<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
SEPTEMBER 28, 1994.
SECURITIES ACT FILE NO. 33-47116
INVESTMENT COMPANY ACT FILE NO. 811-6629
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 6
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 7 /X/
(check appropriate box or boxes)
------------------------
MANAGED MUNICIPALS
PORTFOLIO INC.
(Exact Name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York 10048
(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number, including Area Code: (212) 720-9218
MR. HEATH B. McLENDON
Chairman of the Board
Managed Municipals Portfolio Inc.
Two World Trade Center, 100th Floor
New York, New York 10048
(Name and Address of Agent for Service of Process)
------------------------
COPY TO:
BURTON M. LEIBERT, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT.
If any of the securities being registered on this Form N-2 are to be offered
on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /X/
------------------------
This Registration Statement relates to the registration of an indeterminate
number of shares solely for market-making transactions. A fee of $100 is being
paid at this time. Pursuant to Rule 429, this Registration Statement relates to
shares previously registered on Form N-2 (Registration No. 33-47116).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MANAGED MUNICIPALS PORTFOLIO INC.
FORM N-2
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
ITEM
NUMBER CAPTION PROSPECTUS
CAPTION
- --------- --------------------------------------------------- -----------------------------------------------
- ----
<C> <S> <C>
1. Outside Front Cover................................ Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Page........... Inside Front and Outside
Back Cover Page of
Prospectus
3. Fee Table and Synopsis............................. Prospectus Summary; Portfolio
Expenses
4. Financial Highlights............................... Financial Highlights
5. Plan of Distribution............................... Prospectus Summary; The
Offering; Stock Purchases
and Tenders
6. Selling Shareholders............................... Not Applicable
7. Use of Proceeds.................................... Use of Proceeds
8. General Description of the Registrant.............. Prospectus Summary; The
Portfolio; Investment
Objective and Policies; Description of
Common
Stock; Share Price Data; Net Asset Value;
Certain
Provisions of the Articles of
Incorporation;
Appendix
9. Management......................................... Management of the Portfolio;
Description of Common
Stock; Custodian, Transfer Agent,
Dividend-Paying
Agent, Registrar and Plan Agent
10. Capital Stock, Long-Term Debt and Other
Securities........................................ Dividends and Distributions; Dividend
Reinvestment
Plan; Taxation; Description of Common
Stock; Net
Asset Value
11. Defaults and Arrears on Senior Securities.......... Not Applicable
12. Legal Proceedings.................................. Not Applicable
13. Table of Contents of the Statement of Additional
Information....................................... Further Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B
ITEM
NUMBER CAPTION STATEMENT OF
ADDITIONAL INFORMATION CAPTION
- --------- --------------------------------------------------- -----------------------------------------------
- ----
<C> <S> <C>
14. Cover Page......................................... Cover Page of Statement of
Additional Information
15. Table of Contents.................................. Cover Page of Statement of
Additional Information
16. General Information and History.................... The Portfolio (see Prospectus)
17. Investment Objectives and Policies................. Investment Objective and
Policies; Investment
Objective and Policies (see Prospectus)
18. Management......................................... Management of the Portfolio:
Directors and Executive Officers of the
Portfolio,
Investment Adviser
19. Control Persons and Principal Holders of
Securities........................................ Management of the Portfolio
20. Investment Advisory and Other Services............. Management of the Portfolio:
Investment Adviser
21. Brokerage Allocation and Other Practices........... Portfolio Transactions:
Portfolio Turnover;
Management of the Portfolio
22. Tax Status......................................... Taxes; Taxation (in Prospectus)
23. Financial Statements............................... Financial Statements
</TABLE>
<PAGE>
PROSPECTUS SEPTEMBER 28, 1994
COMMON STOCK
MANAGED MUNICIPALS PORTFOLIO INC.
---------------
Managed Municipals Portfolio Inc. (the "Portfolio") is a non-diversified,
closed-end management investment company that seeks as high a level of current
income exempt from federal income tax as is consistent with the preservation of
principal. Under normal conditions, the Portfolio will, in seeking its
investment objective, invest substantially all of its assets in long-term,
investment grade obligations issued by state and local governments, political
subdivisions, agencies and public authorities ("Municipal Obligations"). For a
discussion of the risks associated with certain of the Portfolio's investments,
see "Investment Objective and Policies." The Portfolio's address is Two World
Trade Center, New York, New York 10048 and the Portfolio's telephone number is
(212) 720-9218.
The Portfolio seeks to invest substantially all of its assets in Municipal
Obligations and, under normal conditions, at least 80% of the Portfolio's assets
will be invested in Municipal Obligations rated investment grade by Moody's
Investors Service Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), Fitch
Investors Service, Inc. ("Fitch") or another nationally-recognized statistical
rating agency (that is, no lower than Baa, MIG or Prime-1 by Moody's, BBB, SP-2
or A-1 by S&P or BBB or F-1 by Fitch). The Portfolio is intended to operate in
such a manner that dividends paid by the Portfolio may be excluded by the
Portfolio's shareholders from their gross incomes for federal income tax
purposes. See "Investment Objective and Policies" and "Taxation."
This Prospectus is to be used by Smith Barney Inc. ("Smith Barney") in
connection with offers and sales of the Portfolio's Common Stock (the "Common
Stock") in market-making activities in the over-the-counter market at negotiated
prices related to prevailing market prices at the time of sale. The Common Stock
is listed on the New York Stock Exchange, Inc. (the "NYSE") under the symbol
"MMU."
Smith Barney intends to make a market in the Common Stock, although it is
not obligated to conduct market-making activities and any such activities may be
discontinued at any time without notice, at the sole discretion of Smith Barney.
The shares of Common Stock that may be offered from time to time pursuant to
this Prospectus were issued and sold by the Portfolio in a public offering which
commenced June 18, 1992, at a price of $12.00 per share. No assurance can be
given as to the liquidity of, or the trading market for, the Common Stock as a
result of any market-making activities undertaken by Smith Barney. The Portfolio
will not receive any proceeds from the sale of any Common Stock offered pursuant
to this Prospectus.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS, WHICH SETS
FORTH CONCISELY
THE INFORMATION ABOUT THE PORTFOLIO THAT A PROSPECTIVE
INVESTOR OUGHT TO KNOW
BEFORE INVESTING, AND TO RETAIN IT FOR FUTURE REFERENCE. A
STATEMENT OF
ADDITIONAL INFORMATION ("SAI") DATED SEPTEMBER 28, 1994 HAS BEEN
FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") AND IS INCORPORATED
BY REFERENCE IN
ITS ENTIRETY INTO THIS PROSPECTUS. A TABLE OF CONTENTS FOR THE SAI
IS SET FORTH
ON PAGE 25 OF THIS PROSPECTUS. A COPY OF THE SAI CAN BE OBTAINED
WITHOUT CHARGE
BY CALLING OR WRITING TO THE PORTFOLIO AT THE TELEPHONE NUMBER
OR ADDRESS SET
FORTH ABOVE OR BY CONTACTING ANY SMITH BARNEY FINANCIAL
CONSULTANT.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE
SECURITIES 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.
--------------------------
SMITH BARNEY INC.
---------------
<PAGE>
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................... 3
Portfolio Expenses.......................................................... 7
Financial Highlights........................................................ 8
The Portfolio............................................................... 9
The Offering................................................................ 9
Use of Proceeds............................................................. 9
Investment Objective and Policies........................................... 9
Share Price Data............................................................ 15
Management of the Portfolio................................................. 16
Dividends and Distributions; Dividend Reinvestment Plan..................... 17
Net Asset Value............................................................. 19
Taxation.................................................................... 20
Description of Common Stock................................................. 22
Stock Purchases and Tenders................................................. 22
Certain Provisions of the Articles of Incorporation......................... 23
Custodian, Transfer Agent and Dividend-Paying Agent and Registrar........... 24
Further Information......................................................... 25
Appendix A.................................................................. A-1
Appendix B.................................................................. B-1
</TABLE>
------------
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE
SAI.
<TABLE>
<S> <C>
The Portfolio......... The Portfolio is a non-diversified, closed-end management investment
company. See "The Portfolio."
Investment
Objective........... The Portfolio seeks as high a level of current income exempt from
federal income tax as is consistent with the preservation of
principal. See "Investment Objective and Policies."
Tax-Exempt Income..... The Portfolio is intended to operate in such a manner that
dividends
paid by the Portfolio may be excluded by the Portfolio's
shareholders from their gross incomes for federal income tax
purposes. See "Investment Objective and Policies" and "Taxation."
Investments........... The Portfolio will invest substantially all of its assets in
long-term investment grade Municipal Obligations. At least 80% of
the Portfolio's total assets will be invested in securities rated
investment grade by Moody's, S&P, Fitch or another
nationally-recognized rating agency (that is, rated no lower than
Baa, MIG 3 or Prime-1 by Moody's, BBB, SP-2 or A-1 by S&P or
BBB
or F-1 by Fitch). Up to 20% of the Portfolio's total assets may be
invested in unrated securities that are deemed by the Portfolio's
investment adviser to be of a quality comparable to investment
grade. See "Investment Objective and Policies."
The Offering.......... Smith Barney intends to make a market in the Common Stock
in
addition to trading of the Common Stock on the NYSE. Smith Barney,
however, is not obligated to conduct market-making activities and
any such activities may be discontinued at any time without
notice, at the sole discretion of Smith Barney.
Listing............... NYSE
Symbol................ MMU
Investment Adviser.... The Greenwich Street Advisors Division of Mutual Management
Corp.
("Greenwich Street Advisors") serves as the Portfolio's investment
adviser. Greenwich Street Advisors is a division of Mutual
Management Corp. ("MMC"), which is a wholly-owned subsidiary of
Smith Barney Holdings Inc. ("Holdings"). Holdings is a wholly
owned subsidiary of The Travelers Inc. ("Travelers") (formerly
known as Primerica Corporation). Greenwich Street Advisors renders
investment advice to a wide variety of individual and
institutional clients that had aggregate assets under management,
as of July 31, 1994, in excess of $47.5 billion. The Portfolio
pays Greenwich Street Advisors a fee for services provided to the
Portfolio that is computed daily and paid monthly at the annual
rate of .70% of the value of the Portfolio's average daily net
assets. See "Management of the Portfolio -- Investment Adviser."
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Administrator......... Smith, Barney Advisers, Inc. ("SBA") serves as the Portfolio's
administrator. The Portfolio pays SBA a fee for services rendered
to the Portfolio that is computed daily and paid monthly at the
annual rate of .20% of the value of the Portfolio's average daily
net assets. See "Management of the Portfolio -- Administrator."
Sub-Administrator..... The Boston Company Advisors, Inc. ("Boston Advisors") serves as
the
Portfolio's sub-administrator. Boston Advisors is paid a portion
of the fee paid by the Fund to SBA at a rate agreed upon from time
to time between Boston Advisors and SBA. See "Management of the
Portfolio -- Sub-Administrator."
Custodian, Transfer
Agent and Dividend-
Paying Agent and
Registrar........... Boston Safe Deposit and Trust Company ("Boston Safe") serves as the
Portfolio's custodian. The Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data Corporation, serves as the
Portfolio's transfer agent, dividend-paying agent and registrar.
See "Custodian, Transfer Agent and Dividend-Paying Agent and
Registrar."
Dividends and
Distributions;
Dividend
Reinvestment Plan... The Portfolio expects to pay monthly dividends of net investment
income (that is, income other than net realized capital gains) and
to distribute net realized capital gains, if any, annually. All
dividends or distributions will be reinvested automatically in
additional shares through participation in the Portfolio's
Dividend Reinvestment Plan, unless a shareholder elects to receive
cash. See "Dividends and Distributions; Dividend Reinvestment
Plan."
Discount from Net
Asset Value......... The shares of closed-end investment companies often, although not
always, trade at a discount from their net asset value. Whether
investors will realize gains or losses upon the sale of Common
Stock will not depend upon the Portfolio's net asset value, but
will depend entirely on whether the market price of the Common
Stock at the time of sale is above or below the original purchase
price of the shares. Since the market price of the Common Stock
will be determined by factors such as relative demand for and
supply of such shares in the market, general market and economic
conditions and other factors beyond the control of the Portfolio,
the Portfolio cannot predict whether the Common Stock will
continue to trade at, below or above net asset value. For that
reason, shares of the Portfolio's Common Stock are designed
primarily for long-term investors, and investors in the
Portfolio's Common Stock should
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
not view the Portfolio as a vehicle for trading purposes. See
"Investment Objective and Policies -- Risk Factors and Special
Considerations" and "Share Price Data."
Risk Factors and
Special
Considerations...... The Portfolio will not purchase securities that are rated lower than
Baa by Moody's, BBB by S&P or BBB by Fitch at the time of purchase.
Although obligations rated Baa by Moody's, BBB by S&P or BBB by
Fitch are considered to be investment grade, they may be subject
to greater risks than other higher rated investment grade
securities. See "Investment Objective and Policies."
The Portfolio may invest up to 20% of its total assets in unrated
securities that Greenwich Street Advisors determines to be of
comparable quality to the securities rated investment grade in
which the Portfolio may invest. Dealers may not maintain daily
markets in unrated securities and retail secondary markets for
many of them may not exist; this lack of markets may affect the
Portfolio's ability to sell these securities when Greenwich Street
Advisors deems it appropriate. The Portfolio has the right to
invest without limitation in state and local obligations that are
"private activity bonds," the income from which may be taxable as
a specific preference item for purposes of the federal alternative
minimum tax. Thus, the Portfolio may not be a suitable investment
for investors who are subject to the alternative minimum tax. See
"Investment Objective and Policies" and "Taxation."
Certain of the instruments held by the Portfolio, and certain of the
investment techniques that the Portfolio may employ, might expose
the Portfolio to special risks. The instruments presenting the
Portfolio with risks are municipal leases, zero coupon securities,
custodial receipts, municipal obligation components, floating and
variable rate demand notes and bonds, and participation interests.
Entering into securities transactions on a when-issued or delayed
delivery basis, entering into repurchase agreements, lending
portfolio securities, and engaging in financial futures and
options transactions, are investment techniques involving risks to
the Portfolio. As a non-diversified fund within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"), the
Portfolio may invest a greater proportion of its assets in the
obligations of a smaller number of issuers and, as a result, may
be subject to greater risk than a diversified fund with respect to
its holdings of securities. See "Investment Objective and
Policies" and "Risk Factors and Special Considerations."
The combined annual rate of fees paid by the Portfolio for advisory
and administrative services, .90% of the value of the Portfolio's
average daily net assets, is higher than the rates for similar
services paid by other
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
publicly offered, closed-end, management investment companies that
have investment objectives and policies similar to those of the
Portfolio. The Portfolio will bear, in addition to the costs of
advisory and administrative services, other expenses and costs in
connection with its operation. See "Management of the Portfolio."
The Portfolio's Articles of Incorporation include provisions that
could have the effect of limiting the ability of other entities or
persons to acquire control of the Portfolio and of depriving
shareholders of an opportunity to sell their shares of Common
Stock at a premium over prevailing market prices. See "Certain
Provisions of the Articles of Incorporation."
Stock Purchases and
Tenders............. The Portfolio's Board of Directors currently contemplates that the
Portfolio may from time to time consider the repurchase of its
Common Stock on the open market or make tender offers of the
Common Stock. See "Stock Purchases and Tenders."
</TABLE>
6
<PAGE>
PORTFOLIO EXPENSES
THE FOLLOWING TABLES ARE INTENDED TO ASSIST INVESTORS IN
UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES ASSOCIATED WITH INVESTING IN THE
PORTFOLIO.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Sales Load (as a percentage of offering price)..................... None
Dividend Reinvestment and Cash Purchase Plan Fee................... None
ANNUAL PORTFOLIO OPERATING EXPENSES (as a percentage of net assets)
(1)
Investment Advisory and Administration Fees........................ .90%
Other Expenses..................................................... .10%
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES............................
1.00%
<FN>
- ------------------------
(1) See "Management of the Portfolio" for additional information. "Other
Expenses" have been estimated for the current fiscal year.
</TABLE>
HYPOTHETICAL EXAMPLE
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Portfolio, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- ------------- ----------------- --------------- -------------
<S> <C> <C> <C>
$ 10 $ 32 $ 55 $ 122
</TABLE>
This Hypothetical Example assumes that all dividends and other distributions
are reinvested at net asset value and that the percentage amounts listed under
Annual Portfolio Operating Expenses remain the same in the years shown. The
above tables and assumptions in the Hypothetical Example of a 5% annual return
and reinvestment at net asset value are required by regulations of the SEC
applicable to all investment companies; the assumed 5% return is not a
prediction of, and does not represent, the projected or actual performance of
the Common Stock.
THIS HYPOTHETICAL EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST
OR FUTURE EXPENSES, AND THE PORTFOLIO'S ACTUAL EXPENSES MAY BE
MORE OR LESS THAN
THOSE SHOWN.
7
<PAGE>
FINANCIAL HIGHLIGHTS
THE TABLE BELOW SETS FORTH SELECTED FINANCIAL DATA FOR AN
OUTSTANDING SHARE
OF COMMON STOCK THROUGHOUT THE PERIODS PRESENTED. THE PER
SHARE OPERATING
PERFORMANCE AND RATIOS FOR THE PERIODS SHOWN HAVE BEEN
AUDITED BY COOPERS &
LYBRAND, THE PORTFOLIO'S INDEPENDENT ACCOUNTANTS, AS STATED
IN THEIR REPORT
DATED JULY 13, 1994, THAT IS CONTAINED IN THE PORTFOLIO'S ANNUAL
REPORT (AS
REFERENCED IN THE SAI) AND CAN BE OBTAINED BY SHAREHOLDERS.
