filed with the Securities and Exchange Commission on August 16,
1999
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. 10
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 11
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) 816-6474
(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
787 Seventh Avenue
New York, New York 10019-6099
_______________
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 filing will become effective: [x] when
declared effective pursuant to section 8(c).
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;
Portfolio Expenses
4. Financial Highlights Financial Highlights
5. Plan of Distribution Prospectus Summary; The
Offering;
Certain Provisions of
the Articles of
Incorporation and Market Discount.
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; Net Asset Value; Share
PriceData; 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.
MANAGED MUNICIPALS PORTFOLIO INC.
PART A
<PAGE>
Prospectus September 28, 1999
Managed Municipals Portfolio Inc.
Common Stock
Listed on the New York Stock Exchange
Trading symbol -- MMU
Managed Municipals Portfolio Inc. is a non-diversified, closed-end
management investment company. The portfolio's investment objective is
to seek
as high a level of current income exempt from federal income tax as is
consistent with the preservation of capital. The portfolio invests
primarily in
long-term investment grade municipal debt securities issued by state and
local
governments, political subdivisions, agencies and public authorities
(municipal
obligations).
Shares of closed-end funds frequently have market prices that are
less than
the net asset value per share. For more information about this or other
risks
of investing in the portfolio, see "Risk Factors and Special
Considerations".
The prospectus contains important information about the portfolio.
For your
benefit and protection, please read it before you invest, and keep it on
hand
for future reference.
The statement of additional information (SAI) provides more detailed
information about the portfolio and is incorporated into this prospectus
by
reference. The SAI and shareholder reports can be obtained without
charge from
the portfolio by calling 1-800-331-1710 or writing to the portfolio at
388
Greenwich Street, New York, New York 10013. You can review and copy the
portfolio's shareholder reports, prospectus and statement of additional
information at the Securities and Exchange Commission's Public Reference
Room
in Washington, D.C. You can get copies of these materials for a
duplicating fee
by writing to the Public Reference Section of the Commission,
Washington, D.C.
20549-6009. Information about the Public Reference Room may be obtained
by
calling 1-800-SEC-0330. You can get the same information free from the
Commission's Internet web site at www.sec.gov.
The Securities and Exchange Commission has not approved or
disapproved these
securities or determined whether this prospectus is accurate or
complete. Any
statement to the contrary is a crime.
Salomon Smith Barney Inc.
SSBC Fund Management Inc.
Investment Manager and Administrator
1
<PAGE>
Table of Contents
<TABLE>
<S>
<C>
Prospectus Summary
3
- ------------------------------------------------------------------------
- ----
Portfolio Expenses
7
- ------------------------------------------------------------------------
- ----
Financial Highlights
8
- ------------------------------------------------------------------------
- ----
The Portfolio
9
- ------------------------------------------------------------------------
- ----
The Offering
9
- ------------------------------------------------------------------------
- ----
Use of Proceeds
9
- ------------------------------------------------------------------------
- ----
Investment Objective and Policies
9
- ------------------------------------------------------------------------
- ----
Risk Factors and Special Considerations
14
- ------------------------------------------------------------------------
- ----
Investment Restrictions
18
- ------------------------------------------------------------------------
- ----
Net Asset Value
19
- ------------------------------------------------------------------------
- ----
Share Price Data
20
- ------------------------------------------------------------------------
- ----
Taxation
20
- ------------------------------------------------------------------------
- ----
Management of the Portfolio
22
- ------------------------------------------------------------------------
- ----
Dividends and Distributions; Dividend Reinvestment Plan
24
- ------------------------------------------------------------------------
- ----
Certain Provisions of the Articles of Incorporation and Market Discount
25
- ------------------------------------------------------------------------
- ----
Description of Common Stock
27
- ------------------------------------------------------------------------
- ----
Custodian, Transfer Agent, Dividend-Paying Agent and Registrar
28
- ------------------------------------------------------------------------
- ----
Independent Auditors
28
- ------------------------------------------------------------------------
- ----
Further Information
28
- ------------------------------------------------------------------------
- ----
Appendix A
A-1
- ------------------------------------------------------------------------
- ----
Appendix B
B-1
- ------------------------------------------------------------------------
- ----
</TABLE>
2
<PAGE>
Prospectus Summary
The following is a summary of more complete information appearing
later in
the prospectus. You should read the entire prospectus because it
contains
details that are not in the summary. Cross references in the summary to
headings in the prospectus will help you locate information.
Investment Objective and Primary Investments The portfolio's
investment
objective is to seek as high a level of current income exempt from
federal
income tax as is consistent with the preservation of capital. The
portfolio
invests primarily in long-term investment grade municipal obligations.
Investment grade debt securities are those rated in one of the four
highest
rating categories by a nationally recognized statistical rating
organization.
Municipal obligations include bonds and notes such as:
. General obligation bonds issued for various public purposes and
supported
by the municipal issuer's credit and taxing power.
. Revenue bonds whose principal and interest is payable only from the
revenues of a particular project or facility. Industrial revenue
bonds
depend on the credit standing of a private issuer and may be subject
to
the federal alternative minimum tax (AMT).
. Notes that are short-term obligations of municipalities or agencies
sold
in anticipation of a bond sale, collection of taxes or receipt of
other
revenues.
Municipal obligations may have all types of interest rate payment and
reset
terms, including fixed rate, adjustable rate, zero coupon, payment in
kind and
auction rate features. See "Investment Objective and Policies" and
Appendix A.
Tax-Exempt Income The portfolio invests with the objective that
dividends
paid by the portfolio may be excluded by shareholders from their gross
incomes
for federal income tax purposes. A portion of the portfolio's dividends
may be
taxable. The portfolio may invest without limit in private activity
bonds.
Income from these bonds may be a special preference item for purposes of
the
AMT. The portfolio may not be a suitable investment if you are subject
to the
AMT. See "Investment Objective and Policies" and "Taxation."
The Offering The portfolio's shares of common stock trade on the New
York
Stock Exchange. In addition, Salomon Smith Barney may buy and sell the
portfolio's shares and will make a market in the common stock. Salomon
Smith
Barney is not obligated to conduct market-making activities and may stop
doing
so at any time without notice to the portfolio or its shareholders. See
"The
Offering" and "Use of Proceeds."
Listing NYSE.
3
<PAGE>
Prospectus Summary (continued)
Symbol MMU.
Investment Manager SSBC Fund Management Inc. ("SSBC" or "manager")
(formerly
Mutual Management Corp.). SSBC selects and manages the portfolio's
investments
in accordance with the portfolio's investment objective and policies.
SSBC is
also the portfolio's administrator and oversees the portfolio's non-
investment
operations and its relations with its service providers. For these
services,
SSBC receives a combined fee equal on an annual basis to 0.90% of the
portfolio's average daily net assets.
SSBC and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup
businesses produce a broad range of financial services--asset
management,
banking and consumer finance, credit and charge cards, insurance,
investments,
investment banking and trading--and use diverse channels to make them
available
to consumer and corporate customers around the world. See "Management of
the
Portfolio."
Risk Factors and Special Considerations The value of the portfolio's
securi-
ties fluctuate in price and the value of your investment in the
portfolio may
both appreciate and decline in value. This means that you could lose
money on
your investment in the portfolio or the portfolio could perform less
well than
other possible investments. In addition, the price of the shares is
determined
by market prices on the NYSE and elsewhere, so you may receive a price
that is
less than net asset value when you sell your shares. The principal risks
asso-
ciated with an investment in the portfolio are described below.
Municipal obligations. The portfolio invests primarily in municipal
obligations and may be affected by any of the following:
. Interest rates rise, causing the value of the portfolio's securities
to
decline.
. When interest rates are declining, the issuer of a security may
exercise
its right to prepay principal earlier than scheduled, forcing the
portfolio to reinvest in lower yielding securities. This is known as
call
or prepayment risk.
. The underlying revenue source for a municipal obligation, other than
a
general obligation bond, is insufficient to pay principal or
interest in
a timely manner.
. The credit rating of a security owned by the portfolio has its
credit
rating downgraded or there is a default on its payment of principal
and/or interest.
. The manager's judgment about the attractiveness, value or income
potential of a particular bond proves to be incorrect.
. Municipal obligations fall out of favor with investors.
4
<PAGE>
Prospectus Summary (continued)
. Unfavorable legislation affects the tax-exempt status of municipal
obligations.
Investment grade and unrated securities. The portfolio invests in
investment
grade debt securities and up to 20% of its assets in unrated securities
that
the manager believes are of comparable quality. The portfolio may
experience
more difficulty selling unrated securities because markets for these
securities
may be less liquid.
Concentration and non-diversification. The portfolio may invest more
than
25% of its assets in municipal securities that finance the same or
similar
facilities or in issuers located in the same state. In addition, the
portfolio
is non-diversified within the meaning of the Investment Company Act of
1940.
This means that, compared to a diversified fund, the portfolio may
invest a
greater portion of its assets in the obligations of a smaller number of
issuers. As a result, the portfolio may be subject to greater risk than
a
diversified fund.
Possibility of taxable income or gains. It is possible that some of
the
portfolio's income and gains may be subject to federal taxation. The
portfolio
may realize taxable gains on the sale of its securities, and some of the
portfolio's income may be subject to the federal alternative minimum
tax.
Derivatives. The portfolio may hold securities or use investment
techniques
that provide for payments based on or "derived" from the performance of
an
underlying asset, index or other economic benchmark.
Derivatives may be used:
. To shorten or lengthen the portfolio's effective maturity or
duration.
. As a substitute for purchasing or selling securities.
. To hedge against adverse changes caused by changing interest rates
in the
market value of securities held or to be bought by the portfolio.
A derivative contract will obligate or entitle the portfolio to
deliver or
receive an asset or cash payment that is based on the change in value of
one or
more securities or indices. Even a small investment in derivative
contracts can
have a big impact on the portfolio's interest rate exposure. Therefore,
using
derivatives can disproportionately increase losses and reduce
opportunities for
gains when interest rates are changing. The portfolio may not fully
benefit
from or may lose money on derivatives if changes in their value do not
corre-
spond accurately to changes in the value of the portfolio's holdings.
The other
parties to certain derivative contracts present the same types of
default risk
as issuers of fixed income securities. Derivatives can also make the
portfolio
less liquid and harder to value, especially in declining markets.
Derivatives
include futures and options transactions.
5
<PAGE>
Prospectus Summary (continued)
Closed end investment company. The portfolio is a closed-end
investment
company and its shares on the NYSE may trade at a price that is less
than its
net asset value.
Certain provisions in the portfolio's governing documents may limit
the
ability of other entities to acquire control of the portfolio. This
could
deprive shareholders of the opportunity to sell their shares at a
premium over
prevailing market prices.
See "Risk Factors and Special Considerations" and "Certain Provisions
of the Articles of Incorporation
and Market Discount."
Dividends and Distributions Any dividends from net investment income
(that
is, income other than net realized capital gains) are paid monthly and
any
distributions of net realized capital gains are paid annually. Your
dividends
or distributions are reinvested in additional portfolio shares through
participation in the Dividend Reinvestment Plan, unless you elect to
receive
cash. The number of shares issued to you by the plan depends on the
price of
the shares. The price of the shares is determined by the market price at
the
time the shares are purchased for reinvestment.
<TABLE>
<CAPTION>
Price of Portfolio Shares
Purchased Pursuant to the
Market Price of Portfolio Shares Plan
-------------------------------- ---------------------------
<S> <C>
Greater than or equal to net asset value Shares issued at net asset
value or 95% of market
price, whichever is greater
Less than net asset value Market price
</TABLE>
See "Dividends and Distributions; Dividend Reinvestment Plan."
Custodian PNC Bank, National Association (PNC Bank) is the
portfolio's
custodian. See "Custodian, Transfer Agent, Dividend-Paying Agent and
Registrar."
Transfer Agent, Dividend-Paying Agent and Registrar First Data
Investor
Services Group, Inc. (First Data) is the portfolio's transfer agent,
dividend-
paying agent and registrar. See "Custodian, Transfer Agent, Dividend-
Paying
Agent and Registrar."
6
<PAGE>
Portfolio Expenses
The following table shows the expenses the fund pays. As a
shareholder, you
indirectly bear these expenses.
