligated to purchase such securities, it will
maintain in a segregated account with the fund's
custodian in an aggregate value sufficient to make
payment for the securities. The segregated assets may
consist of cash, U.S. government securities or debt
obligations of any grade so long as such assets are
liquid , unencumbered and marked to market daily.
Puts or Stand-by Commitments. The fund may acquire puts
or stand-by commitments which will enable the fund to
improve its portfolio liquidity by providing a ready
market for certain municipal securities in its portfolio
at an acceptable price. The price the fund pays for
municipal securities with puts generally is higher than
the price which otherwise would be paid for the
municipal securities alone. The put generally is for a
shorter term than the maturity of the municipal security
and does not restrict in any way the fund's ability to
dispose of (or retain) the municipal security.
In order to ensure that the interest on municipal
securities subject to puts is tax-exempt for the fund,
the fund will limit its use of puts in accordance with
current interpretations or rulings of the Internal
Revenue Service (the "IRS"). The IRS has issued a ruling
(Rev. Rule. 82-144) in which it determined that a
regulated investment company was the owner for tax
purposes of municipal securities subject to puts (with
the result that interest on those securities would not
lose its tax-exempt status when paid to the company).
The IRS position in Rev. Rule. 82-144 relates to a
particular factual situation, including that (a) the
municipal securities with puts were purchased at prices
higher than the underlying municipal securities without
puts, (b) a relatively small number of the municipal
securities owned by the company were subject to puts,
(c) the puts were nonassignable and terminated upon
disposal of the underlying securities by the company,
(d) the puts were for periods substantially less than
the terms of the underlying securities, (e) the puts did
not include call arrangements or restrict the disposal
of the underlying securities by the company and gave the
seller no rights in the underlying securities, and (f)
the securities were acquired by the company for its own
account and not as security for a loan from the seller.
Because it is difficult to evaluate the likelihood of
exercise or the potential benefit of a put, it is
expected that puts will be determined to have a "value"
of zero, regardless of whether any direct or indirect
consideration was paid. Where the fund has paid for a
put, its cost will be reflected as unrealized
depreciation in the underlying security for the period
during which the commitment is held, and therefore would
reduce any potential gains on the sale of the underlying
security by the cost of the put. There is a risk that
the seller of the put may not be able to repurchase the
security upon exercise of the put by the fund.
INVESTMENT RESTRICTIONS
The fund has adopted the following investment
restrictions for the protection of shareholders.
Restrictions 1 through 7 cannot be changed without
approval by the holders of a majority of the outstanding
shares of the fund, defined as the lesser of (a) 67% of
the fund's shares present at a meeting if the holders of
more than 50% of the outstanding shares of the fund are
present or represented by proxy or (b) more than 50% of
the fund's outstanding shares. The remaining
restrictions may be changed by the Board of Directors at
any time. The fund may not:
1. Invest in a manner that would cause it to
fail to be a "diversified company" under
the 1940 Act and the rules, regulations and
orders thereunder.
2. Issue "senior securities" as defined in the
1940 Act and the rules, regulations and
orders thereunder, except as permitted
under the 1940 Act and the rules,
regulations and orders thereunder
3. Invest more than 25% of its total assets in
securities, the issuers of which are in the
same industry. For purposes of this
limitation, U.S. government securities and
securities of state or municipal
governments and their political
subdivisions are not considered to be
issued by members of any industry.
4. Borrow money, except that (a) the fund may
borrow from banks for temporary or
emergency (not leveraging) purposes,
including the meeting of redemption
requests which might otherwise require the
untimely disposition of securities, and (b)
the fund may, to the extent consistent with
its investment policies, enter into reverse
repurchase agreements, forward roll
transactions and similar investment
strategies and techniques. To the extent
that it engages in transactions described
in (a) and (b), the fund will be limited so
that no more than 33 1/3% of the value of
its total assets (including the amount
borrowed), valued at the lesser of cost or
market, less liabilities (not including the
amount borrowed) is derived from such
transactions.
5. Make loans. This restriction does not apply
to: (a) the purchase of debt obligations in
which the fund may invest consistent with
its investment objectives and policies; (b)
repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent
permitted under the 1940 Act.
6. Engage in the business of underwriting
securities issued by other persons, except
to the extent that the fund may technically
be deemed to be an underwriter under the
1933 Act, in disposing of portfolio
securities.
7. Purchase or sell real estate, real estate
mortgages, commodities or commodity
contracts, but this restriction shall not
prevent the fund from (a) investing in
securities of issuers engaged in the real
estate business or the business of
investing in real estate (including
interests in limited partnerships owning or
otherwise engaging in the real estate
business or the business of investing in
real estate) and securities which are
secured by real estate or interests
therein; (b) holding or selling real estate
received in connection with securities it
holds or held; (c) trading in futures
contracts and options on futures contracts
(including options on currencies to the
extent consistent with the fund's
investment objective and policies); or (d)
investing in real estate investment trust
securities.
8. Purchase any securities on margin (except
for such short-term credits as are
necessary for the clearance of purchases
and sales of portfolio securities) or sell
any securities short (except "against the
box"). For purposes of this restriction,
the deposit or payment by the fund of
underlying securities and other assets in
escrow and collateral agreements with
respect to initial or maintenance margin in
connection with futures contracts and
related options and options on securities,
indexes or similar items is not considered
to be the purchase of a security on margin.
9. Purchase or otherwise acquire any security
if, as a result, more than 15% of its net
assets would be invested in securities that
are illiquid.
10. Invest in oil, gas or other mineral
exploration or development programs.
Certain restrictions listed above permit the fund to
engage in investment practices the fund does not
currently pursue. The fund has no present intention of
altering its current investment practices as otherwise
described in the prospectus and this SAI and any future
change in those practices would require Board approval
and appropriate notice to shareholders. If a percentage
restriction is complied with at the time of an
investment, a later increase or decrease in the
percentage of assets resulting from a change in the
values of portfolio securities or in the amount of the
fund's assets will not constitute a violation of such
restriction.
For the purposes of Investment Restriction 3, private
activity bonds, where the payment of principal and
interest is the ultimate responsibility of companies
within the same industry, are grouped together as an
"industry."
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO
MUNICIPAL SECURITIES
Alternative Minimum Tax
Under current federal income tax law, (1) interest on
tax-exempt municipal securities issued after August 7,
1986 which are "specified private activity bonds," and
the proportionate share of any exempt-interest dividend
paid by a regulated investment company which receives
interest from such specified private activity bonds,
will be treated as an item of tax preference for
purposes of the alternative minimum tax ("AMT") imposed
on individuals and corporations, though for regular
Federal income tax purposes such interest will remain
fully tax-exempt, and (2) interest on all tax-exempt
obligations will be included in "adjusted current
earnings" of corporations for AMT purposes. Such private
activity bonds ("AMT-Subject bonds"), which include
industrial development bonds and bonds issued to finance
such projects as airports, housing projects, solid waste
disposal facilities, student loan programs and water and
sewage projects, have provided, and may continue to
provide, somewhat higher yields than other comparable
municipal securities.
Investors should consider that, in most instances, no
state, municipality or other governmental unit with
taxing power will be obligated with respect to AMT-
Subject bonds. AMT-Subject bonds are in most cases
revenue bonds and do not generally have the pledge of
the credit or the taxing power, if any, of the issuer of
such bonds. AMT-Subject bonds are generally limited
obligations of the issuer supported by payments from
private business entities and not by the full faith and
credit of a state or any governmental subdivision.
Typically the obligation of the issuer of AMT-Subject
bonds is to make payments to bond holders only out of
and to the extent of, payments made by the private
business entity for whose benefit the AMT-Subject bonds
were issued. Payment of the principal and interest on
such revenue bonds depends 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. It is not possible to provide specific detail
on each of these obligations in which Fund assets may be
invested.
Municipal Market Volatility. Municipal securities can
be significantly affected by political changes as well
as uncertainties in the municipal market related to
taxation, legislative changes, or the rights of
municipal security holders. Because many municipal
securities are issued to finance similar projects,
especially those relating to education, health care,
transportation and utilities, conditions in those
sectors can affect the overall municipal market. In
addition, changes in the financial condition of an
individual municipal insurer can affect the overall
municipal market.
Interest Rate Changes. Debt securities have varying
levels of sensitivity to changes in interest rates. In
general, the price of a debt security can fall when
interest rates rise and can rise when interest rates
fall. Securities with longer maturities can be more
sensitive to interest rate changes. In other words, the
longer the maturity of a security, the greater the
impact a change in interest rates could have on the
security's price. In addition, short-term and long-term
interest rates do not necessarily move in the same
amount or the same direction. Short-term securities tend
to react to changes in short-term interest rates, and
long-term securities tend to react to changes in long-
term interest rates.
Issuer-Specific Changes. Changes in the financial
condition of an issuer, changes in specific economic or
political conditions that affect a particular type of
security or issuer, and changes in general economic or
political conditions can affect the credit quality or
value of an issuer's securities. Lower-quality debt
securities (those of less than investment-grade quality)
tend to be more sensitive to these changes than higher-
quality debt securities. Entities providing credit
support or a maturity-shortening structure also can be
affected by these types of changes. Municipal securities
backed by current or anticipated revenues from a
specific project or specific assets can be negatively
affected by the discontinuance of the taxation
supporting the project or assets or the inability to
collect revenues for the project or from the assets. If
the Internal Revenue Service determines an issuer of a
municipal security has not complied with applicable tax
requirements, interest from the security could become
taxable and the security could decline significantly in
value. In addition, if the structure of a security fails
to function as intended, interest from the security
could become taxable or the security could decline in
value.
SPECIAL CONSIDERATIONS REALTING TO ARIZONA MUNICIPAL
SECURITIES
PORTFOLIO TRANSACTIONS
Newly issued securities normally are purchased directly
from the issuer or from an underwriter acting as
principal. Other purchases and sales usually are placed
with those dealers from which it appears that the best
price or execution will be obtained; those dealers may
be acting as either agents or principals. The purchase
price paid by the fund to underwriters of newly issued
securities usually includes a concession paid by the
issuer to the underwriter, and purchases of after-market
securities from dealers normally are executed at a price
between the bid and asked prices. For the 1997, 1998 and
1999 fiscal years, the fund has paid no brokerage
commissions.
Allocation of transactions, including their frequency,
to various dealers is determined by the manager in its
best judgment and in a manner deemed fair and reasonable
to shareholders. The primary considerations are
availability of the desired security and the prompt
execution of orders in an effective manner at the most
favorable prices. Subject to these considerations,
dealers that provide supplemental investment research
and statistical or other services to the manager may
receive orders for portfolio transactions by the fund.
Information so received is in addition to, and not in
lieu of, services required to be performed by the
manager, and the fees of the manager are not reduced as
a consequence of its use of such supplemental
information. Such information may be useful to the
manager in serving both the fund and other clients and,
conversely, supplemental information obtained by the
placement of business of other clients may be useful to
the manager in carrying out its obligations to the fund.
The fund will not purchase Municipal Obligations during
the existence of any underwriting or selling group
relating thereto of which Salomon Smith Barney is a
member, except to the extent permitted by the SEC. Under
certain circumstances, the fund may be at a disadvantage
because of this limitation in comparison with other
investment companies which have a similar investment
objective but which are not subject to such limitation.
The fund also may execute portfolio transactions
through Salomon Smith Barney and its affiliates in
accordance with rules promulgated by the SEC.
While investment decisions for the fund are made
independently from those of the other accounts managed
by the manager, investments of the type the fund may
make also may be made by those other accounts. When the
fund and one or more other accounts managed by the
manager are prepared to invest in, or desire to dispose
of, the same security, available investments or
opportunities for sales will be allocated in a manner
believed by the manager to be equitable to each. In some
cases, this procedure may adversely affect the price
paid or received by the fund or the size of the position
obtained or disposed of by the fund.
PORTFOLIO TURNOVER
The fund's portfolio turnover rate (the lesser of
purchases or sales of portfolio securities during the
year, excluding purchases or sales of short-term
securities, divided by the monthly average value of
portfolio securities) generally is not expected to
exceed 100%, but the portfolio turnover rate will not be
a limiting factor whenever the fund deems it desirable
to sell or purchase securities. Securities may be sold
in anticipation of a rise in interest rates (market
decline) or purchased in anticipation of a decline in
interest rates (market rise) and later sold. In
addition, a security may be sold and another security of
comparable quality may be purchased at approximately the
same time in order to take advantage of what the fund
believes to be a temporary disparity in the normal yield
relationship between the two securities. These yield
disparities may occur for reasons not directly related
to the investment quality of particular issues or the
general movement of interest rates, such as changes in
the overall demand for or supply of various types of
tax-exempt securities. For the 1997, 1998 and 1999
fiscal years, the fund's portfolio turnover rates were
%, % and %, respectively.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for
purchase. See the prospectus for a discussion of
factors to consider in selecting which Class of shares
to purchase.
Class A Shares. Class A shares are sold to investors at
the public offering price, which is the net asset value
plus an initial sales charge as follows:
Amount of
Investment
Sales Charge as
a %
Of Transaction
Sales Charge as
a %
Of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
4.00%
4.17%
3.60%
$ 25,000 - 49,999
3.50
3.63
3.15
50,000 - 99,999
3.00
3.09
2.70
100,000 - 249,999
2.50
2.56
2.25
250,000 - 499,999
1.50
1.52
1.35
500,000 and over
*
*
*
* Purchases of Class A shares of $500,000 or more will
be made at net asset value without any initial sales
charge, but will be subject to a deferred sales charge
of 1.00% on redemptions made within 12 months of
purchase. The deferred sales charge on Class A shares
is payable to Salomon Smith Barney, which compensates
Salomon Smith Barney Financial Consultants and other
dealers whose clients make purchases of $500,000 or
more. The deferred sales charge is waived in the same
circumstances in which the deferred sales charge
applicable to Class B and Class L shares is waived.
See "Purchase of Shares-Deferred Sales Charge
Alternatives" and "Purchase of Shares-Waivers of
Deferred Sales Charge."
Members of the selling group may receive up to 90% of
the sales charge and may be deemed to be underwriters of
the fund as defined in the Securities Act of 1933. The
reduced sales charges shown above apply to the aggregate
of purchases of Class A shares of the fund made at one
time by "any person," which includes an individual and
his or her immediate family, or a trustee or other
fiduciary of a single trust estate or single fiduciary
account.
Class B Shares. Class B shares are sold without an
initial sales charge but are subject to a deferred sales
charge payable upon certain redemptions. See "Deferred
Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial
sales charge of 1.00% (which is equal to 1.01% of the
amount invested) and are subject to a deferred sales
charge payable upon certain redemptions. See "Deferred
Sales Charge Provisions" below. Until June 22, 2001
purchases of Class L shares by investors who were
holders of Class C shares of the fund on June 12, 1998
will not be subject to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an
initial sales charge or deferred sales charge and are
available only to investors investing a minimum of
$15,000,000 (except purchases of Class Y shares by Smith
Barney Concert Allocation Series Inc., for which there
is no minimum purchase amount).
General
Investors may purchase shares from a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
In addition, certain investors may purchase shares
directly from the fund. When purchasing shares of the
fund, investors must specify whether the purchase is for
Class A, Class B, Class L or Class Y shares. Salomon
Smith Barney and Dealer Representatives may charge their
customers an annual account maintenance fee in
connection with a brokerage account through which an
investor purchases or holds shares. Accounts held
directly at First Data Investor Services Group, Inc.
("First Data" or "transfer agent") are not subject to a
maintenance fee.
Investors in Class A, Class B and Class L shares may
open an account in the fund by making an initial
investment of at least $1,000 for each account.
Investors in Class Y shares may open an account by
making an initial investment of $15,000,000. Subsequent
investments of at least $50 may be made for all Classes.