THE FOLLOWING
INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
PORTFOLIO'S FINANCIAL
STATEMENTS DATED MAY 31, 1994 AND NOTES TO THOSE FINANCIAL
STATEMENTS, WHICH ARE
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
PER SHARE OPERATING PERFORMANCE FOR A SHARE OF THE
PORTFOLIO'S COMMON STOCK OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
5/31/94 5/31/93*
------------ --------------
<S> <C> <C>
Operating performance:
Net asset value, beginning of period.......................... $ 13.00 $ 12.00
Net investment income......................................... 0.67 0.63
Net realized and unrealized gain/(loss) on investments........ (0.23) 0.97
Net increase in net assets resulting from operations.......... 0.44 1.60
------------ --------------
Offering cost charged to paid-in capital........................ -- (0.02)
------------ --------------
Distributions:
Dividends from net investment income.......................... (0.67) (0.55)
Distributions from net realized capital gains................. (0.51) (0.03)
------------ --------------
Total distributions............................................. (1.18) (0.58)
------------ --------------
Net asset value, end of period.................................. $ 12.26 $ 13.00
Market value, end of period..................................... $ 11.50 $ 12.25
------------ --------------
Total investment return***...................................... 2.27% 7.02%
------------ --------------
------------ --------------
Ratios/Supplemental Data:
Net assets, end of period (in 000's)............................ $ 422,792 $ 443,938
Ratio of operating expenses to average net assets............... 1.00% 0.98%**
Ratio of net investment income to average net assets............ 5.15%
5.48%**
------------ --------------
Portfolio turnover rate......................................... 72% 169%
------------ --------------
------------ --------------
<FN>
- ------------------------
*The Portfolio commenced operations on June 26, 1992.
**Annualized.
***Total return represents aggregate return based on market value for the period
indicated.
</TABLE>
8
<PAGE>
THE PORTFOLIO
The Portfolio is a non-diversified, closed-end management investment company
that seeks as high a level of current income exempt from federal income tax as
is consistent with the preservation of principal. The Portfolio, which was
incorporated under the laws of the State of Maryland on April 9, 1992, is
registered under the 1940 Act, and has its principal office at Two World Trade
Center, New York, New York 10048. The Portfolio's telephone number is (212)
720-9218.
THE OFFERING
Smith Barney intends to make a market in the Common Stock, although it is
not obligated to conduct market-making activities and any such activities may be
discontinued at any time without notice at the sole discretion of Smith Barney.
No assurance can be given as to the liquidity of, or the trading market for, the
Common Stock as a result of any market-making activities undertaken by Smith
Barney. This Prospectus is to be used by Smith Barney in connection with offers
and sales of the Common Stock in market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of sale.
USE OF PROCEEDS
The Portfolio will not receive any proceeds from the sale of any Common
Stock offered pursuant to this Prospectus. Proceeds received by Smith Barney as
a result of its market-making in the Common Stock will be utilized by Smith
Barney in connection with its secondary market operations and for general
corporate purposes.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio's investment objective is to seek as high a level of current
income exempt from federal income taxes as is consistent with the preservation
of principal. The Portfolio's investment objective may not be changed without
the affirmative vote of the holders of a majority (as defined in the 1940 Act)
of the Portfolio's outstanding shares. In seeking its objective, the Portfolio
will invest in long-term Municipal Obligations. The Portfolio will operate
subject to a fundamental investment policy providing that, under normal
conditions, the Portfolio will invest at least 80% of its total assets in
investment grade Municipal Obligations. No assurance can be given that the
Portfolio's investment objective will be achieved.
The Portfolio will invest at least 80% of its total assets in Municipal
Obligations rated investment grade, that is, rated no lower than Baa, MIG 3 or
Prime-1 by Moody's, BBB, SP-2 or A-1 by S&P or BBB or F-1 by Fitch. Up to 20% of
the Portfolio's total assets may be invested in unrated securities that are
deemed by Greenwich Street Advisors to be of a quality comparable to investment
grade. The Portfolio will not invest in Municipal Obligations that are rated
lower than Baa by Moody's, BBB by S&P or BBB by Fitch, at the time of purchase.
A description of relevant Moody's, S&P and Fitch ratings is set forth in the
Appendix to the SAI. Although Municipal Obligations rated Baa by Moody's, BBB by
S&P or BBB by Fitch are considered to be investment grade, they may be subject
to greater risks than other higher rated investment grade securities. Municipal
Obligations rated Baa by Moody's, for example, are considered medium grade
obligations that lack outstanding investment
9
<PAGE>
characteristics and have speculative characteristics as well. Municipal
Obligations rated BBB by S&P are regarded as having an adequate capacity to pay
principal and interest. Municipal Obligations rated BBB by Fitch are deemed to
be subject to a higher likelihood that their rating will fall below investment
grade than higher rated bonds.
The Portfolio is classified as a non-diversified fund under the 1940 Act,
which means that the Portfolio 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
Portfolio intends to conduct its operations, however, 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 Portfolio of any liability
for federal income tax to the extent that its earnings are distributed to
shareholders. To qualify as a regulated investment company, the Portfolio will,
among other things, limit its investments so that, at the close of each quarter
of its taxable year (1) not more than 25% of the market value of the Portfolio's
total assets will be invested in the securities of a single issuer and (2) with
respect to 50% of the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the securities of a single
issuer. See "Taxation."
The Portfolio generally will not invest more than 25% of its total assets in
any industry. Governmental issuers of Municipal Obligations are not considered
part of any "industry." Municipal Obligations backed only by the assets and
revenues of non-governmental users may be deemed to be issued by the
non-governmental users, and would be subject to the Portfolio's 25% industry
limitation. The Portfolio may invest more than 25% of its total assets in a
broad segment of the Municipal Obligations market, if Greenwich Street Advisors
determines that the yields available from obligations in a particular segment of
the market justify the additional risks associated with a large investment in
the segment. The Portfolio reserves the right to invest more than 25% of its
assets in industrial development bonds or in issuers located in the same state,
although it has no current intention of investing more than 25% of its assets in
issuers located in the same state. If the Portfolio were to invest more than 25%
of its total assets in issuers located in the same state, it would be more
susceptible to adverse economic, business or regulatory conditions in that
state.
Municipal Obligations are classified as general obligation bonds, revenue
bonds and notes. 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 revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source, but not from the general
taxing power. Notes are short-term obligations of issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal Obligations bear fixed, floating and
variable rates of interest, and variations exist in the security of Municipal
Obligations, both within a particular classification and between
classifications. The types of Municipal Obligations in which the Portfolio may
invest are described in Appendix A to this Prospectus.
The yields on, and values of, Municipal Obligations are dependent on a
variety of factors, including general economic and monetary conditions, money
market factors, conditions in the Municipal Obligation markets, size of a
particular offering, maturity of the obligation and rating of the issue.
10
<PAGE>
Consequently, Municipal Obligations with the same maturity, coupon and rating
may have different yields or values, whereas obligations of the same maturity
and coupon with different ratings may have the same yield or value.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest on them from federal income taxes are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Portfolio
nor Greenwich Street Advisors will review the procedures relating to the
issuance of Municipal Obligations or the basis for opinions of counsel. Issuers
of Municipal Obligations may be subject to the provisions of bankruptcy,
insolvency and other laws, such as the Federal Bankruptcy Reform Act of 1978,
affecting the rights and remedies of creditors. In addition, the obligations of
those issuers may become subject to laws enacted in the future by Congress,
state legislatures or referenda extending the time for payment of principal
and/or interest, 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 issuer to pay, when due, the principal of, and interest on, its
obligations may be materially affected.
Under normal conditions, the Portfolio may hold up to 20% of its total assets
in cash or money market instruments, including taxable money market instruments
(collectively, "Taxable Investments"). In addition, the Portfolio may take a
temporary defensive posture and invest without limitation in short-term
Municipal Obligations and Taxable Investments, upon a determination by Greenwich
Street Advisors that market conditions warrant such a posture. To the extent the
Portfolio holds Taxable Investments, the Portfolio may not be fully achieving
its investment objective.
INVESTMENT TECHNIQUES
The Portfolio may employ, among others, the investment techniques described
below, which may give rise to taxable income:
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may
purchase
securities on a when-issued basis, or may purchase or sell securities for
delayed delivery. In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but no payment or
delivery will be made by the Portfolio prior to the actual delivery or payment
by the other party to the transaction. The Portfolio will not accrue income with
respect to a when-issued or delayed delivery security prior to its stated
delivery date. The Portfolio will establish with Boston Safe a segregated
account consisting of cash, U.S. government securities, or other liquid high
grade debt obligations, in an amount equal to the amount of the Portfolio's
when-issued and delayed delivery purchase commitments. Placing securities rather
than cash in the segregated account may have a leveraging effect on the
Portfolio's net asset value per share; that is, to the extent that the Portfolio
remains substantially fully invested in securities at the same time that it has
committed to purchase securities on a when-issued or delayed delivery basis,
greater fluctuations in its net asset value per share may occur than if it had
set aside cash to satisfy its purchase commitments.
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with
respect to Municipal Obligations it holds. Under a stand-by commitment, which
resembles a put option, a broker, dealer or bank is obligated to repurchase at
the Portfolio's option specified securities at a
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<PAGE>
specified price. Each exercise of a stand-by commitment, therefore, is subject
to the ability of the seller to make payment on demand. The Portfolio will
acquire stand-by commitments solely to facilitate liquidity and does not intend
to exercise the rights afforded by the commitments for trading purposes.
FINANCIAL FUTURES AND OPTIONS TRANSACTIONS. To hedge against a
decline in
the value of Municipal Obligations it owns or an increase in the price of
Municipal Obligations it proposes to purchase, the Portfolio may enter into
financial futures contracts and invest in options on financial futures contracts
that are traded on a U.S. exchange or board of trade. The futures contracts or
options on futures contracts that may be entered into by the Portfolio will be
restricted to those that are either based on an index of Municipal Obligations
or relate to debt securities the prices of which are anticipated by Greenwich
Street Advisors to correlate with the prices of the Municipal Obligations owned
or to be purchased by the Portfolio. Regulations of the Commodity Futures
Trading Commission ("CFTC") applicable to the Portfolio require that its
transactions in futures and options be engaged in for "bona fide hedging"
purposes or other permitted purposes, provided that aggregate initial margin
deposits and premiums required to establish positions other than those
considered by the CFTC to be "bona fide hedging" will not exceed 5% of the
Portfolio's net asset value, after taking into account unrealized profits and
unrealized losses on such contracts.
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 property at a
specified price, date, time and place. Unlike the direct investment 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 option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract exceeds, 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 Portfolio.
LENDING SECURITIES. The Portfolio is authorized to lend securities it holds
to brokers, dealers and other financial organizations, but it will not lend
securities to any affiliate of Greenwich Street Advisors unless the Portfolio
applies for and receives specific authority to do so from the SEC. Loans of the
Portfolio's securities, if and when made, may not exceed 33 1/3% of the value of
the Portfolio's total assets. The Portfolio's loans of securities will be
collateralized by cash, letters of credit or U.S. government securities that
will be maintained at all times in a segregated account with Boston Safe in an
amount equal to the current market value of the loaned securities.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreement
transactions with banks which are issuers of instruments acceptable for purchase
by the Fund or with certain dealers listed on the Federal 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 Portfolio would acquire an underlying debt
obligation for a relatively short period subject to an obligation of the seller
to repurchase, and the Portfolio to resell, the obligation at an agreed-upon
price
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<PAGE>
and time, thereby determining the yield during the Portfolio's holding period.
This arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Portfolio'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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Portfolio involves risk factors and special
considerations, such as those described below:
MUNICIPAL OBLIGATIONS. Market rates of interest available with respect to
Municipal Obligations generally may be lower than those available with respect
to taxable securities, although the differences may be wholly or partially
offset by the effects of federal income tax on income derived from taxable
securities. The amount of available information about the financial condition of
issuers of Municipal Obligations may be less extensive than that for corporate
issuers with publicly traded securities, and the market for Municipal
Obligations may be less liquid than the market for corporate debt obligations.
Although the Portfolio's policy will generally be to hold Municipal Obligations
until their maturity, the relative illiquidity of some of the Portfolio's
securities may adversely affect the ability of the Portfolio to dispose of the
securities in a timely manner and at a fair price. The market for less liquid
securities tends to be more volatile than the market for more liquid securities
and market values of relatively illiquid securities may be more susceptible to
change as a result of adverse publicity and investor perceptions than are the
market values of more liquid securities. Although the issuer of certain
Municipal Obligations may be obligated to redeem the obligations at face value,
redemption could result in capital losses to the Portfolio to the extent that
the Municipal Obligations were purchased by the Portfolio at a premium to face
value.
Although the Municipal Obligations in which the Portfolio may invest will be,
at the time of investment, rated investment grade, municipal securities, like
other debt obligations, are subject to the risk of non-payment by their issuers.
The ability of issuers of Municipal Obligations to make timely payments of
interest and principal may be adversely affected in general economic downturns
and as relative governmental cost burdens are allocated and reallocated among
federal, state and local governmental units. Non-payment by an issuer would
result in a reduction of income to the Portfolio, and could result in a
reduction in the value of the Municipal Obligations experiencing non-payment and
a potential decrease in the net asset value of the Portfolio.
UNRATED SECURITIES. The Portfolio may invest in unrated securities that
Greenwich Street Advisors determines to be of comparable quality to the rated
securities in which the Portfolio may invest. Dealers may not maintain daily
markets in unrated securities and retail secondary markets for many of them may
not exist. As a result, the Portfolio's ability to sell these securities when
Greenwich Street Advisors deems it appropriate may be diminished.
MUNICIPAL LEASES. Municipal leases in which the Portfolio may invest have
special risks not normally associated with Municipal Obligations. These
obligations frequently contain non-appropriation clauses that provide that the
governmental issuer of the obligation need not make future payments under the
lease or contract unless money is appropriated for that purpose by a legislative
13
<PAGE>
body annually or on another periodic basis. Moreover, although a municipal lease
typically will be secured by financed equipment or facilities, the disposition
of the equipment or facilities in the event of foreclosure might prove
difficult.
NON-PUBLICLY TRADED SECURITIES. As suggested above, the Portfolio may,
from
time to time, invest a portion of its assets in non-publicly traded Municipal
Obligations. Non-publicly traded securities may be less liquid than publicly
traded securities. Although non-publicly traded securities may be resold in
privately negotiated transactions, the prices realized from these sales could be
less than those originally paid by the Portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Securities
purchased on a
when-issued or delayed delivery basis may expose the Portfolio to risk because
the securities may experience fluctuations in value prior to their delivery.
Purchasing securities on a when-issued or delayed delivery basis can involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.
LENDING SECURITIES. The risks associated with lending portfolio securities,
as with other extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially.
FINANCIAL FUTURES AND OPTIONS. Although the Portfolio intends to enter into
financial futures contracts and options on financial futures contracts that are
traded on a U.S. exchange or board of trade only if an active market exists for
those instruments, 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 Portfolio would be required to
make daily cash payments of variation margin. In those circumstances, an
increase in the value of the portion of the Portfolio'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 securities
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 Portfolio 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 Portfolio 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
Portfolio that were the subject of the hedge. If the Portfolio has hedged
against the possibility of an increase in interest rates adversely affecting the
value of securities it holds and rates decrease instead, the Portfolio will lose
part or all of the benefit of the increased value of securities that it has
hedged because it will have offsetting losses in its futures or options
positions.
NON-DIVERSIFIED CLASSIFICATION. Investment in the Portfolio, which is
classified as a non-diversified fund under the 1940 Act, may present greater
risks to investors than an investment in a diversified fund. The investment
return on a non-diversified fund typically is dependent upon the performance of
a smaller number of securities relative to the number of securities held in a
diversified fund. The Portfolio's assumption of large positions in the
obligations of a small number of issuers will affect the value of the securities
it holds to a greater extent than that of a diversified fund in the event of
changes in the financial condition, or in the market's assessment, of the
issuers.
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<PAGE>
INVESTMENT RESTRICTIONS
The Portfolio has adopted certain fundamental investment restrictions that
may not be changed without the prior approval of the holders of a majority of
the Portfolio's outstanding voting securities. A "majority of the Portfolio's
outstanding voting securities" for this purpose means the lesser of (1) 67% or
more of the shares of the Portfolio's Common Stock present at a meeting of
shareholders, if the holders of 50% of the outstanding shares are present or
represented by proxy at the meeting or (2) more than 50% of the outstanding
shares. Among the investment restrictions applicable to the Portfolio is that
the Portfolio is prohibited from borrowing money, except for temporary or
emergency purposes, or for clearance of transactions, in amounts not exceeding
15% of its total assets (not including the amount borrowed) and as otherwise
described in this Prospectus -- when the Portfolio's borrowings exceed 5% of the
value of its total assets, the Portfolio will not make any additional
investments. In addition, the Portfolio will not invest more than 25% of its
total assets in the securities of issuers in any single industry, except that
this limitation will not be applicable to the purchase of U.S. government
securities. Also, the Portfolio may not purchase securities other than Municipal
Obligations and Taxable Investments. For a complete listing of the investment
restrictions applicable to the Portfolio, see "Investment Restrictions" in the
SAI. All percentage limitations included in the investment restrictions apply
immediately after a purchase or initial investment, and any subsequent change in
any applicable percentage resulting from market fluctuations will not require
the Portfolio to dispose of any security that it holds.
SHARE PRICE DATA
The Common Stock is traded on the NYSE under the symbol "MMU." Smith Barney
also intends to make a market in the Portfolio's Common Stock.
The following table sets forth the high and low sales prices for the Common
Stock, the net asset value per share and the discount or premium to net asset
value represented by the quotation for each quarterly period since the
Portfolio's commencement of operations.
<TABLE>
<CAPTION>
QUARTERLY HIGH PRICE QUARTERLY LOW PRICE
------------------------------ ------------------------------
PREMIUM PREMIUM
NET ASSET NYSE (DISCOUNT) NET ASSET NYSE (DISCOUNT)
VALUE PRICE TO NAV VALUE PRICE TO NAV
--------- ------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
8/31/92* $ 12.66 $ 12.500 -1.26 % $ 12.04 $ 11.870 -1.41 %
11/30/92 12.45 12.250 -1.61 11.79 11.250 -4.58
2/28/93 12.41 12.370 -0.32 12.21 11.370 -6.88
5/31/93 13.22 12.620 -4.54 12.79 12.120 -5.24
8/31/93 13.42 12.875 -4.06 13.04 12.250 -6.06
11/30/93 13.61 13.000 -4.48 13.32 12.125 -8.97
2/28/94 13.54 12.875 -4.91 12.85 12.125 -5.64
5/31/94 12.61 12.375 -1.86 12.11 11.250 -7.10
8/31/94 12.53 12.125 -3.23 12.11 11.250 -7.10
<FN>
- ------------------------
*The Portfolio commenced operations on June 26, 1992.