<TABLE>
- ------------------------------------------------------------------------
- --------
<S>
<C>
Annual Expenses
(as a percentage of net assets)
Management
fees*....................................................... .90%
Other
expenses**....................................................... .12%
- ------------------------------------------------------------------------
- --------
Total Annual Operating
Expenses.......................................... 1.02%
- ------------------------------------------------------------------------
- --------
</TABLE>
* On September 1, 1998, SSBC instituted a voluntary waiver of a portion
of its
management fees in order to enable the Portfolio to increase its
dividend
yield. The waiver is a temporary measure and may be terminated at any
time
by SSBC. The amount stated above does not reflect this waiver. See
"Manage-
ment of the Fund -- Investment Manager and Administrator" in the SAI
for
further details.
** "Other expenses," as shown above are based on actual expenses for the
fiscal
year ending May 31, 1999.
Example
An investor would directly or indirectly pay the following expenses
on a
$1,000 investment, assuming (1) a 5% annual return and (2) reinvestment
of all
dividends and distributions at net asset value:
<TABLE>
<CAPTION>
One Year Three Years Five Years
Ten Years
- ------------------------------------------------------------------------
- ----------------------
<S> <C> <C>
<C>
$104 $325 $563
$1,248
- ------------------------------------------------------------------------
- ----------------------
</TABLE>
This example assumes reinvestment of all dividends and distributions
at net
asset value and that the percentage amounts listed under Annual Expenses
remain
the same in the years shown. This example should not be considered a
representation of future expenses of the fund. Actual expenses may be
more or
less than those shown.
7
<PAGE>
Financial Highlights
The following information for the four years ended May 31, 1999 has been
audited by KPMG LLP, independent auditors whose report thereon appears
in the
portfolio's annual report dated May 31, 1999. The information for the
fiscal years ended May 31, 1993 through May 31, 1995 has been audited by
other
independent auditors. This information should be read in conjunction
with the
financial statements and related notes that also appear in the
portfolio's
Annual Report, which is incorporated by reference into this prospectus
and the
statement of additional information.
For a share of capital stock outstanding throughout each period ended
May 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994
1993*
- ------------------------------------------------------------------------
- -----------
<S> <C> <C> <C> <C> <C> <C>
<C>
Net Asset Value,
Beginning of Year $12.37 $11.90 $12.11 $12.55 $12.26 $13.00
$12.00
Income (loss) From Operations:
Net investment income(1) 0.58 0.54 0.67 0.67 0.72
0.67 0.63
Net realized and
unrealized gain (loss) (0.32) 0.83 0.08 (0.35) 0.49
(0.23) 0.97
- ------------------------------------------------------------------------
- -----------
Total Income From
Operations 0.26 1.37 0.75 0.32 1.21 0.44
1.60
- ------------------------------------------------------------------------
- -----------
Offering Cost Charged to
Paid-In Capital -- -- -- -- -- --
(0.02)
Less Distributions From:
Net investment income (0.54) (0.61) (0.66) (0.75) (0.67)
(0.67) (0.55)
Net realized gains (0.12) (0.29) (0.30) (0.01) (0.25)
(0.51) (0.03)
- ------------------------------------------------------------------------
- -----------
Total Distributions (0.66) (0.90) (0.96) (0.76) (0.92)
(1.18) (0.58)
- ------------------------------------------------------------------------
- -----------
Net Asset Value, End of
Year $11.97 $12.37 $11.90 $12.11 $12.55 $12.26
$13.00
- ------------------------------------------------------------------------
- -----------
Total Return Based on
Market Value(2) 0.11% 2.08% 7.89% 8.26% 8.40%
2.98% 7.02%++
- ------------------------------------------------------------------------
- -----------
Total Return, Based on
Net Asset Value (2) 2.66% 12.14% 6.59% 2.79% 10.96%
3.45% 13.58%++
- ------------------------------------------------------------------------
- -----------
Net Assets, End of Year
(millions) $414 $428 $411 $418 $433 $423
$444
- ------------------------------------------------------------------------
- -----------
Ratios to Average Net
Assets:
Expenses (1) 0.94% 0.99% 1.00% 1.00% 1.02%
1.00% 0.98%+
Net investment income 4.72 4.35 5.56 5.35 5.97 5.15
5.48+
- ------------------------------------------------------------------------
- -----------
Portfolio Turnover Rate 23% 87% 113% 45% 93%
72% 169%
- ------------------------------------------------------------------------
- -----------
Market Value, End of
Year $10.38 $11.00 $11.63 $11.69 $11.50 $11.50
$12.25*
- ------------------------------------------------------------------------
- -----------
</TABLE>
(1) The investment advisor and administrator waived a portion of their
fees for
the year ended May 31, 1999. If such fees were not waived, the per
share
decrease in net investment income would have been $0.01. In
addition, the
ratio of expenses to average net assets would have been 1.02%.
(2) The total return calculation assumes that dividends are reinvested
in
accordance with the Portfolio's dividend reinvestment plan.
* For the period from June 26, 1992 (commencement of operations) to May
31,
1993.
+ Annualized.
++Total return is not annualized, as it may be representative of the
total
return for the year.
8
<PAGE>
The Portfolio
The portfolio was incorporated under the laws of the State of
Maryland on
April 9, 1992 and is registered under the 1940 Act. Its principal office
is
located at 388 Greenwich Street, New York, New York 10013. The
portfolio's
telephone number is (800) 331-1710.
The Offering
Salomon Smith Barney currently makes a market in the common stock.
This
prospectus is to be used by Salomon 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
the sale. Salomon Smith Barney is not required to make a market in the
common
stock and may stop doing so at any time. You should not rely on Salomon
Smith
Barney's market making activities to provide an active or liquid trading
market
for the common stock.
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 Salomon
Smith
Barney as a result of its market-making in the common stock will be used
by
Salomon Smith Barney in connection with its secondary market operations
and for
general corporate purposes.
Investment Objective and Policies
The portfolio's investment objective is to seek as high a level of
current
income exempt from federal income taxes as is consistent with the
preservation
of principal. The portfolio's investment objective may only be changed
with the
affirmative vote of the holders of a "majority of the portfolio's
outstanding
voting securities" (as defined in the 1940 Act). In seeking its
objective, the
portfolio invests in long-term municipal obligations. The portfolio
operates
subject to a fundamental investment policy providing that, under normal
conditions, the portfolio will invest at least 80% of its total assets
in
investment grade municipal obligations. No assurance can be given that
the
portfolio's investment objective will be achieved.
The portfolio will normally invest at least 80% of its total assets
in
municipal obligations rated investment grade at the time of investment.
Investment grade
9
<PAGE>
Investment Objective and Policies (continued)
securities are rated within the highest four rating categories by
Moody's
Investors Service, Inc. ("Moody's"), Standard and Poor's Rating Group
("S&P")
and FitchIBCA, Inc. ("Fitch") or another nationally-recognized rating
agency
("NRSRO"). A description of Moody's, S&P and Fitch ratings is set forth
in the
Appendix to the SAI. Up to 20% of the portfolio's total assets may be
invested
in unrated securities that are deemed by the manager to be of a quality
comparable to investment grade. The portfolio will not invest in
municipal
obligations that are not rated investment grade by any NRSRO, at the
time of
purchase. Although municipal obligations rated Baa by Moody's, BBB by
S&P or
BBB by Fitch are considered to be investment grade, they may be subject
to
greater risks than other higher rated investment grade securities.
Municipal
obligations rated Baa by Moody's, for example, are considered medium
grade
obligations that lack outstanding investment characteristics and have
speculative characteristics as well. Municipal obligations rated BBB by
S&P are
regarded as having an adequate capacity to pay principal and interest.
Municipal obligations rated BBB by Fitch are deemed to be subject to a
higher
likelihood that their rating will fall below investment grade than
higher rated
bonds.
The portfolio is classified as a non-diversified fund under the 1940
Act,
which means that the portfolio is not limited by the 1940 Act in the
proportion
of its assets that it may invest in the obligations of a single issuer.
The
portfolio intends to conduct its operations, however, so as to qualify
as a
"regulated investment company" for purposes of the Internal Revenue Code
of
1986, as amended (the "Code"), which will relieve the portfolio of any
liability for federal income tax to the extent its earnings are
distributed to
shareholders. To qualify as a regulated investment company, the
portfolio will,
among other things, limit its investments so that, at the close of each
quarter
of its taxable year (1) not more than 25% of the market value of the
portfolio's total assets will be invested in the securities of a single
issuer
and (2) with respect to 50% of the market value of its total assets, not
more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer. See "Taxation."
The portfolio generally will not invest more than 25% of its total
assets in
any single industry. Governmental issuers of municipal obligations are
not
considered part of any "industry." Municipal obligations backed only by
the
assets and revenues of non-governmental users may be deemed to be issued
by the
non-governmental users, and would be subject to the portfolio's 25%
industry
limitation. The portfolio may invest more than 25% of its total assets
in a
broad segment of the municipal obligations market, if the manager
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
10
<PAGE>
Investment Objective and Policies (continued)
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 susceptible to adverse economic,
business
or regulatory conditions in that state.
Municipal obligations are classified as general obligation bonds,
revenue
bonds and notes. General obligation bonds are secured by the issuer's
pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a
particular
facility or class of facilities or, in some cases, from the proceeds of
a
special excise tax or other specific revenue source, but not from the
general
taxing power. Notes are short-term obligations of issuing municipalities
or
agencies and are sold in anticipation of a bond sale, collection of
taxes or
receipt of other revenues. Municipal obligations bear fixed, floating
and
variable rates of interest, and variations exist in the security of
municipal
obligations, both within a particular classification and between
classifications. The types of municipal obligations in which the
portfolio may
invest are described in Appendix A to this prospectus.
The yields on, and values of, municipal obligations are dependent on
a
variety of factors, including general economic and monetary conditions,
money
market factors, conditions in the municipal obligations markets, size of
a
particular offering, maturity of the obligation and rating of the issue.
Consequently, municipal obligations with the same maturity, coupon and
rating
may have different yields or values, whereas obligations of the same
maturity
and coupon with different ratings may have the same yield or value.
Opinions relating to the validity of municipal obligations and to the
exemption of interest on them from federal income taxes are rendered by
bond
counsel to the respective issuers at the time of issuance. Neither the
portfolio nor the manager will review the procedures relating to the
issuance
of municipal obligations or the basis for opinions of counsel. Issuers
of
municipal obligations may be subject to the provisions of bankruptcy,
insolvency and other laws, affecting the rights and remedies of
creditors. In
addition, the obligations of those issuers may become subject to laws
enacted
in the future by Congress, state legislatures or referenda extending the
time
for payment of principal and/or interest, or imposing other constraints
upon
enforcement of the obligations or upon the ability of municipalities to
levy
taxes. The possibility also exists that, as a result of litigation or
other
conditions, the power or ability of any issuer to pay, when due, the
principal
of, and interest on, its obligations may be materially affected.
Under normal conditions, the portfolio may hold up to 20% of its
total
assets in cash or money market instruments, including taxable money
market
instruments (collectively, "taxable investments"). In addition, the
portfolio
may take a temporary defensive posture and invest without limitation in
short-
term
11
<PAGE>
Investment Objective and Policies (continued)
municipal obligations and taxable investments, upon a determination by
the
manager that market conditions warrant such a posture. To the extent the
portfolio holds taxable investments, the portfolio may not be fully
achieving
its investment objective.
Investment Techniques
The portfolio may employ, among others, the investment techniques
described
below, which may give rise to taxable income:
When-Issued and Delayed Delivery Transactions. The portfolio may
purchase
municipal securities on a "when-issued" and "delayed delivery" basis and
may
purchase or sell municipal securities on a "delayed delivery" basis in
order to
hedge against anticipated changes in interest rates and prices. No
income
accrues to the portfolio on municipal securities in connection with such
transactions prior to the date the portfolio actually takes delivery of
such
securities. These transactions are subject to market fluctuation; the
value of
the municipal securities at delivery may be more or less than their
purchase
price, and yields generally available on municipal securities when
delivery
occurs may be higher than yields on the municipal securities obtained
pursuant
to such transactions. Because the portfolio relies on the buyer or
seller, as
the case may be, to consummate the transaction, failure by the other
party to
complete the transaction may result in the portfolio missing the
opportunity of
obtaining a price or yield considered to be advantageous. When the
portfolio is
the buyer in such a transaction, however, it will maintain, in a
segregated
account, cash or liquid securities, having a value equal to at least the
portfolio's purchase commitments, provided such securities have been
determined
by the manager to be unencumbered, and are marked to market daily,
pursuant to
guidelines established by the directors. When the portfolio is the
seller in
such a transaction, it will cover its commitment to deliver the security
by
maintaining positions in portfolio securities that would serve to
satisfy or
offset the risk of such obligations. The portfolio will make commitments
to
purchase municipal securities on such basis only with the intention of
actually
acquiring these securities, but the portfolio may sell such securities
prior to
the settlement date if such sale is considered to be advisable.
