As filed with the Securities and Exchange Commission on September 30, 1996
Securities Act Registration No. 33-47116
Investment Company Act Registration No. 811-6629
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.___
Post-Effective Amendment No. 7 x
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 8 x
__________________
Managed Municipals Portfolio Inc.
(a Maryland Corporation)
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
(212) 723-9218
(Registrant's Telephone Number, including Area Code)
Christina T. Sydor, Secretary
Managed Municipals Portfolio Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
_____________________
Copies 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 securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box. x_______________
This Registration Statement relates to the registration of an
indeterminate number of shares solely for market-making transactions.
Pursuant to Rule 429, this Registration Statement relates to shares previously
registered on Form N-2. (Registration No. 33-47116).
It is proposed that this fiing will become effective: x when declared
effective pursuant to section 8(c).
Registrant amends this Registration Statement under the Securities Act
of 1933, as amended, on such date as may be necessary to delay its effective
date until Registrant files a further amendment that specifically states that
this Registration Statement will thereafter become effective in accordance
with the provisions of Section 8(a) of the Securities Act of 1933, as amended,
or until the Registration Statement becomes effective on such date as the
Securities and Exchange Commission, acting pursuant to Section 8(a), may
determine.
MANAGED MUNICIPALS PORTFOLIO INC.
Form N-2
Cross Reference Sheet
Part A
Item No. Caption Prospectus Caption
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; Fund
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
Objectives and Policies; Description of
Common Stock; Share Price Data; Net Asset
Value; Certain Provisions of of the Articles
of Incorporation; Appendix.
9. Management Management of the Portfolio;
Description of
Common Stock; Custodian and
Transfer Agent
10. Capital Stock, Long-Term Debt, and Other
Securities Taxation; Dividend
Reinvestment Plan;
Dividends and Distributions;
Description of Common Stock; Share
Price Data
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
Part B Statement of Additional
Item No. Information Caption
14. Cover Page Cover Page
15. Table of Contents Cover Page
16. General Information and
History................................................ The Portfolio;
Description of Common Stock (see
Prospectus)
17. Investment Objective and Policies Investment Objective and
Policies; Invest-
ment Restrictions
18.
Management.................................................................
.............. Management of the Portfolio;
Directors and Executive Officers of
the Portfolio
19. Control Persons and Principal Holders of
Securities Not Applicable
20. Investment Advisory and Other Services Management of the Portfolio
21. Brokerage Allocation and Other Practices Portfolio Transactions
22. Tax Status Taxes; Taxation (see
Prospectus)
23. Financial Statements Financial Statements
Part C
Item No.
Information required to be included in Part C is set forth, under
the appropriate item so numbered, in Part C of this Registration
Statement.
<PAGE>
Managed Municipals Portfolio Inc.
PROSPECTUS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
388 Greenwich Street
New York, New York 10013
(212) 723-9218
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 invest-
ment objective, invest substantially all of its assets in long-term, investment
grade obligations issued by state and local governments, political subdivi-
sions, agencies and public authorities ("Municipal Obligations"). For a discus-
sion of the risks associated with certain of the Portfolio's investments, see
"Investment Objective and Policies."
This Prospectus sets forth concisely the information about the Portfolio that
a prospective investor ought to know before investing and should be retained
for future reference. A Statement of Additional Information dated September 30,
1996 containing additional information about the Portfolio has been filed with
the Securities and Exchange Commission and is hereby incorporated by reference
in its entirety into this Prospectus. A copy of the Statement of Additional
Information, the table of contents of which appears on page 26 of this Prospec-
tus, may be obtained without charge by calling or writing to the Portfolio at
the telephone number or address set forth above or by contacting a Smith Barney
Financial Consultant.
(Continued on page 2)
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.
1
<PAGE>
PROSPECTUS (CONTINUED)
This Prospectus sets forth concisely the information about the Portfolio that
a prospective investor ought to know before investing and should be retained
for future reference. A Statement of Additional Information dated September 30,
1996 containing additional information about the Portfolio has been filed with
the Securities and Exchange Commission and is hereby incorporated by reference
in its entirety into this Prospectus. A copy of the Statement of Additional
Information, the table of contents of which appears on page 26 of this Prospec-
tus, may be obtained without charge by calling or writing to the Portfolio at
the telephone number or address set forth above or by contacting a Smith Barney
Financial Consultant.
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 Bar-
ney. 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 Port-
folio 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 for future reference. A Statement of Additional
Information ("SAI") dated September 30, 1996 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 26 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.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 4
- ------------------------------------------------------------
PORTFOLIO EXPENSES 7
- ------------------------------------------------------------
FINANCIAL HIGHLIGHTS 8
- ------------------------------------------------------------
THE PORTFOLIO 9
- ------------------------------------------------------------
THE OFFERING 9
- ------------------------------------------------------------
USE OF PROCEEDS 9
- ------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 9
- ------------------------------------------------------------
SHARE PRICE DATA 17
- ------------------------------------------------------------
TAXATION 17
- ------------------------------------------------------------
MANAGEMENT OF THE PORTFOLIO 19
- ------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN 20
- ------------------------------------------------------------
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND
MARKET DISCOUNT 23
- ------------------------------------------------------------
DESCRIPTION OF COMMON STOCK 25
- ------------------------------------------------------------
CUSTODIAN AND TRANSFER AGENT 26
- ------------------------------------------------------------
EXPERTS 26
- ------------------------------------------------------------
FURTHER INFORMATION 26
- ------------------------------------------------------------
APPENDIX A A-1
- ------------------------------------------------------------
APPENDIX B B-1
- ------------------------------------------------------------
</TABLE>
3
<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.
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 prin-
cipal. 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 sharehold-
ers 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."
LISTING NYSE
SYMBOL MMU
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.
INVESTMENT MANAGER Greenwich Street Advisors, a division of Smith Barney
Mutual Funds Management Inc. ("SBMFM"), serves as the Portfolio's investment
Manager (the "Investment Manager"). The Investment Manager provides investment
advisory and management services to investment companies affiliated with Smith
Barney. Smith Barney is a wholly owned subsidiary of Smith Barney Holdings
Inc. ("Holdings"), which is in turn a wholly owned subsidiary of Travelers
Group Inc. ("Travelers"). Subject to the supervision and direction of the
Portfolio's Board of Directors, the Investment Manager 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
professional portfolio managers. SBMFM acts as administrator of the Portfolio
and in that capacity provides certain administrative services, including over-
seeing the Portfolio's non-investment operations and its relations with other
service providers and providing executive and other officers to the Portfolio.
The Portfolio pays the Investment Manager a fee
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
("Management Fee") for services provided to the Fund that is computed daily
and paid monthly at the aggregate annual rate of 0.90% of the value of the
Portfolio's average daily net assets. The Portfolio will bear other expenses
and costs in connection with its operation in addition to the costs of invest-
ment management services. See "Management of the Portfolio--Investment Manag-
er."
CUSTODIAN PNC Bank, National Association ("PNC Bank") serves as the Portfo-
lio's custodian. See "Custodian and Transfer Agent."
TRANSFER AGENT First Data Investor Services Group, Inc. ("First Data"), serves
as the Portfolio's transfer agent, dividend-paying agent and registrar. See
"Custodian and Transfer Agent."
DIVIDENDS AND DISTRIBUTIONS The Portfolio expects to pay monthly dividends of
net investment income (income other than net realized capital gains) and to
distribute net realized capital gains, if any, annually. All dividends or dis-
tributions with respect to shares of Common Stock are reinvested automatically
in additional shares through participation in the Portfolio's Dividend Rein-
vestment Plan, unless a shareholder elects to receive cash. See "Dividend
Reinvestment Plan."
MARKET DISCOUNT Shares of common stock of closed-end investment companies fre-
quently trade at a discount from net asset value, or in some cases trade at a
premium. Shares of closed-end investment companies investing primarily in
fixed income securities tend to trade on the basis of income yield on the mar-
ket price of the shares and the market price may also be affected by trading
volume, general market conditions and economic conditions and other factors
beyond the control of the Portfolio. As a result, the market price of the
Portfolio's shares may be greater or less than the net asset value. Since the
commencement of the Portfolio's operations, the Portfolio's shares have traded
in the market at prices that were at times equal to, but generally below, net
asset value..
Some closed-end companies have taken certain actions, including the repur-
chase of common stock in the market at market prices and the making of one or
more tender offers for common stock at net asset value, in an effort to reduce
or mitigate the discount, and others have converted to an open-end investment
company, the shares of which are redeemable at net asset value.
The Portfolio's Board of Directors has seen no reason to adopt any of the
steps, which some other closed-end funds have used to address the discount. In
addition, the experience of many closed-end funds suggests that the effect of
many of these steps (other than open-ending) on the discount may be temporary
or insignificant. Accordingly, there can be no assurance that any of these
actions will be taken or, if undertaken, will cause the Portfolio's shares to
trade at a price equal to their net asset value.
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 obliga-
tions 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 mar-
kets for many of them may not exist; this lack of markets may affect the Port-
folio'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 invest-
ment techniques that the Portfolio may employ, might expose the Portfolio to
special risks. The instruments presenting the Portfolio with risks are munici-
pal leases, zero coupon securities, custodial receipts, municipal obligation
components, floating and variable rate demand notes and bonds, and participa-
tion 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 sub-
ject to greater risk than a diversified fund with respect to its holdings of
securities. See "Investment Objective and Policies" and "Risk Factors and Spe-
cial Considerations."
The combined annual rate of fees paid by the Portfolio for advisory and
administrative services, 0.90% of the value of the Portfolio's average daily
net assets, is higher than the rates for similar services paid by other pub-
licly offered, closed-end, management investment companies that have invest-
ment 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
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Portfolio and of depriving shareholders of an opportunity to sell their shares
of Common Stock at a premium over prevailing market prices. See "Certain Provi-
sions of the Articles of Incorporation."
PORTFOLIO EXPENSES
The following tables are intended to assist investors in understanding the
various costs and expenses associated with investing in the Portfolio.
<TABLE>
- ------------------------------------------------------------------------
<S> <C>
ANNUAL EXPENSES
(as a percentage of net assets attributable to Common Stock)
Management Fees .90%
Other Expenses* .10
- ------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.00%
- ------------------------------------------------------------------------
</TABLE>
* "Other Expenses," as shown above are based upon amounts for the fiscal year
ending May 31, 1996.
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 example should not be considered a representation of future expenses of
the Portfolio and actual expenses may be greater or less than those shown.
Moreover, while the example assumes a 5% annual return, the Portfolio's perfor-
mance will vary and may result in a return greater or less than 5%. In addi-
tion, while the example assumes reinvestment of all dividends and distributions
at net asset value, participants in the Portfolio's Dividend Reinvestment Plan
may receive shares purchased or issued at a price or value different from net
asset value. See "Dividend Reinvestment Plan."
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the year ended May 31, 1996 has been audited by
KPMG Peat Marwick, LLP independent accountants whose report thereon appears in
the Fund's Annual Report dated May 31, 1996. The following information for the
fiscal years ended May 31, 1993 through May 31, 1995 has been audited by
Coopers & Lybrand LLP. This information should be read in conjunction with the
financial statements and related notes that also appear in the Fund's Annual
Report, which is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
5/31/96 5/31/95 5/31/94 5/31/93*
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $12.55 $12.26 $13.00 $12.00
Net investment income 0.67 0.72 0.67 0.63
Net realized and unrealized
gain/loss on investments (0.35) 0.49 (0.23) 0.97
Net increase in net assets resulting
from operations 0.32 1.21 0.44 1.60
- -------------------------------------------------------------------------------
Offering cost charged to paid-in
capital -- -- -- (0.02)
- -------------------------------------------------------------------------------
DISTRIBUTIONS:
Dividends from net investment income (0.75) (0.67) (0.67) (0.55)
Distributions from net realized
capital gains (0.01) (0.25) (0.51) (0.03)
- -------------------------------------------------------------------------------
Total distributions (0.76) (0.92) (1.18) (0.58)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.11 $12.55 $12.26 $13.00
MARKET VALUE, END OF PERIOD 11.69 11.50 11.50 12.25
- -------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN 2.79% 8.40% 2.27% 7.02%
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $417,924 $432,920 $422,792 $443,938
ratio of operating expenses to
average net assets 1.00% 1.02% 1.00% 0.98%**
Ratio of net investment income to
average net assets 5.35 5.97 5.15 5.48**
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 45% 93% 72% 169%
- -------------------------------------------------------------------------------
</TABLE>
* For the period from June 26, 1992 (Commencement of
operations) to May 31, 1993.
** Annualized.
+ Total is not annualized, as it may not be representative of the total
return for the year.
8
<PAGE>
THE PORTFOLIO
The Portfolio is organized as 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 388 Greenwich St. New York, New York 10013. The Portfolio's telephone number
is (212) 723-9218.
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 Bar-
ney in connection with its secondary market operations and for general corpo-
rate 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 sub-
ject to a fundamental investment policy providing that, under normal condi-
tions, 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 Obli-
gations 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
9
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
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 descrip-
tion 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 Obliga-
tions rated Baa by Moody's, for example, are considered medium grade obliga-
tions that lack outstanding investment 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 Obliga-
tions 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 liabil-
ity 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 Portfo-
lio'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-gov-
ernmental users, and would be subject to the Portfolio's 25% industry limita-
tion. 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 in issuers located in the same state, it would be more suscep-
tible to adverse economic, business or regulatory conditions in that state.
10
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
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 inter-
est. 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 spe-
cial excise tax or other specific revenue source, but not from the general tax-
ing power. Notes are short-term obligations of issuing municipalities or agen-
cies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal Obligations bear fixed, floating and vari-
able rates of interest, and variations exist in the security of Municipal Obli-
gations, 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 vari-
ety of factors, including general economic and monetary conditions, money mar-
ket factors, conditions in the Municipal Obligation markets, size of a particu-
lar offering, maturity of the obligation and rating of the issue. Consequently,
Municipal Obligations with the same maturity, coupon and rating may have dif-
ferent 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 exemp-
tion 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, insol-
vency 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 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 Munici-
pal 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 achiev-
ing its investment objective.
11
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
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 PNC Bank 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 Port-
folio'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 specified price. Each exer-
cise 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 commit-
ments 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 con-
tracts that are traded on a U.S. exchange or board of trade. The futures con-
tracts or options on futures contracts that may be entered into by the Portfo-
lio 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 Com-
modity 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
12
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
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 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 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 affiliates 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 PNC Bank 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 pur-
chase 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 secu-
rity 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 under-
lying 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 and time, thereby determining the yield during the Portfo-
lio'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
13
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
required to maintain the value of the securities subject to repurchase agree-
ment 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 off-
set by the effects of federal income tax on income derived from taxable securi-
ties. 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 Obliga-
tions 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 secu-
rities 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 Munici-
pal Obligations may be obligated to redeem the obligations at face value,
issuer of certain Municipal Obligations may be obligated to redeem the obliga-
tions 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 pay-
ments of interest and principal may be adversely affected in general economic
downturns and as relative governmental cost burdens are allocated and reallo-
cated 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-pay-
ment 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
14
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
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 obliga-
tions frequently contain non-appropriation clauses that provide that the gov-
ernmental issuer of the obligation need not make future payments under the
lease or contract unless money is appropriated for that purpose by a legisla-
tive body annually or on another periodic basis. Moreover, although a municipal
lease typically will be secured by financed equipment or facilities, the dispo-
sition 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 con-
tract. 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
15
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
hedge may not be fully effective because, for example, losses on the securi-
ties 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 secu-
rities 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 clas-
sified 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 obliga-
tions 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.
