<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18,
1994.
SECURITIES ACT FILE NO. 33-
49982
INVESTMENT COMPANY ACT FILE NO.
811-7046
- ---------------------------------------------------------------------------
- -----
- ---------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 2 /X/
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 3 /X/
(check appropriate box or boxes)
------------------------
MANAGED MUNICIPALS
PORTFOLIO II INC.
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number, including Area Code: (212) 723-
9218
CHRISTINA T. SYDOR
Secretary
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service of Process)
------------------------
COPY TO:
BURTON M. LEIBERT, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
If any of the securities being registered on this Form N-2 will be
offered
on a delayed or continuous basis in reliance on Rule 415 of the Securities
Act of
1933, other than securities offered only 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. A fee of
$100 is being paid at this time. Pursuant to
Rule 429, this Registration Statement relates to shares previously
registered on
Form N-2. (Registration No. 33-49982).
Registrant amends this Registration Statement under the Securities Act
of 1933, as amended, on such date as may be necessary to delay its
effective date until Registrant files a further amendment that specifically
states that this Registration Statement will thereafter become effective in
accordance with the provisions of Section 8(a) of the Securities Act of
1933, as amended, or until the Registration Statement becomes effective on
such date as the Securities and Exchange Commission, acting pursuant to
Section 8(a), may determine.
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<PAGE>
MANAGED MUNICIPALS PORTFOLIO II INC.
FORM N-2
<TABLE>
<CAPTION>
PART A
ITEM
NUMBER CAPTION
PROSPECTUS CAPTION
- --------- --------------------------------------------------- -----------
- ----------------------------------------
<C> <S> <C>
1. Outside Front Cover................................ Outside
Front Cover of Prospectus
2. Inside Front and Outside Back Cover Page........... Inside
Front and Outside Back Cover Page
of Prospectus
3. Fee Table and Synopsis............................. Prospectus
Summary;
Portfolio Expenses
4. Financial Highlights............................... Financial
Highlights
5. Plan of Distribution............................... Prospectus
Summary; The Offering; Stock Purchases
and
Tenders
6. Selling Shareholders............................... Not
Applicable
7. Use of Proceeds.................................... Use of
Proceeds
8. General Description of the Registrant.............. Prospectus
Summary; The Portfolio;
Investment Objective and Policies; Description of
Common Stock; Share Price Data; Net Asset Value; Certain
Provisions
of the Articles of Incorporation;
Appendix
9. Management......................................... Management
of the Portfolio; Description of Common
Stock;
Custodian, Transfer Agent, Dividend-Paying
Agent,
Registrar and Plan Agent
10. Capital Stock, Long-Term Debt and Other
Securities........................................ Dividends
and Distributions; Dividend Reinvestment
Plan;
Taxation; Description of Common Stock; Net
Asset
Value
11. Defaults and Arrears on Senior Securities.......... Not
Applicable
12. Legal Proceedings.................................. Not
Applicable
13. Table of Contents of the Statement of Additional
Information....................................... Further
Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B
ITEM
NUMBER CAPTION
PROSPECTUS CAPTION
- --------- --------------------------------------------------- -----------
- ----------------------------------------
<C> <S> <C>
14. Cover Page......................................... Cover Page
of Statement of Additional Information
15. Table of Contents.................................. Cover Page
of Statement of Additional Information
16. General Information and History.................... The
Portfolio (see Prospectus)
17. Investment Objectives and Policies................. Investment
Objective and Policies;
Investment Objective and Policies (see
Prospectus)
18. Management......................................... Management
of the Portfolio: Directors and
Executive Officers of the Portfolio ,
Distributor, Investment Adviser and Administrator
19. Control Persons and Principal Holders of
Securities........................................ Management
of the Portfolio
20. Investment Advisory and Other Services.............
Management of the Portfolio: Investment
Adviser and Administrator
21. Brokerage Allocation and Other Practices........... Portfolio
Transactions: Portfolio Turnover
22. Tax Status......................................... Taxes;
Taxation (in Prospectus)
23. Financial Statements............................... Financial
Statements
</TABLE>
<PAGE>
<PAGE>
PROSPECTUS DECEMBER 29, 1994
COMMON STOCK
MANAGED MUNICIPALS PORTFOLIO II INC.
---------------
Managed Municipals Portfolio II Inc. (the "Portfolio") is a non-diversified,
closed-end management investment company that seeks as high a level of current
income exempt from Federal income tax as is consistent with the preservation of
principal. Under normal conditions, the Portfolio will, in seeking its
investment objective, invest substantially all of its assets in long-term,
investment grade obligations issued by state and local governments, political
subdivisions, agencies and public authorities ("Municipal Obligations"). For a
discussion of the risks associated with certain of the Portfolio's investments,
see "Investment Objective and Policies." The Portfolio's address is 388
Greenwich Street, New York, New York 10013 and the Portfolio's telephone number
is (212) 723-9218.
The Portfolio seeks to invest substantially all of its assets in Municipal
Obligations and, under normal conditions, at least 80% of the Portfolio's assets
will be invested in Municipal Obligations rated investment grade by Moody's
Investors Service Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), Fitch
Investors Service, Inc. ("Fitch") or another nationally-recognized statistical
rating agency (that is, no lower than Baa, MIG or Prime-1 by Moody's, BBB, Sp-2
or A-1 by S&P or BBB or F-1 by Fitch). The Portfolio is intended to operate in
such a manner that dividends paid by the Portfolio may be excluded by the
Portfolio's shareholders from their gross incomes for Federal income tax
purposes. See "Investment Objective and Policies" and "Taxation."
This Prospectus is to be used by Smith Barney Inc. ("Smith Barney") in
connection with offers and sales of the Portfolio's Common Stock (the "Common
Stock") in market-making activities in the over-the-counter market at negotiated
prices related to prevailing market prices at the time of sale. The Common Stock
is listed on the New York Stock Exchange, Inc. (the "NYSE") under the symbol
"MTU."
Smith Barney intends to make a market in the Common Stock, although it is not
obligated to conduct market-making activities and any such activities may be
discontinued at any time without notice, at the sole discretion of Smith Barney.
The shares of Common Stock that may be offered from time to time pursuant to
this Prospectus were issued and sold by the Portfolio in a public offering which
commenced September 24, 1992, at a price of $12.00 per share. No assurance can
be given as to the liquidity of, or the trading market for, the Common Stock as
a result of any market-making activities undertaken by Smith Barney. The
Portfolio will not receive any proceeds from the sale of any Common Stock
offered pursuant to this Prospectus.
Investors are advised to read this Prospectus, which sets forth concisely the
information about the Portfolio that a prospective investor ought to know before
investing, and to retain it for future reference. A Statement of Additional
Information ("SAI") dated December 29, 1994 has been filed with the Securities
and Exchange Commission ("SEC") and is incorporated by reference in its entirety
into this Prospectus. A Table of Contents for the SAI is set forth on page 24 of
this Prospectus. A copy of the SAI can be obtained without charge by calling or
writing to the Portfolio at the telephone number or address set forth above or
by contacting any Smith Barney Financial Consultant.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
SMITH BARNEY INC.