</TABLE>
As of August 31, 1994, the price of Common Stock as quoted on the NYSE was
$11.375, representing a discount from the Common Stock's net asset value
calculated on that day.
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<PAGE>
MANAGEMENT OF THE PORTFOLIO
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Portfolio rests
with the Portfolio's Board of Directors. The Directors approve all significant
agreements with the Portfolio's investment adviser, administrator,
sub-administrator, custodian and transfer agent. The day-to-day operations of
the Portfolio are delegated to the Portfolio's investment adviser, administrator
and sub-administrator. The SAI contains background information regarding each
Director and executive officer of the Portfolio.
INVESTMENT ADVISER
Greenwich Street Advisors, located at Two World Trade Center, New York, New
York 10048, serves as the Portfolio's investment adviser. Greenwich Street
Advisors, through its predecessors, has been in the investment counseling
business since 1934 and renders investment advice to a wide variety of
individual, institutional and investment company clients with aggregate assets
under management as of July 31, 1994 in excess of $50 billion. MMC, located at
1345 Avenue of the Americas, New York, New York 10105, is controlled by
Holdings.
Subject to the supervision and direction of the Portfolio's Board of
Directors, Greenwich Street Advisors manages the securities held by the
Portfolio in accordance with the Portfolio's stated investment objective and
policies, makes investment decisions for the Portfolio, places orders to
purchase and sell securities on behalf of the Portfolio and employs managers and
securities analysts who provide research services to the Portfolio. The
Portfolio pays Greenwich Street Advisors a fee for services provided to the
Portfolio that is computed daily and paid monthly at the annual rate of .70% of
the value of the Portfolio's average daily net assets.
Transactions on behalf of the Portfolio are allocated to various dealers by
Greenwich Street Advisors in its best judgment. The primary consideration is
prompt and effective execution of orders at the most favorable price. Subject to
that primary consideration, dealers may be selected for their research,
statistical or other services to enable Greenwich Street Advisors to supplement
its own research and analysis with the views and information of other securities
firms. The Portfolio may use Smith Barney or a Smith Barney-affiliated broker in
connection with the purchase or sale of securities when Greenwich Street
Advisors believes that the broker's charge for the transaction does not exceed
usual and customary levels. The same standard applies to the use of Smith Barney
as a broker in connection with entering into options and futures contracts. The
Portfolio paid no brokerage commissions in the last fiscal year.
PORTFOLIO MANAGEMENT
Joseph P. Deane, Vice President and Investment Officer of the Portfolio, is
primarily responsible for the management of the Portfolio's assets. Mr. Deane
has served the Portfolio in this capacity since the Portfolio commenced
operations in 1992 and manages the day to day operations of the Portfolio,
including making all investment decisions. Mr. Deane is a Senior Vice President
and Managing Director of Greenwich Street Advisors and, as such, is the senior
asset manager for investment companies and other accounts investing in
tax-exempt securities.
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<PAGE>
ADMINISTRATOR
SBA, located at 1345 Avenue of the Americas, New York, New York 10105,
serves as the Portfolio's administrator. As administrator, SBA generally assists
in all aspects of the Fund's administration and operation. The Fund pays SBA a
fee for services provided to the Fund that is accrued daily and paid monthly at
the annual rate of .20% of the value of the Fund's average daily net assets. The
combined annual rate of fees paid by the Portfolio for advisory and
administrative services is higher than the rates for similar services paid by
other publicly offered, closed-end management investment companies that have
investment objectives and policies similar to those of the Portfolio.
SBA is a wholly owned subsidiary of Holdings, which is in turn a wholly owned
subsidiary of Travelers. SBA provides investment management and administrative
services to investment companies with total assets, as of July 31, 1994, in
excess of $9.2 billion.
SUB-ADMINISTRATOR
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Portfolio's sub-administrator. As the Portfolio's
sub-administrator, Boston Advisors calculates the net asset value of the
Portfolio's shares of Common Stock and generally assists SBA in all aspects of
the Portfolio's administration and operation. Boston Advisors is paid a portion
of the fee paid by the Fund to SBA at a rate agreed upon from time to time
between Boston Advisors and SBA.
Boston Advisors is a wholly owned subsidiary of The Boston Company, Inc.
("TBC"), a financial services holding company, which is in turn an indirect,
wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Boston Advisors
provides investment management, investment advisory and/or administrative
services to investment companies that had aggregate assets under management as
of July 31, 1994, in excess of $88.3 billion.
Greenwich Street Advisors, SBA and Boston Advisors each bears all expenses in
connection with the performance of the services it provides to the Portfolio.
The Portfolio will bear all other expenses to be incurred in its operation,
including, but not limited to: the costs incurred in connection with the
Portfolio's organization; investment advisory and administration fees; fees for
necessary professional and brokerage services; fees for any pricing service; the
costs of regulatory compliance; the costs associated with maintaining the
Portfolio's corporate existence; and costs of corresponding with the Portfolio's
shareholders.
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney is also a wholly owned subsidiary of Holdings, which in turn is a
wholly owned subsidiary of The Travelers Inc. (formerly known as Primerica
Corporation), a financial services holding company which provides through its
subsidiaries investment, consumer finance and insurance services.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
The Portfolio expects to pay monthly dividends of net investment income
(that is, income (including its tax-exempt income and its accrued original issue
discount income) other than net realized capital gains) to the holders of the
Common Stock. Under the Portfolio's current policy, which may be changed at any
time by its Board of Directors, the Portfolio's monthly dividends will be made
at a level
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<PAGE>
that reflects the past and projected performance of the Portfolio, which policy
over time will result in the distribution of all net investment income of the
Portfolio. Expenses of the Portfolio are accrued each day. Net realized capital
gains, if any, will be distributed to the shareholders at least once a year.
Under the Portfolio's Dividend Reinvestment Plan (the "Plan"), a shareholder
whose shares of Common Stock are registered in his own name will have all
distributions from the Portfolio reinvested automatically by TSSG as agent under
the Plan, unless the shareholder elects to receive cash. Distributions with
respect to shares registered in the name of a broker-dealer or other nominee
(that is, in "Street Name") will be reinvested by the broker or nominee in
additional shares under the Plan, unless the service is not provided by the
broker or nominee or the shareholder elects to receive distributions in cash.
Investors who own Common Stock registered in Street Name should consult their
broker-dealers for details regarding reinvestment. All distributions to
Portfolio shareholders who do not participate in the Plan will be paid by check
mailed directly to the record holder by or under the direction of TSSG as
dividend-paying agent.
The number of shares of Common Stock distributed to participants in the Plan
in lieu of a cash dividend is determined in the following manner. Whenever the
market price of the Common Stock is equal to or exceeds the net asset value per
share at the time shares are valued for purposes of determining the number of
shares equivalent to the cash dividend or capital gains distribution, Plan
participants will be issued shares of Common Stock valued at the greater of (1)
the net asset value per share most recently determined as described below under
"Net Asset Value" or (2) 95% of the then current market value. To the extent the
Portfolio issues shares to participants in the Plan at a discount to net asset
value, the remaining shareholders' interests in the Portfolio's net assets will
be proportionately diluted.
If the net asset value per share of Common Stock at the time of valuation
exceeds the market price of the Common Stock or if the Portfolio declares a
dividend or capital gains distribution payable only in cash, TSSG will buy
Common Stock in the open market, on the NYSE or elsewhere, for the participants'
accounts. If, following the commencement of the purchases and before TSSG has
completed its purchases, the market price exceeds the net asset value of the
Common Stock, TSSG will attempt to terminate purchases in the open market and
cause the Portfolio to issue the remaining dividend or distribution in shares at
net asset value per share. In this case, the number of shares of Common Stock
received by a Plan participant will be based on the weighted average of prices
paid for shares purchased in the open market and the price at which the
Portfolio issues the remaining shares. To the extent TSSG is unable to stop open
market purchases and cause the Portfolio to issue the remaining shares, the
average per share purchase price paid by TSSG may exceed the net asset value of
the Common Stock, resulting in the acquisition of fewer shares than if the
dividend or capital gains distribution had been paid in Common Stock issued by
the Portfolio at net asset value. TSSG will begin to purchase Common Stock on
the open market as soon as practicable after the record date of the dividend or
capital gains distribution, but in no event later than 30 days after the payment
date therefor, except when necessary to comply with applicable provisions of the
federal securities laws.
TSSG maintains all shareholder accounts in the Plan and furnishes written
confirmations of all transactions in each account, including information needed
by a shareholder for personal and tax records. The automatic reinvestment of
dividends and capital gains distributions will not relieve Plan participants of
any income tax that may be payable on the dividends or capital gains
distributions.
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<PAGE>
Common Stock in the account of each Plan participant will be held by TSSG in
uncertificated form in the name of the Plan participant, and each shareholder's
proxy will include those shares purchased pursuant to the Plan.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions. TSSG's fees for handling the reinvestment of
dividends and capital gains distributions will be paid by the Portfolio. No
brokerage charges apply with respect to shares of Common Stock issued directly
by the Portfolio as a result of dividends or capital gains distributions payable
either in Common Stock or in cash. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to open
market purchases made in connection with the reinvestment of dividends or
capital gains distributions.
Experience under the Plan may indicate that changes to it are desirable. The
Portfolio reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by TSSG, with the Portfolio's prior written consent, on at least 30
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to The Shareholders Services Group, Inc., One
Exchange Place, Boston, Massachusetts 02109 or by telephone at (617) 573-9300.
NET ASSET VALUE
The net asset value of shares of the Common Stock is calculated as of the
close of regular trading on the NYSE, currently 4:00 p.m., New York time, on
each day on which the NYSE is open for trading. The Portfolio reserves the right
to cause its net asset value to be calculated on a less frequent basis as
determined by the Portfolio's Board of Directors. For purposes of determining
net asset value, futures contracts and options on futures contracts will be
valued 15 minutes after the close of regular trading on the NYSE.
Net asset value per share of Common Stock is calculated by dividing the value
of the Portfolio's total assets less liabilities by the number of outstanding
shares. In general, the Portfolio's investments will be valued at market value,
or in the absence of market value, at fair value as determined by or under the
direction of the Portfolio's Board of Directors. Short-term investments that
mature in 60 days or less are valued on the basis of amortized cost (which
involves valuing an investment at its cost and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the investment) when the
Portfolio's Board of Directors has determined that amortized cost is fair value.
The valuation of the Portfolio's assets is made by Boston Advisors after
consultation with an independent pricing service (the "Service") approved by the
Portfolio's 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 prices and asked prices. Investments for which, in the judgment of the
Service, no readily obtainable market quotation is available are carried at fair
value as determined by the Service, based on methods that include consideration
of: yields or prices of Municipal Obligations of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. The Service
19
<PAGE>
may use 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 Portfolio under the general supervision and responsibility
of the Board of Directors, which may replace the Service at any time if it
determines it to be in the best interests of the Portfolio to do so.
TAXATION
The following is a summary of the material federal tax considerations
affecting the Portfolio and its shareholders; see the SAI for a further
discussion. In addition to the considerations described below and in the SAI,
which are applicable to any investment in the Portfolio, there may be other
federal, state, local or foreign tax considerations applicable to particular
investors. Prospective shareholders are therefore urged to consult their tax
advisors with respect to the consequences to them of an investment in the
Portfolio.
The Portfolio has qualified, and intends to qualify each year, as a
"regulated investment company" under Subchapter M of the Code. In each taxable
year that the Portfolio so qualifies, the Portfolio will be relieved of federal
income tax on that part of its investment company taxable income (consisting
generally of taxable net investment income, net short-term capital gain and net
realized gains from certain hedging transactions) and long-term capital gain
that is distributed to its shareholders. In addition, the Portfolio intends to
satisfy conditions contained in the Code that will enable interest from
Municipal Obligations, excluded from gross income for federal income tax
purposes with respect to the Portfolio, to retain that tax-exempt status when
distributed to the shareholders of the Portfolio (that is, to be classified as
"exempt-interest" dividends of the Portfolio).
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of Common Stock is not deductible for federal income tax purposes.
Although the Portfolio's exempt-interest dividends may be excluded by
shareholders from their gross income for federal income tax purposes (1) some or
all of the Portfolio's exempt-interest dividends may be a specific preference
item, or a component of an adjustment item, for purposes of the federal
individual and corporate alternative minimum taxes and (2) the receipt of
dividends and distributions from the Portfolio may affect a corporate
shareholder's federal "environmental" tax liability. The receipt of dividends
and distributions from the Portfolio may affect a foreign corporate
shareholder's federal "branch profits" tax liability and a corporate
shareholder's federal "excess net passive income" tax liability.
The portion of any exempt-interest dividend paid by the Portfolio that
represents income derived from private activity bonds held by the Portfolio may
not retain its tax-exempt status in the hands of a shareholder who is a
"substantial user" of a facility financed by the bonds, or a "related person" of
the substantial user. Shareholders should consult their own tax advisors to
determine whether they are (1) "substantial users" with respect to a facility or
"related" to those users within the meaning of the Code or (2) subject to a
federal alternative minimum tax, the federal "environmental" tax, the federal
"branch profits" tax, or the federal "excess net passive income" tax.
The tables set out in Appendix B to this Prospectus show individual taxpayers
how to translate the tax savings from investments such as the Portfolio into an
equivalent return from a taxable investment. The yields used in the tables are
for illustration only and are not intended to represent current or future yields
for the Portfolio, which may be higher or lower than those shown.
20
<PAGE>
A shareholder of the Portfolio receiving dividends or distributions in
additional shares pursuant to the Plan should be treated for federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that a shareholder receiving cash dividends or distributions receives, and
should have a cost basis in the shares received equal to that amount. The
Portfolio will notify its shareholders following the end of each calendar year
of the amounts of exempt-interest dividends, taxable dividends and capital gain
distributions paid (or deemed paid) that year and of any portion thereof that is
subject to the alternative minimum tax for individuals.
Upon a sale or exchange of shares of Common Stock, a shareholder will realize
a taxable gain or loss equal to the difference between his adjusted basis for
the shares and the amount realized. Any such gain or loss will be treated as a
capital gain or loss if the shares are capital assets in the shareholder's hands
and will be a long-term capital gain or loss if the shares have been held for
more than one year. Any loss realized on a sale or exchange of shares of Common
Stock that were held for six months or less will be disallowed to the extent of
any exempt-interest dividends received on those shares and (to the extent not so
allowed) will be treated as a long-term, rather than as a short-term, capital
loss to the extent of any capital gain distributions received thereon. A loss
realized on a sale or exchange of shares of Common Stock also will be disallowed
to the extent those shares are replaced by other shares of Common Stock within a
period of 61 days beginning 30 days before and ending 30 days after the date of
the disposition of shares (which could occur, for example, as a result of
participation in the Plan). In that event, the basis for the replacement shares
will be adjusted to reflect the disallowed loss.
Investors also should be aware that if shares of Common Stock are purchased
shortly before the record date for any distribution, the investor will pay full
price for the shares and could receive some portion of the price back as an
exempt-interest dividend, a taxable dividend or capital gain distribution.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that he
has provided a correct taxpayer identification number and that he is not subject
to "backup withholding," the shareholder may be subject to a 20% "backup
withholding" tax with respect to (1) taxable dividends and distributions and (2)
the proceeds of any sales or repurchases of shares of Common Stock. An
individual's taxpayer identification number is his social security number.
21
<PAGE>
DESCRIPTION OF COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
EXCLUSIVE OF SHARES
AMOUNT HELD HELD BY PORTFOLIO FOR
AMOUNT BY PORTFOLIO FOR ITS OWN ACCOUNT AS OF
TITLE OF CLASS AUTHORIZED ITS OWN ACCOUNT AUGUST 31,
1994
- -------------- ------------------ ---------------- ---------------------
<S> <C> <C> <C>
Common Stock 500,000,000 Shares 0 34,498,420
</TABLE>
No shares, other than those currently outstanding, are offered for sale
pursuant to this Prospectus. All shares of Common Stock have equal
non-cumulative voting rights and equal rights with respect to dividends, assets
and liquidation. Shares of Common Stock will be fully paid and non-assessable
when issued and have no preemptive, conversion or exchange rights. A majority of
the votes cast at any meeting of shareholders is sufficient to take or authorize
action, except for election of Directors or as otherwise provided in the
Portfolio's Articles of Incorporation as described under "Certain Provisions of
the Articles of Incorporation."
Under the rules of the NYSE applicable to listed companies, the Portfolio
will be required to hold an annual meeting of shareholders in each year. If the
Portfolio's shares are no longer listed on the NYSE (or any other national
securities exchange the rules of which require annual meetings of shareholders),
the Portfolio may decide not to hold annual meetings of shareholders. See "Stock
Purchases and Tenders."
The Portfolio has no current intention of offering additional shares, except
that additional shares may be issued under the Plan. See "Dividends and
Distributions; Dividend Reinvestment Plan." Other offerings of shares, if made,
will require approval of the Portfolio's Board of Directors and will be subject
to the requirement of the 1940 Act that shares may not be sold at a price below
the then current net asset value (exclusive of underwriting discounts and
commissions) except in connection with an offering to existing shareholders or
with the consent of a majority of the Portfolio's outstanding shares.
STOCK PURCHASES AND TENDERS
Although shares of closed-end investment companies sometimes trade at
premiums over net asset value, they frequently trade at discounts. Since the
Portfolio's commencement of operations, the Common Stock has periodically traded
at a slight discount from its net asset value per share. The Portfolio cannot
predict whether the Common Stock will continue to trade above, at or below net
asset value. The Portfolio believes that, if the Common Stock trades at a
discount to net asset value, the share price will not adequately reflect the
value of the Portfolio to investors and that investors' financial interests will
be furthered if the price of the Common Stock more closely reflects its net
asset value. For these reasons, the Portfolio's Board of Directors currently
intends to consider from time to time repurchases of Common Stock on the open
market or in private transactions or the making of tender offers for Common
Stock.
The Portfolio may repurchase shares of its Common Stock in the open market or
in privately negotiated transactions when the Portfolio can do so at prices
below their then current net asset value per share on terms that the Board of
Directors believes represent a favorable investment opportunity.