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 invest-
ments. 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 securi-
ties. 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.
16
<PAGE>
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 Portfo-
lio'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
5/31/95 12.41 11.250 -9.35 12.32 10.63 -13.72
8/31/95 12.42 12.250 -1.37 12.49 11.50 -7.93
11/30/95 12.67 12.625 -0.36 12.30 11.625 -5.49
2/28/96 12.83 12.625 -1.60 12.62 11.875 -5.90
5/31/96 12.68 12.250 -3.39 12.11 11.125 -8.13
8/31/96 12.28 12.000 -2.28 11.97 11.375 -4.97
- --------------------------------------------------------------------
</TABLE>
* The Portfolio commenced operations on June 26, 1992.
As of September 3, 1996, the price of Common Stock as quoted on the NYSE was
$11.63, representing a -3.33% discount from the Common Stock's net asset value
calculated on that day.
TAXATION
The following is a summary of the material federal tax considerations affect-
ing 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 "regu-
lated 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
17
<PAGE>
TAXATION (CONTINUED)
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 sharehold-
ers 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 share-
holders 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 indi-
vidual and corporate alternative minimum taxes and (2) the receipt of divi-
dends and distributions from the Portfolio may affect a corporate sharehold-
er's federal "environmental" tax liability. The receipt of dividends and dis-
tributions 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 rep-
resents 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 "sub-
stantial 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.
A shareholder of the Portfolio receiving dividends or distributions in addi-
tional 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 calender 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 real-
ize 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
shareholders's hands and will be a
18
<PAGE>
TAXATION (CONTINUED)
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 disal-
lowed 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 replace-
ment 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 divided 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 sub-
ject to "backup withholding," the shareholder may be subject to a 31% "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.
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, custodian
and transfer agent. The day-to-day operations of the Portfolio are delegated to
the Portfolio's investment adviser and administrator. The SAI contains back-
ground information regarding each Director and executive officer of the
Portfolio.
INVESTMENT MANAGER
SBMFM, through its Greenwich Street Advisors division, located at 388 Green-
wich Street, New York, New York 10013, serves as the Portfolio's investment
manager. 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 in excess of [$50 billion.]
19
<PAGE>
MANAGEMENT OF THE PORTFOLIO (CONTINUED)
Subject to the supervision and direction of the Portfolio's Board of Direc-
tors, 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 ana-
lysts who provide research services to the Portfolio. The Portfolio pays Green-
wich Street Advisors a fee for services provided to the Portfolio that is com-
puted daily and paid monthly at the annual rate of 0.70% of the value of the
Portfolio's average daily net assets. In addition, SBMFM serves as administra-
tor and is paid a fee by the Portfolio that is computed daily and paid monthly
at the annual rate of 0.20% 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 judgement. 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, sta-
tistical or other services to enable Greenwich Street Advisors to supplement
its own research and analysis with the views and information of other securi-
ties 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 opera-
tions in 1992 and manages the day to day operations of the Portfolio, including
making all investment decisions. Mr. Deane is an Investment Officer of SBMFM
and is the senior asset manager for a number of investment companies and other
accounts investing in tax-exempt securities.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
The Portfolio expects to pay monthly dividends of substantially all 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 that reflects the past and projected perfor-
mance of the Portfolio, which
20
<PAGE>
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN (CONTINUED)
policy over time will result in the distribution of all net investment income
of the Portfolio. Net income of the Portfolio consists of all interest income
accrued on the Portfolio's assets less all expenses 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. Net income available
for distribution will also be reduced by dividends on any preferred stock.
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 dis-
tributions from the Portfolio reinvested automatically by First Data 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 nomi-
nee (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 Portfo-
lio 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 First Data 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 par-
ticipants 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, First Data will
buy Common Stock in the open market, on the NYSE or elsewhere, for the partici-
pants' accounts. If, following the commencement of the purchases and before
First Data has completed its purchases, the market price exceeds the net asset
value of the Common Stock, First Data will attempt to terminate purchases in
the open market and cause the Portfolio to issue the remaining dividend or dis-
tribution 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
price at which the Portfolio issues the remaining shares. To the extent First
Data is unable to stop open market purchases
21
<PAGE>
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN (CONTINUED)
and cause the Portfolio to issue the remaining shares, the average per share
purchase price paid by First Data 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 Portfo-
lio at net asset value. First Data 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 pay-
ment date therefor, except when necessary to comply with applicable provisions
of the federal securities laws.
First Data maintains all shareholder accounts in the Plan and furnishes writ-
ten confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvest-
ment of dividends and capital gains distributions will not relieve Plan partic-
ipants of any income tax that may be payable on the dividends or capital gains
distributions. Common Stock in the account of each Plan participant will be
held by First Data 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 cap-
ital gains distributions. First Data'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 or Common Stock issued directly
by the Portfolio as a result of dividends or capital gains distributions pay-
able 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 termi-
nated by First Data, 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 First Data Investor Services Group, One
Exchange Place, Boston, Massachusetts 02109 or by telephone at (617) 573-9300.
22
<PAGE>
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND MARKET DISCOUNT
ANTI-TAKEOVER PROVISIONS
The Fund presently has provisions in its Articles of Incorporation and Bylaws
(commonly referred to as "anti-takeover" provisions) which may have the effect
of limiting the ability of other entities or persons to acquire control of the
Fund, to cause it to engage in certain transactions or to modify its structure.
The Board of Directors is classified into three classes, each with a term of
three years with only one class of directors standing for election in any year.
Such classification may prevent replacement of a majority of the directors for
up to a two year period. Directors may be removed from office only for cause by
vote of at least 75% of the shares entitled to be voted on the matter. In addi-
tion, unless 70% of the Board of Directors approves the transaction, the affir-
mative vote of the holders of at least 75% of the shares will be required to
authorize the Fund's conversion from a closed-end to an open-end investment
company, or generally to authorize any of the following transactions: (i) merg-
er, consolidation or share exchange of the Fund with or into any other corpora-
tion; (ii) dissolution or liquidation of the Fund; (iii) sale, lease, exchange
or other disposition of all or substantially all of the assets of the Fund;
(iv) change in the nature of the business of the Fund so that it would cease to
be an investment company registered under the 1940 Act; or (v) sale, lease or
exchange to the Fund, in exchange for securities of the Fund, of any assets of
any entity or person (except assets having an aggregate fair market value of
less than $1,000,000). The affirmative vote of at least 75% of the shares will
be required to amend the Articles of Incorporation or Bylaws to change any of
the foregoing provisions.
The percentage votes required under these provisions, which are greater than
the minimum requirements under Maryland law or the 1940 Act, will make more
difficult a change in the Fund's business or management and may have the effect
of depriving shareholders of an opportunity to sell shares at a premium over
prevailing market prices by discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar transaction. The Fund's Board
of Directors, however, has considered these anti-takeover provisions and
believes they are in the best interests of shareholders.
MARKET DISCOUNT
Shares of common stock of closed-end investment companies frequently trade at
a discount from net asset value, or in some cases trade at a premium. Shares of
closed-end investment companies investing primarily in fixed income securities
tend to trade on the basis of income yield on the market price of the shares
and the market price may also be affected by trading volume, general market
conditions and economic conditions and other factors beyond the control of the
Fund. As a
23
<PAGE>
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND MARKET DISCOUNT
(CONTINUED)
result, the market price of the Fund's shares may be greater or less than the
net asset value. Since the commencement of the Portfolio's operations, the
Portfolio's shares have traded in the market at prices that were at times equal
to, but generally were below, net asset value.
Some closed-end companies have taken certain actions, including the repur-
chase of common stock in the market at market prices and the making of one or
more tender offers for common stock at net asset value, in an effort to reduce
or mitigate the discount, and others have converted to an open-end investment
company, the shares of which are redeemable at net asset value.
The Fund's Board of Directors has seen no reason to adopt any of the steps,
which some other closed-end funds have used to address the discount. In addi-
tion, the experience of many closed-end funds suggests that the effect of many
of these steps (other than open-ending) on the discount may be temporary or
insignificant. Accordingly, there can be no assurance that any of these actions
will be taken or, if undertaken, will cause the Fund's shares to trade at a
price equal to their net asset value.
The Portfolio presently has provisions in its Articles of Incorporation and
Bylaws (commonly referred to as "anti-takeover" provisions) which may have the
effect of limiting the ability of other entities or persons to acquire control
of the Portfolio, to cause it to engage in certain transactions or to modify
its structure.
The Board of Directors is classified into three classes, each with a term of
three years with only one class of directors standing for election in any year.
Such classification may prevent replacement of a majority of the directors for
up to a two year period. Directors may be removed from office only for cause by
vote of at least 75% of the shares entitled to be voted on the matter. In addi-
tion, unless 70% of the Board of Directors approves the transaction, the affir-
mative vote of the holders of at least 75% of the shares will be required to
authorize the Portfolio's conversion from a closed-end to an open-end invest-
ment company, or generally to authorize any of the following transactions:
(i) merger, consolidation or share exchange of the Portfolio with or into any
other corporation; (ii) dissolution or liquidation of the Portfolio; (iii)
sale, lease, exchange or other disposition of all or substantially all of the
assets of the Portfolio; (iv) change in the nature of the business of the Port-
folio so that it would cease to be an investment company registered under the
1940 Act; or (v) sale, lease or exchange to the Portfolio, in exchange for
securities of the Portfolio, of any assets of any entity or person (except
assets having an aggregate fair market value of less than $1,000,000). The
affirmative vote of at least 75% of the shares will be required to amend the
Articles of Incorporation or Bylaws to change any of the foregoing provisions.
24
<PAGE>
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND MARKET DISCOUNT
(CONTINUED)
The percentage votes required under these provisions, which are greater than
the minimum requirements under Maryland law or the 1940 Act, will make more
difficult a change in the Portfolio's business or management and may have the
effect of depriving shareholders of an opportunity to sell shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Portfolio in a tender offer or similar transaction. The
Portfolio's Board of Directors, however, has considered these anti-takeover
provisions and believes they are in the best interests of shareholders.
The Portfolio was incorporated under the laws of the State of Maryland on
June 24, 1994 by the Articles of Incorporation (the "Articles of Incorpora-
tion"). The Articles of Incorporation authorize issuance of the Common Stock.
The Articles of Incorporation provide that the Portfolio shall continue without
limitation of time.
DESCRIPTION OF COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
EXCLUSIVE OF SHARES
AMOUNT HELD HELD BY PORTFOLIO FOR
BY PORTFOLIO FOR ITS OWN ACCOUNT AS OF
TITLE OF CLASS AMOUNT AUTHORIZED ITS OWN ACCOUNT SEPTEMBER 3, 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock 500,0000,000 Shares 0 34,498,420.416
</TABLE>
No shares, other than those currently outstanding, are offered for sale pur-
suant to this Prospectus. All shares of Common Stock have equal non-cumulative
voting rights and equal rights with respect to dividends, assets and liquida-
tion. 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 Arti-
cles 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 sharehold-
ers), the Portfolio may decide not to hold annual meetings of shareholders.
The Portfolio has no current intention of offering additional shares, except
that additional shares may be issued under the Plan. See "Dividend Reinvestment
Plan." Other offerings of shares, if made, will require approval of the Portfo-
lio's Board of Directors and will be subject to the requirement of the 1940 Act
that
25
<PAGE>
DESCRIPTION OF COMMON STOCK (CONTINUED)
shares may not be sold at a price below the then current net asset value (ex-
clusive 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.
CUSTODIAN AND TRANSFER AGENT
PNC Bank, located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, acts as custodian of the Portfolio's investments. First Data, located
at 53 State Street, Boston, Massachusetts 02109, serves as agent in connection
with the Plan and serves as the Portfolio's transfer agent, dividend-paying
agent and registrar.
EXPERTS
The audited financial statements have been incorporated by reference in the
Statement of Additional Information in reliance upon the report of KPMG Peat
Marwick LLP, independent auditors, and upon the authority of said firm as
experts in accounting and auditing.
FURTHER INFORMATION
The Prospectus and the Statement of Additional Information do not contain
all of the information set forth in the Registration Statement that the Port-
folio has filed with the Securities and Exchange Commission. The complete Reg-
istration Statement may be obtained from the Securities and Exchange Commis-
sion upon payment of the fee prescribed by its Rules and Regulations.
The table of contents of the Statement of Additional Information is as fol-
lows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies (see in the Prospectus "Investment
Objectives and Policies" and "Appendix A")........................... 2
Management of the Portfolio (see in the Prospectus
"Management of the Portfolio")....................................... 13
Taxes (see in Prospectus "Taxation")................................... 18
Stock Purchase and Tenders (see in the Prospectus
"Stock Purchase and Tenders" and
"Description of Common Stock")....................................... 21
Additional Information (see in the Prospectus
"Custodian, Transfer Agent") ........................................ 25
Financial Statements................................................... 25
Appendix--Description of Moody's, S&P and Fitch Ratings................ 26
</TABLE>
26
<PAGE>
FURTHER INFORMATION (CONTINUED)
No person has been authorized to give any information or to make any repre-
sentations not contained in this Prospectus and, if given or made, the informa-
tion or representations must not be relied upon as having been authorized by
the Portfolio, the Portfolio's investment manager or Smith Barney. This Pro-
spectus does not constitute an offer to sell or a solicitation of an offer to
buy any security other than the shares of Common Stock offered by this Prospec-
tus, nor does it 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 the offer
or solicitation would be unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder will, under any circumstances, create any implication
that there has been no change in the affairs of the Portfolio since the date of
this Prospectus. If any material change occurs while this Prospectus is
required by law to be delivered, however, this Prospectus will be supplemented
or amended accordingly.
27
<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 pub-
lic 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 author-
ities. 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 facili-
ties. 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. Munici-
pal lease obligations are issued by state and local governments and authorities
to purchase land or various types of equipment and facilities. Although munici-
pal 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 Munici-
pal 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
A-1
<PAGE>
APPENDIX A (CONTINUED)
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 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-appropria-
tion or default will be limited solely to the repossession of the leased prop-
erty, 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 Munici-
pal 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 maturi-
ty), 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 sub-
ject 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 avail-
able to the Portfolio, Greenwich Street Advisors believes that limited invest-
ments 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 obliga-
A-2
<PAGE>
APPENDIX A (CONTINUED)
tions 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 princi-
pal 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 inter-
ests 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 cer-
tain 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 Port-
folio'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 guar-
antee 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 pay-
ments, principal payments or both on certain Municipal Obligations. The under-
writer of these certificates or receipts typically purchases Municipal Obliga-
tions 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 obliga-
A-3
<PAGE>
APPENDIX A (CONTINUED)
tion, 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 Portfo-
lio 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 obliga-
tion 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 peri-
odically 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 Com-
ponents from a fixed amount, the interest rate paid to Residual Component hold-
ers 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 Munic-
ipal Obligation having similar credit quality, redemption provisions and matu-
rity.