---------------
<PAGE>
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Portfolio Expenses........................................................ 7
Financial Highlights...................................................... 8
The Portfolio............................................................. 9
The Offering.............................................................. 9
Investment Objective and Policies......................................... 9
Share Price Data.......................................................... 15
Management of the Portfolio............................................... 15
Dividends and Distributions; Dividend Reinvestment Plan................... 17
Net Asset Value........................................................... 19
Taxation.................................................................. 19
Description of Common Stock............................................... 21
Stock Purchases and Tenders............................................... 22
Certain Provisions of the Articles of Incorporation....................... 22
Custodian, Transfer Agent and Dividend-Paying Agent and Registrar......... 24
Further Information....................................................... 24
Appendix A................................................................ A-1
Appendix B................................................................ B-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE
SAI.
<TABLE>
<S> <C>
The Portfolio......... The Portfolio is a non-diversified, closed-end management
investment
company. See "The Portfolio."
Investment Objective.. The Portfolio seeks as high a level of current income exempt
from Federal
income tax as is consistent with the preservation of principal. See
"Investment Objective and Management Policies."
Tax-Exempt Income..... The Portfolio is intended to operate in such a manner that
dividends paid by
the Portfolio may be excluded by the Portfolio's shareholders from
their
gross incomes for Federal income tax purposes. See "Investment
Objective
and Management Policies" and "Taxation."
Quality Investments... The Portfolio will invest substantially all of its assets in long-
term
investment grade Municipal Obligations. At least 80% of the
Portfolio's
total assets will be invested in securities rated investment grade by
Moody's, S&P, Fitch or another nationally-recognized rating agency
(that
is, rated no lower than Baa, MIG or Prime-1 by Moody's, BBB, SP-2
or A-1
by S&P or BBB or F-1 by Fitch). Up to 20% of the Portfolio's total
assets
may be invested in unrated securities that are deemed by the
Portfolio's
investment adviser to be of a quality comparable to investment grade.
See
"Investment Objective and Policies."
The Offering.......... Smith Barney intends to make a market in the Common Stock in
addition to
trading Common Stock on the NYSE. Smith Barney, however, is not
obligated
to conduct market-making activities and any such activities may
be
discontinued at any time without notice, at the sole discretion of Smith
Barney.
Listing............... NYSE
Symbol................ MTU
Investment Adviser.... Smith Barney Mutual Funds Management Inc. ("SBMFM")
serves as the
Portfolio's investment adviser. SBMFM provides investment advisory
and
management services to investment companies affiliated with Smith
Barney.
SBMFM is a wholly owned subsidiary of Smith Barney Holdings
Inc.
("Holdings"). Holdings is a wholly owned subsidiary of The Travelers
Inc.
("Travelers"), a diversified financial services holding company
engaged,
through its subsidiaries, principally in four business segments:
Investment Services, Consumer Finance Services, Life Insurance
Services
and Property & Casualty Insurance Services. The Portfolio pays
SBMFM a fee
for services provided to the Portfolio that is computed daily and paid
monthly at the annual rate of .70% of the value of the Portfolio's
average
daily net assets. See "Management of the Portfolio -- Investment
Adviser."
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Administrator SBMFM also serves as the Portfolio's administrator. The Portfolio
pays SBMFM
a fee for services provided to the Portfolio that is computed daily and
paid monthly at the annual rate of .20% of the value of the Portfolio's
average daily net assets. See "Management of the Portfolio --
Administrator."
Sub-Administrator..... The Boston Company Advisors, Inc. ("Boston Advisors")
serves as the
Portfolio's sub-administrator. Boston Advisors is paid a portion of the
fee paid by the Portfolio to SBMFM at a rate agreed upon from time to
time
between Boston Advisors and SBMFM. See "Management of the
Portfolio --
Sub-Administrator."
Custodian, Transfer
Agent and Dividend
Paying Agent and
Registrar........... Boston Safe Deposit and Trust Company ("Boston Safe") serves
as the
Portfolio's custodian. The Shareholder Services Group, Inc.
("TSSG"), a
subsidiary of First Data Corporation, serves as the Portfolio's transfer
agent, dividend-paying agent and registrar. See "Custodian, Transfer
Agent
and Dividend-Paying Agent and Registrar."
Dividends and
Distributions;
Dividend
Reinvestment Plan... The Portfolio expects to pay monthly dividends of net
investment income
(that is, income other than net realized capital gains) and to distribute
net realized capital gains, if any, annually. All dividends or
distributions will be reinvested automatically in additional shares
through participation in the Portfolio's Dividend Reinvestment
Plan,
unless a shareholder elects to receive cash. See "Dividends and
Distributions; Dividend Reinvestment Plan."
Discount from Net
Asset Value......... The shares of closed-end investment companies often, although not
always,
trade at a discount from their net asset value. Whether investors will
realize gains or losses upon the sale of Common Stock will not depend
upon
the Portfolio's net asset value, but will depend entirely on whether the
market price of the Common Stock at the time of sale is above or below
the
original purchase price of the shares. Since the market price of the
Common Stock will be determined by factors such as relative demand
for and
supply of such shares in the market, general market and
economic
conditions and other factors beyond the control of the Portfolio, the
Portfolio cannot predict whether the Common Stock will continue to
trade
at, below or above net asset value. For that reason, shares of the
Portfolio's Common Stock are designed primarily for long-term
investors,
and investors in the Portfolio's Common Stock should
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
not view the Portfolio as a vehicle for trading purposes. See
"Investment
Objective and Policies -- Risk Factors and Special Considerations"
and
"Share Price Data."
Risk Factors and
Special
Considerations...... The Portfolio will not purchase securities that are rated lower than
Baa by
Moody's, BBB by S&P or BBB by Fitch at the time of purchase.
Although
obligations rated Baa by Moody's, BBB by S&P or BBB by Fitch
are
considered to be investment grade, they may be subject to greater
risks
than other higher-rated investment-grade securities.
The Portfolio may invest up to 20% of its total assets in unrated securities
that SBMFM determines to be of comparable quality to the securities
rated
investment grade in which the Portfolio may invest. Dealers may
not
maintain daily markets in unrated securities and retail secondary
markets
for many of them may not exist; this lack of markets may affect
the
Portfolio's ability to sell these securities when SBMFM deems it
appropriate. The Portfolio has the right to invest without limitation in
state and local obligations that are "private activity bonds," the income
from which may be taxable as a specific preference item for purposes
of
the Federal alternative minimum tax. Thus, the Portfolio may not be
a
suitable investment for investors who are subject to the alternative
minimum tax. See "Investment Objective and Policies" and "Taxation."