To the extent the portfolio engages in "when-issued" and "delayed
delivery"
transactions, it will do so for the purpose of acquiring securities for
the
portfolio's portfolio consistent with the portfolio's investment
objective and
policies. However, although the portfolio does not intend to engage in
such
transactions for speculative purposes, purchases of securities on such
basis
may involve more risk than other types of purchases. For example, if the
portfolio determines it is necessary to sell the "when-issued" or
"delayed
delivery" securities before delivery, it may incur a gain or a loss
because of
market fluctuations since the time the commitment to purchase such
securities
was made.
12
<PAGE>
Investment Objective and Policies (continued)
Subject to the requirement of maintaining a segregated account, no
specified
limitation exists as to the percentage of the portfolio's assets which
may be
used to acquire securities on a "when-issued" or "delayed delivery"
basis. A
significant percentage of the portfolio's assets committed to the
purchase of
securities on a "when-issued" or "delayed delivery" basis may increase
the
volatility of the portfolio's net asset value and may limit the
flexibility to
manage the portfolio's investments.
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
exercise
of a stand-by commitment, therefore, is subject to the ability of the
seller to
make payment on demand. The portfolio will acquire stand-by commitments
solely
to facilitate liquidity and does not intend to exercise the rights
afforded by
the commitments for trading purposes.
Financial Futures and Options Transactions. To hedge against a
decline in
the value of municipal obligations it owns or an increase in the price
of
municipal obligations it proposes to purchase, the portfolio may enter
into
financial futures contracts and invest in options on financial futures
contracts that are traded on a U.S. exchange or board of trade. The
futures
contracts or options on futures contracts that may be entered into by
the
portfolio will be restricted to those that are either based on an index
of
municipal obligations or relate to debt securities the prices of which
are
anticipated by the manager to correlate with the prices of the municipal
obligations owned or to be purchased by the portfolio. Regulations of
the
Commodity Futures Trading Commission ("CFTC") applicable to the
portfolio
require that its transactions in futures and options be engaged in for
"bona
fide hedging" purposes or other permitted purposes, provided that
aggregate
initial margin deposits and premiums required to establish positions
other than
those considered by the CFTC to be "bona fide hedging" will not exceed
5% of
the portfolio's net asset value, after taking into account unrealized
profits
and unrealized losses on such contracts.
A financial futures contract provides for the future sale by one
party and
the purchase by the other party of a certain amount of a specified
property at
a specified price, date, time and place. Unlike the direct investment in
a
futures contract, an option on a financial futures contract gives the
purchaser
the right, in return for the premium paid, to assume a position in the
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
13
<PAGE>
Investment Objective and Policies (continued)
call, or is less than, in the case of a put, the exercise price of the
option
on the futures contract. The potential loss related to the purchase of
an
option on financial futures contracts is limited to the premium paid for
the
option (plus transaction costs). The value of the option may change
daily and
that change would be reflected in the net asset value of the portfolio.
Lending Securities. The portfolio is authorized to lend securities it
holds
to brokers, dealers and other financial organizations, but it will not
lend
securities to any affiliate of the manager 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 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 the issuers of instruments acceptable
for
purchase by the portfolio and with certain dealers on the Federal
Reserve Bank
of New York's list of reporting dealers. A repurchase agreement is a
contract
under which the buyer of a security simultaneously commits to resell the
security to the seller at an agreed-upon price on an agreed-upon date.
Under
the terms of a typical repurchase agreement, the portfolio would acquire
an
underlying debt obligation for a relatively short period subject to an
obligation of the seller to repurchase, and the portfolio to resell, the
obligation at an agreed-upon price and time, thereby determining the
yield
during the portfolio's holding period. This arrangement results in a
fixed rate
of return that is not subject to market fluctuations during the
portfolio's
holding period. Under each repurchase agreement, the selling institution
will
be required to maintain the value of the securities subject to the
repurchase
agreement at not less than their repurchase price.
Risk Factors and Special Considerations
There are risks associated with an investment in the portfolio. You
should
consider whether the portfolio is an appropriate investment for you. The
portfolio invests substantially all of its assets in municipal
obligations, and
circumstances or events that affect the value of municipal obligations
will
affect the portfolio's net asset value. While certain risks are
discussed
elsewhere in this prospectus, the following is intended to provide a
summary of
the principal risks of an investment in the fund.
14
<PAGE>
Risk Factors and Special Considerations (continued)
Interest rate sensitivity
.Municipal obligations are fixed-income securities which are
sensitive to
changes in interest rates. Generally, when interest rates are rising,
the value
of the portfolio's fixed-income securities can be expected to decrease.
When
interest rates are declining, the value of the portfolio's fixed-income
securities can be expected to increase. The portfolio's net asset value
may
fluctuate in response to the increasing or decreasing value of the
portfolio's
fixed-income securities.
Less liquid markets for some municipal obligations
.The market for municipal obligations may be less liquid than for
corporate
bonds. The market for special obligation bonds, lease obligations,
participation certificates and variable rate instruments, which the
portfolio
may purchase, may be less liquid than for general obligation bonds.
.Less liquid markets tend to be more volatile and react more
negatively to
adverse publicity and investor perception than more liquid markets. If
markets
are less liquid, the portfolio may not be able to dispose of municipal
obligations in a timely manner and at a fair price.
.Some of the portfolio's investments may be restricted as to resale.
Although restricted securities may be sold in private transactions, a
security's value may be less than the price originally paid by the
portfolio.
The ability of the manager to value illiquid or restricted securities
will be
more difficult and the manager's judgment may play a greater role in
their
valuation.
Issuer of a municipal obligation may default on its obligation to pay
.The issuer of a municipal obligation may not be able to make timely
payments of interest and principal because of general economic downturns
or
adverse allocation of government cost burdens. If an issuer did not make
timely
payments, the portfolio would not receive the anticipated income from
the
investment and the value of the investment might be reduced. This could
result
in a decrease in the portfolio's net asset value and adversely affect
the
fund's ability to pay dividends. This risk of default may be greater for
private activity bonds or other municipal obligation whose payments are
dependent upon a specific source of revenue.
.Even if the issuer does not actually default, adverse changes in the
issuer's financial condition may negatively affect its credit rating or
presumed creditworthiness. These developments would adversely affect the
market
value of the issuer's obligations.
Issuer of a municipal obligation declares bankruptcy
.The issuer of a municipal obligation might declare bankruptcy and
the
portfolio could experience delays collecting interest and principal. To
enforce
its
15
<PAGE>
Risk Factors and Special Considerations (continued)
rights, the portfolio might be required to take possession of and manage
the
assets securing the issuer's obligation. This may increase the
portfolio's
expenses, reduce its net asset value and increase the amount of the
portfolio's
distribution that is in taxable form.
.If the portfolio took possession of a bankrupt issuer's assets,
income
derived from the portfolio's ownership and management of the assets may
not be
tax exempt. Shareholders may receive more of the total distributions
from the
portfolio in taxable form.
.The portfolio might not be able to take possession of the assets of
a
bankrupt issuer because of laws protecting state and local institutions,
limits
on the investments the portfolio is permitted to make, and the nature of
the
income the portfolio is entitled to receive from its investments imposed
on it
by the Code. If the portfolio cannot take possession of the assets and
enforce
its rights, the value of the security may be greatly diminished. This
could
reduce the portfolio's net asset value.
Adverse governmental action
.The U.S. government has enacted laws that have restricted or
diminished the
income tax exemption on some municipal obligations and it may do so
again in
the future. If this were to happen, shareholders could receive more of
the
distributions from the portfolio in taxable form.
.There may be less extensive information available about the
financial
condition of issuers of municipal obligations than for corporate issuers
with
publicly traded securities.
Municipal Obligations Purchased at a Premium
.The issuer of a municipal obligation may be obligated to redeem the
security at face value, but if the portfolio paid more than face value
for the
security, the portfolio may lose money on the security when it is sold.
Municipal Leases
.These leases frequently contain clauses that permit the governmental
issuer
to stop making interest and principal payments if money is not
appropriated by
the legislature annually or on some other periodic basis.
.These leases are less liquid than municipal obligations and may be
difficult to value and to sell at a fair price.
.If the issuer is foreclosed upon, the assets securing these leases
may be
difficult to dispose of.
When-Issued and Delayed Delivery Transactions
The portfolio may use when-issued and delayed delivery transactions
to
purchase securities. The value of securities purchased in these
transactions
may decrease before they are delivered to the portfolio. Also, the yield
on
securities purchased in these transactions may be higher in the market
when the
delivery takes place.
16
<PAGE>
Risk Factors and Special Considerations (continued)
Repurchase Agreements
The portfolio may use repurchase agreements to manage its cash
position. If
the other party to the agreement defaults, the portfolio may not be able
to
sell the underlying securities. If the portfolio must assert its rights
against
the other party to recover the securities, the portfolio will incur
unexpected
expenses, risk losing the income on the security and assume the risk of
loss in
the value of the security.
Lending Securities
If the party borrowing the portfolio's securities fails financially,
the
portfolio may be unable to recover the loaned securities.
Financial Futures and Options
The portfolio may use financial futures contracts and options on
these
contracts to protect the portfolio from a decline in the price of
municipal
obligations it owns or an increase in the price of a municipal
obligation it
plans to buy. There are risks associated with futures and options
transactions.
.Because it is not possible to perfectly correlate the price of the
securities being hedged with the price movement in a futures contract,
it is
not possible to provide a perfect offset on losses on the futures
contract or
the option on the contract.
.Because there is imperfect correlation between the portfolio's
securities
that are hedged and the futures contract, the hedge may not be fully
effective.
Losses on the portfolio's security may be greater than gains on the
future
contract, or losses on the futures contract may be greater than gains on
the
securities subject to the hedge.
.To compensate for imperfect correlation, the portfolio may over-
hedge or
under-hedge by entering into a futures contract or options on futures
contracts
in dollar amounts greater or lesser than the dollar amounts of the
securities
being hedged. If market movements are not as anticipated, the portfolio
could
lose money from these positions.
.If the portfolio hedges against an increase in interest rates, and
rates
decline instead, the portfolio will lose all or part of the benefit of
the
increase in value of the securities it hedged. This loss will occur
because it
will have offsetting losses in its futures or options positions. Also,
in order
to meet margin requirements, the portfolio may have to sell securities
at a
time it would not normally choose.
Concentration and Non-Diversification
The portfolio may concentrate its assets in municipal securities that
finance the same or similar facilities or in issuers located in the same
state.
If the portfolio concentrates its assets, it may be more adversely
affected by
events affecting those issuers than if it were investing in a broader
range of
securities. In addition,
17
<PAGE>
Risk Factors and Special Considerations (continued)
the portfolio is non-diversified within the meaning of the Investment
Company
Act of 1940. This means that, compared to a diversified fund, the
portfolio may
invest a greater portion of its assets in the obligations of a smaller
number
of issuers. As a result, the portfolio may be subject to greater risk
than a
diversified fund.
Year 2000
Information technology experts are concerned about computer systems'
ability
to process date-related information on and after January 1, 2000. This
situation, commonly known as the "Year 2000" issue, could have an
adverse
impact on the portfolio. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect governments that issue securities
held by
the underlying portfolio. The manager is addressing the Year 2000 issue
for
their systems. The portfolio has been informed by its other service
providers
that they are taking similar measures. Although the portfolio does not
expect
the Year 2000 issue to adversely affect it, the portfolio cannot
guarantee that
its efforts or those of its service providers to correct the problem
will be
successful.
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 outstanding voting securities of the portfolio," within the meaning
of the
1940 Act. A "majority of the 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.
The following are several of the restrictions applicable to the fund.
For a
complete listing of the investment restrictions applicable to the fund,
see
"Investment Restrictions" in the SAI. Any percentage limits apply only
at the
time of initial investment. The fund is not required to sell securities
if the
limits are exceeded after the investment is completed. The fund may not:
. Borrow money, except for temporary or emergency purposes, and then
not in
amounts that are greater than 15% of total assets (including the
amount
borrowed).
. Buy more securities if the fund had borrowed money in amounts
greater
than 5% of net assets.