For shareholders purchasing shares of the fund through
the Systematic Investment Plan on a monthly basis, the
minimum initial investment requirement for Class A,
Class B and Class L shares and subsequent investment
requirement for all Classes is $25. For shareholders
purchasing shares of the fund through the Systematic
Investment Plan on a quarterly basis, the minimum
initial investment required for Class A, Class B and
Class L shares and the subsequent investment requirement
for all Classes is $50. There are no minimum investment
requirements for Class A shares for employees of
Citigroup and its subsidiaries, including Salomon Smith
Barney, unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith
Barney, and Directors/Trustees of any of the Smith
Barney Mutual Funds, and their spouses and children. The
fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend
the offering of shares from time to time. Shares
purchased will be held in the shareholder's account by
First Data. Share certificates are issued only upon a
shareholder's written request to First Data. It is not
recommended that the Fund be used as a vehicle for
Keogh, IRA or other qualified retirement plans.
Purchase orders received by the fund or a Salomon Smith
Barney Financial Consultant prior to the close of
regular trading on the NYSE, on any day the fund
calculates its net asset value, are priced according to
the net asset value determined on that day (the ''trade
date''). Orders received by a Dealer Representative
prior to the close of regular trading on the NYSE on any
day the fund calculates its net asset value, are priced
according to the net asset value determined on that day,
provided the order is received by the fund or the fund's
agent prior to its close of business. For shares
purchased through Salomon Smith Barney or a Dealer
Representative purchasing through Salomon Smith Barney,
payment for shares of the fund is due on the third
business day after the trade date. In all other cases,
payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make
additions to their accounts at any time by purchasing
shares through a service known as the Systematic
Investment Plan. Under the Systematic Investment Plan,
Salomon Smith Barney or First Data is authorized through
preauthorized transfers of at least $25 on a monthly
basis or at least $50 on a quarterly basis to charge the
shareholder's account held with a bank or other
financial institution on a monthly or quarterly basis as
indicated by the shareholder, to provide for systematic
additions to the shareholder's fund account. A
shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Salomon
Smith Barney or First Data. The Systematic Investment
Plan also authorizes Salomon Smith Barney to apply cash
held in the shareholder's Salomon Smith Barney brokerage
account or redeem the shareholder's shares of a Smith
Barney money market fund to make additions to the
account. Additional information is available from the
fund or a Salomon Smith Barney Financial Consultant or
a Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A
shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i)
Board Members and employees of Citigroup and its
subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including
retired Board Members and employees); the immediate
families of such persons (including the surviving spouse
of a deceased Board Member or employee); and to a
pension, profit-sharing or other benefit plan for such
persons and (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such
sales are made upon the assurance of the purchaser that
the purchase is made for investment purposes and that
the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares
to any other investment company to effect the
combination of such company with the fund by merger,
acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Salomon
Smith Barney Financial Consultant (for a period up to 90
days from the commencement of the Financial Consultant's
employment with Salomon Smith Barney), on the condition
the purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i)
was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial
Consultant and (iii) was subject to a sales charge; (d)
purchases by shareholders who have redeemed Class A
shares in the fund (or Class A shares of another Smith
Barney Mutual Fund that is offered with a sales charge)
and who wish to reinvest their redemption proceeds in
the fund, provided the reinvestment is made within 60
calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory
subsidiaries of Citigroup; (f) investments of
distributions from a UIT sponsored by Salomon Smith
Barney; and (g) purchases by investors participating in
a Salomon Smith Barney fee-based arrangement. In order
to obtain such discounts, the purchaser must provide
sufficient information at the time of purchase to permit
verification that the purchase would qualify for the
elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may
be purchased by ''any person'' (as defined above) at a
reduced sales charge or at net asset value determined by
aggregating the dollar amount of the new purchase and
the total net asset value of all Class A shares of the
fund and of other Smith Barney Mutual Funds that are
offered with a sales charge as currently listed under
''Exchange Privilege'' then held by such person and
applying the sales charge applicable to such aggregate.
In order to obtain such discount, the purchaser must
provide sufficient information at the time of purchase
to permit verification that the purchase qualifies for
the reduced sales charge. The right of accumulation is
subject to modification or discontinuance at any time
with respect to all shares purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent
for an amount of $50,000 or more provides an opportunity
for an investor to obtain a reduced sales charge by
aggregating investments over a 13 month period, provided
the investor refers to such Letter when placing orders.
For purposes of a Letter of Intent, the ''Amount of
Investment'' as referred to in the preceding sales
charge table includes (i) all Class A shares of the fund
and other Smith Barney Mutual Funds offered with a sales
charge acquired during the term of the letter plus (ii)
the value of all Class A shares previously purchased and
still owned. Each investment made during the period
receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the
difference between the sales charges applicable to the
purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed.
The term of the Letter will commence upon the date the
Letter is signed, or at the option of the investor, up
to 90 days before such date. Please contact a Salomon
Smith Barney Financial Consultant or First Data to
obtain a Letter of Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent
may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares
(except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no
minimum purchase amount). Such investors must make an
initial minimum purchase of $5,000,000 in Class Y shares
of the fund and agree to purchase a total of $15,000,000
of Class Y shares of the fund within 13 months from the
date of the Letter. If a total investment of $15,000,000
is not made within the 13-month period, all Class Y
shares purchased to date will be transferred to Class A
shares, where they will be subject to all fees
(including a service fee of 0.15%) and expenses
applicable to the fund's Class A shares, which may
include a deferred sales charge of 1.00%. Please contact
a Salomon Smith Barney Financial Consultant or First
Data for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B
shares; (b) Class L shares; and (c) Class A shares were
purchased without an initial sales charge but subject to
a deferred sales charge. A deferred sales charge may be
imposed on certain redemptions of these shares.
Any applicable deferred sales charge will be assessed on
an amount equal to the lesser of the original cost of
the shares being redeemed or their net asset value at
the time of redemption. Deferred Sales Charge Shares
that are redeemed will not be subject to a deferred
sales charge to the extent the value of such shares
represents: (a) capital appreciation of fund assets; (b)
reinvestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more
than five years after their purchase; or (d) with
respect to Class L shares and Class A shares that are
Deferred Sales Charge Shares, shares redeemed more than
12 months after their purchase.
Class L shares and Class A shares that are Deferred
Sales Charge Shares are subject to a 1.00% deferred
sales charge if redeemed within 12 months of purchase.
In circumstances in which the deferred sales charge is
imposed on Class B shares, the amount of the charge will
depend on the number of years since the shareholder made
the purchase payment from which the amount is being
redeemed. Solely for purposes of determining the number
of years since a purchase payment, all purchase payments
made during a month will be aggregated and deemed to
have been made on the last day of the preceding Salomon
Smith Barney statement month. The following table sets
forth the rates of the charge for redemptions of Class
B shares by shareholders.
Year Since Purchase Payment Was Made
Deferred sales charge
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A
shares eight years after the date on which they were
purchased and thereafter will no longer be subject to
any distribution fees. There will also be converted at
that time such proportion of Class B Dividend Shares
owned by the shareholders as the total number of his or
her Class B shares converting at the time bears to the
total number of outstanding Class B shares (other than
Class B Dividend Shares) owned by the shareholder.
The length of time Deferred Sales Charge Shares acquired
through an exchange have been held will be calculated
from the date the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds,
and fund shares being redeemed will be considered to
represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in
such other funds. For Federal income tax purposes, the
amount of the deferred sales charge will reduce the gain
or increase the loss, as the case may be, on the amount
realized on redemption. The amount of any deferred sales
charge will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100
Class B shares of the fund at $10 per share for a cost
of $1,000. Subsequently, the investor acquired 5
additional shares of the fund through dividend
reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his or
her investment. Assuming at the time of the redemption
the net asset value had appreciated to $12 per share,
the value of the investor's shares would be $1,260 (105
shares at $12 per share). The deferred sales charge
would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested
dividend shares ($60). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be charged
at a rate of 4.00% (the applicable rate for Class B
shares) for a total deferred sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a)
exchanges (see ''Exchange Privilege''); (b) automatic
cash withdrawals in amounts equal to or less than 1.00%
per month of the value of the shareholder's shares at
the time the withdrawal plan commences (see ''Automatic
Cash Withdrawal Plan'') (however, automatic cash
withdrawals in amounts equal to or less than 2.00% per
month of the value of the shareholder's shares will be
permitted for withdrawal plans established prior to
November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the
shareholder; (d) involuntary redemptions; and
(e) redemptions of shares to effect a combination of the
fund with any investment company by merger, acquisition
of assets or otherwise. In addition, a shareholder who
has redeemed shares from other Smith Barney Mutual Funds
may, under certain circumstances, reinvest all or part
of the redemption proceeds within 60 days and receive
pro rata credit for any deferred sales charge imposed on
the prior redemption.
Deferred sales charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon Smith Barney clients
or by First Data in the case of all other shareholders)
of the shareholder's status or holdings, as the case may
be.
Volume Discounts
The schedule of sales charges on Class A shares
described in the prospectus applies to purchases made by
any "purchaser," which is defined to include the
following: (a) an individual; (b) an individual's spouse
and his or her children purchasing shares for their own
account; (c) a trustee or other fiduciary purchasing
shares for a single trust estate or single fiduciary
account; and (d) a trustee or other professional
fiduciary (including a bank, or an investment adviser
registered with the SEC under the Investment Advisers
Act of 1940, as amended) purchasing shares of the fund
for one or more trust estates or fiduciary accounts.
Purchasers who wish to combine purchase orders to take
advantage of volume discounts on Class A shares should
contact a Salomon Smith Barney Financial Consultant.
DETERMINATION OF NET ASSET VALUE
Each class' net asset value per share is calculated on
each day, Monday through Friday, except days on which
the NYSE is closed. The NYSE currently is scheduled to
be closed on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when
one of these holidays falls on a Saturday or Sunday,
respectively. Because of the differences in
distribution fees and class-specific expenses, the per
share net asset value of each class may differ. The
following is a description of the procedures used by the
fund in valuing its assets.
Generally, the fund's investments are valued at market
value or, in the absence of a market value with respect
to any securities, at fair value as determined by or
under the direction of the Board of Directors. A
security that is primarily traded on a domestic or
foreign exchange is valued at the last sale price on
that exchange or, if there were no sales during the day,
at the mean between the bid and asked price. Over-the-
counter securities are valued at the mean between the
bid and asked price. If market quotations for those
securities are not readily available, they are valued at
fair value, as determined in good faith by the fund's
Board of Directors. An option is generally valued at
the last sale price or, in the absence of a last sale
price, the last offer price.
U.S. government securities will be valued at the mean
between the closing bid and asked prices on each day,
or, if market quotations for those securities are not
readily available, at fair value, as determined in good
faith by the fund's Board of Directors.
Short-term investments maturing in 60 days or less are
valued at amortized cost whenever the Board of Directors
determines that amortized cost reflects fair value of
those investments. Amortized cost valuation involves
valuing an instrument at its cost initially and
thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the
instrument.
All other securities and other assets of the fund will
be valued at fair value as determined in good faith by
the fund's Board of Directors.
Determination of Public Offering Price
The fund offers its shares to the public on a continuous
basis. The public offering price per Class A and Class
Y share of the fund is equal to the net asset value per
share at the time of purchase plus, for Class A shares,
an initial sales charge based on the aggregate amount of
the investment. The public offering price per Class B
and Class L share (and Class A share purchases,
including applicable rights of accumulation, equaling or
exceeding $500,000) is equal to the net asset value per
share at the time of purchase and no sales charge is
imposed at the time of purchase. The method of
computing the public offering price is shown in the
fund's financial statements, incorporated by reference
in their entirety into this SAI.
REDEMPTION OF SHARES
The fund is required to redeem the shares of the fund
tendered to it, as described below, at a redemption
price equal to their net asset value per share next
determined after receipt of a written request in proper
form at no charge other than any applicable deferred
sales charge. Redemption requests received after the
close of regular trading on the NYSE are priced at the
net asset value next determined.
If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class being
redeemed. In the event of a failure to specify which
Class, or if the investor owns fewer shares of the Class
than specified, the redemption request will be delayed
until the transfer agent receives further instructions
from Salomon Smith Barney, or if the shareholder's
account is not with Salomon Smith Barney, from the
shareholder directly. The redemption proceeds will be
remitted on or before the third business day following
receipt of proper tender, except on any days on which
the NYSE is closed or as permitted under the 1940 Act in
extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a Salomon Smith
Barney brokerage account, these funds will not be
invested for the shareholder's benefit without specific
instruction and Salomon Smith Barney will benefit from
the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a
certified or official bank check, will be remitted upon
clearance of the check, which may take up to ten days or
more.
Shares held by Salomon Smith Barney as custodian must be
redeemed by submitting a written request to a Salomon
Smith Barney Financial Consultant. Shares other than
those held by Salomon Smith Barney as custodian may be
redeemed through an investor's Financial Consultant,
Dealer Representative or by submitting a written request
for redemption to:
Smith Barney Arizona Municipals Fund Inc.
Class A, B, L or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class
and number or dollar amount of shares to be redeemed,
(b) identify the shareholder's account number and (c) be
signed by each registered owner exactly as the shares
are registered. If the shares to be redeemed were issued
in certificate form, the certificates must be endorsed
for transfer (or be accompanied by an endorsed stock
power) and must be submitted to the transfer agent
together with the redemption request. Any signature
appearing on a share certificate, stock power or written
redemption request in excess of $10,000 must be
guaranteed by an eligible guarantor institution, such as
a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System
or member firm of a national securities exchange.
Written redemption requests of $10,000 or less do not
require a signature guarantee unless more than one such
redemption request is made in any 10-day period.
Redemption proceeds will be mailed to an investor's
address of record. The transfer agent may require
additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed
properly received until the transfer agent receives all
required documents in proper form.
Automatic Cash Withdrawal Plan. The fund offers
shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at
least $10,000 may elect to receive cash payments of at
least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal
plans only where the shareholder is eligible to receive
qualified distributions and has an account value of at
least $5,000. The withdrawal plan will be carried over
on exchanges between Classes of a fund. Any applicable
deferred sales charge will not be waived on amounts
withdrawn by a shareholder that exceed 1.00% per month
of the value of the shareholder's shares subject to the
deferred sales charge at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect
prior to November 7, 1994, any applicable deferred sales
charge will be waived on amounts withdrawn that do not
exceed 2.00% per month of the value of the shareholder's
shares subject to the deferred sales charge.) For
further information regarding the automatic cash
withdrawal plan, shareholders should contact a Salomon
Smith Barney Financial Consultant.
Telephone Redemption and Exchange Program. Shareholders
who do not have a brokerage account may be eligible to
redeem and exchange shares by telephone. To determine if
a shareholder is entitled to participate in this
program, he or she should contact the transfer agent at
1-800-451-2010. Once eligibility is confirmed, the
shareholder must complete and return a Telephone/Wire
Authorization Form, along with a signature guarantee,
that will be provided by the transfer agent upon
request. (Alternatively, an investor may authorize
telephone redemptions on the new account application
with the applicant's signature guarantee when making
his/her initial investment in a fund.)
Redemptions. Redemption requests of up to $10,000 of
any class or classes of shares of a fund may be made by
eligible shareholders by calling the transfer agent at
1-800-451-2010. Such requests may be made between 9:00
a.m. and 5:00 p.m. (Eastern time) on any day the NYSE is
open. Redemptions of shares (i) by retirement plans or
(ii) for which certificates have been issued are not
permitted under this program.
A shareholder will have the option of having the
redemption proceeds mailed to his/her address of record
or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be
mailed or wired, as the case may be, on the next
business day following the redemption request. In order
to use the wire procedures, the bank receiving the
proceeds must be a member of the Federal Reserve System
or have a correspondent relationship with a member bank.
The fund reserves the right to charge shareholders a
nominal fee for each wire redemption. Such charges, if
any, will be assessed against the shareholder's account
from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds,
a shareholder must complete a new Telephone/Wire
Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a
signature guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by
telephone if the account registration of the shares of
the fund being acquired is identical to the registration
of the shares of the fund exchanged. Such exchange
requests may be made by calling the transfer agent at 1-
800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time) on any day on which the NYSE is open.
Additional Information Regarding Telephone Redemption
and Exchange Program. Neither the fund nor its agents
will be liable for following instructions communicated
by telephone that are reasonably believed to be genuine.