Certain of the instruments held by the Portfolio, and certain of the
investment techniques that the Portfolio may employ, might expose
the
Portfolio to special risks. The instruments presenting the Portfolio with
risks are municipal leases, zero coupon securities, custodial receipts,
municipal obligation components, floating and variable rate demand
notes
and bonds, and participation interests. Entering into securities
transactions on a when-issued or delayed delivery basis, entering into
repurchase agreements, lending portfolio securities, and engaging in
financial futures and options transactions are investment techniques
involving risks to the Portfolio. As a non-diversified fund within the
meaning of the Investment Company Act of 1940, as amended (the
"1940
Act"), the Portfolio may invest a greater proportion of its assets in the
obligations of a smaller number of issuers and, as a result, may be
subject to greater risk than a diversified fund with respect to its
holdings of securities. See "Investment Objective and Policies -- Risk
Factors and Special Considerations."
The combined annual rate of fees paid by the Portfolio for advisory
and
administrative services, .90% of the value of the Portfolio's average
daily net assets, is higher than the rates for similar services paid by
other publicly offered, closed-end, management investment companies
that
have investment objectives and policies similar to those of the Portfolio.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
The Portfolio will bear, in addition to the costs of advisory and
administrative services, other expenses and costs in connection with its
operation. See "Management of the Portfolio."
The Portfolio's Articles of Incorporation include provisions that could
have
the effect of limiting the ability of other entities or persons to acquire
control of the Portfolio and of depriving shareholders of an
opportunity
to sell their shares of Common Stock at a premium over prevailing
market
prices. See "Certain Provisions of the Articles of Incorporation."
Stock Purchases and
Tenders............. The Portfolio's Board of Directors currently contemplates that the
Portfolio
may from time to time consider the repurchase of its Common Stock
on the
open market or make tender offers of the Common Stock. See
"Stock
Purchases and Tenders."
</TABLE>
6
<PAGE>
PORTFOLIO EXPENSES
THE FOLLOWING TABLES ARE INTENDED TO ASSIST INVESTORS IN
UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES ASSOCIATED WITH INVESTING IN THE
PORTFOLIO.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)..................... None
Dividend Reinvestment and Cash Purchase Plan Fee................... None
ANNUAL PORTFOLIO OPERATING EXPENSES (as a percentage of net assets) (1)
Investment Advisory and Administration Fees........................ .90%
Other Expenses..................................................... .22%
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES..............................
1.12%
<FN>
- ------------------------
(1) See "Management of the Portfolio" for additional information. "Other
Expenses" have been estimated for the current fiscal year.
</TABLE>
HYPOTHETICAL EXAMPLE
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Portfolio, assuming a 5% annual return:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C>
$11 $36 $62 $136
</TABLE>
This Hypothetical Example assumes that all dividends and other distributions
are reinvested at net asset value and that the percentage amounts listed under
Annual Portfolio Operating Expenses remain the same in the years shown. The
above tables and assumptions in the Hypothetical Example of a 5% annual return
and reinvestment at net asset value are required by regulations of the SEC
applicable to all investment companies; the assumed 5% return is not a
prediction of, and does not represent, the projected or actual performance of
the Common Stock.
THIS HYPOTHETICAL EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST
OR FUTURE EXPENSES, AND THE PORTFOLIO'S ACTUAL EXPENSES MAY BE
MORE OR LESS THAN
THOSE SHOWN.
7
<PAGE>
FINANCIAL HIGHLIGHTS
THE TABLES BELOW SET FORTH SELECTED FINANCIAL DATA FOR AN
OUTSTANDING SHARE
OF COMMON STOCK THROUGH-OUT THE PERIODS PRESENTED. THE PER
SHARE OPERATING
PERFORMANCE AND RATIOS FOR THE PERIODS SHOWN HAVE BEEN
AUDITED BY COOPERS &
LYBRAND L.L.P., THE PORTFOLIO'S INDEPENDENT ACCOUNTANTS, AS
STATED IN THEIR
REPORT DATED OCTOBER 7, 1994, THAT IS CONTAINED IN THE PORTFOLIO'S
ANNUAL REPORT
DATED AUGUST 31, 1994 AND CAN BE OBTAINED BY SHAREHOLDERS.
THE FOLLOWING
INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
PORTFOLIO'S FINANCIAL
STATEMENTS DATED AUGUST 31, 1994 AND NOTES TO THOSE FINANCIAL
STATEMENTS, WHICH
ARE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
PER SHARE OPERATING PERFORMANCE FOR A SHARE OF THE
PORTFOLIO'S COMMON STOCK OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
8/31/94 8/31/93*
<S> <C> <C>
------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.37 $ 12.00
------------------------------------------------------------------------------------------
Net investment income 0.64 0.62
Net realized and unrealized gains (or losses) on investments (0.61) 1.34
------------------------------------------------------------------------------------------
Total from investment operations 0.03 1.96
------------------------------------------------------------------------------------------
Offering cost credited/
Charged to paid-in capital 0.01 (0.04)
Less distributions
Dividends from net investment income (0.67) (0.55)
Distributions from net realized capital gains (0.59) --
------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.15 $ 13.37
------------------------------------------------------------------------------------------
Market value, end of period $ 11.500 $ 12.625
------------------------------------------------------------------------------------------
Total investment return** 0.72% 9.97%
------------------------------------------------------------------------------------------
Ratios/supplemental data
Net assets, end of period (in 000's) $136,248 $149,970
Ratios to average net assets:
Operating expenses 1.12% 1.10%+
Average net income 5.08% 5.21%+
Portfolio turnover rate 85% 163%
------------------------------------------------------------------------------------------
<FN>
*The Portfolio commenced operations on September 24, 1992.
**Total return represents aggregate total returns based on market value for the
periods indicated; does not reflect any sales load and assumes reinvestment of
dividends and distributions at prices obtained under the Portfolio's Dividend
Reinvestment Plan.
+Annualized.
</TABLE>
8
<PAGE>
THE PORTFOLIO
The Portfolio is a non-diversified, closed-end management investment company
that seeks as high a level of current income exempt from Federal income tax as
is consistent with the preservation of principal. The Portfolio, which was
incorporated under the laws of the State of Maryland on July 23, 1992, is
registered under the 1940 Act, and has its principal office at 388 Greenwich
Street, New York, New York 10013. The Portfolio's telephone number is (212)
723-9218.
THE OFFERING
Smith Barney intends to make a market in the Common Stock, although it is
not obligated to conduct market-making activities and any such activities may be
discontinued at any time without notice at the sole discretion of Smith Barney.
No assurance can be given as to the liquidity of, or the trading market for, the
Common Stock as a result of any market-making activities undertaken by Smith
Barney. This Prospectus is to be used by Smith Barney in connection with offers
and sales of the Common Stock in market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of sale.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio's investment objective is to seek as high a level of current
income exempt from Federal income taxes as is consistent with the preservation
of principal. The Portfolio's investment objective may not be changed without
the affirmative vote of the holders of a majority (as defined in the 1940 Act)
of the Portfolio's outstanding shares. In seeking its objective, the Portfolio
will invest in long-term Municipal Obligations. The Portfolio will operate
subject to a fundamental investment policy providing that, under normal
conditions, the Portfolio will invest at least 80% of its net assets in
Municipal Obligations. No assurance can be given that the Portfolio's investment
objective will be achieved.