. Invest more than 25% of total assets in securities of issuers in a
single
industry. This restriction does not apply to the fund's investments
in
municipal obligations and U.S. government securities.
18
<PAGE>
Net Asset Value
The portfolio's net asset value is calculated as of the close of
regular
trading on the NYSE, currently 4:00 p.m., New York time, on the last day
on
which the NYSE is open for trading of each week and month. Net asset
value is
calculated by dividing the value of the portfolio's net assets (the
value of
its assets less its liabilities, exclusive of capital stock and surplus)
by the
total number of shares of common stock outstanding. Investments in U.S.
Government securities having a maturity of 60 days or less are valued at
amortized cost. All other securities and assets are taken at fair value
as
determined in good faith by or under the direction of the board of
directors.
The valuation of the portfolio's assets is made by the manager after
consultation with an independent pricing service (the "service")
approved by
the board of directors. When, in the judgment of the service, quoted bid
prices
for investments are readily available and are representative of the bid
side of
the market, these investments are valued at the mean between the quoted
bid
prices and asked prices. Investments for which, in the judgment of the
service,
no readily obtainable market quotation is available (which may
constitute a
majority of the portfolio's securities), are carried at fair value as
determined by the service. The service may use electronic data
processing
techniques and/or a matrix system to determine valuations. The
procedures of
the service are reviewed periodically by the officers of the portfolio
under
the general supervision and responsibility of the board of directors,
which may
replace the service at any time if it determines it to be in the best
interests
of the portfolio to do so.
19
<PAGE>
Share Price Data
The common stock is listed on the NYSE under the symbol "MMU."
Salomon Smith
Barney currently intends to buy and sell the portfolio's shares in order
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 during the
last
two fiscal years and for the first quarter of 1999.
<TABLE>
<CAPTION>
Quarterly High Price Quarterly Low Price
-------------------- -------------------
Net Asset NYSE Discount Net Asset NYSE Discount
Value Price to NAV Value Price to NAV
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
8/31/97 $12.27 $12.188 (0.67)% $11.94 $11.625 (2.71)%
11/30/97 12.44 12.000 (3.67) 12.40 11.375 (9.01)
2/28/98 12.54 12.375 (1.32) 12.35 11.438 (7.97)
5/31/98 11.34 11.625 (6.15) 12.35 10.875 (13.56)
8/31/98 12.36 12.313 (9.25) 12.39 10.688 (15.92)
11/30/98 12.44 11.750 (5.87) 12.45 10.813 (15.14)
2/28/99 12.44 11.594 (7.30) 12.24 10.688 (14.52)
5/31/99 12.25 11.000 (11.36) 11.97 10.313 (16.07)
8/31/99
- -----------------------------------------------------------------
</TABLE>
As of , 1999, the price of common stock as quoted on the NYSE
was
$ , representing an % 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
affecting the portfolio and portfolio shareholders. Please refer to the
SAI for
further discussion. In addition to the considerations described below
and in
the SAI, there may be other federal, state, local, or foreign tax
implications
to consider. Because taxes are a complex matter, you are urged to
consult your
tax advisor for more detailed information with respect to the
consequences of
an investment.
The portfolio has qualified and intends to qualify, as it has in
prior
years, under Subchapter M of the Code for tax treatment as a regulated
investment company so long as such qualification is in the best
interests of
its shareholders. In each taxable year that the portfolio qualifies, the
portfolio will pay no federal income tax on its net investment income
and long-
term capital gain that is
20
<PAGE>
Taxation (continued)
distributed to shareholders. The portfolio also intends to satisfy
conditions
that will enable it to pay "exempt-interest dividends" to shareholders.
Exempt-
interest dividends are generally not subject to regular federal income
taxes
but may be considered taxable for state and local income (or intangible)
tax
purposes.
Exempt-interest dividends attributable to interest received by the
portfolio
on certain "private-activity" bonds will be treated as a specific tax
preference item to be included in a shareholder's alternative minimum
tax
computation. In addition to the alternative minimum tax, corporate
shareholders
must include this percentage as a component in the corporate
environmental tax
computation. Exempt-interest dividends derived from the interest earned
on
private activity bonds will not be exempt from federal income tax for
those
shareholders who are "substantial users" (or persons related to
"substantial
users") of the facilities financed by these bonds.
Shareholders who receive social security or equivalent railroad
retirement
benefits should note that exempt-interest dividends are one of the items
taken
into consideration in determining the amount of these benefits that may
be
subject to federal income tax.
The interest expense incurred by a shareholder on borrowings made to
purchase, or carry portfolio shares, are not deductible for federal
income tax
purposes to the extent related to the exempt-interest dividends received
on
such shares.
Dividends paid by the portfolio from interest income on taxable
investments,
net realized short-term securities gains, and all or a portion of any
gains
realized from the sale or other disposition of certain market discount
bonds
are subject to federal income tax as ordinary income. Distributions, if
any,
from net realized long-term securities gains are taxable as long-term
capital
gains, regardless of the length of time a shareholder has owned
portfolio
shares.
Distributions, if any, from net realized long-term securities gains
are
taxable as long-term capital gains, regardless of the length of time a
shareholder has owned portfolio shares.
Shareholders are required to pay tax on all taxable distributions
even if
those distributions are automatically reinvested in additional portfolio
shares. None of the dividends paid by the portfolio will qualify for the
corporate dividends received deduction. The portfolio will inform
shareholders
of the source and tax status of all distributions promptly after the
close of
each calendar year.
The portfolio is required to withhold ("backup withholding") 31% of
all
taxable dividends, capital gain distributions, and the proceeds of any
redemption, regardless of whether gain or loss is realized upon the
redemption,
for shareholders who do not provide the portfolio with a correct
taxpayer
identification number (social security or employer identification
number).
21
<PAGE>
Taxation (continued)
Withholding from taxable dividends and capital gain distributions also
is
required for shareholders who otherwise are subject to backup
withholding. Any
tax withheld as a result of backup withholding does not constitute an
additional tax, and may be claimed as a credit on the shareholders'
Federal
income tax return.
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 manager, administrator, custodian and
transfer
agent. The day-to-day operations of the portfolio are delegated to the
portfolio's manager. The SAI contains background information regarding
each
Director and executive officer of the portfolio.
Investment Manager and Administrator
SSBC, located at 388 Greenwich Street, New York, New York 10013,
serves as
the portfolio's investment adviser. The manager, through its
predecessors, has
been in the investment counseling business since 1968 and renders
investment
advice to a wide variety of individual, institutional and investment
company
clients with aggregate assets under management as of , 1999 in
excess of
$ billion. The manager is an affiliate of Salomon Smith Barney. The
manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup
businesses produce a broad range of financial services--asset
management,
banking and consumer finance, credit and charge cards, insurance,
investments,
investment banking and trading--and use diverse channels to make them
available
to consumer and corporate customers around the world.
Subject to the supervision and direction of the portfolio's board of
directors, the SSBC manages the securities held by the portfolio in
accordance
with the portfolio's stated investment objective and policies, makes
investment
decisions for the portfolio, places orders to purchase and sell
securities on
behalf of the portfolio and employs managers and securities analysts who
provide research services to the portfolio. The portfolio pays the
manager a
fee for services provided to the portfolio that is computed daily and
paid
monthly at the annual rate of 0.70% of the value of the portfolio's
average
daily net assets. In addition, SSBC serves as administrator and is paid
a fee
by the portfolio that is computed daily and paid monthly at an annual
rate of
0.20% of the value of the portfolio's average daily net assets.
22
<PAGE>
Management of the Portfolio (continued)
Transactions on behalf of the portfolio are allocated to various
dealers by
the manager in its best judgment. The primary consideration is prompt
and
effective execution of orders at the most favorable price. Subject to
that
primary consideration, dealers may be selected for their research,
statistical
or other services to enable the manager to supplement its own research
and
analysis with the views and information of other securities firms. The
portfolio may use Salomon Smith Barney or an affiliate broker in
connection
with the purchase or sale of securities when the manager believes that
the
broker's charge for the transaction does not exceed usual and customary
levels.
The same standard applies to the use of Salomon 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, because transactions
in fixed
income securities are executed as principal transactions by the various
dealers.
Citigroup is a bank holding company subject to regulation under the
Bank
Holding Company Act of 1956 (the "BHCA"), the requirements of the Glass-
Steagall Act and certain other laws and regulations.
Salomon Smith Barney and the manager believe that the manager's
investment
management and administration services and the market-making activities
performed by Salomon Smith Barney are not underwriting and are
consistent with
the BHCA, the Glass-Steagall Act and other federal and state laws
applicable to
Citigroup. However, there is little controlling precedent regarding the
performance of the combination of investment advisory and administrative
activities by subsidiaries of bank holding companies. If Salomon Smith
Barney
and the manager, or their affiliates, were to be prevented from acting
as the
manager or administrator, the fund would seek alternative means for
obtaining
these services. The fund does not expect that shareholders would suffer
any
adverse financial consequences as a result of any such occurrence.
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 in this capacity since the portfolio commenced operations in
1992
and manages the day-to-day operations of the portfolio, including making
all
investment decisions. Mr. Deane is an Investment Officer of SSBC and is
the
senior portfolio manager for a number of investment companies and other
accounts investing in tax-exempt securities.
23
<PAGE>
Dividends and Distributions; Dividend Reinvestment Plan
The portfolio generally 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. From time to time, when the
portfolio
makes a substantial capital gains distribution, it may do so in lieu of
paying
its regular monthly dividend. All dividends or distributions with
respect to
shares of common stock are reinvested automatically in additional shares
through participation in the portfolio's dividend reinvestment plan (the
"plan"), unless a shareholder elects to receive cash.
Under the plan, a shareholder whose shares of common stock are
registered in
his or her own name will have all distributions from the portfolio
reinvested
automatically by First Data as purchasing agent under the plan, unless
the
shareholder elects to receive cash. Distributions with respect to shares
registered in the name of a broker-dealer or other nominee (that is, in
"street
name") will be reinvested by the broker or nominee in additional shares
under
the plan, unless the service is not provided by the broker or nominee or
the
shareholder elects to receive distributions in cash. Investors who own
common
stock registered in street name should consult their broker-dealers for
details
regarding reinvestment. All distributions to portfolio shareholders who
do not
participate in the plan will be paid by check mailed directly to the
record
holder by or under the direction of 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 on the date of valuation, plan participants will be issued shares
of
common stock at a price equal to the greater of (1) the net asset value
per
share most recently determined as described under "Net Asset Value" or
(2) 95%
of the market price.
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
participants' 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
portion of
the dividend or distribution by issuing shares at a price equal to the
greater
of (a) net asset value or (b) 95% of the then current market price. In
this
case, the number of shares of common stock received by a plan
participant will
be based on the weighted average of prices paid for shares purchased in
the
open market and the price at which the portfolio issues the remaining
shares.
To the extent First Data is unable to stop open market purchases and
cause the
portfolio to issue the
24
<PAGE>
Dividends and Distributions; Dividend Reinvestment Plan (continued)
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 portfolio at net asset value. First Data
will
begin to purchase common stock on the open market as soon as practicable
after
the payment date of the dividend or capital gains distribution, but in
no event
shall such purchases continue later than 30 days after that date, except
when
necessary to comply with applicable provisions of the federal securities
laws.
First Data maintains all shareholder accounts in the plan and
furnishes
written confirmations of all transactions in each account, including
information needed by a shareholder for personal and tax records. The
automatic
reinvestment of dividends and capital gains distributions will not
relieve plan
participants of any income tax that may be payable on the dividends or
capital
gains distributions common stock in the account of each plan participant
will
be held by First Data in uncertificated form in the name of each plan
participant.
Plan participants are subject to no charge for reinvesting dividends
and
capital gains distributions under the plan. 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 of common
stock
issued directly by the portfolio under the plan. Each plan participant
will,
however, bear a proportionate share of brokerage commissions incurred
with
respect to any open market purchases made under the plan.
The portfolio reserves the right to amend or terminate the plan as
applied
to any dividend or capital gains distribution paid subsequent to written
notice
of the change sent to participants at least 30 days before the record
date for
the dividend or capital gains distribution. The plan also may be amended
or
terminated by 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, P.O. Box 8030, Boston, Massachusetts 02266-8030 or by telephone
at 1-
800-451-2010.
Certain Provisions of the Articles of Incorporation and Market Discount
Anti-Takeover Provisions
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.