A-4
<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>
FEDERAL
MARGINAL TAX-EXEMPT RATE
TAXABLE INCOME RATE* 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
- -----------------------------------------------------------------------------
EQUIVALENT TAXABLE RATE
SINGLE JOINT -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 -
24,000 $ 0 - 40,100 15.0% 2.35% 3.53% 4.71% 5.88% 7.06% 8.24%
24,001 -
58,150 40,101 - 96,900 28.0 2.78 4.17 5.56 6.94 8.33 9.72
58,151 -
121,300 96,901 - 147,700 31.0 2.90 4.35 5.80 7.25 8.70 10.14
121,301 -
263,750 147,701 - 263,750 36.0 3.13 4.69 6.25 7.81 9.38 10.94
over 263,750 over 263,750 39.6 3.31 4.97 6.62 8.28 9.93 11.59
- -----------------------------------------------------------------------------
</TABLE>
* The Federal tax rates shown are those currently in effect for 1996. The
calculations assume that no income will be subject to the Federal alternative
minimum tax.
B-1
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF SMITH BARNEY]
A Member of TravelGroup [LOGO]
Managed
Municipals
Portfolio Inc.
COMMON STOCK
388 Greenwich Street
New York, New York 10013
FD01205 9/96
Managed Municipals Portfolio Inc.
388 Greenwich Street
New York, New York 10013
(212) 720-9218
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 30, 1996
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 30, 1996, 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.
PAGE
Investment Objective and Policies (see
in the Prospectus "Investment Objectives
and Policies" and "Appendix A")
2
Management of the Portfolio (see in the
Prospectus "Management of the
Portfolio")
13
Taxes (see in Prospectus "Taxation")
18
Stock Purchases and Tenders (see in the
Prospectus "Stock Purchase and Tenders"
and "Description of Common Stock")
21
Additional Information (see in the
Prospectus "Custodian, Transfer Agent")
25
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 Smith Barney
Mutual Funds Management Inc. ("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 objectives 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 MIGI 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-l 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: (I) 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 timer 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
fixtures contracts and options on interest rate fixtures 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 fixtures 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 fixture
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
fixtures 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
fixtures 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
fixtures 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 fixtures 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 fixtures
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 fixtures 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 fixtures 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 fixtures traders to substantial losses. In such
event it will not be possible to close a fixtures 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 fixtures 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 fixtures 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 fixtures 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 fixtures 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 fixtures 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 fixtures 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 fixtures 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 fixtures 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 fixtures 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 finds 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 obligation 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 is not 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 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 often-exempt securities. For
the fiscal years ended May 31, 1994, 1995 and 1996 the Portfolio's portfolio
turnover rate was 72%, 93% and 45%, 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 Investment Adviser
SBMFM Administrators
Smith Barney Distributor (Sponsor)
PNC Bank, N.A. Custodian
("PNC Bank")
First Data Investor Services Group, Inc. Transfer Agent
("First Data")
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, 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 and
SBMFM, 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
(63)
388 Greenwich Street
New York NY 10013
Chairman of the
Board,
Chief Executive
Officer
and Director
Managing Director of Smith
Barney; President of SBMFM;
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;
Director of PanAgora Asset
Management, Inc. and PanAgora
Asset Management Limited,
investment advisory
affiliates of Shearson Lehman
Brothers.
Charles Barber (79)
66 Glenwood Drive
Greenwich, CT 06830
Director
Consultant; formerly Chairman
of the Board, ASARCO
Incorporated.
Martin Brody (75)
HMK Associates
Three ADP Boulevard
Roseland, NJ 07068
Director
Retired Vice Chairman of the
Board of Restaurant
Associates Corp.; Director of
Jaclyn, Inc.
Allan J. Bloostein
(67)
27 West 67th Street
Apt. 5FW
New York, NY 10023
Director
Consultant; formerly Vice
Chairman of the Board of May
Department Stores Company;
Director of Crystal Brands,
Inc., Melville Corp., R.G.
Barry Corp. and Hechinger Co.
Dwight B. Crane (58)
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.
Name and Address
Positions Held
With the Fund
Principal Occupations
During Past 5 Years
Robert A. Frankel
(69)
102 Grand Street
Croton-on-Hudson,
New York, NY 10520
Director
Management Consultant;
formerly Vice President of
The Reader's Digest
Association, Inc.
William R.
Hutchinson (53)
Amoco Corp.
200 East Randolph
Drive
Chicago, IL 60601
Director
Vice President, Financial
Operations Amoco Corp.;
Director of Associated Banks
and Associated Bank Corp.
Jessica M.
Bibliowicz (36)
388 Greenwich Street
New York. NY 10013
President
Executive Vice President
ofSmith Barney Inc.; Chairman
and Chief Executive Officer
of SBMFM; prior to 1994,
Director of Sales and
Marketing for Prudential
Mutual Funds
Joseph P. Deane (40)
388 Greenwich Street
New York. NY 10013
Vice President and
Investment Officer
Investment Officer of SBMFM.
Prior to July 1993, Senior
Vice President and Managing
Director of Shearson Lehman
Advisors.
David Fare (34)
388 Greenwich Street
New York. NY 10013
Investment Officer
Vice President of SBMFM.
Prior to July 1993, Vice
President of Shearson Lehman
Advisors.
Lewis E. Daidone
(38)
388 Greenwich Street
New York, NY 10105
Senior Vice
President
and Treasurer
Managing Director of Smith
Barney; Director and Senior
Vice President of SBMFM.
Christina T. Sydor
(45)
388 Greenwich Street
New York, NY 10013
Secretary
Managing Director of Smith
Barney; General Counsel and
Secretary of SBMFM.
________________________________
* 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, and $100
for each Board meeting held via telephone. In addition, the Portfolio will
reimburse these directors for travel and out-of-pocket expenses incurred
connection with Board of Directors meetings. For the fiscal year ended May
31, 1996 such fees and expenses totaled $49,000.
Total Compensation from
the Portfolio
Total Compensation from entire
Smith Barney mutual fund Complex,
for the year-ended May 31, 1996
Charles F. Barber*(6)#
$9,750
$38,500
Allan J. Bloostein
(10)
$8,000
$87,600
Martin Brody (20)
$8,000
$112,700
Dwight B. Crane (24)
$7,500
$143,350
Robert A. Frankel (10)
$8,000
$65,300
William Huthinson (6)
$5,250
$28,875
Heath McLendon (42)
- -
- -
* Indicates the number of funds within the Smith Barney mutual fund complex
for which the Director serves as a Board member.
# Pursuant to the Portfolio's deferred compensation plan, Mr. Barber elected,
effective January 2, 1996 to defer payment of some or all of the compensation
due to him form the Portfolio.
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 Portfolio's outstanding shares of Common Stock as
of July 15, 1996
Amount of Percent of
Name and Address Record Common
of Record Owner Ownership Stock
Outstanding
Cede & Co., as Nominee for The Depository Trust Company 33,592,407
97%
P.O. Box 20
Bowling Green Station
New York. New York 10004
27,448,356 of the shares held of record by Cede & Co., representing 79% 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 July 15, 1996, 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-- SBMFM
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 15, 1995 and by the shareholders at an Annual Meeting
on September 13, 1995. Unless terminated sooner, the Advisory Agreement will
continue for successive annual periods 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 Group. 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 0.70% of the value of the Portfolio's average daily net assets. For the
fiscal years ended May 31, 1994, 1995 and 1996, such fees amounted to
$3,122,879, $2,896,951 and 3,021,241 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.
SBMFM serves as administrator to the Portfolio pursuant to a written
agreement dated June 1, 1994 (the "Administration Agreement"). The services
provided by SBMFM under the Administration Agreement are described in the
Prospects under "Management of the Portfolio." SBMFM is a wholly owned
subsidiary of Holdings.
For services rendered to the Portfolio, SBMFM receives from the
Portfolio a fee computed and paid monthly at the annual rate 0.20% of the
value of the Portfolio's average daily assets. For the fiscal years ended May
31, 1994, 1995 and 1996 SBMFM or its predecessor received $ $892,251,
$827,700 and $863,212 respectively.
Pursuant to the Administration Agreement, SBMFM will exercise its best
judgment in rendering its services to the Portfolio SBMFM 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 SBMFM's reckless disregard of its obligations and
duties under the Administration Agreement.
The Administration Agreement (the "Agreement") 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 Agreement is
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 SBMFM.
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 fixtures contracts and
options on financial fixtures 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 shareholders.
For federal income tax purposes, gain or loss on the fixtures 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 4% 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 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 the Fund 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 filly 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 31%
"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 31% 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 than 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.
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 effective of depriving shareholders of an
opportunity to sell their shares of Common Stock at a premium over the
prevailing market prices by discouraging a third party from seeking to obtain
control of the Portfolio. Commencing with the first annual meeting of
shareholders, the Board of Directors will be divided into three classes. At
the annual meeting of shareholders in each year thereafter, the term of one
class will expire 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 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 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 authorized the conversion of the Portfolio from a closed-end to
an open-end investment company's defined in the 1940 Act, unless two-thirds of
the Continuing Directors (as defined below) approve such a conversion. In the
latter 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 a least 75% of the Directors and the holder 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 of other property
(or combinations 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, issuance 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 for any stock subscriptions
rights distributed by the Portfolio: (3) a sale, lease, exchange, 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 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 "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 of the transaction is approved by a vote of a least 75% of the
Continuing Directors (as defined below) or it 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
its a Reorganization Transactions or a Transfer Transactions that involves
substantially all of the Portfolio's assets and no shareholder vote will be
required to approve the transaction if its 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.
The voting provisions described above could have the effect of depriving
shareholders of the Portfolio of an opportunity to sell their Common Stock at
a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Portfolio in a tender offer or similar
transaction. In the view of the Portfolio's Board of Directors, however,
these provisions offer several possible advantages including: (1) requiring
persons seeking control of the Portfolio to negotiate with its management
regarding the price to be paid for the amount of Common Stock required to
obtain control: (2) promoting continuity and stability; and (3) enhancing the
Portfolio's ability to pursue long-term strategies that are consistent with
its investment objective and management policies. The Board of Directors has
determined that the voting requirements under Maryland law and the 1940 Act,
are in the best interests of shareholders generally.
A "Continuing Director", as used in the discussion above, is any member
of the Portfolio's Board of Directors (1) who is not person or affiliate of a
person who enters or proposes to enter into a Business Combination with the
Portfolio (such 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 least 12 months (or since the commencement of the Portfolio's
operations, if less than 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 the
member of the Board.
ADDITIONAL INFORMATION
Legal Matters
Willie 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
For the fiscal year ending May 31, 1997, KPMG Peat Marwick LLP, 345 Park
Avenue, New York, New York 10154, will serve as auditors of the Fund and
render an opinion on the Fund's financial statements.
Custodian and Transfer Agent
PNC Bank, N.A. is located at 17 Chestnut Street, Philadelphia,
Pennsylvania 19103 and serves as the Fund's custodian pursuant to a custody
agreement. Under the custody agreement, PNC Bank holds Fund's securities and
keeps all necessary accounts and records. The assets of the Fund are held
under bank custodianship in compliance with the 1940 Act. First Data 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, First Data 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, 1996 and
its semi-annual report for the six month period ended November 30, 1995 are
incorporated into this Statement of Additional Information by reference in
their entirety. A copy of these Reports 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 fixture.
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 MIG1/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- I (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 fixture 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 SPEY 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- l 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 of commercial paper rated A-2 is stronger 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 high
quality. The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than for AAA rated securities or more subject to
possible change over the term of the issue.
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-l + - 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, 1996 and
Report of Independent Accountants
dated July 12, 1996 are incorporated by
reference to the Definitive 30(b)2-1 filed
on August 14, 1996,
Accession # 0000091155-96-000328.
(2) Exhibits:
(a) (i) Articles of Incorporation are
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 ("Pre-Effective
Amendment No. 1").
(ii) Articles of Amendment to Articles of
Incorporation are incorporated by
reference to Pre-Effective Amendment
No. 1.
(b) (i) Bylaws of Registrant are
incorporated by reference to Pre-
Effective Amendment No. 1.
(ii) Amended Bylaws of Registrant are
incorporated by reference to Pre-
Effective Amendment No. 1.
(c) Not Applicable
(d) Specimen Certificate of Common Stock, par
value $.01 per share is incorporated by
reference to Pre-Effective Amendment No.
1.
(e) Dividend Reinvestment Plan is incorporated
by reference to Post-Effective Amendment
No. 6. to its initial Registration
Statement on Form N-2, Registration No.
33-47116, filed with the SEC on September
28, 1994 ("Post-Effective Amendment No.
6").
(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
Advisers.****
(h) Form of Underwriting Agreement between
Registrant and Shearson Lehman Brothers Inc.**
(i) Not Applicable
(j) Form of Custody Agreement between Registrant
and PNC Bank, National Association (filed herewith)
(k) (i) Transfer Agency and Registrar Agreement
between Registrant and TSSG***
(ii) Administration Agreement between
Registrant and Smith Barney Mutual Funds
Management Inc. (filed herewith)
(l) Not Applicable
(m) Not Applicable
(n) Consent of KPMG Peat Marwick LLP, independent
auditors for the Fund. (filed herewith).
(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 0
Printing and Engraving Expenses $5000
Legal Fees $18,000
Accounting Expenses $15,000
Miscellaneous Expenses $25,112
Item 27. Persons Controlled by or Under Common Control
None
Item 28. Number of Holders of Securities
Title of Class Number of
Record
Stockholders
as of September 20, 1996
Shares of Common Stock, 686
par value $0.01 per share
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.
Smith Barney Mutual Funds Management Inc., ("Funds
Management") a New York corporation, is a registered investment
adviser and is wholly owned by Smith Barney Holdings Inc., which in
turn is wholly owned by The Travelers Group Inc. Funds Management is
primarily engaged in the investment advisory business. Information as to
executive officers and directors of Funds Management is included in its
Form ADV filed with the Securities and Exchange Commission
(Registration number ~) and is incorporated herein by
reference.
Item 31. Location of Accounts and Records
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
PNC Bank, N.A.
17th & Chestnut Streets
Philadelphia, Pennsylvania 19103
Item 32. Management Services
None
Item 33. Undertakings
1. Not Applicable
2. Not Applicable
3. Not Applicable
4. The registrant 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.
(4)(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.