The Portfolio will invest at least 80% of its total assets in Municipal
Obligations rated investment grade, that is, rated no lower than Baa, MIG 3 or
Prime-1 by Moody's, BBB, SP-2 or A-1 by S&P or BBB or F-1 by Fitch. Up to 20% of
the Portfolio's total assets may be invested in unrated securities that are
deemed by SBMFM to be of a quality comparable to investment grade. The Portfolio
will not invest in Municipal Obligations that are rated lower than Baa by
Moody's, BBB by S&P or BBB by Fitch, at the time of purchase. A description of
the relevant Moody's, S&P and Fitch ratings is set forth in the Appendix to the
SAI. Although Municipal Obligations rated Baa by Moody's, BBB by S&P or BBB by
Fitch are considered to be investment-grade, they may be subject to greater
risks than other higher-rated investment-grade securities. Municipal Obligations
rated Baa by Moody's, for example, are considered medium-grade obligations that
lack outstanding investment 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
9
<PAGE>
the Portfolio of any liability for Federal income tax to the extent that its
earnings are distributed to shareholders. To qualify as a regulated investment
company, the Portfolio will, among other things, limit its investments so that,
at the close of each quarter of its taxable year (1) not more than 25% of the
market value of the Portfolio's total assets will be invested in the securities
of a single issuer and (2) with respect to 50% of the market value of its total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer. See "Taxation."
The Portfolio generally will not invest more than 25% of its total assets in
any industry. Governmental issuers of Municipal Obligations are not considered
part of any "industry." Municipal Obligations backed only by the assets and
revenues of non-governmental users may be deemed to be issued by the non-
governmental users, and would be subject to the Portfolio's 25% industry
limitation. The Portfolio may invest more than 25% of its total assets in a
broad segment of the Municipal Obligations market if SBMFM determines that the
yields available from obligations in a particular segment of the market justify
the additional risks associated with a large investment in the segment. The
Portfolio reserves the right to invest more than 25% of its assets in industrial
development bonds or in issuers located in the same state, although it has no
current intention of investing more than 25% of its assets in issuers located in
the same state. If the Portfolio were to invest more than 25% of its total
assets in issuers located in the same state, it would be more susceptible to
adverse economic, business or regulatory conditions in that state.
Municipal Obligations are classified as general obligation bonds, revenue
bonds and notes. General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source, but not from the general
taxing power. Notes are short-term obligations of issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal Obligations bear fixed, floating and
variable rates of interest, and variations exist in the security of Municipal
Obligations, both within a particular classification and between
classifications. The types of Municipal Obligations in which the Portfolio may
invest are described in Appendix A to this Prospectus.
The yields on, and values of, Municipal Obligations are dependent on a
variety of factors, including general economic and monetary conditions, money
market factors, conditions in the Municipal Obligation markets, size of a
particular offering, maturity of the obligation and rating of the issue.
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 taxes are rendered by bond counsel to
the respective issuers at the time of issuance. Neither the Portfolio nor SBMFM
will review the procedures relating to the issuance of Municipal Obligations or
the basis for opinions of counsel. Issuers of Municipal Obligations may be
subject to the provisions of bankruptcy, insolvency and other laws, such as the
Federal Bankruptcy Reform Act of 1978, affecting the rights and remedies of
creditors. In addition, the obligations of those issuers may become subject to
laws enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of the obligations or upon the
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<PAGE>
ability of municipalities to levy taxes. The possibility also exists that, as a
result of litigation or other conditions, the power or ability of any issuer to
pay, when due, the principal of, and interest on, its obligations may be
materially affected.
Under normal conditions, the Portfolio may hold up to 20% of its total assets
in cash or money market instruments, including taxable money market instruments
(collectively, "Taxable Investments"). In addition, the Portfolio may take a
temporary defensive posture and invest without limitation in short-term
Municipal Obligations and Taxable Investments, upon a determination by SBMFM
that market conditions warrant such a posture. To the extent the Portfolio holds
Taxable Investments, the Portfolio may not be fully achieving its investment
objective.
INVESTMENT TECHNIQUES
The Portfolio may employ, among others, the investment techniques described
below, which may give rise to taxable income:
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may
purchase
securities on a when-issued basis, or may purchase or sell securities for
delayed delivery. In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but no payment or
delivery will be made by the Portfolio prior to the actual delivery or payment
by the other party to the transaction. The Portfolio will not accrue income with
respect to a when-issued or delayed delivery security prior to its stated
delivery date. The Portfolio will establish with Boston Safe a segregated
account consisting of cash, U.S. Government securities, or other liquid high
grade debt obligations, in an amount equal to the amount of the Portfolio's
when-issued and delayed delivery purchase commitments. Placing securities rather
than cash in the segregated account may have a leveraging effect on the
Portfolio's net asset value per share; that is, to the extent that the Portfolio
remains substantially fully invested in securities at the same time that it has
committed to purchase securities on a when-issued or delayed delivery basis,
greater fluctuations in its net asset value per share may occur than if it had
set aside cash to satisfy its purchase commitments.
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments"
with
respect to Municipal Obligations it holds. Under a stand-by commitment, which
resembles a put option, a broker, dealer or bank is obligated to repurchase at
the Portfolio's option specified securities at a 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 SBMFM 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
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<PAGE>
purposes, provided that aggregate initial margin deposits and premiums required
to establish positions other than those considered by the CFTC to be "bona fide
hedging" will not exceed 5% of the Portfolio's net asset value, after taking
into account unrealized profits and unrealized losses on such contracts.
A financial futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of a specified property at a
specified price, date, time and place. Unlike the direct investment in a futures
contract, an option on a financial futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in the financial
futures contract at a specified exercise price at any time prior to the
expiration date of the option. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option on the futures contract. The potential
loss related to the purchase of an option on financial futures contracts is
limited to the premium paid for the option (plus transaction costs). The value
of the option may change daily and that change would be reflected in the net
asset value of the Portfolio.
LENDING SECURITIES. The Portfolio is authorized to lend securities it holds
to brokers, dealers and other financial organizations, but it will not lend
securities to any affiliate of SBMFM 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 taken at value. The Portfolio's loans of securities
will be collateralized by cash, letters of credit or U.S. government securities
that will be maintained at all times in a segregated account with Boston Safe in
an amount equal to the current market value of the loaned securities.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreement
transactions with banks which are the issuers of instruments acceptable for
purchase by the Fund 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
Investment in the Portfolio involves risk factors and special
considerations, such as those described below:
MUNICIPAL OBLIGATIONS. Market rates of interest available with respect to
Municipal Obligations generally may be lower than those available with respect
to taxable securities, although the differences may be wholly or partially
offset by the effects of Federal income tax on income derived from taxable
securities. The amount of available information about the financial condition of
issuers of Municipal Obligations may be less extensive than that for corporate
issuers with publicly traded securities, and the
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<PAGE>
market for Municipal Obligations may be less liquid than the market for
corporate debt obligations. Although the Portfolio's policy will generally be to
hold Municipal Obligations until their maturity, the relative illiquidity of
some of the Portfolio's securities may adversely affect the ability of the
Portfolio to dispose of the securities in a timely manner and at a fair price.