22
<PAGE>
In addition, the Portfolio's Board of Directors currently intends to consider,
at least once a year, making an offer to each Common Stock shareholder of record
to purchase at net asset value shares of Common Stock owned by the shareholder.
Before authorizing any repurchase of Common Stock or tender offer to the
Common Stock shareholders, the Portfolio's Board of Directors would consider all
relevant factors, including the market price of the Common Stock, its net asset
value per share, the liquidity of the Portfolio's securities positions, the
effect an offer or repurchase might have on the Portfolio or its shareholders
and relevant market conditions. Any offer would be made in accordance with the
requirements of the 1940 Act and the Securities Exchange Act of 1934. Although
the matter will be subject to Board of Directors review at the time, a tender
offer is not expected to be made if the anticipated benefit to shareholders and
the Portfolio would not be commensurate with the anticipated cost to the
Portfolio, or if the number of shares expected to be tendered would not be
material.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Portfolio's Articles of Incorporation include provisions that could have
the effect of limiting the ability of other entities or persons to acquire
control of the Portfolio or to change the composition of its Board of Directors
and could have the effect of depriving shareholders of an opportunity to sell
their shares of Common Stock at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the Portfolio. The
Board of Directors is divided into three classes. At the annual meeting of
shareholders in each year following the first annual meeting of the shareholders
of the Portfolio, the term of one class expires and each Director elected to the
class will hold office for a term of three years. The classification of the
Board of Directors in this manner could delay for up to two years the
replacement of a majority of the Board. The Articles of Incorporation provide
that the maximum number of Directors that may constitute the Portfolio's entire
board is 12. A Director may be removed from office, or the maximum number of
Directors increased, only by vote of the holders of at least 75% of the shares
of Common Stock entitled to be voted on the matter.
The Portfolio's Articles of Incorporation require the favorable vote of the
holders of at least two-thirds of the shares of Common Stock then entitled to be
voted to authorize the conversion of the Portfolio from a closed-end to an
open-end investment company as defined in the 1940 Act, unless two-thirds of the
Continuing Directors (as defined below) approve such a conversion. In the later
case, the affirmative vote of a majority of the shares outstanding will be
required to approve the amendment to the Portfolio's Articles of Incorporation
providing for the conversion of the Portfolio.
The affirmative votes of at least 75% of the Directors and the holders of at
least 75% of the shares of the Portfolio are required to authorize any of the
following transactions (referred to individually as a "Business Combination"):
(1) a merger, consolidation or share exchange of the Portfolio with or into any
other person (referred to individually as a "Reorganization Transaction"); (2)
the issuance or transfer by the Portfolio (in one or a series of transactions in
any 12-month period) of any securities of the Portfolio to any other person or
entity for cash, securities or other property (or combination thereof) having an
aggregate fair market value of $1,000,000 or more, excluding sales of securities
of the Portfolio in connection with a public offering, issuances of securities
of the Portfolio pursuant to a dividend reinvestment plan adopted by the
Portfolio and issuances of securities of the Portfolio upon the exercise of any
stock subscription rights distributed by the Portfolio; (3) a sale, lease,
exchange,
23
<PAGE>
mortgage, pledge, transfer or other disposition by the Portfolio (in one or a
series of transactions in any 12-month period) to or with any person of any
assets of the Portfolio having an aggregate fair market value of $1,000,000 or
more, except for transactions in securities effected by the Portfolio in the
ordinary course of its business (each such sale, lease, exchange, mortgage,
pledge, transfer or other disposition being referred to individually as a
"Transfer Transaction"). The same affirmative votes are required with respect
to: any proposal as to the voluntary liquidation or dissolution of the Portfolio
or any amendment to the Portfolio's Articles of Incorporation to terminate its
existence (referred to individually as a "Termination Transaction"); and any
shareholder proposal as to specific investment decisions made or to be made with
respect to the Portfolio's assets.
A 75% shareholder vote will not be required with respect to a Business
Combination if the transaction is approved by a vote of at least 75% of the
Continuing Directors (as defined below) or if certain conditions regarding the
consideration paid by the person entering into, or proposing to enter into, a
Business Combination with the Portfolio and various other requirements are
satisfied. In such case, a majority of the votes entitled to be cast by
shareholders of the Portfolio will be required to approve the transaction if it
is a Reorganization Transaction or a Transfer Transaction that involves
substantially all of the Portfolio's assets and no shareholder vote will be
required to approve the transaction if it is any other Business Combination. In
addition, a 75% shareholder vote will not be required with respect to a
Termination Transaction if it is approved by a vote of at least 75% of the
Continuing Directors, in which case a majority of the votes entitled to be cast
by shareholders of the Portfolio will be required to approve the transaction.
A "Continuing Director," as used in the discussion above, is any member of
the Portfolio's Board of Directors (1) who is not a person or affiliate of a
person who enters or proposes to enter into a Business Combination with the
Portfolio (such a person or affiliate being referred to individually as an
"Interested Party") and (2) who has been a member of the Board of Directors for
a period of at least 12 months, or is a successor of a Continuing Director who
is unaffiliated with an Interested Party and is recommended to succeed a
Continuing Director by a majority of the Continuing Directors then members of
the Board of Directors.
The Portfolio's Board of Directors has determined that the 75% voting
requirements described above, which are generally greater than the minimum
requirements under Maryland law and the 1940 Act, are in the best interests of
shareholders generally. Reference should be made to the Articles of
Incorporation on file with the SEC for the full text of their provisions.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT AND
REGISTRAR
Boston Safe, an indirect, wholly owned subsidiary of TBC, which is in turn
an indirect, wholly owned subsidiary of Mellon, located at One Boston Place,
Boston, Massachusetts 02108, acts as custodian of the Portfolio's investments.
Boston Safe is also an affiliate of Boston Advisors, the Portfolio's
sub-administrator. TSSG, located at One Exchange Place, Boston, Massachusetts
02109, serves as the Portfolio's transfer agent, dividend-paying agent and
registrar. TSSG, a subsidiary of First Data Corporation, also serves as agent in
connection with the Plan. Neither Boston Safe nor TSSG assists in or is
responsible for investment decisions involving assets of the Portfolio.
24
<PAGE>
Under the Custody Agreement, Boston Safe holds the Portfolio's assets in
accordance with the provisions of the 1940 Act. Under the Transfer Agency and
Registrar Agreement, TSSG maintains the shareholder account records for the
Portfolio, distributes dividends and distributions payable by the Portfolio and
produces statements with respect to account activity for the Portfolio and its
shareholders. The services to be provided by TSSG as agent under the Plan are
described under "Dividends and Distributions; Dividend Reinvestment Plan."
FURTHER INFORMATION
Further information concerning the Common Stock and the Portfolio may be
found in the Registration Statement, of which this Prospectus and the SAI
constitute a part, on file with the SEC.
The Table of Contents for the SAI is as follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies..................................... 2
Management of the Portfolio........................................... 14
Taxes................................................................. 19
Stock Purchases and Tenders........................................... 23
Additional Information................................................ 24
Financial Statements.................................................. 25
Appendix--Description of Moody's, S&P and Fitch Ratings............... 26
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED
BY THE PORTFOLIO OR THE PORTFOLIO'S INVESTMENT ADVISER. THIS
PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO
BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK, NOR DOES IT CONSTITUTE
AN OFFER TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON
STOCK BY ANYONE IN
ANY JURISDICTION IN WHICH THE OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE
AFFAIRS OF THE PORTFOLIO SINCE THE DATE HEREOF. IF ANY MATERIAL
CHANGE OCCURS
WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
HOWEVER, THIS
PROSPECTUS WILL BE SUPPLEMENTED OR AMENDED ACCORDINGLY.
25
<PAGE>
APPENDIX A
TYPES OF MUNICIPAL OBLIGATIONS
The Portfolio may invest in the following types of Municipal Obligations and
in such other types of Municipal Obligations.
MUNICIPAL BONDS
Municipal bonds are debt obligations issued to obtain funds for various
public purposes. The two principal classifications of municipal bonds are
"general obligation" 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 only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or from another specific
source, such as the user of the facility being financed. Certain municipal bonds
are "moral obligation" issues, which normally are issued by special purpose
public authorities. In the case of such issues, an express or implied "moral
obligation" of a related government unit is pledged to the payment of the debt
service but is usually subject to annual budget appropriations.
INDUSTRIAL DEVELOPMENT BONDS AND PRIVATE ACTIVITY BONDS
Industrial development bonds ("IDBs") and private activity bonds ("PABs")
are municipal bonds issued by or on behalf of public authorities to finance
various privately operated facilities, such as airports or pollution control
facilities. IDBs and PABs generally do not carry the pledge of the credit of the
issuing municipality, but are guaranteed by the corporate entity on whose behalf
they are issued. IDBs and PABs are generally revenue bonds and thus are not
payable from the unrestricted revenue of the issuer. The credit quality of IDBs
and PABs is usually directly related to the credit standing of the user of the
facilities being financed.
MUNICIPAL LEASE OBLIGATIONS
Municipal lease obligations are Municipal Obligations that may take the form
of leases, installment purchase contracts or conditional sales contracts, or
certificates of participation with respect to such contracts or leases.
Municipal lease obligations are issued by state and local governments and
authorities to purchase land or various types of equipment and facilities.
Although municipal lease obligations do not constitute general obligations of
the municipality for which the municipality's taxing authority is pledged, they
ordinarily are backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease obligation. The leases underlying
certain Municipal Obligations, however, provide that lease payments are subject
to partial or full abatement if, because of material damage or destruction of
the leased property, there is substantial interference with the lessee's use or
occupancy of such property. This "abatement risk" may be reduced by the
existence of insurance covering the leased property, the maintenance by the
lessee of reserve funds or the provision of credit enhancements such as letters
of credit.
The liquidity of municipal lease obligations varies. Municipal leases held by
the Portfolio will be considered illiquid securities unless the Portfolio's
Board of Directors determines on an on-going basis
A-1
<PAGE>
that the leases are readily marketable. Certain municipal 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 the case of a
"non-appropriation" lease, the Portfolio's ability to recover under the lease in
the event of non-appropriation or default will be limited solely to the
repossession of the leased property, without recourse to the general credit of
the lessee, and disposition of the property in the event of foreclosure might be
difficult. The Portfolio will not invest more than 5% of its assets in such
"non-appropriation" municipal lease obligations.
ZERO COUPON OBLIGATIONS
The Portfolio may invest up to 10% of its total assets in zero coupon
Municipal Obligations. Such obligations include "pure zero" obligations, which
pay no interest for their entire life (either because they bear no stated rate
of interest or because their stated rate of interest is not payable until
maturity), and "zero/fixed" obligations, which pay no interest for an initial
period and thereafter pay interest currently. Zero coupon obligations also
include securities representing the principal-only components of Municipal
Obligations from which the interest components have been stripped and sold
separately by the holders of the underlying Municipal Obligations. Zero coupon
securities usually trade at a deep discount from their face or par value and
will be subject to greater fluctuations in market value in response to changing
rates than obligations of comparable maturity that make current distributions of
interest. While zero coupon Municipal Obligations will not contribute to the
cash available to the Portfolio, Greenwich Street Advisors believes that limited
investments in such securities may facilitate the Portfolio's ability to
preserve capital while generating tax-exempt income through the accrual of
original interest discount. Zero coupon Municipal Obligations generally are
liquid, although such liquidity may be reduced from time to time due to interest
rate volatility and other factors.
FLOATING RATE OBLIGATIONS
The Portfolio may purchase floating and variable rate municipal notes and
bonds, which frequently permit the holder to demand payment of principal at any
time, or at specified intervals, and permit the issuer to prepay principal, plus
accrued interest, at its discretion after a specified notice period. The
issuer's obligations under the demand feature of such notes and bonds generally
are secured by bank letters of credit or other credit support arrangements.
There frequently will be no secondary market for variable and floating rate
obligations held by the Portfolio, although the Portfolio may be able to obtain
payment of principal at face value by exercising the demand feature of the
obligation.
PARTICIPATION INTERESTS
The Portfolio may invest up to 5% of its total assets in participation
interests in municipal bonds, including IDBs, PABs and floating and variable
rate securities. A participation interest gives the Portfolio an undivided
interest in a municipal bond owned by a bank. The Portfolio has the right to
sell the instrument back to the bank. If the participation interest is unrated,
it will be backed by an irrevocable letter of credit or guarantee of a bank that
the Portfolio's Board of Directors has determined meets certain credit quality
standards or the payment obligation will otherwise be collateralized by U.S.
government securities. The Portfolio will have the right, with respect to
certain
A-2
<PAGE>
participation interests, to draw on the letter of credit on demand, after
specified notice for all or any part of the principal amount of the Portfolio's
participation interest, plus accrued interest. Generally, the Portfolio intends
to exercise the demand under the letters of credit or other guarantees only upon
a default under the terms of the underlying bond, or to maintain the Portfolio's
assets in accordance with its investment objective and policies. The ability of
a bank to fulfill its obligations under a letter of credit or guarantee might be
affected by possible financial difficulties of its borrowers, adverse interest
rate or economic conditions, regulatory limitations or other factors. Greenwich
Street Advisors will monitor the pricing, quality and liquidity of the
participation interests held by the Portfolio, and the credit standing of the
banks issuing letters of credit or guarantees supporting such participation
interests on the basis of published financial information reports of rating
services and bank analytical services.
CUSTODIAL RECEIPTS
The Portfolio may acquire custodial receipts or certificates underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain Municipal Obligations. The underwriter of
these certificates or receipts typically purchases Municipal Obligations and
deposits the obligations in an irrevocable trust or custodial account with a
custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the obligations. Custodial receipts evidencing specific coupon or
principal payments have the same economic attributes as zero coupon Municipal
Obligations described above. Although under the terms of a custodial receipt the
Portfolio would be typically authorized to assert its rights directly against
the issuer of the underlying obligation, the Portfolio could be required to
assert through the custodian bank those rights that may exist against the
underlying issuer. Thus, in the event the underlying issuer fails to pay
principal or interest when due, the Portfolio may be subject to delays, expenses
and risks that are greater than those that would have been involved if the
Portfolio had purchased a direct obligation of the issuer. In addition, in the
event that the trust or custodial account in which the underlying security has
been deposited is determined to be an association taxable as a corporation,
instead of a non-taxable entity, the yield on the underlying security would be
reduced in recognition of any taxes paid.
MUNICIPAL OBLIGATION COMPONENTS
The Portfolio may invest in Municipal Obligations, the interest rate on
which has been divided by the issuer into two different and variable components,
which together result in a fixed interest rate. Typically, the first of the
components (the "Auction Component") pays an interest rate that is reset
periodically through an auction process, whereas the second of the components
(the "Residual Component") pays a residual interest rate based on the difference
between the total interest paid by the issuer on the Municipal Obligation and
the auction rate paid on the Auction Component. The Portfolio may purchase both
Auction and Residual Components.
Because the interest rate paid to holders of Residual Components is generally
determined by subtracting the interest rate paid to the holders of Auction
Components from a fixed amount, the interest rate paid to Residual Component
holders will decrease as the Auction Component's rate increases and increase as
the Auction Component's rate decreases. Moreover, the extent of the increases
and decreases in market value of Residual Components may be larger than
comparable changes in the market value of an equal principal amount of a fixed
rate Municipal Obligation having similar credit quality, redemption provisions
and maturity.
A-3
<PAGE>
APPENDIX B
TAX-EXEMPT INCOME COMPARED TO TAXABLE INCOME
The tables below show individual taxpayers how to translate the tax savings
from investments such as the Portfolio into an equivalent return from a taxable
investment. The yields used below are for illustration only and are not intended
to represent current or future yields for the Portfolio, which may be higher or
lower than those shown.
<TABLE>
<CAPTION>
SAMPLE
TAXABLE INCOME
------------------------------------- FEDERAL TAX-EXEMPT YIELDS
SINGLE MARGINAL ----------------------------------------------
RETURN JOINT RETURN RATE* 2.00% 3.00% 4.00% 5.00%
6.00% 7.00%
----------------- ----------------- -------- ----- ----- ----- ----- ----- ------
EQUIVALENT TAXABLE YIELD
----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
$0 - 22,100 $0 - 36,900 15.00 % 2.35 % 3.53 % 4.71 % 5.88 % 7.06 %
8.24 %
22,101 - 53,500 36,901 - 89,150 28.00 % 2.78 % 4.17 % 5.56 % 6.94 % 8.33
% 9.72 %
53,501 - 115,000 89,151 - 140,000 31.00 % 2.90 % 4.35 % 5.80 % 7.25 %
8.70 % 10.14 %
115,001 - 250,000 140,001 - 250,000 36.00 % 3.13 % 4.69 % 6.25 % 7.81 %
9.38 % 10.94 %
250,000 and up 250,000 and up 39.60 % 3.31 % 4.97 % 6.62 % 8.28 % 9.93
% 11.59 %
<FN>
- -------------
* The federal tax rates shown are those currently in effect for 1994. The
calculations reflected in the table assume that no income will be subject
to any federal, state or local individual alternative minimum taxes.
</TABLE>
B-1
<PAGE>
- -------------------------------------------------------
MANAGED MUNICIPALS
PORTFOLIO INC.
PROSPECTUS
September 28, 1994
[LOGO]
[LOGO]
- -------------------------------------------------------
C O M M O N S T O C K
Managed Municipals Portfolio Inc.
Two World Trade Center
New York, New York 10048
(212) 720-9218
STATEMENT OF ADDITIONAL INFORMATION
September 28, 1994
Managed Municipals Portfolio Inc. (the "Portfolio") is a
non-diversified, closed-end management investment company that
seeks as high a level of current income exempt from federal
income tax as is consistent with the preservation of principal.
Under normal conditions, the Portfolio will, in seeking its
investment objective, invest substantially all of its assets in
long-term, investment grade obligations issued by state and
local governments, political subdivisions, agencies and public
authorities ("Municipal Obligations"). No assurance can be
given that the Portfolio will be able to achieve its investment
objective.
This Statement of Additional Information ("SAI") expands
upon and supplements the information contained in the current
Prospectus of the Portfolio, dated September 28, 1994,
as amended or supplemented from time to time (the
"Prospectus"), and should be read in conjunction with the
Prospectus. The Prospectus may be obtained from any Smith
Barney Financial Consultant or by writing or calling the
Portfolio at the address or telephone number set forth above.