25
<PAGE>
Certain Provisions of the Articles of Incorporation and Market Discount
(continued)
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
addition, unless 75% of the board of directors approves the transaction,
the
affirmative 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
investment 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 portfolio 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.
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.
Market Discount
Shares of common stock of closed-end investment companies frequently
trade
at a discount from net asset value, although in some cases they may
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 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 were
below,
net asset value.
26
<PAGE>
Certain Provisions of the Articles of Incorporation and Market Discount
(continued)
Some closed-end investment companies have taken certain actions,
including
the repurchase 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 specified above, which some other closed-end portfolios have used
to
address the discount. 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. The
portfolio's
manager may voluntarily waive its fees from time to time in order to
increase
the portfolio's dividend yield in an effort to reduce the discount. Any
such
waiver may be terminated at any time, and there can be no assurance that
such
actions would be successful at reducing the discount.
Description of Common Stock
<TABLE>
<CAPTION>
Amount
Outstanding
Exclusive of
Amount Held Shares Held
by
by Portfolio Portfolio for
its
for its Own Own Account
as
Title of Class Amount Authorized Account of September ,
1999
- ------------------------------------------------------------------------
- -----
<S> <C> <C> <C>
Common Stock 500,000,000 shares --
- ------------------------------------------------------------------------
- -----
</TABLE>
No shares, other than those currently outstanding, are offered for
sale
pursuant to this prospectus. All shares of common stock have equal non-
cumulative voting rights and equal rights with respect to dividends,
assets and
liquidations. Shares of common stock will be fully paid and non-
assessable when
issued and have no preemptive, conversion or exchange rights. A majority
of the
votes cast at any meeting of shareholders is sufficient to take or
authorize
action, except for election of Directors or as otherwise provided in the
portfolio's Articles of Incorporation as described under "Certain
Provisions of
the Articles of Incorporation and Market Discount."
Under the rules of the NYSE applicable to listed companies, the
portfolio is
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
27
<PAGE>
Description of Common Stock (continued)
exchange the rules of which require annual meetings of shareholders),
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 "Dividends and
Distributions; Dividend Reinvestment Plan." Such offerings of shares, if
made,
will require approval of the portfolio's board of directors and will be
subject
to the requirement of the 1940 Act that shares may not be sold at a
price below
the then current net asset value (exclusive of underwriting discounts
and
commissions) except in connection with an offering to existing
shareholders or
with the consent of a majority of the portfolio's outstanding shares.
Custodian, Transfer Agent, Dividend-Paying Agent and Registrar
PNC Bank, located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania
19103, acts as custodian of the portfolio's investments. First Data,
located at
One Exchange Place, Boston, Massachusetts 02109, serves as agent in
connection
with the plan and serves as the portfolio's transfer agent, dividend-
paying
agent and registrar.
Independent Auditors
The audited financial statements have been incorporated by reference
in the
SAI in reliance upon the report of KPMG LLP, independent auditors, and
upon the
authority of said firm as experts in accounting and auditing.
Further Information
This prospectus does not contain all of the information set forth in
the
registration statement filed with the SEC. The complete registration
statement
may be obtained from the SEC upon payment of any applicable fee
prescribed by
its rules and regulations.
28
<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 as may be described in the
prospectus.
Municipal Bonds
Municipal bonds are debt obligations issued to obtain funds for
various
public purposes. The two principal classifications of municipal bonds
are
"general obligation" and "revenue" bonds. General obligation bonds are
secured
by the issuer's pledge of its full faith, credit and taxing power for
the
payment of principal and interest. Revenue bonds are payable only from
the
revenues derived from a particular facility or class of facilities or,
in some
cases, from the proceeds of a special excise tax or from another
specific
source, such as the user of the facility being financed. Certain
municipal
bonds are "moral obligation" issues, which normally are issued by
special
purpose public authorities. In the case of such issues, an express or
implied
"moral obligation" of a stated government unit is pledged to the payment
of the
debt service but is usually subject to annual budget appropriations.
Industrial Development Bonds and Private Activity Bonds
Industrial development bonds ("IDBs") and private activity bonds
("PABs")
are municipal bonds issued by or on behalf of public authorities to
finance
various privately operated facilities, such as airports or pollution
control
facilities. IDBs and PABs generally do not carry the pledge of the
credit of
the issuing municipality, but are guaranteed by the corporate entity on
whose
behalf they are issued. IDBs and PABs are generally revenue bonds and
thus are
not payable from the unrestricted revenue of the issuer. The credit
quality of
IDBs and PABs is usually directly related to the credit standing of the
user of
the facilities being financed.
Municipal Lease Obligations
Municipal lease obligations are municipal obligations that may take
the form
of leases, installment purchase contracts or conditional sales
contracts, or
certificates of participation with respect to such contracts or leases.
Municipal lease obligations are issued by state and local governments
and
authorities to purchase land or various types of equipment and
facilities.
Although municipal lease obligations do not constitute general
obligations of
the municipality for which the municipality's taxing authority is
pledged, they
ordinarily are backed by the municipality's covenant to budget for,
appropriate
and make the payments due under the lease obligation. The leases
underlying
certain municipal obligations, however, provide that lease payments are
subject
to partial or full
A-1
<PAGE>
Appendix A (continued)
abatement if, because of material damage or destruction of the leased
property,
there is substantial interference with the lessee's use or occupancy of
such
property. This "abatement risk" may be reduced by the existence of
insurance
covering the leased property, the maintenance by the lessee of reserve
funds or
the provision of credit enhancements such as letters of credit.
The liquidity of municipal lease obligations varies. Municipal leases
held
by the portfolio will be considered illiquid securities unless the
portfolio's
board of directors determines on an on-going basis that the leases are
readily
marketable. Certain municipal lease obligations contain "non-
appropriation"
clauses which provide that the municipality has no obligation to make
lease or
installment purchase payments in future years unless money is
appropriated for
such purpose on a yearly basis. In the case of a "non-appropriation"
lease, the
portfolio's ability to recover under the lease in the event of non-
appropriation or default will be limited solely to the repossession of
the
leased property, without recourse to the general credit of the lessee,
and
disposition of the property in the event of foreclosure might be
difficult. The
portfolio will not invest more than 5% of its assets in such "non-
appropriation" municipal lease obligations.
Zero Coupon Obligations
The portfolio may invest in zero coupon municipal obligations. Such
obligations include "pure zero" obligations, which pay no interest for
their
entire life (either because they bear no stated rate of interest or
because
their stated rate of interest is not payable until maturity), and
"zero/fixed"
obligations, which pay no interest for an initial period and thereafter
pay
interest currently. Zero coupon obligations also include securities
representing the principal-only components of municipal obligations from
which
the interest components have been stripped and sold separately by the
holders
of the underlying municipal obligations. Zero coupon securities usually
trade
at a deep discount from their face or par value and will be subject to
greater
fluctuations in market value in response to changing rates than
obligations of
comparable maturity that make current distributions of interest. While
zero
coupon municipal obligations will not contribute to the cash available
to the
portfolio, the manager believes that limited investments in such
securities may
facilitate the portfolio's ability to preserve capital while generating
tax-
exempt income through the accrual of original interest discount. Zero
coupon
municipal obligations generally are liquid, although such liquidity may
be
reduced from time to time due to interest rate volatility and other
factors.
The portfolio may invest up to 10% of its total assets in zero coupon
municipal
obligations.
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
A-2
<PAGE>
Appendix A (continued)
time, or at specified intervals, and permit the issuer to prepay
principal,
plus accrued interest, at its discretion after a specified notice
period. The
issuer's obligations under the demand feature of such notes and bonds
generally
are secured by bank letters of credit or other credit support
arrangements.
There frequently will be no secondary market for variable and floating
rate
obligations held by the portfolio, although the portfolio may be able to
obtain
payment of principal at face value by exercising the demand feature of
the
obligation.
Participation Interests
The portfolio may invest up to 5% of its total assets in
participation
interests in municipal bonds, including IDBs, PABs and floating and
variable
rate securities. A participation interest gives the portfolio an
undivided
interest in a municipal bond owned by a bank. The portfolio has the
right to
sell the instrument back to the bank. If the participation interest is
unrated,
it will be backed by an irrevocable letter of credit or guarantee of a
bank
that the portfolio's board of directors has determined meets certain
credit
quality standards or the payment obligation will otherwise be
collateralized by
U.S. government securities. The portfolio will have the right, with
respect to
certain participation interests, to draw on the letter of credit on
demand,
after specified notice for all or any part of the principal amount of
the
portfolio's participation interest, plus accrued interest. Generally,
the
portfolio intends to exercise the demand under the letters of credit or
other
guarantees only upon a default under the terms of the underlying bond,
or to
maintain the portfolio's assets in accordance with its investment
objective and
policies. The ability of a bank to fulfill its obligations under a
letter of
credit or guarantee might be affected by possible financial difficulties
of its
borrowers, adverse interest rate or economic conditions, regulatory
limitations
or other factors. The manager will monitor the pricing, quality and
liquidity
of the participation interests held by the portfolio and the credit
standing of
the banks issuing letters of credit or guarantees supporting such
participation
interests on the basis of published financial information reports of
rating
services and bank analytical services.
Custodial Receipts
The portfolio may acquire custodial receipts or certificates
underwritten by
securities dealers or banks that evidence ownership of future interest
payments, principal payments or both on certain municipal obligations.
The
underwriter of these certificates or receipts typically purchases
municipal
obligations and deposits the obligations in an irrevocable trust or
custodial
account with a custodian bank, which then issues receipts or
certificates that
evidence ownership of the periodic unmatured coupon payments and the
final
principal payment on the obligations. Custodial receipts evidencing
specific
coupon or principal payments have the same economic attributes as zero
coupon
municipal obligations
A-3
<PAGE>
Appendix A (continued)
described above. Although under the terms of the custodial receipt the
portfolio would be typically authorized to assert its rights directly
against
the issuer of the underlying obligation, the portfolio could be required
to
assert through the custodian bank those rights that may exist against
the
underlying issuer. Thus, in the event the underlying issuer fails to pay
principal or interest when due, the portfolio may be subject to delays,
expenses and risks that are greater than those that would have been
involved if
the portfolio had purchased a direct obligation of the issuer. In
addition, in
the event the trust or custodial account in which the underlying
security has
been deposited is determined to be an association taxable as a
corporation,
instead of a non-taxable entity, the yield on the underlying security
would be
reduced in recognition of any taxes paid.
Municipal Obligation Components
The portfolio may invest in municipal obligations, the interest rate
on
which has been divided by the issuer into two different and variable
components, which together result in a fixed interest rate. Typically,
the
first of the components (the "auction component") pays an interest rate
that is
reset periodically through an auction process, whereas the second of the
components (the "residual component") pays a residual interest rate
based on
the difference between the total interest paid by the issuer on the
municipal
obligation and the auction rate paid on the auction component. The
portfolio
may purchase both auction and residual components. Because the interest
rate
paid to holders of residual components is generally determined by
subtracting
the interest rate paid to the holders of auction components from a fixed
amount, the interest rate paid to residual component holders will
decrease as
the auction component's rate increases and increase as the auction
component's
rate decreases. Moreover, the extent of the increases and decreases in
market
value of residual components may be larger than comparable changes in
the
market value of an equal principal amount of a fixed rate municipal
obligation
having similar credit quality, redemption provisions and maturity.
A-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 Tax-Exempt Rate
Marginal ---------------
Rate 2.0% 3.0% 4.0% 5.0% 6.0%
7.0%
- ------------------------------------------------------------------------
- --------
Single Joint Equivalent Taxable Yield
- ------------------------------------------------------------------------
- --------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
$ 0- 25,750 $ 0- 43,050 15.0% 2.35% 3.53% 4.71% 5.88%
7.06% 8.24%
25,751- 62,450 43,051-104,050 28.0 2.78 4.17 5.56 6.94 8.33
9.72
62,451-130,250 104,051-158,550 31.0 2.90 4.35 5.80 7.25 8.70
10.14
130,251-283,150 158,551-283,150 36.0 3.13 4.69 6.25 7.81 9.38
10.94
over 283,150 over 283,150 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 1999.
The
calculations assume that no income will be subject to the federal
alternative
minimum tax.
B-1
<PAGE>
SALOMONSMITHBARNEY
-----------------------
- -------
A member of citigroup
[LOGO]
Managed Municipals
Portfolio
Inc.
388 Greenwich Street
New York, New York
10013
Common Stock
(Investment Company
Act File No. 811-6629)
FD01205 9/99
All dealers effecting transactions in the portfolio's securities,
whether or
not participating in this distribution, may be required to give
investors a
prospectus.