(4)(c) Not Applicable
5. Not Applicable
6. The registrant 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, 1996.
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, our true and lawful attorney, with full power, 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 attorney
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 9/23/96
Chief Executive Officer
Signature Title Date
/s/ Lewis E. Daidone
Lewis E. Daidone Treasurer (Chief Financial 9/23/96
and Accounting Officer)
/s/ Charles F. Barber
Charles F. Barber Director 9/23/96
/s/ Allan J. Bloostein
Allan J. Bloostein Director 9/23/96
/s/ Martin Brody
Martin Brody Director 9/23/96
/s/ Dwight B. Crane
Dwight B. Crane Director 9/23/96
/s/ Robert A. Frankel
Robert A. Frankel Director 9/23/96
/s/ William R. Hutchinson
William Hutchinson Director 9/23/96
CUSTODY AGREEMENT
Agreement made as of this day of , 1994,
between Managed Municipals Portfolio Inc, a corporation organized
and existing under the laws of the State of Maryland,
having its
principal office and place of business at 388 Greenwich Street, New York,
NY 10013 (hereinafter called the "Fund"), and PNC Bank, National Association
Pennsylvania corporation authorized to do banking business, hav-
ing its principal office and place of business at 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103 (hereinafter called the
"Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises
hereinafter set forth, the Fund and the Custodian agree as
follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
1. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and
federal agency securities, its successor or successors and its
nominee or nominees.
2. "Call Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract Options entitling the
holder, upon timely exercise and payment of the exercise
price, as specified therein, to purchase from the writer
thereof the specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this
Agreement to be given to the Custodian which is actually
received by the Custodian and signed on behalf of the Fund by
any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a
Terminal Link.
4. "Clearing Member" shall mean a registered
broker-dealer which is a clearing member under the rules of
O.C.C. and a member of a national securities exchange
qualified to act as a custodian for an investment company, or
any broker-dealer reasonably believed by the Custodian to be
such a clearing member.
5. "Collateral Account" shall mean a segregated account
so denominated which is specifically allocated to a Series and
pledged to the Custodian as security for, and in consideration
of, the Custodian's issuance of (a) any Put Option guarantee
letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII
herein.
6. "Covered Call Option" shall mean an exchange traded
option entitling the holder, upon timely exercise and payment
of the exercise price, as specified therein, to purchase from
the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer
thereof and subject to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and
Exchange Commission, its successor or successors and its
nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, specifically identi-
fied in a certified copy of a resolution of the Fund's Board
of Trustees specifically approving deposits therein by the
Custodian.
8. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including,
without limitation, U.S. Treasury Bills, U.S. Treasury Notes,
U.S. Treasury Bonds, domestic bank certificates of deposit,
and Eurodollar certificates of deposit, during a specified
month at an agreed upon price.
9. "Futures Contract" shall mean a Financial Futures
Contract and/or Stock Index Futures Contracts.
10. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
11. "Margin Account" shall mean a segregated account in
the name of a broker, dealer, futures commission merchant, or
a Clearing Member, or in the name of the Fund for the benefit
of a broker, dealer, futures commission merchant, or Clearing
Member, or otherwise, in accordance with an agreement between
the Fund, the Custodian and a broker, dealer, futures commis-
sion merchant or a Clearing Member (a "Margin Account Agree-
ment"), separate and distinct from the custody account, in
which certain Securities and/or money of the Fund shall be
- 2 -
deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time
determine. Securities held in the Book-Entry System or the
Depository shall be deemed to have been deposited in, or
withdrawn from, a Margin Account upon the Custodian's effect-
ing an appropriate entry in its books and records.
12. "Money Market Security" shall be deemed to include,
without limitation, certain Reverse Repurchase Agreements,
debt obligations issued or guaranteed as to interest and
principal by the government of the United States or agencies
or instrumentalities thereof, any tax, bond or revenue
anticipation note issued by any state or municipal government
or public authority, commercial paper, certificates of deposit
and bankers' acceptances, repurchase agreements with respect
to the same and bank time deposits, where the purchase and
sale of such securities normally requires settlement in
federal funds on the same day as such purchase or sale.
13. "O.C.C." shall mean the Options Clearing Corpora-
tion, a clearing agency registered under Section 17A of the
Securities Exchange Act of 1934, its successor or successors,
and its nominee or nominees.
14. "Officers" shall be deemed to include the President,
any Vice President, the Secretary, the Clerk, the Treasurer,
the Controller, any Assistant Secretary, any Assistant Clerk,
any Assistant Treasurer, and any other person or persons,
whether or not any such other person is an officer of the
Fund, duly authorized by the Board of Trustees of the Fund to
execute any Certificate, instruction, notice or other instru-
ment on behalf of the Fund and listed in the Certificate an-
nexed hereto as Appendix A or such other Certificate as may be
received by the Custodian from time to time.
15. "Option" shall mean a Call Option, Covered Call Op-
tion, Stock Index Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Officer or from a
person reasonably believed by the Custodian to be an Officer.
17. "Put Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract Options entitling the
holder, upon timely exercise and tender of the specified
underlying Securities, to sell such Securities to the writer
thereof for the exercise price.
18. "Reverse Repurchase Agreement" shall mean an agree-
ment pursuant to which the Fund sells Securities and agrees to
repurchase such Securities at a described or specified date
and price.
- 3 -
19. "Security" shall be deemed to include, without
limitation, Money Market Securities, Call Options, Put Op-
tions, Stock Index Options, Stock Index Futures Contracts,
Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse
Repurchase Agreements, common stocks and other securities hav-
ing characteristics similar to common stocks, preferred
stocks, debt obligations issued by state or municipal govern-
ments and by public authorities, (including, without limita-
tion, general obligation bonds, revenue bonds, industrial
bonds and industrial development bonds), bonds, debentures,
notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidenc-
ing or representing any other rights or interest therein, or
any property or assets.
20. "Senior Security Account" shall mean an account
maintained and specifically allocated to a Series under the
terms of this Agreement as a segregated account, by recorda-
tion or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund specifically al-
located to such Series shall be deposited and withdrawn from
time to time in accordance with Certificates received by the
Custodian in connection with such transactions as the Fund may
from time to time determine.
21. "Series" shall mean the various portfolios, if any,
of the Fund as described from time to time in the current and
effective prospectus for the Fund and listed on Appendix B
hereto as amended from time to time.
22. "Shares" shall mean the shares of beneficial inter-
est of the Fund, each of which is, in the case of a Fund hav-
ing Series, allocated to a particular Series.
23. "Stock Index Futures Contract" shall mean a
bilateral agreement pursuant to which the parties agree to
take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the value
of a particular stock index at the close of the last business
day of the contract and the price at which the futures
contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded
option entitling the holder, upon timely exercise, to receive
an amount of cash determined by reference to the difference
between the exercise price and the value of the index on the
date of exercise.
25. "Terminal Link" shall mean an electronic data
transmission link between the Fund and the Custodian requiring
in connection with each use of the Terminal Link by or on
behalf of the Fund use of an authorization code provided by
- 4 -
the Custodian and at least two access codes established by the
Fund.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the
Custodian as custodian of the Securities and moneys at any
time owned by the Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as
hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to
be delivered to the Custodian all Securities and all moneys
owned by it, at any time during the period of this Agreement,
and shall specify with respect to such Securities and money
the Series to which the same are specifically allocated. The
Custodian shall segregate, keep and maintain the assets of the
Series separate and apart. The Custodian will not be
responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any
credits made on the Fund's behalf where such credits have been
previously made and moneys are not finally collected. The
Fund shall deliver to the Custodian a certified resolution of
the Board of Trustees of the Fund, substantially in the form
of Exhibit A hereto, approving, authorizing and instructing
the Custodian on a continuous and on-going basis to deposit in
the Book-Entry System all Securities eligible for deposit
therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to
the extent possible in connection with its performance
hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of
Securities and deliveries and returns of Securities col-
lateral. Prior to a deposit of Securities specifically al-
located to a Series in the Depository, the Fund shall deliver
to the Custodian a certified resolution of the Board of
Trustees of the Fund, substantially in the form of Exhibit B
hereto, approving, authorizing and instructing the Custodian
on a continuous and ongoing basis until instructed to the
contrary by a Certificate actually received by the Custodian
to deposit in the Depository all Securities specifically al-
located to such Series eligible for deposit therein, and to
utilize the Depository to the extent possible with respect to
such Securities in connection with its performance hereunder,
- 5 -
including, without limitation, in connection with settlements
of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities
and moneys deposited in either the Book-Entry System or the
Depository will be represented in accounts which include only
assets held by the Custodian for customers, including, but not
limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically
allocated on the Custodian's books to the separate account for
the applicable Series. Prior to the Custodian's accepting,
utilizing and acting with respect to Clearing Member confirma-
tions for Options and transactions in Options for a Series as
provided in this Agreement, the Custodian shall have received
a certified resolution of the Fund's Board of Trustees,
substantially in the form of Exhibit C hereto, approving,
authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a
Certificate actually received by the Custodian, to accept,
utilize and act in accordance with such confirmations as
provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate
accounts, in the name of each Series, and shall credit to the
separate account for each Series all moneys received by it for
the account of the Fund with respect to such Series. Money
credited to a separate account for a Series shall be disbursed
by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name
and address of the person to whom the payment is to be made,
the Series account from which payment is to be made and the
purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of
the expenses and liabilities of the Custodian attributable to
such Series.
3. Promptly after the close of business on each day,
the Custodian shall furnish the Fund with confirmations and a
summary, on a per Series basis, of all transfers to or from
the account of the Fund for a Series, either hereunder or with
any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are
transferred to the account of the Fund for a Series, the
Custodian shall also by book-entry or otherwise identify as
belonging to such Series a quantity of Securities in a
fungible bulk of Securities registered in the name of the
Custodian (or its nominee) or shown on the Custodian's account
on the books of the Book-Entry System or the Depository. At
least monthly and from time to time, the Custodian shall
furnish the Fund with a detailed statement, on a per Series
basis, of the Securities and moneys held by the Custodian for
the Fund.
- 6 -
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the
Custodian hereunder, which are issued or issuable only in
bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that
form; all other Securities held hereunder may be registered in
the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from
time to time determine, or in the name of the Book-Entry
System or the Depository or their successor or successors, or
their nominee or nominees. The Fund agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to
hold or deliver in proper form for transfer, or to register in
the name of its registered nominee or in the name of the
Book-Entry System or the Depository any Securities which it
may hold hereunder and which may from time to time be
registered in the name of the Fund. The Custodian shall hold
all such Securities specifically allocated to a Series which
are not held in the Book-Entry System or in the Depository in
a separate account in the name of such Series physically
segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and
unless otherwise instructed to the contrary by a Certificate,
the Custodian by itself, or through the use of the Book-Entry
System or the Depository with respect to Securities held
hereunder and therein deposited, shall with respect to all
Securities held for the Fund hereunder in accordance with
preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount pay-
able upon such Securities which are called, but only if either
(i) the Custodian receives a written notice of such call, or
(ii) notice of such call appears in one or more of the
publications listed in Appendix C annexed hereto, which may be
amended at any time by the Custodian without the prior
notification or consent of the Fund;
(c) Present for payment and collect the amount pay-
able upon all Securities which mature;
(d) Surrender Securities in temporary form for
definitive Securities;
(e) Execute, as custodian, any necessary declara-
tions or certificates of ownership under the Federal Income
Tax Laws or the laws or regulations of any other taxing
authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System
or the Depository with respect to Securities therein
deposited, for the account of a Series, all rights and similar
- 7 -
securities issued with respect to any Securities held by the
Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry
System or the Depository, shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authoriza-
tions, and any other instruments whereby the authority of the
Fund as owner of any Securities held by the Custodian
hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in
exchange for other Securities or cash issued or paid in con-
nection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation,
or the exercise of any conversion privilege and receive and
hold hereunder specifically allocated to such Series any cash
or other Securities received in exchange;
(c) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any
protective committee, reorganization committee or other person
in connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically al-
located to such Series such certificates of deposit, interim
receipts or other instruments or documents as may be issued to
it to evidence such delivery;
(d) Make such transfers or exchanges of the assets
of the Series specified in such Certificate, and take such
other steps as shall be stated in such Certificate to be for
the purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount pay-
able upon Securities not described in preceding paragraph 5(b)
of this Article which may be called as specified in the
Certificate.
7. Notwithstanding any provision elsewhere contained
herein, the Custodian shall not be required to obtain posses-
sion of any instrument or certificate representing any Futures
Contract, any Option, or any Futures Contract Option until
after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments
or certificates are available. The Fund shall deliver to the
Custodian such a Certificate no later than the business day
preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall
- 8 -
comply with Section 17(f) of the Investment Company Act of
1940, as amended, in connection with the purchase, sale,
settlement, closing out or writing of Futures Contracts, Op-
tions, or Futures Contract Options by making payments or
deliveries specified in Certificates received by the Custodian
in connection with any such purchase, sale, writing, settle-
ment or closing out upon its receipt from a broker, dealer, or
futures commission merchant of a statement or confirmation
reasonably believed by the Custodian to be in the form
customarily used by brokers, dealers, or future commission
merchants with respect to such Futures Contracts, Options, or
Futures Contract Options, as the case may be, confirming that
such Security is held by such broker, dealer or futures com-
mission merchant, in book-entry form or otherwise, in the name
of the Custodian (or any nominee of the Custodian) as
custodian for the Fund, provided, however, that notwithstand-
ing the foregoing, payments to or deliveries from the Margin
Account and payments with respect to Securities to which a
Margin Account relates, shall be made in accordance with the
terms and conditions of the Margin Account Agreement.
