Registration No. 33-18779
811-5486
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 13
X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 15
X
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
(formerly known as Smith Barney Shearson New Jersey Municipals Fund
Inc.)
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 720-9218
Christina T. Sydor
Secretary
Smith Barney New Jersey Municipal Fund Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent of Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
X on November 7, 1994 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
___________________________________________________________________________
______
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Registrant's Rule 24f-2 Notice for the fiscal year
ended
March 31, 1994 was filed on May 26, 1994.
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
FORM N-IA
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary
3. Financial Highlights
Financial Highlights
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objective and
Management Policies; Additional
Information
5. Management of the Fund
5A Management's Discussion of
Fund Performance
Management of the Fund;
Distributor; Additional
Information ;Annual Report
Not Applicable
6. Capital Stock and Other
Securities
Investment Objective and
Management Policies Dividends,
Distributions and Taxes;
Additional Information
7. Purchase of Securities
Being Offered <
Valuation of Shares; Purchase
of Shares; Exchange Priviledge;
Redemption of Shares; Minimum
Account Size; Distributor;
Additional Information
8. Redemption or Repurchase
Purchase of Shares; Redemption
of Shares; Exchange Privilege
9. Pending Legal
Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover Page
11. Table of Contents
Contents
12. General Information and
History
Distributor; Additional
Information
13. Investment Objectives and
Policies
Investment Objective and
Management Policies
14. Management of the Fund
Management of the Fund;
Distributor
15. Control Persons and Principal
Holders of Securities
Management of the Fund
16. Investment Advisory and Other
Services
Management of the Fund;
Distributor
17. Brokerage Allocation and
Other Services
Investment Objective and
Management Policies ;
Distributor
18. Capital Stock and Other
Securities
Investment Objective and
Management Policies; Purchase of
Shares; Redemption of Shares;
Taxes
19. Purchase, Redemption and
Pricing of
Securities Being Offered
Purchase of Shares; Redemption of
Shares; Distributor; Valuation of
Shares; Exchange Privilege
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculations of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
PROSPECTUS
SMITH BARNEY
NEW JERSEY
MUNICIPALS
FUND INC.
NOVEMBER 7, 1994
PROSPECTUS BEGINS ON PAGE ONE.
Smith Barney Mutual Funds
Investing for your future.
Everyday.
SMITH BARNEY
NEW JERSEY MUNICIPALS FUND INC.
PROSPECTUS
NOVEMBER 7, 1994
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney New Jersey Municipals Fund Inc. (the "Fund") is a non- diver-
sified municipal fund that seeks to provide New Jersey investors with as
high a level of dividend income exempt from Federal income taxes and New
Jersey state personal income tax as is consistent with prudent investment
management and the preservation of capital.
This Prospectus concisely sets forth certain information about the Fund,
including sales charges, distribution and service fees and expenses, that
investors will find helpful in making an investment decision. Investors
are encouraged to read this Prospectus carefully and retain it for future
reference.
Additional information about the Fund is contained in a Statement of Addi-
tional Information dated November 7, 1994, as amended or supplemented from
time to time, that is available upon request and without charge by calling
or writing the Fund at the telephone number or address set forth above or
by contacting a Smith Barney Financial Consultant. The Statement of Addi-
tional Information has been filed with the Securities and Exchange Commis-
sion (the "SEC") and is incorporated by reference into this Prospectus in
its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SE-
CURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PROSPECTUS SUMMARY 3
FINANCIAL HIGHLIGHTS 11
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 14
NEW JERSEY MUNICIPAL SECURITIES 22
VALUATION OF SHARES 23
DIVIDENDS, DISTRIBUTIONS AND TAXES 24
PURCHASE OF SHARES 27
EXCHANGE PRIVILEGE 34
REDEMPTION OF SHARES 38
MINIMUM ACCOUNT SIZE 40
PERFORMANCE 40
MANAGEMENT OF THE FUND 41
DISTRIBUTOR 43
ADDITIONAL INFORMATION 44
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Pro-
spectus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, non-diversified, management
investment company that seeks to provide New Jersey investors with as high
a level of dividend income exempt from Federal income taxes and New Jersey
state personal income tax as is consistent with prudent investment manage-
ment and the preservation of capital. Its investments consist primarily of
intermediate- and long-term investment-grade municipal securities issued
by or on behalf of the State of New Jersey or any of its instrumentali-
ties, and its political subdivisions, agencies and public authorities and
certain other municipal issuers such as the Commonwealth of Puerto Rico,
the Virgin Islands and Guam ("New Jersey Municipal Securities") that pay
interest which is excluded from gross income for Federal income tax pur-
poses and exempt from New Jersey state personal income taxes.
Intermediate- and long-term municipal securities have remaining maturities
at the time of purchase of between three and twenty years. See "Investment
Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of
shares ("Classes") to investors designed to provide them with the flexi-
bility of selecting an investment best suited to their needs. The general
public is offered three Classes of shares: Class A shares, Class B shares
and Class C shares, which differ principally in terms of sales charges and
rate of expenses to which they are subject. A fourth Class of shares,
Class Y shares, is offered only to investors meeting an initial investment
minimum of $5,000,000. See "Purchase of Shares" and "Redemption of
Shares."
Class A Shares. Class A shares are sold at net asset value plus an ini-
tial sales charge of up to 4.00% and are subject to an annual service fee
of 0.15% of the average daily net assets of the Class. The initial sales
charge may be reduced or waived for certain purchases. Purchases of Class
A shares, which when combined with current holdings of Class A shares of-
fered with a sales charge equal or exceed $500,000 in the aggregate, will
be made at net asset value with no sales charge, but will be subject to a
contingent deferred sales charge ("CDSC") of 1.00% on redemptions made
within 12 months of purchase. See "Prospectus Summary -- Reduced or No
Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to
a maximum CDSC of 4.50% of redemption proceeds, declining by .50% the
first year after purchase and by 1.00% each year thereafter to zero. This
CDSC may be waived for certain redemptions. Class B shares are subject to
an annual service fee of 0.15% and an annual distribution fee of 0.50% of
the average daily net assets of this Class. The Class B shares' distribu-
tion fee may cause that Class to have higher expenses and pay lower divi-
dends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automati-
cally to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares
will no longer be subject to an annual distribution fee. In addition, a
certain portion of Class B shares that have been acquired through the re-
investment of dividends and distributions ("Class B Dividend Shares") will
be converted at that time. See "Purchase of Shares -- Deferred Sales
Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no ini-
tial sales charge. They are subject to an annual service fee of 0.15% and
an annual distribution fee of 0.55% of the average daily net assets of the
Class C shares, and investors pay a CDSC of 1.00% if they redeem Class C
shares within 12 months of purchase. This CDSC may be waived for certain
redemptions. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A shares. Pur-
chases of Class C shares, which when combined with current holdings of
Class C shares of the Fund equal or exceed $500,000 in the aggregate,
should be made in Class A shares at net asset value with no sales charge,
and will be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net
asset value with no initial sales charge or CDSC. They are not subject to
any service or distribution fees.
In deciding which class of Fund shares to purchase, investors should con-
sider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his
or her investment. Shareholders who are planning to establish a program of
regular investment may wish to consider Class A shares; as the investment
accumulates shareholders may qualify for reduced sales charges and the
shares are subject to lower ongoing expenses over the term of the invest-
ment. As an alternative, Class B and Class C shares are sold without any
initial sales charge so the entire purchase price is immediately invested
in the Fund. Any investment return on these additional invested amounts
may partially or wholly offset the higher annual expenses of these
Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than
Class B shares, they do not have a conversion feature, and therefore, are
subject to an ongoing distribution fee. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to any initial sales charge, CDSC or service or dis-
tribution fees. The maximum purchase amount for Class A shares is
$4,999,999, Class B shares is $249,999 and Class C shares is $499,999.
There is no maximum purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire pur-
chase price will be immediately invested in the Fund. In addition, Class A
share purchases, which when combined with current holdings of Class A
shares offered with a sales charge equal or exceed $500,000 in the aggre-
gate, will be made at net asset value with no initial sales charge, but
will be subject to a CDSC of 1.00% on redemptions made within 12 months of
purchase. The $500,000 aggregate investment may be met by adding the pur-
chase to the net asset value of all Class A shares held in funds sponsored
by Smith Barney Inc. ("Smith Barney") listed under "Exchange Privilege."
Other Class A share purchases may also be eligible for a reduced initial
sales charge. See "Purchase of Shares." Because the ongoing expenses of
Class A shares may be lower than those for Class B and Class C shares,
purchasers eligible to purchase Class A shares at net asset value or at a
reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose
of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete de-
scription of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and
Taxes" and "Exchange Privilege" for other differences between the Classes
of shares.
PURCHASE OF SHARES Shares may be purchased through the Fund's distribu-
tor, Smith Barney, a broker that clears securities transactions through
Smith Barney on a fully disclosed basis (an "Introducing Broker") or an
investment dealer in the selling group. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may
open an account by making an initial investment of at least $1,000 for
each account. Investors in Class Y shares may open an account for an ini-
tial investment of $5,000,000. Subsequent investments of at least $50 may
be made for all Classes. The minimum initial investment requirement for
Class A, Class B and Class C shares and the subsequent investment require-
ment for all Classes through the Systematic Investment Plan described
below is $100. There is no minimum investment requirement in Class A for
unitholders who invest distributions from a unit investment trust ("UIT")
sponsored by Smith Barney. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic In-
vestment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares in an amount of at
least $100. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Mangement Inc., ("for-
merly Greenwich Street Advisors) ("SBMFM") serves as the Fund's investment
adviser. SBMFM provides investment advisory and management services to in-
vestment companies affiliated with Smith Barney. SBMFM is a wholly owned
subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of The Travelers Inc. ("Travelers"), a diversified
financial services holding company engaged through its subsidiaries prin-
cipally in four business segments: Investment Services, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Ser-
vices.
SBMFM serves as the Fund's administrator and The Boston Company Advisors,
Inc. ("Boston Advisors") serves as the Fund's sub-administrator. Boston
Advisors is a wholly owned subsidiary of The Boston Company, Inc. ("TBC"),
which in turn is a wholly owned subsidiary of Mellon Bank Corporation
("Mellon"). See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the
same class of certain other funds of the Smith Barney Mutual Funds at the
respective net asset values next determined, plus any applicable sales
charge differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day gener-
ally is quoted daily in the financial section of most newspapers and is
also available from Smith Barney Financial Consultants. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are de-
clared daily and paid on the last business day of the Smith Barney state-
ment month. Distributions of net realized long- and short-term capital
gains, if any, are declared and paid annually after the end of the fiscal
year in which they were earned. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset
value. Shares acquired by dividend and distribution reinvestments will not
be subject to any sales charge or CDSC. Class B shares acquired through
dividend and distribution reinvestments will become eligible for conver-
sion to Class A shares on a pro rata basis. See "Dividends, Distributions
and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund will achieve its investment objective. Assets of the Fund also may be
invested in the municipal securities of non-New Jersey municipal issuers
("Other Municipal Securities" and, together with New Jersey Municipal Se-
curities, "Municipal Securities"). Dividends paid by the Fund that are de-
rived from interest attributable to New Jersey Municipal Securities will
be excluded from gross income for Federal income tax purposes and exempt
from New Jersey state personal income taxes (but not from New Jersey state
franchise tax or New Jersey state corporate income tax), provided, how-
ever, the Fund is a qualified investment fund under New Jersey law. Divi-
dends derived from interest on Other Municipal Securities will be exempt
from Federal income taxes, but may be subject to New Jersey state personal
income taxes. Dividends derived from certain Municipal Securities (includ-
ing New Jersey Municipal Securities), however, may be a specific tax pref-
erence item for Federal alternative minimum tax purposes. The Fund may in-
vest without limit in securities subject to the Federal alternative mini-
mum tax. See "Investment Objective and Management Policies" and
"Dividends, Distributions and Taxes."
The Fund is more susceptible to factors adversely affecting issuers of New
Jersey Municipal Securities than is a municipal bond fund that does not
emphasize these issuers. See "New Jersey Municipal Securities" in the Pro-
spectus and "Special Considerations Relating to New Jersey Municipal Secu-
rities" in the Statement of Additional Information for further details
about the risks of investing in New Jersey obligations.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), which means
that the Fund is not limited by the 1940 Act in the proportion of its as-
sets that it may invest in the obligations of a single issuer. The Fund's
assumption of large positions in the obligations of a small number of is-
suers may cause the Fund's share price to fluctuate to a greater extent
than that of a diversified company as a result of changes in the financial
conditions or in the market's assessment of the issuers.
The Fund generally will invest at least 75% of its assets in securities
rated investment grade, and may invest the remainder of its assets in se-
curities rated as low as C by Moody's Investors Service, Inc. ("Moody's")
or D by Standard & Poor's Corporation ("S&P"), or in unrated obligations,
of comparable quality. Securities in the fourth highest rating category,
though considered to be investment grade, have speculative characteris-
tics. Securities rated as low as D are extremely speculative and are in
actual default of interest and/or principal payments.
There are several risks in connection with the use of when-issued securi-
ties, municipal bond index and interest rate futures contracts and put and
call options thereon as hedging devices, and municipal leases. See "In-
vestment Objective and Management Policies -- Certain Portfolio Strate-
gies."
THE FUND'S EXPENSES The following expense table lists the costs and ex-
penses an investor will incur either directly or indirectly as a share-
holder of the Fund, based on the maximum sales charge or maximum CDSC that
may be incurred at the time of purchase or redemption and, unless other-
wise noted the Fund's operating expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
CLASS Y
<S> <C> <C> <C>
<C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 4.00% NONE NONE
NONE
Maximum CDSC (as a
percentage of original
cost or redemption
proceeds, whichever is
lower) NONE* 4.50% 1.00%
NONE
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
Management fees 0.50% 0.50% 0.50%
0.50%
12b-1 fees** 0.15 0.65 0.70 --
Other expenses*** 0.18 0.21 0.18
0.18
TOTAL FUND OPERATING
EXPENSES 0.83% 1.36% 1.38%
0.68%
*Purchase of Class A shares, which when combined with current holdings
of Class A shares offered with a sales charge, equal or exceed $500,000
in the aggregate, will be made at net asset value with no sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12
months.
**Upon conversion of Class B shares to Class A shares, such shares will
no longer be subject to a distribution fee. Class C shares do not have
a conversion feature and, therefore, are subject to an ongoing distri-
bution fee. As a result, long-term shareholders of Class C shares may
pay more than the economic equivalent of the maximum front-end sales
charge permitted by the National Association of Securities Dealers,
Inc.
***For Class C and Class Y shares, "Other expenses" have been estimated
based on expenses incurred by Class A shares because Class C and Class
Y shares were not available for purchase prior to November 7, 1994.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors
may actually pay lower or no charges depending on the amount purchased
and, in the case of Class B, Class C and certain Class A shares, the
length of time the shares are held. See "Purchase of Shares" and "Redemp-
tion of Shares." Smith Barney receives an annual 12b-1 service fee of
0.15% of the value of average daily net assets of Class A shares. Smith
Barney also receives, with respect to Class B shares, an annual 12b-1 fee
of 0.65% of the value of average daily net assets of that Class, consist-
ing of a 0.50% distribution and a 0.15% service fee, and with respect to
Class C shares, Smith Barney receives an annual 12b-1 fee of 0.70% of the
value of average daily net assets of the Class, consisting of a 0.55% dis-
tribution fee and a 0.15% service fee. "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and account-
ing fees, printing costs and registration fees.
During the fiscal year ended March 31, 1994, the Fund's investment adviser
and former administrator voluntarily waived portions of their fees in
amounts equal to .03% and .02%, respectively, of the value of the Fund's
average daily net assets. This had the effect of lowering the Fund's over-
all expenses and increasing the returns otherwise available to investors.
If these fees had not been waived, the Fund's total operating expenses for
the 1994 fiscal year, as a percentage of its average daily net assets,
would have been 0.88%, 1.41%, 1.43% and 0.73% for Class A shares, Class B
shares and Class Y shares, respectively.
The following example is intended to assist an investor in understanding
the various costs that an investor in the Fund will bear directly or indi-
rectly. The example assumes payment by the Fund of operating expenses at
the levels set forth in the table above. See "Purchase of Shares," "Re-
demption of Shares" and "Management of the Fund."
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10
YEARS*
<S> <C> <C> <C> <C>
An investor would pay the following ex-
penses on a $1,000 investment, assuming
(1) 5.00% annual return and (2) redemp-
tion at the end of each time period:
Class A $48 $6 $84 $139
Class B 59 7 84 149
Class C 24 4 76 166
Class Y 7 2 38 85
An investor would pay the following ex-
penses on the same investment, assuming
the same annual return and no redemption:
Class A 48 65 84 139
Class B 14 43 74 149
Class C 14 44 76 166
Class Y 7 22 38 85
*Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
</TABLE>
The example also provides a means for the investor to compare expense lev-
els of funds with different fee structures over varying investment peri-
ods. To facilitate such comparison, all funds are required to utilize a
5.00% annual return assumption. However, the Fund's actual return will
vary and may be greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
Except where otherwise noted, the following information has been audited
by Coopers & Lybrand, independent accountants, whose report thereon ap-
pears in the Fund's Annual Report dated March 31, 1994. This information
should be read in conjunction with the financial statements and related
notes that also appear in the Fund's Annual Report, which is incorporated
by reference into the Statement of Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
3/31/94 3/31/93
3/31/92
<S> <C> <C> <C>
Net asset value, beginning of year $13.16 $12.44
$12.17
Income from investment operations:
Net investment income*** 0.70 0.75
0.77
Net realized and unrealized gain/(loss) on
investments (0.46) 0.87
0.44
Total from investment operations 0.24 1.62
1.21
Distributions:
Distributions from net investment income (0.69) (0.75)
(0.77)
Distributions in excess of net investment
income (0.01) -- --
Distributions from net realized gains (0.15) (0.14)
(0.13)
Distributions from capital (0.00)** (0.01)
(0.04)
Total distributions (0.85) (0.90)
(0.94)
Net asset value, end of year $12.55 $13.16
$12.44
Total return+++ 1.66% 13.49%
10.22%
Ratios/supplemental data:
Net assets, end of year (in 000's) $119,913 $115,694
$92,797
Ratio of operating expenses to average net
assets+ 0.83% 0.74%
0.67%++
Ratio of net investment income to average
net assets 5.17% 5.76%
6.18%
Portfolio turnover rate 32% 58%
98%
** Amount represents less than $0.01 per Class A share.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser, sub-investment adviser and administra-
tor for the years ended March 31, 1994, 1993, 1992, 1991,1990 and 1989
would have been $.69, $.73, $.75, $.78, $.77 and $.74, respectively.
+ Expense ratios before partial waiver of fees by investment adviser and
sub-investment adviser and/or administrator for the years ended March
31, 1994, 1993, 1992, 1991, and 1990 and before the partial waiver of
fees and reimbursement of expenses by investment adviser and sub-
investment adviser and/or administrator for the period ended March 31,
1989 were 0.88%, 0.90%, 0.83%, 1.08% and 1.23%, respectively.
++ The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense was 0.68% for the year ended
March 31, 1992.
+++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charges.
</TABLE>
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR
PERIOD
ENDED ENDED
ENDED
3/31/91 3/31/90
3/31/89*
<S> <C> <C> <C>
Net asset value, beginning of year $11.92 $11.67
$11.40
Income from investment operations:
Net investment income*** 0.82 0.83
0.82
Net realized and unrealized gain on invest-
ments 0.32 0.27
0.28
Total from investment operations 1.14 1.10
1.10
Distributions:
Distributions from net investment income (0.83) (0.82)
(0.82)
Distributions in excess of net investment
income -- -- --
Distributions from net realized gains (0.05) (0.03)
(0.01)
Distributions from capital (0.01) -- --
Total distributions (0.89) (0.85)
(0.83)
Net asset value, end of year $12.17 $11.92
$11.67
Total return++ 9.89% 9.62%
9.84%
Ratios/supplemental data:
Net assets, end of year (in 000's) $65,378 $38,728
$29,265
Ratio of operating expenses to average net
assets+ 0.57% 0.55%
0.52%**
Ratio of net investment income to average
net assets 6.74% 6.89%
7.23%**
Portfolio turnover rate 44% 42%
25%
* The Fund commenced operations on April 22, 1988. Those shares in ex-
istence prior to November 6, 1992 were designated as Class A shares.
** Annualized.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser, sub-investment adviser and/or adminis-
trator for the years ended March 31, 1994, 1993, 1992, 1991,1990, and
1989 would have been $.69, $.73, $.75, $.78, $.77, and $.74,
respectively.
+ Expense ratios before partial waiver of fees by investment adviser and
sub-investment adviser and administrator for the years ended March 31,
1994, 1993, 1992, 1991, and 1990 and before the partial waiver of fees
and reimbursement of expenses by investment adviser and sub-investment
adviser and administrator for the period ended March 31, 1989 were
0.88%, 0.90%, 0.83%, 1.08% and 1.23%, respectively.
++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charges.
</TABLE>
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR
PERIOD
ENDED
ENDED
3/31/94
3/31/93*
<S> <C> <C>
Net asset value, beginning of period $13.16
$12.75
Income from investment operations:
Net investment income*** 0.64
0.28
Net realized and unrealized gain/(loss) on in-
vestments (0.47)
0.55
Total from investment operations 0.17
0.83
Distributions:
Distributions from net investment income (0.62)
(0.27)
Distributions in excess of net investment income (0.01) --
Distributions from net realized gains (0.15)
(0.14)
Distributions from capital (0.00)+++
(0.01)
Total distributions (0.78)
(0.42)
Net asset value, end of period $12.55
$13.16
Total return++ 1.15%
6.60%
Ratios/supplemental data:
Net assets, end of period (in 000's) $48,375
$16,293
Ratio of operating expenses to average net as-
sets+ 1.36%
1.33%**
Ratio of net investment income to average net
assets 4.64%
5.17%**
Portfolio turnover rate 32%
58%
* The Fund commenced selling Class B shares on November 6, 1992.
** Annualized.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment
adviser, sub-investment adviser and/or administrator for the years
ended March 31, 1994 and 1993 would have been $.63 and $.27,
respectively.
+ Annualized expense ratio before partial waivers of fees by investment
adviser and sub-investment adviser and administrator for the years
ended March 31, 1994 and 1993 were 1.41% and 1.49%, respectively.
++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any
applicable sales charges.
+++ Amount represents less than $0.01 per Class B share.
</TABLE>
Prior to November 7, 1994, the Fund did not offer Class C or Class Y
shares and, accordingly, no comparable financial information is available
at this time for those Classes.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is to provide New Jersey investors
with as high a level of income exempt from Federal and New Jersey personal
income taxes as is consistent with prudent investment management and the
preservation of capital. This investment objective may not be changed
without the approval of the holders of a majority of the Fund's outstand-
ing shares. There can be no assurance that the Fund's investment objective
will be achieved.
The Fund operates subject to an investment policy providing that, under
normal market conditions, the Fund will invest at least 80% of its net as-
sets in Municipal Securities and at least 65% of the aggregate principal
amount of the Fund's investments in New Jersey Municipal Securities. When-
ever less than 80% of the Fund's assets are invested in New Jersey Munici-
pal Securities, the Fund, in order to maintain its status as a "qualified
investment fund" under New Jersey law, will seek to invest in debt obliga-
tions which, in the opinion of counsel to the issuers, are free from state
or local taxation under New Jersey or Federal laws ("Tax-Exempt Obliga-
tions"). The Fund's investments in New Jersey Municipal Securities and
Tax-Exempt Obligations will represent at least 80% of the aggregate prin-
cipal amount of all of its investments, excluding cash and cash items (in-
cluding receivables). Subject to these minimum investment intentions, the
Fund also may acquire intermediate- and long-term debt obligations con-
sisting of Other Municipal Securities, the interest on which is at least
exempt from Federal income taxation (not including the possible applica-
bility of the alternative minimum tax). When SBMFM believes that market
conditions warrant adoption of a temporary defensive investment posture,
the Fund may invest without limit in Other Municipal Securities and in
"Temporary Investments" as described below.
The Fund generally will invest at least 75% 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 in unrated obligations
of comparable quality. Unrated securities will be considered to be of in-
vestment grade if deemed by SBMFM to be comparable in quality to instru-
ments so rated, or if other outstanding obligations of the issuers of the
unrated securities 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 comparable unrated securities. Se-
curities 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.