The fund and its agents will employ procedures designed
to verify the identity of the caller and legitimacy of
instructions (for example, a shareholder's name and
account number will be required and phone calls may be
recorded). The fund reserves the right to suspend,
modify or discontinue the telephone redemption and
exchange program or to impose a charge for this service
at any time following at least seven (7) days' prior
notice to shareholders.
Redemptions in Kind. In conformity with applicable
rules of the SEC, redemptions may be paid in portfolio
securities, in cash or any combination of both, as the
Board of Directors may deem advisable; however, payments
shall be made wholly in cash unless the Board of
Directors believes economic conditions exist that would
make such a practice detrimental to the best interests
of the fund and its remaining shareholders. If a
redemption is paid in portfolio securities, such
securities will be valued in accordance with the
procedures described under "Determination of Net Asset
Value" in the Prospectus and a shareholder would incur
brokerage expenses if these securities were then
converted to cash.
Distributions in Kind
If the fund's Board of Directors determines that it
would be detrimental to the best interests of the
remaining shareholders of the fund to make a redemption
payment wholly in cash, the fund may pay, in accordance
with SEC rules, any portion of a redemption in excess of
the lesser of $250,000 or 1.00% of the fund's net assets
by a distribution in kind of portfolio securities in
lieu of cash. Securities issued as a distribution in
kind may incur brokerage commissions when shareholders
subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal
Plan") is available to shareholders who own shares with
a value of at least $10,000 and who wish to receive
specific amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under the
Withdrawal Plan by redeeming as many shares of the fund
as may be necessary to cover the stipulated withdrawal
payment. Any applicable deferred sales charge will not
be waived on amounts withdrawn by shareholders that
exceed 1.00% per month of the value of a shareholder's
shares at the time the Withdrawal Plan commences. (With
respect to Withdrawal Plans in effect prior to November
7, 1994, any applicable deferred sales charge will be
waived on amounts withdrawn that do not exceed 2.00% per
month of the value of a shareholder's shares at the time
the Withdrawal Plan commences.) To the extent
withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the fund,
there will be a reduction in the value of the
shareholder's investment, and continued withdrawal
payments will reduce the shareholder's investment and
may ultimately exhaust it. Withdrawal payments should
not be considered as income from investment in the fund.
Furthermore, as it generally would not be advantageous
to a shareholder to make additional investments in the
fund at the same time he or she is participating in the
Withdrawal Plan, purchases by such shareholder in
amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders who wish to participate in the Withdrawal
Plan and who hold their shares in certificate form must
deposit their share certificates with the Transfer Agent
as agent for Withdrawal Plan members. All dividends and
distributions on shares in the Withdrawal Plan are
reinvested automatically at net asset value in
additional shares of the fund. For additional
information, shareholders should contact a Salomon Smith
Barney Financial Consultant. Withdrawal Plans should be
set up with a Salomon Smith Barney Financial Consultant.
A shareholder who purchases shares directly through the
Transfer Agent may continue to do so and applications
for participation in the Withdrawal Plan must be
received by the Transfer Agent no later than the eighth
day of the month to be eligible for participation
beginning with that month's withdrawals. For additional
information, shareholders should contact a Salomon Smith
Barney Financial Consultant.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Adviser and Administrator - SSBC (Manager)
SSBC (formerly known as Mutual Management Corp.) serves
as investment adviser to the fund pursuant to an
investment advisory agreement (the "Investment Advisory
Agreement") with the fund which was approved by the
Board of Directors, including a majority of directors
who are not "interested persons" of the fund or the
manager. The manager is a wholly owned subsidiary of
Salomon Smith Barney Holdings Inc. ("Holdings"), which
in turn, is a wholly owned subsidiary of Citigroup.
Subject to the supervision and direction of the fund's
Board of Directors, the manager manages the fund's
portfolio in accordance with the fund's stated
investment objective and policies, makes investment
decisions for the fund, places orders to purchase and
sell securities, and employs professional portfolio
managers and securities analysts who provide research
services to the fund. The manager pays the salary of any
officer and employee who is employed by both it and the
fund. The manager bears all expenses in connection with
the performance of its services. SSBC (through its
predecessor entities) has been in the investment
counseling business since 1968 and renders investment
advice to a wide variety of individual, institutional
and investment company clients that had aggregate assets
under management as of September , 1999 of
approximately $ billion.
As compensation for investment advisory services, the
fund pays the manager a fee computed daily and payable
monthly at the following annual rates of the fund's
average daily net assets: 0.35% up to $500 million;
0.32% in excess of $500 million. For the fiscal years
ended May 31, 1997, 1998 and 1999, the fund incurred $
, $ and, $ respectively, in
investment advisory fees.
The manager also serves as administrator to the fund
pursuant to a written agreement (the "Administration
Agreement"). As administrator SSBC: (a) assists in
supervising all aspects of the Fund's operations; b)
supplies the fund with office facilities (which may be
in SSBC's own offices), statistical and research data,
data processing services, clerical, accounting and
bookkeeping services, including, but not limited to, the
calculation of (i) the net asset value of shares of the
fund, (ii) applicable contingent deferred sales charges
and similar fees and charges and (iii) distribution
fees, (c) internal auditing and legal services, internal
executive and administrative services, and stationary
and office supplies; and (d) prepares reports to
shareholders of the fund, tax returns and reports to and
filings with the SEC and state blue sky authorities.
As compensation for administrative services rendered to
the fund, the manager receives a fee computed daily and
payable monthly at the following annual rates of average
daily net assets: 0.20% up to $500 million; and 0.18%
thereafter. For the fiscal year ended May 31, 1997, 1998
and 1999, the fund paid the manager $ , $
and $ , respectively, in administration fees.
The fund bears expenses incurred in its operations
including: taxes, interest, brokerage fees and
commissions, if any; fees of directors of the fund who
are not officers, directors, shareholders or employees
of Salomon Smith Barney or the manager; SEC fees and
state Blue Sky notice fees; charges of custodians;
transfer and dividend disbursing agent's fees; certain
insurance premiums; outside auditing and legal expenses;
costs of maintaining corporate existence; costs of
investor services (including allocated telephone and
personnel expenses); costs of preparing and printing of
prospectuses for regulatory purposes and for
distribution to existing shareholders; costs of
shareholders' reports and shareholder meetings; and
meetings of the officers or Board of Directors of the
fund.
Auditors
KPMG LLP, independent auditors, 345 Park Avenue, New
York, New York 10154, have been selected to serve as
auditors of the fund and to render opinions on the
fund's financial statements for the fiscal year ended
May 31, 2000.
Custodian and Transfer Agent
PNC Bank, National Association located at 17th and
Chestnut Streets, Philadelphia, Pennsylvania 19103,
serves as the fund's custodian. Under the custody
agreement, PNC holds the fund's portfolio securities and
keeps all necessary accounts and records. For its
services, PNC receives a monthly fee based upon the
month-end market value of securities held in custody and
also receives securities transaction charges. The
assets of the fund are held under bank custodianship in
compliance with the 1940 Act.
First Data Shareholder Services Group Inc., located at
Federal Street, Boston, Massachusetts 02110, serves as
the fund's transfer agent. Under the transfer agency
agreement, First Data maintains the shareholder account
records for the fund, handles certain communications
between shareholders and the fund, and distributes
dividends and distributions payable by the fund. For
these services, First Data receives a monthly fee
computed on the basis of the number of shareholder
accounts it maintains for the fund during the month, and
is reimbursed for out-of-pocket expenses.
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the fund's
distributor pursuant to a written agreement dated
October 8, 1998 (the "Distribution Agreement") which was
approved by the fund's Board of Directors, including a
majority of the independent directors on July 15, 1998.
Prior to the merger of Travelers Group, Inc. and
Citicorp Inc. on October 8, 1998, Salomon Smith Barney
served as the fund's distributor. For the 1997 and 1998
fiscal years, Salomon Smith Barney, received $45,000 and
$68,000, respectively, in sales charges from the sale of
Class A shares, and did not reallow any portion thereof
to dealers. For the period May 31, 1998 through October
7, 1998 the aggregate dollar amount of sales charges on
Class A shares was $55,400 all of which was paid to
Salomon Smith Barney. For the period October 8, 1998
through May 31, 1999 the aggregate dollar amount of
sales charges on Class A shares was $ , $
of which was paid to Salomon Smith Barney.
For the period June 12, 1998 through October 7, 1998 the
aggregate dollar amount of sales charges on Class L
shares was $ , all of which was paid to Salomon
Smith Barney. For the period October 8, 1998 through May
31, 1999 the aggregate dollar amount of sales charges on
Class L shares was $ , $ of which was paid to
Salomon Smith Barney.
For the fiscal years ended May 31, 1997, 1998 and 1999,
Salomon Smith Barney or its predecessor received from
shareholders $ , $ and $ ,
respectively, in deferred sales charges on the
redemption of Class B shares. For the fiscal years
ended May 31, 1997, 1998 and 1999, Salomon Smith Barney
or its predecessor received from $ , $ and $
, respectively, in deferred sales charges on
redemption of Class L shares.
When payment is made by the investor before the
settlement date, unless otherwise noted by the investor,
the funds will be held as a free credit balance in the
investor's brokerage account and Salomon Smith Barney
may benefit from the temporary use of the funds. The
fund's Board of Directors has been advised of the
benefits to Salomon Smith Barney resulting from these
settlement procedures and will take such benefits into
consideration when reviewing the Investment Advisory
Agreement for continuance.
Distribution Arrangements. To compensate Salomon Smith
Barney for the service it provides and for the expense
it bears, the fund has adopted a services and
distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the fund pays
Salomon Smith Barney a service fee, accrued daily and
paid monthly, calculated at the annual rate of 0.15% of
the value of the fund's average daily net assets
attributable to the Class A, Class B and Class L shares.
In addition, the fund pays Salomon Smith Barney a
distribution fee with respect to Class B and Class L
shares primarily intended to compensate Salomon Smith
Barney for its initial expense of paying Financial
Consultants a commission upon sales of those shares.
The Class B and Class L distribution fee is calculated
at the annual rate of 0.50% and 0.55%, respectively, of
the value of the fund's average net assets attributable
to the shares of each Class.
For the fiscal year ended May 31, 1999, Salomon Smith
Barney incurred distribution expenses totaling $
consisting of $ for advertising, $ for printing
and mailing of prospectuses, $ for support
services, $ to Salomon Smith Barney Financial
Consultants, and $ in accruals for interest on the
excess of Salomon Smith Barney expenses incurred in
distributing the fund's shares over the sum of the
distribution fees and deferred sales charge received by
Salomon Smith Barney from the fund.
The following service and distribution fees were
incurred pursuant to a Distribution Plan during the
periods indicated:
Distribution Plan Fees
Fiscal Year
Ended 5/31/99
Fiscal Year
Ended 5/31/98
Fiscal Year
Ended 5/31/97
Class A
$
$
$
Class B
$
$
$
Class L*
$
$
$
* Class L shares were called Class C shares until
June 12, 1998.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote
of the Board of Directors, including a majority of the
independent directors. The Plan may not be amended to
increase the amount of the service and distribution fees
without shareholder approval, and all material
amendments of the Plan also must be approved by the
directors and independent directors in the manner
described above. The Plan may be terminated with
respect to a Class of the fund at any time, without
penalty, by vote of a majority of the independent
directors or by a vote of a majority of the outstanding
voting securities of the Class (as defined in the 1940
Act). Pursuant to the Plan, Salomon Smith Barney will
provide the fund's Board of Directors with periodic
reports of amounts expended under the Plan and the
purpose for which such expenditures were made.
VALUATION OF SHARES
The fund's net asset value per share is determined as of
close of regular trading on the NYSE, on each day that
the NYSE is open, by dividing value of the fund's net
assets attributable to each Class by the total number of
shares of that Class outstanding.
When, in the judgment of the pricing service, quoted bid
prices for investments are readily available and are
representative of the bid side of the market, these
investments are valued at the mean between the quoted
bid and asked prices. Investments for which, in the
judgment of the pricing service, there is no readily
obtainable market quotation (which may constitute a
majority of the portfolio securities) are carried at
fair value of securities of similar type, yield and
maturity. Pricing services generally determine value by
reference to transactions in municipal obligations,
quotations from municipal bond dealers, market
transactions in comparable securities and various
relationships between securities. Short-term
investments that mature in 60 days or less are valued at
amortized cost whenever the Board of Directors
determines that amortized cost is fair value. Amortized
cost valuation involves valuing an instrument at its
cost initially and, thereafter, assuming a constant
amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates
on the market value of the instrument. Securities and
other assets that are not priced by a pricing service
and for which market quotations are not available will
be valued in good faith at fair value by or under the
direction of the fund's Board of Directors.
EXCHANGE PRIVILEGE
Shares of each Class of the fund may be exchanged for
shares of the same Class of certain Smith Barney Mutual
Funds, to the extent shares are offered for sale in the
shareholder's state of residence. Exchanges of Class A,
Class B and Class L shares are subject to minimum
investment requirements and all shares are subject to
the other requirements of the fund into which exchanges
are made.
Class B Exchanges. If a Class B shareholder wishes to
exchange all or a portion of his or her shares in any of
the funds imposing a higher deferred sales charge than
that imposed by the fund, the exchanged Class B shares
will be subject to the higher applicable deferred sales
charge. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the
Class B shares of the fund that have been exchanged.
Class L Exchanges. Upon an exchange, the new Class L
shares will be deemed to have been purchased on the same
date as the Class L shares of the fund that have been
exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the fund who wish to exchange all or a
portion of their shares for shares of the respective
Class in any of the funds identified above may do so
without imposition of any charge.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important
benefit, excessive exchange transactions can be
detrimental to the fund's performance and its
shareholders. The manager may determine that a pattern
of frequent exchanges is excessive and contrary to the
best interests of the fund's other shareholders. In this
event, the fund may, at its discretion, decide to limit
additional purchases and/or exchanges by the
shareholder. Upon such a determination, the fund will
provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her
shares in the fund or (b) remain invested in the fund or
exchange into any of the funds of the Smith Barney
Mutual Funds ordinarily available, which position the
shareholder would be expected to maintain for a
significant period of time. All relevant factors will be
considered in determining what constitutes an abusive
pattern of exchanges.
Certain shareholders may be able to exchange shares by
telephone. See ''Redemption of Shares-Telephone
Redemptions and Exchange Program.'' Exchanges will be
processed at the net asset value next determined.
Redemption procedures discussed below are also
applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper
form. If the account registration of the shares of the
fund being acquired is identical to the registration of
the shares of the fund exchanged, no signature guarantee
is required. An exchange involves a taxable redemption
of shares, subject to the tax treatment described in
"Dividends, Distributions and Taxes" below, followed by
a purchase of shares of a different fund. Before
exchanging shares, investors should read the current
prospectus describing the shares to be acquired. The
fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to
shareholders.
Additional Information Regarding Telephone Redemption
and Exchange Program
Neither the fund nor its agents will be liable for
instructions communicated by telephone that are
reasonably believed to be genuine. The fund or its
agents will employ procedures designed to verify the
identity of the caller and legitimacy of instructions
(for example, a shareholder's name and account number
will be required and phone calls may be recorded). The
fund reserves the right to suspend, modify or
discontinue the telephone redemption and exchange
program or to impose a charge for this service at any
time following at least seven (7) days' prior notice to
shareholders.
PERFORMANCE INFORMATION
From time to time, the fund may quote total return of a
class in advertisements or in reports and other
communications to shareholders. The fund may include
comparative performance information in advertising or
marketing the fund's shares. Such performance
information may include data from the following industry
and financial publications: Barron's, Business Week, CDA
Investment Technologies, Inc., Changing Times, Forbes,
Fortune, Institutional Investor, Investors Daily, Money,
Morningstar Mutual Fund Values, The New York Times, USA
Today and The Wall Street Journal.
Yield and Equivalent Taxable Yield
A Class' 30-day yield figure described below is
calculated according to a formula prescribed by the SEC.