This Statement of Additional Information, although not itself a
prospectus, is incorporated by reference into the Prospectus in
its entirety.
No person has been authorized to give any information or
to make any representations not contained in the Prospectus or
this Statement of Additional Information and, if given or made,
such information must not be relied upon as having been
authorized by the Portfolio or the Portfolio's investment
adviser. The Prospectus and this Statement of Additional
Information do not constitute an offer to sell or a
solicitation of any offer to buy any security other than the
shares of Common Stock. The Prospectus and this Statement of
Additional Information do not constitute an offer to sell or a
solicitation of an offer to buy the shares of Common Stock by
anyone in any jurisdiction in which such offer or solicitation
would be unlawful. Neither the delivery of the Prospectus nor
any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of
the Portfolio since the date hereof. If any material change
occurs while the Prospectus is required by law to be delivered,
however, the Prospectus or this Statement of Additional
Information will be supplemented or amended accordingly
TABLE OF CONTENTS
Page
Investment Objective and Policies (see in the
Prospectus "Investment Objective and Policies"
and "Appendix A") . . . . . . . . . . . . . . . . . . . .
2
Management of the Portfolio (see in the Prospectus
"Management of the Portfolio"). . . . . . . . . . . . . .
. 14
Taxes (see in the Prospectus "Taxation") . . . . . . . . .
19
Stock Purchases and Tenders (see in the Prospectus
"Stock Purchases and Tenders" and
"Description of Common Stock") . . . . . . . . . . . .
23
Additional Information (see in the Prospectus
"Custodian, Transfer Agent and Dividend-Paying
Agent and Registrar") . . . . . . . . . .
24
Financial Statements . . . . . . . . . . . . . . . . . . .
25
Appendix -- Description of Moody's, S&P and Fitch Ratings . .
. . 26
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus discusses the Portfolio's investment
objective and the policies it employs to achieve that
objective. The following discussion supplements the
description of the Portfolio's investment policies in the
Prospectus. The Portfolio's investment objective is high tax-
exempt current income by investing substantially all of its
assets in a variety of obligations issued by or on behalf of
states, territories and possessions of the United States and
the District of Columbia and their political subdivisions,
agencies and instrumentalities or multistate agencies or
authorities ("Municipal Obligations"). The Portfolio's
investment objective may not be changed without the affirmative
vote of the holders of a majority (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the
Portfolio's outstanding voting shares. No assurance can be
given that the Portfolio's investment objective will be
achieved.
Use of Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P") and Fitch
Investors Service, Inc. ("Fitch") represent the opinions of
those agencies as to the quality of the Municipal Obligations
and long-term investments which they rate. It should be
emphasized, however, that such ratings are relative and
subjective, are not absolute standards of quality and do not
evaluate the market risk of securities. These ratings will be
used as initial criteria for the selection of securities, but
the Portfolio also will rely upon the independent advice of its
investment adviser, The Greenwich Street Advisors Division of
Mutual Management Corp. ("Greenwich Street Advisors"). Among
the factors that will also be considered by Greenwich Street
Advisors in evaluating potential Municipal Obligations to be
held by the Portfolio are the price, coupon and yield to
maturity of the obligations, Greenwich Street Advisors'
assessment of the credit quality of the issuer of the
obligations, the issuer's available cash flow and the related
coverage ratios, the property, if any, securing the
obligations, and the terms of the obligations, including
subordination, default, sinking fund and early redemption
provisions. To the extent the Portfolio invests in lower-rated
and comparable unrated securities, the Portfolio's achievement
of its investment objective may be more dependent on Greenwich
Street Advisors' credit analysis of such securities than would
be the case for a portfolio consisting entirely of higher-rated
securities. The Appendix to this SAI contains information
concerning the ratings of Moody's, S&P and Fitch and their
significance.
Subsequent to its purchase by the Portfolio, an issue of
Municipal Obligations may cease to be rated or its rating may
be reduced below the rating given at the time the securities
were acquired by the Portfolio. Neither event will require the
sale of such Municipal Obligations by the Portfolio, but
Greenwich Street Advisors will consider such event in its
determination of whether the Portfolio should continue to hold
the Municipal Obligations. In addition, to the extent the
ratings change as a result of changes in the rating systems or
due to a corporate restructuring of Moody's, S&P or Fitch, the
Portfolio will attempt to use comparable ratings as standards
for its investments in accordance with its investment objective
and policies.
The Portfolio will seek to invest substantially all of its
assets in Municipal Obligations, and under normal conditions,
at least 80% of the Portfolio's total assets will be invested
in investment grade Municipal Obligations.
The Portfolio may invest in Municipal Obligations rated as
low as Baa by Moody's, BBB by S&P or BBB by Fitch or in unrated
Municipal Obligations deemed to be of comparable quality.
Although such securities are considered investment grade, they
may be subject to greater risks than other higher-rated
investment grade securities.
While the market for Municipal Obligations is considered
to be generally adequate, the existence of limited markets for
particular lower-rated and comparable unrated securities may
diminish the Portfolio's ability to (1) obtain accurate market
quotations for purposes of valuing such securities and
calculating its net asset value and (2) sell the securities at
fair value to respond to changes in the economy or in the
financial markets. The market for certain lower-rated and
comparable unrated securities is relatively new and has not
fully weathered a major economic recession. Any such economic
downturn could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
Taxable Investments
Under normal conditions, the Portfolio may hold up to 20%
of its assets in cash or money market instruments, including
taxable money market instruments (collectively, "Taxable
Investments").
Money market instruments in which the Portfolio may invest
include: U.S. government securities; tax-exempt notes of
municipal issuers rated, at the time of purchase, no lower than
MIG1 by Moody's, SP-1 by S&P or F-1 by Fitch or, if not rated,
by issuers having outstanding unsecured debt then rated within
the three highest rating categories; bank obligations
(including certificates of deposit, time deposits and bankers'
acceptances of domestic banks, domestic savings and loan
associations and similar institutions); commercial paper rated
no lower than P-1 by Moody's, A-1 by S&P or F-1 by Fitch or the
equivalent from another nationally recognized rating service
or, if unrated, of an issuer having an outstanding, unsecured
debt issue then rated within the three highest rating
categories; and repurchase agreements At no time will the
Portfolio's investments in bank obligations, including time
deposits, exceed 25% of the value of its assets.
U.S. government securities in which the Portfolio may
invest include direct obligations of the United States and
obligations issued by U.S. government agencies and
instrumentalities. Included among direct obligations of the
United States are Treasury bills, Treasury notes and Treasury
bonds, which differ principally in terms of their maturities.
Included among the securities issued by U.S. government
agencies and instrumentalities are: securities that are
supported by the full faith and credit of the United States
(such as Government National Mortgage Association
certificates); securities that are supported by the right of
the issuer to borrow from the U.S. Treasury (such as securities
of Federal Home Loan Banks); and securities that are supported
by the credit of the instrumentality (such as Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation
bonds).
Lending Securities
By lending its securities, the Portfolio can increase its
income by continuing to receive interest on the loaned
securities, by investing the cash collateral in short-term
instruments or by obtaining yield in the form of interest paid
by the borrower when U.S. government securities are used as
collateral. The Portfolio will adhere to the following
conditions whenever it lends its securities: (1) the Portfolio
must receive at least 100% cash collateral or equivalent
securities from the borrower, which will be maintained by daily
marking-to-market; (2) the borrower must increase the
collateral whenever the market value of the securities loaned
rises above the level of the collateral; (3) the Portfolio must
be able to terminate the loan at any time; (4) the Portfolio
must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned
securities, and any increase in market value; (5) the Portfolio
may pay only reasonable custodian fees in connection with the
loan; and (6) voting rights on the loaned securities may pass
to the borrower, except that, if a material event adversely
affecting the investment in the loaned securities occurs, the
Portfolio's Board of Directors must terminate the loan and
retain the Portfolio's right to vote the securities. From time
to time, the Portfolio may pay a part of the interest earned
from the investment of collateral received for securities
loaned to the borrower and/or a third party that is
unaffiliated with the Portfolio and that is acting as a
"finder."
Repurchase Agreements
The Portfolio may enter into repurchase agreements with
certain member banks of the Federal Reserve System and certain
dealers on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase
agreement, the Portfolio would acquire an underlying debt
obligation for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase,
and the Portfolio to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the
Portfolio'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. Greenwich Street Advisors,
acting under the supervision of the Portfolio'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 Portfolio enters into repurchase agreements to
evaluate potential risks. In entering into a repurchase
agreement, the Portfolio will bear a risk of loss in the event
that the other party to the transaction defaults on its
obligations and the Portfolio is delayed or prevented from
exercising its rights to dispose of the underlying securities,
including the risk of a possible decline in the value of the
underlying securities during the period in which the Portfolio
seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of
losing all or a part of the income from the agreement.
Investments in Municipal Obligation Index and Interest Rate
Futures Contracts and Options on Interest Rate Futures
Contracts
The Portfolio may invest in Municipal Obligation index and
interest rate futures contracts and options on interest rate
futures contracts that are traded on a domestic exchange or
board of trade. Such investments may be made by the Portfolio
solely for the purpose of hedging against changes in the value
of its portfolio securities due to anticipated changes in
interest rates and market conditions, and not for purposes of
speculation. Further, such investments will be made only in
unusual circumstances, such as when Greenwich Street Advisors
anticipates an extreme change in interest rates or market
conditions.
Municipal Obligation Index and Interest Rate Futures
Contracts. A Municipal Obligation index futures contract is an
agreement to take or make delivery of an amount of cash equal
to a specific dollar amount times the difference between the
value of the index at the close of the last trading day of the
contract and the price at which the index contract is
originally written. No physical delivery of the underlying
Municipal Obligations in the index is made. Interest rate
futures contracts are contracts for the future purchase or sale
of specified interest rate sensitive debt securities of the
U.S. Treasury, such as U.S. Treasury bills, bonds and notes,
obligations of the Government National Mortgage Association and
bank certificates of deposit. Although most interest rate
futures contracts require the delivery of the underlying
securities, some settle in cash. Each contract designates the
price, date, time and place of delivery.
The purpose of the Portfolio's entering into a Municipal
Obligation index or interest rate futures contract, as the
holder of long-term Municipal Obligations, is to protect the
Portfolio from fluctuation in interest rates on tax-exempt
securities without actually buying or selling Municipal
Obligations. The Portfolio 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.
Unlike the purchase or sale of a Municipal Obligation, no
consideration is paid or received by the Portfolio upon the
purchase or sale of a futures contract. Initially, the
Portfolio will be required to deposit with the futures
commission merchant an amount of cash or cash equivalents equal
to approximately 5% of the contract amount (this amount is
subject to change by the board of trade on which the contract
is traded and members of such board of trade may charge a
higher amount). This amount is known as "initial margin" and
is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Portfolio upon
termination of the futures contract, assuming that all
contractual obligations have been satisfied. Subsequent
payments, known as "variation margin", to and from the futures
commission merchant, will be made on a daily basis as the price
of the index or securities fluctuates making the long and short
positions in the futures contract more or less valuable, a
process known as marking-to-market. At any time prior to the
expiration of the contract, the Portfolio may elect to close
the position by taking an opposite position, which will operate
to terminate the Portfolio's existing position in the futures
contract.
There are several risks in connection with the use of
Municipal Obligation index and interest rate futures contracts
as a hedging device. Successful use of these futures contracts
by the Portfolio is subject to Greenwich Street Advisors'
ability to predict correctly movements in the direction of
interest rates. Such predictions involve skills and techniques
which may be different from those involved in the management of
a long-term Municipal Obligation portfolio. In addition, there
can be no assurance that a correlation would exist between
movements in the price of the Municipal Obligation index or the
debt security underlying the futures contract and movement in
the price of the Municipal Obligations which are the subject of
the hedge. The degree of imperfection of correlation depends
upon various circumstances, such as variations in speculative
market demand for futures contracts and Municipal Obligations
and technical influences on futures trading. The Portfolio's
Municipal Obligations and the Municipal Obligations in the
index may also differ in such respects as interest rate levels,
maturities and creditworthiness of issuers. A decision of
whether, when and how to hedge involves the exercise of skill
and judgment and even a well-conceived hedge may be
unsuccessful to some degree because of market behavior or
unexpected trends in interest rates.
Although the Portfolio intends to enter into futures
contracts only if an active market exists for such contracts,
there can be no assurance that an active market will exist for
a contract at any particular time. Most domestic futures
exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading
day. The daily limit establishes the maximum amount the price
of a futures contract may vary either up or down from the
previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that
limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential
losses because the limit may prevent the liquidation of
unfavorable positions. It is possible that futures contract
prices could move to the daily limit for several consecutive
trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, it will
not be possible to close a futures position and, in the event
of adverse price movements, the Portfolio would be required to
make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. As described above,
however, there is no guarantee the price of Municipal
Obligations will, in fact, correlate with the price movements
in a futures contract and thus provide an offset to losses on a
futures contract.
If the Portfolio has hedged against the possibility of an
increase in interest rates adversely affecting the value of
Municipal Obligations it holds and rates decrease instead, the
Portfolio will lose part or all of the benefit of the increased
value of the Municipal Obligations it has hedged because it
will have offsetting losses in its futures positions. In
addition, in such situations, if the Portfolio has insufficient
cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may, but will
not necessarily, be at increased prices which reflect the
decline in interest rates. The Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.
Options on Interest Rate Futures Contracts. The Portfolio
may purchase put and call options on interest rate futures
contracts which are traded on a domestic exchange or board of
trade as a hedge against changes in interest rates, and may
enter into closing transactions with respect to such options to
terminate existing positions. The Portfolio will sell put and
call options on interest rate futures contracts only as part of
closing sale transactions to terminate its options positions.
There is no guarantee such closing transactions can be
effected.
Options on interest rate futures contracts, as contrasted
with the direct investment in such contracts, give the
purchaser the right, in return for the premium paid, to assume
a position in interest rate futures contracts at a specified
exercise price at any time prior to the expiration date of the
options. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of
the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which
represents the amount by which the market price of the futures
contract exceeds, 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 interest rate futures contracts is limited to
the premium paid for the option (plus transaction costs).
Because the value of the option is fixed at the point of sale,
there are no daily cash payments to reflect changes in the
value of the underlying contract; however, the value of the
option does change daily and that change would be reflected in
the net asset value of the Portfolio.
There are several risks relating to options on interest
rate futures contracts. The ability to establish and close out
positions on such options will be subject to the existence of a
liquid market. In addition, the Portfolio's purchase of put or
call options will be based upon predictions as to anticipated
interest rate trends by Greenwich Street Advisors, which could
prove to be inaccurate. Even if Greenwich Street Advisors'
expectations are correct, there may be an imperfect correlation
between the change in the value of the options and of the
Portfolio's securities.
Municipal Obligations
General Information. Municipal Obligations generally are
understood to include debt obligations issued to obtain funds
for various public purposes, including the construction of a
wide range of public facilities, refunding of outstanding
obligations, payment of general operating expenses and
extensions of loans to public institutions and facilities.
Private activity bonds that are issued by or on behalf of
public authorities to obtain funds to provide privately
operated facilities are included within the term Municipal
Obligations 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 Obligations are dependent upon a
variety of factors, including general economic and monetary
conditions, general money market conditions, general conditions
of the Municipal Obligations market, the financial condition of
the issuer, the size of a particular offering, the maturity of
the obligation offered and the rating of the issue. Municipal
Obligations are also subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if
any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest, or
both, or imposing other constraints upon enforcement of the
obligations or upon the ability of municipalities to levy
taxes. There is also the possibility that as a result of
litigation or other conditions, the power or ability of any one
or more issuer to pay, when due, principal of and interest on
its, or their, Municipal Obligations may be materially
affected.
The net asset value of the Common Stock will change with
changes in the value of the Portfolio's securities. Because
the Portfolio will invest primarily in fixed-income securities,
the net asset value of the Common Stock can be expected to
change as levels of interest rates fluctuate; generally, when
prevailing interest rates increase, the value of fixed-income
securities held by the Portfolio can be expected to decrease
and when prevailing interest rates decrease, the value of the
fixed-income securities held by the Portfolio can be expected
to increase. The value of the fixed-income securities held by
the Portfolio, and thus the Portfolio's net asset value, may
also be affected by other economic, market and credit factors.
From time to time, the Portfolio's investments may include
securities as to which the Portfolio, by itself or together
with other funds or accounts managed by Greenwich Street
Advisors, holds a major portion or all of an issue of Municipal
Obligations. Because relatively few potential purchasers may
be available for these investments and, in some cases,
contractual restrictions may apply on resales, the Portfolio
may find it more difficult to sell these securities at a time
when Greenwich Street Advisors believes it is advisable to do
so.
When-Issued Securities. The Portfolio may purchase
Municipal Obligations 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 Obligations purchased on a
when-issued basis are each fixed at the time the buyer enters
into the commitment. Although the Portfolio will purchase
Municipal Obligations on a when-issued basis only with the
intention of actually acquiring the securities, the Portfolio
may sell these securities before the settlement date if it is
deemed advisable as a matter of investment strategy.
Municipal Obligations are subject to changes in value
based upon the public's perception of the creditworthiness of
the issuers and changes, real or anticipated, in the level of
interest rates. In general, Municipal Obligations tend to
appreciate when interest rates decline and depreciate when
interest rates rise. Purchasing Municipal Obligations on a
when-issued basis, therefore, can involve the risk that the
yields available in the market when the delivery takes place
actually may be higher than those obtained in the transaction
itself. To account for this risk, a separate account of the
Portfolio consisting of cash or liquid debt securities equal to
the amount of the when-issued commitments will be established
at the Portfolio'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 on
a daily basis so that the value of the account will equal the
amount of such commitments by the Portfolio. Placing
securities rather than cash in the segregated account may have
a leveraging effect on the Portfolio's net assets. That is, to
the extent the Portfolio remains substantially fully invested
in securities at the same time it has committed to purchase
securities on a when-issued basis, there will be greater
fluctuations in its net assets than if it had set aside cash to
satisfy its purchase commitment. Upon the settlement date of
the when-issued securities, the Portfolio will meet its
obligations from then-available cash flow, sale of securities
held in the segregated account, sale of other securities or,
although it would not normally expect to do so, from the sale
of the when-issued securities themselves (which may have a
value greater or less than the Portfolio's payment
obligations). Sales of securities to meet such obligations may
involve the realization of capital gains, which are not exempt
from federal income taxes.