If someone makes a statement about the portfolio that is not in this
prospectus, you should not rely upon that information. This prospectus
does not
offer any security other than the portfolio's shares of common stock.
Neither
the portfolio nor Salomon Smith Barney is offering to sell shares of the
portfolio to any person to whom the portfolio may not lawfully sell its
shares.
There may be changes in the portfolio's affairs that occur after the
date of
the prospectus. The portfolio will publish a supplement to the
prospectus if
there are any material changes in its business.
MANAGED MUNICIPALS PORTFOLIO INC.
PART B
Managed Municipals Portfolio Inc.
388 Greenwich Street
New York, NY 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
September 28, 1999
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, invests
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. SSBC Fund Management Inc. ("SSBC" or "manager"),
(formally known as Mutual Management Corp. and Smith Barney Mutual
Funds) serves as investment manager of the portfolio.
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current prospectus of the
portfolio, dated September 28, 1999, 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 Salomon Smith
Barney Financial Consultant or by writing or calling the portfolio at
the address or telephone number set forth above. This SAI, 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 SAI 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 SAI 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 SAI 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 SAI will be
supplemented or amended accordingly.
CONTENTS
Investment Objective and Policies (see in the Prospectus
"Appendix")...............................2
Portfolio Transactions and Turnover............................................
..........................11
Management of the Portfolio (see in the Prospectus "Management of the
Portfolio"...............13
Taxes (see in the Prospectus "Taxation")......................................
...........................17
Stock Purchases and Tenders (see in the Prospectus "Certain Provisions
of the Articles of
Incorporated" and "Description of Common Stock")............................
......................21
Additional Information .......................................................
..............................23
Financial Statements..........................................................
...............................24
Appendix......................................................................
...............................A-1
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 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 Ratings Group ("S&P") and Fitch IBCA,
Inc. ("Fitch") and other nationally recognized statistical rating
organizations ("NRSROs") represent the opinions of the NRSROs as to the
quality of the municipal obligations and other debt securities 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 SSBC. Among the factors that
will also be considered by the manager in evaluating potential municipal
obligations to be held by the portfolio are the price, coupon and yield
to maturity of the obligations, the manager's 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 the manager's 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 the manager 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 MIG1 by Moody's,
SP-1 by S&P or F-1 by Fitch or, if not rated by issuers having
outstanding unsecured debt then rated within the three highest rating
categories; bank obligations (including certificates of deposit, time
deposits and bankers' acceptances of domestic banks, domestic savings
and loan associations and similar institutions); commercial paper rated
no lower than P-1 by Moody's, A-1 by S&P or F-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: (1) the portfolio
must receive at least 100% cash collateral or equivalent securities from
the borrower, which will be maintained by daily marking-to-market; (2)
the borrower must increase the collateral whenever the market value of
the securities loaned rises above the level of the collateral; (3) the
portfolio must be able to terminate the loan at any time; (4) the
portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and
any increase in market value; (5) the portfolio may pay only reasonable
custodian fees in connection with the loan; and (6) voting rights on the
loaned securities may pass to the borrower, except that, if a material
event adversely affecting the investment in the loaned securities
occurs, the portfolio's board of directors must terminate the loan and
retain the portfolio's right to vote the securities. From time to time,
the portfolio may pay a part of the interest earned from the investment
of collateral received for securities loaned to the borrower and/or a
third party that is unaffiliated with the portfolio and that is acting
as a "finder."
Repurchase Agreements
The portfolio may enter into repurchase agreements with certain
member banks of the Federal Reserve System and certain dealers on the
Federal Reserve Bank of New York's list of reporting dealers. Under the
terms of a typical repurchase agreement, the Portfolio would acquire an
underlying debt obligation for a relatively short period (usually not
more than one week) subject to an obligation of the seller to repurchase
and the portfolio to resell the obligation at an agreed-upon price and
time thereby determining the yield during the portfolio's holding
period. Under each repurchase agreement, the selling institution will
be required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. The
manager acting under the supervision of the portfolio's board of
directors, reviews on an ongoing basis the value of the collateral and
the creditworthiness of those banks and dealers with which the portfolio
enters into repurchase agreements to evaluate potential risks. In
entering into a repurchase agreement, the portfolio will bear a risk of
loss in the event that the other party to the transaction defaults on
its obligations and the portfolio is delayed or prevented from
exercising its rights to dispose of the underlying securities, including
the risk of a possible decline in the value of the underlying securities
during the period in which the portfolio seeks to assert its rights to
them, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or a part of the income from the
agreement.
Investments in Municipal Obligation Index and Interest Rate Futures
Contracts and Options on Interest Rate Futures Contracts
The portfolio may invest in municipal obligation index and
interest rate futures contracts and options on interest rate futures
contracts that are traded on a domestic exchange or board of trade.
Such investments may be made by the portfolio solely for the purpose of
hedging against changes in the value of its portfolio securities due to
anticipated changes in interest rates and market conditions, and not for
purposes of speculation. Further, such investments will be made only in
unusual circumstances such as when the manager anticipates an extreme
change in interest rates or market conditions.
Municipal Obligation Index and Interest Rate Futures Contracts. A
municipal obligation index futures contract is an agreement to take or
make delivery of an amount of cash equal to a specific dollar amount
times the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index
contract is originally written. No physical delivery of the underlying
municipal obligations in the index is made. Interest rate futures
contracts are contracts for the future purchase or sale of specified
interest rate sensitive debt securities of the U.S. Treasury, such as
U.S. Treasury bills, bonds and notes, obligations of the Government
National Mortgage Association and bank certificates of deposit.
Although most interest rate futures contracts require the delivery of
the underlying securities, some settle in cash. Each contract
designates the price date, time and place of delivery.
The purpose of the portfolio's entering into a municipal
obligation index or interest rate futures contract, as the holder of
long-term municipal obligations, is to protect the portfolio from
fluctuation in interest rates on tax-exempt securities without actually
buying or selling municipal obligations. The portfolio will, with
respect to its purchases of financial futures contracts establish a
segregated account consisting of cash, U.S. government securities,
equity securites or debt securities of any grade in an amount at least
equal to the total market value of the futures contracts less the amount
of initial margin on deposit for the contracts.
Unlike the purchase or sale of a municipal obligation, no
consideration is paid or received by the portfolio upon the purchase or
sale of a futures contract. Initially, the portfolio will be required
to deposit with the futures commission merchant an amount of cash or
cash equivalents equal to approximately 5% of the contract amount (this
amount is subject to change by the board of trade on which the contract
is traded and members of such board of trade may charge a higher
amount). This amount is known as "initial margin" and is in the nature
of a performance bond or good faith deposit on the contract which is
returned to the portfolio upon termination of the futures contract,
assuming that all contractual obligations have been satisfied.
Subsequent payments known as "variation margin", to and from the futures
commission merchant, will be made on a daily basis as the price of the
index or securities fluctuates making the long and short positions in
the futures contract more or less valuable, a process known as marking-
to-market. At any time prior to the expiration of the contract, the
portfolio may elect to close the position by taking an opposite
position, which will operate to terminate the portfolio's existing
position in the futures contract.
There are several risks in connection with the use of municipal
obligation index and interest rate futures contracts as a hedging
device. Successful use of these futures contracts by the portfolio is
subject to the manager's ability to predict correctly movements in the
direction of interest rates. Such predictions involve skills and
techniques which may be different from those involved in the management
of a long-term municipal obligation portfolio. In addition, there can
be no assurance that a correlation would exist between movements in the
price of the municipal obligation index or the debt security underlying
the futures contract and movement in the price of the municipal
obligations which are the subject of the hedge. The degree of
imperfection of correlation depends upon various circumstances, such as
variations in speculative market demand for futures contracts and
municipal obligations and technical influences on futures trading. The
portfolio's municipal obligations and the municipal obligations in the
index may also differ in such respects as interest rate levels,
maturities and creditworthiness of issuers. A decision of whether, when
and how to hedge involves the exercise of skill and judgment and even a
well-conceived hedge may be unsuccessful to some degree because of
market behavior or unexpected trends in interest rates.
Although the portfolio intends to enter into futures contracts
only if an active market exists for such contracts, there can be no
assurance that an active market will exist for a contract at any
particular time, most domestic futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices
during a single trading day. The daily limit establishes the maximum
amount the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit. The daily
limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. It is possible that futures
contract prices could move to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses. In such event it will not be possible to close a
futures position and in the event of adverse price movements, the
portfolio would be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. As described above, however,
there is no guarantee the price of municipal obligations will, in fact,
correlate with the price movements in a futures contract and thus
provide an offset to losses on a futures contract.
If the portfolio has hedged against the possibility of an increase
in interest rates adversely affecting the value of municipal obligations
it holds and rates decrease instead, the portfolio will lose part or all
of the benefit of the increased value of the municipal obligations it
has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the portfolio has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will
not necessarily, be at increased prices which reflect the decline in
interest rates. The portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
Options on Interest Rate Futures Contracts. The portfolio may
purchase put and call options on interest rate futures contracts which
are traded on a domestic exchange or board of trade as a hedge against
changes in interest rates, and may enter into closing transactions with
respect to such options to terminate existing positions. The portfolio
will sell put and call options on interest rate futures contracts only
as part of closing sale transactions to terminate its options positions.
There is no guarantee such closing transactions can be effected.
Options on interest rate futures contracts, as contrasted with the
direct investment in such contracts, give the purchaser the right, in
return for the premium paid, to assume a position in interest rate
futures contracts at a specified exercise price at any time prior to the
expiration date of the options. Upon exercise of an option, the
delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract exceeds, in the
case of a call, or is less than, in the case of a put, the exercise
price of the option on the futures contract. The potential loss related
to the purchase of an option on interest rate futures contracts is
limited to the premium paid for the option (plus transaction costs).
Because the value of the option is fixed at the point of sale, there are
no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that
change would be reflected in the net asset value of the portfolio.
There are several risks relating to options on interest rate
futures contracts. The ability to establish and close out positions on
such options will be subject to the existence of a liquid market. In
addition, the portfolio's purchase of put or call options will be based
upon predictions as to anticipated interest rate trends by the manager
which could prove to be inaccurate. Even if the manager's expectations
are correct, there may be an imperfect correlation between the change in
the value of the options and of the portfolio's securities.
Municipal Obligations
General Information. Municipal obligations generally are
understood to include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of
public facilities, refunding of outstanding obligations, payment of
general operating expenses and extensions of loans to public
institutions and facilities. Private activity bonds that are issued by
or on behalf of public authorities to obtain funds to provide privately
operated facilities are included within the term municipal obligations
if the interest paid thereon qualifies as excludable from gross income
(but not necessarily from alternative minimum taxable income) for
federal income tax purposes in the opinion of bond counsel to the
issuer.
The yields on municipal obligations are dependent upon a variety
of factors, including general economic and monetary conditions, general
money market conditions, general conditions of the municipal obligations
market, the financial condition of the issuer, the size of a particular
offering, the maturity of the obligation offered and the rating of the
issue. Municipal obligations are also subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies
of creditors, such as the Federal Bankruptcy Code, and laws, if any,
that may be enacted by Congress or state legislatures extending the time
for payment of principal or interest, or both, or imposing other
constraints upon enforcement of the obligations or upon the ability of
municipalities to levy taxes. There is also the possibility that as a
result of litigation or other conditions the power or ability of any one
or more issuers 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 the manager 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 the manager
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 will be
established . Such separate account shall consist of cash, U.S.
government securities, equity securities or debt securities of any grade
equal to or greater than the amount of the when-issued commitments,
provided such securities have been determined by the manager to be
liquid and unencumbered, and are marked to market daily pursuant to
guidelines established by the portfolio's directors. 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 the manager deems to be
comparable in quality to rated issues in which the Portfolio is
authorized to invest. A determination by the manager 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 the manager 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 the manager to be of high quality and minimal
credit risk is not deemed to be illiquid solely because the underlying
municipal lease is unrated if the manager 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 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 as described in the prospectus and this SAI.
7. Lend any funds or other assets except through purchasing municipal
obligations or taxable investments, lending portfolio securities
and entering into repurchase agreements consistent with the
portfolio's investment objective.
8. Issue senior securities.
9. Invest more than 25% of its total assets in the securities of
issuers in any single industry, except that this limitation will
not be applicable to the purchase of municipal obligations and U.S.
government securities.