The Fund's average weighted maturity will vary from time to time based on
the judgment of SBMFM. The Fund intends to focus on intermediate- and
long-term obligations, that is, obligations with remaining maturities at
the time of purchase of between three and twenty years. Obligations which
are rated Baa by Moody's or BBB by S&P and those which are rated lower
than investment grade are subject to greater market fluctuation and more
uncertainty as to payment of principal and interest, and therefore gener-
ate higher yields, than obligations rated above Baa or BBB.
While the market values of lower-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 lower-
rated and comparable unrated municipal securities also tend to be more
sensitive than higher-rated securities to short-term corporate and indus-
try developments and changes in economic conditions (including recession)
in specific regions or localities or among specific types of issuers. In
addition, lower-rated securities and comparable unrated securities gener-
ally present a higher degree of credit risk. During an economic downturn
or a prolonged period of rising interest rates, the ability of issuers of
lower-rated and comparable unrated securities to service their payment ob-
ligations, meet projected goals or obtain additional financing may be im-
paired. The risk of loss due to default by such issuers is significantly
greater because lower-rated and comparable unrated securities generally
are unsecured and frequently are subordinated to the prior payment of se-
nior indebtedness. The Fund may incur additional expenses to the extent it
is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings.
While the market for municipal bonds is considered to be generally ade-
quate, the existence of limited markets for particular lower-rated and
comparable unrated securities may diminish the Fund's ability to (a) ob-
tain 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. A severe economic recession would
likely disrupt the market for such securities and adversely affect the
ability of the issuers of such securities to repay principal and pay in-
terest thereon.
Fixed-income securities, including lower-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.
A description of the rating systems of Moody's and S&P is contained in the
Statement of Additional Information.
Because many issuers of New Jersey Municipal Securities may choose not to
have their obligations rated, it is possible that a large portion of the
Fund's portfolio may consist of unrated obligations. Unrated obligations
are not necessarily of lower quality than rated obligations, but to the
extent the Fund invests in unrated obligations, the Fund will be more re-
liant on SBMFM's judgment, analysis and experience than would be the case
if the Fund invested only in rated obligations.
The Fund may invest without limit in participations in municipal lease ob-
ligations or installment purchase contract obligations, (collectively,
"municipal lease obligations") of state and local governments or authori-
ties 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 and New Jersey State personal income tax
purposes provided that the liability for payments of principal and inter-
est is solely that of a New Jersey governmental entity. Although lease ob-
ligations 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, appropri-
ate 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 secu-
rities represent a relatively new type of financing that has not yet de-
veloped 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 fore-
closure 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, SBMFM 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 private activity bonds. Interest in-
come 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 min-
imum taxes. Individual and corporate shareholders may be subject to a Fed-
eral alternative minimum tax to the extent the Fund's dividends are de-
rived from interest on those bonds. Dividends derived from interest income
on Municipal Securities are a component of the "current earnings" adjust-
ment items for purposes of the Federal corporate alternative minimum tax.
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. The Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code
of 1986, as amended (the "Code"), which will relieve the Fund of any lia-
bility for Federal income tax to the extent its earnings are distributed
to shareholders. The Fund must qualify as a regulated investment company
to be a qualified investment fund under New Jersey law. To so qualify,
among other requirements, the Fund will limit its investments so that, at
the close of each quarter of the taxable year, (a) not more than 25% of
the market value of the Fund's total assets will be invested in the secu-
rities of a single issuer and (b) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its total as-
sets will be invested in the securities of a single issuer and the Fund
will not own more than 10% of the outstanding voting securities of a sin-
gle issuer. The Fund's assumption of large positions in the obligations of
a small number of issuers may cause the Fund's share price to fluctuate to
a greater extent than that of a diversified company as a result of changes
in the financial condition or in the market's assessment of the issuers.
The Fund may invest without limit in debt obligations that are repayable
out of revenue streams generated from economically related projects or fa-
cilities. Revenue securities may also include private activity bonds which
may be issued by or on behalf of public authorities to finance various
privately operated facilities and are not payable from the unrestricted
revenues of the issuer. Sizeable investments in such obligations could in-
volve an increased risk to the Fund should any of the related projects or
facilities experience financial difficulties. The Fund also may invest up
to 15% of its total assets in securities with contractual or other re-
strictions on resale and other instruments which are not readily market-
able. Notwithstanding the foregoing, the Fund will not invest more than
10% of its assets in securities (excluding those subject to Rule 144A
under the Securities Act of 1933, as amended) that are restricted. The
Fund does not expect to invest more than 5% of its assets in repurchase
agreements. In addition, the Fund may invest up to 5% of its assets in the
securities of issuers which have been in continuous operation for less
than three years. The Fund also is authorized to borrow in an amount of up
to 10% of its total assets (including the amount borrowed) valued at mar-
ket less liabilities (not including the amount borrowed) in order to meet
anticipated redemptions and to pledge its assets to the same extent in
connection with the borrowings.
Further information about the Fund's investment policies, including a list
of those restrictions on the Fund's investment activities that cannot be
changed without shareholder approval, appears in the Statement of Addi-
tional Information.
CERTAIN PORTFOLIO STRATEGIES
In attempting to achieve its investment objective, the Fund may employ,
among others, the following strategies:
When-Issued Securities. New issues of Municipal Securities frequently are
offered on a when-issued basis, which means that delivery and payment for
the securities normally take place 15 to 45 days after the date of the
commitment to purchase. The payment obligation and interest rate that will
be received on when-issued securities are fixed at the time that the buyer
enters into the commitment. As a result, the yields obtained on the secu-
rities may be higher or lower than the yields available in the market on
the dates when the instruments are actually delivered to the buyers. In
addition, during the period before delivery and payment, there is no ac-
crual of interest and there may be fluctuations in the price of the secu-
rities so that there may be an unrealized loss at the time of delivery.
The Fund will establish a segregated account with the Fund's custodian
consisting of cash, obligations issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. government securi-
ties") or other high grade debt obligations in an amount equal to the pur-
chase price of the Fund's when-issued securities. Placing securities
rather than cash in the segregated account may have a leveraging effect on
the Fund's net assets. The Fund generally will make commitments to pur-
chase Municipal Securities and other tax-exempt obligations on a when-
issued basis with the intention of actually acquiring the securities, but
the Fund may sell the securities before the delivery date if it is deemed
advisable.
Temporary Investments. Under normal market conditions, the Fund may hold
up to 20% of its total assets in cash or money market instruments, includ-
ing taxable money market instruments ("Temporary Investment"). In addi-
tion, when SBMFM believes that market conditions warrant, including when
acceptable New Jersey Municipal Securities are unavailable, the Fund may
take a temporary defensive posture and invest without limitation in Tempo-
rary Investments. To the extent the Fund holds Temporary Investments, it
will not achieve its investment objective. Tax-exempt securities eligible
for short-term investment by the Fund under such circumstances are munici-
pal notes rated at the time of purchase within the three highest grades by
Moody's or S&P or, if not rated, issued by issuers with outstanding debt
securities rated within the three highest grades by Moody's or S&P. Any
Temporary Investments made for defensive purposes will be made in confor-
mity with the requirements of a qualified investment fund under New Jersey
law. Since the commencement of its operations, the Fund has not found it
necessary to invest in taxable Temporary Investments.
Financial Futures and Options Transactions. To hedge against a decline in
the value of Municipal Securities it owns or an increase in the price of
Municipal Securities it proposes to purchase, the Fund may enter into fi-
nancial futures contracts and invest in options on financial futures con-
tracts that are traded on a domestic exchange or board of trade. The fu-
tures contracts or options on futures contracts that may be entered into
by the Fund will be restricted to those that are either based on an index
of Municipal Securities or relate to debt securities the prices of which
are anticipated by SBMFM to correlate with the prices of the Municipal
Securities owned or to be purchased by the Fund.
In entering into a financial futures contract, the Fund will be required
to deposit with the broker through which it undertakes the transaction an
amount of cash or cash equivalents equal to approximately 5% of the con-
tract amount. This amount, which is known as "initial margin," is subject
to change by the exchange or board of trade on which the contract is
traded, and members of the exchange or board of trade may charge a higher
amount. Initial margin is in the nature of a performance bond or good
faith deposit on the contract that is returned to the Fund upon termina-
tion of the futures contract, assuming all contractual obligations have
been satisfied. In accordance with a process known as "marking-to-market,"
subsequent payments, known as "variation margin," to and from the broker
will be made daily as the price of the index or securities underlying the
futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable. At any time prior to the expira-
tion of a futures contract, the Fund may elect to close the position by
taking an opposite position, which will operate to terminate the Fund's
existing position in the contract.
A financial futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of a specified prop-
erty at a specified price, date, time and place. Unlike the direct invest-
ment in a futures contract, an option on a financial futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in the financial futures contract at a specified exercise price
at any time prior to the expiration date of the option. Upon exercise of
an option, the delivery of the futures position by the writer of the op-
tion to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which repre-
sents the amount by which the market price of the futures contract ex-
ceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The potential loss
related to the purchase of an option on financial futures contracts is
limited to the premium paid for the option (plus transaction costs). The
value of the option may change daily and that change would be reflected in
the net asset value of the Fund.
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 addi-
tion, the Fund will, with respect to its purchases of financial futures
contracts, establish a segregated account consisting of cash or cash
equivalents 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 require-
ments of the Code applicable to a regulated investment company, in addi-
tion to the requirements of a qualified investment fund under New Jersey
law, that are described below under "Dividends, Distributions and Taxes."
Although the Fund intends to enter into financial futures contracts and
options on financial futures contracts that are traded on a domestic ex-
change or board of trade only if an active market exists for those instru-
ments, no assurance can be given that an active market will exist for them
at any particular time. If closing a futures position in anticipation of
adverse price movements is not possible, the Fund would be required to
make daily cash payments of variation margin. In those circumstances, an
increase in the value of the portion of the Fund's investments being
hedged, if any, may offset partially or completely losses on the futures
contract. No assurance can be given, however, that the price of the secu-
rities being hedged will correlate with the price movements in a futures
contract and, thus, provide an offset to losses on the futures contract or
option on the futures contract. In addition, in light of the risk of an
imperfect correlation between securities held by the Fund that are the
subject of a hedging transaction and the futures or options used as a
hedging device, the hedge may not be fully effective because, for example,
losses on the securities held by the Fund may be in excess of gains on the
futures contract or losses on the futures contract may be in excess of
gains on the securities held by the Fund that were the subject of the
hedge. In an effort to compensate for the imperfect correlation of move-
ment in the price of the securities being hedged and movements in the
price of futures contracts, the Fund may enter into financial futures con-
tracts or options on financial futures contracts in a greater of lesser
dollar amount than the dollar amount of the securities being hedged if the
historical volatility of the futures contract has been less or greater
than that of the securities. This "over hedging" or "under hedging" may
adversely affect the Fund's net investment results if market movements are
not as anticipated when the hedge is established.
If the Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of securities it holds and rates de-
crease instead, the Fund will lose part or all of the benefit of the in-
creased value of securities that it has hedged because it will have off-
setting losses in its futures or options position. In addition, in those
situations, if the Fund has insufficient cash, it may have to sell securi-
ties to meet daily variation margin requirements on the futures contracts
at a time when it may be disadvantageous to do so. These sales of securi-
ties may, but will not necessarily, be at increased prices that reflect
the decline in interest rates.
NEW JERSEY MUNICIPAL SECURITIES
As used in this Prospectus, the term "New Jersey Municipal Securities"
generally refers to intermediate- and long-term debt obligations issued by
the State of New Jersey and its political subdivisions, agencies and pub-
lic authorities (together with certain other governmental issuers such as
the Commonwealth of Puerto Rico, the Virgin Islands and Guam) to obtain
funds for various public purposes. The interest on such obligations is, in
the opinion of bond counsel to the issuers, excluded from gross income for
Federal income tax purposes and exempt under the New Jersey Gross Income
Tax Act. For that reason, interest on these obligations is generally fixed
at a lower rate than it would be if it were subject to such taxes. Inter-
est income on certain New Jersey Municipal Securities is a specific tax
preference item for purposes of the Federal individual and corporate al-
ternative minimum taxes. See "Dividends, Distributions and Taxes."
CLASSIFICATIONS
The two principal classifications of New Jersey Municipal Securities are
"general obligation bonds" and "revenue bonds." General obligation bonds
are secured by the issuer's pledge of its full faith, credit and taxing
power for the payment of principal and interest. Revenue bonds are payable
from the revenues derived from a particular facility or class of facili-
ties or, in some cases, from the proceeds of a special excise tax or other
specific revenue source, but not from the general taxing power. In addi-
tion, certain types of "private activity bonds" issued by or on behalf of
public authorities to obtain funds for privately operated facilities are
included in the term New Jersey Municipal Securities, so long as the in-
terest paid on the bonds qualifies as excluded from gross income for Fed-
eral income tax purposes and exempt under the New Jersey Gross Income Tax
Act. Private activity bonds are in most cases revenue bonds and generally
do not carry the pledge of the full faith, credit and taxing power of the
issuing entity.
SPECIAL CONSIDERATIONS
Economic, financial and other conditions relating to the State of New Jer-
sey have an obvious impact upon the state's general obligation bonds.
These conditions, to varying degrees, also will affect the bonds issued by
the state's political subdivisions, agencies and public authorities, in-
cluding special obligation bonds. In general, the State of New Jersey has
a diversified economic base consisting of, among others, commerce, con-
struction and service industries, selective commercial, agriculture, in-
surance, tourism, petroleum refining and manufacturing, although New Jer-
sey's manufacturing industry has shown a downward trend in the last few
years. New Jersey is a major recipient of Federal assistance and, of all
the states, is among the highest in the amount of Federal aid received.
Hence, a decrease in Federal financial assistance may adversely affect New
Jersey's financial condition. While New Jersey's economic base has become
more diversified over time and thus its economy appears to be less vulner-
able during recessionary periods, a recurrence of high levels of unemploy-
ment could adversely affect New Jersey's overall economy and its ability
to meet its financial obligations.
New Jersey maintains a balanced budget, which generally restricts total
appropriation increases to only 5% annually to any municipality or county
or an index rate determined annually by the Director of the Division of
Local Government Services, whichever is less. New Jersey law provides for
those situations where the index percentage rate exceeds 5%. As a result,
the balanced budget plan may adversely affect a municipality's or county's
ability to repay its obligations. Of course, each municipality, county or
other political subdivision will be subject to different economic, finan-
cial and other conditions, which will affect its ability to pay the prin-
cipal and interest on its bonds. Similarly, special obligation or revenue
bonds payable from revenues generated by particular projects or other spe-
cific revenue sources also will be subject to unique economic, financial
and other conditions. If New Jersey or any of its political subdivisions,
agencies or public authorities is unable to meet its financial obliga-
tions, the income derived by the Fund, the ability to preserve or realize
appreciation of the Fund's capital and the Fund's liquidity could be ad-
versely affected.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of reg-
ular trading on the NYSE, on each day that the NYSE is open, by dividing
the value of the Fund's net assets attributable to each Class by the total
number of shares of that Class outstanding.
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 Fund's Board of Directors.
Short- term investments that mature in 60 days or less are valued at amor-
tized cost whenever the Board of Directors determines that amortized cost
is fair value. Further information regarding the Fund's valuation policies
is contained in the Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its net investment income (that is, in-
come other than net realized long- and short-term capital gains) on each
day the Fund is open for business and pays dividends on the last business
day of the Smith Barney statement month. Distributions of net realized
long- and short-term capital gains, if any, are declared and paid annually
after the end of the fiscal year in which they have been earned.
If a shareholder does not otherwise instruct, dividends or capital gains
distributions will be reinvested automatically in additional shares of the
same Class at net asset value, subject to no sales charge or CDSC. The
Fund's earnings for Saturdays, Sundays and holidays are declared as divi-
dends on the next business day. Shares redeemed during the month are enti-
tled to dividends declared up to and including the date of redemption. In
addition, in order to avoid the application of a 4.00% nondeductible ex-
cise tax on certain undistributed amounts of ordinary income and capital
gains, the Fund may make a distribution shortly before December 31 in each
year of any undistributed ordinary income or capital gains and expects to
make any other distributions as are necessary to avoid the application of
this tax.
If, for any full fiscal year, the Fund's total distributions exceed net
investment income and net realized capital gains, the excess distributions
generally will be treated as a tax-free return of capital (up to the
amount of the shareholder's tax basis in his or her shares). The amount
treated as a tax-free return of capital will reduce a shareholder's ad-
justed basis in his or her shares. Pursuant to the requirements of the
1940 Act and other applicable laws, a notice will accompany any distribu-
tion paid from sources other than net investment income. In the event the
Fund distributes amounts in excess of its net investment income and net
realized capital gains, such distributions may have the effect of decreas-
ing the Fund's total assets, which may increase the Fund's expense ratio.
The per share dividends on Class B shares and Class C shares may be lower
than the per share dividends on Class A and Class Y shares principally as
a result of the distribution fee applicable with respect to Class B and
Class C shares. The per share dividends on Class A shares of the Fund may
be lower than the per share dividends on Class Y shares principally as a
result of the service fee applicable to Class A shares. Distributions of
capital gains, if any, will be in the same amount for Class A, B, C and Y
shares.
TAXES
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code, and will designate and pay
exempt-interest dividends derived from interest earned on qualifying tax-
exempt obligations. Such exempt-interest dividends may be excluded by
shareholders from their gross income for Federal income tax purposes al-
though (a) all or a portion of such exempt-interest dividends will be a
specific preference item for purposes of the Federal individual and corpo-
rate alternative minimum taxes to the extent that they are derived from
certain types of private activity bonds issued after August 7, 1986 and
(b) all exempt-interest dividends will be a component of the "current
earnings" adjustment item for purposes of the Federal corporate alterna-
tive minimum tax. In addition, corporate shareholders may incur a greater
Federal "environmental" tax liability through the receipt of Fund divi-
dends and distributions. With the exception of gains derived from invest-
ments in financial options, futures, forward contracts or similar finan-
cial instruments, distributions paid by the Fund, provided it is a quali-
fied investment fund under New Jersey law, attributable to interest on or
gains from New Jersey Municipal Securities and Tax-Exempt Obligations also
will be exempt from the New Jersey personal income tax (but not the New
Jersey Corporation Business Tax).
Dividends paid from taxable net investment income, if any, and distribu-
tions of net realized short- and long-term capital gains from taxable se-
curities are taxable to shareholders at ordinary income rates, regardless
of how long shareholders have held their Fund shares and whether such div-
idends or distributions are received in cash or reinvested in additional
shares. Distributions of net realized long-term capital gains are taxable
to shareholders as long-term capital gains, regardless of how long they
have held their Fund shares and whether such distributions are received in
cash or reinvested in Fund shares. Furthermore, as a general rule, a
shareholder's gain or loss on a sale or redemption of his or her shares
will be a long-term capital gain or loss if the shareholder has held the
shares for more than one year and will be a short-term capital gain or
loss if the shareholder has held the shares for one year or less. Gains
resulting from the redemption or sales of shares of the Fund, provided it
is a qualified investment fund under New Jersey law, would be exempt from
the New Jersey personal income tax. The Fund's dividends and distributions
will not qualify for the dividends-received deduction for corporations.
Any dividends or distributions paid by the Fund attributable to invest-
ments other than New Jersey Municipal Securities or Tax-Exempt Obligations
will be subject to the New Jersey personal income tax.
Statements as to the tax status of each shareholder's dividends and dis-
tributions are mailed annually. Each shareholder will also receive, if ap-
propriate, various written notices after the close of the Fund's prior
taxable year as to the Federal income tax status of his or her dividends
and distributions which were received from the Fund during the Fund's
prior taxable year. These statements may set forth the dollar amount of
income excluded or exempt from Federal income or New Jersey state personal
income taxes and the dollar amount, if any, subject to such taxes. More-
over, these statements will designate the amount of exempt-interest divi-
dends that is a specific preference item for purposes of the Federal indi-
vidual and corporate alternative minimum taxes. Shareholders should con-
sult their tax advisors with specific reference to their own tax
situations.
TAX-EXEMPT INCOME VS. TAXABLE INCOME
The table below shows New Jersey taxpayers how to translate Federal and
New Jersey state tax savings from investments such as the Fund into an
equivalent return from a taxable investment. The combined effective mar-
ginal tax rate is lower than the sum of the Federal and New Jersey state
marginal rates because the state taxes shareholders pay are deductible
from Federal taxable income. The yields used below are for illustration
only and are not intended to represent current or future yields for the
Fund, which may be higher or lower than those shown.
<TABLE>
<CAPTION>
TAXABLE INCOME*
1994
COMBINED
EFFECTIVE
NEW
JERSEY
NEW AND
JERSEY COMBINED
FEDERAL
MARGINAL MARGINAL TAX
SINGLE JOINT FEDERAL RATE RATE
BRACKET**
<S> <C> <C> <C> <C> <C>
$ 0-20,000 $ 0-20,000 15.00% 1.900% 16.900% 16.62%
20,001-22,750 20,001-38,000 15.00 2.375 17.375 17.02
22,751-35,000 38,001-50,000 28.00 2.375 30.375 29.71
50,001-70,000 28.00 3.325 31.325 30.39
35,001-40,000 70,001-80,000 28.00 4.750 32.750 31.42
40,001-55,100 80,001-91,850 28.00 6.175 34.175 32.45
55,101-75,000 91,851-140,000 31.00 6.175 37.175 35.26
75,001-115,000 31.00 6.650 37.650 35.59
140,001-150,000 36.00 6.175 42.175 39.95
115,001-250,000 150,001-250,000 36.00 6.650 42.650 40.26
250,001 or more 250,001 or more 39.60 6.650 46.250 43.62
</TABLE>
<TABLE>
<CAPTION>
A NEW JERSEY TAX-EXEMPT INCOME FUND YIELD OF:
2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
9.0%
<S> <C> <C> <C> <C> <C> <C>
<C>
2.40% 3.60% 4.80% 6.00% 7.20% 8.39% 9.59%
10.79%
2.41 3.62 4.82 6.03 7.23 8.44 9.64
10.85
2.85 4.27 5.69 7.11 8.54 9.96 11.38
12.80
2.87 4.31 5.75 7.18 8.62 10.06 11.49
12.93
2.92 4.37 5.83 7.29 8.75 10.21 11.67
13.12
2.96 4.44 5.92 7.40 8.88 10.36 11.84
13.32
3.09 4.63 6.18 7.72 9.27 10.81 12.36
13.90
3.11 4.66 6.21 7.76 9.32 10.87 12.42
13.97
3.33 5.00 6.66 8.33 9.99 11.66 13.32
14.99
3.35 5.02 6.70 8.37 10.04 11.72 13.39
15.06
3.55 5.32 7.09 8.87 10.64 12.42 14.19
15.96
* This amount represents taxable income as defined in the Code. It is as-
sumed that taxable income as defined in the Code is the same as under
the New Jersey personal income tax, however, New Jersey taxable income
may differ due to differences in exemptions, itemized deductions, and
other items.
** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1994, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return. The calculations also assume that no income will be subject to
the Federal alternative minimum tax.
</TABLE>
Legislation currently under consideration would increase the number of
federal tax brackets and the top marginal rate. The calculations assume
that no income will be subject to Federal, state or local individual al-
ternate minimum taxes.
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to inves-
tors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon
certain redemptions. Class Y shares are sold without an initial sales
charge or a CDSC and are available only to investors investing a minimum
of $5,000,000. See "Prospectus Summary -- Alternative Purchase Arrange-
ments" for a discussion of factors to consider in selecting which Class of
shares to purchase.
Purchases of Fund shares must by made through a brokerage account main-
tained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group. When purchasing shares of the Fund, investors must
specify whether the purchase is for Class A, Class B, Class C or Class Y
shares. No maintenance fee will be charged by the Fund in connection with
a brokerage account through which an investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account in the
Fund. Investors in Class Y shares may open an account by making an initial
investment of $5,000,000. Subsequent investments of at least $50 may be
made for all Classes. For the Fund's Systematic Investment Plan, the mini-
mum initial investment requirement for Class A, Class B and Class C shares
and the subsequent investment requirement for all Classes is $100. There
are no minimum investment requirements for Class A shares for employees of
Travelers and its subsidiaries, including Smith Barney, unitholders who
invest distributions from a UIT sponsored by Smith Barney, and Directors
of the Fund 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 the Fund's transfer agent, The
Shareholder Services Group, Inc., a subsidiary of First Data Corporation
("TSSG"). Share certificates are issued only upon a shareholder's written
request to TSSG.
Purchase orders received by Smith Barney 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. Orders
received by dealers or Introducing Brokers 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, pro-
vided the order is received by Smith Barney prior to Smith Barney's close
of business (the "trade date"). Currently, payment for Fund shares is due
on the fifth business day (the "settlement date") after the trade date.