When the Portfolio 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 Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be
advantageous.
Municipal Leases. Municipal leases may take the form of a
lease or an installment purchase contract issued by state and
local government authorities to obtain funds to acquire a wide
variety of equipment and facilities such as fire and
sanitation vehicles, computer equipment and other capital
assets. These obligations have evolved to make it possible for
state and local government authorities to acquire property and
equipment without meeting constitutional and statutory
requirements for the issuance of debt. Thus, municipal leases
have special risks not normally associated with Municipal
Obligations. These obligations frequently contain "non-
appropriation" clauses providing that the governmental issuer
of the obligation has no obligation to make future payments
under the lease or contract unless money is appropriated for
such purposes by the legislative body on a yearly or other
periodic basis. In addition to the "non-appropriation" risk,
municipal leases represent a type of financing that has not yet
developed the depth of marketability associated with Municipal
Obligations; moreover, although the obligations will be secured
by the leased equipment, the disposition of the equipment in
the event of foreclosure might prove difficult.
To limit the risks associated with municipal leases, the
Portfolio will invest no more than 5% of its total assets in
lease obligations that contain non-appropriation clauses and
will only purchase a non-appropriation lease obligation with
respect to which (1) the nature of the leased equipment or
other property is such that its ownership or use is reasonably
essential to a governmental function of the issuing
municipality, (2) the lease payments will begin to amortize the
principal balance due at an early date, resulting in an average
life of five years or less for the lease obligation, (3)
appropriate covenants will be obtained from the municipal
obligor prohibiting the substitution or purchase of similar
equipment or other property if lease payments are not
appropriated, (4) the lease obligor has maintained good market
acceptability in the past, (5) the investment is of a size that
will be attractive to institutional investors and (6) the
underlying leased equipment or other property has elements of
portability and/or use that enhance its marketability in the
event that foreclosure on the underlying equipment or other
property were ever required.
Municipal leases that the Portfolio may acquire will be
both rated and unrated. Rated leases that may be held by the
Portfolio include those rated investment grade at the time of
investment (that is, rated no lower than Baa by Moody's, BBB by
S&P or BBB by Fitch). The Portfolio may acquire unrated issues
that Greenwich Street Advisors deems to be comparable in
quality to rated issues in which the Portfolio is authorized to
invest. A determination by Greenwich Street Advisors that an
unrated lease obligation is comparable in quality to a rated
lease obligation will be made on the basis of, among other
things, a consideration of whether the nature of the leased
equipment or other property is such that its ownership or use
is reasonably essential to a governmental function of the
issuing municipality. In addition, all such determinations
made by Greenwich Street Advisors will be subject to oversight
and approval by the Portfolio's Board of Directors.
Municipal leases held by the Portfolio will be considered
illiquid securities unless the Portfolio's Board of Directors
determines on an ongoing basis that the leases are readily
marketable. An unrated municipal lease with a non-
appropriation risk that is backed by an irrevocable bank letter
of credit or an insurance policy issued by a bank or insurer
deemed by Greenwich Street Advisors to be of high quality and
minimal credit risk will not be deemed to be illiquid solely
because the underlying municipal lease is unrated, if Greenwich
Street Advisors determines that the lease is readily marketable
because it is backed by the letter of credit or insurance
policy.
Investment Restrictions
The Portfolio has adopted certain fundamental investment
restrictions that may not be changed without the prior approval
of the holders of a majority of the Portfolio's outstanding
voting securities. A "majority of the Portfolio's outstanding
voting securities" for this purpose means the lesser of (1) 67%
or more of the shares of the Portfolio's Common Stock present
at a meeting of shareholders, if the holders of 50% of the
outstanding shares are present or represented by proxy at the
meeting or (2) more than 50% of the outstanding shares. For
purposes of the restrictions listed below, all percentage
limitations apply immediately after a purchase or initial
investment, and any subsequent change in applicable percentage
resulting from market fluctuations will not require elimination
of any security from the portfolio. Under its fundamental
restrictions, the Portfolio may not:
1. Purchase securities other than Municipal Obligations
and Taxable Investments as those terms are described in the
Prospectus and this SAI.
2. Borrow money, except for temporary or emergency
purposes, or for clearance of transactions, and then only in
amounts not exceeding 15% of its total assets (not including
the amount borrowed) and as otherwise described in the
Prospectus and this SAI. When the Portfolio's borrowings
exceed 5% of the value of its total assets, the Portfolio will
not make any additional investments.
3. Sell securities short or purchase securities on
margin, except for such short-term credits as are necessary for
the clearance of transactions, but the Portfolio may make
margin deposits in connection with transactions in options,
futures and options on futures.
4. Underwrite any issue of securities, except to the
extent that the purchase of Municipal Obligations may be deemed
to be an underwriting.
5. Purchase, hold or deal in real estate or oil and gas
interests, except that the Portfolio may invest in Municipal
Obligations secured by real estate or interests in real estate.
6. Invest in commodities, except that the Portfolio may
enter into futures contracts, including those relating to
indexes, and options on futures contracts or indexes, as
described in the Prospectus and this SAI.
7. Lend any funds or other assets except through
purchasing Municipal Obligations or Taxable Investments,
lending portfolio securities and entering into repurchase
agreements consistent with the Portfolio's investment
objective.
8. Issue senior securities.
9. Invest more than 25% of its total assets in the
securities of issuers in any single industry, except that this
limitation will not be applicable to the purchase of Municipal
Obligations and U.S. government securities.
10. Make any investments for the purpose of exercising
control or management of any company.
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 the best price or execution will be
obtained; those dealers may be acting as either agents or
principals. The purchase price paid by the Portfolio 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 Portfolio has
paid no brokerage commissions since its commencement of
operations.
Allocation of transactions, including their frequency, to
various dealers is determined by Greenwich Street Advisors in
its best judgment and in a manner deemed fair and reasonable to
shareholders. The primary considerations are availability of
the desired security and the prompt execution of orders in an
effective manner at the most favorable prices. Subject to
these considerations, dealers that provide supplemental
investment research and statistical or other services to
Greenwich Street Advisors may receive orders for portfolio
transactions by the Portfolio. Information so received is in
addition to, and not in lieu of, services required to be
performed by Greenwich Street Advisors, and the fees of
Greenwich Street Advisors are not reduced as a consequence of
their receipt of such supplemental information. Such
information may be useful to Greenwich Street Advisors in
serving both the Portfolio and other clients and, conversely,
supplemental information obtained by the placement of business
of other clients may be useful to Greenwich Street Advisors in
carrying out its obligations to the Portfolio.
The Portfolio will not purchase Municipal Obligations
during the existence of any underwriting or selling group
relating thereto of which Smith Barney Inc. ("Smith
Barney") or its affiliates are members except to the extent
permitted by the Securities and Exchange Commission (the
"SEC"). Under certain circumstances, the Portfolio 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.
While investment decisions for the Portfolio are made
independently from those of the other accounts managed by
Greenwich Street Advisors, investments of the type the
Portfolio may make also may be made by those other accounts.
When the Portfolio and one or more other accounts managed by
Greenwich Street Advisors are prepared to invest in, or desire
to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed
by Greenwich Street Advisors to be equitable to each. In some
cases, this procedure may adversely affect the price paid or
received by the Portfolio or the size of the position obtained
or disposed of by the Portfolio.
The Portfolio's Board of Directors will review
periodically the commissions paid by the Portfolio to determine
if the commissions paid over representative periods of time
were reasonable in relation to the benefits inuring to the
Portfolio.
Portfolio Turnover
The Portfolio's portfolio turnover rate (the lesser of
purchases or sales of portfolio securities during the last
fiscal 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 Portfolio deems it desirable to sell or purchase
securities. Securities may be sold in anticipation of a rise
in interest rates (market decline) or purchased in anticipation
of a decline in interest rates (market rise) and later sold.
In addition, a security may be sold and another security of
comparable quality may be purchased at approximately the same
time in order to take advantage of what the Portfolio believes
to be a temporary disparity in the normal yield relationship
between the two securities. These yield disparities may occur
for reasons not directly related to the investment quality of
particular issues or the general movement of interest rates,
such as changes in the overall demand for or supply of various
types of tax-exempt securities. For the fiscal years ended
May 31, 1994 and 1993, the Portfolio's portfolio
turnover rate was 72% and 169%, respectively.
MANAGEMENT OF THE PORTFOLIO
The executive officers of the Portfolio are employees of
certain of the organizations that provide services to the
Portfolio. These organizations are as follows:
Name Service
Greenwich Street Advisors
Division of
Mutual Management Corp. Investment Adviser
Smith, Barney Advisers, Inc.
("SBA") Administrator
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-
Administrator
Smith Barney Inc. Distributor
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc.
("TSSG") Transfer Agent
These organizations and the functions they perform for the
Portfolio are discussed in the Prospectus and this SAI.
Directors and Executive Officers of the Portfolio
The overall management of the business and affairs of the
Portfolio is vested with its Board of Directors. The Board of
Directors approves all significant agreements between the
Portfolio and persons or companies furnishing services to it,
including the Portfolio's agreements with its investment
adviser, administrator, sub-administrator, custodian and
transfer agent, dividend paying agent, registrar and plan
agent. The day-to-day operations of the Portfolio are
delegated to its officers and to Greenwich Street Advisors,
subject always to the investment objective and policies of the
Portfolio and to general supervision by the Portfolio's Board
of Directors.
The Directors and executive officers of the Portfolio,
their addresses together with information as to their principal
business occupations during the past five years, are shown
below:
Name and Address
Positions Held
With the Fund
Principal
Occupations
During Past 5
Years
* Heath B. McLendon
Two World Trade
Center
New York, NY
10048
Chairman of the
Board
of Directors,
Chief
Executive
Officer and
Director
Executive Vice President of Smith
Barney
,Chairman of Smith Barney
Strategy Advisers
Inc.; prior to July 1993, Senior
Executive Vice President of
Shearson Lehman Brothers; Vice
Chairman of Shearson Asset
Management, a
member of the Asset Management
Group of
Shearson Lehman Brothers; a
Director of
PanAgora Asset Management, Inc.
and
PanAgora Asset Management Limited,
investment advisory affiliates of
Shearson
Lehman Brothers.
Charles Barber
66 Glenwood Drive
Greenwich, CT
06830
Director
Consultant; formerly Chairman of
the
Board, ASARCO Incorporated.
Martin Brody
HMK
Associates
Three ADP
Boulevard
Roseland, NJ
07068
Director
Vice Chairman of the Board of
Restaurant
Associates Corp.; Director of
Jaclyn, Inc.
Allan J. Bloostein
27 West 67th
Street
Apt. 5FW
New York, NY
10023
Director
Consultant; formerly Vice Chairman
of the
Board of Directors of May
Department
Stores Company; Director of
Crystal
Brands, Inc., Melville Corp., R.G.
Barry
Corp. and Hechinger Co.
Dwight B. Crane
Graduate School
of
Business
Administration
Harvard
University
Soldiers Field
Road
Boston, MA 02163
Director
Professor, Graduate School of
Business
Administration, Harvard
University; Director
of Peer Review Analysis,
Inc.
Robert A. Frankel
102 Grand Street
Croton-on-Hudson,
NY
10520
Director
Management Consultant; formerly
Vice
President of The Reader's Digest
Association, Inc.
Name and Address
Positions Held
With the Fund
Principal Occupations
During Past 5 Years
Stephen J. Treadway
1345 Avenue of
the Americas
New York, NY
10105
President
Executive Vice President and
Director of Smith
Barney; Director and President
of Mutual Management Corp. and
SBA; Trustee of Corporate Realty
Income Trust Inc.
Richard P. Roelofs
Two World Trade
Center
New York, NY
10048
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;
Vice President of Shearson
Lehman Strategy Advisors Inc.,
an investment advisory affiliate
of Shearson Lehman Brothers.
Joseph P. Deane
Two World Trade
Center
New York, NY
10048
Vice President
and
Investment
Officer
Managing Director of
Greenwich Street Advisors;
prior to July 1993, Senior Vice
President
and Managing Director of
Shearson
Lehman Advisors.
David Fare
Two World Trade
Center
New York, NY
10048
Investment
Officer
Vice President of Greenwich
Street Advisors;
prior to July 1993, Vice
President of Shearson
Lehman Advisors.
Lewis E. Daidone
1345 Avenue of
the Americas
New York, NY
10105
Chief Financial
and
Accounting
Officer
and Treasurer
Managing Director and Chief
Financial Officer of Smith
Barney; Director and Senior Vice
President of Mutual Management
Corp.
Christina T.
Sydor
1345 Avenue of
the Americas
New York, NY
10105
Secretary
Managing Director of Smith
Barney; General Counsel and
Secretary of Mutual Management
Corp.
* Directors who are "Interested persons" of the Portfolio
(as defined in the 1940 Act)
Director and/or trustee of other registered investment
companies with which Smith Barney is affiliated.
The Portfolio pays each of its directors who is not a
director, officer or employee of Greenwich Street Advisors, or
any of its affiliates, an annual fee of $5,000 plus $500 for
each Board of Directors meeting attended. In addition, the
Portfolio will reimburse these directors for travel and out-of-
pocket expenses incurred in connection with Board of Directors
meetings. For the fiscal year ended May 31, 1994 , such
fees and expenses totaled $ 35,775 .
Principal Stockholders
There are no persons known to the Portfolio to be control
persons of the Portfolio, as such term is defined in Section
2(a)(9) of the 1940 Act. There is no person known to the
Portfolio to hold beneficially more than 5% of the outstanding
shares of Common Stock. The following person is the only
person holding more than 5% of the 34,498,420
outstanding shares of Common Stock as of August 31,
1994 :
Name and Address
of Record Owner
Amount of
Record
Ownership
Percent of
Common
Stock
Outstandin
g
Cede & Co., as Nominee for The
Depository Trust Company
P.O. Box 20
Bowling Green Station
New York, New York 10004
33,470,6
65
97%
Approximately 30,380,499 of the shares held of
record by Cede & Co., representing 88 % of the
outstanding shares of Common Stock, were held by The Depository
Trust Company as nominee for Smith Barney , representing
accounts for which Smith Barney has discretionary and non-
discretionary authority.
As of August 31, 1994 , the Directors and officers
of the Portfolio, as a group, beneficially owned less than 1%
of the Portfolio's outstanding shares of Common Stock.
Investment Adviser -- Greenwich Street Advisors
Administrator -- SBA
Sub-Administrator -- Boston Advisors
Greenwich Street Advisors serves as investment adviser to
the Portfolio pursuant to a written agreement dated July 30,
1993 (the "Advisory Agreement"), a form of which was most
recently approved by the Board of Directors, including a
majority of those Directors who are not "interested persons" of
the Portfolio or Greenwich Street Advisors ("Non-Interested
Directors") on September 7, 1994 and by the shareholders
at an Annual Meeting of the Portfolio on June 9, 1993. Unless
terminated sooner, the Advisory Agreement will continue for
successive annual periods thereafter provided that such
continuance is specifically approved at least annually: (1) by
a majority vote of the Non-Interested Directors cast in person
at a meeting called for the purpose of voting on such approval;
and (2) by the Board of Directors or by a vote of a majority
of the outstanding shares of Common Stock. Greenwich Street
Advisors is a division of Mutual Management Corp., which is in
turn a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings"), which is in turn a wholly owned subsidiary of The
Travelers Inc. Greenwich Street Advisors pays the salary
of any officer or employee who is employed by both it and the
Portfolio. Greenwich Street Advisors bears all expenses in
connection with the performance of its services as investment
adviser.
For services rendered to the Portfolio, Greenwich Street
Advisors receives from the Portfolio a fee, computed and paid
monthly at the annual rate of .70% of the value of the
Portfolio's average daily net assets. For the fiscal
years ended May 31, 1994 and 1993, such fees amounted to
$3,122,879 and $2,752,164, respectively.
Under the Advisory Agreement, Greenwich Street Advisors
will not be liable for any error of judgment or mistake of law
or for any loss suffered by the Portfolio in connection with
the Advisory Agreement, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of
Greenwich Street Advisors in the performance of its duties or
from reckless disregard of its duties and obligations under the
Advisory Agreement. The Advisory Agreement is terminable by
vote of the Board of Directors or by the holders of a majority
of Common Stock, at any time without penalty, on 60 days'
written notice to Greenwich Street Advisors. The Advisory
Agreement may also be terminated by Greenwich Street Advisors
on 90 days' written notice to the Portfolio. The Advisory
Agreement terminates automatically upon its assignment.
SBA serves as administrator to the Portfolio pursuant
to a written agreement dated June 1, 1994 (the "Administration
Agreement"). The services provided by SBA under the
Administration Agreement are described in the Prospects under
"Management of the Portfolio." SBA is a wholly owned
subsidiary of Holdings.
For services rendered to the Portfolio, SBA receives from
the Portfolio a fee computed and paid monthly at the annual
rate of .20% of the value of the Portfolio's average daily
assets. Prior to June 1, 1994, Boston Advisers served as
administrator to the Portfolio. For the fiscal year ended May
31, 1994, SBA and/or its predecessor received $892,251 in
administration fees from the Portfolio. For the fiscal year
ended May 31, 1993 such fees amounted to $786,333.
Pursuant to the Administration Agreement, SBA will
exercise its best judgment in rendering its services to the
Portfolio. SBA will not be liable for any error of
judgment or mistake of law or for any loss suffered by the
Portfolio in connection with the matters to which the
Administration Agreement relates, except by reason of
SBA's reckless disregard of its obligations and duties
under the Administration Agreement.
Boston Advisors serves as sub-administrator to the
Portfolio pursuant to a written agreement dated June 1, 1994
(the "Sub-Administration Agreement") . Boston Advisors is
an indirect wholly owned subsidiary of Mellon Bank Corporation.