10. Make any investments for the purpose of exercising control or
management of any company.
PORTFOLIO TRANSACTIONS AND TURNOVER
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 the manager in its best judgment and in a
manner deemed fair and reasonable to shareholders. The primary
considerations are availability of the desired security and the prompt
execution of orders in an effective manner at the most favorable prices.
Subject to these considerations, dealers that provide supplemental
investment research and statistical or other services to the manager may
receive orders for portfolio transactions by the portfolio. Information
so received is in addition to, and not in lieu of, services required to
be performed by the manager and the fees of the manager are not reduced
as a consequence of their receipt of such supplemental information.
Such information may be useful to the manager 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
the manager 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
Salomon Smith Barney Inc. ("Salomon Smith Barney") or its affiliates are
members except to the extent permitted by the Securities and Exchange
Commission (the "SEC") including under Rule 10f-3 under the 1940 Act.
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 the manager
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 the manager are prepared to invest in, or desire to dispose
of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the manager to be equitable to
each. In some cases, this procedure may adversely affect the price paid
or received by the 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, 1997, 1998 and
1999 the portfolio's portfolio turnover rate was 113%, 87% and 23%,
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
SSBC Investment Manager and
Administrator
Salomon Smith Barney Market Maker
PNC Bank, National Association. 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 the manager and SSBC, 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(Age)
Positions Held
With the Fund
Principal Occupations
During Past 5 Years
+*Heath B. McLendon
(66)
388 Greenwich Street
New York, NY 10013
Chairman of the
Board,
Chief Executive
Officer
And President
Managing Director of Salomon
Smith Barney; Director of 64
investment companies
associated with Citigroup;
President of SSBC and
Travelers Investment
Advisers, Inc. ("TIA");
former Chairman of Salomon
Smith Barney Strategy
Advisers Inc.
+ Martin Brody (78)
c\o HMK Associates
30 Columbia Turnpike
Florham Park, NJ
07932
Director
Consultant, HMK Associates;
Retired Vice Chairman of the
Board of Restaurant
Associates Corp.; Director of
Jaclyn, Inc.
+Allan J. Bloostein
(69)
717 Fifth Avenue
21st Floor
New York, NY 10022
Director
President of Allan J.
Bloostein Associates, a
consulting firm; retired Vice
Chairman and Director of the
Board of May Department
Stores Company; Director of
Taubman Centers, Inc. and CVS
Corporation.
+ Dwight B. Crane (61)
Harvard Business
School
Soldiers Field Road
Boston, MA 02163
Director
Professor, Harvard Business
School Director Peer Review
Analysis, Inc.
+ Robert A. Frankel
(72)
102 Grand Street
Croton-on-Hudson
New York, NY 10520
Director
Managing Partner of Robert A.
Frankel Management
Consultants; formerly
Corporate Vice President of
The Reader's Digest
Association, Inc.
+ William R.
Hutchinson (55)
Amoco Corp.
200 East Randolph
Drive
Chicago, IL 60601
Director
Group Vice President, Mergers
& Acquisitions BP Amoco
p.l.c. since January 1, 1999;
formerly Vice President-
Financial Operations Amoco
Corp.; Director of Associated
Bank and Associated Bank
Corp.
Joseph P. Deane (51)
388 Greenwich Street
New York. NY 10013
Vice President and
Investment Officer
Managing Director of Salomon
Smith Barney; Investment
Officer of SSBC.
David Fare (37)
388 Greenwich Street
New York, NY 10013
Investment Officer
Investment Officer of SSBC.
Lewis E. Daidone
(42)
388 Greenwich Street
New York, NY 10013
Senior Vice
President
and Treasurer
Managing Director of Salomon
Smith Barney; Chief Financial
Officer, Director and Senior
Vice President of SSBC and
TIA.
Christina T. Sydor
(48)
388 Greenwich Street
New York, NY 10013
Secretary
Managing Director of Salomon
Smith Barney; General Counsel
and Secretary of SSBC and
TIA.
* 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 Salomon Smith Barney is affiliated.
The portfolio pays each of its directors who is not a director,
officer or employee of SSBC, or any of its affiliates, an annual fee of
$5,000 plus $500 for each in-person board meeting and $100 for each
telephonic board meeting attended. In addition, the portfolio will
reimburse these directors for travel and out-of-pocket expenses incurred
in connection with board of directors meetings. For the fiscal year
ended May 31, 1999, such fees totaled $39,213.98.
Director
Aggregate
Compensation from
Fund
Pension or
Retirement
Benefits
Accrued as
part of
Fund
Expenses
Total
Compensati
on from
Fund and
Fund
Complex
Total
Number of
Funds for
which
Director
Serves
Within Fund
Complex
Martin Brody
6,800
0
132,500
20
Dwight Crane
7,200
0
139,975
23
Allan Bloostein
7,200
0
90,560
9
Robert Frankel
7,300
0
72,250
9
William R.
Hutchinson
7,200
0
42,450
7
Heath B. McLendon*
- -----
0
- -----
64
* Designates an "interested person" of the portfolio.
Upon attainment of age 80, portfolio directors are required to change to
emeritus status. Directors emeritus are entitled to serve in emeritus
status for a maximum of 10 years, during which time they are paid 50%
of the annual retainer fee and meeting fees otherwise applicable to
portfolio directors, together with reasonable out-of-pocket expenses
for each meeting attended. During the portfolio's last fiscal year,
aggregate compensation paid by the portfolio to directors emeritus
totaled $19,550.
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 September __, 1999;
Percent
of
Name and Address Amount of Common
of Record Owner Record Stock
Ownership
Outstanding
Cede & Co., as Nominee for The Depository Trust Company [
] [ ]%
P.O. Box 20
Bowling Green Station
New York, New York 10004
As of September __, 1999, 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 Manager and Administrator
The manager 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 the manager ("non-interested
directors"), on August 25, 1999. 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 drectors or by a vote of a majority of the outstanding
shares of common sock. The manager is an affiliate of Salomon Smith
Barney and an indirect wholly owned subsidiary of Citigroup Inc. The
manager pays the salary of any officer or employee who is employed by
both it and the portfolio. The manager bears all expenses in connection
with the performance of its services as investment adviser.
For investment adviser services rendered to the portfolio, the
manager 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, 1997, 1998 and 1999, such
fees amounted to $2,913,886, $2,969,275 and $2,635,733 respectively.
Effective September 1, 1998, the manager instituted a voluntary fee
waiver whereby its advisory fees were received at an annual rate of
0.46% of average daily net assets. This voluntary waiver was terminated
as of January 1, 1999.
Under the advisory agreement, the manager 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 the manager 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 the manager. The advisory
agreement may also be terminated by the manager on 90 days' written
notice to the portfolio. The advisory agreement terminates
automatically upon its assignment.
SSBC serves as administrator to the portfolio pursuant to a
written agreement dated June 1, 1994 (the "administration agreement"), a
form of which was most recently approved by the board of directors,
including a majority of non-interested directors, on August 25, 1999.
The services provided by SSBC under the administration agreement are
described in the prospectus under "Management of the Portfolio."
For administrator services rendered to the portfolio, SSBC
received 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, 1997, 1998 and 1999, SSBC or its
predecessor received $832,539, $848,364 and $851,917, respectively, in
administration fees.
Pursuant to the administration agreement, SSBC will exercise its
best judgment in rendering its services to the portfolio. SSBC 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 SSBC's reckless
disregard of its obligations and duties under the administration
agreement.
The administration 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
administration 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 the SSBC.
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 Salomon 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 be
taxed as a regulated investment company, 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; and
(3) 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. 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 SAI and in the prospectus, the
portfolio may invest in financial futures contracts and options on
financial futures contracts that are traded on a U.S. exchange or board
of trade. The portfolio anticipates that these investment activities
will not prevent the portfolio from qualifying as a regulated investment
company. As a general rule, these investment activities will increase or
decrease the amount of long-term and short-term capital gains or losses
realized by the portfolio and thus will affect the amount of capital
gains distributed to the portfolio shareholders.
For federal income tax purposes, gain or loss on the futures and
options described above (collectively referred to as "Section 1256
Contracts") would, as a general rule, be taxed pursuant to a special
"mark-to-market system." Under the mark-to-market system, the portfolio
may be treated as realizing a greater or lesser amount of gains or
losses than actually realized. As a general rule gain or loss on Section
1256 Contracts is treated as 60% long term capital gain or loss and 40%
short-term capital gain or loss, and as a result, the mark-to-market
system will generally affect the amount of capital gains or losses
taxable to the portfolio and the amount of distributions taxable to a
shareholder. Investments in both Section 1256 Contracts and offsetting
positions to those contracts, may result in the portfolio not being able
to receive the benefit of certain realized losses for an indeterminate
period of time.
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, whether paid in cash or shares.
Distributions of net long-term capital gains, if any, that the Fund
designates as capital gains dividends are taxable as long-term capital
gains 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 to the extent it is deemed related to exempt-interest
dividends. 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 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. 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 the a federal alternative minimum 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
including the amount, if any, of long-term capital gain distributions.
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. 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.
Backup Withholding
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest income
or fails to certify that he has provided a correct taxpayer
identification number and that he is not subject to "backup
withholding," the shareholder may be subject to a 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.
The market prices of the portfolio shares may 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. Any acquisition of common stock by the portfolio 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.
If a tender offer for the common stock of the portfolio is
authorized to be made by the portfolio 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. 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. The board of directors
is divided into three classes. At the annual meeting of shareholders
each year, 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 authorize the conversion of the portfolio
from a closed-end to an open-end investment company's as 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
holders of at least 75% of the shares of the portfolio are required to
authorize any of the following transactions (referred to individually as
a "Business Combination"): (1) a merger, consolidation or share exchange
of the portfolio with or into any other person (referred to individually
as a "Reorganization Transaction"); (2) the issuance or transfer by the
portfolio (in one or a series of transactions in any 12-month period) of
any securities of the portfolio to any other person or entity for cash,
securities 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 issuance's of securities
of the portfolio upon the exercise for any stock subscriptions rights
distributed by the portfolio; or (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 a "Termination Transaction"); and any
shareholder proposal as to specific investment decisions made or to be
made with respect to the portfolio's assets.
A 75% shareholder vote will not be required with respect to a
Business Combination if the transaction is approved by a vote of a least
75% of the Continuing Directors (as defined below) or if certain
conditions regarding the consideration paid by the person entering into,
or proposing to enter into, a Business Combination with the portfolio
and various other requirements are satisfied. In such case, a majority
of the votes entitled to be cast by shareholders of the portfolio will
be required to approve the transaction if it is a Reorganization
Transaction or a Transfer Transaction that involves substantially all of
the portfolio's assets and no shareholder vote will be required to
approve the transaction if it is any other Business Combination. In
addition, a 75% shareholder vote will not be required with respect to a
Termination Transaction if it is approved by a vote of at least 75% of
the Continuing Directors, in which case a majority of the votes entitled
to be cast by shareholders of the portfolio will be required to approve
the transaction.
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 sock 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 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.
ADDITIONAL INFORMATION
Legal Matters
Willkie Farr & Gallagher serves as legal counsel to the portfolio.
The directors who are not "interested persons" of the portfolio have
selected Stroock & Stroock & Lavan LLP as their counsel.
Independent Auditors
For the fiscal year ending May 31, 2000, KPMG LLP, 345 Park
Avenue, New York, New York 10154, will serve as auditors of the
portfolio and render an opinion on the Portfolio's financial statements.
Custodian, Transfer Agent, Dividend-Paying Agent and Registrar
PNC Bank, is located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103 and serves as the portfolio's custodian pursuant to a
custody agreement. Under the custody agreement, PNC Bank holds
portfolio's securities and keeps all necessary accounts and records.
The assets of the portfolio are held under bank custodianship in
compliance with the 1940 Act. First Data is located at One Exchange
Place Boston, Massachusetts 02109, and serves as the Portfolio's
transfer agent pursuant to a transfer agency agreement. 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,
1999 are incorporated into this SAI by reference in their entirety. A
copy of these Reports may be obtained from any Salomon 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 SAI.
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- 1 (or related supporting institutions)
are considered to have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of
short-term promissory obligations, normally evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity
is maintained.
Description of S&P Municipal Bond Ratings:
AAA - These bonds are the obligations of the highest quality and have
the strongest capacity for timely payment of debt service.
General Obligation Bonds Rated AAA - In a period of economic stress the
issuers of these bonds will suffer the smallest declines in income and
will be least susceptible to autonomous decline. Debt burden is
moderate. A strong revenue structure appears more than adequate to meet
future expenditure requirements. Quality of management appears superior.