The formula can be expressed as follows:
YIELD =2 [(a-b +1)6-1]
cd
Where: a = dividends and interest earned
during the period.
b = expenses accrued for the period
(net of reimbursement).
c = the average daily number of
shares outstanding during the
period that were entitled to
receive dividends.
d = the maximum offering price per
share on the last day of the period.
For the purpose of determining the interest earned
(variable "a'' in the formula) on debt obligations that
were purchased by the fund at a discount or premium, the
formula generally calls for amortization of the discount
or premium. The amortization schedule will be adjusted
monthly to reflect changes in the market values of the
debt obligations.
The fund's equivalent taxable 30-day yield for a Class
of shares is computed by dividing that portion of the
Class' 30-day yield which is tax-exempt by one minus a
stated income tax rate and adding the product to that
portion, if any, of the Class' yield that is not tax-
exempt.
The yields on municipal securities are dependent upon a
variety of factors, including general economic and
monetary conditions, conditions of the municipal
securities market, size of a particular offering,
maturity of the obligation offered and rating of the
issue. Investors should recognize that in periods of
declining interest rates the fund's yield for each Class
of shares will tend to be somewhat higher than
prevailing market rates, and in periods of rising
interest rates the fund's yield for each Class of shares
will tend to be somewhat lower. Also, when interest
rates are falling, the inflow of net new money to the
fund from the continuous sale of its shares will likely
be invested in portfolio instruments producing lower
yields than the balance of the fund's portfolio, thereby
reducing the current yield of the fund. In periods of
rising interest rates, the opposite can be expected to
occur.
The fund's yield for Class A, Class B and Class L shares
for the 30-day period ended May 31, 1999 was %, %
and %, respectively. The equivalent taxable
yield for Class A, Class B and Class L shares for that
same period was %, % and %, respectively,
assuming the payment of Federal income taxes at a rate
of %.
Average Annual Total Return
"Average annual total return," as described below, is
computed according to a formula prescribed by the SEC.
The formula can be expressed as follows:
P (1+T)n = ERV
Where: P = a hypothetical
initial payment of $1,000.
T = average annual total
return.
N = number of years.
ERV = Ending Redeemable Value
of a hypothetical $1,000
investment made at the
beginning of a 1-, 5-,
or 10-year period at the
end of a 1-, 5-, or 10-
year period (or
fractional portion
thereof), assuming
reinvestment of all
dividends and
distributions.
The fund's average annual total return for Class A
shares assuming the maximum applicable sales charge was
as follows for the periods indicated (reflecting the
waiver of the fund's investment advisory and
administration fees and reimbursement of expenses):
% for the one-year period ended May 31, 1999.
% for the five-year period ended May 31, 1999.
% per annum during the period from the fund's
commencement of operations on March 4, 1981
through May 31, 1999.
A Class' average annual total return assumes that the
maximum applicable sales charge or deferred sales charge
assessed by the fund has been deducted from the
hypothetical investment. If the maximum 4.00% sales
charge had not been deducted, Class A's average annual
total return would have been %, % and %,
respectively, for those same periods.
The fund's average annual total return for Class B
shares assuming the maximum applicable deferred sales
charge was as follows for the periods indicated
(reflecting the waiver of the fund's investment advisory
and administration fees and reimbursement of expenses):
% for the one-year period ended May 31, 1999.
% for the five-year period ended May 31, 1999.
% per annum during the period from the fund's
commencement of operations on November 6, 1992
through May 31, 1999.
If the maximum applicable deferred sales charge had not
been deducted at the time of redemption, Class B's
average annual total return would have been %, %
and %, respectively, for the same periods.
The fund's average annual total return for Class L
shares assuming the maximum applicable deferred sales
charge was as follows for the periods indicated
(reflecting the waiver of the fund's investment advisory
and administration fees and reimbursement of expenses):
% for the one-year period ended May 31, 1999.
% per annum during the period from the fund's
commencement of operations on December 8, 1994
through May 31, 1999.
If the maximum applicable deferred sales charge had not
been deducted at the time of redemption, Class L's
average annual total return for the one-year period
ended May 31, 1999 would have been %.
Aggregate Total Return
"Aggregate total return" represents the cumulative
change in the value of an investment in the Class for
the specified period and is computed by the following
formula:
ERV-P
P
Where: P = a hypothetical initial payment
of $10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000 investment
made at the beginning of a 1-,
5-, or 10-year period at the
end of a 1-, 5-, or 10-year
period (or fractional portion
thereof), assuming reinvestment
of all dividends and
distributions.
The fund's aggregate total return for Class A shares was
as follows for the periods indicated (reflecting the
waiver of the fund's investment advisory and
administration fees and reimbursement of expenses):
% for the one-year period ended May 31, 1999.
% for the five-year period ended May 31, 1999.
% for the period from the fund's commencement of
operations on March 4, 1981 through May 31, 1999.
Class A's aggregate total return assumes that the
maximum applicable sales charge or maximum applicable
deferred sales charge has been deducted from the
investment. If the maximum sales charge had not been
deducted at the time of purchase, Class A's aggregate
total return for the same periods would have been %,
% and %, respectively.
The fund's aggregate total return for Class B shares was
as follows for the periods indicated (reflecting the
waiver of the fund's investment advisory and
administration fees and reimbursement of expenses):
% for the one-year period ended May 31, 1999.
% for the five-year period ended May 31, 1999.
% for the period from commencement of operations
on November 6, 1992 through May 31, 1999.
If the maximum applicable deferred sales charge had not
been deducted at the time of redemption, Class B's
aggregate total return for the same periods would have
been %, % and %, respectively.
The fund's aggregate total return for Class L shares was
as follows for the period indicated (reflecting the
waiver of the fund's investment advisory and
administration fees and reimbursement of expenses):
% for the one-year period ended May 31, 1999.
% for the period from commencement of operations
on December 8, 1994 through May 31, 1999.
If the maximum applicable deferred sales charge had not
been deducted at the time of redemption, Class L's
aggregate total return for the one-year period ended May
31, 1999 would have been
%.
Performance will vary from time to time depending on
market conditions, the composition of the fund's
portfolio and operating expenses and the expenses
exclusively attributable to the Class. Consequently,
any given performance quotation should not be considered
as representative of the Class' performance for any
specified period in the future. Because performance
will vary, it may not provide a basis for comparing an
investment in the Class with certain bank deposits or
other investments that pay a fixed yield for a stated
period of time. Investors comparing a Class' performance
with that of other mutual funds should give
consideration to the quality and maturity of the
respective investment companies' portfolio securities.
It is important to note that the total return figures
set forth above are based on historical earnings and are
not intended to indicate future performance. Each
Class' net investment income changes in response to
fluctuations in interest rates and the expenses of the
fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. The fund's policy is to
declare and pay exempt-interest dividends monthly.
Dividends from net realized capital gains, if any, will
be distributed annually. The fund may also pay
additional dividends shortly before December 31 from
certain amounts of undistributed ordinary income and
capital gains, in order to avoid a Federal excise tax
liability. If a shareholder does not otherwise
instruct, exempt-interest dividends and capital gain
distributions will be reinvested automatically in
additional shares of the same Class at net asset value,
with no additional sales charge or deferred sales
charge.
The per share amounts of the exempt-interest dividends
on Class B and Class L shares may be lower than on Class
A and Class Y shares, mainly as a result of the
distribution fees applicable to Class B and Class L
shares. Similarly, the per share amounts of exempt-
interest dividends on Class A shares may be lower than
on Class Y shares, as a result of the service fee
attributable to Class A shares. Capital gain
distributions, if any, will be the same across all
Classes of fund shares (A, B, L and Y).
Taxes. The following is a summary of the material United
States federal income tax considerations regarding the
purchase, ownership and disposition of shares of the
fund. Each prospective shareholder is urged to consult
his own tax adviser with respect to the specific
federal, state and local consequences of investing in
the fund. The summary is based on the laws in effect on
the date of this SAI, which are subject to change.
The fund and its investments
As described in the fund's prospectus, the fund is
designed to provide shareholders with current income
which is excluded from gross income for federal income
tax purposes. The fund is not intended to constitute a
balanced investment program and is not designed for
investors seeking capital gains or maximum tax-exempt
income irrespective of fluctuations in principal.
Investment in the fund would not be suitable for tax-
exempt institutions, qualified retirement plans, H.R. 10
plans and individual retirement accounts because such
investors would not gain any additional tax benefit from
the receipt of tax-exempt income.
The fund intends to continue to qualify to be treated as
a regulated investment company each taxable year under
the Code. To so qualify, the fund must, among other
things: (a) derive at least 90% of its gross income in
each taxable year from dividends, interest, payments
with respect to securities loans, and gains from the
sale or other disposition of stock or securities or
foreign currencies, or other income (including, but not
limited to, gains from options, futures or forward
contracts) derived with respect to its business of
investing in such stock, securities or currencies; and
(b) diversify its holdings so that, at the end of each
quarter of the fund's taxable year, (i) at least 50% of
the market value of the fund's assets is represented by
cash, securities of other regulated investment
companies, United States government securities and other
securities, with such other securities limited, in
respect of any one issuer, to an amount not greater than
5% of the fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii)
not more than 25% of the value of its assets is invested
in the securities (other than United States government
securities or securities of other regulated investment
companies) of any one issuer or any two or more issuers
that the fund controls and are determined to be engaged
in the same or similar trades or businesses or related
trades or businesses.
As a regulated investment company, the fund will not be
subject to United States federal income tax on its net
investment income (i.e., income other than its net
realized long- and short-term capital gains) and its net
realized long- and short-term capital gains, if any,
that it distributes to its shareholders, provided an
amount equal to at least 90% of its investment company
taxable income (i.e., 90% of its taxable income minus
the excess, if any, of its net realized long-term
capital gains over its net realized short-term capital
losses (including any capital loss carryovers), plus or
minus certain other adjustments as specified in the
Code) and 90% of its net tax-exempt income for the
taxable year is distributed in compliance with the
Code's timing and other requirements but will be subject
to tax at regular corporate rates on any taxable income
or gains it does not distribute.
The Code imposes a 4% nondeductible excise tax on the
fund to the extent it does not distribute by the end of
any calendar year at least 98% of its net investment
income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-
year period ending, as a general rule, on October 31 of
that year. For this purpose, however, any income or
gain retained by the fund that is subject to corporate
income tax will be considered to have been distributed
by year-end. In addition, the minimum amounts that must
be distributed in any year to avoid the excise tax will
be increased or decreased to reflect any
underdistribution or overdistribution, as the case may
be, from the previous year. The fund anticipates it
will pay such dividends and will make such distributions
as are necessary in order to avoid the application of
this tax.
If, in any taxable year, the fund fails to qualify as a
regulated investment company under the Code or fails to
meet the distribution requirement, it would be taxed in
the same manner as an ordinary corporation and
distributions to its shareholders would not be
deductible by the fund in computing its taxable income.
In addition, in the event of a failure to qualify, the
fund's distributions, to the extent derived from the
fund's current or accumulated earnings and profits would
constitute dividends (eligible for the corporate
dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those
distributions might otherwise (at least in part) have
been treated in the shareholders' hands as tax-exempt
interest. If the fund fails to qualify as a regulated
investment company in any year, it must pay out its
earnings and profits accumulated in that year in order
to qualify again as a regulated investment company. In
addition, if the fund failed to qualify as a regulated
investment company for a period greater than one taxable
year, the fund may be required to recognize any net
built-in gains (the excess of the aggregate gains,
including items of income, over aggregate losses that
would have been realized if it had been liquidated) in
order to qualify as a regulated investment company in a
subsequent year.
The fund's transactions in municipal bond index and
interest rate futures contracts and options on these
futures contracts (collectively "section 1256
contracts") will be subject to special provisions of the
Code (including provisions relating to "hedging
transactions" and "straddles") that, among other things,
may affect the character of gains and losses realized by
the fund (i.e., may affect whether gains or losses are
ordinary or capital), accelerate recognition of income
to the fund and defer fund losses. These rules could
therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a)
will require the fund to mark-to-market certain types of
positions in its portfolio (i.e., treat them as if they
were closed out) and (b) may cause the fund to recognize
income without receiving cash with which to pay
dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding
income and excise taxes. The fund will monitor its
transactions, will make the appropriate tax elections
and will make the appropriate entries in its books and
records when it engages in these transactions in order
to mitigate the effect of these rules and prevent
disqualification of the fund as a regulated investment
company.
All section 1256 contracts held by the fund at the end
of its taxable year are required to be marked to their
market value, and any unrealized gain or loss on those
positions will be included in the fund's income as if
each position had been sold for its fair market value at
the end of the taxable year. The resulting gain or loss
will be combined with any gain or loss realized by the
fund from positions in section 1256 contracts closed
during the taxable year. Provided such positions were
held as capital assets and were not part of a "hedging
transaction" nor part of a "straddle," 60% of the
resulting net gain or loss will be treated as long-term
capital gain or loss, and 40% of such net gain or loss
will be treated as short-term capital gain or loss,
regardless of the period of time the positions were
actually held by the fund.
Taxation of Shareholders
Because the fund will distribute exempt-interest
dividends, interest on indebtedness incurred by a
shareholder to purchase or carry fund shares is not
deductible for Federal income tax purposes. If a
shareholder receives exempt-interest dividends with
respect to any share and if such share is held by the
shareholder for six months or less, then, for Federal
income tax purposes, any loss on the sale or exchange of
such share may, to the extent of exempt-interest
dividends, be disallowed. In addition, the Code may
require a shareholder, if he or she receives exempt-
interest dividends, to treat as Federal taxable income
a portion of certain otherwise non-taxable social
security and railroad retirement benefit payments.
Furthermore, that portion of any exempt-interest
dividend paid by the fund which represents income
derived from private activity bonds held by the fund may
not retain its Federal tax-exempt status in the hands of
a shareholder who is a "substantial user" of a facility
financed by such bonds or a "related person" thereof.
Moreover, some or all of the fund's dividends may be a
specific preference item, or a component of an
adjustment item, for purposes of the Federal individual
and corporate alternative minimum taxes. In addition,
the receipt of the fund's dividends and distributions
may affect a foreign corporate shareholder's Federal
"branch profits" tax liability and Federal "excess net
passive income" tax liability of a shareholder of a
Subchapter S corporation. Shareholders should consult
their own tax advisors to determine whether they are (a)
substantial users with respect to a facility or related
to such users within the meaning of the Code or (b)
subject to a federal alternative minimum tax, the
Federal branch profits tax or the Federal "excess net
passive income" tax.
The fund does not expect to realize a significant amount
of capital gains. Net realized short-term capital gains
are taxable to a United States shareholder as ordinary
income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any,
that the fund designates as capital gains dividends are
taxable as long-term capital gains, whether paid in cash
or in shares and regardless of how long a shareholder
has held shares of the fund.
Upon the sale or exchange of his shares, a shareholder
will realize a taxable gain or loss equal to the
difference between the amount realized and his basis in
his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital assets
in the shareholder's hands, and will be long-term
capital gain or loss if the shares are held for more
than one year and short-term capital gain or loss if the
shares are held for one year or less. Any loss realized
on a sale or exchange will be disallowed to the extent
the shares disposed of are replaced, including
replacement through the reinvesting of dividends and
capital gains distributions in the fund, within a 61-day
period beginning 30 days before and ending 30 days after
the disposition of the shares. In such a case, the basis
of the shares acquired will be increased to reflect the
disallowed loss. Any loss realized by a shareholder on
the sale of a fund share held by the shareholder for six
months or less (to the extent not disallowed pursuant to
the six-month rule described above relating to exempt-
interest dividends) will be treated for United States
federal income tax purposes as a long-term capital loss
to the extent of any distributions or deemed
distributions of long-term capital gains received by the
shareholder with respect to such share.
If a shareholder incurs a sales charge in acquiring
shares of the fund, disposes of those shares within 90
days and then acquires shares in a mutual fund for which
the otherwise applicable sales charge is reduced by
reason of a reinvestment right (e.g., an exchange
privilege), the original sales charge will not be taken
into account in computing gain or loss on the original
shares to the extent the subsequent sales charge is
reduced. Instead, the disregarded portion of the
original sales charge will be added to the tax basis in
the newly acquired shares. Furthermore, the same rule
also applies to a disposition of the newly acquired
shares made within 90 days of the second acquisition.