The Fund anticipates that, in accordance with regulatory changes, begin-
ning on or about June 1, 1995, the settlement date will be the third busi-
ness day after the trade date.
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, Smith Barney or TSSG is
authorized through preauthorized transfers of $100 or more to charge the
regular bank account or other financial institution indicated by the
shareholder on a monthly or quarterly basis to provide systematic addi-
tions to the shareholder's Fund account. A shareholder who has insuffi-
cient funds to complete the transfer will be charged a fee of up to $25 by
Smith Barney or TSSG. The Systematic Investment Plan also authorizes Smith
Barney to apply cash held in the shareholder's Smith Barney brokerage ac-
count 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 Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are as follows:
<TABLE>
<CAPTION>
DEALERS
SALES CHARGE AS % SALES CHARGE AS %
REALLOWANCE AS
AMOUNT OF INVESTMENT OF TRANSACTION OF AMOUNT INVESTED % OF
OFFERING PRICE
<S> <C> <C> <C>
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, which when combined with current holdings
of Class A shares offered with a sales charge equal or exceed $500,000
in the aggregate, will be made at net asset value without any initial
sales charge, but will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase. The CDSC on Class A shares is payable to
Smith Barney which compensates Smith Barney Financial Consultants and
other dealers whose clients make purchases of $500,000 or more. The CDSC
is waived in the same circumstances in which the CDSC applicable to
Class B and Class C shares is waived. See "Deferred Sales Charge Alter-
natives" and "Waivers of CDSC."
</TABLE>
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, as amended.
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 in-
cludes an individual, including his or her spouse and children, or a
trustee or other fiduciary of a single trust estate or single fiduciary
account. The reduced sales charge minimums may also be met by aggregating
the purchase with the net asset value of all Class A shares held in funds
sponsored by Smith Barney that are offered with a sales charge listed
under "Exchange Privilege."
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 of Class A shares to Di-
rectors of the Fund and employees of Travelers and its subsidiaries, or to
the spouses and children of such persons (including the surviving spouse
of a deceased Director or employee, and retired Directors or employees);
(b) offers of Class A shares to any other investment company in connection
with 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 Smith Barney Financial Consultant (for a period up to 90
days from the commencement of the Financial Consultant's employment with
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) shareholders who have redeemed Class A shares in the Fund (or
Class A shares of another fund of the Smith Barney Mutual Funds that are
offered with a sales charge equal to or greater than the maximum sales
charge of the Fund) and who wish to reinvest their redemption proceeds in
the Fund, provided the reinvestment is made within 60 calendar days of the
redemption; (e) accounts managed by registered investment advisory subsid-
iaries of Travelers; and (f) investments of distributions from a UIT spon-
sored by Smith Barney. In order to obtain such discounts, the purchaser
must provide sufficient information at the time of purchase to permit ver-
ification 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 ag-
gregating the dollar amount of the new purchase and the total net asset
value of all Class A shares of the Fund and of funds sponsored by Smith
Barney which are offered with a sales charge listed under "Exchange Privi-
lege" then held by such person and applying the sales charge applicable to
such aggregate. In order to obtain such discount, the purchaser must pro-
vide sufficient information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge. The right of ac-
cumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and part-
ners) of the same employer purchasing as a group, provided each partici-
pant makes the minimum initial investment required. The sales charge ap-
plicable to purchases by each member of such a group will be determined by
the table set forth above under "Initial Sales Charge Alternative -- Class
A Shares" and will be based upon the aggregate sales of Class A shares of
Smith Barney Mutual Funds offered with a sales charge to, and share hold-
ings of, all members of the group. To be eligible for such reduced sales
charges or to purchase at net asset value, all purchases must be pursuant
to an employee or partnership-sanctioned plan meeting certain require-
ments. One such requirement is that the plan must be open to specified
partners or employees of the employer and its subsidiaries, if any. Such
plan may, but is not required to, provide for payroll deductions. Smith
Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that
Smith Barney will realize economies of sales efforts and sales related ex-
penses. An individual who is a member of a qualified group may also pur-
chase Class A shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class A shares offered with a sales charge that have been previ-
ously purchased and are still owned by the group, plus the amount of the
current purchase. A "qualified group" is one which (a) has been in exist-
ence for more than six months, (b) has a purpose other than acquiring Fund
shares at a discount and (c) satisfies uniform criteria which enable Smith
Barney to realize economies of scale in its costs of distributing shares.
A qualified group must have more than 10 members, must be available to ar-
range for group meetings between representatives of the Fund and the mem-
bers, and must agree to include sales and other materials related to the
Fund in its publications and mailings to members at no cost to Smith Bar-
ney. In order to obtain such reduced sales charge or to purchase at net
asset value, the purchaser must provide sufficient information at the time
of purchase to permit verification that the purchase qualifies for the re-
duced sales charge. Approval of group purchase reduced sales charge plans
is subject to the discretion of Smith Barney.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity
for an investor to obtain a reduced sales charged by aggregating invest-
ments over a 13-month period, provided that 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 purchases of all Class A shares of the Fund and other funds of
the Smith Barney Mutual Funds offered with a sales charge over the 13-
month period based on the total amount of intended purchases plus the
value of all Class A shares previously purchased and still owned. An al-
ternative is to compute the 13- month period starting up to 90 days before
the date of execution of a Letter of Intent. 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 pe-
riod, the investor must pay the difference between the sales charges ap-
plicable to the purchases made and the charges previously paid, or an ap-
propriate number of escrowed shares will be redeemed. New Letters of In-
tent will be accepted beginning January 1, 1995. Please contact a Smith
Barney Financial Consultant or TSSG to obtain a letter of Intent applica-
tion.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an ini-
tial sales charge so that the full amount of an investor's purchase pay-
ment may be immediately invested in the Fund. A CDSC, however, may be im-
posed on certain redemptions of these shares. "CDSC Shares" are: (a) Class
B shares; (b) Class C shares; and (c) Class A shares which when combined
with Class A shares offered with a sales charge currently held by an in-
vestor equal or exceed $500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at the time
of redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the extent that the value of such shares represents; (a) capital appre-
ciation of Fund assets; (b) reinvestment of dividends or capital gain dis-
tributions; (c) with respect to Class B shares, shares redeemed more than
five years after their purchase; or (d) with respect to Class C shares and
Class A shares that are CDSC Shares, shares redeemed more than 12 months
after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in
which the CDSC is imposed on Class B shares, the amount of the charge will
depend on the number of years since the shareholder made the purchase pay-
ment from which the amount is being redeemed. Solely for purposes of de-
termining the number of years since a purchase payment, all purchase pay-
ments made during a month will be aggregated and deemed to have been made
on the last day of the preceding Smith Barney statement month. The follow-
ing table sets forth the rates of the charge for redemptions of Class B
shares by shareholders.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
<S> <C>
First 4.50%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
</TABLE>
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. Shareholders who held Class B
shares of Smith Barney Shearson Short-Term World Income Fund (the "Short-
Term World Income Fund") on July 15, 1994 and who subsequently exchange
those shares for Class B shares of the Fund will be offered the opportu-
nity to exchange all such Class B shares for Class A shares of the Fund
four years after the date on which those shares were deemed to have been
purchased. Holders of such Class B shares will be notified of the pending
exchange in writing approximately 30 days before the fourth anniversary of
the purchase date and, unless the exchange has been rejected in writing,
the exchange will occur on or about the fourth anniversary date. See "Pro-
spectus Summary -- Alternative Purchase Arrangements -- Class B Shares
Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were ini-
tially acquired in one of the other Smith Barney Mutual Funds, and Fund
shares being redeemed will be considered to represent, as applicable, cap-
ital appreciation or dividend and capital gain distribution reinvestments
in such other funds. For Federal income tax purposes, the amount of the
CDSC will reduce the gain or increase the loss, as the case may be, on the
amount realized on redemption. The amount of any CDSC will be paid to
Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares 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 CDSC would not be applied to
the amount which represents appreciation ($200) and the value of the rein-
vested dividend shares ($60). Therefore, $240 of the $500 redemption pro-
ceeds ($500 minus $260) would be charged at a rate of 4.00% (the applica-
ble rate for Class B shares) for a total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC 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 below) (provided, however, that automatic cash with-
drawals 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 that were
established prior to November 7, 1994); (c) redemptions of shares within
12 months following the death or disability of the shareholder; (d) invol-
untary redemptions; and (e) redemptions of shares in connection with 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 funds of the Smith Barney Mutual Funds may, under certain cir-
cumstances, reinvest all or part of the redemption proceeds within 60 days
and receive pro rata credit for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by TSSG in
the case of all other shareholders) of the shareholder's status or hold-
ings, as the case may be.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at
the net asset value next determined for shares of the same Class in the
following funds of the 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 C shares are subject to minimum investment re-
quirements and all shares are subject to other requirements of the fund
into which exchanges are made, and a sales charge differential may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -- Capital Appreciation Portfolio
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Income Funds
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc. -- Income Return Account Portfolio
Smith Barney Funds, Inc. -- Monthly Payment Government Portfolio
++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities
Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Funds, Inc. -- Utility Portfolio
Smith Barney Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
* Smith Barney Limited Maturity Treasury Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Municipal Bond Funds
* Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
* Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
* Smith Barney Muni Funds -- California Limited Term Portfolio
Smith Barney Muni Funds -- California Portfolio
* Smith Barney Muni Funds -- Florida Limited Term Portfolio
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
* Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New Jersey Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
Money Market Funds
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc. -- Cash Portfolio
++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
++ Smith Barney Municipal Money Market Fund, Inc.
++ Smith Barney Muni Funds -- California Money Market Portfolio
++ Smith Barney Muni Funds -- New York Money Market Portfolio
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A, Class B and Class Y shares of the
Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund.
Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold with-
out a sales charge or with a maximum sales charge of less than the maximum
charged by other Smith Barney Mutual Funds will be subject to the appro-
priate "sales charge differential" upon the exchange of such shares for
Class A shares of a fund sold with a higher sales charge. The "sales
charge differential" is limited to a percentage rate no greater than the
excess of the sales charge rate applicable to purchases of shares of the
mutual fund being acquired in the exchange over the sales charge rate(s)
actually paid on the mutual fund shares relinquished in the exchange and
on any predecessor of those shares. For purposes of the exchange privi-
lege, shares obtained through automatic reinvestment of dividends and cap-
ital gains distributions are treated as having paid the same sales charges
applicable to the shares on which the dividends or distributions were
paid; however, if no sales charge was imposed upon the initial purchase of
the shares, any shares obtained through automatic reinvestment will be
subject to a sales charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income Fund
on July 15, 1994) wishes to exchange all or a portion of his or her shares
in any of the funds imposing a higher CDSC than that imposed by the Fund,
the exchanged Class B shares will be subject to the higher applicable
CDSC. 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 C Exchanges. Upon an exchange, the new Classs C shares will be
deemed to have been purchased on the same date as the Classs C shares of
the Fund that have been exchanged.
Class Y Exchanges. Class Y shareholders of the Fund who wish to exchange
all or a portion of their Class Y shares for Class Y shares in any of the
funds identified above may do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the ex-
change privilege is an important benefit, excessive exchange transactions
can be detrimental to the Fund's performance and its shareholders. SBMFM
may determine that a pattern of frequent exchanges is excessive and con-
trary to the best interests of the Fund's other shareholders. In this
event, the SBMFM will notify Smith Barney and Smith Barney may, at its
discretion, decide to limit additional purchases and/or exchanges by a
shareholder. Upon such a determination, Smith Barney 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 share-
holder will be required to (a) redeem his or her shares of 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 rele-
vant factors will be considered in determining what constitutes an abusive
pattern of exchanges.
Exchanges will be processed at the net asset value next determined, plus
any applicable sales charge differential. 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 ac-
count 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. A capital gain or loss for tax purposes will be re-
alized upon the exchange, depending upon the cost or other basis of shares
redeemed. Before exchanging shares, investors should read the current pro-
spectus describing the shares to be acquired. The Fund reserves the right
to modify or discontinue exchange privileges upon 60 days' prior notice to
shareholders.
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 CDSC. 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 re-
demption 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 Fund's
transfer agent receives further instructions from Smith Barney, or if the
shareholder's account is not with Smith Barney, from the shareholder di-
rectly. The redemption proceeds will be remitted on or before the seventh
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 circum-
stances. The Fund anticipates that, in accordance with regulatory changes,
beginning on or about June 1, 1995, payment will be made on the third
business day after receipt of proper tender. Generally, if the redemption
proceeds are remitted to a Smith Barney brokerage account, these funds
will not be invested for the shareholder's benefit without specific in-
struction and Smith Barney will benefit from the use of temporarily unin-
vested 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 Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than
those held by Smith Barney as custodian may be redeemed through an inves-
tor's Financial Consultant, Introducing Broker or dealer in the selling
group or by submitting a written request for redemption to:
Smith Barney New Jersey Municipals Fund Inc.
Class A, B, C or Y (please specify)
c/o The Shareholders Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or dollar
amount of shares to redeemed, (b) identify the shareholder's account num-
ber 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 TSSG together with the re-
demption request. Any signature appearing on a redemption request, share
certificate or stock power must be guaranteed by an eligible guarantor in-
stitution 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. TSSG 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 TSSG 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 many
elect to receive cash payments of at least $100 monthly or quarterly. The
withdrawal plan will be carried over on exchanges between funds or Classes
of the Fund. Any applicable CDSC will not be waived on amounts withdrawn
by a shareholder that exceed 1.00% per month of the value of the share-
holder's shares subject to the CDSC at the time the withdrawal plan com-
mences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not
exceed 2.00% per month of the shareholder's shares subject to the CDSC.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholders'
account in the Fund if the aggregate net asset value of the shares held in
the Fund account is less than $500. (If a shareholder has more than one
account in this Fund, each account must satisfy the minimum account size.)
The Fund, however, will not redeem shares based solely on market reduc-
tions in net asset value. Before the Fund exercises such right, sharehold-
ers will receive written notice and will be permitted 60 days to bring ac-
counts up to the minimum to avoid automatic redemption.
PERFORMANCE
YIELD
From time to time, the Fund may advertises the 30-day "yield" and "equiva-
lent taxable yield" of each Class of shares. The yield refers to the in-
come generated by an investment in those shares of the Fund over the 30-
day period identified in the advertisement and is computed by dividing the
net investment income per share earned by the Class during the period by
the maximum public offering price per share on the last day of the period.
This income is "annualized" by assuming that the amount of income is gen-
erated each month over a one-year period and is compounded semi-annually.
The annualized income is then shown as a percentage of the net asset
value.
The equivalent taxable yield demonstrates the yield on a taxable invest-
ment necessary to produce an after-tax yield equal to the Fund's tax-
exempt yield for each Class. It is calculated by increasing the yield
shown for the Class to the extent necessary to reflect the payment of
taxes at specified tax rates. Thus, the equivalent taxable yield always
will exceed the Fund's yield. For more information on equivalent taxable
yields, please refer to the table under "Dividends, Distributions and
Taxes."
TOTAL RETURN
From time to time the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other
types of sales literature. These figures are computed separately for Class
A, Class B, Class C and Class Y shares of the Fund. These figures are
based on historical earnings and are not intended to indicate future per-
formance. Total return is computed for a specified period of time assuming
deduction of the maximum sales charge, if any, from the initial amount in-
vested and reinvestment of all income dividends and capital gain distribu-
tions on the reinvestment dates at prices calculated as stated in this
Prospectus, then dividing the value of the investment at the end of the
period so calculated by the initial amount invested and subtracting 100%.
The standard average annual total return, as prescribed by the SEC, is de-
rived from this total return, which provides the ending redeemable value.
Such standard total return information may also be accompanied with non-
standard total return information for differing periods computed in the
same manner but without annualizing the total return or taking sales
charges into account. The Fund calculates current dividend return for each
Class by annualizing the most recent monthly distribution and dividing by
the net asset value or the maximum public offering price (including sales
charge) on the last day of the period for which current dividend return is
presented. The current dividend return for each Class may vary from time
to time depending on market conditions, the composition of its investment
portfolio and operating expenses. These factors and possible differences
in the methods used in calculating current dividend return should be con-
sidered when comparing a Class' current return to yields published for
other investment companies and other investment vehicles. The Fund may
also include comparative performance information in advertising or market-
ing its shares. Such performance information may include data from Lipper
Analytical Services, Inc. or similar independent services that monitor the
performance of mutual funds, or other industry publications. The Fund will
include performance data for Class A, Class B, Class C and Class Y shares
in any advertisement or information including performance data of the
Fund.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and the companies that furnish services to the
Fund, including agreements with the Fund's distributor, investment ad-
viser, administrator, sub- administrator, custodian and transfer agent.
The day-to-day operations of the Fund are delegated to the Fund's invest-
ment adviser, administrator and sub- administrator. The Statement of Addi-
tional Information contains general background information regarding each
Director and executive officer of the Fund.
INVESTMENT ADVISER -- SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves
as the Fund's investment adviser pursuant to a transfer of the advisory
agreement, effective November 7, 1994, from its affiliate, Mutual Manage-
ment Corp. (Mutual Management Corp. and SBMFM are both wholly owned sub-
sidiaries of Holdings.) Investment advisory services continue to be pro-
vided to the Fund by the same portfolio managers who had provided services
under the agreement with Mutual Management Corp. SBMFM (through predeces-
sor entities) has been in the investment counseling business since 1934
and is a registered investment adviser. SBMFM renders investment advice to
investment companies that had aggregate assets under management as of Sep-
tember 30, 1994 in excess of $52.4 billion.
Subject to the supervision and direction of the Fund's Board of Directors,
SBMFM manages the Fund's portfolio in accordance with the Fund's invest-
ment 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. For investment advisory services rendered, the Fund pays
SBMFM an investment advisory fee at the following annual rates: .35% of
average daily net assets up to $500 million; and .32% of average daily net
assets in excess of $500 million. For the fiscal year ended March 31,
1994, Mutual Management Corp. was paid investment advisory fees equal to
0.32% of the value of the average daily net assets of the Fund and SBMFM
waived investment advisory fees in an amount equal to 0.03% of the value
of the average daily net assets of the Fund.
PORTFOLIO MANAGEMENT
Lawrence T. McDermott, an Investment Officer of SBMFM, has served as Vice
President and Investment Officer of the Fund since it commenced opera-
tions, and manages the day-to-day operations of the Fund, including making
all investment decisions.
Management's discussion and analysis, and additional performance informa-
tion regarding the Fund during the fiscal year ended March 31, 1994, are
included in the Annual Report dated March 31, 1994. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or
telephone number listed on page one of this Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees all aspects of
the Fund's administration. For administration services rendered, the Fund
pays SBMFM a fee at the following annual rates of average daily net as-
sets: 0.20% to $500 million; and 0.18% in excess of $500 million.
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's sub-administrator. Boston Advisors provides invest-
ment management, investment advisory and/or administrative services to in-
vestment companies which had aggregate assets under management as of Sep-
tember 30, 1994, in excess of $48.6 billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists SBMFM in all aspects of the Fund's administration and
operation. Under a sub-administration agreement dated July 20, 1994, Bos-
ton Advisors is paid a portion of the fee paid by the Fund to SBMFM at a
rate agreed upon from time to time between Boston Advisors and SBMFM.
Prior to July 20, 1994, Boston Advisors served as the Fund's administra-
tor. For the fiscal year ended March 31, 1994, the Fund paid administra-
tion fees to Boston Advisors in an amount equal to 0.18% of the value of
the average daily net assets of the Fund and Boston Advisors waived admin-
istration fees payable to it in an amount equal to 0.02% of the value of
the average daily net assets of the Fund.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and
as such conducts a continuous offering pursuant to a "best efforts" ar-
rangement requiring Smith Barney to take and pay for only such securities
as may be sold to the public. Pursuant to a plan of distribution adopted
by the Fund under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney
is paid a service fee with respect to Class A, Class B and Class C shares
of the Fund at the annual rate of 0.15% of the average daily net assets of
the respective Class. Smith Barney is also paid a distribution fee with
respect to Class B and Class C shares at the annual rate of 0.50% and
0.55%, respectively, of the average daily net assets attributable to those
Classes. Class B shares which automatically convert to Class A shares
eight years after the date of original purchase will no longer be subject
to a distribution fee. The fees are used by Smith Barney to pay its Finan-
cial Consultants for servicing shareholder accounts and, in the case of
Class B and Class C shares, to cover expenses primarily intended to result
in the sale of those shares. These expenses include: advertising expenses;
the cost of printing and mailing prospectuses to potential investors; pay-
ments to and expenses of Smith Barney Financial Consultants and other per-
sons who provide support services in connection with the distribution of
shares; interest and/or carrying charges; and indirect and overhead costs
of Smith Barney associated with the sale of Fund shares, including lease,
utility, communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at
the time of sale and, with respect to Class A, Class B and Class C shares,
a continuing fee for servicing shareholder accounts for as long as a
shareholder remains a holder of that Class. Smith Barney Financial Con-
sultants may receive different levels of compensation for selling differ-
ent Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the
payments may exceed distribution expenses actually incurred. The Fund's
Board of Directors will evaluate the appropriateness of the Plan and its
payment terms on a continuing basis and in so doing will consider all rel-
evant factors, including expenses borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on No-
vember 12, 1987, and is registered with the SEC as a non-diversified,
open-end management investment company. The Fund offers shares of common
stock currently classified into four Classes -- A, B, C and Y. Each Class
of shares has a par value of $.001 per share and represents identical in-
terest 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, if any, for each Class; (c) the distribution and/or service fees,
if any, borne by each Class; (d) the expenses allocable 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 of-
fice 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 sub-
mitted 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.
Boston Safe Deposit and Trust Company is an indirect wholly owned subsid-
iary of Mellon and is located at One Boston Place, Boston, Massachusetts
02108, and serves as custodian of the Fund's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as the Fund's transfer agent.
The Fund sends to each of its shareholders a semi-annual report and an au-
dited annual report, which include listings of investment securities held
by the Fund at the end of each reporting period. In an effort to reduce
the Fund's printing and mailing costs, the Fund plans to consolidate the
mailing of its semi- annual and annual reports by household. This consoli-
dation means that a household having multiple accounts with the identical
address of record will receive a single copy of each report. Shareholders
who do not want this consolidation to apply to their account should con-
tact their Smith Barney Financial Consultant or TSSG.
No person has been authorized to give any information or to make any rep-
resentations in connection with this offering other than those contained
in this Prospectus and, if given or made, such other information or repre-
sentations must not be relied upon as having been authorized by the Fund
or the Distributor. This Prospectus does not constitute an offer by the
Fund or the Distributor to sell or a solicitation of an offer to buy any
of the securities offered hereby in any jurisdiction to any person to whom
it is unlawful to make such an offer or solicitation in such jurisdiction.
SMITH BARNEY
A MEMBER OF TRAVELERS GROUP
SMITH BARNEY
NEW JERSEY
MUNICIPALS
FUND INC.
388 Greenwich Street
New York, New York 10013
Fund 66,206
FD 0231j4
Smith Barney
NEW JERSEY MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 7, 1994
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney New Jersey
Municipals Fund Inc. (the "Fund"), dated November 7, 1994, as amended or
supplemented from time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund's Prospectus may be obtained from a Smith Bar-
ney Financial Consultant or by writing or calling the Fund at the address
or telephone number set forth above. This Statement of Additional Informa-
tion, although not in itself a prospectus, is incorporated by reference
into the Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference the same section headings are used in both the Pro-
spectus and the Statement of Additional Information, except where shown
below:
<TABLE>
<CAPTION>
<S>
<C>
Management of the Fund
1
Investment Objective and Management Policies
5
Municipal Bonds (See in the Prospectus "New Jersey Municipal
Securities")
10
Purchase of Shares
24
Redemption of Shares
24
Distributor
25
Valuation of Shares
27
Exchange Privilege
27
Performance Data (See in the Prospectus "The Fund's Performance")
28
Taxes (See in the Prospectus "Dividends, Distributions and Taxes")
31
Additional Information
34
Financial Statements
34
Appendix
A-1
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the organi-
zations that provide services to the Fund. These organizations are as fol-
lows:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
Smith Barney Inc.
("Smith Barney") Distributor
Smith Barney Mutual Funds Management Inc. Investment Adviser
and
("SBMFM") Administrator
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-Administrator
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation Transfer Agent
</TABLE>
These organizations and the functions they perform for the Fund are dis-
cussed in the Prospectus and in this Statement of Additional Information.
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The Directors and executive officers of the Fund, together with informa-
tion as to their principal business occupations during the past five
years, are shown below. Each Director who is an "interested person" of the
Fund, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), is indicated by an asterisk.