Whenever any such instruments or certificates are available,
the Custodian shall, notwithstanding any provision in this
Agreement to the contrary, make payment for any Futures
Contract, Option, or Futures Contract Option for which such
instruments or such certificates are available only against
the delivery to the Custodian of such instrument or such
certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such
certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or
certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the
provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the
Fund, other than a purchase of an Option, a Futures Contract,
or a Futures Contract Option, the Fund shall deliver to the
Custodian (i) with respect to each purchase of Securities
which are not Money Market Securities, a Certificate, and (ii)
with respect to each purchase of Money Market Securities, a
Certificate or Oral Instructions, specifying with respect to
each such purchase: (a) the Series to which such Securities
are to be specifically allocated; (b) the name of the issuer
and the title of the Securities; (c) the number of shares or
the principal amount purchased and accrued interest, if any;
(d) the date of purchase and settlement; (e) the purchase
price per unit; (f) the total amount payable upon such
purchase; (g) the name of the person from whom or the broker
- 9 -
through whom the purchase was made, and the name of the
clearing broker, if any; and (h) the name of the broker to
whom payment is to be made. The Custodian shall, upon receipt
of Securities purchased by or for the Fund, pay to the broker
specified in the Certificate out of the moneys held for the
account of such Series the total amount payable upon such
purchase, provided that the same conforms to the total amount
payable as set forth in such Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund,
other than a sale of any Option, Futures Contract, Futures
Contract Option, or any Reverse Repurchase Agreement, the Fund
shall deliver to the Custodian (i) with respect to each sale
of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each sale of Money
Market Securities, a Certificate or Oral Instructions,
specifying with respect to each such sale: (a) the Series to
which such Securities were specifically allocated; (b) the
name of the issuer and the title of the Security; (c) the
number of shares or principal amount sold, and accrued
interest, if any; (d) the date of sale; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale;
(g) the name of the broker through whom or the person to whom
the sale was made, and the name of the clearing broker, if
any; and (h) the name of the broker to whom the Securities are
to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified
in the Certificate against payment upon receipt of the total
amount payable to the Fund upon such sale, provided that the
same conforms to the total amount payable as set forth in such
Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the
Fund, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each Option purchased: (a) the
Series to which such Option is specifically allocated; (b) the
type of Option (put or call); (c) the name of the issuer and
the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which
such Option relates and the number of Stock Index Options
purchased; (d) the expiration date; (e) the exercise price;
(f) the dates of purchase and settlement; (g) the total amount
payable by the Fund in connection with such purchase; (h) the
name of the Clearing Member through whom such Option was
purchased; and (i) the name of the broker to whom payment is
to be made. The Custodian shall pay, upon receipt of a Clear-
ing Member's statement confirming the purchase of such Option
held by such Clearing Member for the account of the Custodian
(or any duly appointed and registered nominee of the
Custodian) as custodian for the Fund, out of moneys held for
- 10 -
the account of the Series to which such Option is to be
specifically allocated, the total amount payable upon such
purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount pay-
able as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect
to each such sale: (a) the Series to which such Option was
specifically allocated; (b) the type of Option (put or call);
(c) the name of the issuer and the title and number of shares
subject to such Option or, in the case of a Stock Index Op-
tion, the stock index to which such Option relates and the
number of Stock Index Options sold; (d) the date of sale; (e)
the sale price; (f) the date of settlement; (g) the total
amount payable to the Fund upon such sale; and (h) the name of
the Clearing Member through whom the sale was made. The
Custodian shall consent to the delivery of the Option sold by
the Clearing Member which previously supplied the confirmation
described in preceding paragraph 1 of this Article with
respect to such Option against payment to the Custodian of the
total amount payable to the Fund, provided that the same
conforms to the total amount payable as set forth in such
Certificate.
3. Promptly after the exercise by the Fund of any Call
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to such Call Option: (a) the Series to which
such Call Option was specifically allocated; (b) the name of
the issuer and the title and number of shares subject to the
Call Option; (c) the expiration date; (d) the date of exercise
and settlement; (e) the exercise price per share; (f) the
total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call
Option was exercised. The Custodian shall, upon receipt of
the Securities underlying the Call Option which was exercised,
pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total
amount payable to the Clearing Member through whom the Call
Option was exercised, provided that the same conforms to the
total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to such Put Option: (a) the Series to which
such Put Option was specifically allocated; (b) the name of
the issuer and the title and number of shares subject to the
Put Option; (c) the expiration date; (d) the date of exercise
and settlement; (e) the exercise price per share; (f) the
total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Op-
tion was exercised. The Custodian shall, upon receipt of the
- 11 -
amount payable upon the exercise of the Put Option, deliver or
direct the Depository to deliver the Securities specifically
allocated to such Series, provided the same conforms to the
amount payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock
Index Option purchased by the Fund pursuant to paragraph 1
hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the
Series to which such Stock Index Option was specifically al-
located; (b) the type of Stock Index Option (put or call); (c)
the number of Options being exercised; (d) the stock index to
which such Option relates; (e) the expiration date; (f) the
exercise price; (g) the total amount to be received by the
Fund in connection with such exercise; and (h) the Clearing
Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Covered Call Option: (a) the
Series for which such Covered Call Option was written; (b) the
name of the issuer and the title and number of shares for
which the Covered Call Option was written and which underlie
the same; (c) the expiration date; (d) the exercise price; (e)
the premium to be received by the Fund; (f) the date such
Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received.
The Custodian shall deliver or cause to be delivered, in
exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs
prevailing among Clearing Members dealing in Covered Call Op-
tions and shall impose, or direct the Depository to impose,
upon the underlying Securities specified in the Certificate
specifically allocated to such Series such restrictions as may
be required by such receipts. Notwithstanding the foregoing,
the Custodian has the right, upon prior written notification
to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Op-
tion.
7. Whenever a Covered Call Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate instructing the Custodian to deliver, or to direct
the Depository to deliver, the Securities subject to such
Covered Call Option and specifying: (a) the Series for which
such Covered Call Option was written; (b) the name of the is-
suer and the title and number of shares subject to the Covered
Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount pay-
able to the Fund upon such delivery. Upon the return and/or
cancellation of any receipts delivered pursuant to paragraph 6
of this Article, the Custodian shall deliver, or direct the
- 12 -
Depository to deliver, the underlying Securities as specified
in the Certificate against payment of the amount to be
received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing with respect to such Put Option: (a) the Series for which
such Put Option was written; (b) the name of the issuer and
the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Put Option is written; (g) the name of
the Clearing Member through whom the premium is to be received
and to whom a Put Option guarantee letter is to be delivered;
(h) the amount of cash, and/or the amount and kind of Securi-
ties, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; and
(i) the amount of cash and/or the amount and kind of Securi-
ties specifically allocated to such Series to be deposited
into the Collateral Account for such Series. The Custodian
shall, after making the deposits into the Collateral Account
specified in the Certificate, issue a Put Option guarantee
letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member
specified in the Certificate against receipt of the premium
specified in said Certificate. Notwithstanding the foregoing,
the Custodian shall be under no obligation to issue any Put
Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and
described in the preceding paragraph is exercised, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing: (a) the Series to which such Put Option was written; (b)
the name of the issuer and title and number of shares subject
to the Put Option; (c) the Clearing Member from whom the
underlying Securities are to be received; (d) the total amount
payable by the Fund upon such delivery; (e) the amount of cash
and/or the amount and kind of Securities specifically al-
located to such Series to be withdrawn from the Collateral
Account for such Series and (f) the amount of cash and/or the
amount and kind of Securities, specifically allocated to such
Series, if any, to be withdrawn from the Senior Security Ac-
count. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian
in connection with such Put Option, the Custodian shall pay
out of the moneys held for the account of the Series to which
such Put Option was specifically allocated the total amount
payable to the Clearing Member specified in the Certificate as
set forth in such Certificate against delivery of such Securi-
ties, and shall make the withdrawals specified in such
Certificate.
10. Whenever the Fund writes a Stock Index Option, the
Fund shall promptly deliver to the Custodian a Certificate
- 13 -
specifying with respect to such Stock Index Option: (a) the
Series for which such Stock Index Option was written; (b)
whether such Stock Index Option is a put or a call; (c) the
number of options written; (d) the stock index to which such
Option relates; (e) the expiration date; (f) the exercise
price; (g) the Clearing Member through whom such Option was
written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in
the Senior Security Account for such Series; (j) the amount of
cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the
Collateral Account for such Series; and (k) the amount of cash
and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Margin Account,
and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium
specified in the Certificate, make the deposits, if any, into
the Senior Security Account specified in the Certificate, and
either (1) deliver such receipts, if any, which the Custodian
has specifically agreed to issue, which are in accordance with
the customs prevailing among Clearing Members in Stock Index
Options and make the deposits into the Collateral Account
specified in the Certificate, or (2) make the deposits into
the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to such Stock Index Op-
tion: (a) the Series for which such Stock Index Option was
written; (b) such information as may be necessary to identify
the Stock Index Option being exercised; (c) the Clearing
Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise,
and whether such amount is to be paid by or to the Fund; (e)
the amount of cash and/or amount and kind of Securities, if
any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any,
to be withdrawn from the Senior Security Account for such
Series; and the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Ac-
count for such Series. Upon the return and/or cancellation of
the receipt, if any, delivered pursuant to the preceding
paragraph of this Article, the Custodian shall pay out of the
moneys held for the account of the Series to which such Stock
Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any,
as specified therein.
12. Whenever the Fund purchases any Option identical to
a previously written Option described in paragraphs, 6, 8 or
10 of this Article in a transaction expressly designated as a
"Closing Purchase Transaction" in order to liquidate its posi-
tion as a writer of an Option, the Fund shall promptly deliver
- 14 -
to the Custodian a Certificate specifying with respect to the
Option being purchased: (a) that the transaction is a Closing
Purchase Transaction; (b) the Series for which the Option was
written; (c) the name of the issuer and the title and number
of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and
the number of Options held; (d) the exercise price; (e) the
premium to be paid by the Fund; (f) the expiration date; (g)
the type of Option (put or call); (h) the date of such
purchase; (i) the name of the Clearing Member to whom the
premium is to be paid; and (j) the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from
the Collateral Account, a specified Margin Account, or the
Senior Security Account for such Series. Upon the Custodian's
payment of the premium and the return and/or cancellation of
any receipt issued pursuant to paragraphs 6, 8 or 10 of this
Article with respect to the Option being liquidated through
the Closing Purchase Transaction, the Custodian shall remove,
or direct the Depository to remove, the previously imposed
restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a
Closing Purchase Transaction with respect to any Option
purchased or written by the Fund and described in this
Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3
Article III herein, and upon the return and/or cancellation of
any receipts issued by the Custodian, shall make such
withdrawals from the Collateral Account, and the Margin Ac-
count and/or the Senior Security Account as may be specified
in a Certificate received in connection with such expiration,
exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures
Contract, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Futures Contract,
(or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is
being entered; (b) the category of Futures Contract (the name
of the underlying stock index or financial instrument); (c)
the number of identical Futures Contracts entered into; (d)
the delivery or settlement date of the Futures Contract(s);
(e) the date the Futures Contract(s) was (were) entered into
and the maturity date; (f) whether the Fund is buying (going
long) or selling (going short) on such Futures Contract(s);
(g) the amount of cash and/or the amount and kind of Securi-
ties, if any, to be deposited in the Senior Security Account
for such Series; (h) the name of the broker, dealer, or
futures commission merchant through whom the Futures Contract
was entered into; and (i) the amount of fee or commission, if
- 15 -
any, to be paid and the name of the broker, dealer, or futures
commission merchant to whom such amount is to be paid. The
Custodian shall make the deposits, if any, to the Margin Ac-
count in accordance with the terms and conditions of the
Margin Account Agreement. The Custodian shall make payment
out of the moneys specifically allocated to such Series of the
fee or commission, if any, specified in the Certificate and
deposit in the Senior Security Account for such Series the
amount of cash and/or the amount and kind of Securities
specified in said Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or
futures commission merchant with respect to an outstanding
Futures Contract, shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agree-
ment.
(b) Any variation margin payment or similar payment
from a broker, dealer, or futures commission merchant to the
Fund with respect to an outstanding Futures Contract, shall be
received and dealt with by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian
hereunder is retained by the Fund until delivery or settlement
is made on such Futures Contract, the Fund shall deliver to
the Custodian a Certificate specifying: (a) the Futures
Contract and the Series to which the same relates; (b) with
respect to a Stock Index Futures Contract, the total cash
settlement amount to be paid or received, and with respect to
a Financial Futures Contract, the Securities and/or amount of
cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or
delivery is to be made or received; and (d) the amount of cash
and/or Securities to be withdrawn from the Senior Security
Account for such Series. The Custodian shall make the payment
or delivery specified in the Certificate, and delete such
Futures Contract from the statements delivered to the Fund
pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures
Contract to offset a Futures Contract held by the Custodian
hereunder, the Fund shall deliver to the Custodian a
Certificate specifying: (a) the items of information required
in a Certificate described in paragraph 1 of this Article, and
(b) the Futures Contract being offset. The Custodian shall
make payment out of the money specifically allocated to such
Series of the fee or commission, if any, specified in the
Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3
of Article III herein, and make such withdrawals from the
Senior Security Account for such Series as may be specified in
such Certificate. The withdrawals, if any, to be made from
- 16 -
the Margin Account shall be made by the Custodian in ac-
cordance with the terms and conditions of the Margin Account
Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract
Option by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series to which such Option
is specifically allocated; (b) the type of Futures Contract
Option (put or call); (c) the type of Futures Contract and
such other information as may be necessary to identify the
Futures Contract underlying the Futures Contract Option
purchased; (d) the expiration date; (e) the exercise price;
(f) the dates of purchase and settlement; (g) the amount of
premium to be paid by the Fund upon such purchase; (h) the
name of the broker or futures commission merchant through whom
such option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made.
The Custodian shall pay out of the moneys specifically al-
located to such Series, the total amount to be paid upon such
purchase to the broker or futures commissions merchant through
whom the purchase was made, provided that the same conforms to
the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Op-
tion purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) Series to which
such Futures Contract Option was specifically allocated; (b)
the type of Future Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount pay-
able to the Fund upon such sale; and (h) the name of the
broker of futures commission merchant through whom the sale
was made. The Custodian shall consent to the cancellation of
the Futures Contract Option being closed against payment to
the Custodian of the total amount payable to the Fund,
provided the same conforms to the total amount payable as set
forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the
Fund pursuant to paragraph 1 is exercised by the Fund, the
Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Op-
tion was specifically allocated; (b) the particular Futures
Contract Option (put or call) being exercised; (c) the type of
Futures Contract underlying the Futures Contract Option; (d)
the date of exercise; (e) the name of the broker or futures
- 17 -
commission merchant through whom the Futures Contract Option
is exercised; (f) the net total amount, if any, payable by the
Fund; (g) the amount, if any, to be received by the Fund; and
(h) the amount of cash and/or the amount and kind of Securi-
ties to be deposited in the Senior Security Account for such
Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the pay-
ments, if any, and the deposits, if any, into the Senior
Security Account as specified in the Certificate. The
deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and condi-
tions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option,
the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a)
the Series for which such Futures Contract Option was written;
(b) the type of Futures Contract Option (put or call); (c) the
type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the expiration date; (e) the
exercise price; (f) the premium to be received by the Fund;
(g) the name of the broker or futures commission merchant
through whom the premium is to be received; and (h) the amount
of cash and/or the amount and kind of Securities, if any, to
be deposited in the Senior Security Account for such Series.