Certain of the services provided to the Portfolio by
Boston Advisors pursuant to the Sub-Administration
Agreement are described in the Prospectus under "Management
of the Portfolio." In addition to those services, Boston
Advisors pays the salaries of all officers and employees who
are employed by both it and the Portfolio, maintains office
facilities for the Portfolio, furnishes the Portfolio with
statistical and research data, clerical help and accounting,
data processing, bookkeeping, internal auditing and legal
services and certain other services required by the Portfolio,
prepares reports to the Portfolio's shareholders, and prepares
tax returns and reports to and filings with the SEC and state
blue sky authorities. Boston Advisors bears all expenses in
connection with the performance of its services.
Boston Advisors is paid a portion of the fee paid by
the Fund to SBA at a rate agreed upon from time to time between
Boston Advisors and SBA.
Each of the Administration and Sub-
Administration Agreements (the "Agreements") will continue
automatically for successive annual periods provided that such
continuance is approved at least annually by the Board of
Directors of the Portfolio including a majority of the Non-
Interested Directors, by vote cast in person at a meeting
called for the purpose of voting such approval. The Agreements
are terminable, without penalty, upon 60 days' written notice,
by the Board of Directors of the Portfolio or by vote of
holders of a majority of the Portfolio's shares of Common
Stock, or upon 90 days' written notice, by SBA and
Boston Advisors, respectively.
The Portfolio bears expenses incurred in its operation
including: fees of the investment adviser and administrator;
taxes, interest, 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 the 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 investor services (including allocated
telephone and personnel expenses); costs of preparation and
printing of prospectuses and statements of additional
information for regulatory purposes and for distribution to
shareholders; shareholders' reports and corporate meetings of
the officers, Board of Directors and shareholders of the
Portfolio.
TAXES
As described above and in the Prospectus, the Portfolio is
designed to provide investors with current income which is
excluded from gross income for federal income tax purposes.
The Portfolio 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 Portfolio would
not be suitable for tax-exempt institutions, qualified
retirement plans, H.R. 10 plans and individual retirement
accounts because such investors would not gain any additional
tax benefit from the receipt of tax-exempt income.
The following is a summary of selected federal income tax
considerations that may affect the Portfolio and its
shareholders. The summary is not intended as a substitute for
individual tax advice and investors are urged to consult their
own tax advisors as to the tax consequences of an investment in
the Portfolio.
Taxation of the Portfolio and its Investments
The Portfolio has qualified and intends to qualify as a
"regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). In
addition, the Portfolio intends to satisfy conditions contained
in the Code that will enable interest from Municipal
Obligations, excluded from gross income for federal income tax
purposes with respect to the Portfolio, to retain that tax-
exempt status when distributed to the shareholders of the
Portfolio (that is, to be classified as "exempt-interest"
dividends of the Portfolio).
If it qualifies as a regulated investment company, the
Portfolio will pay no federal income taxes on its taxable net
investment income (that is, taxable income other than net
realized capital gains) and its net realized capital gains that
are distributed to shareholders. To qualify under Subchapter M
of the Code, the Portfolio must, among other things: (1)
distribute to its shareholders at least 90% of its taxable net
investment income (for this purpose consisting of taxable net
investment income and net realized short-term capital gains)
and 90% of its tax-exempt net investment income (reduced by
certain expenses); (2) derive at least 90% of its gross income
from dividends, interest, payments with respect to loans of
securities, gains from the sale or other disposition of
securities, or other income (including, but not limited to,
gains from options, futures, and forward contracts) derived
with respect to the Portfolio's business of investing in
securities; (3) derive less than 30% of its annual gross income
from the sale or other disposition of securities, options,
futures or forward contracts held for less than three months;
and (4) diversify its holdings so that, at the end of each
fiscal quarter of the Portfolio (a) at least 50% of the market
value of the Portfolio's assets is represented by cash, U.S.
government securities and other securities, with those other
securities limited, with respect to any one issuer, to an
amount no greater than 5% of the Portfolio's assets and (b) not
more than 25% of the market value of the Portfolio's assets is
invested in the securities of any one issuer (other than U.S.
government securities or securities of other regulated
investment companies) or of two or more issuers that the
Portfolio controls and that are determined to be in the same or
similar trades or businesses or related trades or businesses.
In meeting these requirements, the Portfolio may be restricted
in the selling of securities held by the Portfolio for less
than three months and in the utilization of certain of the
investment techniques described above under "Investment
Objective and Policies". As a regulated investment company,
the Portfolio will be subject to a 4% non-deductible excise tax
measured with respect to certain undistributed amounts of
ordinary income and capital gain. The Portfolio expects to pay
dividends and distributions necessary to avoid the application
of this excise tax.
As described above in this Statement of Additional
Information and in the Prospectus, the Portfolio may invest in
financial futures contracts and options on financial futures
contracts that are traded on a U.S. exchange or board of trade.
The Portfolio anticipates that these investment activities will
not prevent the Portfolio from qualifying as a regulated
investment company. As a general rule, these investment
activities will increase or decrease the amount of long-term
and short-term capital gains or losses realized by the
Portfolio and thus will affect the amount of capital gains
distributed to the Portfolio's shareholders.
For federal income tax purposes, gain or loss on the
futures and options described above (collectively referred to
as "Section 1256 Contracts") would, as a general rule, be taxed
pursuant to a special "mark-to-market system." Under the mark-
to-market system, the Portfolio may be treated as realizing a
greater or lesser amount of gains or losses than actually
realized. As a general rule, gain or loss on Section 1256
Contracts is treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss, and as a result, the mark-
to-market system will generally affect the amount of capital
gains or losses taxable to the Portfolio and the amount of
distributions taxable to a shareholder. Moreover, if the
Portfolio invests in both Section 1256 Contracts and offsetting
positions in those contracts, then the Portfolio might not be
able to receive the benefit of certain realized losses for an
indeterminate period of time. The Portfolio expects that its
activities with respect to Section 1256 Contracts and
offsetting positions in those Contracts (1) will not cause it
or its shareholders to be treated as receiving a materially
greater amount of capital gains or distributions than actually
realized or received and (2) will permit it to use
substantially all of its losses for the fiscal years in which
the losses actually occur.
Taxation of the Portfolio's Shareholders
The Portfolio anticipates that all dividends it pays,
other than dividends from Taxable Investments and from income
or gain derived from securities transactions and from the use
of certain of the investment techniques described under
"Investment Objective and Policies" will be derived from
interest on Municipal Obligations and thus will be exempt-
interest dividends that may be excluded by shareholders from
their gross income for federal income tax purposes if the
Portfolio satisfies certain asset percentage requirements.
Dividends paid from the Portfolio's net investment income and
distributions of the Portfolio's net realized short-term
capital gains are taxable to shareholders of the Portfolio as
ordinary income, regardless of the length of time shareholders
have held shares of Common Stock and whether the dividends or
distributions are received in cash or reinvested in additional
shares. As a general rule, a shareholder's gain or loss on a
sale of his or her shares of Common Stock will be a long-term
gain or loss if he or she has held his or her shares for more
than one year and will be a short-term capital gain or loss if
he or she has held his or her shares for one year or less.
Dividends and distributions paid by the Portfolio will not
qualify for the federal dividends-received deduction for
corporations.
Exempt-Interest Dividends
Interest on indebtedness incurred by a shareholder to
purchase or carry shares of Common Stock is not deductible for
federal income tax purposes. If a shareholder receives exempt-
interest dividends with respect to any share of Common Stock
and if the share is held by the shareholder for six months or
less, then any loss on the sale of the share may, to the extent
of the exempt-interest dividends, be disallowed. The code may
also require a shareholder if he or she receives exempt-
interest dividends to treat as taxable income a portion of
certain otherwise non-taxable social security and railroad
retirement benefit payments. In addition, the portion of any
exempt-interest dividend paid by the Portfolio that represents
income derived from private activity bonds held by the
Portfolio may not retain its tax-exempt status in the hands of
a shareholder who is a "substantial user" of a facility
financed by the bonds, or a "related person" of the substantial
user. Although the Portfolio's exempt-interest dividends may
be excluded by shareholders from their gross income for federal
income tax purposes (1) some or all of the Portfolio's exempt-
interest dividends may be a specific preference item, or a
component of an adjustment item, for purposes of the federal
individual and corporate alternative minimum taxes and (2) the
receipt of dividends and distributions from the Portfolio may
affect a corporate shareholder's federal "environmental" tax
liability. The receipt of dividends and distributions from the
Portfolio may affect a foreign corporate shareholder's federal
"branch profits" tax liability and a corporate shareholder's
federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisors to determine
whether they are (1) "substantial users" with respect to a
facility or "related" to those users within the meaning of the
Code or (2) subject to a federal alternative minimum tax, the
federal "environmental" tax, the federal "branch profits" tax,
or the federal "excess net passive income" tax.
Dividend Reinvestment Plan
A shareholder of the Portfolio receiving dividends or
distributions in additional shares pursuant to the Plan should
be treated for federal income tax purposes as receiving a
distribution in an amount equal to the amount of money that a
shareholder receiving cash dividends or distributions receives,
and should have a cost basis in the shares received equal to
that amount.
Statements and Notices
Statements as to the tax status of the dividends and
distributions received by shareholders of the Portfolio are
mailed annually. These statements show the dollar amount of
income excluded from federal income taxes and the dollar
amount, if any, subject to federal income taxes. The
statements will also designate the amount of exempt-interest
dividends that are a specific preference item for purposes of
the federal individual and corporate alternative minimum taxes
and will indicate the shareholder's share of the investment
expenses of the Portfolio. The Portfolio will notify
shareholders annually as to the interest excluded from federal
income taxes earned by the Portfolio with respect to those
states and possessions in which the Portfolio has or had
investments. The dollar amount of dividends paid by the
Portfolio that is excluded from federal income taxation and the
dollar amount of dividends paid by the Portfolio that is
subject to federal income taxation, if any, will vary for each
shareholder depending upon the size and duration of the
shareholder's investment in the Portfolio. To the extent that
the Portfolio earns taxable net investment income, it intends
to designate as taxable dividends the same percentage of each
day's dividend as its taxable net investment income bears to
its total net investment income earned on that day. Therefore,
the percentage of each day's dividend designated as taxable, if
any, may vary from day to day.
Backup Withholding
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or
interest income, or fails to certify that he has provided a
correct taxpayer identification number and that he is not
subject to "backup withholding," the shareholder may be subject
to a 20% "backup withholding" tax with respect to (1) taxable
dividends and distributions and (2) the proceeds of any sales
or repurchases of shares of Common Stock. An individual's
taxpayer identification number is his social security number.
The 20% backup withholding tax is not an additional tax and may
be credited against a taxpayer's federal income tax liability.
STOCK PURCHASES AND TENDERS
The Portfolio may repurchase shares of its Common Stock in
the open market or in privately negotiated transactions when
the Portfolio can do so at prices below their then current net
asset value per share on terms that the Portfolio's Board of
Directors believes represent a favorable investment
opportunity. In addition, the Board of Directors currently
intends to consider, at least once a year, making an offer to
each shareholder of record to purchase at net asset value
shares of Common Stock owned by the shareholder.
No assurance can be given that repurchases and/or tenders
will result in the Portfolio's shares trading at a price that
is equal to their net asset value. The market prices of the
Portfolio shares will, among other things, be determined by the
relative demand for and supply of the shares in the market, the
Portfolio's investment performance, the Portfolio's dividends
and yield and investor perception of the Portfolio's overall
attractiveness as an investment as compared with other
investment alternatives. The Portfolio's acquisition of Common
Stock will decrease the total assets of the Portfolio and
therefore have the effect of increasing the Portfolio's expense
ratio. The Portfolio may borrow money to finance the
repurchase of shares subject to the limitations described in
the Prospectus. Any interest on the borrowings will reduce the
Portfolio's net income. Because of the nature of the
Portfolio's investment objective, policies and securities
holdings, Greenwich Street Advisors does not anticipate that
repurchases and tenders will have an adverse effect on the
Portfolio's investment performance and does not anticipate any
material difficulty in disposing of securities to consummate
Common Stock repurchases and tenders.
When a tender offer is authorized to be made by the
Portfolio's Board of Directors, it will be an offer to purchase
at a price equal to the net asset value of all (but not less
than all) of the shares owned by the shareholder (or attributed
to him for federal income tax purposes under Section 38 of the
Code). A shareholder who tenders all shares owned or
considered owned by him or her, as required, will realize a
taxable gain or loss depending upon his or her basis in his or
her shares.
If the Portfolio liquidates securities in order to
repurchase shares of Common Stock, the Portfolio may realize
gains and losses. These gains, if any, may be realized on
securities held for less than three months. Because the
Portfolio must derive less that 30% of its gross income for any
taxable year from the sale or disposition of stock and
securities held less than three months (in order to retain the
Portfolio's regulated investment company status under the
Code), gains realized by the Portfolio due to a liquidation of
securities held for less than three months would reduce the
amount of gain on sale of other securities held for less than
three months that the Portfolio could realize in the ordinary
course of its portfolio management, which may adversely affect
the Portfolio's performance. The portfolio turnover rate of
the Portfolio may or may not be affected by the Portfolio's
repurchases of shares of Common Stock pursuant to a tender
offer.
ADDITIONAL INFORMATION
Legal Matters
Willkie Farr & Gallagher serves as legal counsel to the
Portfolio. The Directors who are not "interested persons" of
the Portfolio have selected Stroock & Stroock & Lavan as their
counsel.
Independent Public Accountants
Coopers & Lybrand L.L.P. , independent accountants,
One Post Office Square, Boston, Massachusetts 02110, serve as
auditors of the Portfolio and render an opinion on the
Portfolio's financial statements annually.
Custodian and Transfer Agent
Boston Safe, an indirect wholly owned subsidiary of Mellon
and an affiliate of Boston Advisors, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as the
Portfolio's custodian pursuant to a custody agreement. Under
the custody agreement, Boston Safe holds the Portfolio's
securities and keeps all necessary accounts and records. The
assets of the Portfolio are held under bank custodianship in
compliance with the 1940 Act.
TSSG, a subsidiary of First Data Corporation, is located
at Exchange Place, Boston, Massachusetts 02109, and pursuant to
a transfer agency agreement serves as the Portfolio's transfer
agent. Under the transfer agency agreement, TSSG maintains
the shareholder account records for the Portfolio, handles
certain communications between shareholders and the Portfolio,
and distributes dividends and distributions payable by the
Portfolio.
FINANCIAL STATEMENTS
The Portfolio sends unaudited semi-annual and audited
annual financial statements of the Portfolio to shareholders,
including a list of the investments held by the Portfolio.
The Portfolio's Annual Report for the fiscal year ended
May 31, 1994 is incorporated into this Statement of
Additional Information by reference in its entirety. A copy of
the Annual Report may be obtained from any Smith Barney
Financial Consultant or by calling or writing to the
Portfolio at the telephone number or address set forth on the
cover page of this Statement of Additional Information.
APPENDIX
DESCRIPTION OF MOODY'S, S&P AND FITCH RATINGS
Description of Moody's Municipal Bond Ratings:
Aaa - Bonds that are rated Aaa are judged to be of the
best quality, carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments
with respect to these bonds are protected by a large or by an
exceptionally stable margin, and principal is secure. Although
the various protective elements applicable to these bonds are
likely to change, those changes are most unlikely to impair the
fundamentally strong position of these bonds.
Aa - Bonds that are rated Aa are judged to be of high
quality by all standards and together with the Aaa group
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 other elements may be present that make the long-term risks
appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest with respect to these bonds are considered adequate,
but elements may be present that suggest a susceptibility to
impairment sometime in the future.
Baa - Bonds rated Baa are considered to be medium grade
obligations, that is they are neither highly protected nor
poorly secured. Interest payment and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. These bonds lack outstanding investment
characteristics and may have speculative characteristics as
well.
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 security 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.
Description of Moody's Municipal Note Ratings:
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade (MIG)
and for variable demand obligations are designated Variable
Moody's Investment Grade (VMIG). This distinction recognizes
the differences between short- and long-term credit risk.
Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows
of funds for their servicing or from established and broad-
based access to the market for refinancing, or both. Loans
bearing the designation MIG 2/VMIG 2 are of high quality, with
margins of protection ample, although not as large as the
preceding group. Loans bearing the designation MIG3/VMIG 3 are
of favorable quality, with all security elements accounted for
but lacking the undeniable strength of the preceding grades.
Market access for refinancing, in particular, is likely to be
less well established.
Description of Moody's Commercial Paper Ratings:
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-
term promissory obligations, normally evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser
degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
Description of S&P Municipal Bond Ratings:
AAA - These bonds are the obligations of the highest
quality and have the strongest capacity for timely payment of
debt service.
General Obligation Bonds Rated AAA - In a period of
economic stress, the issuers of these bonds will suffer the
smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue
structure appears more than adequate to meet future expenditure
requirements. Quality of management appears superior.
Revenue Bonds Rated A - Debt service coverage with
respect to these bonds has been, and is expected to remain,
substantial. Stability of the pledged revenues is also
exceptionally strong due to the competitive position of the
municipal enterprise or to the nature of the revenues. Basic
security provisions (including rate covenant, earnings test for
issuance of additional bonds, debt service reserve
requirements) are rigorous. There is evidence of superior
management.
AA - The investment characteristics of bonds in this
group are only slightly less marked than those of the prime
quality issues. Bonds rated AA have the second strongest
capacity for payment of debt service.
A - Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in high rated
categories. This rating describes the third strongest capacity
for payment of debt service.
General Obligation Bonds Rated A - There is some
weakness, either in the local economic base, in debt burden, in
the balance between revenues and expenditures, or in quality of
management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt
obligations at some future date.
Revenue Bonds Rated A - Debt service coverage is good,
but not exceptional. Stability of the pledged revenues could
show some variations because of increased competition or
economic influences on revenues. Basic security provisions,
while satisfactory, are less stringent. Management performance
appears adequate.
BBB - The bonds in this group are regarded as having an
adequate capacity to pay interest and repay principal. Whereas
bonds in this group normally exhibit adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than
in higher rated categories. Bonds rated BBB have the fourth
strongest capacity for payment of debt service.
S&P's letter ratings may be modified by the addition of a
plus or a minus sign, which is used to show relative standing
within the major rating categories, except in the AAA category.