Revenue Bonds Rated AAA - 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 SP-1 -2 or -3) to distinguish more
clearly the credit quality of notes as compared to bonds. Notes rated
SP- 1 have a very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics are given the designation of SP- 1+. Notes rated SP-2
have a satisfactory capacity to pay principal and interest.
Description of S&P Commercial Paper Ratings:
Commercial paper rated A- 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 strong but the relative degree of safety is not as high as issues
designated A-1.
Description of Fitch Municipal Bond Ratings:
AAA - Bonds rated AAA by Fitch have the lowest expectation of credit
risk. The obligor has an exceptionally strong ability for timely payment
of financial commitments which is highly unlikely to be adversely
affected by foreseeable events.
AA - Bonds rated AA by Fitch have a very low expectation of credit risk.
They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
A - Bonds rated A by Fitch are considered to have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be strong, but may be more vulnerable to changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds rated BBB by Fitch currently have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be adequate. Adverse changes is economic conditions and
circumstances, however, are more likely to impair this capacity. This is
the lowest investment grade category assigned by Fitch.
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 investment notes.
The short-term rating places greater emphasis than a long-term
rating on the existence of liquidity necessary to meet financial
commitments in a timely manner.
Fitch's short-term ratings are as follows:
F-1 + - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments. The "+" denotes an
exceptionally strong credit feature.
F-1 - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.
F-2 - Issues assigned this rating have a satisfactory capacity for
timely payment of financial commitments, but the margin of safety is not
as great as in the case of the higher ratings.
F-3 - The capacity for the timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction
to non-investment grade.
24
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, 1999 and
Report of Independent Accountants
dated July 15, 1999 are incorporated by
reference to the Definitive 30(b)2-1 filed
on August 13, 1999,
Accession # 0000091155-99-000508
(2) Exhibits:
(a) (i) Articles of Incorporation*
(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 filed herewith.
(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 ##
(k) (i) Transfer Agency and Registrar Agreement
between Registrant and TSSG***
(ii) Administration Agreement between
Registrant and Mutual
Management Corp. incorporated by reference
in Post-Effective Amendment No. 7.
(l) Not Applicable
(m) Not Applicable
(n) Consent of KPMG 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) Financial Data Schedules (filed herewith).
________________________________________
* 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.
# 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").
## Incorporated by reference to the Registrant's Post-Effective
Amendement No.8 to its initial registration statement on form N-2,
Registration No. 33-47116, filed with the SEC on September 23, 1996.
Item 25. Marketing Arrangements
See Forms of Purchase Agreement and Underwriting Agreement filed
as Exhibits (h) and (p).
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 $8000
Legal Fees 0
Accounting Expenses 0
Miscellaneous Expenses 0
Item 27. Persons Controlled by or Under Common Control
None
Item 28. Number of Holders of Securities
Title of Class Number of
Record
Stockholders
as of August 12, 1999
Shares of Common Stock, 18,344
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.
SSBC Fund Management Inc. (formerly known as Mutual Management
Corp.) ("SSBC") a New York corporation, is
a registered investment adviser and is wholly owned by Salomon Smith
Barney Holdings Inc., which in turn is wholly owned by Citigroup Inc.
SSBC is primarily engaged in the investment advisory business.
Information as to executive officers and directors of SSBC is included
in its
Form ADV filed with the Securities and Exchange Commission
(Registration number 801-8314) and is incorporated herein by
reference.
Item 31. Location of Accounts and Records
SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
First Data Investor Services Group, Inc.
101 Federal Street
Boston, Massachusetts 02110
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.
(b) For the purpose of determining any liability under the Act, each
post-effective amendment shall be deemed to be a new Registration
Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Not Applicable
5. 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 16th day of August, 1999.
MANAGED MUNICIPALS PORTFOLIO INC.
By:/s/Heath B. McLendon
Heath B. McLendon
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement and the above
Power of Attorney has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/Heath B. McLendon
Heath B. McLendon Chairman of the Board,
8/13/99
Chief Executive Officer
and President
/s/Lewis E. Daidone
Lewis E. Daidone Senior Vice President
and Treasurer
8/13/99
/s/ Allan J. Bloostein*
Allan J. Bloostein Director
8/13/99
/s/ Martin Brody*
Martin Brody Director
8/13/99
/s/ Dwight B. Crane*
Dwight B. Crane Director 8/13/99
/s/ Robert A. Frankel*
Robert A. Frankel Director 8/13/99
/s/ William R. Hutchinson*
William Hutchinson Director
8/13/99
* By: /s/Health B. McLendon
Heath B. McLendon
Attorney-in-Fact
EXHIBIT INDEX
(e) Dividend Reinvestment Plan
(n) Auditors' Consent
(r) Financial Data Schedule
MANAGED MUNICIPALS PORTFOLIO INC.
RESTATED TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT PLAN
1. You, First Data Investor Services Group, Inc., will
act as agent ("Agent") for the participating stockholders (the
"Participants") of each fund referenced above (each, the "Fund"), and
will open an account for each of the Participants under the Dividend
Reinvestment Plan (the "Plan") in the name of the record owner in which
shares of the Fund's common stock, par value $.001 per share ("Common
Stock") are registered, and put into effect for the Participants the
distribution reinvestment provisions of the Plan.
2. If the Fund declares a distribution payable either in
Common Stock or in cash, non-participants in the Plan will receive cash,
and Participants will receive the equivalent amount in Common Stock
valued in the following manner: if the market price of the Common Stock
on the determination date is equal to or exceeds 98% of the net asset
value per share of the Common Stock, you will acquire shares directly
from the Fund at a price equal to the greater of (1) 98% of the net
asset value per share at the valuation time or (2) 95% of the market
price per share of the Common Stock on the determination date. If 98%
of the net asset value of the Common Stock exceeds the market price of
the Common Stock on the determination date, you will buy Common Stock in
the open market, on the New York Stock Exchange or elsewhere, for the
Participants' accounts as soon as practicable commencing on the trading
day following the determination date and terminating no later than the
earlier of (a) 30 days after the dividend or distribution payment date,
or (b) the record date for the next succeeding dividend or distribution
to be made to the holders of the Common Stock; except when necessary to
comply with applicable provisions of the federal securities laws. If
the market price equals or exceeds 98% of the net asset value per share
of the Common Stock at the valuation time before you have completed the
open market purchases or if you are unable to invest the full amount
eligible to be reinvested hereunder in open market purchases during the
time period referred to in the previous sentence, you shall cease
purchasing shares in the open market and the Fund shall issue the
remaining shares of Common Stock at a price per share equal to the
greater of (a) 98% of the net asset value per share at the valuation
time or (b) 95% of the then current market price per share.
3. For all purposes of the Plan: (a) the valuation time
will be the close of trading on the New York Stock Exchange on the
determination date for the relevant dividend or distribution; (b) the
determination date will be the record date for determining shareholders
eligible to receive the relevant dividend or distribution, except that
if such day is not a New York Stock Exchange trading day, it will be the
immediately preceding trading day; (c) the market price of the Fund's
Common Stock on a particular date shall be the mean between the highest
and lowest sales prices on the New York Stock Exchange on that date, or,
if there is no sale on such Exchange on that date, then the mean between
the closing bid and asked quotations for such stock on such Exchange on
such date; (d) the net asset value per share of the Fund's Common Stock
as of the valuation time on a particular date shall be as determined by
or on behalf of the Fund; and (e) all distributions and other payments
shall be made net of any applicable withholding tax.
4. The open market purchases provided for above may be
made on any securities exchange where the Fund's Common Stock is traded,
in the over-the-counter market or in negotiated transactions, and may be
on such terms as to price, delivery and otherwise as you shall
determine. Participant funds held by you pending investment will not
bear interest, and it is understood that, in any event, you shall have
no liability in connection with any inability to purchase shares within
the time period for open market purchases, as herein provided, or with
respect to the timing of any purchases effected. You shall have no
responsibility as to the value of the Common Stock of the Fund acquired
for a Participant's account. In connection with open market purchases,
you may commingle a Participant's funds with those of other Participants
and the average price (including brokerage commissions) of all shares
purchased by you as Agent shall be the price per share allocable to each
Participant in connection therewith.
5. You may hold shares acquired pursuant to the Plan,
together with the shares of other Participants acquired pursuant to the
Plan, in noncertificated form in your name or that of your nominee. You
will forward to Participants any proxy solicitation material and will
vote any shares so held for any Participant only in accordance with
instructions given through a proxy executed by the Participant. Upon a
Participant's written request, you will deliver to him, without charge,
a certificate or certificates for the full shares.
6. You will confirm to each Participant each acquisition
made for his account as soon as practicable but not later than 60 days
after the date thereof. Although Participants may from time to time
have an undivided fractional interest (computed to three decimal places)
in a share of Common Stock, no certificates for a fractional share will
need to be issued. However, distributions on fractional shares will be
credited to Participant accounts. In the event the of termination of a
Participant's account under the Plan, you will adjust for any such
undivided fractional interest in cash at the market value of the Fund's
shares at the time of termination less the pro rata expense of any sale
required to make such an adjustment.
7. Any stock dividends or split shares distributed by the
Fund on shares held by you for a Participant will be credited to his
account. In the event that the Fund makes available to its stockholders
rights to purchase additional shares or other securities, the shares
held for a Participant under the Plan will be added to other shares held
by such Participant in calculating the number of rights to be issued to
him.
8. No service fee for handling the reinvestment of
capital gains distributions or income dividends will be charged to
Participants or their accounts. Participants will be charged a pro rata
share of any brokerage commissions actually incurred on open market
purchases.
9. A Participant may terminate his account under the Plan
by notifying you in writing or by calling you at 1-800-331-1710. Such
termination will be effective immediately if notice is received by you
not less than ten business days prior to any dividend or distribution
record date; otherwise such termination will be effective as soon as
practicable after your investment of the most recently declared dividend
or distribution on the Common Stock. The Plan may be terminated by the
Fund upon notice in writing mailed to all Participants at least 30 days
prior to the record date for the payment of any dividend or distribution
by the Fund for which the termination is to be effective. Upon any
termination you will cause a certificate or certificates for the full
shares held for each Participant under the Plan and cash adjustment for
any fractional shares to be delivered to each Participant without
charge. If a Participant elects by notice to you in writing in advance
of such termination to have you sell part or all of his shares and remit
the proceeds to him, you are authorized to deduct a $5.00 fee plus
brokerage commissions actually incurred for this transaction from the
proceeds.
10. These terms and conditions may be amended or
supplemented by you or the Fund at any time or times but, except when
necessary or appropriate to comply with applicable law or the rules or
policies of the Securities and Exchange Commission or any other
regulatory authority, only by mailing to Participants appropriate
written notice at least 30 days prior to the record date for the first
distribution or dividend to which such amendment or supplement is to be
effective, if by the Fund or, if to be amended or supplemented by you,
30 days prior to the effective date of such amendment or supplement and
only upon your receipt of the written consent of the Fund's Board of
Directors. The amendment or supplement shall be deemed to be accepted
by Participants unless, prior to the effective date thereof, you receive
written notice of the termination of a Participant's account under the
Plan. Any such amendment may include an appointment by you in your
place and stead of a successor agent under these terms and conditions,
with full power and authority to perform all or any of the acts to be
performed by the Agent under these terms and conditions. Upon any such
appointment of an agent for the purpose of receiving distributions, the
Fund will be authorized to pay such successor agent, for a Participant's
account, all distributions payable on Common Stock of the Fund held in
his name under the Plan for retention or application by such successor
agent as provided in these terms and conditions.
11. You shall at all times act in good faith and agree to
use your best efforts within reasonable limits to insure the accuracy of
all services performed under this Agreement and to comply with
applicable law, but assume no responsibility and shall not be liable for
loss or damage due to errors unless such error is caused by your
negligence, bad faith or willful misconduct or that of your employees.
12. These terms and conditions shall be governed by the
laws of the State of New York.
Adopted: November 12, 1998
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Managed Municipals Portfolio Inc.:
We consent to the use of our report dated July 15, 1999 for the
Managed Municipals Portfolio Inc. incorporated herein by reference and
to the references to our Firm under the headings "Financial
Highlights" and "Independent Auditors" in the Prospectus and
"Independent Auditors" in the Statement of Additional Information.
KPMG LLP
New York, New York
August 9, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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