The market for less liquid securities tends to be more volatile than the market
for more liquid securities, and market values of relatively illiquid securities
may be more susceptible to change as a result of adverse publicity and investor
perceptions than are the market values of more liquid securities. Although the
issuer of certain Municipal Obligations may be obligated to redeem the
obligations at face value, redemption could result in capital losses to the
Portfolio to the extent that the Municipal Obligations were purchased by the
Portfolio at a premium to face value.
Although the Municipal Obligations in which the Portfolio may invest will be,
at the time of investment, rated investment grade, municipal securities, like
other debt obligations, are subject to the risk of non-payment by their issuers.
The ability of issuers of Municipal Obligations to make timely payments of
interest and principal may be adversely affected in general economic downturns
and as relative governmental cost burdens are allocated and reallocated among
federal, state and local governmental units. Non-payment by an issuer would
result in a reduction of income to the Portfolio, and could result in a
reduction in the value of the Municipal Obligations experiencing non-payment and
a potential decrease in the net asset value of the Portfolio.
UNRATED SECURITIES. The Portfolio may invest in unrated securities that
SBMFM determines to be of comparable quality to the rated securities in which
the Portfolio may invest. Dealers may not maintain daily markets in unrated
securities, and retail secondary markets for many of them may not exist. As a
result, the Portfolio's ability to sell these securities when SBMFM deems it
appropriate may be diminished.
MUNICIPAL LEASES. Municipal leases in which the Portfolio may invest have
special risks not normally associated with Municipal Obligations. Municipal
leases frequently contain non-appropriation clauses that provide that the
governmental issuer of the obligation need not make future payments under the
lease or contract unless money is appropriated for that purpose by a legislative
body annually or on another periodic basis. Moreover, although a municipal lease
typically will be secured by financed equipment or facilities, the disposition
of the equipment or facilities in the event of foreclosure might prove
difficult.
NON-PUBLICLY TRADED SECURITIES. As suggested above, the Portfolio may,
from
time to time, invest a portion of its assets in non-publicly traded Municipal
Obligations. Non-publicly traded securities may be less liquid than publicly
traded securities. Although non-publicly traded securities may be resold in
privately negotiated transactions, the prices realized from these sales could be
less than those originally paid by the Portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Securities
purchased on a
when-issued or delayed delivery basis may expose the Portfolio to risk because
the securities may experience fluctuations in value prior to their delivery.
Purchasing securities on a when-issued or delayed delivery basis can involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.
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<PAGE>
LENDING SECURITIES. The risks associated with lending portfolio securities,
as with other extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially.
FINANCIAL FUTURES AND OPTIONS. Although the Portfolio intends to enter into
financial futures contracts and options on financial futures contracts that are
traded on a U.S. exchange or board of trade only if an active market exists for
those instruments, no assurance can be given that an active market will exist
for them at any particular time. If closing a futures position in anticipation
of adverse price movements is not possible, the Portfolio would be required to
make daily cash payments of variation margin. In those circumstances, an
increase in the value of the portion of the Portfolio's investments being
hedged, if any, may offset partially or completely losses on the futures
contract. No assurance can be given, however, that the price of the securities
being hedged will correlate with the price movements in a futures contract and,
thus, provide an offset to losses on the futures contract or option on the
futures contract. In addition, in light of the risk of an imperfect correlation
between securities held by the Portfolio that are the subject of a hedging
transaction and the futures or options used as a hedging device, the hedge may
not be fully effective because, for example, losses on the securities held by
the Portfolio may be in excess of gains on the futures contract or losses on the
futures contract may be in excess of gains on the securities held by the
Portfolio that were the subject of the hedge. If the Portfolio has hedged
against the possibility of an increase in interest rates adversely affecting the
value of securities it holds and rates decrease instead, the Portfolio will lose
part or all of the benefit of the increased value of securities that it has
hedged because it will have offsetting losses in its futures or options
positions.
NON-DIVERSIFIED CLASSIFICATION. Investment in the Portfolio, which is
classified as a non-diversified fund under the 1940 Act, may present greater
risks to investors than an investment in a diversified fund. The investment
return on a non-diversified fund typically is dependent upon the performance of
a smaller number of securities relative to the number of securities held in a
diversified fund. The Portfolio's assumption of large positions in the
obligations of a small number of issuers will affect the value of the securities
it holds to a greater extent than that of a diversified fund in the event of
changes in the financial condition, or in the market's assessment, of the
issuers.
INVESTMENT RESTRICTIONS
The Portfolio has adopted certain fundamental investment restrictions that
may not be changed without the prior approval of the holders of a majority of
the Portfolio's outstanding voting securities. A "majority of the Portfolio's
outstanding voting securities" for this purpose means the lesser of (1) 67% or
more of the shares of the Portfolio's Common Stock present at a meeting of
shareholders, if the holders of 50% of the outstanding shares are present or
represented by proxy at the meeting or (2) more than 50% of the outstanding
shares. Among the investment restrictions applicable to the Portfolio is that
the Portfolio is prohibited from borrowing money, except for temporary or
emergency purposes, or for clearance of transactions, in amounts not exceeding
15% of its total assets (not including the amount borrowed) and as otherwise
described in this Prospectus. When the Portfolio's borrowings exceed 5% of the
value of its total assets, the Portfolio will not make any additional
investments. In addition, the Portfolio will not invest more than 25% of its
total assets in the securities of issuers in any single industry, except that
this limitation will not be applicable to the purchase of U.S. government
securities. Also, the Portfolio may not purchases securities other than
Municipal Obligations and Taxable Investments. For a complete listing of the
investment restrictions applicable
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<PAGE>
to the Portfolio, see "Investment Objective and Policies -- Investment
Restrictions" in the SAI. All percentage limitations included in the investment
restrictions apply immediately after a purchase or initial investment, and any
subsequent change in any applicable percentage resulting from market
fluctuations will not require the Portfolio to dispose of any security that it
holds.
SHARE PRICE DATA
The Portfolio's Common Stock is listed on the NYSE under the symbol "MTU."
Smith Barney also intends to make a market in the Portfolio's Common Stock.
The following table sets forth the high and low sales prices for the
Portfolio's Common Stock, the net asset value per share and the discount or
premium to net asset value represented by the quotation for each quarterly
period since the Portfolio's commencement of operations.