The Custodian shall, upon receipt of the premium specified in
the Certificate, make out of the moneys and Securities
specifically allocated to such Series the deposits into the
Senior Security Account, if any, as specified in the
Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
5. Whenever a Futures Contract Option written by the
Fund which is a call is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the
Series to which such Futures Contract Option was specifically
allocated; (b) the particular Futures Contract Option
exercised; (c) the type of Futures Contract underlying the
Futures Contract Option; (d) the name of the broker or futures
commission merchant through whom such Futures Contract Option
was exercised; (e) the net total amount, if any, payable to
the Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise; and (g) the amount of
cash and/or the amount and kind of Securities to be deposited
in the Senior Security Account for such Series. The Custodian
shall, upon its receipt of the net total amount payable to the
Fund, if any, specified in such Certificate make the payments,
if any, and the deposits, if any, into the Senior Security
Account as specified in the Certificate. The deposits, if any,
to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
- 18 -
6. Whenever a Futures Contract Option which is written
by the Fund and which is a put is exercised, the Fund shall
promptly deliver to the Custodian a Certificate specifying:
(a) the Series to which such Option was specifically al-
located; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying such Futures
Contract Option; (d) the name of the broker or futures commis-
sion merchant through whom such Futures Contract Option is
exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise; and (g) the amount and
kind of Securities and/or cash to be withdrawn from or
deposited in, the Senior Security Account for such Series, if
any. The Custodian shall, upon its receipt of the net total
amount payable to the Fund, if any, specified in the
Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any,
and the deposits, if any, into the Senior Security Account as
specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract
Option identical to a previously written Futures Contract Op-
tion described in this Article in order to liquidate its posi-
tion as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing with respect to the Futures Contract Option being
purchased: (a) the Series to which such Option is specifically
allocated; (b) that the transaction is a closing transaction;
(c) the type of Future Contract and such other information as
may be necessary to identify the Futures Contract underlying
the Futures Option Contract; (d) the exercise price; (e) the
premium to be paid by the Fund; (f) the expiration date; (g)
the name of the broker or futures commission merchant to whom
the premium is to be paid; and (h) the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior
Security Account specified in the Certificate. The withdraw-
als, if any, to be made from the Margin Account shall be made
by the Custodian in accordance with the terms and conditions
of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures Contract Op-
tion written or purchased by the Fund and described in this
Article, the Custodian shall (a) delete such Futures Contract
Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdraw-
als from and/or in the case of an exercise such deposits into
the Senior Security Account as may be specified in a
Certificate. The deposits to and/or withdrawals from the
- 19 -
Margin Account, if any, shall be made by the Custodian in ac-
cordance with the terms and conditions of the Margin Account
Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this
Article shall be subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the
Fund, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series for which such short
sale was made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold,
and accrued interest or dividends, if any; (d) the dates of
the sale and settlement; (e) the sale price per unit; (f) the
total amount credited to the Fund upon such sale, if any, (g)
the amount of cash and/or the amount and kind of Securities,
if any, which are to be deposited in a Margin Account and the
name in which such Margin Account has been or is to be
established; (h) the amount of cash and/or the amount and kind
of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such
short sale was made. The Custodian shall upon its receipt of
a statement from such broker confirming such sale and that the
total amount credited to the Fund upon such sale, if any, as
specified in the Certificate is held by such broker for the
account of the Custodian (or any nominee of the Custodian) as
custodian of the Fund, issue a receipt or make the deposits
into the Margin Account and the Senior Security Account
specified in the Certificate.
2. In connection with the closing-out of any short
sale, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such closing out:
(a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the
number of shares or the principal amount, and accrued interest
or dividends, if any, required to effect such closing-out to
be delivered to the broker; (d) the dates of closing-out and
settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net
total amount payable to the broker upon such closing-out; (h)
the amount of cash and the amount and kind of Securities to be
withdrawn, if any, from the Margin Account; (i) the amount of
cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name
of the broker through whom the Fund is effecting such
closing-out. The Custodian shall, upon receipt of the net
total amount payable to the Fund upon such closing-out, and
the return and/or cancellation of the receipts, if any, issued
- 20 -
by the Custodian with respect to the short sale being
closed-out, pay out of the moneys held for the account of the
Fund to the broker the net total amount payable to the broker,
and make the withdrawals from the Margin Account and the
Senior Security Account, as the same are specified in the
Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the
Custodian hereunder, the Fund shall deliver to the Custodian a
Certificate, or in the event such Reverse Repurchase Agreement
is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund
in connection with such Reverse Repurchase Agreement and
specifically allocated to such Series; (c) the broker or
dealer through or with whom the Reverse Repurchase Agreement
is entered; (d) the amount and kind of Securities to be
delivered by the Fund to such broker or dealer; (e) the date
of such Reverse Repurchase Agreement; and (f) the amount of
cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a
Senior Security Account for such Series in connection with
such Reverse Repurchase Agreement. The Custodian shall, upon
receipt of the total amount payable to the Fund specified in
the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior
Security Account, specified in such Certificate or Oral
Instructions.
2. Upon the termination of a Reverse Repurchase Agree-
ment described in preceding paragraph 1 of this Article, the
Fund shall promptly deliver a Certificate or, in the event
such Reverse Repurchase Agreement is a Money Market Security,
a Certificate or Oral Instructions to the Custodian
specifying: (a) the Reverse Repurchase Agreement being
terminated and the Series for which same was entered; (b) the
total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series
in connection with such termination; (d) the date of termina-
tion; (e) the name of the broker or dealer with or through
whom the Reverse Repurchase Agreement is to be terminated; and
(f) the amount of cash and/or the amount and kind of Securi-
ties to be withdrawn from the Senior Securities Account for
such Series. The Custodian shall, upon receipt of the amount
and kind of Securities to be received by the Fund specified in
the Certificate or Oral Instructions, make the payment to the
broker or dealer, and the withdrawals, if any, from the Senior
- 21 -
Security Account, specified in such Certificate or Oral
Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities
specifically allocated to a Series held by the Custodian
hereunder, the Fund shall deliver or cause to be delivered to
the Custodian a Certificate specifying with respect to each
such loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the
title of the Securities, (c) the number of shares or the
principal amount loaned, (d) the date of loan and delivery,
(e) the total amount to be delivered to the Custodian against
the loan of the Securities, including the amount of cash col-
lateral and the premium, if any, separately identified, and
(f) the name of the broker, dealer, or financial institution
to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial
institution to which the loan was made upon receipt of the
total amount designated as to be delivered against the loan of
Securities. The Custodian may accept payment in connection
with a delivery otherwise than through the Book-Entry System
or Depository only in the form of a certified or bank
cashier's check payable to the order of the Fund or the
Custodian drawn on New York Clearing House funds and may
deliver Securities in accordance with the customs prevailing
among dealers in securities.
2. Promptly after each termination of the loan of
Securities by the Fund, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with
respect to each such loan termination and return of Securi-
ties: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the
title of the Securities to be returned, (c) the number of
shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the
Custodian (including the cash collateral for such Securities
minus any offsetting credits as described in said
Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be
returned. The Custodian shall receive all Securities returned
from the broker, dealer, or financial institution to which
such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the
total amount payable upon such return of Securities as set
forth in the Certificate.
- 22 -
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such
deposits to, or withdrawals from, a Senior Security Account as
specified in a Certificate received by the Custodian. Such
Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such
Series to be deposited in, or withdrawn from, such Senior
Security Account for such Series. In the event that the Fund
fails to specify in a Certificate the Series, the name of the
issuer, the title and the number of shares or the principal
amount of any particular Securities to be deposited by the
Custodian into, or withdrawn from, a Senior Securities Ac-
count, the Custodian shall be under no obligation to make any
such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from
a Margin Account to the broker, dealer, futures commission
merchant or Clearing Member in whose name, or for whose
benefit, the account was established as specified in the
Margin Account Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any
Margin Account shall be dealt with in accordance with the
terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and
security interest in and to any property at any time held by
the Custodian in any Collateral Account described herein. In
accordance with applicable law the Custodian may enforce its
lien and realize on any such property whenever the Custodian
has made payment or delivery pursuant to any Put Option
guarantee letter or similar document or any receipt issued
hereunder by the Custodian. In the event the Custodian should
realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee
letter or similar document or any receipt, such deficiency
shall be a debt owed the Custodian by the Fund within the
scope of Article XIV herein.
5. On each business day the Custodian shall furnish the
Fund with a statement with respect to each Margin Account in
which money or Securities are held specifying as of the close
of business on the previous business day: (a) the name of the
Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker,
dealer, or futures commission merchant specified in the name
of a Margin Account a copy of the statement furnished the Fund
with respect to such Margin Account.
- 23 -
6. Promptly after the close of business on each busi-
ness day in which cash and/or Securities are maintained in a
Collateral Account for any Series, the Custodian shall furnish
the Fund with a statement with respect to such Collateral Ac-
count specifying the amount of cash and/or the amount and kind
of Securities held therein. No later than the close of busi-
ness next succeeding the delivery to the Fund of such state-
ment, the Fund shall furnish to the Custodian a Certificate
specifying the then market value of the Securities described
in such statement. In the event such then market value is
indicated to be less than the Custodian's obligation with
respect to any outstanding Put Option guarantee letter or
similar document, the Fund shall promptly specify in a
Certificate the additional cash and/or Securities to be
deposited in such Collateral Account to eliminate such
deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of
the resolution of the Board of Trustees of the Fund, certified
by the Secretary, the Clerk, any Assistant Secretary or any
Assistant Clerk, either (i) setting forth with respect to the
Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall
be determined, the amount payable per Share of such Series to
the shareholders of record as of that date and the total
amount payable to the Dividend Agent and any sub-dividend
agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein
the declaration of dividends and distributions on a daily
basis and authorizing the Custodian to rely on Oral Instruc-
tions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of
payment thereof, the record date as of which shareholders
entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent
on the payment date.
2. Upon the payment date specified in such resolution,
Oral Instructions or Certificate, as the case may be, the
Custodian shall pay out of the moneys held for the account of
each Series the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
- 24 -
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall
deliver to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade
date, and price; and
(b) The amount of money to be received by the
Custodian for the sale of such Shares and specifically al-
located to the separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent,
the Custodian shall credit such money to the separate account
in the name of the Series for which such money was received.
3. Upon issuance of any Shares of any Series described
in the foregoing provisions of this Article, the Custodian
shall pay, out of the money held for the account of such
Series, all original issue or other taxes required to be paid
by the Fund in connection with such issuance upon the receipt
of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund
desires the Custodian to make payment out of the money held by
the Custodian hereunder in connection with a redemption of any
Shares, it shall furnish to the Custodian a Certificate
specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice
setting forth the Series and number of Shares received by the
Transfer Agent for redemption and that such Shares are in good
form for redemption, the Custodian shall make payment to the
Transfer Agent out of the moneys held in the separate account
in the name of the Series the total amount specified in the
Certificate issued pursuant to the foregoing paragraph 4 of
this Article.
6. Notwithstanding the above provisions regarding the
redemption of any Shares, whenever any Shares are redeemed
pursuant to any check redemption privilege which may from time
to time be offered by the Fund, the Custodian, unless
otherwise instructed by a Certificate, shall, upon receipt of
an advice from the Fund or its agent setting forth that the
redemption is in good form for redemption in accordance with
the check redemption procedure, honor the check presented as
part of such check redemption privilege out of the moneys held
in the separate account of the Series of the Shares being
redeemed.
- 25 -
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion
advance funds on behalf of any Series which results in an
overdraft because the moneys held by the Custodian in the
separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities
specifically allocated to such Series, as set forth in a
Certificate or Oral Instructions, or which results in an
overdraft in the separate account of such Series for some
other reason, or if the Fund is for any other reason indebted
to the Custodian with respect to a Series, including any
indebtedness to The Bank of New York under the Fund's Cash
Management and Related Services Agreement, (except a borrowing
for investment or for temporary or emergency purposes using
Securities as collateral pursuant to a separate agreement and
subject to the provisions of paragraph 2 of this Article),
such overdraft or indebtedness shall be deemed to be a loan
made by the Custodian to the Fund for such Series payable on
demand and shall bear interest from the date incurred at a
rate per annum (based on a 360-day year for the actual number
of days involved) equal to 1/2% over Custodian's prime
commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such
prime commercial lending rate but in no event to be less than
6% per annum. In addition, the Fund hereby agrees that the
Custodian shall have a continuing lien and security interest
in and to any property specifically allocated to such Series
at any time held by it for the benefit of such Series or in
which the Fund may have an interest which is then in the
Custodian's possession or control or in possession or control
of any third party acting in the Custodian's behalf. The Fund
authorizes the Custodian, in its sole discretion, at any time
to charge any such overdraft or indebtedness together with
interest due thereon against any balance of account standing
to such Series' credit on the Custodian's books. In addition,
the Fund hereby covenants that on each Business Day on which
either it intends to enter a Reverse Repurchase Agreement and/
or otherwise borrow from a third party, or which next succeeds
a Business Day on which at the close of business the Fund had
outstanding a Reverse Repurchase Agreement or such a borrow-
ing, it shall prior to 9 a.m., New York City time, advise the
Custodian, in writing, of each such borrowing, shall specify
the Series to which the same relates, and shall not incur any
indebtedness not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian
by any bank (including, if the borrowing is pursuant to a
separate agreement, the Custodian) from which it borrows money
for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for
such borrowings, a notice or undertaking in the form currently
- 26 -
employed by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount
of collateral. The Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such
borrowing: (a) the Series to which such borrowing relates; (b)
the name of the bank, (c) the amount and terms of the borrow-
ing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other
loan agreement, (d) the time and date, if known, on which the
loan is to be entered into, (e) the date on which the loan
becomes due and payable, (f) the total amount payable to the
Fund on the borrowing date, (g) the market value of Securities
to be delivered as collateral for such loan, including the
name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (h) a
statement specifying whether such loan is for investment
purposes or for temporary or emergency purposes and that such
loan is in conformance with the Investment Company Act of 1940
and the Fund's prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified col-
lateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may,
at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory
note or loan agreement. The Custodian shall deliver such
Securities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described
in this paragraph. The Fund shall cause all Securities
released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the
event that the Fund fails to specify in a Certificate the
Series, the name of the issuer, the title and number of shares
or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, the Custodian shall
not be under any obligation to deliver any Securities.
ARTICLE XV
TERMINAL LINK
1. At no time and under no circumstances shall the Fund
be obligated to have or utilize the Terminal Link, and the
provisions of this Article shall apply if, but only if, the
Fund in its sole and absolute discretion elects to utilize the
Terminal Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Fund only
for the purpose of the Fund providing Certificates to the
Custodian with respect to transactions involving Securities or
for the transfer of money to be applied to the payment of
- 27 -
dividends, distributions or redemptions of Fund Shares, and
shall be utilized by the Custodian only for the purpose of
providing notices to the Fund. Such use shall commence only
after the Fund shall have delivered to the Custodian a
Certificate substantially in the form of Exhibit D and shall
have established access codes. Each use of the Terminal Link
by the Fund shall constitute a representation and warranty
that the Terminal Link is being used only for the purposes
permitted hereby, that at least two Officers have each
utilized an access code, that such safekeeping procedures have
been established by the Fund, and that such use does not
contravene the Investment Company Act of 1940, as amended, or
the rules or regulations thereunder.
3. The Fund shall obtain and maintain at its own cost
and expense all equipment and services, including, but not
limited to communications services, necessary for it to uti-
lize the Terminal Link, and the Custodian shall not be re-
sponsible for the reliability or availability of any such
equipment or services.
4. The Fund acknowledges that any data bases made
available as part of, or through the Terminal Link and any
proprietary data, software, processes, information and docu-
mentation (other than any such which are or become part of the
public domain or are legally required to be made available to
the public) (collectively, the "Information"), are the
exclusive and confidential property of the Custodian. The
Fund shall, and shall cause others to which it discloses the
Information, to keep the Information confidential by using the
same care and discretion it uses with respect to its own
confidential property and trade secrets, and shall neither
make nor permit any disclosure without the express prior
written consent of the Custodian.