This provision prevents a shareholder from immediately
deducting the sales charge by shifting his or her
investment in a family of mutual funds.
Backup Withholding. The fund may be required to
withhold, for United States federal income tax purposes,
31% of (a) taxable dividends and distributions and (b)
redemption proceeds payable to shareholders who fail to
provide the fund with their correct taxpayer
identification number or to make required
certifications, or who have been notified by the IRS
that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount
withheld may be credited against a shareholder's United
States federal income tax liabilities.
Notices. Shareholders will be notified annually by the
fund as to the United States federal income tax and
personal income tax status of the dividends and
distributions made by the fund to its shareholders.
These statements also will designate the amount of
exempt-interest dividends that is a preference item for
purposes of the Federal individual and corporate
alternative minimum taxes. The dollar amount of
dividends excluded or exempt from Federal income
taxation and the dollar amount of dividends subject to
Federal income taxation, if any, will vary for each
shareholder depending upon the size and duration of each
shareholder's investment in the fund. To the extent the
fund earns taxable net investment income, it intends to
designate as taxable dividends the same percentage of
each day's dividend as its taxable net investment income
bears to its total net investment income earned on that
day.
The foregoing is only a summary of certain material tax
consequences affecting the fund and its shareholders.
Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences
to them of an investment in the fund.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of
Maryland on May 4, 1987 and commenced operations on June
1, 1987 under the name Hutton Municipal Series Inc. On
October 14, 1994, the Fund changed its name to Smith
Barney Arizona Municipals Fund Inc.
Each Class of the fund's shares represents an identical
interest in the fund's investment portfolio. As a
result, the Classes have the same rights, privileges and
preferences, except with respect to: (a) the
designation of each Class; (b) the effect of the
respective sales charges for each Class; (c) the
distribution and/or service fees borne by each Class;
(d) the expenses allowable exclusively to each Class;
(e) voting rights on matters exclusively affecting a
single class; (f) the exchange privilege of each Class;
and (g) the conversion feature of the Class B shares.
The Board of Directors does not anticipate that there
will be any conflicts among the interests of the holders
of the different Classes. The directors, on an ongoing
basis, will consider whether any such conflict exists
and, if so, take appropriate action.
The fund does not hold annual shareholder meetings.
There normally will be no meetings of shareholders for
the purpose of electing directors unless and until such
time as less than a majority of the directors holding
office have been elected by shareholders. The directors
will call a meeting for any purpose upon written request
of shareholders holding at least 10% of the fund's
outstanding shares and the fund will assist shareholders
in calling such a meeting as required by the 1940 Act.
When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each
full share owned and a proportionate, fractional vote
for any fractional share held of that Class. Generally,
shares of the fund will be voted on a fund-wide basis on
all matters except matters affecting only the interests
of one Class.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended May
31, 1999 is incorporated herein by reference in its
entirety. The annual report was filed on , 1999,
Accession Number
OTHER INFORMATION
In an industry where the average portfolio manager has
seven years of experience (source: ICI, 1998), the
portfolio managers of Smith Barney Mutual Funds average
21 years in the industry and 15 years with the firm.
Smith Barney Mutual Funds offers more than 60 mutual
funds. We understand that many investors prefer an
active role in allocating the mix of funds in their
portfolio, while others want the asset allocation
decisions to be made by experienced managers.
That's why we offer four "styles" of fund management
that can be tailored to suit each investor's unique
financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation
decisions in conjunction with their Salomon Smith
Barney Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range
of equity and fixed income strategies that seek
to capture opportunities across asset classes and
investment styles using disciplined investment
approaches.
The Concert Allocation Series
As a fund of funds, investors can select a
Concert Portfolio that may help their investment
needs. As needs change, investors can easily
choose another long-term, diversified investment
from our Concert family.
Special Discipline Series
Our Special Discipline Series funds are designed
for investors who are looking beyond more
traditional market categories: from natural
resources to a roster of state-specific municipal
funds.
APPENDIX A
Description of S&P and Moody's ratings:
S&P Ratings for Municipal Bonds
S&P's Municipal Bond ratings cover obligations of states
and political subdivisions. Ratings are assigned to
general obligation and revenue bonds. General
obligation bonds are usually secured by all resources
available to the municipality and the factors outlined
in the rating definitions below are weighed in
determining the rating. Because revenue bonds in
general are payable from specifically pledged revenues,
the essential element in the security for a revenue bond
is the quantity and quality of the pledged revenues
available to pay debt service.
Although an appraisal of most of the same factors that
bear on the quality of general obligation bond credit is
usually appropriate in the rating analysis of a revenue
bond, other factors are important, including
particularly the competitive position of the municipal
enterprise under review and the basic security
covenants. Although a rating reflects S&P's judgment as
to the issuer's capacity for the timely payment of debt
service, in certain instances it may also reflect a
mechanism or procedure for an assured and prompt cure of
a default, should one occur, i.e., an insurance program,
Federal or state guarantee or the automatic withholding
and use of state aid to pay the defaulted debt service.
AAA
Prime - These are obligations of the highest quality.
They have the strongest capacity for timely payment of
debt service.
General Obligation Bonds - In a period of economic
stress, the issuers will suffer the smallest declines in
income and will be least susceptible to autonomous
decline. Debt burden is moderate. A strong revenue
structure appears more than adequate to meet future
expenditure requirements. Quality of management appears
superior.
Revenue Bonds - Debt service coverage has been, and is
expected to remain, substantial. Stability of the
pledged revenues is also exceptionally strong, due to
the competitive position of the municipal enterprise or
to the nature of the revenues. Basic security
provisions (including rate covenant, earnings test for
issuance of additional bonds, and debt service reserve
requirements) are rigorous. There is evidence of
superior management.
AA
High Grade - The investment characteristics of general
obligation and revenue bonds in this group are only
slightly less marked than those of the prime quality
issues. Bonds rated "AA'' have the second strongest
capacity for payment of debt service.
A
Good Grade - Principal and interest payments on bonds in
this category are regarded as safe. This rating
describes the third strongest capacity for payment of
debt service. It differs from the two higher ratings
because:
General Obligation Bonds - There is some weakness,
either in the local economic base, in debt burden, in
the balance between revenues and expenditures, or in
quality of management. Under certain adverse
circumstances, any one such weakness might impair the
ability of the issuer to meet debt obligations at some
future date.
Revenue Bonds - Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could
show some variations because of increased competition or
economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent.
Management performance appears adequate.
BBB
Medium Grade - Of the investment grade ratings, this is
the lowest.
General Obligation Bonds - Under certain adverse
conditions, several of the above factors could
contribute to a lesser capacity for payment of debt
service. The difference between "A'' and "BBB" ratings
is that the latter shows more than one fundamental
weakness, or one very substantial fundamental weakness,
whereas the former shows only one deficiency among the
factors considered.
Revenue Bonds - Debt coverage is only fair. Stability
of the pledged revenues could show substantial
variations, with the revenue flow possibly being subject
to erosion over time. Basic security provisions are no
more than adequate. Management performance could be
stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominately speculative with respect to capacity to
pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree
of speculation and CC the highest degree of speculation.
While such bonds will likely have some quality and
protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
C
The rating C is reserved for income bonds on which no
interest is being paid.
D
Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of
a plus or a minus sign, which is used to show relative
standing within the major rating categories, except in
the AAA-Prime Grade category.
S&P Ratings for Municipal Notes
Municipal notes with maturities of three years or less
are usually given note ratings (designated SP-1, -2 or
- -3) by S&P to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1
have a very strong or strong capacity to pay principal
and interest. Those issues determined to possess
overwhelming safety characteristics are given the
designation of SP-1+. Notes rated SP-2 have a
satisfactory capacity to pay principal and interest.
Moody's Ratings for Municipal Bonds
Aaa
Bonds that are Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and
are generally referred to as "gilt edge.'' Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the
various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A
Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium-
grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment
sometime in the future.
Baa
Bonds that are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor
poorly secured; interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba
Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate and thereby not well
safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in
this class.
B
Bonds that are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa
Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger
may exist with respect to principal or interest.
Ca
Bonds that are rated Ca represent obligations that are
speculative in a high degree. These issues are often in
default or have other marked short-comings.
C
Bonds that are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Moody's Ratings for Municipal Notes
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade
(MIG) and for variable rate demand obligations are
designated Variable Moody's Investment Grade (VMIG).
This distinction is in recognition of the differences
between short- and long-term credit risk. Loans bearing
the designation MIG 1 or VMIG 1 are of the best quality,
enjoying strong protection by established cash flows of
funds for their servicing, from established and broad-
based access to the market for refinancing, or both.
Loans bearing the designation MIG 2 or VMIG 2 are of
high quality, with margins of protection ample although
not as large as the preceding group. Loans bearing the
designation MIG 3 or VMIG 3 are of favorable quality,
with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity
and cash flow may be narrow and market access for
refinancing is likely to be less well established.
Description of S&P A-1+ and A-1 Commercial Paper Rating
The rating A-1+ is the highest, and A-1 the second
highest, commercial paper rating assigned by S&P. Paper
rated A-1+ must have either the direct credit support of
an issuer or guarantor that possesses excellent long-
term operating and financial strengths combined with
strong liquidity characteristics (typically, such
issuers or guarantors would display credit quality
characteristics which would warrant a senior bond rating
of "AA-'' or higher), or the direct credit support of an
issuer or guarantor that possesses above-average long-
term fundamental operating and financing capabilities
combined with ongoing excellent liquidity
characteristics. Paper rated A-1 by S&P has the
following characteristics: liquidity ratios are adequate
to meet cash requirements; long-term senior debt is
rated "A'' or better; the issuer has access to at least
two additional channels of borrowing; basic earnings and
cash flow have an upward trend with allowance made for
unusual circumstances; typically, the issuer's industry
is well established and the issuer has a strong position
within the industry; and the reliability and quality of
management are unquestioned.
Description of Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry
or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and
customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a
period of ten years; (7) financial strength of a parent
company and the relationships which exist with the
issuer; and (8) recognition by the management of
obligations which may be present or may arise as a
result of public interest questions and preparations to
meet such obligations.
SMITH BARNEY ARIZONA MUNICIPALS FUND INC.
Statement of
Additional
Information
September ,
1999
Smith Barney Arizona Municipals Fund Inc.
388 Greenwich Street
New York, NY 10013
SALOMON
SMITH BARNEY
A Member
of Citigroup [Symbol]
4
FUNDACCOUNTING\LEGAL\FUNDS\AZMU\AZMU SAI 1999
Part C-Other Information
Item 23.Exhibits
All references are to the Registrant's Registration Statement on
Form N-1A as filed with the Securities and Exchange Commission ("SEC")
File Nos. 33-12792 and 811-5066 (the "Registration Statement").
(a)(1) Registrant's Articles of Incorporation and Amendments to Articles
of Incorporation dated December 29, 1988, November 5, 1992 and July 30, 1993
are incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement filed on October 1, 1993 ("Post-Effective
Amendment No. 14"). Amendment to Articles of Incorporation dated
November 7, 1994 is incorporated by reference to Post-Effective
Amendment No. 17.
(2) Amendment to Registrant's Articles of Incorporation dated
June 12, 1998 is incorporated by reference to Post-Effective
Amendment No. 22 to Registration Statement filed on September 28,
1998 ("Post-Effective Amendment No. 22").
(b) Registrant's By-Laws are incorporated by reference to Pre-Effective
Amendment No. 2 to the Registration Statement filed on May 26, 1987
("Pre-Effective Amendment No. 2").
(c) Registrant's form of stock certificate is incorporated by reference
to Post-Effective Amendment No. 11 to the Registration Statement filed
on October 23, 1992 ("Post-Effective Amendment No. 11").
(d)(1)Investment Advisory Agreement dated July 30, 1993 between the
Registrant and Greenwich Street Advisors is incorporated by reference
to Post-Effective Amendment No. 14.
(2) Form of Transfer and Assumption of Investment Advisory Agreement
dated November 7, 1994 is incorporated by reference to Post-Effective
Amendment No. 17.
(3) Form of Amendment to Investment Advisory Agreement dated as of
November 17, 1995 is incorporated by reference to Post-Effective
Amendment No. 19.
(e)(1) Distribution Agreement dated July 30, 1993, between the
Registrant and Smith Barney Shearson Inc. is incorporated by reference
to Post-Effective Amendment No. 14.
(2) Distribution Agreement between CFBDS, Inc. and the Registrant dated
October 8, 1998 is filed herein.
(3) Broker Dealer contract is filed herein.
(f) Not Applicable.
(g) Form of Custodian Agreement dated as of June 19, 1995 between the
Registrant and PNC Bank, National Association is incorporated by reference
to Post-Effective Amendment No. 17.
(h)(1)Transfer Agency Agreement between the Registrant and The Shareholder
Services Group, Inc. (now known as First Data Investor Services Group,
Inc.) is incorporated by reference to Post-Effective Amendment No. 16 to
the Registration Statement filed on August 30, 1994.
(2) Administration Agreement dated April 20, 1994 between the Registrant
and Smith Barney Advisers, Inc. is incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement filed on
July 29, 1994.
(i) Not applicable.
(j) Consent of KPMG LLP to be filed by amendment.
(k) Not Applicable.
(l) Not Applicable.
(m)(1)Amended Service and Distribution Plan dated as of November 7, 1994
pursuant to Rule 12b-1 between the Registrant and Smith Barney Inc. is
incorporated by reference to Post-Effective Amendment No. 17.
(2) Amended Service and Distribution Plan pursuant to Rule 12b-1
between the Registrant and Salomon Smith Barney Inc. is filed herein.
(n) Financial Data Schedule to be filed by amendment.
(o) Form of Registrant's Rule 18f-3(d) Multiple Class Plan is incorporated
by reference to Post-Effective Amendment No. 22 to the Registration
Statement filed on September 28, 1998.
Item 24. Persons Controlled by or Under Common Control with Registrant
None.
Item 25. Indemnification
Response to this item is incorporated by reference to Post-Effective
Amendment No. 11.
Item 26. Business and Other Connections of Investment Adviser
Investment Adviser - - SSBC Fund Management Inc. (SSBC)
(formerly known as Mutual Management Corp.)
SSBC was incorporated in December 1968 under the laws of the State
of Delaware. SSBC is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings") (formerly known as Smith Barney Holdings Inc.)
which in turn is a wholly owned subsidiary of Citigroup Inc. ("Citigroup").
SSBC is registered as an investment adviser under the Investment Advisers
Act of 1940 (the "Advisers Act").
The list required by this Item 26 of officers and directors of SSBC together
with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of FORM ADV filed by SSBC pursuant to the Advisers Act
(SEC File No. 801-8314).
Item 29. Principal Underwriters
(a)
CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is also the
distributor for the following Smith Barney funds: Concert Investment Series,
Consulting Group Capital Markets Funds, Greenwich Street Series Fund,
Smith Barney Adjustable Rate Government Income Fund, Smith Barney
Aggressive Growth Fund Inc., Smith Barney Appreciation Fund Inc.,
Smith Barney Arizona Municipals Fund Inc., Smith Barney California
Municipals Fund Inc., Smith Barney Concert Allocation Series Inc.,
Smith Barney Equity Funds, Smith Barney Fundamental Value Fund Inc.,
Smith Barney Funds, Inc., Smith Barney Income Funds,
Smith Barney Institutional Cash Management Fund, Inc., Smith Barney
Investment Funds Inc., Smith Barney Investment Trust, Smith Barney
Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc.,
Smith Barney Massachusetts Municipals Fund, Smith Barney Money Funds, Inc.,
Smith Barney Muni Funds, Smith Barney Municipal Money Market Fund, Inc.,
Smith Barney New Jersey Municipals Fund Inc., Smith Barney Oregon
Municipals Fund Inc., Smith Barney Principal
Return Fund, Smith Barney Small Cap Blend Fund, Inc., Smith Barney
Telecommunications Trust, Smith Barney Variable Account Funds,
Smith Barney World Funds, Inc., Travelers Series Fund Inc., and
various series of unit investment trusts.