<TABLE>
<CAPTION>
QUARTERLY HIGH PRICE QUARTERLY LOW PRICE
----------------------------------- ---------------------------------
PREMIUM PREMIUM
NET ASSET NYSE (DISCOUNT) NET ASSET NYSE
(DISCOUNT)
VALUE PRICE TO NAV VALUE PRICE TO NAV
----------- -------- ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
11/30/92 11.62 11.875 2.19% 11.61 11.125 (4.18)%
2/28/93 13.06 12.375 (5.25)% 12.20 11.250 (7.79)%
5/31/93 13.11 12.750 (2.75)% 12.81 12.000 (6.32)%
8/31/93 13.37 12.750 (4.64)% 13.03 12.125 (6.95)%
11/30/93 13.50 12.875 (4.63)% 13.26 12.250 (7.62)%
2/28/94 12.96 13.000 0.31% 12.05 11.875 (1.45)%
5/31/94 12.33 12.250 (0.65%) 11.94 11.125 (6.83)%
8/31/94 12.16 12.000 (1.32%) 11.45 11.250 (1.75)%
11/30/94
</TABLE>
As of November 30, 1994 the price of Common Stock as quoted on the NYSE was
$____ representing a discount from the Common Stock's net asset value calculated
on that day. Since the Portfolio's commencement of operations, the Common Stock
has generally traded at a discount from its net asset value.
MANAGEMENT OF THE PORTFOLIO
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Portfolio rests
with the Portfolio's Board of Directors. The Directors approve all significant
agreements with the Portfolio's investment adviser and administrator,
sub-administrator, custodian and transfer agent. The day-to-day operations of
the Portfolio are delegated to the Portfolio's investment adviser and
administrator and sub-administrator. The SAI contains background information
regarding each Director and executive officer of the Portfolio.
INVESTMENT ADVISER
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Portfolio's investment adviser pursuant to a transfer of the advisory
agreement, effective November 7, 1994, from its affiliate, Mutual Management
Corp. (Mutual Management Corp. and SBMFM are both
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<PAGE>
wholly owned subsidiaries of Holdings). Investment advisory services continue to
be provided to the Portfolio by the same portfolio managers who had provided
services under the agreement with Mutual Management Corp. SBMFM (through its
predecessor entities) has been in the investment counseling business since 1934
and is a registered investment adviser. SBMFM renders investment advice to a
wide variety of individuals and institutional clients that had aggregate assets
under management, as of November 30, 1994, in excess of $__ billion.
Subject to the supervision and direction of the Portfolio's Board of
Directors, SBMFM 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 SBMFM a fee for
investment advisory services provided to the Portfolio that is computed daily
and paid monthly at the annual rate of .70% of the value of the Portfolio's
average daily net assets.
Transactions on behalf of the Portfolio are allocated to various dealers by
SBMFM in its best judgement. The primary consideration is prompt and effective
execution of orders at the most favorable price. Subject to that primary
consideration, dealers may be selected for their research, statistical or other
services to enable SBMFM to supplement its own research and analysis with the
views and information of other securities firms. The Portfolio may use Smith
Barney in connection with the purchase or sale of securities when SBMFM believes
that the broker's charge for the transaction does not exceed usual and customary
levels. The same standard applies to the use of Smith Barney as a broker in
connection with entering into options and futures contracts. The Portfolio paid
no brokerage commissions in the last fiscal year.
PORTFOLIO MANAGEMENT
Joseph P. Deane, Vice President and Investment Officer of the Portfolio, is
primarily responsible for the management of the Portfolio's assets. Mr. Deane
has served the Portfolio in this capacity since the Portfolio commenced
operations in 1992 and manages the day to day operations of the Portfolio,
including making all investment decisions. Mr. Deane is an Investment Officer of
SBMFM and is the senior asset manager for investment companies and other
accounts investing in tax-exempt securities.
Management's discussion and analysis and additional performance information
regarding the Portfolio during the fiscal year ended August 31, 1994 is included
in the Annual Report dated August 31, 1994. A copy of the Annual Report may be
obtained upon request without charge from a Smith Barney Financial Consultant or
by writing or calling the Portfolio at the address or phone number listed on
page one of this Prospectus.
ADMINISTRATOR
SBMFM (formerly known as Smith, Barney Advisers, Inc.) also serves as the
Portfolio's administrator and oversees all aspects of the Portfolio's
administration and operation. The Portfolio pays SBMFM a fee for administrative
services provided to the Portfolio that is accrued daily and paid monthly at the
annual rate of .20% of the value of the Portfolio's average daily net assets.
The combined annual rate of fees paid by the Portfolio for advisory and
administrative services is higher than the rates for similar services paid by
other publicly offered, closed-end management investment companies that have
investment objectives and policies similar to those of the Portfolio.
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<PAGE>
SUB-ADMINISTRATOR
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Portfolio's sub-administrator. As the Portfolio's
sub-administrator, Boston Advisors calculates the net asset value of the
Portfolio's shares of Common Stock and generally assists SBMFM in all aspects of
the Portfolio's administration and operation. Under a sub-administration
agreement dated June 1, 1994, Boston Advisors is paid a portion of the
administration fee paid by the Portfolio to SBMFM at a rate agreed upon from
time to time between Boston Advisors and SBMFM.
Boston Advisors is a wholly owned subsidiary of The Boston Company, Inc.
("TBC"), a financial services holding company, which is in turn an indirect,
wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Boston Advisors
provides investment management, investment advisory and/or administrative
services to investment companies with total assets, as of November 30, 1994, in
excess of $__ billion.
SBMFM and Boston Advisors each bears all expenses in connection with the
performance of the services they provide to the Portfolio. The Portfolio will
bear all other expenses to be incurred in its operation, including, but not
limited to: the costs incurred in connection with the Portfolio's organization;
investment advisory and administration fees; fees for necessary professional and
brokerage services; fees for any pricing service; the costs of regulatory
compliance; and the costs associated with maintaining the Portfolio's corporate
existence; and costs of corresponding with the Portfolio's shareholders.
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney is a wholly owned subsidiary of Holdings, which in turn is a wholly
owned subsidiary of Travelers and is a registered investment adviser and a
registered broker-dealer incorporated in 1960 under the laws of the State of
Delaware.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
The Portfolio expects to pay monthly dividends of net investment income
(that is, income (including its tax-exempt income and its accrued original issue
discount income) other than net realized capital gains) to the holders of Common
Stock. Under the Portfolio's current policy, which may be changed at any time by
its Board of Directors, the Portfolio's monthly dividends will be made at a
level that reflects the past and projected performance of the Portfolio, which
policy over time will result in the distribution of all net investment income of
the Portfolio. Expenses of the Portfolio are accrued each day. Net realized
capital gains, if any, will be distributed to the shareholders at least once a
year.
Under the Portfolio's Dividend Reinvestment Plan (the "Plan"), a shareholder
whose shares of Common Stock are registered in his own name will have all
distributions from the Portfolio reinvested automatically by TSSG as agent under
the Plan, unless the shareholder elects to receive cash. Distributions with
respect to shares registered in the name of a broker-dealer or other nominee
(that is, in "Street Name") will be reinvested by the broker or nominee in
additional shares under the Plan, unless the service is not provided by the
broker or nominee or the shareholder elects to receive distributions in cash.
Investors who own Common Stock registered in Street Name should consult
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<PAGE>
their broker-dealers for details regarding reinvestment. All distributions to
Portfolio shareholders who do not participate in the Plan will be paid by check
mailed directly to the record holder by or under the direction of TSSG as
dividend-paying agent.