Herbert Barg, Director. Private Investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Director. Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey, New
Jersey 17466.
Martin Brody, Director. Vice Chairman of the Board of Restaurant Associ-
ates Industries Corp.; a Director of Jaclyn, Inc. His address is HMK Asso-
ciates, Three ADP Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Director. Professor, Graduate School of Business Adminis-
tration, Harvard University; a Director of Peer Review Analysis, Inc. His
address is Graduate School of Business Administration, Harvard University,
Boston, Massachusetts 02163.
James J. Crisona, Director. Attorney; formerly Justice of the Supreme
Court of the State of New York. His address is 118 East 60th Street, New
York, New York 10022.
Burt N. Dorsett, Director. Managing Partner of Dorsett McCabe Management,
Inc., an investment counselling firm; Director of Research Corporation
Technologies, Inc., a non-profit patent-clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York 10021.
Robert A. Frankel, Director. Management Consultant; retired Vice President
of The Reader's Digest Association, Inc. His address is 102 Grand Street,
Croton-on-Hudson, New York 10520.
Dr. Paul Hardin, Director. Chancellor of the University of North Carolina
at Chapel Hill; a Director of The Summit Bancorporation. His address is
University of North Carolina, 103 S. Building, Chapel Hill, North Carolina
27599.
Elliot S. Jaffe, Director. Chairman of the Board and President of The
Dress Barn, Inc. His address is 88 Hamilton Avenue, Stamford, Connecticut
06904.
Stephen E. Kaufman, Director. Attorney. His address is 277 Park Avenue,
New York, New York 10017.
Joseph J. McCann, Director. Financial Consultant; formerly Vice President
of Ryan Homes, Inc., Pittsburgh, Pennsylvania. His address is 200 Oak Park
Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer. Execu-
tive Vice President of Smith Barney and Chairman of Smith Barney Strategy
Advisers Inc.; prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"), Vice Chairman
of Shearson Asset Management, a Director of PanAgora Asset Management,
Inc. and PanAgora Asset Management Limited. His address is 388 Greenwich
Street, New York, New York 10013.
Cornelius C. Rose, Jr., Director. President, Cornelius C. Rose Associates,
Inc., Financial Consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address is Fair Oaks, En-
field, New Hampshire 03748.
Stephen J. Treadway, President. Executive Vice President and Director of
Smith Barney; Director and President of SBMFM; and Trustee of Corporate
Realty Income Trust I. His address is 388 Greenwich Street, New York, New
York 10013.
Richard P. Roelofs, Executive Vice President. Managing Director of Smith
Barney and President of Smith Barney Strategy Advisers Inc.; prior to July
1993, Senior Vice President of Shearson Lehman Brothers and Vice President
of Shearson Lehman Investment Strategy Advisors Inc. His address is 388
Greenwich Street, New York, New York 10013.
Lawrence T. McDermott, Vice President and Investment Officer. Investment
Officer of SBMFM; prior to July 1993, Managing Director of Shearson Lehman
Advisors the predecessor to Greenwich Street Advisors. His address is 388
Greenwich Street, New York, New York 10013.
Karen L. Mahoney-Malcomson, Investment Officer. Investment Officer of
SBMFM; prior to July 1993, Vice President of Shearson Lehman Advisors. Her
address is 388 Greenwich Street, New York, New York 10013.
Lewis E. Daidone, Treasurer. Managing Director and Chief Financial Officer
of Smith Barney; Director and Senior Vice President of SBMFM. His address
is 388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary. Managing Director of Smith Barney; General
Counsel and Secretary of SBMFM. Her address is 388 Greenwich Street, New
York, New York 10013.
Each Director also serves as a director, trustee or general partner of
other mutual funds for which Smith Barney serves as distributor. As of
September 30, 1994, the Directors and officers of the Fund as a group
owned less than 1.00% of the outstanding common stock of the Fund.
No director, officer or employee of Smith Barney or of any parent or sub-
sidiary of Smith Barney receives any compensation from the Fund for serv-
ing as an officer or Director of the Fund. The Fund pays each Director who
is not an officer, director or employee of Smith Barney or any of its af-
filiates a fee of $1,000 per annum plus $100 per meeting attended and re-
imburses them for travel and out-of-pocket expenses. For the fiscal year
ended March 31, 1994, such fees and expenses totalled $16,869.
INVESTMENT ADVISER AND ADMINISTRATOR -- SBMFM
SUB-ADMINISTRATOR -- BOSTON ADVISORS
SBMFM serves as investment adviser to the Fund pursuant to a transfer of
the investment advisory agreement effective November 7, 1994, from its af-
filiate, Mutual Management Corp. (Mutal Management Corp. and SBMFM are
both wholly owned subsidiaries of Smith Barney Holdings Inc. ("Hold-
ings").) The advisory agreement is dated July 30, 1993 (the "Advisory
Agreement") and was first approved by the Board of Directors, including a
majority of those Directors who are not "interested persons" of the Fund
or Smith Barney, on April 7, 1993. The services provided by SBMFM under
the Advisory Agreement are described in the Prospectus. SBMFM bears all
expenses in connection with the performance of its services and pays the
salary of any officer or employee who is employed by both it and the Fund.
Holdings is a wholly owned subsidiary of The Travelers Inc. ("Travelers").
As compensation for SBMFM's services, the Fund pays a fee payable monthly
at the following annual rates: .35% of average daily net assets up to $500
million; .32% of average daily net assets in excess of $500 million. For
the 1992, 1993 and 1994 fiscal years, investment advisory fees paid to Mu-
tual Management Corp. and/or Shearson Lehman Advisors, the Fund's invest-
ment advisor prior to Mutual Management Corp., amounted to $284,515,
$378,146 and $559,176, respectively. Shearson Lehman Advisors and/or Mu-
tual Management Corp. voluntarily waived investment advisory fees for the
fiscal years ended March 31, 1992, 1993 and 1994 in the amounts of
$76,727, $110,602 and $49,482, respectively.
SBMFM also serves as administrator to the Fund pursuant to a written
agreement (the "Administration Agreement") dated April 20, 1994, which was
most recently approved by the Fund's Board of Directors, including a ma-
jority of Directors who are not "interested persons" of the Fund or Smith
Barney, on July 20, 1994. As compensation for administration services ren-
dered, the Fund pays SBMFM a fee paid monthly at the following annual
rates: .20% of average daily net assets up to $500 million; .18% of aver-
age daily net assets of the next $1 billion; and .16% of average daily net
assets in excess of $1.5 billion.
Prior to April 20, 1994, Boston Advisors served as administrator to the
Fund. Boston Advisors currently serves as sub-administrator to the Fund
under a written agreement (the "Sub-Administration Agreement") dated April
20, 1994, which was most recently approved by the Fund's Board of Direc-
tors, including a majority of Directors who are not "interested persons"
of the Fund or Boston Advisors on April 20, 1994. Prior to the close of
business on May 21, 1993, Boston Advisors acted in the capacity as the
Fund's sub-investment adviser and administrator. Boston Advisors is a
wholly owned subsidiary of The Boston Company, Inc. ("TBC"), a financial
services holding company, which is in turn a wholly owned subsidiary of
Mellon Bank Corporation ("Mellon").
As compensation for Boston Advisors' services rendered, the Fund pays a
fee computed daily and payable monthly at the following annual rates: .20%
of the value of the Fund's average daily net assets up to $500 million and
.18% of the value of its average daily net assets in excess of $500 mil-
lion. For the fiscal years ended March 31, 1992, 1993 and 1994, such fees
amounted to $162,580, $216,083 and $319,529, respectively. Boston Advisors
voluntarily waived sub-investment advisory and/or administration fees for
the fiscal years ended March 31, 1992, 1993 and 1994 in the amounts of
$43,844, $63,201 and $28,275, respectively.
Certain of the services provided to the Fund by SBMFM pursuant to the Ad-
ministration Agreement and Boston Advisors pursuant to the Sub-
Administration Agreement are described in the Prospectus under "Management
of the Fund." In addition to those services, SBMFM and Boston Advisors pay
the salaries of all officers and employees who are employed by both SBMFM
and Boston Advisors and the Fund, maintains office facilities for the
Fund, furnishes the Fund with statistical and research data, clerical help
and accounting, data processing, bookkeeping, internal auditing and legal
services and certain other services required by the Fund, prepares reports
to the Fund's shareholders, and prepares tax returns, reports to and fil-
ings with the Securities and Exchange Commission (the "SEC") and state
blue sky authorities. SBMFM and Boston Advisors bear all expenses in con-
nection with the performance of their services.
The Fund bears expenses incurred in its operations, including: taxes, in-
terest, brokerage fees and commissions, if any; fees of Directors who are
not officers, directors, shareholders or employees of Smith Barney; SEC
fees and state blue sky qualification fees; charges of custodian; transfer
and dividend disbursing agent's fees; certain insurance premiums; outside
auditing and legal expenses; costs of any independent pricing service;
costs of maintaining corporate existence; costs attributable to investors
services (including allocated telephone and personnel expenses); costs of
preparation 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.
SBMFM and Boston Advisors have agreed that if in any fiscal year the ag-
gregate expenses of the Fund (including fees payable pursuant to the Advi-
sory Agreement and Administration Agreement but excluding interest, taxes,
brokerage and, with the prior written consent of the necessary state secu-
rities commissions, extraordinary expenses) exceed the expense limitation
of any state having jurisdiction over the Fund, SBMFM and Boston Advisors
will, to the extent required by state law, reduce their management fees by
the amount of such excess expenses, such amount to be allocated between
them in the proportion that their respective fees bear to the aggregate of
such fees paid by the Fund. Such fee reductions, if any, will be recon-
ciled on a monthly basis. For the fiscal year ended March 31, 1994 no such
fee reduction was required.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Fund. McCarter &
English serves as special New Jersey counsel for the Fund and has reviewed
the portions of the Prospectus and this Statement of Additional Informa-
tion concerning New Jersey taxes and the description of the special con-
siderations relating to investments in New Jersey Municipal Securities (as
defined below). The Directors who are not "interested persons" of the Fund
have selected Stroock & Stroock & Lavan as their counsel.
Coopers and Lybrand L.L.P., independent accountants, One Post Office
Square, Boston, Massachusetts 02109, serve as auditors of the Fund and
render an opinion on the Fund's financial statements annually.
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. For
purposes of this Statement of Additional Information, obligations of non-
New Jersey municipal issuers, the interest on which is at least exempt
from Federal income taxation ("Other Municipal Securities"), and obliga-
tions of the State of New Jersey and its political subdivisions, agencies
and public authorities (together with certain municipal issuers such as
the Commonwealth of Puerto Rico, the Virgin Islands and Guam) that pay in-
terest which is excluded from gross income for Federal income tax purposes
and exempt from New Jersey personal income taxes ("New Jersey Municipal
Securities") are collectively referred to as "Municipal Bonds."
As noted in the Prospectus, the Fund is classified as a non-diversified
investment company under the 1940 Act, which means that the Fund is not
limited by the 1940 Act in the proportion of its assets that may be in-
vested in the obligations of a single issuer. The identification of the
issuer of Municipal Bonds generally depends upon the terms and conditions
of the security. When the assets and revenues of an agency, authority, in-
strumentality 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 would be 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
in either case, however, the creating government or some other entity
guarantees a security, such a guarantee would be considered a separate se-
curity and would be treated as an issue of such government or other en-
tity.
RATINGS AS INVESTMENT CRITERIA
In general, the ratings of Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") represent the opinions of those
agencies as to the quality of the Municipal Bonds and short-term invest-
ments 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 SBMFM to evalu-
ate potential investments. Among the factors that will be considered are
the long-term ability of the issuer to pay principal and interest and gen-
eral 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 SBMFM's credit analysis of such securi-
ties than would be the case for a portfolio consisting entirely of higher-
rated securities.
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 re-
quire the sale of such Municipal Bonds by the Fund, but SBMFM will con-
sider such event in its determination of whether the Fund should continue
to hold the Municipal Bonds. In addition, to the extent the ratings change
as a result of changes in such organizations or their rating systems or
due to a corporate restructuring of Moody's or S&P, the Fund will attempt
to use comparable ratings as standards for its investments in accordance
with its investment objective and policies. The Appendix contains informa-
tion concerning the ratings of Moody's and S&P and their significance.
TEMPORARY INVESTMENTS
The Fund may invest in short-term investments ("Temporary Investments")
consisting of (a) the following tax-exempt securities: notes of municipal
issuers having, at the time of purchase, a rating within the three highest
grades of Moody's or S&P or, if not rated, having an issue of outstanding
Municipal Bonds rated within the three highest grades by Moody's or S&P;
and (b) the following taxable securities: obligations of the United States
government, its agencies or instrumentalities ("U.S. government securi-
ties"), repurchase agreements, other debt securities rated within the
three highest grades by Moody's and S&P, commercial paper rated in the
highest grade by either of such rating services, and certificates of de-
posit of domestic banks with assets of $1 billion or more. The Fund in-
tends to purchase tax-exempt Temporary Investments pending the investment
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 avail-
able to meet anticipated redemptions. 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; provided, however, that the
Fund will seek, to the extent that it makes Temporary Investments for de-
fensive purposes, to make such investments in conformity with the require-
ments of a qualified investment fund under New Jersey law.
Repurchase Agreements. As a defensive position only, the Fund may enter
into repurchase agreements with banks which are the issuers of instruments
acceptable for purchase by the Fund and with certain dealers on the Fed-
eral Reserve Bank of New York's list of reporting dealers. A repurchase
agreement is a contract under which the buyer of a security simultaneously
commits to resell the security to the seller at an agreed-upon price on an
agreed-upon date. Under the terms of a typical repurchase agreement, the
Fund would acquire an underlying debt obligation for a relatively short
period (usually not more than seven days) subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-
upon price and time, thereby determining the yield during the Fund's hold-
ing period. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Fund's holding period. Under
each repurchase agreement, the selling institution will be required to
maintain the value of the securities subject to the repurchase agreement
at not less than their repurchase price. Repurchase agreements could in-
volve certain risks in the event of default or insolvency of the other
party, including possible delays or restrictions upon the Fund's ability
to dispose of the underlying securities, the risk of a possible decline in
the value of the underlying securities during the period in which the Fund
seeks to assert its rights to them, the risk of incurring expenses associ-
ated with asserting those rights and the risk of losing all or part of the
income from the agreement SBMFM or Boston Advisors, acting under the su-
pervision of the Fund's Board of Directors, reviews on an ongoing basis
the value of the collateral and the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to evaluate
potential risks.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the protec-
tion of shareholders. Restrictions 1 through 7 below cannot be changed
without the approval of 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 are present in person or 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. Issue senior securities as defined in the 1940 Act and any rules and
orders thereunder, except insofar as the Fund may be deemed to have issued
senior securities by reason of: (a) borrowing money or purchasing securi-
ties on a when-issued or delayed-delivery basis; (b) purchasing or selling
futures contracts and options on futures contracts and other similar in-
struments; and (c) issuing separate classes of shares.
2. 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. gov-
ernment securities and securities of state or municipal governments and
their political subdivisions are not considered to be issued by members of
any industry.
3. Borrow money, except that the Fund may borrow from banks for temporary
or emergency (not leveraging) purposes, including the meeting of redemp-
tion requests which might otherwise require the untimely disposition of
securities, in an amount not exceeding 10% of the value of the Fund's
total assets (including the amount borrowed) valued at market less liabil-
ities (not including the amount borrowed) at the time the borrowing is
made. Whenever borrowings exceed 5% of the value of the Fund's total as-
sets, the Fund will not make additional investments.
4. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its invest-
ment objective and policies; (b) repurchase agreements; and (c) loans of
its portfolio securities.
5. Engage in the business of underwriting securities issued by other per-
sons, except to the extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933, as amended, in disposing
of portfolio securities.
6. Purchase or sell real estate, real estate mortgages, real estate in-
vestment trust securities, commodities or commodity contracts, but this
shall not prevent the Fund from: (a) investing in securities of issuers
engaged in the real estate business and securities which are secured by
real estate or interests therein; (b) holding or selling real estate re-
ceived in connection with securities it holds; or (c) trading in futures
contracts and options on futures contracts.
7. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio se-
curities) or sell any securities short (except against the box). For pur-
poses of this restriction, the deposit or payment by the Fund of initial
or maintenance margin in connection with futures contracts and related op-
tions and options on securities is not considered to be the purchase of a
security on margin.
8. 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.
9. Purchase or sell oil and gas interests.
10. Invest more than 5% of the value of its total assets in the securi-
ties of issuers having a record, including predecessors, of less than
three years of continuous operation, except U.S. government securities.
(For purposes of this restriction issuers include predecessors, sponsors,
controling persons, general partners, guarantors and originators of under-
lying assets.)
11. Invest in companies for the purpose of exercising control.
12. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of as-
sets and except to the extent permitted by Section 12 of the 1940 Act
(currently, up to 5% of the total assets of the Fund and no more than 3%
of the total outstanding voting stock of any one investment company).
13. Engage in the purchase or sale of put, call, straddle or spread op-
tions or in the writing of such options, except that the Fund may engage
in transactions involving municipal bond index and interest rate futures
contracts and options thereon after approval of these investment strate-
gies by the Board of Directors and notice thereof to the Fund's sharehold-
ers.
Certain restrictions listed above permit the Fund to engage in investment
practices that the Fund does not currently pursue. The Fund has no present
intention of altering its current investment practices as otherwise de-
scribed in the Prospectus and this Statement of Additional Information and
any future change in those practices would require Board of Directors ap-
proval and appropriate disclosure to investors.
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. In
order to permit the sale of the Fund's shares in certain states, the Fund
may make commitments more restrictive than the restrictions described
above. Should the Fund determine that any such commitment is no longer in
the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the state involved.
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. The
Fund has paid no brokerage commissions since its commencement of opera-
tions.
Allocation of transactions, including their frequency, to various dealers
is determined by SBMFM in its best judgment and in the manner deemed fair
and reasonable to shareholders. The primary considerations are the avail-
ability of the desired security and prompt execution of orders in an ef-
fective manner at the most favorable prices. Subject to these consider-
ations, dealers which provide supplemental investment research and statis-
tical or other services to SBMFM may receive orders for portfolio
transactions by the Fund. Information so received enables SBMFM to supple-
ment its own research and analysis with the views and information of other
securities firms. Such information may be useful to SBMFM in serving both
the Fund and its other clients, and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to
SBMFM in carrying out its obligations to the Fund.
The Fund will not purchase Municipal Bonds during the existence of any un-
derwriting or selling group relating thereto of which SBMFM 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 Smith Barney and its affiliates in accor-
dance with rules promulgated by the SEC.
While investment decisions for the Fund are made independently from those
of the other accounts managed by SBMFM, investments of the type that the
Fund may make also may be made by such other accounts. When the Fund and
one or more other accounts managed by SBMFM are prepared to invest in, or
desire to dispose of, the same security, available investments or opportu-
nities for sales will be allocated in a manner believed by SBMFM to be eq-
uitable 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 de-
sirable to sell or purchase securities. Securities may be sold in antici-
pation of a rise in interest rates (market decline) or purchased in antic-
ipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another security of comparable qual-
ity may be purchased at approximately the same time in order to take ad-
vantage of what the Fund believes to be a temporary disparity in the nor-
mal 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 supply of various types of tax-exempt
securities. For the fiscal years ended March 31, 1993 and 1994, the Fund's
portfolio turnover rates were 58% and 32%, respectively.
MUNICIPAL BONDS
GENERAL INFORMATION
Municipal Bonds generally are understood to include debt obligations is-
sued to obtain funds for various public purposes, including the construc-
tion of a wide range of public facilities, refunding of outstanding obli-
gations, payment of general operating expenses and extensions of loans to
public institutions and facilities. Private activity bonds that are issued
by or on behalf of public authorities to finance privately operated facil-
ities are included within the term Municipal Bonds if the interest paid
thereon qualifies as excludable 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 yields on Municipal Bonds are dependent upon a variety of factors, in-
cluding general economic and monetary conditions, general money market
factors, the financial condition of the issuer, the general conditions of
the Municipal Bond market, the size of a particular offering, the maturity
of the obligation offered and the rating of the issue. Municipal Bonds are
subject to the provisions of bankruptcy, insolvency and other laws affect-
ing the rights and remedies of creditors, such as the Federal Bankruptcy
Code, and laws, if any that may be enacted by Congress or state legisla-
tures extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of the 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, principal of and interest on its, or
their, Municipal Bonds may be materially and adversely affected.
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 strat-
egy.
Municipal Bonds are subject to changes in value based upon the public's
perception of the creditworthiness of the issuers and changes, real or an-
ticipated, in the level of interest rates. In general, Municipal Bonds
tend to appreciate when interest rates decline and depreciate when inter-
est rates rise. Purchasing Municipal Bonds on a when-issued basis, there-
fore, 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 segregated account of the
Fund consisting of cash or liquid debt securities equal to the amount of
the when-issued commitments will be established at the Fund's custodian
bank. 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 daily so that the value of the
account will equal the amount of such commitments by the Fund. Placing se-
curities 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 commit-
ted 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 se-
curities, the Fund will meet its obligations from then-available cash
flow, sale of securities held in the segregated account, sale of other se-
curities 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 may
not be exempt from New Jersey personal income taxes, and from Federal in-
come taxes.
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 con-
sidered to be advantageous.
SPECIAL CONSIDERATIONS RELATING TO NEW JERSEY MUNICIPAL SECURITIES
Some of the significant financial considerations relating to the invest-
ments of the Fund are summarized below. The following information consti-
tutes only a brief summary, does not purport to be a complete description
and is largely based on information drawn from official statements relat-
ing to securities offerings of New Jersey municipal obligations available
as of the date of this Statement of Additional Information. The accuracy
and completeness of the information contained in such offering statements
has not been independently verified.
On November 2, 1993, Christine Todd Whitman was elected to replace James
Florio as Governor of the State. Governor Whitman took office on January
18, 1994. As a matter of public record, Governor Whitman during her cam-
paign publicized her intention to reduce taxes in New Jersey. There can be
no assurance that Governor Whitman will in fact reduce taxes or as to what
effects any such reduction might have.
State Finance/Economic Information. New Jersey is the ninth largest state
in population and the fifth smallest in land area. With an average of
1.062 people per square mile, it is the most densely populated of all the
states. New Jersey's economic base is diversified, consisting of a variety
of manufacturing, construction and service industries, supplemented by
rural areas with selective commercial agriculture. Historically, New Jer-
sey's average per capita income has been well above the national average,
and in 1993 New Jersey ranked second among the states in per capita per-
sonal income ($26,967).
By the beginning of the national recession (which officially started in
July 1990 according to the National Bureau of Economic Research), con-
struction activity had already been declining in New Jersey for nearly two
years. As the rapid acceleration of real estate prices forced many would-
be homeowners out of the market and high non-residential vacancy rates re-
duced new commitments for offices and commercial facilities, construction
employment began to decline; also, growth had tapered off markedly in the
service sectors and the long-term downtrend of factory employment had ac-
celerated, partly because of a leveling off of industrial demand nation-
ally. The onset of recession caused an acceleration of New Jersey's job
losses in construction and manufacturing, as well as an employment down-
turn in such previously growing sectors as wholesale trade, retail trade,
finance, utilities, trucking and warehousing.
Reflecting the economic downturn, the rate of unemployment in New Jersey
rose from 3.6% during the first quarter of 1989 to a recessionary peak of
9.3% during 1992. The unemployment rate fell to 6.7% during the fourth
quarter of 1993.
In the first half of 1994, relative to the same period a year ago, robust
job growth took place in services (3.6%) and construction (4.2%), more
moderate growth took place in trade (1.5%), transportation and utilities
(1.3%) and finance/insurance/real estate (1.4%), while manufacturing and
government declined by 1.5% and 0.1%, respectively. The net result was a
1.5% increase in average employment during the first half of 1994 compared
to the first half of 1993.
Just as New Jersey was hurt by the national recession, evidence of its im-
proving economy can be found in increased home-building and other areas of
construction activity. Total construction contracts awarded in New Jersey
rose by 7.0% in 1993 compared with 1992, with the biggest increase being
in residential construction awards, which increased by 26% in 1993 com-
pared to 1992.