CFBDS also serves as the distributor for the following funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund VA for
Variable Annuities, The Travelers Fund BD for Variable Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers Fund BD III
for Variable Annuities, The Travelers Fund BD IV for Variable Annuities,
The Travelers Fund ABD for Variable Annuities, The Travelers Fund ABD II
for Variable Annuities, The Travelers Separate Account PF for Variable
Annuities, The Travelers Separate Account PF
II for Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for Variable Annuities,
The Travelers Separate Account Five for Variable Annuities, The Travelers
Separate Account Six for Variable Annuities, The Travelers Separate
Account Seven for Variable Annuities, The Travelers Separate Account
Eight for Variable Annuities, The Travelers Fund UL for Variable Annuities,
The Travelers Fund UL II for Variable Annuities, The Travelers
Variable Life Insurance Separate Account One, The Travelers Variable
Life Insurance Separate Account Two, The Travelers Variable Life Insurance
Separate Account Three, The Travelers Variable Life Insurance Separate
Account Four, The Travelers Separate Account MGA, The Travelers Separate
Account MGA II, The Travelers Growth and Income Stock Account for Variable
Annuities, The Travelers Quality Bond Account for Variable Annuities,
The Travelers Money Market Account for Variable Annuities, The Travelers
Timed Growth and Income Stock
Account for Variable Annuities, The Travelers Timed Short-Term Bond Account
for Variable Annuities, The Travelers Timed Aggressive Stock Account for
Variable Annuities, The Travelers Timed Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the distributor
for CitiFunds Multi-State Tax Free Trust, CitiFunds Premium Trust, CitiFunds
Institutional Trust, CitiFunds Tax Free Reserves, CitiFunds Trust I,
CitiFunds Trust II, CitiFunds Trust III, CitiFunds International Trust,
CitiFunds Fixed Income Trust, CitiSelect VIP Folio 200, CitiSelect VIP Folio
300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500, CitiFunds Small
Cap Growth VIP Portfolio. CFBDS is also the placement agent for Large
all Cap Value Portfolio, International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio, Growth & Income
Portfolio, U.S. Fixed Income Portfolio, Large Cap Growth Portfolio, Small
Cap Growth Portfolio, International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves Portfolio, Cash Reserves
Portfolio and U.S. Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc., Salomon Brothers
Investors Fund Inc., Salomon Brothers Capital Fund Inc., Salomon Brothers
Series Funds Inc., Salomon Brothers Institutional Series Funds Inc.,
Salomon Brothers Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion Funds, Inc.
(b) The information required by this Item 27 with respect to each director
and officer of CFBDS is incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and Exchange Act of 1934
(File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accountants and Records
(1) Smith Barney Arizona Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
(2) SSBC Fund Management Inc.
(formerly known as Mutual Management Corp.)
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(4) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(5) CFBDS, Inc.
21 Milk Street
Boston, Massachusetts 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant, Smith Barney
Arizona Municipals Fund Inc. has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York and State of New York, on the 23rd day of July, 1999.
SMITH BARNEY ARIZONA MUNICIPALS FUND INC.
By: /s/ Heath B. McLendon
Health B. McLendon
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and as of the dates indicated.
Signature Title Date
/s/Heath B. McLendon Chairman of the Board, July 23, 1999
Heath B. McLendon President and Chief
Executive Officer/s/ Lewis E. Daidone
Senior Vice President and July 23, 1999
Lewis E. Daidone Treasurer, Chief Financial
and Accounting Officer
/s/Herbert Barg* Director July 23, 1999
Herbert Barg
/s/Alfred J. Bianchetti* Director July 23, 1999
Alfred J. Bianchetti
/s/Martin Brody* Director July 23, 1999
Martin Brody
/s/Dwight B. Crane* Director July 23, 1999
Dwight B. Crane
/s/Burt N. Dorsett* Director July 23, 1999
Burt N. Dorsett
/s/Elliot S. Jaffe* Director July 23, 1999
Elliot S. Jaffe
/s/Stephen E. Kaufman* Director July 23, 1999
Stephen E. Kaufman
/s/Joseph J. McCann* Director July 23, 1999
Joseph J. McCann
/s/Cornelius C. Rose, Jr.* Director July 23, 1999
Cornelius C. Rose, Jr.
* Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated September 30, 1996.
/s/ Heath B. McLendonHeath B. McLendon
EXHIBIT INDEX
Exhibit No. Exhibit
(e)(2) CFBDS Distribution Agreement
(e)(3) Broker Dealer contract
(j) Consent of KPMG +
(m)(2) Form of Rule 12b-1 Plan
(n) Financial Data Schedule +
cover
+ To be filed by further amendment
g:\fundaccounting\legal\funds\azmu\1999\secdocs\wrapperpages
SMITH BARNEY MUTUAL FUNDS
BROKER DEALER CONTRACT
CFBDS, Inc.
21 Milk Street
Boston, Massachusetts 02109
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We, CFBDS, Inc. ("CFBDS"), have
agreements with certain investment companies for
which Mutual Management Corp. serves as investment
adviser and/or administrator (each a "Fund")
pursuant to which we act as nonexclusive principal
underwriter and distributor for the sale of shares
of capital stock ("shares") of the various series
of such Funds, and as such have the right to
distribute shares for resale. Each Fund is an
open-end investment company registered under the
Investment Company Act of 1940, as amended (the
"1940 Act") and the shares being offered to the
public are registered under the Securities Act of
1933, as amended (the "1933 Act"). Each series of
each Fund covered by a Distribution Agreement from
time to time is referred to in this agreement as a
"Series" and collectively as the "Series." The
term "Prospectus", as used herein, refers to the
prospectus and related statement of additional
information (the "Statement of Additional
Information") incorporated therein by reference (as
amended or supplemented) on file with the
Securities and Exchange Commission at the time in
question. As a broker in the capacity of principal
underwriter and distributor for the Trust, we offer
to sell to you, as a broker or dealer, shares of
each Fund upon the following terms and conditions:
1. PRIVATE In all sales to the
public you shall act as broker for your customers
or as dealer for your own account, and in no
transaction shall you have any authority to act as
agent for the Trust, for us or for any other
dealer. tc " In all sales to the public you shall
act as dealer for your own account, and in no
transaction shall you have any authority to act as
agent for the Fund, for us or for any other
dealer."
2. PRIVATE Orders received from you
will be accepted through us only at the public
offering price per share (i.e. the net asset value
per share plus the applicable front-end sales
charge, if any) applicable to each order, and all
orders for redemption of any shares shall be
executed at the net asset value per share less any
contingent deferred sales charge, if any, in each
case as set forth in the Prospectus. You will be
entitled to receive and retain any contingent
deferred sales charge amounts in partial
consideration of your payment to financial
consultants of commission amounts at the time of
sale and we will obligate any other brokers with
whom we enter into similar agreements to pay such
amounts directly to you. The procedure relating to
the handling of orders shall be subject to
paragraph 4 hereof and instructions which we or the
Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by
the applicable Fund or us in the sole discretion of
either. The minimum initial purchase and the
minimum subsequent purchase of any shares shall be
as set forth in the Prospectus pertaining to the
relevant Series. tc " Orders received from you
will be accepted through us only at the public
offering price per share (i.e. the net asset value
per share plus the applicable sales charge, if any)
applicable to each order, and all orders for
redemption of any Fund shares shall be executed at
the net asset value per share less any contingent
deferred sales charge, if any, in each case as set
forth in the Prospectus. The procedure relating to
the handling of orders shall be subject to
paragraph 4 hereof and instructions which we or the
Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by
Salomon or the Fund in the sole discretion of
either. The minimum initial purchase and the
minimum subsequent purchase shall be as set forth
in the Prospectus of the Fund."
3. PRIVATE You shall not place
orders for any shares unless you have already
received purchase orders for those shares at the
applicable public offering price and subject to the
terms hereof. You agree that you will not offer or
sell any shares except under circumstances that
will result in compliance with the applicable
Federal and state securities laws, the applicable
rules and regulations thereunder and the rules and
regulations of applicable regulatory agencies or
authorities and that in connection with sales and
offers to sell shares you will furnish to each
person to whom any such sale or offer is made, a
copy of the Prospectus and, upon request, the
Statement of Additional Information, and will not
furnish to any person any information relating to
shares which is inconsistent in any respect with
the information contained in the Prospectus or
Statement of Additional Information (as then
amended or supplemented). You shall not furnish or
cause to be furnished to any person or display or
publish any information or materials relating to
the shares (including, without limitation,
promotional materials and sales literature,
advertisements, press releases, announcements,
statements, posters, signs or other similar
material), except such information and materials as
may be furnished to you by or on behalf of us or
the Funds, and such other information and materials
as may be approved in writing by or on behalf of us
or the Funds. tc " You shall not place orders
for any shares unless you have already received
purchase orders for those shares at the applicable
public offering price and subject to the terms
hereof and of the Distribution Contract. You agree
that you will not"
4. PRIVATE As a broker dealer, you
are hereby authorized (i) to place orders directly
with the applicable Fund or Series for shares
subject to the applicable terms and conditions
governing the placement of orders by us set forth
in the Prospectus and (ii) to tender shares
directly to each Fund or its agent for redemption
subject to the applicable terms and conditions
governing the redemption of shares applicable to us
set forth in the Prospectus. tc " As a dealer, you
are hereby authorized (i) to place orders directly
with the Fund for shares to be resold by us to you
subject to the applicable terms and conditions
governing the placement of orders by us set forth
in the Prospectus and the Distribution Contract and
(ii) to tender shares directly to the Fund or its
agent for redemption subject to the applicable
terms and conditions governing the redemption of
shares applicable to us set forth in the Prospectus
and the Distribution Agreement."
5. PRIVATE You shall not withhold
placing orders received from your customers so as
to profit yourself as a result of such withholding,
e.g., by a change in the "net asset value" from
that used in determining the offering price to your
customers. tc " You shall not withhold placing
orders received from your customers so as to profit
yourself as a result of such withholding, e.g., by
a change in the \"net asset value\" from that used
in determining the offering price to your
customers."
6. PRIVATE In determining the
amount of any sales concession payable to you
hereunder, we reserve the right to exclude any
sales which we reasonably determine are not made in
accordance with the terms of the Prospectus and the
provisions of this Agreement. Unless at the time
of transmitting an order we advise you or the
transfer agent to the contrary, the shares ordered
will be deemed to be the total holdings of the
specified investor. tc " In determining the amount
of any sales concession payable to you hereunder,
we reserve the right to exclude any sales which we
reasonably determine are not made in accordance
with the terms of the Prospectus and the provisions
of this Agreement. Unless at the time of
transmitting an order we advise you or the transfer
agent to the contrary, the shares ordered will be
deemed to be the total holdings of the specified
investor."
7. PRIVATE (a) You agree that
payment for orders from you for the purchase of
shares will be made in accordance with the terms of
the Prospectus. On or before the business day
following the settlement date of each purchase
order for shares, you shall transfer same day funds
to an account designated by us with the transfer
agent in an amount equal to the public offering
price on the date of purchase of the shares being
purchased less your sales concession, if any, with
respect to such purchase order determined in
accordance with the Prospectus. If payment for any
purchase order is not received in accordance with
the terms of the Prospectus, we reserve the right,
without notice, to cancel the sale and to hold you
responsible for any loss sustained as a result
thereof. tc " (a) You agree that payment for
orders from you for the purchase of shares will be
made in accordance with the terms of the
Prospectus. On or before the business day
following the settlement date of each purchase
order for shares, you shall transfer same day funds
to an account designated by us with the transfer
agent an amount equal to the public offering price
on the date of purchase of the shares being
purchased less your sales concession, if any, with
respect to such purchase order determined in
accordance with the Prospectus. If payment for any
purchase order is not received in accordance with
the terms of the Prospectus, we reserve the right,
without notice, to cancel the sale and to hold you
responsible for any loss sustained as a result
thereof."
(b) PRIVATE If any shares sold under
the terms of this Agreement are sold with a sales
charge and are redeemed or are tendered for
redemption within seven (7) business days after
confirmation of your purchase order for such
shares: (i) you shall forthwith refund to us the
full sales concession received by you on the sale;
and (ii) we shall forthwith pay to the applicable
Series our portion of the sales charge on the sale
which has been retained by us, if any, and shall
also pay to the applicable Series the amount
refunded by you. tc " If any shares sold under the
terms of this Agreement are sold with a sales
charge and are redeemed or are tendered for
redemption within seven (7) business days after
confirmation of your purchase order for such
shares\: (i) you shall forthwith refund to us the
full sales concession received by you on the sale;
and (ii) we shall forthwith pay to the applicable
Series our portion of the sales charge on the sale
which has been retained by us, if any, and shall
also pay to the Series the amount refunded by
you."
(c) PRIVATE We will not be obligated
to pay or cause to be paid to you any ongoing trail
commission or shareholder service fees with respect
to shares of the Series purchased through you and
held by or for your customers, which you shall
collect directly from the Funds. tc " We will pay
you an ongoing trail commission with respect to
holdings by you of shares of the Funds at such
rates and in such manner as may be described in the
Prospectus."
(d) PRIVATE Certificates evidencing
shares shall be available only upon request. Upon
payment for shares in accordance with paragraph
7(a) above, the transfer agent will issue and
transmit to you or your customer a confirmation
statement evidencing the purchase of such shares.
Any transaction in uncertificated shares, including
purchases, transfers, redemptions and repurchases,
shall be effected and evidenced by book-entry on
the records of the transfer agent. tc "
Certificates evidencing shares shall be available
only upon request. Upon payment for shares in
accordance with paragraph 7(a) above, the transfer
agent will issue and transmit to you a confirmation
statement evidencing the purchase of such shares.
Any transaction in uncertificated shares, including
purchases, transfers, redemptions and repurchases,
shall be effected and evidenced by book-entry on
the records of the transfer agent."
8. PRIVATE No person is authorized
to make any representations concerning shares
except those contained in the current Prospectus
and Statement of Additional Information and in
printed information subsequently issued by us or
the Funds as information supplemental to the
Prospectus and the Statement of Additional
Information. In purchasing or offering shares
pursuant to this Agreement you shall rely solely on
the representations contained in the Prospectus,
the Statement of Additional Information and the
supplemental information above mentioned. tc " No
person is authorized to make any representations
concerning shares except those contained in the
current Prospectus and Statement of Additional
Information and in printed information subsequently
issued by us or the Fund as information
supplemental to the Prospectus and the Statement of
Additional Information. In purchasing sor offering
shares pursuant to this Agreement you shall rely
solely on the representations contained in the
Prospectus, the Statement of Additional Information
and the supplemental information above mentioned."
9. PRIVATE You agree to deliver to
each purchaser making a purchase of shares from or
through you a copy of the Prospectus at or prior to
the time of offering or sale, and, upon request,
the Statement of Additional Information. You may
instruct the transfer agent to register shares
purchased in your name and account as nominee for
your customers. You agree thereafter to deliver to
any purchaser whose shares you or your nominee are
holding as record holder copies of the annual and
interim reports and proxy solicitation materials
and any other information and materials relating to
the Trust and prepared by or on behalf of us, the
Funds or the investment adviser, custodian,
transfer agent or dividend disbursing agent for
distribution to beneficial holders of shares. The
Funds shall be responsible for the costs associated
with forwarding such reports, materials and other
information and shall reimburse you in full for
such costs. You further agree to make reasonable
efforts to endeavor to obtain proxies from such
purchasers whose shares you or your nominee are
holding as record holder. You further agree to
obtain from each customer to whom you sell shares
any taxpayer identification number certification
required under Section 3406 of the Internal Revenue
Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder, and to provide
us or our designee with timely written notice of
any failure to obtain such taxpayer identification
number certification in order to enable the
implementation of any required backup withholding
in accordance with Section 3406 of the Code and the
regulations thereunder. Additional copies of the
Prospectus, Statement of Additional Information,
annual or interim reports, proxy solicitation
materials and any such other information and
materials relating to the Trust will be supplied to
you in reasonable quantities upon request. tc "
You agree to deliver to each purchaser making a
purchase of shares from you a copy of the
Prospectus at or prior to the time of offering or
sale, and, upon request, the Statement of
Additional Information. You may instruct the
transfer agent to register shares purchased in your
name and account as nominee for your customers.