The number of shares of Common Stock distributed to participants in the Plan
in lieu of a cash dividend is determined in the following manner. Whenever the
market price of the Common Stock is equal to or exceeds the net asset value per
share at the time shares are valued for purposes of determining the number of
shares equivalent to the cash dividend or capital gains distribution, Plan
participants will be issued shares of Common Stock valued at the greater of (1)
the net asset value per share most recently determined as described under "Net
Asset Value" or (2) 95% of the market value. To the extent the Portfolio issues
shares to participants in the Plan at a discount to net asset value, the
remaining shareholders' interests in the Portfolio's net assets will be
proportionately diluted.
If the net asset value per share of Common Stock at the time of valuation
exceeds the market price of the Common Stock, or if the Portfolio declares a
dividend or capital gains distribution payable only in cash, TSSG will buy
Common Stock in the open market, on the NYSE or elsewhere, for the participants'
accounts. If, following the commencement of the purchases and before TSSG has
completed its purchases, the market price exceeds the net asset value of the
Common Stock, TSSG will attempt to terminate purchases in the open market and
cause the Portfolio to issue the remaining dividend or distribution in shares at
net asset value per share. In this case, the number of shares of Common Stock
received by a Plan participant will be based on the weighted average of prices
paid for shares purchased in the open market and the price at which the
Portfolio issues the remaining shares. To the extent TSSG is unable to stop open
market purchases and cause the Portfolio to issue the remaining shares, the
average per share purchase price paid by TSSG may exceed the net asset value of
the Common Stock, resulting in the acquisition of fewer shares than if the
dividend or capital gains distribution had been paid in Common Stock issued by
the Portfolio at net asset value. TSSG will begin to purchase Common Stock on
the open market as soon as practicable after the record date of the dividend or
capital gains distribution, but in no event shall such purchases continue later
than 30 days after the payment date thereof, except when necessary to comply
with applicable provisions of the federal securities laws.
TSSG maintains all shareholder accounts in the Plan and furnishes written
confirmations of all transactions in each account, including information needed
by a shareholder for personal and tax records. The automatic reinvestment of
dividends and capital gains distributions will not relieve Plan participants of
any income tax that may be payable on the dividends or capital gains
distributions. Common Stock in the account of each Plan participant will be held
by TSSG in uncertificated form in the name of each Plan participant, and each
shareholder's proxy will include those shares purchased pursuant to the Plan.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions. TSSG's fees for handling the reinvestment of
dividends and capital gains distributions will be paid by the Portfolio. No
brokerage charges apply with respect to shares of Common Stock issued directly
by the Portfolio as a result of dividends or capital gains distributions payable
either in Common Stock or in cash. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to open
market purchases made in connection with the reinvestment of dividends or
capital gains distributions.
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<PAGE>
Experience under the Plan may indicate that changes to it are desirable. The
Portfolio reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by TSSG, with the Portfolio's prior written consent, on at least 30
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to The Shareholders Services Group, Inc., P.O.
Box 9134, Boston, Massachusetts 02205-9134 or by telephone at (800) 331-1710.
NET ASSET VALUE
The net asset value of shares of Common Stock will be calculated as of the
close of regular trading on the NYSE, currently 4:00 p.m., New York time, on
each day on which the NYSE is open for trading. The Portfolio reserves the right
to cause its net asset value to be calculated on a less frequent basis as
determined by the Portfolio's Board of Directors. For purposes of determining
net asset value, futures contracts and options on futures contracts will be
valued 15 minutes after the close of regular trading on the NYSE.
Net asset value per share of Common Stock is calculated by dividing the value
of the Portfolio's total assets less liabilities by the number of outstanding
shares. In general, the Portfolio's investments will be valued at market value,
or in the absence of market value, at fair value as determined by or under the
direction of the Portfolio's Board of Directors. Short-term investments that
mature in 60 days or less are valued on the basis of amortized cost (which
involves valuing an investment at its cost and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the investment) when the
Portfolio's Board of Directors has determined that amortized cost represents
fair value.
The valuation of the Portfolio's assets is made by Boston Advisors after
consultation with an independent pricing service (the "Service") approved by the
Portfolio's Board of Directors. When, in the judgment of the Service, quoted bid
prices for investments are readily available and are representative of the bid
side of the market, these investments are valued at the mean between the quoted
bid prices and asked prices. Investments for which, in the judgment of the
Service, no readily obtainable market quotation is available, are carried at
fair value as determined by the Service, based on methods that include
consideration of: yields or prices of Municipal Obligations of comparable
quality, coupon, maturity and type; indications as to values from dealers; and
general market conditions. The Service 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 Portfolio's Board of Directors,
which may replace the Service at any time if it determines it to be in the best
interests of the Portfolio to do so.
TAXATION
The following is a summary of the material Federal tax considerations
affecting the Portfolio and its shareholders; see the SAI for a further
discussion. In addition to the considerations described below and in the SAI,
which are applicable to any investment in the Portfolio, there may be other
Federal,
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<PAGE>
state, local or foreign tax considerations applicable to particular investors.
Prospective shareholders are therefore urged to consult their tax advisors with
respect to the consequences to them of an investment in the Portfolio.
The Portfolio has qualified and intends to qualify each year as a "regulated
investment company" under Subchapter M of the Code. In each taxable year that
the Portfolio so qualifies, the Portfolio will be relieved of Federal income tax
on that part of its investment company taxable income (consisting generally of
taxable net investment income, net short-term capital gain and net realized
gains from certain hedging transactions) and long-term capital gain that is
distributed to its shareholders. In addition, the Portfolio intends to satisfy
conditions contained in the Code that will enable interest from Municipal
Obligations, excluded from gross income for Federal income tax purposes with
respect to the Portfolio, to retain that tax-exempt status when distributed to
the shareholders of the Portfolio (that is, to be classified as
"exempt-interest" dividends of the Portfolio).
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of Common Stock is not deductible for Federal income tax purposes.
Although the Portfolio's exempt-interest dividends may be excluded by
shareholders from their gross income for Federal income tax purposes (1) some or
all of the Portfolio's exempt-interest dividends may be a specific preference
item, or a component of an adjustment item, for purposes of the Federal
individual and corporate alternative minimum taxes and (2) the receipt of
dividends and distributions from the Portfolio may affect a corporate
shareholder's Federal "environmental" tax liability. The receipt of dividends
and distributions from the Portfolio may affect a foreign corporate
shareholder's Federal "branch profits" tax liability and a corporate
shareholder's Federal "excess net passive income" tax liability.
The portion of any exempt-interest dividend paid by the Portfolio that
represents income derived from private activity bonds held by the Portfolio may
not retain its tax-exempt status in the hands of a shareholder who is a
"substantial user" of a facility financed by the bonds, or a "related person" of
the substantial user. Shareholders should consult their own tax advisors to
determine whether they are (1) "substantial users" with respect to a facility or
"related" to those users within the meaning of the Code or (2) subject to a
Federal alternative minimum tax, the Federal "environmental" tax, the Federal
"branch profits" tax, or the Federal "excess net passive income" tax.