5. Upon termination of this Agreement for any reason,
the Fund shall return to the Custodian any and all copies of
the Information which are in the Fund's possession or under
its control, or which the Fund distributed to third parties.
The provisions of this Article shall not affect the copyright
status of any of the Information which may be copyrighted and
shall apply to all Information whether or not copyrighted.
6. The Custodian reserves the right to modify the Ter-
minal Link from time to time without notice to the Fund except
that the Custodian shall give the Fund notice not less than 75
days in advance of any modification which would materially
adversely affect the Fund's operation, and the Fund agrees
that the Fund shall not modify or attempt to modify the
Terminal Link without the Custodian's prior written consent.
The Fund acknowledges that any software or procedures provided
the Fund as part of the Terminal Link are the property of the
Custodian and, accordingly, the Fund agrees that any
modifications to the Terminal Link, whether by the Fund, or by
- 28 -
the Custodian and whether with or without the Custodian's
consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and
suppliers it utilizes or the Fund utilizes in connection with
the Terminal Link makes any warranties or representations,
express or implied, in fact or in law, including but not
limited to warranties of merchantability and fitness for a
particular purpose.
8. The Fund will cause its Officers and employees to
treat the authorization codes and the access codes applicable
to Terminal Link with extreme care, and irrevocably authorizes
the Custodian to act in accordance with and rely on
Certificates received by it through the Terminal Link. The
Fund acknowledges that it is its responsibility to assure that
only its Officers use the Terminal Link on its behalf, and
that a Custodian shall not be responsible nor liable for use
of the Terminal Link on the Fund's behalf by persons other
than such persons or Officers, or by only a single Officer,
nor for any alteration, omission, or failure to promptly
forward.
9(a). Except as otherwise specifically provided in
Section 9(b) of this Article, the Custodian shall have no
liability for any losses, damages, injuries, claims, costs or
expenses arising out of or in connection with any failure,
malfunction or other problem relating to the Terminal Link
except for money damages suffered as the direct result of the
negligence of the Custodian in an amount not exceeding for any
incident $25,000 provided, however, that the Custodian shall
have no liability under this Section 9 if the Fund fails to
comply with the provisions of Section 11.
9(b). The Custodian's liability for its negligence in
executing or failing to execute in accordance with a
Certificate received through Terminal Link shall be only with
respect to a transfer of funds which is not made in accordance
with such Certificate after such Certificate shall have been
duly acknowledged by the Custodian, and shall be contingent
upon the Fund complying with the provisions of Section 12 of
this Article, and shall be limited to (i) restoration of the
principal amount mistransferred, if and to the extent that the
Custodian would be required to make such restoration under
applicable law, and (ii) the lesser of (A) a Fund's actual
pecuniary loss incurred by reason of its loss of use of the
mistransferred funds or the funds which were not transferred,
as the case may be, or (B) compensation for the loss of the
use of the mistransferred funds or the funds which were not
transferred, as the case may be, at a rate per annum equal to
the average federal funds rate as computed from the Federal
Reserve Bank of New York's daily determination of the
effective rate for federal funds, for the period during which
a Fund has lost use of such funds. In no event shall the
Custodian have any liability for failing to execute in
- 29 -
accordance with a Certificate a transfer of funds where the
Certificate is received by the Custodian through Terminal Link
other than through the applicable transfer module for the
particular instructions contained in such Certificate.
10. Without limiting the generality of the foregoing, in
no event shall the Custodian or any manufacturer or supplier
of its computer equipment, software or services relating to
the Terminal Link be responsible for any special, indirect,
incidental or consequential damages which the Fund may incur
or experience by reason of its use of the Terminal Link even
if the Custodian or any manufacturer or supplier has been
advised of the possibility of such damages, nor with respect
to the use of the Terminal Link shall the Custodian or any
such manufacturer or supplier be liable for acts of God, or
with respect to the following to the extent beyond such
person's reasonable control: machine or computer breakdown or
malfunction, interruption or malfunction of communication
facilities, labor difficulties or any other similar or
dissimilar cause.
11. The Fund shall notify the Custodian of any errors,
omissions or interruptions in, or delay or unavailability of,
the Terminal Link as promptly as practicable, and in any event
within 24 hours after the earliest of (i) discovery thereof,
(ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case
of any error, the date of actual receipt of the earliest
notice which reflects such error, it being agreed that
discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever
the Custodian learns of any errors, omissions or interruption
in, or delay or unavailability of, the Terminal Link.
12. The Custodian shall verify to the Fund, by use of
the Terminal Link, receipt of each Certificate the Custodian
receives through the Terminal Link, and in the absence of such
verification the Custodian shall not be liable for any failure
to act in accordance with such Certificate and the Fund may
not claim that such Certificate was received by the Custodian.
Such verification, which may occur after the Custodian has
acted upon such Certificate, shall be accomplished on the same
day on which such Certificate is received.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to
employ, as sub-custodian for each Series' Foreign Securities
(as such term is defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, as amended) and
other assets, the foreign banking institutions and foreign
- 30 -
securities depositories and clearing agencies designated on
Schedule I hereto ("Foreign Sub-Custodians") to carry out
their respective responsibilities in accordance with the terms
of the sub-custodian agreement between each such Foreign Sub-
Custodian and the Custodian, copies of which have been
previously delivered to the Fund and receipt of which is
hereby acknowledged (each such agreement, a "Foreign Sub-
Custodian Agreement"). Upon receipt of a Certificate,
together with a certified resolution substantially in the form
attached as Exhibit E of the Fund's Board of Trustees, the
Fund may designate any additional foreign sub-custodian with
which the Custodian has an agreement for such entity to act as
the Custodian's agent, as its sub-custodian and any such
additional foreign sub-custodian shall be deemed added to
Schedule I. Upon receipt of a Certificate from the Fund, the
Custodian shall cease the employment of any one or more
Foreign Sub-Custodians for maintaining custody of the Fund's
assets and such Foreign Sub-Custodian shall be deemed deleted
from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be
substantially in the form previously delivered to the Fund and
will not be amended in a way that materially adversely affects
the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as
belonging to each Series of the Fund the Foreign Securities of
such Series held by each Foreign Sub-Custodian. At the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claims by the
Fund or any Series against a Foreign Sub-Custodian as a
consequence of any loss, damage, cost, expense, liability or
claim sustained or incurred by the Fund or any Series if and
to the extent that the Fund or such Series has not been made
whole for any such loss, damage, cost, expense, liability or
claim.
4. Upon request of the Fund, the Custodian will,
consistent with the terms of the applicable Foreign Sub-
Custodian Agreement, use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to
the books and records of any Foreign Sub-Custodian insofar as
such books and records relate to the performance of such
Foreign Sub-Custodian under its agreement with the Custodian
on behalf of the Fund.
5. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the
securities and other assets of each Series held by Foreign
Sub-Custodians, including but not limited to, an
identification of entities having possession of each Series'
Foreign Securities and other assets, and advices or
notifications of any transfers of Foreign Securities to or
from each custodial account maintained by a Foreign Sub-
Custodian for the Custodian on behalf of the Series.
- 31 -
6. The Custodian shall furnish annually to the Fund, as
mutually agreed upon, information concerning the Foreign Sub-
Custodians employed by the Custodian. Such information shall
be similar in kind and scope to that furnished to the Fund in
connection with the Fund's initial approval of such Foreign
Sub-Custodians and, in any event, shall include information
pertaining to (i) the Foreign Custodians' financial strength,
general reputation and standing in the countries in which they
are located and their ability to provide the custodial
services required, and (ii) whether the Foreign Sub-Custodians
would provide a level of safeguards for safekeeping and
custody of securities not materially different form those
prevailing in the United States. The Custodian shall monitor
the general operating performance of each Foreign Sub-
Custodian. The Custodian agrees that it will use reasonable
care in monitoring compliance by each Foreign Sub-Custodian
with the terms of the relevant Foreign Sub-Custodian Agreement
and that if it learns of any breach of such Foreign Sub-
Custodian Agreement believed by the Custodian to have a
material adverse effect on the Fund or any Series it will
promptly notify the Fund of such breach. The Custodian also
agrees to use reasonable and diligent efforts to enforce its
rights under the relevant Foreign Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the Fund
all notices, reports or other written information received
pertaining to the Fund's Foreign Securities, including without
limitation, notices of corporate action, proxies and proxy
solicitation materials.
8. Notwithstanding any provision of this Agreement to
the contrary, settlement and payment for securities received
for the account of any Series and delivery of securities
maintained for the account of such Series may be effected in
accordance with the customary or established securities
trading or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs,
including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities
from such purchaser or dealer.
9. Notwithstanding any other provision in this
Agreement to the contrary, with respect to any losses or
damages arising out of or relating to any actions or omissions
of any Foreign Sub-Custodian the sole responsibility and
liability of the Custodian shall be to take appropriate action
at the Fund's expense to recover such loss or damage from the
Foreign Sub-Custodian. It is expressly understood and agreed
that the Custodian's sole responsibility and liability shall
be limited to amounts so recovered from the Foreign Sub-
Custodian.
- 32 -
ARTICLE XVII
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in
Article XVI neither the Custodian nor its nominee shall be
liable for any loss or damage, including counsel fees,
resulting from its action or omission to act or otherwise,
either hereunder or under any Margin Account Agreement, except
for any such loss or damage arising out of its own negligence
or willful misconduct. In no event shall the Custodian be
liable to the Fund or any third party for special, indirect or
consequential damages or lost profits or loss of business,
arising under or in connection with this Agreement, even if
previously informed of the possibility of such damages and
regardless of the form of action. The Custodian may, with
respect to questions of law arising hereunder or under any
Margin Account Agreement, apply for and obtain the advice and
opinion of counsel to the Fund or of its own counsel, at the
expense of the Fund, and shall be fully protected with respect
to anything done or omitted by it in good faith in conformity
with such advice or opinion. The Custodian shall be liable to
the Fund for any loss or damage resulting from the use of the
Book-Entry System or any Depository arising by reason of any
negligence or willful misconduct on the part of the Custodian
or any of its employees or agents.
2. Without limiting the generality of the foregoing,
the Custodian shall be under no obligation to inquire into,
and shall not be liable for:
(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Fund, the legality
of the purchase, sale or writing thereof, or the propriety of
the amount paid or received therefor;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid
therefor;
(c) The legality of the declaration or payment of
any dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securi-
ties, nor shall the Custodian be under any duty or obligation
to see to it that any cash collateral delivered to it by a
broker, dealer, or financial institution or held by it at any
time as a result of such loan of portfolio Securities of the
Fund is adequate collateral for the Fund against any loss it
might sustain as a result of such loan. The Custodian
specifically, but not by way of limitation, shall not be under
any duty or obligation periodically to check or notify the
- 33 -
Fund that the amount of such cash collateral held by it for
the Fund is sufficient collateral for the Fund, but such duty
or obligation shall be the sole responsibility of the Fund.
In addition, the Custodian shall be under no duty or obliga-
tion to see that any broker, dealer or financial institution
to which portfolio Securities of the Fund are lent pursuant to
Article X of this Agreement makes payment to it of any
dividends or interest which are payable to or for the account
of the Fund during the period of such loan or at the termina-
tion of such loan, provided, however, that the Custodian shall
promptly notify the Fund in the event that such dividends or
interest are not paid and received when due; or
(f) The sufficiency or value of any amounts of
money and/or Securities held in any Margin Account, Senior
Security Account or Collateral Account in connection with
transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer,
futures commission merchant or Clearing Member makes payment
to the Fund of any variation margin payment or similar payment
which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see
that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the
amount the Fund is entitled to receive, or to notify the Fund
of the Custodian's receipt or non-receipt of any such pay-
ment.
3. The Custodian shall not be liable for, or considered
to be the Custodian of, any money, whether or not represented
by any check, draft, or other instrument for the payment of
money, received by it on behalf of the Fund until the
Custodian actually receives and collects such money directly
or by the final crediting of the account representing the
Fund's interest at the Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall
not be liable for ascertaining or acting upon any calls,
conversions, exchange offers, tenders, interest rate changes
or similar matters relating to Securities held in the
Depository, unless the Custodian shall have actually received
timely notice from the Depository. In no event shall the
Custodian have any responsibility or liability for the failure
of the Depository to collect, or for the late collection or
late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be
redeemed, retired, called or otherwise become payable.
However, upon receipt of a Certificate from the Fund of an
overdue amount on Securities held in the Depository the
Custodian shall make a claim against the Depository on behalf
of the Fund, except that the Custodian shall not be under any
obligation to appear in, prosecute or defend any action suit
or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all
- 34 -
expense and liability be furnished as often as may be
required.
5. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount due to
the Fund from the Transfer Agent of the Fund nor to take any
action to effect payment or distribution by the Transfer Agent
of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount if the
Securities upon which such amount is payable are in default,
or if payment is refused after due demand or presentation,
unless and until (i) it shall be directed to take such action
by a Certificate and (ii) it shall be assured to its satisfac-
tion of reimbursement of its costs and expenses in connection
with any such action.
7. The Custodian may in addition to the employment of
Foreign Sub-Custodians pursuant to Article XVI appoint one or
more banking institutions as Depository or Depositories, as
Sub-Custodian or Sub-Custodians, or as Co-Custodian or
Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and
moneys at any time owned by the Fund, upon such terms and
conditions as may be approved in a Certificate or contained in
an agreement executed by the Custodian, the Fund and the
appointed institution.
8. The Custodian shall not be under any duty or obliga-
tion (a) to ascertain whether any Securities at any time
delivered to, or held by it or by any Foreign Sub-Custodian,
for the account of the Fund and specifically allocated to a
Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or
(b) to ascertain whether any transactions by the Fund, whether
or not involving the Custodian, are such transactions as may
properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the
Fund agrees to pay to the Custodian all out-of-pocket expenses
and such compensation as may be agreed upon from time to time
between the Custodian and the Fund. The Custodian may charge
such compensation and any expenses with respect to a Series
incurred by the Custodian in the performance of its duties
pursuant to such agreement against any money specifically al-
located to such Series. Unless and until the Fund instructs
the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner,
the Custodian shall also be entitled to charge against any
money held by it for the account of a Series such Series' pro
rata share (based on such Series net asset value at the time
of the charge to the aggregate net asset value of all Series
at that time) of the amount of any loss, damage, liability or
- 35 -
expense, including counsel fees, for which it shall be
entitled to reimbursement under the provisions of this Agree-
ment. The expenses for which the Custodian shall be entitled
to reimbursement hereunder shall include, but are not limited
to, the expenses of sub-custodians and foreign branches of the
Custodian incurred in settling outside of New York City
transactions involving the purchase and sale of Securities of
the Fund.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by
the Custodian and reasonably believed by the Custodian to be a
Certificate. The Custodian shall be entitled to rely upon any
Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the
Custodian a Certificate or facsimile thereof confirming such
Oral Instructions in such manner so that such Certificate or
facsimile thereof is received by the Custodian, whether by
hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such
Oral Instructions are given to the Custodian. The Fund agrees
that the fact that such confirming instructions are not
received, or that contrary instructions are received, by the
Custodian shall in no way affect the validity of the
transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian
shall incur no liability to the Fund in acting upon Oral
Instructions given to the Custodian hereunder concerning such
transactions provided such instructions reasonably appear to
have been received from an Officer.
11. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian
and reasonably believed by the Custodian to be given in ac-
cordance with the terms and conditions of any Margin Account
Agreement. Without limiting the generality of the foregoing,
the Custodian shall be under no duty to inquire into, and
shall not be liable for, the accuracy of any statements or
representations contained in any such instrument or other
notice including, without limitation, any specification of any
amount to be paid to a broker, dealer, futures commission
merchant or Clearing Member.
12. The books and records pertaining to the Fund which
are in the possession of the Custodian shall be the property
of the Fund. Such books and records shall be prepared and
maintained as required by the Investment Company Act of 1940,
as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representa-
tives, shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's
authorized representative, and the Fund shall reimburse the
- 36 -
Custodian its expenses of providing such copies. Upon reason-
able request of the Fund, the Custodian shall provide in hard
copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by
the Custodian on a computer disc, or are similarly maintained,
and the Fund shall reimburse the Custodian for its expenses of
providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting
control of the Book-Entry System, the Depository or O.C.C.,
and with such reports on its own systems of internal account-
ing control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against
and save the Custodian harmless from all liability, claims,
losses and demands whatsoever, including attorney's fees,
howsoever arising or incurred because of or in connection with
this Agreement, including the Custodian's payment or
non-payment of checks pursuant to paragraph 6 of Article XIII
as part of any check redemption privilege program of the Fund,
except for any such liability, claim, loss and demand arising
out of the Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agree-
ment, including, without limitation, those contained in
Article XVI the Custodian may deliver and receive Securities,
and receipts with respect to such Securities, and arrange for
payments to be made and received by the Custodian in
accordance with the customs prevailing from time to time among
brokers or dealers in such Securities. When the Custodian is
instructed to deliver Securities against payment, delivery of
such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility
and liability for all credit risks involved in connection with
the Custodian's delivery of Securities pursuant to instruc-
tions of the Fund, which responsibility and liability shall
continue until final payment in full has been received by the
Custodian.
16. The Custodian shall have no duties or
responsibilities whatsoever except such duties and
responsibilities as are specifically set forth in this Agree-
ment, and no covenant or obligation shall be implied in this
Agreement against the Custodian.
ARTICLE XVIII
TERMINATION
1. Either of the parties hereto may terminate this
Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not
- 37 -
less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it
shall be accompanied by a copy of a resolution of the Board of
Trustees of the Fund, certified by the Secretary, the Clerk,
any Assistant Secretary or any Assistant Clerk, electing to
terminate this Agreement and designating a successor custodian
or custodians, each of which shall be a bank or trust company
having not less than $2,000,000 aggregate capital, surplus and
undivided profits. In the event such notice is given by the
Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Board
of Trustees of the Fund, certified by the Secretary, the
Clerk, any Assistant Secretary or any Assistant Clerk,
designating a successor custodian or custodians. In the
absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust
company having not less than $2,000,000 aggregate capital,
surplus and undivided profits. Upon the date set forth in
such notice this Agreement shall terminate, and the Custodian
shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor
custodian all Securities and moneys then owned by the Fund and
held by it as Custodian, after deducting all fees, expenses
and other amounts for the payment or reimbursement of which it
shall then be entitled.
2. If a successor custodian is not designated by the
Fund or the Custodian in accordance with the preceding
paragraph, the Fund shall upon the date specified in the
notice of termination of this Agreement and upon the delivery
by the Custodian of all Securities (other than Securities held
in the Book-Entry System which cannot be delivered to the
Fund) and moneys then owned by the Fund be deemed to be its
own custodian and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement,
other than the duty with respect to Securities held in the
Book Entry System which cannot be delivered to the Fund to
hold such Securities hereunder in accordance with this Agree-
ment.
ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed
by two of the present Officers of the Fund under its seal,
setting forth the names and the signatures of the present
Officers. The Fund agrees to furnish to the Custodian a new
Certificate in similar form in the event that any such present
Officer ceases to be an Officer or in the event that other or
additional Officers are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement
- 38 -
upon Oral Instructions or signatures of the present Officers
as set forth in the last delivered Certificate.
2. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the
Custodian, shall be sufficiently given if addressed to the
Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other
place as the Custodian may from time to time designate in
writing.
3. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the
Fund shall be sufficiently given if addressed to the Fund and
mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund
may from time to time designate in writing.
4. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties
with the same formality as this Agreement and approved by a
resolution of the Board of Trustees of the Fund.
5. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of the
Custodian, or by the Custodian without the written consent of
the Fund, authorized or approved by a resolution of the Fund's
Board of Trustees.
6. This Agreement shall be construed in accordance with
the laws of the State of New York without giving effect to
conflict of laws principles thereof. Each party hereby
consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any
dispute arising hereunder and hereby waives its right to trial
by jury.
7. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but such counterparts shall, together, constitute only one
instrument.
8. A copy of the Declaration of Trust of the Fund is on
file with the Secretary of The Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on
behalf of the Board of Trustees of the Fund as Trustees and
not individually and that the obligations of this instrument
are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property
of the Fund; provided, however, that the Declaration of Trust
of the Fund provides that the assets of a particular Series of
the Fund shall under no circumstances be charged with li-
abilities attributable to any other Series of the Fund and
- 39 -
that all persons extending credit to, or contracting with or
having any claim against a particular Series of the Fund shall
look only to the assets of that particular Series for payment
of such credit, contract or claim.
- 40 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers,
thereunto duly authorized and their respective seals to be
hereunto affixed, as of the day and year first above written.
Managed Municipals Portfolio Inc.
[SEAL] By:_______________________
Attest:
_______________________
PNC Bank, NA
[SEAL] By:_______________________
Name:
Title:
Attest:
_______________________
FORM OF ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT, made as of the day of , 1994
between MANAGED MUNICIPALS PORTFOLIO INC., Maryland corporation (the "Fund"),
and SMITH, BARNEY ADVISERS, INC., a Delaware corporation (the
"Administrator").
WITNESSETH:
WHEREAS, the Fund is an closed-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund will retain an investment manager, investment
advisers and sub-investment advisers (collectively, "Management") as
applicable, for the purpose of investing the assets of the Portfolio in
securities and desires to retain the Administrator for certain administrative
services and to administer the Fund's business affairs, and the Administrator
is willing to furnish such administrative services on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. The Fund hereby appoints the Administrator to provide the services
set forth below, subject to the overall supervision of the Board of Directors
of the Fund (the "Board") for the period and on the terms set forth in this
Agreement. The Administrator hereby accepts such appointment and agrees
during such period to render the services herein described and to assume the
obligations herein set forth, for the compensation herein provided.
2. Subject to the supervision of the Board and the officers of the
Fund, the Administrator shall administer the Fund's corporate affairs and, in
connection therewith, shall furnish the Fund with office facilities, and shall
be responsible for the financial and accounting records required to be
maintained by the Fund (including supervising those being maintained by the
Fund's custodians); and with ordinary clerical, bookkeeping and recordkeeping
services at such office facilities; and shall provide personnel to assist the
officers of the Fund in the performance of the following services:
(a) oversee the determination and publication of the Fund's net asset
value in accordance with the Fund's policy as adopted from time to time by the
Board;
(b) oversee the maintenance by the Fund's custodians and shareholder
servicing agent of certain books and records of the Fund as required under the
1940 Act and maintain (or oversee maintenance by such other persons as
approved by the Board) such other books and records (other than those
maintained by Management) required by law or for the proper operation of the
Fund;
(c) oversee the preparation and filing of the Fund's federal, state
and local income tax returns and any other required tax returns;
(d) review the appropriateness of and arrange for payment of the
Fund's expenses;
(e) prepare for review and approval by officers of the Fund, financial
information for the Fund's quarterly, semi-annual and annual reports, proxy
statements and other communications with shareholders required or otherwise to
be sent to Fund shareholders, and arrange for the printing and dissemination
of such reports and communications to shareholders;
(f) prepare for review by an officer of the Fund, the Fund's periodic
financial reports required to be filed with the Securities and Exchange
Commission (the "SEC") on Form N-SAR and Form N-2 and such other reports,
forms or filings, as may be mutually agreed upon;
(g) prepare reports relating to the business and affairs of the Fund
(not otherwise appropriately prepared by Management or the Fund's custodians,
counsel or auditors);
(h) make such reports and recommendations to the Board concerning the
performance of the independent accountants as the Board may reasonably request
or deems appropriate;
(i) make such reports and recommendations to the Board concerning the
performance and fees of the Fund's custodians and shareholder servicing agent
as the Board may reasonably request or deems appropriate;
(j) oversee and review calculations of fees paid to the Administrator,
Management, and the Fund's custodians;
(k) consult with the Fund's officers, independent accountants, legal
counsel, custodians, accounting agent and shareholder servicing agent in
establishing the accounting policies of the Fund;
(l) facilitate bank or other borrowings by the Fund;
(m) prepare such information and reports as may be required by any
bank from which the Fund borrows funds; and
(n) provide such assistance to Managment and the Fund's custodians,
counsel and auditors as generally may be required to properly carry on the
business and operations of the Fund.
All services are to be furnished through the medium of any directors,
officers or employees of the Administrator as the Administrator deems
appropriate in order to fulfill its obligations hereunder.
In connection with its administration of the corporate affairs of the
Fund, the Administrator will bear the following expenses: (a) salaries and
expenses of all personnel of the Administrator; and (b) all expenses incurred
by the Administrator or by the Fund in connection with administering the
ordinary course of the Fund's business, other than those assumed by the Fund
in any agreement with Management.
3. The Fund will pay the Administrator an annual fee calculated at the
rate of 0.___% of the Portfolio's average daily net assets, paid monthly.
4. The Administrator assumes no responsibility under this Agreement
other than to render the services called for hereunder, and specifically
assumes no responsibilities for investment advice or the investment or
reinvestment of the Fund's assets.
5. The Administrator shall not be liable for any error of judgment or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of, or from reckless
disregard by it of its obligations and duties under, this Agreement.
6. This Agreement shall continue in effect unless terminated as herein
provided. This Agreement may be terminated by either party hereto (without
penalty) at any time upon at least 60 days' prior written notice by either
party to the other party hereto.
7. The services of the Administrator to the Fund hereunder are not
exclusive and nothing in this Agreement shall limit or restrict the right of
the Administrator to engage in any other business or to render services of any
kind to any other corporation, firm, individual or association. The
Administrator shall be deemed to be an independent contractor, unless
otherwise expressly provided or authorized by this Agreement.
8. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid: (1) to the Administrator at 388 Greenwich Street, New
York, New York 10013, Attention: President; or (2) to the Fund at 388
Greenwich Street, New York, New York 10013, Attention: Secretary.
9. This Agreement sets forth the agreement and understanding of the
parties hereto solely with respect to the matters covered hereby and the
relationship between the Fund and Smith, Barney Advisers, Inc. as
Administrator. Nothing in this Agreement shall govern, restrict or limit in
any respect any other business dealings between the parties hereto unless
otherwise expressly provided herein.
10. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without reference to choice of law
principles thereof and in accordance with the 1940 Act. In the case of any
conflict the 1940 Act shall control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
MANAGED MUNICIPALS PORTFOLIO INC.
By:
Name:
Title:
SMITH, BARNEY ADVISERS, INC.
By:
Name:
Title:
TRANSFER AND ASSUMPTION OF
INVESTMENT ADVISORY AGREEMENT
for
MANAGED MUNICIPALS PORTFOLIO INC.
TRANSFER AND ASSUMPTION OF INVESTMENT ADVISORY AGREEMENT, made as of the
31st day of December, 1994, by and among Managed Municipals Portfolio Inc., a
Maryland corporation (the "Company"), Mutual Management Corp., a New York
corporation ("MMC"), and Smith Barney Mutual Funds Management Inc. ("SBMFM") a
Delaware corporation.
WHEREAS, the Company is registered with the Securities and Exchange
Commission as a closed-end management investment company under the Investment
Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Company, and MMC entered into an Investment Advisory
Agreement on July 30, 1993, under which MMC serves as the investment adviser
(the "Investment Adviser") for the Company; and
WHEREAS, MMC desires that its interest, rights, responsibilities and
obligations in and under the Investment Advisory Agreement be transferred to
SBMFM and SBMFM desires to assume MMC's interest, rights, responsibilities and
obligations in and under the Investment Advisory Agreement; and
WHEREAS, this Agreement does not result in a change of actual control or
management of the Investment Adviser to the Company and, therefore, is not an
"assignment" as defined in Section 2(a)(4) of the Act nor an "assignment" for
the purposes of Section 15(a)(4) of the Act.
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Assignment. Effective as of December 31, 1994 (the "Effective
Date"), MMC hereby transfers to SBMFM all of MMC's interest, rights,
responsibilities and obligations in and under the Investment Advisory
Agreement dated July 30, 1993, to which MMC is a party with the Company.
2. Assumption and Performance of Duties. As of the Effective Date,
SBMFM hereby accepts all of MMC's interest and rights, and assumes and agrees
to perform all of MMC's responsibilities and obligations in, and under the
Investment Advisory Agreement; SBMFM agrees to be subject to all of the terms
and conditions of said Agreement; and SBMFM shall indemnify and hold harmless
MMC from any claim or demand made thereunder arising or incurred after the
Effective Date.
3. Representation of SBMFM. SBMFM represents and warrants that: (1)
it is registered as an investment adviser under the Investment Advisers Act of
1940, as amended; and (2) Smith Barney Holdings Inc. is its sole shareholder.
4. Consent. The Company hereby consents to this transfer by MMC to
SBMFM of MMC's interest, rights, responsibilities and obligations in and under
the Investment Advisory Agreement and to the acceptance and assumption by
SBMFM of the same. The Company agrees, subject to the terms and conditions of
said Agreement, to look solely to SBMFM for the performance of the Investment
Adviser's responsibilities and obligations under said Agreement from and after
the Effective Date, and to recognize as inuring solely to SBMFM the interest
and rights heretofore held by MMC thereunder.
5. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers hereunto duly attested.
Attest:
By:
Secretary Managed Municipals Portfolio Inc.
Attest:
By:
Secretary Mutual Management Corp.
Attest:
By:
Secretary Smith Barney Mutual Funds
Management Inc.
shared/domestic/clients/shearson/fund/mmu
<TABLE> <S> <C>
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<CIK> 0000886043
<NAME> MANAGED MUNICIPALS PORTFOLIO
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<DISTRIBUTIONS-OF-GAINS> 222,483
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