Description of S&P Municipal Note Ratings:
Municipal notes with maturities of three years or less are
usually given note ratings (designated SP-1, -2 or -3) 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.
Description of S&P Commercial Paper Ratings:
Commercial paper rated A-1 by S&P indicates that the
degree of safety regarding timely payment is either
overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is
strong, but the relative degree of safety is not as high as
issues designated A-1.
Description of Fitch Municipal Bond Ratings:
AAA - Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit quality. The
obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA - Bonds rated AA by Fitch are considered to be
investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments,
short-term debt of these issues is generally rated F1+ by
Fitch.
A - Bonds rated A by Fitch are considered to be
investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher
ratings.
BBB - Bonds rated BBB by Fitch are considered to be
investment grade and of satisfactory credit quality. The
obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have
adverse consequences on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with
higher ratings.
Plus and minus signs are used by Fitch to indicate the
relative position of a credit within a rating category. Plus
and minus signs, however, are not used in the AAA category.
Description of Fitch Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that
are payable on demand or have original maturities of generally
up to three years, including commercial paper, certificates of
deposit, medium-term notes, and municipal and investment notes.
The short-term rating places greater emphasis than a long-
term rating on the existence of liquidity necessary to meet the
issuer's obligations in a timely manner.
Fitch's short-term ratings are as follows:
F-1+ - Issues assigned this rating are regarded as
having the strongest degree of assurance for timely payment.
F-1 - Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues
rated F-1+.
F-2 - Issues assigned this rating have a satisfactory
degree of assurance for timely payment but the margin of safety
is not as great as for issues assigned F-1+ and F-1 ratings.
F-3 - Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is
adequate, although near-term adverse changes could cause these
securities to be rated below investment grade.
LOC - The symbol LOC indicates that the rating is based
on a letter of credit issued by a commercial bank.
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements:
- Included in Part A:
* Financial Highlights
- Included in Part B:
* The Registrant's Annual Report for the
fiscal year ended May 31, 1994 and Report of
Independent Accountants dated July 13, 1994 are
incorporated by reference to the Definitive 30(b)2-1
filed on August 2, 1994 as Accession # 0000053798-94-
000381.
(2) Exhibits:
(a) (i) Articles of Incorporation*
(ii) Articles of Amendment to Articles of
Incorporation*
(b) (i) Bylaws of Registrant*
(ii) Amended Bylaws of Registrant*
(c) Not Applicable
(d) Specimen Certificate of Common Stock, par value
$.01 per share*
(e) Dividend Reinvestment Plan is filed herein.
(f) Not Applicable
(g) (i) Form of Investment Advisory Agreement between Registrant and
Shearson Lehman Advisors*
(ii) Form of Investment Advisory Agreement between Registrant and
Greenwich Street Advisors ****
(h) Form of Underwriting Agreement between Registrant and Shearson Lehman
Brothers Inc.**
(i) Not Applicable
(j) Form of Custody Agreement between Registrant and Boston Safe Deposit
and Trust Company*
(k) (i) Transfer Agency and Registrar Agreement between Registrant and
TSSG***
(ii) Administration Agreement between Registrant and
SBA to be filed by Amendment
(iii) Sub-administration Agreement between Registrant and
Boston Advisors to be filed by Amendment
(l) Not Applicable
(m) Not Applicable
(n) Consent of Independent Auditors is filed herein.
(o) Not Applicable
(p) Purchase Agreement between Registrant and Shearson Lehman
Brothers Inc.*
(q) Not Applicable
(r) Not Applicable
________________________________________
* Incorporated by reference to the Registrant's Pre-Effective Amendment No. 1
to its initial Registration Statement on Form N-2, Registration No. 33-47116,
filed with the SEC on May 14, 1992.
** Incorporated by reference to the Registrant's Pre-Effective Amendment No. 3
to its Registration Statement on Form N-2, Registration No. 33-47116, filed with
the SEC on June 18, 1992.
*** Incorporated by reference to the Registrant's Post-Effective Amendment No.
4 to its Registration Statement on Form N-2, Registration No. 33-47116,
filed with the SEC on August 4, 1993.
**** Incorporated by reference to the Registrant's Post-Effective
Amendment No. 5 to its Registration Statement on Form N-2, Registration No. 33-
47116, filed with the SEC on October 14, 1993.
Item 25. Marketing Arrangements
None
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the expenses to be incurred in
connection with the offering described in this Registration Statement:
Securities and Exchange Commission Fees $100
Printing and Engraving Expenses 45,000
Legal Fees 0
Accounting Expenses 0
Miscellaneous Expenses 0
Item 27. Persons Controlled by or Under Common Control
None
Item 28. Number of Holders of Securities
Number of
Record
Stockholders
as of
Title of Class September 16,
1994
Shares of Common Stock, par value
$0.01 per share 723
Item 29. Indemnification
Under Article VII of Registrant's Articles of Incorporation, any past
or present director or officer of Registrant is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably
incurred by him in connection with any action, suit or proceeding to which
he may be a party or otherwise involved by reason or his being or having
been a director or officer of Registrant. This provision does not
authorize indemnification when it is determined that the director or
officer would otherwise be liable to Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties. Expenses may be paid by Registrant in advance of
the final disposition of any action, suit or proceeding upon receipt of an
undertaking by a director or officer to repay those expenses to Registrant
in the event that it is ultimately determined that indemnification of the
expenses is not authorized under Registrant's Articles of Incorporation.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
See "Management of the Portfolio" in the Prospectus.
Mutual Management Corp. ("MMC"), a New York corporation, is a
registered investment adviser and is wholly owned by Smith Barney Inc.,
which in turn is wholly owned by The Travelers Inc. . MMC is
primarily engaged in the investment advisory business. Information as to
executive officers and directors of MMC is included in its Form ADV filed
with the SEC (Registration number 801-14437) and is incorporated herein by
reference.
Item 31. Location of Accounts and Records
Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10105
The Boston Company Advisors, Inc.
One Exchange Place
Boston, Massachusetts 02109.
The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Boston Safe Deposit and Trust Company
Wellington Business Center
One Cabot Road
Medford, Massachusetts 02155
Managed Municipals Portfolio Inc.
Two World Trade Center
New York, New York 10048
Item 32. Management Services
None
Item 33. Undertakings
1. Not Applicable
2. Not Applicable
3. Not Applicable
4. The Portfolio hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act");
(2) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(3) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(b) For the purpose of determining any liability under the Act, each
post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Not Applicable
5. The Fund hereby undertakes:
(a) Not Applicable
(b) for the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein and the offering of the securities at that time shall be deemed to
be the initial bona fide offering thereof.
6. The Portfolio undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional
Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, MANAGED MUNICIPALS PORTFOLIO INC., has duly caused this
Amendment to the Registration Statement on Form N-2 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 23rd day of September, 1994.
MANAGED MUNICIPALS PORTFOLIO INC.
By: /s/ Heath B. McLendon
Heath B. McLendon
Chief Executive Officer
We, the undersigned, hereby severally constitute and appoint Heath B.
McLendon, Francis J. McNamara, III and Lee D. Augsburger, and each of them
singly, our true and lawful attorneys, with full power to them, to sign for
us, and in our hands and in the capacities indicated below, any and all
Post-Effective Amendments to this Registration Statement and to file the
same, with all exhibits thereto, and other documents therewith, with the
Securities and Exchange Commission, granting unto said attorneys, and each
of them, acting alone, full power to do and perform each and every act and
thing requisite or necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys or any of them may lawfully do or
cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
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 Chairman of the Board 9/23/94
Chief Executive Officer
Signature Title Date
/s/ Lewis E. Daidone
Lewis E. Daidone Treasurer (Chief Financial 9/23/94
and Accounting Officer)
/s/ Charles F. Barber
Charles F. Barber Director 9/23/94
/s/ Allan J. Bloostein
Allan J. Bloostein Director 9/23/94
/s/ Martin Brody
Martin Brody Director 9/23/94
/s/ Dwight B. Crane
Dwight B. Crane Director 9/23/94
/s/ Robert A. Frankel
Robert A. Frankel Director 9/23/94
C-6
Shearson/Funds/mmu/partc.doc
g:/shared/domestic/clients/shearson/funds/mmu/partc.doc
EXHIBIT E
MANAGED MUNICIPALS PORTFOLIO INC.
TERMS AND CONDITIONS OF
DIVIDEND REINVESTMENT PLAN
1. Each holder of shares (a "Shareholder") of common stock in
Managed Municipals Portfolio Inc. (the "Portfolio") will automatically be a
participant ("Participant") in the Dividend Reinvestment Plan (the "Plan"),
unless any such Shareholder specifically elects to receive all dividends
and capital gains in cash paid by check mailed directly to the Shareholder.
A Shareholder whose shares are registered in the name of a broker-dealer or
other nominee (the "Nominee") will be a Participant if (a) such a service
is provided by the Nominee and (b) the Nominee makes an election on behalf
of the Shareholder to participate in the Plan. Smith Barney Inc. intends
to make such an election on behalf of Shareholders whose shares are
registered in its name, as Nominee, unless a Shareholder specifically
instructs his or her broker to pay dividends and capital gains in cash.
The Shareholder Services Group, Inc. (the "Agent") will act as agent for
Participants and will open an account under the Plan for each Participant
in the same name as such Participant's common stock is registered on the
books and records of the transfer agent for the common stock.
2. Whenever the Portfolio declares a capital gains distribution or
an income dividend payable in shares of common stock or cash, Participants
will receive such distribution or dividend in the manner described in
paragraph 3 below.
3. Whenever the market price of the Portfolio's common stock is
equal to or exceeds the net asset value per share at the time shares of
common stock are valued for the purpose of determining the number of shares
equivalent to the cash dividend or capital gains distribution, Participants
will be issued shares of common stock valued at the greater of (i) the net
asset value per share most recently determined or (ii) 95% of the then
current market price. Participants will receive any such distribution or
dividend entirely in shares of common stock, and the Agent shall
automatically receive such shares of common stock, including fractions, for
all Participants' accounts. If the net value per share of the common stock
at the time of valuation exceeds the market price of the common stock, or
if the Portfolio should declare a dividend or capital gains distribution
payable only in cash, a broker-dealer not affiliated with Smith Barney
will, as purchasing agent (the "Purchasing Agent") for the Participants,
buy shares of common stock in the open market, on the New York Stock
Exchange (the "Exchange") or elsewhere, for each Participant's account.
If, following the commencement of such purchases and before the Agent has
completed its purchases, the market price exceeds the net asset value per
share, the average per share purchase price paid by the Agent may exceed
the net asset value of the common stock, resulting in the acquisition of
fewer shares of common stock than if the dividend or capital gains
distribution had been paid in common stock issued by the Portfolio at net
asset value per share. Additionally, if the market price exceeds the net
asset value of shares before the Agent has completed its purchases, the
Agent is permitted to cease purchasing shares and the Portfolio may issue
the remaining shares at a price equal to the greater of (a) net asset value
or (b) 95% of the then current market price. In a case where the Agent has
terminated open market purchases and the Portfolio has issued the remaining
shares, the number of shares received by the Participant in respect of the
cash dividend or distribution will be based on the weighted average of
prices paid for shares purchased in the open market and the price at which
the Portfolio issues remaining shares.
The Agent will apply all cash received as a dividend or capital
gains distribution to purchase shares of common stock on the open market as
soon as practicable after the payment date of such dividend or capital
gains distribution, but in no event later than 30 days after such date,
except where necessary to comply with applicable provisions of the Federal
securities laws.
Notwithstanding the preceding paragraph, the Agent may begin to
purchase shares of common stock on the open market as soon as practicable
after the record date with respect to a dividend or distribution and retain
any such shares purchased in its own account until the payment date, at
which time such shares would be placed in each Participant's account on a
pro rata basis. No such shares shall be deemed to be purchased for any
Participant until the payment date therefor. All or a portion of the cash
received as a dividend or capital gains distribution will be used to
reimburse the Agent for the cost of the shares of common stock so
purchased, and the remainder of the cash, if any, will be used in
accordance with the immediately preceding paragraph.
4. For all purposes of the Plan: (a) the market price of the
Portfolio's common stock on a particular date shall be the last sale price
on the Exchange at the close of the previous trading day or, if there is no
sale on the Exchange on the date, then the mean between the closing bid and
asked quotations for such common stock on the Exchange on such date, (b)
net asset value per share of common stock on a particular date shall be as
determined by or on behalf of the Portfolio, and (c) the valuation date for
a distribution or dividend shall be the record date for such distribution
or dividend.
5. The open market purchases provided for above may be made
on any securities exchange where the shares of common stock of the
Portfolio are traded, in the over-the-counter market or in negotiated
transactions and may be on such terms as to price, delivery and otherwise
as the Purchasing Agent shall determine. Funds held by the Purchasing
Agent uninvested will not bear interest, and it is understood that, in any
event, the purchasing agent shall have no liability in connection with any
inability to purchase shares of common stock within 30 days after the
payment date as herein provided, or with the timing of any purchases
effected. The Purchasing Agent shall have no responsibility as to the
value of the shares of common stock of the Portfolio acquired for any
Participant's account.
6. Except as provided in the ultimate paragraph of paragraph
3 hereof, the Agent will hold shares of common stock acquired pursuant to
the Plan in noncertificated form in the Participant's name. The Agent will
forward to each Participant any proxy solicitation material and will vote
any shares of common stock so held for each Participant only in accordance
with the proxy returned by any such Participant to the Portfolio. Upon any
Participant's written request, the Agent will deliver to her or him,
without charge, a certificate or certificates for the full shares of common
stock.
7. The Agent will confirm to each Participant acquisitions
made for her or his account as soon as practicable but not later than 60
days after the date thereof. Although a Participant may from time to time
have an undivided fractional interest (computed to three decimal places) in
a share of common stock of the Portfolio, no certificates for fractional
shares will be issued. However, dividends and distributions on fractional
shares of common stock will be credited to Participants' accounts. In the
event of termination of a Participant account under the Plan, the Agent
will adjust for any such undivided fractional interest in cash at the
market value of the shares of common stock at the time of termination.
8. Any stock dividends or split shares distributed by the
Portfolio on shares of common stock held by the Agent for any Participant
will be credited to such Participant's account. In the event that the
Portfolio makes available to Participants rights to purchase additional
shares of common stock or other securities, the Agent will sell such rights
and apply the proceeds of the sale to the purchase of additional shares of
common stock of the Portfolio for the account of Participants.
9. The Agent's service for handling capital gains
distributions or income dividends will be paid by the Portfolio.
Participants will be charged a pro rata share of brokerage commissions on
all open market purchases.
10. Any Participant may withdraw shares from such
Participant's account or terminate such Participant's account under the
Plan by notifying the Agent in writing. Such withdrawal or termination
will be effective immediately if notice is received by the Agent not less
than 10 days prior to any dividend or distribution record date; otherwise
such withdrawal or termination will be effective, with respect to any
subsequent dividend or distribution, on the first trading day after the
dividends paid for such record date have been credited to the Participant's
account. The Plan may be terminated by the Agent or the Portfolio upon
notice in writing mailed to each Participant at least 30 days prior to any
record date for the payment of any dividend or distribution by the
Portfolio. Upon any withdrawal or termination, the Agent will cause to be
delivered to each Participant a certificate or certificate for the
appropriate number of full shares and a cash adjustment for any fractional
share (valued at the market value of the shares at the time of withdrawal
or termination); provided, however, that any Participant may elect by
notice to the Agent in writing in advance of such termination to have the
Agent sell part or all of the shares in question and remit the proceeds to
such Participant, net of any brokerage commissions. A $5.00 fee will be
charged by the Agent upon any cash withdrawal or termination, and the Agent
is authorized to sell a sufficient number of the Participant's shares to
cover such fee and any brokerage commission on such sale.
11. These terms and conditions may be amended or supplemented
by the Agent or the Portfolio at any time or times but, except when
necessary or appropriate to comply with applicable law or the rules or
policies of the Securities and Exchange Commission or any other regulatory
authority, only by mailing to each Participant appropriate written notice
at least 30 days prior to the effective date thereof. The amendment or
supplement shall be deemed to be deemed to be accepted by each Participant
unless, with respect to any such Participant, prior to the effective date
thereof, the Agent receives written notice of the termination of that
Participant's account under the Plan. Any such amendment may include an
appointment by the Agent in its place and stead of a successor Agent under
these terms and conditions, with full power and authority to perform all or
any of the acts to be performed by the Agent under these terms and
conditions. Upon any such appointment of an Agent for the purpose of
receiving dividends and distributions, the Portfolio will be authorized to
pay to such successor Agent, for Participants' accounts, all dividends and
distributions payable on the shares of common stock held in each
Participant's name or under the Plan for retention or application by such
successor Agent as provided in these terms and conditions.
12. The Agent shall at all times act in good faith and agree
to use its best efforts within reasonable limits to ensure the accuracy of
all services performed under this agreement and to comply with applicable
law, but assumes no responsibility and shall not be liable for loss or
damage due to errors unless such error is caused by its or its employees'
negligence, bad faith or willful misconduct.
13. The Participant shall have no right to draw checks or
drafts against such Participant's account or to give instructions to the
Plan Agent in respect of any shares or cash held therein except as
expressly provided herein.
14. The Participant agrees to notify the Plan Agent promptly
in writing of any change of address. Notices to the Participant may be
given by he Plan Agent by letter addressed to the Participant as shown on
the records of the Plan Agent.
15. This Agreement and the account established hereunder for
the Participant shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts and the Rules and Regulations of
the Securities and Exchange Commission, as they may be changed or amended
from time to time.
Dated: _______________, 1994
shared/domestic/clients/shearson/funds/mmu/drip3.doc
EXHIBIT N
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Managed Municipals Portfolio Inc.:
We hereby consent to the following with respect to Post-
Effective Amendement No. 6 to the Registration Statement on Form N-
2 (File No. 33-47116) under the Securities Act of 1933, as amended,
of Managed Municipals Portfolio Inc.:
1. The incorporation by reference of our report dated July
13, 1994 accompanying the financial statements of
Mananged Municipals Portfolio Inc. as of
May 31, 1994, 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 "Independent
Public Accountants" in the Statement of Additional
Information.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 27, 1994
g:\shared\domestic\clients\shearson\funds\mmu\consent1.doc