You agree thereafter to deliver to any purchaser
whose shares you are holding as record holder
copies of the annual and interim reports and proxy
solicitation materials and any other information
and materials relating to the Fund and prepared by
or on behalf of us, the Fund or its investment
adviser, custodian, transfer agent or dividend
disbursing agent for distribution to such customer.
The Fund shall be responsible for the costs
associated with forwarding such reports, materials
and other information and shall reimburse you in
full for such costs. You further agree to make
reasonable efforts to endeavor to obtain proxies
from such purchasers whose shares you are holding
as record holder. You further agree to obtain from
each customer to whom you sell shares any taxpayer
identification number certification required under
Section 3406 of the Internal Revenue Code of 1986,
as amended (the \"Code\"), and the regulations
promulgated thereunder, and to provide us or our
designee with timely written notice of any failure
to obtain such taxpayer identification number
certification in order to enable the implementation
of any required backup withholding in accordance
with Section 3406 of the Code and the regulations
thereunder. Additional copies of the Prospectus,
Statement of Additional Information, annual or
interim reports, proxy solicitation materials and
any such other information and materials relating
to the Fund will be supplied to you in reasonable
quantities upon request."
10. PRIVATE (a) In accordance with
the terms of the Prospectus, a reduced sales charge
may be available to customers, depending on the
amount of the investment or proposed investment.
In each case where a reduced sales charge is
applicable, you agree to furnish to the transfer
agent sufficient information to permit confirmation
of qualification for a reduced sales charge, and
acceptance of the purchase order is subject to such
confirmation. Reduced sales charges may be
modified or terminated at any time in the sole
discretion of each Fund. tc " (a) In accordance
with the terms of the Prospectus, a reduced sales
charge may be available to customers, depending on
the amount of the investment. In each case where a
reduced sales charge is applicable, you agree to
furnish to the transfer agent sufficient
information to permit confirmation of qualification
for a reduced sales charge, and acceptance of the
purchase order is subject to such confirmation.
Reduced sales charges may be modified or terminated
at any time in the sole discretion of the Fund."
(b) PRIVATE You acknowledge that
certain classes of investors may be entitled to
purchase shares at net asset value without a sales
charge as provided in the Prospectus and Statement
of Additional Information. tc " You acknowledge
that certain classes of investors may be entitled
to purchase shares at net asset value without a
sales charge as provided in the Prospectus and
Statement of Additional Information."
(c) PRIVATE You agree to advise us
promptly as to the amount of any and all sales by
you qualifying for a reduced sales charge or no
sales charge. tc " You agree to advise us promptly
as to the amount of any and all sales by you
qualifying for a reduced sales charge or no sales
charge."
(d) PRIVATE Exchanges (i.e., the
investment of the proceeds from the liquidation of
shares of one Series in the shares of another
Series, each of which is managed by the same or an
affiliated investment adviser) shall, where
available, be made in accordance with the terms of
each Prospectus. tc " Exchanges (i.e., the
investment of the proceeds from the liquidation of
shares of one fund in the shares of another fund,
each of which is managed by the Fund's investment
adviser) shall, where available, be made in
accordance with the terms of each Prospectus."
11. PRIVATE We and each Fund
reserve the right in our discretion, without
notice, to suspend sales or withdraw the offering
of any shares entirely. Each party hereto has the
right to cancel the portions of this Agreement to
which it is party upon notice to the other parties;
provided, however, that no cancellation shall
affect any party's obligations hereunder with
respect to any transactions or activities occurring
prior to the effective time of cancellation. We
reserve the right to amend this Agreement in any
respect effective on notice to you. tc " We
reserve the right in our discretion, without
notice, to suspend sales or withdraw the offering
of shares entirely. Each party hereto has the
right to cancel this agreement upon notice to the
other part parties; provided; however, that no
cancellation shall affect any party's obligations
hereunder with respect to any transactions or
activities occurring prior to the effective time of
cancellation. We reserve the right to amend this
Agreement in any respect effective on notice to
you."
12. PRIVATE We shall have full
authority to take such action as we may deem advisable
in respect of all matters pertaining to the continuous
offering of shares. We shall be under no liability to
you except for lack of good faith and for obligations
expressly assumed by us herein. Nothing contained in
this paragraph 12 is intended to operate as, and the
provisions of this paragraph 12 shall not in any way
whatsoever constitute a waiver by you of compliance
with, any provisions of the 1933 Act or of the rules
and regulations of the Securities and Exchange
Commission issued thereunder. tc " We shall have
full authority to take such action as we may deem
advisable in respect of all matters pertaining to the
continuous offering of shares. We shall be under no
liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing
contained in this paragraph 12 is intended to operate
as, and the provisions of this paragraph 12 shall not
in any way whatsoever constitute a waiver by you of
compliance with, any provisions of the 1933 Act or of
the rules and regulations of the Securities and
Exchange Commission issued thereunder."
13. PRIVATE You agree that: (a)
you shall not effect any transactions (including,
without limitation, any purchases and tc " You
agree that\: (a) you shall not effect any
transactions (including, without limitation, any
purchases and" redemptions) in any shares
registered in the name of, or beneficially owned
by, any customer unless such customer has granted
you full right, power and authority to effect such
transactions on his behalf, (b) we shall have full
authority to act upon your express instructions to
sell, repurchase or exchange shares through us on
behalf of your customers under the terms and
conditions provided in the Prospectus and (c) we,
the Funds, the investment adviser, the
administrator, the transfer agent and our and their
respective officers, directors or trustees, agents,
employees and affiliates shall not be liable for,
and shall be fully indemnified and held harmless by
you from and against, any and all claims, demands,
liabilities and expenses (including, without
limitation, reasonable attorneys' fees) which may
be incurred by us or any of the foregoing persons
entitled to indemnification from you hereunder
arising out of or in connection with (i) the
execution of any transactions in shares registered
in the name of, or beneficially owned by, any
customer in reliance upon any oral or written
instructions believed to be genuine and to have
been given by or on behalf of you, (ii) any
statements or representations that you or your
employees or representatives make concerning the
Funds that are inconsistent with the applicable
Fund's Prospectus, (iii) any written materials used
by you or your employees or representatives in
connection with making offers or sales of shares
that were not furnished by us, the Funds or the
investment adviser or an affiliate thereof and (iv)
any sale of shares of a Fund where the Fund or its
shares were not properly registered or qualified
for sale in any state, any U.S. territory or the
District of Columbia, when we have indicated to you
that the Fund or its shares were not properly
registered or qualified. The indemnification
agreement contained in this Paragraph 13 shall
survive the termination of this Agreement.
14. PRIVATE You represent that: (a)
you are a member in good standing of the National
Association of Securities Dealers, Inc. (the
"NASD"), or, if a foreign dealer who is not
eligible for membership in the NASD, that (i) you
will not make any sales of shares in, or to
nationals of, the United States of America, its
territories or its possessions, and (ii) in making
any sales of shares you will comply with the NASD's
Conduct Rules and (b) you are a member in good
standing of the Securities Investor Protection
Corporation ("SIPC"). You agree that you will
provide us with timely written notice of any change
in your NASD or SIPC status. tc " You represent
that you are a member in good standing of the
National Association of Securities Dealers, Inc.
(the \"NASD\"), or, if a foreign dealer who is not
eligible for membership in the NASD, that (a) you
will not make any sales of shares in, or to
nationals of, the United States of America, its
territories or its possessions, and (b) in making
any sales of shares you will comply with the NASD's
Rules of Fair Practice."
15. PRIVATE We shall inform you as
to the states or other jurisdictions in which the
Fund has advised us that shares have been qualified
for sale under, or are exempt from the requirements
of, the respective securities laws of such states,
but we assume no responsibility or obligation as to
your qualification to sell shares in any
jurisdiction.
16. Any claim, controversy, dispute or
deadlock arising under this Agreement (collectively,
a "Dispute") shall be settled by arbitration
administered under the rules of the American
Arbitration Association ("AAA") in New York, New
York. Any arbitration and award of the arbitrators,
or a majority of them, shall be final and the
judgment upon the award rendered may be entered in
any state or federal court having jurisdiction. No
punitive damages are to be awarded.
17. PRIVATE All communications to
us should be sent, postage prepaid, to 21 Milk
Street, Boston, Massachusetts 02109 Attention:
Philip Coolidge. Any notice to you shall be duly
given if mailed, telegraphed or telecopied to you
at the address specified by you below.
Communications regarding placement of orders for
shares should be sent, postage prepaid, to First
Data Investor Services Group, Inc., P.O. Box 5128,
Westborough, Massachusetts 01581-5128. tc " All
communications to us should be sent, postage
prepaid, to 7 World Trade Center, New York, New
York 10048. Attention\: Robert J. Leonard. Any
notice to you shall be duly given if mailed,
telegraphed or telecopied to you at the address
specified by you below. Communications regarding
placement of orders for shares should be sent,
postage prepaid, to The Shareholder Services Group,
Inc., P.O. Box 9109, Boston, Massachusetts
02205-9109."
18. PRIVATE This Agreement shall be
binding upon both parties hereto when signed by us
and accepted by you in the space provided below tc
" This Agreement shall be binding upon both
parties hereto when signed by us and accepted by
you in the space provided below until July 14, 1995
or such earlier date upon negotiation of section 3
and 12 of this agreement. " .
19. PRIVATE This Agreement and
the terms and conditions set forth herein shall be
governed by, and construed in accordance with, the
laws of the State of New York. tc " This Agreement
and the terms and conditions set forth herein shall
be governed by, and construed in accordance with,
the laws of the State of New York."
CFBDS, INC.
By:
(Authorized
Signature)
Accepted:
Firm Name:
Address:
Accepted By (signature):
Name (print):
Title: Date:
G:\fundac\legal\funds\njmu\1999\secdocs\dealrag1
SMITH BARNEY ARIZONA MUNICIPALS FUND INC.
FORM OF
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the
agreements hereinafter contained, the above-named
investment company (the "Fund") has agreed that you
shall be, for the period of this Agreement, the non-
exclusive principal underwriter and distributor of
shares of the Fund and each Series of the Fund set
forth on Exhibit A hereto, as such Exhibit may be
revised from time to time (each, including any shares
of the Fund not designated by series, a "Series").
For purposes of this Agreement, the term "Shares"
shall mean shares of the each Series, or one or more
Series, as the context may require.
1. Services as Principal Underwriter and
Distributor
1.1 You will act as agent for the
distribution of Shares covered by, and in accordance
with, the registration statement, prospectus and
statement of additional information then in effect
under the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940,
as amended (the "1940 Act"), and will transmit or
cause to be transmitted promptly any orders received
by you or those with whom you have sales or servicing
agreements for purchase or redemption of Shares to the
Transfer and Dividend Disbursing Agent for the Fund of
which the Fund has notified you in writing.
1.2 You agree to use your best efforts
to solicit orders for the sale of Shares. It is
contemplated that you will enter into sales or
servicing agreements with registered securities
brokers and banks and into servicing agreements with
financial institutions and other industry
professionals, such as investment advisers,
accountants and estate planning firms. In entering
into such agreements, you will act only on your own
behalf as principal underwriter and distributor. You
will not be responsible for making any distribution
plan or service fee payments pursuant to any plans the
Fund may adopt or agreements it may enter into.
1.3 You shall act as the non-exclusive
principal underwriter and distributor of Shares in
compliance with all applicable laws, rules, and
regulations, including, without limitation, all rules
and regulations made or adopted from time to time by
the Securities and Exchange Commission (the "SEC")
pursuant to the 1933 Act or the 1940 Act or by any
securities association registered under the Securities
Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such
action is warranted for any reason, including, without
limitation, market, economic or political conditions,
the Fund's officers may decline to accept any orders
for, or make any sales of, any Shares until such time
as those officers deem it advisable to accept such
orders and to make such sales and the Fund shall
advise you promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and
expenses in connection with the registration of Shares
under the 1933 Act, and all expenses in connection
with maintaining facilities for the issue and transfer
of Shares and for supplying information, prices and
other data to be furnished by the Fund hereunder, and
all expenses in connection with the preparation and
printing of the Fund's prospectuses and statements of
additional information for regulatory purposes and for
distribution to shareholders; provided however, that
nothing contained herein shall be deemed to require
the Fund to pay any costs of advertising or marketing
the sale of Shares.
2.2 The Fund agrees to execute any and
all documents and to furnish any and all information
and otherwise to take any other actions that may be
reasonably necessary in the discretion of the Fund's
officers in connection with the qualification of
Shares for sale in such states and other U.S.
jurisdictions as the Fund may approve and designate to
you from time to time, and the Fund agrees to pay all
expenses that may be incurred in connection with such
qualification. You shall pay all expenses connected
with your own qualification as a securities broker or
dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all
other expenses incurred by you in connection with the
sale of Shares as contemplated in this Agreement.
2.3 The Fund shall furnish you from time
to time, for use in connection with the sale of
Shares, such information reports with respect to the
Fund or any relevant Series and the Shares as you may
reasonably request, all of which shall be signed by
one or more of the Fund's duly authorized officers;
and the Fund warrants that the statements contained in
any such reports, when so signed by the Fund's
officers, shall be true and correct. The Fund also
shall furnish you upon request with (a) the reports of
the annual audits of the financial statements of the
Fund for each Series made by independent certified
public accountants retained by the Fund for such
purpose; (b) semi-annual unaudited financial
statements pertaining to each Series; (c) quarterly
earnings statements prepared by the Fund for any
Series; (d) a monthly itemized list of the securities
in each Series' portfolio; (e) monthly balance sheets
as soon as practicable after the end of each month;
(f) the current net asset value and offering price
per share for each Series on each day such net asset
value is computed and (g) from time to time such
additional information regarding the financial
condition of each Series of the Fund as you may
reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration
statements, prospectuses and statements of additional
information filed by the Fund with the SEC under the
1933 Act and the 1940 Act with respect to the Shares
have been prepared in conformity with the requirements
of said Acts and the rules and regulations of the SEC
thereunder. As used in this Agreement, the terms
"registration statement", "prospectus" and "statement
of additional information" shall mean any registration
statement, prospectus and statement of additional
information filed by the Fund with the SEC and any
amendments and supplements thereto filed by the Fund
with the SEC. The Fund represents and warrants to you
that any such registration statement, prospectus and
statement of additional information, when such
registration statement becomes effective and as such
prospectus and statement of additional information are
amended and supplemented, includes at the time of such
effectiveness, amendment or supplement all statements
required to be contained therein in conformance with
the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of
material fact contained in any registration statement,
prospectus or statement of additional information will
be true and correct when such registration statement
becomes effective; and that neither any registration
statement nor any prospectus or statement of
additional information when such registration
statement becomes effective will include an untrue
statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading to a purchaser of the Fund's Shares. The
Fund may, but shall not be obligated to, propose from
time to time such amendment or amendments to any
registration statement and such supplement or
supplements to any prospectus or statement of
additional information as, in the light of future
developments, may, in the opinion of the Fund, be
necessary or advisable. If the Fund shall not propose
such amendment or amendments and/or supplement or
supplements within fifteen days after receipt by the
Fund of a written request from you to do so, you may,
at your option, terminate this Agreement or decline to
make offers of the Fund's Shares until such amendments
are made. The Fund shall not file any amendment to
any registration statement or supplement to any
prospectus or statement of additional information
without giving you reasonable notice thereof in
advance; provided, however, that nothing contained in
this Agreement shall in any way limit the Fund's right
to file at any time such amendments to any
registration statement and/or supplements to any
prospectus or statement of additional information, of
whatever character, as the Fund may deem advisable,
such right being in all respects absolute and
unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any
prospectus or statement of additional information
furnished by the Fund from time to time, in connection
with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers
and directors, and any person who controls you within
the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of
investigating or defending such claims, demands or
liabilities and any such counsel fees incurred in
connection therewith) which you, your officers and
directors, or any such controlling person, may incur
under the 1933 Act or under common law or otherwise,
arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained
in any registration statement, any prospectus or any
statement of additional information or arising out of
or based upon any omission, or alleged omission, to
state a material fact required to be stated in any
registration statement, any prospectus or any
statement of additional information or necessary to
make the statements in any of them not misleading;
provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any
such controlling person shall not be deemed to cover
any claims, demands, liabilities or expenses arising
out of any statements or representations made by you
or your representatives or agents other than such
statements and representations as are contained in any
prospectus or statement of additional information and
in such financial and other statements as are
furnished to you pursuant to paragraph 2.3 of this
Agreement; and further provided that the Fund's
agreement to indemnify you and the Fund's
representations and warranties herein before set forth
in paragraph 3 of this Agreement shall not be deemed
to cover any liability to the Fund or its shareholders
to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in
the performance of your duties, or by reason of your
reckless disregard of your obligations and duties
under this Agreement. The Fund's agreement to
indemnify you, your officers and directors, and any
such controlling person, as aforesaid, is expressly
conditioned upon the Fund's being notified of any
action brought against you, your officers or
directors, or any such controlling person, such
notification to be given by letter or by telegram
addressed to the Fund at its principal office in New
York, New York and sent to the Fund by the person
against whom such action is brought, within ten days
after the summons or other first legal process shall
have been served. The failure so to notify the Fund
of any such action shall not relieve the Fund from any
liability that the Fund may have to the person against
whom such action is brought by reason of any such
untrue, or alleged untrue, statement or omission, or
alleged omission, otherwise than on account of the
Fund's indemnity agreement contained in this paragraph
4.1. The Fund will be entitled to assume the defense
of any suit brought to enforce any such claim, demand
or liability, but, in such case, such defense shall be
conducted by counsel of good standing chosen by the
Fund. In the event the Fund elects to assume the
defense of any such suit and retains counsel of good
standing, the defendant or defendants in such suit
shall bear the fees and expenses of any additional
counsel retained by any of them; but if the Fund does
not elect to assume the defense of any such suit, the
Fund will reimburse you, your officers and directors,
or the controlling person or persons named as
defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained
by you or them. The Fund's indemnification agreement
contained in this paragraph 4.1 and the Fund's
representations and warranties in this Agreement shall
remain operative and in full force and effect
regardless of any investigation made by or on behalf
of you, your officers and directors, or any
controlling person, and shall survive the delivery of
any of the Fund's Shares. This agreement of indemnity
will inure exclusively to your benefit, to the benefit
of your several officers and directors, and their
respective estates, and to the benefit of the
controlling persons and their successors. The Fund
agrees to notify you promptly of the commencement of
any litigation or proceedings against the Fund or any
of its officers or Board members in connection with
the issuance and sale of any of the Fund's Shares.