New Jersey's Budget and Appropriate System. New Jersey operates on a fis-
cal year ending on June 30. The General Fund is the fund into which all
New Jersey revenues not otherwise restricted by statute are deposited and
from which appropriations are made. The largest part of the total finan-
cial operations of New Jersey is accounted for in the General Fund, which
includes revenues received from taxes and unrestricted by statute, most
Federal revenues, and certain miscellaneous revenue items. The Appropria-
tion Acts enacted by the New Jersey Legislature and approved by the Gover-
nor provide the basic framework for the operation of the General Fund. The
undesignated General Fund balance at year end for fiscal year 1991 was
$1.4 million, for fiscal year 1992 was $760.8 million and for fiscal year
1993 was $937.0 million. For fiscal year 1994, the balance in the undesig-
nated General Fund is estimated to be $797.5 million, subject to change
upon completion of the year-end audit. The estimated balance for fiscal
year 1995 is $292.4 million, based on the amounts contained in the fiscal
year 1995 Appropriation Acts. The fund balances are available for appro-
priation in succeeding fiscal years.
Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may by statutory authority prevent any expendi-
ture under any appropriation. No supplemental appropriation may be enacted
after adoption of an appropriations act except where there are sufficient
revenues on hand or anticipated to meet such appropriation. In the past
when actual revenues have not been less than the amount anticipated in the
budget, the Governor has exercised plenary powers leading to, among other
actions, a hiring freeze for all New Jersey departments and discontinua-
tion of programs for which appropriations were budgeted but not yet spent.
General Obligation Bonds. New Jersey finances capital projects primarily
through the sale of its general obligation bonds. These bonds are backed
by the full faith and credit of New Jersey. Tax revenues and certain other
fees are pledged to meet the principal and interest payments required to
pay the debt fully.
The aggregate outstanding general obligation bonded indebtedness of New
Jersey as of June 30, 1993 was $3.5947 billion. The appropriation for the
debt service obligation on outstanding indebtedness is $103.5 million for
fiscal year 1995.
In addition to payment from bond proceeds, capital construction can also
be funded by appropriation of current revenues on a pay-as-you-go basis.
This amount represents 2.9% of the total fiscal year 1995 budget.
Tax and Revenue Anticipation Notes. In fiscal year 1992 New Jersey initi-
ated a program under which it issued tax and revenue anticipation notes to
aid in providing effective cash flow management to fund imbalances which
occur in the collection and disbursement of the General Fund and Property
Tax Relief Fund revenues. For fiscal year 1995, there are no tax and reve-
nue anticipation notes outstanding. It is anticipated that this program
will be continued in fiscal year 1995. Such tax and revenue anticipation
notes do not constitute a general obligation of New Jersey or a debt or
liability within the meaning of the New Jersey Constitution. Such notes
constitute special obligations of New Jersey payable solely from moneys on
deposit in the General Fund and Property Tax Relief Fund which are attrib-
utable to New Jersey's 1995 fiscal year and are legally available for such
payment.
Lease Financing. New Jersey has entered into a number of leases relating
to the financing of certain real property and equipment. New Jersey leases
the Richard J. Hughes Justice Complex in Trenton from the Mercer County
Improvement Authority (the "MCIA"). Under the lease agreements with the
New Jersey Economic Development Authority (the "EDA"), New Jersey leases
(a) office buildings that house the New Jersey Division of Motor Vehicles,
New Jersey Network, a branch of the United States Postal Service and a
parking facility, (b) approximately 13 acres of real property and certain
infrastructure improvements thereon located in the city of Newark, and (c)
two parking lots, certain infrastructure improvements and related elements
located at Liberty State Park in the city of Jersey City. Pursuant to var-
ious leases with the New Jersey Building Authority (the "NJBA"), New Jer-
sey leases several office buildings in the Trenton area, as well as the
State Capital Complex. Rental payments under each of the foregoing leases
are sufficient to pay debt service on the related bonds issued by MCIA,
EDA and NJBA, and in each case are subject to annual appropriation by the
New Jersey Legislature.
Beginning in April 1984, New Jersey, acting through the Director of the
Division of Purchase and Property, entered into a series of lease purchase
agreements which provide for the acquisition of equipment, services and
real property to be used by various departments and agencies of New Jer-
sey. To date, New Jersey has completed eleven lease purchase agreements
which have resulted in the issuance of Certificates of Participation to-
talling $749,350,000. The agreements relating to these transactions pro-
vide for semi-annual rental payments. New Jersey's obligation to pay rent-
als due under these leases is subject to annual appropriations being made
by the New Jersey Legislature.
State Supported School and County College Bonds. Legislation provides for
future appropriations for New Jersey aid to local school districts equal
to debt service on a maximum principal amount of $280,000,000 of bonds is-
sued by such local school districts for construction and renovation of
school facilities and for New Jersey aid to counties equal to debt service
on up to $80,000,000 of bonds issued by counties for construction of
county college facilities. The New Jersey Legislature is not legally bound
to make such future appropriations, but has done so to date on all out-
standing obligations issued under these laws.
"Moral Obligations" Financing. The authorizing legislation for certain
New Jersey entities provides for specific budgetary procedures with re-
spect to certain obligations issued by such entities. Pursuant to such
legislation, a designated official is required to certify any deficiency
in a debt service reserve fund maintained to meet payments of principal of
and interest on the obligations, and a New Jersey appropriation in the
amount of the deficiency is to be made. However, the New Jersey Legisla-
ture is not legally bound to make such an appropriation. Bonds issued pur-
suant to authorizing legislation of this type are sometimes referred to as
"moral obligation" bonds. There is no statutory limitation on the amount
of "moral obligation" bonds which may be issued by eligible New Jersey en-
tities.
The following table sets forth the "moral obligation" bonded indebtedness
issued by New Jersey entities as of June 30, 1993.
MAXIMUM
ANNUAL
DEBT
SERVICE
SUBJECT TO
OUTSTANDING MORAL
OBLIGATION
New Jersey Housing and Mortgage Finance Agency $576,626,318.78
$54,099,863.41
South Jersey Port Corporation 88,750,000.00
7,374,000.00
Higher Education Assistance Authority 57,519,832.00
2,000,000.00
Higher Education Assistance Authority. The Higher Education Assistance
Authority ("HEAA") has issued $79,996,064 aggregate principal amount of
revenue bonds. It is anticipated that the HEAA's revenues will be suffi-
cient to cover debt service on its bonds.
New Jersey Housing and Mortgage Finance Agency. Neither the New Jersey
Housing and Mortgage Finance Agency nor its predecessors, the New Jersey
Housing Finance Agency and the New Jersey Mortgage Finance Agency, have
had a deficiency in a debt service reserve fund which required New Jersey
to appropriate funds to meet its "moral obligation." It is anticipated
that this agency's revenues will continue to be sufficient to cover debt
service on its bonds.
South Jersey Port Corporation. New Jersey provides the South Jersey Port
Corporation (the "Corporation") with funds to cover all debt service and
property tax requirements, when earned revenues are anticipated to be in-
sufficient to cover these obligations. For calendar years 1986 through
1993, New Jersey has made appropriations totalling $31,831,384.25 which
covered deficiencies in revenues of the Corporation, for debt service and
property tax payments. The total appropriation for calendar year 1994 is
$7,547,700.
New Jersey Commission on Science and Technology. In April 1988, the New
Jersey Commission on Science and Technology (the "Science Commission")
agreed pursuant to a grant agreement with Rutgers, the State University,
the University of Medicine and Dentistry of New Jersey and the New Jersey
Institute of Technology (the "Institutions") to provide moneys annually to
said Institutions sufficient to pay the amounts required under separate
lease purchase agreements which resulted in the issuance of Certificates
of Participation in an aggregate amount of $26,460,000. The Science Com-
mission's obligation to make grant payments under the grant agreement is
subject to annual appropriations being made by the New Jersey Legislature.
The Institutions' obligations to pay rentals under the lease purchase
agreements are subject to receipt of moneys from the Science Commission
pursuant to a grant agreement.
New Jersey Sports and Exposition Authority. On March 2, 1992, the New
Jersey Sports and Exposition Authority (the "Sports Authority") issued
$147,490,000 in New Jersey guaranteed bonds and defeased all previously
outstanding New Jersey guaranteed bonds of the Sports Authority. New Jer-
sey officials have stated the belief that the revenue of the Sports Au-
thority will be sufficient to provide for the payment of debt service on
these obligations without recourse to New Jersey's guarantee.
Legislation enacted in 1992 authorizes the Sports Authority to issue bonds
for various purposes payable from New Jersey appropriations. Pursuant to
this legislation, the Sports Authority and the New Jersey Treasurer have
entered into an agreement (the "State Contract") pursuant to which the
Sports Authority will undertake certain projects, including the refunding
of certain outstanding bonds of the Sports Authority, and the New Jersey
Treasurer will credit to the Sports Authority and the New Jersey Treasurer
will credit to the Sports Authority Fund amounts from the General Fund
sufficient to pay debt service and other costs related to the bonds. The
payment of all amounts under the State Contract is subject to and depen-
dent upon appropriations being made by the New Jersey Legislature.
New Jersey Transportation Trust Fund Authority. In July 1984, New Jersey
created the New Jersey Transportation Trust Fund Authority (the "TTFA"),
an instrumentality of New Jersey organized and existing under the New Jer-
sey Transportation Trust Fund Authority Act of 1984, as amended (the
"Act") for the purpose of funding a portion of New Jersey's share of the
cost of improvements to New Jersey's transportation system. The Act autho-
rizes the New Jersey Treasurer to credit to the TTFA a minimum of
$320,250,000 per year. Pursuant to the Act, the TTFA, the New Jersey Trea-
surer and the Commissioner of Transportation executed a contract (the
"Contract") which provides for the payment of these revenues to the TTFA.
The payment of all such amounts is subject to and dependent upon appropri-
ations being made by the New Jersey Legislature and there is no require-
ment that the Legislature make such appropriation. The Act specifies that
the TTFA's legal existence shall not continue beyond 22 years from the
date of enactment of the Act.
Pursuant to the Act, the aggregate principal amount of TTFA's bonds, notes
or other obligations outstanding at any one time may not exceed $1.7 bil-
lion. This amount is reduced by certain payments to the TTFA by New Jersey
in excess of the contract amount. These bonds are special obligations of
the TTFA payable from the payments made by New Jersey pursuant to the Con-
tract.
Economic Recovery Fund Bonds. Legislation enacted during 1992 by New Jer-
sey authorizes the EDA to issue bonds for various economic development
purposes. Pursuant to that legislation, EDA and the New Jersey Treasurer
have entered into an agreement (the "ERF Contract") through which EDA has
agreed to undertake the financing of certain projects and the New Jersey
Treasurer has agreed to credit to the Economic Recovery Fund from the Gen-
eral Fund amounts equivalent to payments due to New Jersey under an agree-
ment with the Port Authority of New York and New Jersey. The payment of
all amounts under the ERF Contract is subject to and dependent upon appro-
priations being made by the New Jersey Legislature.
SUMMARY OF OTHER NEW JERSEY RELATED OBLIGATIONS AS OF JUNE 30, 1993
TYPE OF ISSUE
OUTSTANDING
Lease Financing
$731,405,017.95
MCIA $94,750,000.00
EDA 140,390,202.20
NJBA 199,534,815.75
State COP 296,730,000.00
State-Supported School and
County College Bonds
102,701,186.00
Moral Obligation
722,896,150.78
New Jersey Commission on
Science and Technology
9,400,000.00
Sports Authority
626,620,000.00
TTFA
906,165,000.00
Economic Recovery Fund Bonds
235,232,868.90
TOTAL
$3,334,420,223.63
SUBSEQUENT ISSUES SINCE JUNE 30, 1993 PAR AMOUNT DATE OF
ISSUE
EAA $20,000,000.00
9/15/93
NJBA 314,970,112.80
1/01/94
TTFA 61,470,000.00
9/15/93
EDA<F1> 705,270,000.00
7/1/94
<F1> Legislation enacted in June 1994 authorizes the EDA to issue bonds to
pay the current and anticipated liabilities and expenses of the Mar-
ket Transition Facility, which issued private passenger automobile
insurance policies for drivers who could not be insured by private
insurance companies on a voluntary basis. The EDA and the New Jersey
Treasurer have entered into an agreement which provides for the pay-
ment to the EDA of amounts on deposit in the DMV Surcharge Fund to
pay debt service on the bonds. Such payments are subject to and de-
pendent upon appropriation by the New Jersey Legislature.
Municipal Finance. New Jersey's local finance system is regulated by var-
ious statutes designed to assure that all local governments and their is-
suing authorities remain on a sound financial basis. Regulatory and reme-
dial statutes are enforced by the Division of Local Government Services
(the "Division") in the New Jersey State Department of Community Affairs.
Counties and Municipalities. The Local Budget Law (N.J.S.A. 40A:4-1 et
seq.) imposes specific budgetary procedures upon counties and municipali-
ties ("local units"). Every local unit must adopt an operating budget
which is balanced on a cash basis, and items of revenue and appropriation
must be examined by the Director of the Division of Local Government Ser-
vices in the Department of Community Affairs (the "Director"). The ac-
counts of each local unit must be independently audited by a registered
municipal accountant. New Jersey law provides that budgets must be submit-
ted in a form promulgated by the Division and further provides for limita-
tions on estimates of tax collection and for reserves in the event of any
shortfalls in collections by the local unit. The Division reviews all mu-
nicipal and county annual budgets prior to adoption for compliance with
the Local Budget Law. The Director is empowered to require changes for
compliance with law as a condition of approval; to disapprove budgets not
in accordance with law; and to prepare the budget of a local unit, within
the limits of the adopted budget of the previous year with suitable ad-
justments for legal compliance, if the local unit is unwilling to prepare
a budget in accordance with law. This process insures that every munici-
pality and county annually adopts a budget balanced on a cash basis,
within limitations on appropriations or tax levies, respectively, and mak-
ing adequate provision for principal of and interest on indebtedness fall-
ing due in the fiscal year, deferred charges and other statutory expendi-
ture requirements. The Director also oversees changes to local budgets
after adoption as permitted by law, and enforces regulations pertaining to
execution of adopted budgets and financial administration.
The Local Government Cap Law (N.J.S.A. 40A:4-45.1 et seq.) (the "Cap Law")
generally limits the year-to-year increase of the total appropriations of
any municipality and the tax levy of any county to either 5% or an index
rate determined annually by the Director, whichever is less. However,
where the index percentage rate exceeds 5%, the Cap Law permits the gov-
erning body of any municipality or county to approve the use of a higher
percentage rate up to the index rate. Further, where the index percentage
rate is less than 5%, the Cap Law also permits the governing body of any
municipality or county to approve the use of a higher percentage rate up
to 5%. Regardless of the rate utilized, certain exceptions exist to the
Cap Law's limitation on increases in appropriations. The principal excep-
tions to these limitations are municipal and county appropriations to pay
debt service requirements; to comply with certain other New Jersey or Fed-
eral mandates; amounts approved by referendum; and, in the case of munici-
palities only, to fund the preceding year's cash deficit or to reserve for
shortfalls in tax collections.
New Jersey law also regulates the issuance of debt by local units. The
Local Bond Law limits the amount of tax anticipation notes that may be is-
sued by local units and requires the repayment of such notes within 120
days of the end of the fiscal year (six months in the case of the coun-
ties) in which issued. The Local Bond Law (N.J.S.A. 40A:2-1 et seq.) gov-
erns the issuance of bonds and notes by the local units. No local unit is
permitted to issue bonds for the payment of current expenses (other than
Fiscal Year Adjustment Bonds described more fully below). Local units may
not issue bonds to pay outstanding bonds, except for refunding purposes,
and then only with the approval of the Local Finance Board. Local units
may issue bond anticipation notes for temporary periods not exceeding in
the aggregate approximately ten years from the date of first issue. The
debt that any local unit may authorize is limited to a percentage of its
equalized valuation basis, which is the average of the equalized value of
all taxable real property and improvements within the geographic bound-
aries of the local unit, as annually determined by the Director of the Di-
vision of Taxation, for each of the three most recent years. In the calcu-
lation of debt capacity, the Local Bond Law and certain other statutes
permit the deduction of certain classes of debt ("statutory deductions")
from all authorized debt of the local unit ("gross capital debt") in com-
puting whether a local unit has exceeded its statutory debt limit. Statu-
tory deductions from gross capital debt consist of bonds or notes (a) au-
thorized for school purposes by a regional school district or by a munici-
pality or a school district with boundaries coextensive with such
municipality to the extent permitted under certain percentage limitations
set forth in the School Bond Line (as hereinafter defined); (b) authorized
for purposes which are self-liquidating, but only to the extent permitted
by the Local Bond Law; (c) authorized by a public body other than a local
unit the principal of and interest on which is guaranteed by the local
unit, but only to the extent permitted by law; (d) that are bond anticipa-
tion notes; (e) for which provision for payment has been made or (f) au-
thorized for any other purpose for which a deduction is permitted by law.
Authorized net capital debt (gross capital debt minus statutory deduc-
tions) is limited to 3.5% of the equalized valuation basis in the case of
municipalities and 2% of the equalized valuation basis in the case of
counties. The debt limit of a county or municipality, with certain excep-
tions, may be exceeded only with the approval of the Local Finance Board.
Chapter 75 of the Pamphlet Laws of 1991, signed into law on March 28,
1991, required certain municipalities and permits all other municipalities
to adopt the New Jersey fiscal year in place of existing calendar fiscal
year. Municipalities that change fiscal years must adopt a six month tran-
sition budget for January through June. Since expenditures would be ex-
pected to exceed revenues primarily because state aid for the calendar
year would not be received by the municipality until after the end of the
transition year budget, the act authorizes the issuance of Fiscal Year Ad-
justment Bonds to fund the one-time deficit for the six month transition
budget. The act provides that the deficit in the six month transition bud-
get may be funded initially with bond anticipation notes based on the es-
timated deficit in the six month transition budget. Notes issued in antic-
ipation of Fiscal Year Adjustment Bonds, including renewals, can only be
issued for up to one year unless the Local Finance Board permits the mu-
nicipality to renew them for a further period of time. While the act does
not authorize counties to change their fiscal years, it does provide that
counties with cash flow deficits may issue Fiscal Year Adjustment Bonds as
well.
There are 567 municipalities and 21 counties in New Jersey. During 1990,
1991 and 1992 no county exceeded its statutory debt limitations or in-
curred a cash deficit in excess of 4% of its tax levy. The number of mu-
nicipalities which have a cash deficit greater than 4% of their tax levies
was zero for 1992. The number of municipalities which exceed statutory
debt limits was five as of December 31, 1993. No New Jersey municipality
or county has defaulted on the payment of interest or principal on any
outstanding debt obligation since the 1930s.
School Districts. New Jersey's school districts operate under the same
comprehensive review and regulation as do its counties and municipalities.
Certain exceptions and differences are provided, but New Jersey supervi-
sion of School finance closely parallels that of local governments.
All New Jersey school districts are coterminous with the boundaries of one
or more municipalities. They are characterized by the manner in which the
board of education, the governing body of the school district, takes of-
fice. Type I school districts, most commonly found in cities, have a board
of education appointed by the mayor or the chief executive officer of the
municipality constituting the school district. In a Type II school dis-
trict, the board of education is elected by the voters of the district.
Nearly all regional and consolidated school districts are Type II school
districts.
The New Jersey Department of Education has been empowered with the neces-
sary and effective authority in extreme cases to take over the operation
of local school districts which cannot or will not correct severe and com-
plex educational deficiencies. Pursuant to a 1987 amendment to the Public
School Education Act of 1975 (N.J.S.A. 18A:7A-1 et seq.) (the "School
Act"), the New Jersey Board of Education may direct the removal of the
local district board of education and the creation of a New Jersey oper-
ated school district, which would be under the direction of a New Jersey
appointed superintendent. Pursuant to the authority granted under the
School Act, on October 4, 1989, the New Jersey Board of Education ordered
the creation of a New Jersey operated school district in the city of Jer-
sey City. Similarly, on August 7, 1991, the New Jersey Board of Education
ordered the creation of a New Jersey operated school district in the city
of Paterson.
School Budgets. In every school district having a board of school esti-
mate, the board of school estimate examines the budget request and fixes
the appropriate amounts of the next year's operating budget after a public
hearing at which the taxpayers and other interested persons shall have an
opportunity to raise objections and to be heard with respect to the bud-
get. This board certifies the budget to the municipal governing bodies and
to the local board of education. If either disagrees, they must appeal to
the New Jersey Commissioner of Education (the "Commissioner") to request
the changes.
In Type II school district without a board of school estimate, the elected
board of education develops the budget proposal and, after public hearing,
submits it to the voters of such district for approval. Previously autho-
rized debt service is not subject to referendum in the annual budget pro-
cess. If approved, the budget goes into effect. If defeated, the governing
body of each municipality in the school district has approximately 20 days
to determine the amount necessary to be appropriated for each item appear-
ing in such budget. Should the governing body fail to certify any amount
determined by the board of education to be necessary for any item rejected
at the election, the board of education may appeal the action to the Com-
missioner.
The Quality Education Act of 1990 (N.J.S.A. 18A:7D-1 et seq.) limits the
annual increase of a school district's net current expense budget. The
Commissioner certifies the allowable amount of increase for each school
district but may grant a higher level of increase in certain limited in-
stances. A school district may also submit a proposal to the voters to
raise amounts above the allowable amount of increase. If defeated, such a
proposal is subject to further review or appeal only if the Commissioner
determines that additional funds are required to provide a thorough and
efficient education.
The Commissioner must also review every proposed local school district
budget for the next school year. The Commissioner examines every item of
appropriation for the current expenses and budgeted capital outlay to de-
termine their adequacy in relation to the identified needs and goals of
the school district. If, in his view they are insufficient, the Commis-
sioner must order remedial action. If necessary, the Commissioner is au-
thorized to order changes in the school district's budget.
In New Jersey operated school districts the New Jersey District Superin-
tendent has the responsibility for the development of the budget subject
to appeal by the governing body of the municipality to the Commissioner
and the Director of the Division of Local Government Services in the New
Jersey Department of Community Affairs. Based upon his review, the Direc-
tor is required to certify the amount of revenues which an be raised lo-
cally to support the budget of the New Jersey operated district. Any dif-
ference between the amount which the Director certifies and the total
amount of local revenues required by the budget approved by the Commis-
sioner is to be paid by New Jersey in the fiscal year in which the expen-
ditures are made subject to the availability of appropriations.
School District Bonds. School district bonds and temporary notes are is-
sued in conformity with N.J.S.A. 18A:24-1 et seq. (the "School Bond Law"),
which closely parallels the Local Bond Law (for further information relat-
ing to the Local Bond Law, see "Municipal Finance -- Counties and Munici-
palities" herein). Although school districts are exempted from the 5 per-
cent down payment provision generally applied to bonds issued by munici-
palities and counties, they are subject to debt limits (which vary
depending on the type of school system provided) and to New Jersey regula-
tion of their borrowing. The debt limitation on school district bonds de-
pends upon the classification of the school district, but may be as high
as 4 percent of the average equalized valuation basis of the constituent
municipality. In certain cases involving school districts in cities with
populations exceeded 100,000, the debt limit is 8 percent of the average
equalized valuation basis of the constituent municipality, and in cities
with populations in excess of 80,000 the debt limit is 6 percent of the
aforesaid average equalized valuation.
School bonds are authorized by (a) an ordinance adopted by the governing
body of a municipality within a Type I school district; (b) adoption of a
proposal by resolution by the board of education of a Type II school dis-
trict having a board of school estimate, or (c) adoption of a proposal by
resolution by the board of education and approval of the proposal by the
legal voters of any other Type II school district. If school bonds will
exceed the school district borrowing capacity, a school district (other
than a regional school district) may use the balance of the municipal bor-
rowing capacity. If the total amount of debt exceeds the school district's
borrowing capacity and any available remaining municipal borrowing capac-
ity, the Commissioner and the Local Finance Board must approve the pro-
posed authorization before it is submitted to the voters. All authoriza-
tions of debt in a Type II school district without a board of school esti-
mate require an approving referendum, except where, after hearing, the
Commissioner and the New Jersey Board of Education determine that the is-
suance of such debt is necessary to meet the constitutional obligation to
provide a thorough and efficient system of public schools. When such obli-
gations are issued, they are issued by, and in the name of, the school
district.
In Type I and II school districts with a board of school estimate, that
board examines the capital proposal of the board of education and certi-
fies the amount of bonds to be authorized. When it is necessary to exceed
the borrowing capacity of the municipality, the approval of a majority of
the legally qualified voters of the municipality is required, together
with the approval of the Commissioner and the Local Finance Board. When
such bonds are issued for a Type I school district, they are issued by the
municipality and identified as school bonds. When bonds are issued by a
Type II school district having a board of school estimate, they are issued
by, and in the name of, the school district.