4.2 You agree to indemnify, defend and
hold the Fund, its several officers and Board members,
and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of
investigating or defending such claims, demands or
liabilities and any counsel fees incurred in
connection therewith) that the Fund, its officers or
Board members or any such controlling person may incur
under the 1933 Act, or under common law or otherwise,
but only to the extent that such liability or expense
incurred by the Fund, its officers or Board members,
or such controlling person resulting from such claims
or demands shall arise out of or be based upon any
untrue, or alleged untrue, statement of a material
fact contained in information furnished in writing by
you to the Fund and used in the answers to any of the
items of the registration statement or in the
corresponding statements made in the prospectus or
statement of additional information, or shall arise
out of or be based upon any omission, or alleged
omission, to state a material fact in connection with
such information furnished in writing by you to the
Fund and required to be stated in such answers or
necessary to make such information not misleading.
Your agreement to indemnify the Fund, its officers or
Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon your being
notified of any action brought against the Fund, its
officers or Board members, or any such controlling
person, such notification to be given by letter or
telegram addressed to you at your principal office in
Boston, Massachusetts and sent to you by the person
against whom such action is brought, within ten days
after the summons or other first legal process shall
have been served. You shall have the right to control
the defense of such action, with counsel of your own
choosing, satisfactory to the Fund, if such action is
based solely upon such alleged misstatement or
omission on your part or with the Fund's consent, and
in any event the Fund, its officers or Board members
or such controlling person shall each have the right
to participate in the defense or preparation of the
defense of any such action with counsel of its own
choosing reasonably acceptable to you but shall not
have the right to settle any such action without your
consent, which will not be unreasonably withheld. The
failure to so notify you of any such action shall not
relieve you from any liability that you may have to
the Fund, its officers or Board members, or to such
controlling person by reason of any such untrue, or
alleged untrue, statement or omission, or alleged
omission, otherwise than on account of your indemnity
agreement contained in this paragraph 4.2. You agree
to notify the Fund promptly of the commencement of any
litigation or proceedings against you or any of your
officers or directors in connection with the issuance
and sale of any of the Fund's Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the
Fund under any of the provisions of this Agreement and
no orders for the purchase or sale of such Shares
under this Agreement shall be accepted by the Fund if
and so long as the effectiveness of the registration
statement then in effect or any necessary amendments
thereto shall be suspended under any of the provisions
of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b) (2) of the 1933
Act is not on file with the SEC; provided, however,
that nothing contained in this paragraph 5 shall in
any way restrict or have any application to or bearing
upon the Fund's obligation to repurchase its Shares
from any shareholder in accordance with the provisions
of the Fund's prospectus, statement of additional
information or charter documents, as amended from time
to time.
6. Offering Price
Shares of any class of any Series of the Fund
offered for sale by you shall be offered for sale at a
price per share (the "offering price") equal to (a)
their net asset value (determined in the manner set
forth in the Fund's charter documents and the then-
current prospectus and statement of additional
information) plus (b) a sales charge, if applicable,
which shall be the percentage of the offering price of
such Shares as set forth in the Fund's then-current
prospectus relating to such Series. In addition to or
in lieu of any sales charge applicable at the time of
sale, Shares of any class of any Series of the Fund
offered for sale by you may be subject to a contingent
deferred sales charge as set forth in the Fund's then-
current prospectus and statement of additional
information. You shall be entitled to receive any
sales charge levied at the time of sale in respect of
the Shares without remitting any portion to the Fund.
Any payments to a broker or dealer through whom you
sell Shares shall be governed by a separate agreement
between you and such broker or dealer and the Fund's
then-current prospectus and statement of additional
information. Any payments to any provider of services
to you shall be governed by a separate agreement
between you and such service provider.
7. Notice to You
The Fund agrees to advise you immediately in
writing:
(a) of any request
by the SEC for amendments
to the registration
statement, prospectus or
statement of additional
information then in effect
or for additional
information;
(b) in the event of
the issuance by the SEC of
any stop order suspending
the effectiveness of the
registration statement,
prospectus or statement of
additional information then
in effect or the initiation
of any proceeding for that
purpose;
(c) of the happening
of any event that makes
untrue any statement of a
material fact made in the
registration statement,
prospectus or statement of
additional information then
in effect or that requires
the making of a change in
such registration
statement, prospectus or
statement of additional
information in order to
make the statements therein
not misleading; and
(d) of all actions
of the SEC with respect to
any amendment to the
registration statement, or
any supplement to the
prospectus or statement of
additional information
which may from time to time
be filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the
date hereof, shall have an initial term of one year
from the date hereof, and shall continue for
successive annual periods thereafter so long as such
continuance is specifically approved at least annually
by (a) the Fund's Board or (b) by a vote of a majority
(as defined in the 1940 Act) of the Fund's outstanding
voting securities, provided that in either event the
continuance is also approved by a majority of the
Board members of the Fund who are not interested
persons (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement is terminable with or without cause,
without penalty, on 60 days' notice by the Fund's
Board or by vote of holders of a majority of the
relevant Series outstanding voting securities, or on
90 days' notice by you. This Agreement will also
terminate automatically, as to the relevant Series, in
the event of its assignment (as defined in the 1940
Act and the rules and regulations thereunder).
9. Arbitration
Any claim, controversy, dispute or
deadlock arising under this Agreement (collectively, a
"Dispute") shall be settled by arbitration
administered under the rules of the American
Arbitration Association ("AAA") in New York, New
York. Any arbitration and award of the arbitrators,
or a majority of them, shall be final and the judgment
upon the award rendered may be entered in any state or
federal court having jurisdiction. No punitive
damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter
and distributor of Shares, you shall not perform any
services for any entity other than investment
companies advised or administered by Citigroup Inc. or
its subsidiaries. The Fund recognizes that the
persons employed by you to assist in the performance
of your duties under this Agreement may not devote
their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict
the persons employed by you or any of your affiliates
right to engage in and devote time and attention to
other businesses or to render services of whatever
kind or nature, provided, however, that in conducting
such business or rendering such services your
employees and affiliates would take reasonable steps
to assure that the other parties involved are put on
notice as to the legal entity with which they are
dealing. This Agreement and the terms and conditions
set forth herein shall be governed by, and construed
in accordance with, the laws of the State of New York
without giving effect to its conflict of interest
principles.
If the foregoing is in accordance with your
understanding, kindly indicate your acceptance of this
Agreement by signing and returning to us the enclosed
copy, whereupon this Agreement will become binding on
you.
Very truly yours,
SMITH BARNEY
ARIZONA MUNICIPALS
FUND INC.
By:
_____________________
Authorized
Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
Page: 3
9
G:\fundac\legal\funds\azmu\1999\secdocs\distribution
SMITH BARNEY ARIZONA MUNICIPALS FUND INC.
AMENDED AND RESTATED
SHAREHOLDER SERVICES AND DISTRIBUTION
PLAN PRIVATE
This Amended and Restated Shareholder Services
and Distribution Plan (the "Plan") is adopted in
accordance with Rule 12b-1 (the "Rule") under the
Investment Company Act of 1940, as amended (the
"1940 Act"), by Smith Barney Arizona Municipals
Fund Inc., a corporation organized under the laws
of the State of Maryland (the "Fund"), subject to
the following terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The Fund
will pay to Salomon Smith Barney Inc., a
corporation organized under the laws of
the State of New York ("Salomon Smith
Barney"), a service fee under the Plan at
an annual rate of 0.15% of the average
daily net assets of the Fund attributable
to the Class A shares sold and not
redeemed (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund
will pay to Salomon Smith Barney a service
fee under the Plan at the annual rate of
0.15% of the average daily net assets of
the Fund attributable to the Class B
shares sold and not redeemed (the "Class B
Service Fee").
(c) Distribution Fee for Class B shares. In
addition to the Class B Service Fee, the
Fund will pay Salomon Smith Barney a
distribution fee under the Plan at the
annual rate of 0.50% of the average daily
net assets of the Fund attributable to the
Class B shares sold and not redeemed (the
"Class B Distribution Fee").
(d) Service Fee for Class L shares. The Fund
will pay to Salomon Smith Barney a service
fee under the plan at the annual rate of
0.15% of the average daily net assets of
the Fund attributable to the Class L
shares sold and not redeemed (the "Class L
Service Fee").
(e) Distribution Fee for Class L shares. In
addition to the Class L Service Fee, the
Fund will pay Salomon Smith Barney a
distribution fee under the Plan at the
annual rate of 0.55% of the average daily
net assets of the Fund attributable to the
Class L shares sold and not redeemed (the
"Class L Distribution Fee").
(f) Payment of Fees. The Service Fees and
Distribution Fees will be calculated daily
and paid monthly by the Fund with respect
to the foregoing classes of the Fund's
shares (each a "Class" and together, the
"Classes") at the annual rates indicated
above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class,
its respective Service Fee and/or Distribution Fee
may be used by Salomon Smith Barney for: (a) costs
of printing and distributing the Fund's
prospectuses, statements of additional information
and reports to prospective investors in the Fund;
(b) costs involved in preparing, printing and
distributing sales literature pertaining to the
Fund; (c) an allocation of overhead and other
branch office distribution-related expenses of
Salomon Smith Barney; (d) payments made to, and
expenses of, Salomon Smith Barney's financial
consultants and other persons who provide support
services to Fund shareholders in connection with
the distribution of the Fund's shares, including
but not limited to, office space and equipment,
telephone facilities, answering routine inquires
regarding the Fund and its operation, processing
shareholder transactions, forwarding and collecting
proxy material, changing dividend payment elections
and providing any other shareholder services not
otherwise provided by the Fund's transfer agent;
and (e) accruals for interest on the amount of the
foregoing expenses that exceed the Distribution Fee
for that Class and, in the case of Class B and
Class L shares, any contingent deferred sales
charges received by Salomon Smith Barney; provided,
however, that (i) the Distribution Fee for a
particular Class may be used by Salomon Smith
Barney only to cover expenses primarily intended to
result in the sale of shares of that Class,
including, without limitation, payments to the
financial consultants of Salomon Smith Barney and
other persons as compensation for the sale of the
shares, and (ii) the Service Fees are intended to
be used by Salomon Smith Barney primarily to pay
its financial consultants for servicing shareholder
accounts, including a continuing fee to each such
financial consultant, which fee shall begin to
accrue immediately after the sale of such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees
will be payable in accordance with Section 1 of
the Plan, with respect to a Class until the Plan
has been approved by a vote of at least a majority
of the outstanding voting securities of the Class.
The Plan will be deemed to have been approved
with respect to a Class so long as a majority of
the outstanding voting securities of the Class
votes for the approval of the Plan, notwithstanding
that: (a) the Plan has not been approved by a
majority of the outstanding voting securities of
any other Class, or (b) the Plan has not been
approved by a majority of the outstanding voting
securities of the Fund.
Section 4. Approval by Directors.
Neither the Plan nor any related agreements will
take effect until approved by a majority vote of
both (a) the Board of Directors and (b) those
Directors who are not interested persons of the
Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any
agreements related to it (the "Qualified
Directors"), cast in person at a meeting called for
the purpose of voting on the Plan and the related
agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to
each Class until October 8, 1999 and thereafter for
successive twelve-month periods with respect to
each Class; provided, however, that such
continuance is specifically approved at least
annually by the Directors of the Fund and by a
majority of the Qualified Directors.
Section 6. Termination.
The Plan may be terminated at any time with
respect to a Class (i) by the Fund without the
payment of any penalty, by the vote of a majority
of the outstanding voting securities of such Class
or (ii) by a majority vote of the Qualified
Directors. The Plan may remain in effect with
respect to a particular Class even if the Plan has
been terminated in accordance with this Section 6
with respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any
Class so as to increase materially the amounts of
the fees described in Section 1 above, unless the
amendment is approved by a vote of holders of at
least a majority of the outstanding voting
securities of that Class. No material amendment to
the Plan may be made unless approved by the Fund's
Board of Directors in the manner described in
Section 4 above.
Section 8. Selection of Certain Directors.
While the Plan is in effect, the selection and
nomination of the Fund's Directors who are not
interested persons of the Fund will be committed to
the discretion of the Directors then in office who
are not interested persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in
effect, any person authorized to direct the
disposition of monies paid or payable by the Fund
pursuant to the Plan or any related agreement will
prepare and furnish to the Fund's Board of
Directors and the Board will review, at least
quarterly, written reports complying with the
requirements of the Rule, which set out the amounts
expended under the Plan and the purposes for which
those expenditures were made.
Section 10. Preservation of Materials.
The Fund will preserve copies of the Plan, any
agreement relating to the Plan and any report made
pursuant to Section 9 above, for a period of not
less than six years (the first two years in an
easily accessible place) from the date of the Plan,
agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested
person" and "majority of the outstanding voting
securities" will be deemed to have the same meaning
that those terms have under the rules and
regulations under the 1940 Act, subject to any
exemption that may be granted to the Fund under the
1940 Act, by the Securities and Exchange
Commission.
IN WITNESS WHEREOF, the Fund has executed the
Plan as of October 8, 1998.
SMITH BARNEY ARIZONA
MUNICIPALS FUND INC.
By:
____________________________________
Heath B. McLendon
Chairman of the
Board
g:\funds\value\agreemts\12b1Plan.doc