School District Lease Purchase Financings. In 1982, school districts were
given an alternative to the traditional method of bond financing capital
improvements pursuant to N.J.S.A. 18A:20-4.2(f) (the "Lease Purchase
Law"). The Lease Purchase Law permits school districts to acquire a site
and school building through a lease purchase agreement with a private les-
sor corporation. For Type II school districts, the lease purchase agree-
ment does not require vote approval. The rent payments attributable to the
lease purchase agreement are subject to annual appropriation by the school
district and are required, pursuant to N.J.A.C. 6:22A-1.2(h), to be in-
cluded in the annual current expense budget of the school district. Fur-
thermore, the rent payments attributable to the lease purchase agreement
do not constitute debt of the school district and therefore do not impact
on the school district's debt limitation. Lease purchase agreements in ex-
cess of five years require the approval of the Commissioner and the Local
Finance Board.
Qualified Bonds. In 1976, legislation was enacted (P.L. 1976, c.38 and
c.39) which provides for the issuance by municipalities and school dis-
tricts of "qualified bonds." Whenever a local board of education or the
,governing body of a municipality determines to issue bonds, it may file an
application with the Local Finance Board, and, in the case of a local
board of education, the Commissioner, to qualify bonds pursuant to P.L.
1976, c.38 or c.39. Upon approval of such an application and after receipt
of a certificate stating the name and address of the paying agent for such
bonds, the maturity schedule, interest rates and payment dates, the New
Jersey Treasurer shall, in the case of qualified bonds for school dis-
tricts, withhold from the school aid payable to such municipality or
school district and, in the case of qualified bonds for municipalities,
withhold from the amount of business personal property tax replacement
revenues, gross receipts tax revenues, municipal purposes tax assistance
fund distributions, New Jersey urban aid, New Jersey revenue sharing, and
any other funds appropriated as New Jersey aid and not otherwise dedicated
to specific municipal programs, payable to such municipalities, an amount
sufficient to cover debt service on such bonds. These "qualified bonds"
are not direct, guaranteed or moral obligations of New Jersey, and debt
service on such bonds will be provided by New Jersey only if the above-
mentioned appropriations are made by New Jersey. Total outstanding indebt-
edness for "qualified bonds" consisted of $239,235,650 by various school
districts as of June 30, 1994 and $861,123,338 by various municipalities
as of June 30, 1993.
New Jersey School Bond Reserve Act. The New Jersey School Bond Reserve
Act (N.J.S.A. 18A:56-17 et seq.) establishes a school bond reserve within
the constitutionally dedicated Fund for the Support of Free Public
Schools. Under this law the reserve is maintained at an amount equal to
1.5% of the aggregate outstanding bonded indebtedness of counties, munici-
palities or school districts for school purposes (exclusive of bonds whose
debt service is provided by New Jersey appropriations), but not in excess
of monies available in such fund. If a municipality, county or school dis-
trict is unable to meet payment of the principal of or interest on any of
its school bonds, the trustee of the school bond reserve will purchase
such bonds at the face amount thereof or pay the holders thereof the in-
terest due or to become due. At June 30, 1993, the book value of the
Fund's assets aggregate $73,711,364 and the reserve, computed as of June
30, 1993, amounted to $27,361,913. There has never been an occasion to
call upon this fund.
Local Financing Authorities. The Local Authorities Fiscal Control Law
(N.J.S.A. 40A:5A-I et seq.) provides for state supervision of the fiscal
operations and debt issuance practices of independent local authorities
and special taxing districts by the New Jersey Department of Community Af-
fairs. The Local Authorities Fiscal Control Law applies to all autonomous
public bodies created by counties or municipalities, which are empowered
to issue bonds, to impose facility or service charges, or to levy taxes in
their districts. This encompasses most autonomous local authorities (sew-
erage, municipal utilities, parking, pollution control, improvement, etc.)
and special taxing districts (fire, water, etc.). Authorities which are
subject to differing New Jersey or federal financial restrictions are ex-
empted, but only to the extent of that difference.
The Local Finance Board reviews, conducts public hearings and issues find-
ings and recommendations on any proposed project financing of an authority
or district, and on any proposed financing agreement between a municipal-
ity or county and an authority or special district. The Director of the
Division of Local Government Services reviews and approves annual budgets
of authorities and special districts.
As of June 30, 1993, there were 200 locally created authorities with a
total outstanding capital debt of $6,963,564,405 (figures do not include
housing authorities and redevelopment agencies). This amount reflects out-
standing bonds, notes, loans and mortgages payable by the authorities as
of their respective fiscal years ended nearest to June 30, 1993.
Litigation. At any given time, there are various numbers of claims and
cases pending against New Jersey, New Jersey agencies and employees, seek-
ing recovery of monetary damages that are primarily paid out of the fund
created pursuant to the Tort Claims Act, N.J.S.A. 59:1-1 et seq. (the
"Tort Claims Act"). At any given time there are various contract and other
claims against New Jersey and New Jersey agencies, including environmental
claims arising from the alleged disposal of hazardous waste, seeking
recovery
of monetary damages or other relief which would require the expenditure of
funds. In addition, at any given time there are various number of claims
and
cases pending against the University of Medicine and Dentistry of New
Jersey
and its employees, seeking recovery of monetary damages that are primarily
paid out of the Self-Insurance Reserve Fund created pursuant to the Tort
Claims
Act, and various numbers of contract and other claims against the Univer-
sity of Medicine and Dentistry, seeking recovery of monetary damages or
other relief which would require the expenditure of funds. New Jersey is
unable to estimate its exposure for these claims.
As of August, 1994, the following cases are presently pending or threat-
ened in which New Jersey has the potential for either a significant loss
of revenue or significant unanticipated expenditures: Abbot v. Burke,
challenging the constitutionality of the Quality Education Act of 1990,
which was found to be unconstitutional by the Trial Court and was recently
affirmed by the New Jersey Supreme Court and requires that a funding for-
mula be adopted by September, 1996 which will achieve by the 1997-98
school year the mandated parity in spending and will address the special
educational needs of children in poor and urban school districts; County
of Essex v. Waldman, et al. and similar cases involving eleven other coun-
ties, challenging the methods by which the New Jersey Department of Human
Services shares with county governments and maintenance recoveries and
costs for residents in New Jersey psychiatric hospitals and residential
facilities for the developmentally disabled, all of which are on appeal in
the New Jersey courts; County of Essex v. Commissioner of Human Services,
et al. and similar cases involving ten other counties, in which the Appel-
late Division ruled that all counties were entitled to 100% of Social Se-
curity benefits and other maintenance recoveries received by New Jersey
and were entitled to credits for payments made to New Jersey for the main-
tenance of Medicare and Medicaid-eligible county residents of certain New
Jersey facilities, which is on petition for review by the New Jersey Su-
preme Court; New Jersey Association of Health Care Facilities, Inc., et
al. v. Gibbs, et al., a class action on behalf of all New Jersey long-term
care facilities providing services to Medicaid patients, seeking a decla-
ration that the New Jersey Department of Human Services has violated Fed-
eral law in the setting and paying of 1990 long-term care facility Medic-
aid payment rates, where the Third Circuit affirmed the District Court's
denial of plaintiff's motion for preliminary injunction, and the parties
are currently negotiating the form of an order to dismiss the action with
prejudice; Exxon v. Hunt and related cases, where taxpayers sought refund
of taxes paid to the Spill Compensation Fund and the New Jersey Supreme
Court, on remand from the U.S. Supreme Court, ruled that plaintiffs would
receive refunds only in the event the New Jersey Legislature refused to
reimburse the Spill Compensation Fund for expenditures for preempted pur-
poses and, after exhaustion of appeals and other legal avenues, a motion
by the State for dismissal of all such claims is pending before the Tax
Court; Fair Automobile Insurance Reform Act ("FAIR Act") litigation chal-
lenging various portions of FAIR Act, including surtax and assessment pro-
visions, is still pending; County of Passaic v. State of New Jersey alleg-
ing tort and contractual claims against New Jersey and the New Jersey De-
partment of Environmental Protection in connection with a resource
recovery facility plaintiffs had planned to build in Passaic County, seek-
ing approximately $30 million in damages; Pelletier, et al., v. Waldman,
et al., a challenge by State Medicaid-eligible children to the adequacy of
Medicaid reimbursement for services rendered by doctors and dentists, is
currently in mediation; Barnett Memorial Hospital v. Commission of Health,
an appeal by several hospitals of the Commissioner's calculation of the
hospital assessment required by the Health Care Cost Reduction Act of
1991, was decided against the Commission and successful claimants were re-
funded the amount of their overpayment in April, 1994, which amount to-
taled $4,636,576; New Jersey Hospital Association, et al. v. Leonard Fish-
man, seeking the same relief as in Barnett; Robert E. Brennan v. Richard
Barry, et al., a suit filed against two members of the New Jersey Bureau
of Securities alleging causes of action for defamation, injury to reputa-
tion, abuse of process and improper disclosure, based on the Bureau's in-
vestigation of certain publicly-traded securities to which the state has
filed a motion to dismiss and/or for summary judgement; Camden Co. v.
Waldman, et al., now consolidated with similar suits filed by Middlesex,
Monmouth and Atlantic Counties, seeking reimbursement of federal funds re-
ceived by New Jersey for disproportionate share hospital payments made to
county psychiatric facilities from July 1, 1998 through July 1, 1991 has
been transferred to the Appellate Division; Interfaith Community Organiza-
tion v. Fox, et al., a suit filed by a coalition of churches and church
leaders in Hudson County against the Governor, the Commissioners of the
Department of Environmental Protection and Energy and the Department of
Health, concerning chromium contamination in Liberty State Park in Jersey
City; American Trucking Associations, Inc. and Tri-State Motor Transit v.
State of New Jersey, challenging the constitutionality of annual hazardous
and solid waste licensure fees collected by the Department of Environmen-
tal Protection, seeking a permanent injunction enjoining future collection
of fees and refund of all renewal fees, fines and penalties collected; and
Waste Management of Pennsylvania, et al. v. Shinn, et al., an action filed
in federal district court seeking declaratory and injunctive relief and
compensatory damages from Department of Environmental Protection Commis-
sioner Shinn and Acting Commissioner Fox, alleging violations of the Com-
merce Clause and the Contracts Clause of the United States Constitution
based on emergency redirection orders and a draft permit.
In addition to litigation against New Jersey, at any given time there are
various numbers of claims and cases pending or threatened against the po-
litical subdivisions of New Jersey, including but not limited to New Jer-
sey authorities, counties, municipalities and school districts, which have
potential for either a significant loss of revenue or significant unantic-
ipated expenditures
Ratings. In July 1991, S&P downgraded its rating of New Jersey General
Obligation Bonds from AAA to AA+. Subsequently on June 4, 1992 S&P moved
New Jersey's General Obligation Bonds from Credit Watch and affirmed its
AA+ ratings of New Jersey's general obligation and various lease and ap-
propriation backed debt, but its ratings outlook was revised to negative
for the longer term horizon (beyond four months) for resolution of two
items cited in the Credit Watch listing: (a) the Federal Health Care Fa-
cilities Administration ruling concerning retroactive Medicaid hospital
reimbursements and (b) New Jersey's uncompensated health care funding sys-
tem, which is pending review by the United States Supreme Court. Citing a
developing pattern of reliance on non-recurring measures to achieve bud-
getary balance, four years of financial operations marked by revenue
shortfalls and operating deficits, and the likelihood that financial pres-
sures will persist, on August 24, 1992 Moody's lowered its rating of New
Jersey General Obligation Bonds from Aaa to Aa1. There is no assurance
that the ratings of New Jersey General Obligation Bonds will continue for
any given period of time or that they will not be revised downward or
withdrawn entirely. Any such downward revision or withdrawal could have an
adverse effect on the market prices of the New Jersey's general obligation
bonds.
The various political subdivisions of New Jersey are rated independently
from S&P and/or Moody's. These ratings are based upon information supplied
to the rating agency by the political subdivision. There is no assurance
that such ratings will continue for any given period of time or that they
will not be revised downward or withdrawn entirely. Any such downward re-
vision or withdrawal could have an adverse effect on the market prices of
bonds issued by the political subdivision.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the Prospec-
tus applies to purchases made by any "purchaser," which is defined to in-
clude the following: (a) an individual; (b) an individual's spouse and his
or her children purchasing shares for his or her own account; (c) a
trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account; (d) a pension, profit-sharing or other employee
benefit plan qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and qualified employee benefit plans of
employers who are "affiliated persons" of each other within the meaning of
the 1940 Act; (e) tax-exempt organizations enumerated in Section 501(c)(3)
or (13) of the Code; and (f) 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
should contact their Smith Barney Financial Consultants.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in
Class A shares of the Fund and in Class A shares of other funds of the
Smith Barney Mutual Funds that are offered with a sales charge, including
the purchase being made, of any purchaser is $25,000 or more. The reduced
sales charge is subject to confirmation of the shareholder's holdings
through a check of appropriate records. The Fund reserves the right to
terminate or amend the combined right of accumulation at any time after
notice to shareholders. For further information regarding the right of ac-
cumulation, shareholders should contact a Smith Barney Financial Consult-
ant.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The public
offering price for Class A and Class Y shares 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 for Class B and Class C shares (and Class A
share purchases, including applicable right of accumulation, equalling 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. A con-
tingent deferred sales charge ("CDSC"), however, is imposed on certain re-
demptions of Class B and Class C shares, and Class A shares when purchased
in amounts exceeding $500,000. The method of computation of the public of-
fering price is shown in the Fund's financial statements, which are incor-
porated by reference into this Statement of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed
(a) for any period during which the New York Stock Exchange, Inc. ("NYSE")
is closed (other than for customary weekend and holiday closings), (b)
when trading in markets the Fund normally utilizes is restricted, or an
emergency exists, as determined by the SEC, so that disposal of the Fund's
investments or determination of net asset value is not reasonably practi-
cable or (c) for such other periods as the SEC by order may permit for
protection of the Fund's shareholders.
DISTRIBUTION 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
rules adopted by the SEC, any portion of a redemption in excess of the
lesser of $250,000 or 1% of the Fund's net assets by a distribution in
kind of portfolio securities in lieu of cash. Portfolio securities issued
in a distribution in kind will be readily marketable, although sharehold-
ers receiving distributions in kind may incur brokerage commissions when
subsequently disposing of 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 $100 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 CDSC 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 With-
drawal Plans in effect prior to November 7, 1994, any applicable CDSC 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 com-
mences.) To the extent withdrawals exceed dividends, distributions and ap-
preciation of a shareholder's investment in the Fund, there will be a re-
duction in the value of the shareholder's investment, and continued with-
drawal payments will reduce the shareholder's investment and may
ultimately exhaust it. Withdrawal payments should not be considered as in-
come 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 shareholders 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 TSSG as agent for Withdrawal Plan members. All dividends and distri-
butions on shares in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund. Effective November 7,
1994, Withdrawal Plans should be set up with any Smith Barney Financial
Consultant. A shareholder who purchases shares directly through TSSG may
continue to do so and applications for participation in the Withdrawal
Plan must be received by TSSG no later than the eighth day of the month to
be eligible for participation beginning with that month's withdrawal. For
additional information, shareholders should contact a Smith Barney Finan-
cial Consultant.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best efforts basis pur-
suant to a written agreement dated July 30, 1993 (the "Distribution Agree-
ment") which was most recently approved by the Fund's Board of Directors
on July 20, 1994. For the fiscal years ended March 31, 1992, 1993 and
1994, Shearson Lehman Brothers, the Fund's distributor prior to Smith Bar-
ney and/or Smith Barney received $1,086,608, $749,550 and $586,302, re-
spectively, in sales charges from the sale of the Fund's Class A shares,
and did not reallow any portion thereof to dealers. For the period from
November 6, 1993 through March 31, 1994, Shearson Lehman Brothers and its
successor Smith Barney, received $49,338, representing CDSC on redemptions
of the Fund's Class B shares.
When payment is made by the investor before settlement date, unless other-
wise noted by the investor, the funds will be held as a free credit bal-
ance in the investor's brokerage account and Smith Barney may benefit from
the temporary use of the funds. The investor may designate another use for
the funds prior to settlement date, such as an investment in a money mar-
ket fund (other than Smith Barney Exchange Reserve Fund) of the Smith Bar-
ney Mutual Funds. If the investor instructs Smith Barney to invest the
funds in a fund of the Smith Barney Mutual Funds, the amount of the in-
vestment will be included as part of the average daily net assets of both
the Fund and the money market fund, and affiliates of Smith Barney which
serve the funds in an investment advisory or administrative capacity will
benefit by receiving investment management fees from both such investment
companies, computed on the basis of their average daily net assets. The
Fund's Board of Directors has been advised of the benefits to Smith Barney
resulting from these settlement procedures and will take such benefits
into consideration when reviewing the Advisory, Administration and Distri-
bution Agreements for continuance.
DISTRIBUTION ARRANGEMENTS
To compensate Smith Barney for the services it provides and for the ex-
pense it bears under the Distribution Agreement, 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 Smith Barney a service fee,
accrued daily and paid monthly, calculated at the annual rate of .15% of
the value of the Fund's average daily net assets attributable to the Class
A, Class B and Class C shares. In addition, Class B and Class C shares pay
distribution fees primarily intended to compensate Smith Barney for its
initial expense of paying Financial Consultants a commission upon sales of
the respective shares. The Class B distribution fee is calculated at the
annual rate of .50% of the value of the Fund's average net assets attrib-
utable to the shares of the Class. The Class C distribution fee is calcu-
lated at the annual rate of .55% of the value of the Fund's average net
assets attributable to the shares of the Class. For the period from Novem-
ber 6, 1992 through March 31, 1993. The Fund's Class A and Class B shares
paid $65,689, $14,830, respectively, in service fees. For the same period
the Fund's Class B shares paid $16,100 in distribution fees. For the fis-
cal year ended March 31, 1994, the Fund's Class A and Class B shares paid
$186,615 and $53,031, respectively in service fees. For the same period
the Fund's Class B shares paid $176,771 in distribution fees.
Under its terms, the Plan continues from year to year, provided such con-
tinuance is approved annually by vote of the Fund's Board of Directors,
including a majority of the Directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the op-
eration of the Plan or in the Distribution Agreement (the "Independent Di-
rectors"). The Plan may not be amended to increase the amount of the ser-
vice and distribution fees without shareholder approval, and all material
amendments of the Plan also must be approved by the Directors and the In-
dependent Directors in the manner described above. The Plan may be termi-
nated at any time with respect to a Class, 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, Smith Barney will provide the Board of Directors
with periodic reports of amounts expended under the Plan and the purpose
for which such expenditures were made.
VALUATION OF SHARES
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 cur-
rently is scheduled to be closed on New Year's 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 de-
scription of the procedures used by the Fund in valuing its assets.
The valuation of the Fund's assets is made by Boston Advisors after con-
sultation with an independent pricing service (the "Service") approved by
the Board of Directors. When, in the judgment of the 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 Service, there is no readily obtainable market quotation (which may
constitute a majority of the portfolio securities) are carried at fair
value as determined by the Service. For the most part, such investments
are liquid and may be readily sold. The Service may employ electronic data
processing techniques and/or a matrix system to determine valuations. The
procedures of the Service are reviewed periodically by the officers of the
Fund under the general supervision and responsibility of the Board of Di-
rectors, which may replace any such Service at any time if it determines
it to be in the best interests of the Fund to do so.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund in the Smith Barney Group
of Funds may exchange all or part of their shares for shares of the same
Class of other funds in the Smith Barney Group of Funds, to the extent
such shares are offered for sale in the shareholder's state of residence,
as listed in the Prospectus, on the basis of relative net asset value per
share at the time of exchange as follows:
A. Class A shares of any fund purchased with a sales charge may be ex-
changed for Class A shares of any of the other funds, and the sales charge
differential, if any, will be applied. Class A shares of any fund may be
exchanged without a sales charge for shares of the funds that are offered
without a sales charge. Class A shares of any fund purchased without a
sales charge may be exchanged for shares sold with a sales charge, and the
appropriate sales charge differential will be applied.
B. Class A shares of any fund acquired by a previous exchange of shares
purchased with a sales charge may be exchanged for Class A shares of any
of the other funds, and the sales charge differential, if any, will be ap-
plied.
C. Class B shares of any fund may be exchanged without a sales charge.
Class B shares of the Fund exchanged for Class B shares of another fund
will be subject to the higher applicable CDSC of the two funds and, for
purposes of calculating CDSC rates and conversion periods, will be deemed
to have been held since the date the shares being exchanged were deemed to
be purchased.
Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney High Income Fund and the ac-
count number in order to accomplish an exchange of shares of Smith Barney
Shearson High Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
Class in a fund with different investment objectives when they believe
that a shift between funds is an appropriate investment decision. This
privilege is available to shareholders residing in any state in which the
fund shares being acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current prospectus of
each fund into which an exchange is being considered. Prospectuses may be
obtained from your Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting docu-
ments, shares submitted for exchange are redeemed at the then-current net
asset value and subject to any applicable CDSC, the proceeds are immedi-
ately invested, at a price as described above, in shares of the fund being
acquired. Smith Barney reserves the right to reject any exchange request.
The exchange privilege may be modified or terminated at any time after
written notice to shareholders.
PERFORMANCE DATA
From time to time, the Fund may quote yield or 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 the
following industry and financial publications: Barron's, Business Week,
CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune, Insti-
tutional Investor, Investors Daily, Money Morningstar Mutual Fund Values,
The New York Times, USA Today and The Wall Street Journal. To the extent
any advertisement or sales literature of the Fund describes the expenses
or performance of any Class, it will also disclose such information for
the other Classes.
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-bcd+1)6--1]
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 pe-
riod 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 com-
puted 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 fac-
tors, 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 recog-
nize 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 pro-
ducing lower yields than the balance of the Fund's portfolio, thereby re-
ducing 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 and Class B shares for the 30-day period
ended March 31, 1994 (reflecting the partial waiver of the investment ad-
visory and administration fees) was 4.93% and 4.58%, respectively. Had
fees not been partially waived the Fund's yield for Class A and Class B
shares for the same period would have been 4.88% and 4.55%, respectively.
The equivalent taxable yield for Class A and Class B shares for that same
period, such yields (reflecting the partial waiver of the investment advi-
sory and administration fees) was 7.89% and 7.33%, respectively, assuming
the payment of Federal income taxes at a rate of 31% and New Jersey taxes
at a rate of 6.50%. Had these fees not been partially waived the Fund's
equivalent taxable yield for Class A and Class B shares for the same pe-
riod would have been 7.81% and 7.28%, respectively.
AVERAGE ANNUAL TOTAL RETURN
"Average annual total return" figures described below are computed accord-
ing 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 the 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and distri-
butions.
The following total return figures assume that the maximum 4.00% sales
charge has been deducted from the investment at the time of purchase and
have been restated to show the change in the maximum sales charge. The av-
erage annual total return for Class A shares was as follows for the period
indicated:
(2.40)% for the one-year period beginning April 1, 1993 through March 31,
1994.
8.02% per annum during the five-year period beginning on April 1, 1989
through March 31, 1994.
8.41% per annum during the period from the Fund's commencement of opera-
tions on April 22, 1988 through March 31, 1994.
These total return figures assume that the maximum 4.00% sales charge as-
sessed by the Fund has been deducted from the investment at the time of
purchase. Had the investment advisory, sub-investment advisory and/or ad-
ministration fees not been partially waived (and assuming that the maximum
4.50% sales charge had been deducted), the Class A's average annual total
return would have been (2.96)% and 7.98%, respectively, for those same pe-
riods.
The average annual total return for Class B shares was as follows for the
periods indicated:
(3.14)% for the one-year period from April 1, 1993 through March 31, 1994.
2.76% per annum for the period from November 6, 1992 through March 31,
1994.
These average annual total return figures assume that the applicable maxi-
mum CDSC has been deducted from the investment. Had the investment advi-
sory and sub-investment advisory and/or administration fees not been par-
tially waived and the CDSC had not been deducted, the average annual total
return on the Fund's Class B shares would have been 1.09% and 5.44%, re-
spectively, for those same periods.
AGGREGATE TOTAL RETURN
Aggregate total return figures described below represent the cumulative
change in the value of an investment in the Class for the specified period
and are 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 the 1-, 5- or 10-year period at the
end of the 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and distri-
butions.
The aggregate total return for Class A shares was as follows for the peri-
ods indicated (reflecting the partial waiver of the investment advisory
and sub-investment advisory and/or administration fees):
(2.45)% for the one-year period beginning April 1, 1993 through March 31,
1994.
45.33% for the five-year period from April 1, 1989 through March 31, 1994;
and
58.60% for the period from the Fund's commencement of operations on April
22, 1988 through March 31, 1994.
These aggregate total return figures assume that the maximum 4.00% sales
charge assessed by the Fund has been deducted from the investment at the
time of purchase. If the maximum sales charge had not been deducted at the
time of purchase, the Fund's aggregate total return reflecting the partial
waiver of the investment advisory and sub-investment advisory and adminis-
tration fees for those same periods would have been 1.61%, 51.39% and
65.21%, respectively. The total return figures have been restated to show
the change in the maximum sales charge. Had the investment advisory and
sub-investment advisory fees not been partially waived (and assuming that
the maximum 4.50% sales charge had not been deducted), the Fund's aggre-
gate total return would have been 1.61%, 51.39% and 65.21%, respectively,
for those same periods.
The Fund's aggregate total return for Class B shares was as follows for
the periods indicated:
1.15% for the one-year period from April 1, 1993 through March 31, 1994.
7.82% for the period beginning on November 6, 1992 through March 31, 1994.
These figures do not assume that the maximum 4.50% sales charge has been
deducted from the investment at the time of purchase. If the investment
advisory and administration fees had not been partially waived and the
maximum CDSC had been deducted at the time of purchase the Fund's aggre-
gate total returns for the same period would have been (3.19)% and 3.75%.
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 per-
formance. Each Class' net investment income changes in response to fluctu-
ation in interest rates and the expenses of the Fund. Performance will
vary from time to time depending upon market conditions, the composition
of the Fund's portfolio and its operating expenses and the expenses exclu-
sively attributable to the Class. Consequently, any given performance quo-
tation should not be considered representative of the Class' performance
for any specified period in the future. In addition, because the perfor-
mance 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' perfor-
mance with that of other mutual funds should give consideration to the
quality and maturity of the respective investment companies' portfolio se-
curities.
TAXES
As described above and in the Prospectus, the Fund is designed to provide
investors with current income which is excluded from gross income for Fed-
eral income tax purposes and exempt from New Jersey personal income taxes.
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 since such inves-
tors would not gain any additional tax benefit from the receipt of tax-
exempt income.
The following is a summary of selected Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended
as a substitute for individual tax advice and investors are urged to con-
sult their own tax advisors as to the tax consequences of an investment in
the Fund.
The Fund has qualified and intends to continue to qualify each succeeding
year as a "regulated investment company" under the Code. Provided the Fund
(a) qualifies as a regulated investment company and (b) distributes at
least 90% of the sum of its taxable net investment income and net realized
short-term capital gains, and 90% of its tax-exempt interest income (re-
duced by certain expenses), the Fund will not be liable for Federal income
taxes to the extent its taxable net investment income and net realized
long-term and short-term capital gains, if any, are distributed to its
shareholders. Although the Fund expects to be relieved of substantially
all Federal and state income or franchise taxes, depending upon the extent
of its activities in states and localities in which its offices are main-
tained, in which its agents or independent contractors are located or in
which it is otherwise deemed to be conducting business, that portion of
the Fund's income which is treated as earned in any such state or locality
could be subject to state and local tax. Any such taxes paid by the Fund
would reduce the amount of income and gains available for distribution to
shareholders. All net investment income and net capital gains earned by
the Fund will be reinvested automatically in additional shares of the same
Class of the Fund at net asset value, unless the shareholder elects to re-
ceive dividends and distributions in cash.
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 and New Jersey personal income tax pur-
poses. If a shareholder receives an exempt-interest dividend with respect
to any share and if the share is held by the shareholder for six months or
less, then, for Federal income tax purposes, any loss on the sale or ex-
change of such share may, to the extent of the exempt-interest dividend,
be disallowed. In addition, the Code may require a shareholder, if he or
she receives exempt-interest dividends, to treat as Federal taxable in-
come, a portion of certain otherwise non-taxable social security and rail-
road retirement benefit payments. Furthermore, that portion of any divi-
dend paid by the Fund which represents income derived from private activ-
ity 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 fi-
nanced by such bonds, or a "related person" thereof. Moreover, as noted in
the Fund's Prospectus, (a) some or all of the Fund's dividends and distri-
butions may be a specific tax preference item, or a component of an ad-
justment item, for purposes of the Federal individual and corporate alter-
native minimum taxes, and (b) the receipt of Fund dividends and distribu-
tions may affect a corporate shareholder's Federal "environmental" tax
liability. In addition, the receipt of Fund dividends and distributions
may affect a foreign corporate shareholder's Federal "branch profits" tax
liability and a Subchapter S corporation shareholder's Federal "excess net
passive income" tax liability. Shareholders should consult their own tax
advisors to determine whether they are (a) "substantial users" with re-
spect to a facility or related to such users within the meaning of the
Code and (b) subject to a Federal alternative minimum tax, the Federal en-
vironmental tax, the Federal "branch profits" tax and the Federal "excess
net passive income" tax.
As described above and in the Prospectus, the Fund may invest in municipal
bond index and interest rate futures contracts and options on these fu-
tures contracts. The Fund anticipates that these investment activities
would not prevent the Fund from qualifying as a regulated investment com-
pany. As a general rule, these investment activities would increase or de-
crease the amount of long-term and short-term capital gains or losses re-
alized by the Fund and, accordingly, would affect the amount of capital
gains distributed to the Fund's shareholders.
For Federal income tax purposes, gain or loss on municipal bond index and
interest rate futures contracts and options on these futures contracts
(collectively referred to as "section 1256 contracts") is taxed pursuant
to a special "mark-to-market" system, these instruments are treated as if
sold at the Fund's fiscal year end for their fair market value. As a re-
sult, the Fund will be recognizing gains or losses before they are actu-
ally realized. Gain or loss on section 1256 contracts generally is treated
as 60% long-term capital gain or loss and 40% short-term capital gain or
loss, and, accordingly, the mark-to-market system will generally affect
the amount of capital gains or losses taxable to the Fund and the amount
of distributions to a shareholder. Moreover, if the Fund invests in both
section 1256 contracts and offsetting positions in those contracts, which
together constitute a straddle, then the Fund may be required to defer re-
ceiving the benefit of certain recognized losses. The Fund expects that
its activities with respect to section 1256 contracts and offsetting posi-
tions in those contracts will not cause it to be treated as recognizing a
materially greater amount of capital gains than actually realized and will
permit it to use substantially all of the losses of the Fund for the fis-
cal years in which the losses actually occur.
While the Fund does not expect to realize a significant amount of net
long-term capital gains, any such gains will be distributed annually as
described in the Prospectus. Such distributions ("capital gain divi-
dends"), if any, may be taxable to shareholders as long-term capital
gains, regardless of how long they have held Fund shares, and will be des-
ignated as capital gain dividends in a written notice mailed by the Fund
to shareholders after the close of the Fund's prior taxable year. If a
shareholder receives a capital gain dividend with respect to any share and
if such share has been held by the shareholder for six months or less,
then any loss (to the extent not disallowed pursuant to the other six
month rule described above) on the sale or exchange of such share will be
treated as a long-term capital loss to the extent of the capital gain div-
idend.
When a shareholder incurs a sales charge when acquiring shares of the
Fund, disposes of those shares within 90 days and acquires shares in a mu-
tual fund for which the otherwise applicable sales charge is reduced by
reason of a reinvestment right (that is, exchange privilege), the original
sales charge increases the shareholder's tax basis in the original shares
only to the extent the otherwise applicable sales charge for the second
acquisition is not reduced. The portion of the original sales charge that
does not increase the shareholder's tax basis in the original shares would
be treated as incurred with respect to the second acquisition and, as a
general rule, would increase the shareholder's tax basis in the newly ac-
quired shares. Furthermore, the same rule also applies to a disposition of
the newly acquired or redeemed shares made within 90 days of the second
acquisition. This provision prevents a shareholder from immediately de-
ducting the sales charge or CDSC by shifting his or her investment in a
family of mutual funds.
Each shareholder will receive after the close of the calendar year an an-
nual statement as to the Federal income tax and New Jersey personal income
tax status of his or her dividends and distributions from the Fund for the
prior calendar year. 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. Each share-
holder also will receive, if appropriate, various written notices after
the close of the Fund's prior taxable year as to the Federal income tax
status of his or her dividends and distributions which were received from
the Fund during the Fund's prior taxable year. Shareholders should consult
their tax advisors as to any other state and local taxes that may apply to
these dividends and distributions. The dollar amounts of dividends ex-
cluded or exempt from Federal income taxation or New Jersey personal in-
come taxation and the dollar amount of dividends subject to Federal income
taxation or New Jersey personal income taxation, if any, will vary for
each shareholder depending upon the size and duration of each sharehold-
er's investment in the Fund. To the extent that the Fund earns taxable net
investment income, it intends to designate as taxable dividends the same
percentage of each day's dividend as its actual taxable net investment in-
come bears to its total net investment income earned on that day. There-
fore, the percentage of each day's dividend designated as taxable, if any,
may vary from day-to-day.
Investors considering buying shares of the Fund just prior to a record
date for a capital gain distribution should be aware that, regardless of
whether the price of the Fund shares to be purchased reflects the amount
of the forthcoming distribution payment, any such payment will be a tax-
able distribution payment.
If a shareholder fails to furnish the Fund with a correct taxpayer identi-
fication number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identifi-
cation number and that he or she is not subject to "backup withholding,"
then the shareholder may be subject to a 31% "backup withholding" tax with
respect to (a) taxable dividends and distributions, if any, and (b) pro-
ceeds of any redemption of Fund shares. An individual's taxpayer identifi-
cation number is his or her social security number. The "backup withhold-
ing" tax is not an additional tax and may be credited against a sharehold-
er's Federal income tax liability.
In the opinion of the Fund's New Jersey counsel, income distributions, in-
cluding interest income and gains realized by the Fund upon disposition of
investments paid from a "qualified investment fund" are exempt from the
New Jersey personal income tax to the extent attributable to New Jersey
Municipal Securities or to obligations that are free from state or local
taxation under New Jersey or Federal laws ("Tax-Exempt Obligations"). A
"qualified investment fund" is any investment or trust company, or series
of such investment company or trust registered with the SEC, which for the
calendar year in which a distribution is paid, has no investments other
than interest-bearing obligations, obligations issued at a discount, fi-
nancial options, futures, forward contracts or other similar financial in-
struments related to interest-bearing obligations, obligations issued at a
discount or related bond indexes and cash and cash items, including re-
ceivables, and which has, at the close of each quarter of the taxable
year, at least 80% of the aggregate principal amount of all of its invest-
ments, excluding financial options, futures, forward contracts, or other
similar financial instruments related to interest-bearing obligations, ob-
ligations issued at a discount or bond indexes related there to as autho-
rized under the Code, cash and cash items, such as receivables, invested
in New Jersey Municipal Securities or in Tax-Exempt Obligations. Further-
more, gains resulting from the redemption or sale of shares of the Fund to
the extent attributable to interest or gain from obligations issued by New
Jersey or its local government entities or obligations which are free from
state or local taxes under New Jersey or Federal law, are exempt from the
New Jersey personal income tax.
The New Jersey personal income tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, divi-
dends and distributions from a "qualified investment fund" are included in
the net income tax base for purposes of computing the Corporation Business
Tax. Furthermore, any gain upon the redemption or sale of Fund shares by a
corporate shareholder is also included in the net income tax base for pur-
poses of computing the Corporation Business Tax.
The foregoing is only a summary of certain Federal and New Jersey tax con-
siderations generally affecting the Fund and its shareholders, and is not
intended as a substitute for careful tax planning. Shareholders are urged
to consult their tax advisors with specific reference to their own tax
situations.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on No-
vember 12, 1987. The Fund commenced operations on April 22, 1988 under the
name Shearson Lehman New Jersey Municipals Inc. On December 15, 1988,
March 31, 1992, July 30, 1993 and October 14, 1994, the Fund changed its
name to SLH New Jersey Municipals Fund Inc., Shearson Lehman Brothers New
Jersey Municipals Fund Inc., Smith Barney Shearson New Jersey Municipals
Fund Inc. and Smith Barney New Jersey Municipals Fund Inc., respectively.
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as the Fund's custodian
pursuant to a custody agreement. Under the custody agreement, Boston Safe
holds the Fund's portfolio securities and keeps all necessary accounts and
records. For its services, Boston Safe 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.
TSSG is located at Exchange Place, Boston, Massachusetts 02109 and serves
as the Fund's transfer agent. Under the transfer agency agreement, TSSG
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, TSSG 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.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended March 31, 1994, accom-
panies this Statement of Additional Information and is incorporated herein
by reference in its entirety.
APPENDIX
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 defi-
nitions 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 partic-
ularly the competitive position of the municipal enterprise under review
and the basic security covenants. Although a rating reflects S&P's judg-
ment 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. Qual-
ity of management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to re-
main, 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 cov-
enant, earnings test for issuance of additional bonds, and debt service
reserve requirements) are rigorous. There is evidence of superior manage-
ment.
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 ca-
pacity 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 be-
cause:
General Obligation Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expen-
ditures, 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. Sta-
bility of the pledged revenues could show some variations because of in-
creased 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 rev-
enues 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 cat-
egories, 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 ele-
ments are likely to change, such changes as can be visualized are most un-
likely 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 ele-
ments 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 se-
curity 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 protec-
tive elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment charac-
teristics and in fact have speculative characteristics as well.
Ba
Bonds that are rated Ba are judged to have speculative elements; their fu-
ture cannot be considered as well assured. Often the protection of inter-
est and principal payments may be very moderate and thereby not well safe-
guarded during both good and bad times over the future. Uncertainty of po-
sition characterizes bonds in this class.
B
Bonds that are rated B generally lack characteristics of the desirable in-
vestment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the secu-
rity ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
Caa
Bonds that are rated Caa are of poor standing. These issues may be in de-
fault 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 de-
mand obligations are designated Variable Moody's Investment Grade
("VMIG"). This distinction is in recognition of the differences between
short-term credit risk and long-term credit risk. Loans bearing the desig-
nation MIG 1 or VMIG 1 are of the best quality, enjoying strong protection
by established cash flows of funds for their servicing or from established
and broad-based access to the market for refinancing, or both. Loans bear-
ing the designation MIG 2 or VMIG 2 are of high quality, with ample mar-
gins of protection 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 tight and market ac-
cess for refinancing, in particular, is likely to be less well estab-
lished.
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 allow-
ance 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: (a) evaluation of the management of the issuer; (b) eco-
nomic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas; (c)
evaluation of the issuer's products in relation to competition and cus-
tomer acceptance; (d) liquidity; (e) amount and quality of long-term debt;
(f) trend of earnings over a period of ten years; (g) financial strength
of a parent company and the relationships which exist with the issuer; and
(h) 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
NEW JERSEY MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
Fund 66, 206
Smith Barney
NEW JERSEY
MUNICIPALS FUND INC.
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 7, 1994
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the year ended March 31, 1994 and
the report of Independent Accountants dated May 10, 1994, are incorporated
by reference to the Definitive 30b2-1 filed on May 27, 1994 as Assession
#0000053798-94-000278.
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
Exhibit No. Description of Exhibit
All references are to the Registrant's Registration Statement on Form N-1A
as filed with the Securities and Exchange Commission on December 1, 1987
File Nos. 33-18779 and 811-5486 (the "Registration Statement").
(1)(a) Registrant's Articles of Incorporation dated November 12, 1987,
Articles of Amendment dated December 15, 1988, to Articles of
Incorporation, Articles of Revival dated March 31, 1992, to the Articles of
Incorporation, Articles Supplementary dated November 5, 1992, to the
Articles of Incorporation, and Articles of Amendment dated July 30, 1993,
to Articles of Incorporation are incorporated by reference to Post-
Effective Amendment No. 12 filed August 1, 1994 ("PEA No. 12").
(1)(b) Form of Articles of Amendment dated October 14, 1994 to the
Articles of Incorporation are file herein.
1(c) Form of Articles Supplementary and Form of Articles of Amendment
dated November 7, 1994, to the Articles of Incorporation are filed
herein.
(2) Registrant's By-Laws dated November 23, 1987 are incorporated by
reference to the Registration Statement.
(3) Not Applicable
(4) Registrant's form of stock certificate for Class A and B shares is
incorporated by reference to Post-Effective Amendment No. 9 to the
Registration Statement ("Post-Effective Amendment No. 9").
(5) Investment Advisory Agreement dated July 30, 1993 between the
Registrant
and Greenwich Street Advisors is incorporated by reference to PEA No.
12.
(6) Distribution Agreement dated July 30, 1993 between the Registrant
and Smith Barney Shearson Inc. is incorporated by reference to PEA No.
12.
(7) Not Applicable.
(8) Custody Agreement between the Registrant and Boston Safe Deposit and
Trust Company dated April 1, 1988 is incorporated by reference to Pre-
Effective Amendment No. 1 to the Registration Statement ("Pre-Effective
Amendment
No. 1").
(9) (a) Transfer Agency Agreement dated August 2, 1993 between the
Registrant and The Shareholder Services Group, Inc. is incorporated by
reference to PEA No. 12
(b) Form of Administration Agreement dated April 20, 1994
between the Registrant and Smith, Barney Advisers, Inc. ("SBA") is filed
herein.
(c) Form of Sub-Administration dated April 20, 1994 between the
Registrant, SBA and The Boston Company Advisors, Inc. is filed herein.
(10) Opinion of New Jersey Counsel is incorporated by reference to PEA
No. 12.
(11) Consent of Independent Accountants is filed herein.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Amended Services and Distribution Plan pursuant to Rule 12b-1 is
filed herein.
(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 3 to the Registrant Statement filed on May 27, 1989
(Post-Effective Amendment No. 3"). </R
Item 25. Persons Controlled by or under Common Control with Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class by Class as of
November 4,
1994
Common Stock, par Class A 3,000
value $.001 per share Class B 1,966
Item 27. Indemnification
Response to this item is incorporated by reference to Post-Effective
Amendment No. 9.
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Smith Barney Mutual Funds Management Inc., formerly
known as Smith, Barney Advisers, Inc. ("SBMFM")
SBFMF was incorporated in December 1968 under the laws of the State of
Delaware. SBFMF is a wholly owned subsidiary of Smith Barney Holdings Inc.
(formerly known as Smith Barney Shearson Holdings Inc.), which in turn is a
wholly owned subsidiary of The Travelers Inc. (formerly known as Primerica
Corporation) ("Travelers"). SBMFM is registered as an investment adviser
under the Investment Advisers Act of 1940 (the "Advisers Act").
The list required by this Item 28 of officers and directors of SBMFM
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 SBMFM pursuant to the Advisers Act
(SEC File No. 801-8314).
Prior to the close of business on November 7, 1994, Greenwich Street
Advisors served as investment adviser. Greenwich Street Advisors, through
its predecessors, has been in the investment counseling business since 1934
and is a division of Mutual Management Corp. ("MMC"). MMC was incorporated
in 1978 and is a wholly owned subsidiary of Smith Barney Holdings Inc.
(formerly known as Smith Barney Shearson Holdings Inc.) ("Holdings"), which
is in turn a wholly owned subsidiary of The Travelers Inc. (formerly known
as Primerica Corporation) ("Travelers"). The list required by this Item 28
of officers and directors of MMC and Greenwich Street Advisors, 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 fiscal years, is incorporated by reference to
Schedules A and D of FORM ADV filed by MMC on behalf of Greenwich Street
Advisors pursuant to the Advisers Act (SEC File No. 801-14437).
Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Advisors, a member of the Asset Management Group of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"), served as the Registrant's
investment adviser. On the Closing, Travelers and Smith Barney Inc.
(formerly known as Smith Barney Shearson Inc.) acquired the domestic retail
brokerage and asset management business of Shearson Lehman Brothers, which
included the business of the Registrant's prior investment adviser.
Shearson Lehman Brothers was a wholly owned subsidiary of Shearson Lehman
Brothers Holdings Inc. ("Shearson Holdings"). All of the issued and
outstanding common stock of Shearson Holdings (representing 92% of the
voting stock) was held by American Express Company. Information as to any
past business vocation or employment of a substantial nature engaged in by
officers and directors of Shearson Lehman Advisors can be located in
Schedules A and D of FORM ADV filed by Shearson Lehman Brothers on behalf
of Shearson Lehman Advisors prior to July 30, 1993. (SEC FILE NO. 801-
3701)
11/3/94
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as distributor for Smith
Barney Managed Municipals Fund Inc., Smith Barney New York Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Global Opportunities Fund,
Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation Fund
Inc., Smith Barney Principal Return Fund, Smith Barney Shearson Municipal
Money Market Fund Inc., Smith Barney Daily Dividend Fund Inc., Smith Barney
Government and Agencies Fund Inc., Smith Barney Managed Governments Fund
Inc., Smith Barney New York Municipal Money Market Fund, Smith Barney
California Municipal Money Market Fund, Smith Barney Income Funds, Smith
Barney Equity Funds, Smith Barney Investment Funds Inc., Smith Barney
Precious Metals and Minerals Fund Inc., Smith Barney Telecommunications
Trust, Smith Barney Arizona Municipals Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., The USA High Yield Fund N.V., Garzarelli Sector
Analysis Portfolio N.V., The Advisors Fund L.P., Smith Barney Fundamental
Value Fund Inc., Smith Barney Series Fund, Consulting Group Capital Markets
Funds, Smith Barney Income Trust, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Florida Municipals Fund, Smith Barney Oregon
Municipals Fund, Smith Barney Funds, Inc., Smith Barney Muni Funds, Smith
Barney World Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney Tax
Free Money Fund, Inc., Smith Barney Variable Account Funds, Smith Barney
U.S. Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited, (Bermuda), Smith Barney International Fund (Luxembourg)
and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Holdings Inc.), which in turn is a
wholly owned subsidiary of The Travelers Inc. (formerly known as Primerica
Corporation) ("Travelers"). On June 1, 1994, Smith Barney changed its
name from Smith Barney Inc. to its current name. The information required
by this Item 29 with respect to each director, officer and partner of Smith
Barney is incorporated by reference to Schedule A of FORM BD filed by Smith
Barney pursuant to the Securities Exchange Act of 1934 (SEC File No. 812-
8510).
11/4/94
Item 30. Location of Accountants and Record
(1) Smith Barney New Jersey Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013<R/>
(3)
The Boston Company Advisors Inc.
One Boston Place
Boston, Massachusetts 02108
(4) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(5) The Shareholders Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
None.
Item 32. Undertakings
None
Rule 485(b) Certification
The Registrant hereby certifies that I meets all of the requirements
for effectiveness pursuant to Rule 485(b) under the Securities Act of
1933, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC., has duly caused
this Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, all in the City of New York,
State of New York on the 7th day of November, 1994.
SMITH BARNEY
NEW JERSEY MUNICIPALS FUND INC.
By:/s/ Heath B.
McLendon*
Heath B. McLendon, Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement and the above Power
of Attorney has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Heath B. McLendon*
Heath B. McLendon Director
Chairman of the Board
(Chief Executive Officer)
11/7/94
/s/ Lewis E. Daidone
Lewis E. Daidone Treasurer (Chief Financial
and Accounting Officer) 11/7/94
/s/ Alfred J. Bianchetti*
Alfred J. Bianchetti Director
11/7/94
/s/ Herbert Barg*
Herbert Barg Director
11/7/94
/s/ Martin Brody*
Martin Brody Director
11/7/94
/s/ Dwight B. Crane*
Dwight B. Crane Director
11/7/94
/s/ James J. Crisona*
James J. Crisona Director
11/7/94
/s/ Robert A. Frankel*
Robert A. Frankel Director 11/7/94
_____________________
Burt N. Dorsett Director
11/7/94
____________
Signature Title Date
____________________
Elliot S. Jaffe Director
____________________
Cornelius C. Rose, Jr. Director
/s/ Dr. Paul Hardin*
Dr. Paul Hardin Director
11/7/94
/s/ Stephen E. Kaufman
Stephen E. Kaufman Director
11/7/94
/s/ Joseph J. McCann*
Joseph J. McCann Director 11/7/94
*Signed by Lee D. Augsburger, their
duly authorized attorney-in-fact,
pursuant to power of attorney dated
October 20, 1992
/s/ Lee D. Augsburger______
Lee D. Augsburger
g:/shared/domestic/clients/shearson/funds/njmu/pea13.doc
Exhibit 1(f)
SMITH BARNEY SHEARSON
NEW JERSEY MUNICIPALS FUND INC.
ARTICLES OF AMENDMENT
Smith Barney Shearson New Jersey Municipals Fund Inc., a
Maryland corporation having its principal office in the State
of Maryland in Baltimore City (hereinafter called the
"Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Articles of Incorporation of the
Corporation, as amended, are hereby further amended by deleting
Article II and inserting in lieu thereof the following:
ARTICLE II
NAME
The name of the corporation (hereinafter called
the "Corporation") is Smith Barney New Jersey
Municipals Fund Inc.
SECOND: The foregoing amendment to the charter of the
Corporation was approved by a majority of the entire Board of
Directors of the Corporation; the charter amendment is limited
to a change expressly permitted by Section 2-605 of Title 2 of
Subtitle 6 of the Maryland General Corporation Law to be made
without action by the stockholders, and the Corporation is
registered as an open-end company under the Investment Company
Act of 1940.
The undersigned Chairman acknowledges these Articles of
Amendment to be the corporate act of the Corporation and states
to the best of his knowledge, information and belief that the
matters and facts set forth in these Articles with respect to
authorization and approval are true in all material respects
and that this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, Smith Barney Shearson New Jersey
Municipals Fund Inc. has caused these Articles of Amendment to
be signed in its name and on its behalf by its Chairman and
witnessed by its Assistant Secretary on October , 1994.
SMITH BARNEY SHEARSON NEW
JERSEY MUNICIPALS FUND INC.
By: /s/ Heath B. McLendon Heath B.
McLendon, Chairman
WITNESS:
/s/ Lee D. Augsburger
Lee D. Augsburger
Assistant Secretary
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5271/BLUSEC
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<PAGE> 1
ARTICLES SUPPLEMENTARY
SMITH BARNEY NEW JERSEY MUNICIPALS
FUND INC.
Smith Barney New Jersey
Municipals Fund Inc., a Maryland
corporation having its principal
office in the State of Maryland in
Baltimore City (hereinafter called the
"Corporation"), hereby certifies to
the State Department of Assessments
and Taxation of Maryland that:
FIRST: The Corporation is
authorized to issue
100,000,000 shares of capital stock,
par value $.001 per share, with an
aggregate par value of $100,000.
These Articles Supplementary do not
increase the total authorized capital
stock of the Corporation or the
aggregate par value thereof. The
Board of Directors hereby classifies
and reclassifies all of the unissued
shares of capital stock of all classes
of the Corporation in such manner that
the Corporation's capital stock will
be classified into five classes, each
with a par value of $.001 per share,
designated Class A Common Stock, Class
B Common Stock, Class C Common Stock,
Class Y Common Stock and Class Z
Common Stock. The Corporation shall
be authorized to issue up to
100,000,000 shares of each such class
of capital stock less, at any time,
the total number of shares of all
other such classes of capital stock
then issued and outstanding. At no
time may the Corporation cause to be
issued and outstanding more than
100,000,000 shares of its capital
stock of all such classes in the
aggregate unless such number be
hereafter increased in accordance with
the Maryland General Corporation Law.
SECOND: The shares of Class A
Common Stock, Class B Common Stock and
Class C Common Stock classified hereby
shall have the preferences, conversion
and other rights, voting powers,
restrictions, limitations as to
dividends, qualifications and terms
and conditions of redemption as
currently set forth in the charter of
the Corporation with respect to those
respective classes of capital stock.
The Class Y Common Stock and the Class
Z Common Stock classified hereby shall
have the preferences, conversion and
other rights, voting powers,
restrictions, limitations as to
dividends, qualifications, and terms
and conditions of redemption as set
forth below and shall be subject to
all provisions of the Corporation's
Articles of Incorporation relating to
stock of the Corporation generally:
(1) All consideration received by the
Corporation for the issue or sale of
the Class Y Common Stock or the Class
Z Common
<PAGE> 2
Stock, respectively, classified
hereby, together with all income,
earnings, profits and proceeds
thereof, including any proceeds
derived from the sale, exchange or
liquidation thereof, and any funds or
payments derived from any reinvestment
of the proceeds in whatever form the
same may be, shall irrevocably belong
to the class of stock with respect to
which the assets, payments or funds
were received by the Corporation for
all purposes, subject only to the
rights of creditors, and shall be so
handled upon the books of account of
the Corporation. Such assets, income,
earnings, profits and proceeds
thereof, including any proceeds
derived from the sale, exchange or
liquidation thereof, and any assets
derived from any reinvestment of the
proceeds in whatever form, are herein
referred to as "assets belonging to"
such class.
(2) In the event of the liquidation
or dissolution of the Corporation,
shareholders of each of the Class Y
Common Stock and the Class Z Common
Stock shall be entitled to receive, as
a class, out of the assets of the
Corporation available for distribution
to shareholders, but other than
general assets not belonging to any
particular class of stock, the assets
belonging to the class; and the assets
so distributable to the stockholders
of the Class Y Common Stock or the
Class Z Common Stock shall be
distributed among the stockholders in
proportion to the number of shares of
the class held by them and recorded on
the books of the Corporation. In the
event that there are any general
assets not belonging to any particular
class of stock, whether an existing
class of stock or the Class Y Common
Stock or the Class Z Common Stock, and
such assets are available for
distribution, the distribution shall
be made to the holders of stock of all
classes in proportion to the net asset
value of the respective classes.
(3) The assets belonging to the Class
Y Common Stock or the Class Z Common
Stock shall be charged with the
liabilities of such class,
<PAGE> 3
and shall also be charged with such
class's share of the general
liabilities of the Corporation, in
proportion to the net asset value of
the respective classes before taking
into account general liabilities. The
determination of the Board of
Directors shall be conclusive (i) as
to the amount of such liabilities,
including the amount of accrued
expenses and reserves; (ii) as to any
allocation of the same to a given
class; and (iii) as to whether the
same, or general assets of the
Corporation, are allocable to one or
more classes. The liabilities so
allocated to the Class Y Common Stock
or the Class Z Common Stock are herein
referred to as "liabilities belonging
to" such class.
(4) The assets belonging to each of
the Class Y Common Stock and Class Z
Common Stock shall be invested in the
same investment portfolio of the
Corporation as the assets belonging to
the Class A Common Stock, the Class B
Common Stock and the Class C Common
Stock.
(5) The dividends and distributions
of investment income and capital gains
with respect to each of the Class Y
Common Stock and Class Z Common Stock
shall be in such amounts as may be
declared from time to time by the
Board of Directors, and such dividends
and distributions with respect to each
such class of capital stock may vary
from dividends and distributions with
respect to each other class of capital
stock to reflect differing allocation
of the expenses of the Corporation
among the holders of each such class
and any resultant differences among
the net asset values per share of each
such class, to such extent and for
such purposes as the Board of
Directors may deem appropriate.
(6) The allocation of investment
income, capital gains and losses,
expenses and liabilities of the
Corporation among the Class Y Common
Stock, the Class Z Common Stock and
any other class of the Corporation's
stock shall be determined conclusively
by the Board of Directors in a manner
that is consistent with the order
dated July 7, 1992
<PAGE> 4
(Investment Company Act of 1940
Release No. 18832), as amended January
19, 1993 (Investment Company Act
Release No. 19216), and January 28,
1994 (Investment Company Act of 1940,
Release No. 20042) issued by the
Securities and Exchange Commission in
connection with the application for
exemption filed by Smith Barney
Appreciation Fund, Inc. (formerly
Shearson Lehman Brothers Appreciation
Fund Inc.) et al., and any existing or
future amendment to such order or any
rule or interpretation under the
Investment Company Act of 1940 that
modifies or supersedes such order.
(7) Except as may otherwise be
required by law pursuant to any
applicable order, rule, or
interpretation issued by the
Securities and Exchange Commission, or
otherwise, the holders of each of the
Class Y Common Stock and Class Z
Common Stock shall have (i) exclusive
voting rights with respect to any
matter, including any distribution
plan adopted by the Corporation
pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (a
"Plan") which affects only holders of
such class, and (ii) no voting rights
with respect to any matter, including
any Plan, which does not affect
holders of such class.
THIRD: The Board of Directors
of the Corporation
has classified the shares described
above pursuant to authority contained
in the Corporation's charter.
FOURTH: These Articles
Supplementary will become
effective at 9:01 A.M. on November 7,
1994.
The undersigned Chairman of the
Board of the Corporation acknowledges
these Articles Supplementary to be the
corporate act of the Corporation and
states that to the best of his
knowledge, information and belief, the
matters and facts set forth in these
Articles with respect to authorization
and approval are true in all material
respects and that this statement is
made under penalties of perjury.
IN WITNESS WHEREOF, Smith Barney
New Jersey Municipals Fund Inc. has
caused these Articles Supplementary to
be signed
<PAGE> 5
and filed in its name and on its
behalf by its Chairman of the Board,
and witnessed by its Assistant
Secretary on , 1994.
SMITH BARNEY NEW JERSEY MUNICIPALS
FUND INC.
By: /s/ Heath B. McLendon Heath B.
McLendon,
Chairman of the Board
WITNESS:
/s/ Lee D. Augsburger
Lee D. Augsburger,
Assistant Secretary
5255/BLUSEC
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5277/BLUSEC
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<PAGE> 1
SMITH BARNEY NEW JERSEY MUNICIPALS
FUND INC. ARTICLES OF AMENDMENT
Smith Barney New Jersey
Municipals Fund Inc., a Maryland
corporation having its principal
office in the State of Maryland in
Baltimore City (hereinafter called the
"Corporation"), hereby certifies to
the State Department of Assessments
and Taxation of Maryland that:
FIRST: The charter of the
Corporation is hereby amended to
provide that the Corporation's "Class
D Common Stock" is hereby redesignated
as "Class C Common Stock."
SECOND: The charter of the
Corporation is hereby
amended further to provide that the
class of shares of "Common Stock" of
the Corporation that has not been
previously further designated is
hereby designated as "Class A Common
Stock."
THIRD: The foregoing
amendments to the charter of the
Corporation were approved by a
majority of the entire Board of
Directors of the Corporation; the
charter amendments are limited to
changes expressly permitted by Section
2-605 of Title 2 of Subtitle 6 of the
Maryland General Corporation Law to be
made without action by the
stockholders, and the Corporation is
registered as an open-end company
under the Investment Company Act of
1940.
FOURTH: These Articles of Amendment
will become
effective at 9:00 A.M. on November 7,
1994.
The undersigned Chairman of the
Board of the Corporation acknowledges
these Articles of Amendment to be the
corporate act of the Corporation and
states to the best of his knowledge,
information and belief that the
matters and facts set forth in these
Articles with respect to authorization
and approval are true in all material
respects and that this statement is
made under the penalties of perjury.
<PAGE> 2
IN WITNESS WHEREOF, Smith Barney
New Jersey Municipals Fund Inc. has
caused these Articles of Amendment to
be signed in its name and on its
behalf by its Chairman of the Board,
and witnessed by its Assistant
Secretary on , 1994.
SMITH BARNEY NEW JERSEY MUNICIPALS
FUND INC.
By: /s/ Heath B. McLenodn
Heath B. McLendon,
Chairman of the
Board
WITNESS:
/s/ Lee D. Augsburger
Lee D. Augsburger,
Assistant Secretary
Exhibit 9b
ADMINISTRATION AGREEMENT
April 20, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Smith Barney Shearson New Jersey Municipals Fund Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, confirms its
agreement with Smith, Barney Advisers, Inc. ("SBA") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Charter dated November 11, 1987, as amended
from time to time (the "Charter"), in its Prospectus and Statement of
Additional Information as from time to time in effect and in such manner
and to such extent as may from time to time be approved by the Board of
Directors of the Fund (the "Board"). Copies of the Fund's Prospectus,
Statement of Additional Information and Charter have been or will be
submitted to SBA. Greenwich Street Advisors ("Greenwich Street Advisors")
serves as the Fund's investment adviser and the Fund desires to employ and
hereby appoints SBA to act as its administrator. SBA accepts this
appointment and agrees to furnish the services to the Fund for the
compensation set forth below. SBA is hereby authorized to retain third
parties and is hereby authorized to delegate some or all of its duties and
obligations hereunder to such persons provided that such persons shall
remain under the general supervision of SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Fund's operations except
those performed by the Fund's investment adviser under its investment
advisory agreement; (b) supply the Fund with office facilities (which may
be in SBA'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, internal auditing and legal
services, internal executive and administrative services, and stationary
and office supplies; and (c) prepare reports to shareholders of the Fund,
tax returns and reports to and filings with the Securities and Exchange
Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month a
fee for the previous month at an annual rate of ..20 of the value of the
Fund's average daily net assets up to $500 million and .18% of the value of
average daily net assets in excess of $500 million. The fee for the period
from the date the Fund's initial registration statement is declared
effective by the SEC to the end of the month during which the initial
registration statement is declared effective shall be prorated according to
the proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for such
part of a month shall be prorated according to the proportion which such
period bears to the full monthly period and shall be payable upon the date
of termination of this Agreement. For the purpose of determining fees
payable to SBA, the value of the Fund's net assets shall be computed at the
times and in the manner specified in the Fund's Prospectus and Statement of
Additional Information as from time to time in effect.
4. Expenses
SBA will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of the members of the Board of
the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc. or its affiliates or any person who is an affiliate of any
person to whom duties may be delegated hereunder; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities commissions, extraordinary
expenses) exceed the expense limitations of any state having jurisdiction
over the Fund, SBA will reimburse the Fund for that excess expense to the
extent required by state law in the same proportion as its respective fees
bear to the combined fees for investment advice and administration. The
expense reimbursement obligation of SBA will be limited to the amount of
its fees hereunder. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the services
listed in paragraph 2 above, and SBA shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect SBA against
liability to the Fund or to its shareholders to which SBA would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by reason of SBA's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other investment
companies, and the Fund has no objection to SBA so acting. In addition,
the Fund understands that the persons employed by SBA or its affiliates to
assist in the performance of its duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of SBA or its affiliates to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers, directors,
employees, affiliates, controlling persons, agents (including persons to
whom responsibilities are delegated hereunder) ("indemnitees") against any
loss, claim, expense or cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this Agreement or from the
performance or failure to perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee violated the standard
of care in paragraph 6 above. This indemnification shall be limited by the
1940 Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the 1940
Act and the rules, regulations and interpretations thereof as in effect
from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are
binding only upon the assets and property of the Fund, as provided in the
Charter and Bylaws. The execution and delivery of this Agreement has been
duly authorized by the Fund, SBA and Boston
Advisors, and signed by an authorized officer of each, acting as such.
Neither the authorization by the Board members of the Fund, nor the
execution and delivery by the officer of the Fund shall be deemed to have
been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the assets and property of the Fund as
provided in the Charter and Bylaws.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by singing and returning to us the enclosed
copy hereof.
Very truly yours,
Smith Barney Shearson
New Jersey Municipals Fund Inc.
By: /S/ Heath B. McLendon
Title:
Accepted:
Smith, Barney Advisers, Inc.
By: __/s/ Christina T. Sydor___________
Title:
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliations - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution Funds - Calculate income on purchase and sales, calculate
change in income due to variable rate change, combine all daily income
less expenses to arrive at net income, calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual,
semi-annual and quarterly portfolio of investments and financial
statements included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting
(for money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with
outside printers for annual and semi-annual reports, prospectuses,
statements of additional information, proxy statements and special
letters or supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the
Fund;
Determine expenses properly chargeable to the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's
Board (e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market
funds;
Recommend valuation to be used for securities which
are not readily saleable;
Function as a liaison with the Fund's outside auditors
and arrange for audits;
Provide accounting, financial and tax support relating
to portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue
Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with
the appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder
communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the
Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder
meetings;
Maintain Articles of Incorporation and By-Laws of the
Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and
procedures to improve overall compliance by the Fund and its various
agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
Smith Barney Advisers, Inc.
April 20, 1994
Page 5
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shared\domestic\clients\shearson\agr.doc
Exhibit 9c
SUB-ADMINISTRATION AGREEMENT
April 20, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02210
Dear Sirs:
Smith Barney Shearson New Jersey Municipals Fund Inc.(the
"Fund"), a corporation organized under the laws of the State of Maryland
and Smith, Barney Advisers, Inc. ("SBA") confirm their agreement with
The Boston Company Advisors, Inc. ("Boston Advisors") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Charter dated November 11, 1987, as amended
from time to time (the "Charter"), in its Prospectus and Statement of
Additional Information as from time to time in effect, and in such
manner and to such extent as may from time to time be approved by the
Board of Directors of the Fund (the "Board"). Copies of the Fund's
Prospectus, Statement of Additional Information and Charter have been or
will be submitted to you. The Fund employs SBA as its administrator,
and the Fund and SBA desire to employ and hereby appoint Boston Advisors
as the Fund's sub-administrator. Boston Advisors accepts this
appointment and agrees to furnish the services to the Fund, for the
compensation set forth below, under the general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and
SBA, Boston Advisors will: (a) assist in supervising all aspects of the
Fund's operations except those performed by the Fund's investment
adviser under the Fund's investment advisory agreement; (b) supply the
Fund with office facilities (which may be in Boston Advisor'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 changes and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationery
and office supplies; and (c) prepare reports to shareholders of the
Fund, tax returns and reports to and filings with the Securities and
Exchange Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of
each month a fee for the previous month calculated in accordance with
the terms set forth in Appendix B, and as agreed to from time to time
by the Fund, SBA and Boston Advisors. Upon any termination of this
Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to
the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees
payable to Boston Advisors, the value of the Fund's net assets shall be
computed at the times and in the manner specified in the Fund's
Prospectus and Statement of Additional Information as from time to time
in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with
the performance of its services under this Agreement. The Fund will
bear certain other expenses to be incurred in its operation, including:
taxes, interest, brokerage fees and commissions, if any; fees of the
Board members of the Fund who are not officers, directors or employees
of Smith Barney Shearson Inc., Boston Advisors of their affiliates; SEC
fees and state blue sky qualification fees; charges of custodians and
transfer and dividend disbursing agents; the Fund's and its Board
members' proportionate share of insurance premiums, professional
association dues and/or assessments; outside auditing and legal
expenses; costs of maintaining the Fund's existence; costs attributable
to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports
and meetings of the officers or Board and any extraordinary expenses.
In addition, the Fund will pay all distribution fees pursuant to a
Distribution Plan adopted under Rule 12b-1 of the Investment Company Act
of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston
Advisory will reimburse the Fund for that excess expense to the extent
required by state law in the same proportion as its respective fees bear
to the combined fees for investment advice and administration. The
expense reimbursement obligation of Boston Advisors will be limited to
the amount of its fees hereunder. Such expense reimbursement, if any,
will be estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in
rendering the services listed in paragraph 2 above. Boston Advisors
shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which
this Agreement
relates, provided that nothing herein shall be deemed to protect or
purport to protect Boston Advisors against liability to the Fund or to
its shareholders to which Boston Advisors would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its part
in the performance of its duties or by reason of Boston Advisor's
reckless disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without
the written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or
more other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right
of Boston Advisors or its affiliates to engage in and devote time and
attention to other businesses or to render services of whatever kind of
nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including
reasonable attorney's fees) resulting or arising in connection with this
Agreement or from the performance or failure to perform any act
hereunder, provided that not such indemnification shall be available if
the indemnitee violated the standard of care in paragraph 6 above. This
indemnification shall be limited by the 1940 Act, and relevant state
law. Each indemnitee shall be entitled to advancement of its expenses
in accordance with the requirements of the 1940 Act and the rules,
regulations and interpretations thereof as in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations
of the Fund under this Agreement shall not be binding upon any of the
Board members, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Fund individually, but are
binding only upon the assets and property of the Fund, as provided in
the Charter and Bylaws.
The execution and delivery of this Agreement has been duly authorized by
the Fund, SBA and Boston Advisors, and signed by an authorized officer
of each, acting as such. Neither the authorization by the Board Members
of the Fund, nor the execution and delivery by the officer of the Fund
shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
assets and property of the Fund as provided in the Charter.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us
the enclosed copy hereof.
Very truly yours,
Smith Barney Shearson
New Jersey Municipals Fund Inc.
By:_/s/ Heath B. McLendon________
Title:
Smith, Barney Advisers, Inc.
By:_/s/ Christina T. Sydor__________
Title:
Accepted:
The Boston Company Advisors, Inc.
By:_________________
Title
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act" ), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliation - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income
less expenses to arrive at net income; calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian reports;
Pricing - Determine N.A.V. for the Fund using market value
of all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent - N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio mangers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board, tax authorities, statistical and performance reporting
companies and the Fund's auditors; interface with Fund's auditors;
prepare monthly reconciliation packages, including expense pro forma;
prepare amortization schedules for premium and discount bonds based on
the effective yield method; prepare vault reconciliation reports to
indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting (for
money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.).
Publications
Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide an Assistant Treasurer for the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
Monitor mark-to-market comparisons for money market funds;
Recommend valuations to be used for securities which are not
readily saleable;
Function as a liaison with the Fund's outside auditors and
arrange for audits;
Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's
structure or operations;
Prepare and file forms with the Internal Revenue Service
Form 8613
Form 1120-RIC
Board Members' and Shareholders' 1099s
Mailings in connection with Section 852 and related regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
Prepare and file proxy statements;
Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
Provide an Assistant Secretary for the Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder meetings;
Maintain Articles of Incorporation and By-Laws of the Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel
and performing on-going testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with prospectus guidelines and
limitations, 1940 Act requirements and Internal Revenue Code
requirements. The Department may also act as liaison to the SEC during
its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-
going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
The Boston Company Advisors, Inc.
April , 1994
Page 4
shared\domestic\clients\shearson\agr.doc
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Smith Barney New Jersey Municipals Fund Inc.:
We hereby consent to the following with respect to
Post-Effective Amendment No. 13 to the Registration Statement
on Form N-1A (File No. 33-18779) under the Securities Act of
1933, as amended, of Smith Barney New Jersey Municipals Fund
Inc. (formerly Smith Barney Shearson New Jersey Municipals Fund
Inc.):
1. The incorporation by reference of our report dated May 10,
1994 accompanying the Annual Report for the fiscal year ended
March 31, 1994 of Smith Barney New Jersey Municipals Fund Inc.,
in the Statement of Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the Prospectus.
3. The reference to our firm under the heading "Counsel and
Auditors" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
November 2, 1994
EXHIBIT 15
AMENDED SERVICES AND DISTRIBUTION PLAN
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
This 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 New Jersey 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) Class A Service Fee. The Fund will pay to the distributor of its
shares, Smith Barney Inc., a corporation organized under the laws of the
State of Delaware ("Distributor"), a service fee under the Plan at the
annual rate of .15% of the average daily net assets of the Fund
attributable to the Class A shares (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .15% of the
average daily net assets of the Fund attributable to the Class B shares
(the "Class B Service Fee").
(c) Service Fee for Class C shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .15% of the
average daily net assets of the Fund attributable to the Class C shares
(the "Class C Service Fee," and collectively with the Class A Service Fee
and the Class B Service Fee, the "Service Fees").
(d) Distribution Fee for Class B shares. In addition to the Class B
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .50% of the average daily net assets of the fund
attributable to the Class B Distribution Fee, the "Distribution Fees").
(e) Distribution Fee for Class C shares. In addition to the Class C
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .55% of the average daily net assets of the Fund
attributable to the Class C shares (the "Class C Distribution Fee," and
collectively with the Class B Distribution Fee, the "Distribution Fees").
(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 Fees and/or Distribution Fees may be used for; (a) costs of
printing and distributing the Fund's prospectus, statement of additional
information and reports to prospective investors in the Fund; (b) costs
involved in preparing, printing and distributing sales literature
pertaining o the Fund; (c) an allocation of overhead and other branch
office distribution-related expenses of the Distributor; (d) payments made
to, and expenses of Smith Barney Financial Consultants and other persons
who provide support services 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, processing
shareholder transactions 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 and, in the case of Class B shares, the contingent
deferred sales charge received by the Distributor; provided, however, that
the Distribution Fees may be used by the Distributor only to cover expenses
primarily intended to result in the sale of the Fund's Class B and C
shares, including without limitation, payments to Distributor's financial
consultants ant the time of the sale of Class B and C shares. In addition,
Service Fees are intended to be used by the Distributor 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 of 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 a 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 longer 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 major 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 of Directors
Neither the Plan nor any related agreements will take effect until
approved by a majority of both (a) the full Board of Directors of the Fund
and (b) those Directors who are not interested persons of the Fund and who
have not 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
November 7, 1995, 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 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 to 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 the 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, a 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 sets 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 1940 Act by the Securities and Exchange
Commission.
IN WITNESS WHEREOF, the Fund execute the Plan as of November 7, 1994.
SMITH BARNEY
NEW JERSEY MUNICIPALS FUND INC.
By:_______________________
Heath B. McLendon
Chairman of the Board
g\shared\domestic\clients\shearson\funds\njmu\12b1pln2.doc03:54 PM
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