The tables set out in Appendix B to this Prospectus show individual taxpayers
how to translate the tax savings from investments such as the Portfolio into an
equivalent return from a taxable investment. The yields used in the tables are
for illustration only and are not intended to represent current or future yields
for the Portfolio, which may be higher or lower than those shown.
A shareholder of the Portfolio receiving dividends or distributions in
additional shares pursuant to the Plan should be treated for Federal income tax
purposes as receiving a distribution in an amount equal to the amount of money
that a shareholder receiving cash dividends or distributions receives, and
should have a cost basis in the shares received equal to that amount. The
Portfolio will notify its shareholders following the end of each calendar year
of the amounts of exempt-interest dividends, taxable dividends and capital gains
distributions paid (or deemed paid) that year and of any portion thereof that is
subject to the alternative minimum tax for individuals.
Upon a sale or exchange of shares of Common Stock, a shareholder will realize
a taxable gain or loss equal to the difference between his or her adjusted basis
for the shares and the amount realized. Any
20
<PAGE>
such gain or loss will be treated as a capital gain or loss if the shares are
capital assets in the shareholder's hands and will be a long-term capital gain
or loss if the shares have been held for more than one year. Any loss realized
on a sale or exchange of shares of Common Stock that were held for six months or
less will be disallowed to the extent of any exempt-interest dividends received
on those shares and (to the extent not so allowed) will be treated as a
long-term, rather than as a short-term, capital loss to the extent of any
capital gain distributions received thereon. A loss realized on a sale or
exchange of shares of Common Stock also will be disallowed to the extent those
shares are replaced by other shares of Common Stock within a period of 61 days
beginning 30 days before and ending 30 days after the date of the disposition of
shares (which could occur, for example, as a result of participation in the
Plan). In that event, the basis for the replacement shares will be adjusted to
reflect the disallowed loss.
Investors also should be aware that if shares of Common Stock are purchased
shortly before the record date for any distribution, the investor will pay full
price for the shares and could receive some portion of the price back as an
exempt-interest dividend, a taxable dividend or capital gains distribution.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that he
or she has provided a correct taxpayer identification number and that he or she
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 or her social security
number.
DESCRIPTION OF COMMON STOCK
The Portfolio has 500,000,000 authorized shares of Common Stock, par value
$.001 per share. At the close of business on November 30, 1994, there were
________ shares of Common Stock outstanding. The Portfolio does not hold any
shares for its own account.
No shares, other than those currently outstanding, are offered for sale
pursuant to this Prospectus. All shares of Common Stock have equal
non-cumulative voting rights and equal rights with respect to dividends, assets
and liquidation. Shares of Common Stock will be fully paid and non-assessable
when issued and have no preemptive, conversion or exchange rights. A majority of
the votes cast at any meeting of shareholders is sufficient to take or authorize
action, except for election of Directors or as otherwise provided in the
Portfolio's Articles of Incorporation as described under "Certain Provisions of
the Articles of Incorporation."
Under the rules of the NYSE applicable to listed companies, the Portfolio
will be required to hold an annual meeting of shareholders in each year. If the
Portfolio's shares are no longer listed on the NYSE (or any other national
securities exchange the rules of which require annual meetings of shareholders),
the Portfolio may decide not to hold annual meetings of shareholders. See "Stock
Purchases and Tenders."
The Portfolio has no current intention of offering additional shares, except
that additional shares may be issued under the Plan. See "Dividends and
Distributions; Dividend Reinvestment Plan." Other offerings of shares, if
made,will require approval of the Portfolio's Board of Directors and will be
subject to the requirement of the 1940 Act that shares may not be sold at a
price below the then
21
<PAGE>
current net asset value (exclusive of underwriting discounts and commissions)
except in connection with an offering to existing shareholders or with the
consent of holders of a majority of the Portfolio's outstanding shares.
STOCK PURCHASES AND TENDERS
Although shares of closed-end investment companies sometimes trade at
premiums over net asset value, they frequently trade at discounts. Since the
Portfolio's commencement of operations, the Common Stock has periodically traded
at a discount from its net asset value per share. The Portfolio cannot predict
whether the Common Stock will continue to trade above, at or below net asset
value. The Portfolio believes that, if the Common Stock trades at a discount to
net asset value, the share price will not adequately reflect the value of the
Portfolio to investors and that investors' financial interests will be furthered
if the price of the Common Stock more closely reflects its net asset value. For
these reasons, the Portfolio's Board of Directors currently intends to consider
from time to time repurchases of Common Stock on the open market or in private
transactions or the making of tender offers for the Common Stock.
The Portfolio may repurchase shares of its Common Stock in the open market or
in privately negotiated transactions when the Portfolio can do so at prices
below their then current net asset value per share on terms that the Board of
Directors believes represent a favorable investment opportunity. In addition,
the Portfolio's Board of Directors currently intends to consider, at least once
a year, making an offer to each Common Stock shareholder of record to purchase
at net asset value shares of Common Stock owned by the shareholder.
Before authorizing any repurchase of Common Stock or tender offer to Common
Stock shareholders, the Portfolio's Board of Directors will consider all
relevant factors, including the market price of the Common Stock, its net asset
value per share, the liquidity of the Portfolio's securities positions, the
effect an offer or repurchase might have on the Portfolio or its shareholders
and relevant market conditions. Any offer will be made in accordance with the
requirements of the 1940 Act and the Securities Exchange Act of 1934. Although
the matter will be subject to the review of the Portfolio's Board of Directors
at the time, a tender offer is not expected to be made if the anticipated
benefit to shareholders and the Portfolio would not be commensurate with the
anticipated cost to the Portfolio, or if the number of shares expected to be
tendered would not be material.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Portfolio's Articles of Incorporation include provisions that could have
the effect of limiting the ability of other entities or persons to acquire
control of the Portfolio or to change the composition of its Board of Directors
and could have the effect of depriving shareholders of an opportunity to sell
their shares of Common Stock at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the Portfolio. The
Portfolio's Board of Directors is divided into three classes. At the annual
meeting of shareholders in each year, the term of one class expires, and each
Director elected to the class will hold office for a term of three years. The
classification of the Portfolio's Board of Directors in this manner could delay
for up to two years the replacement of a majority of the Board. The Articles of
Incorporation provide that the maximum number of Directors that may constitute
the Portfolio's entire board is 12. A Director may be removed from office, or
the maximum number of Directors increased, only by vote of the holders of at
least 75% of the shares of Common Stock entitled to be voted on the matter.
22
<PAGE>
The Portfolio's Articles of Incorporation require the favorable vote of the
holders of at least two-thirds of the shares of Common Stock then entitled to be
voted to authorize the conversion of the Portfolio from a closed-end to an
open-end investment company as defined in the 1940 Act, unless two-thirds of the
Continuing Directors (as defined below) approve such a conversion. In the 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 at least 75% of the Directors and the holders of at
least 75% of the shares of the Portfolio are required to authorize any of the
following transactions (referred to individually as a "Business Combination"):
(1) a merger, consolidation or share exchange of the Portfolio with or into any
other person (referred to individually as a "Reorganization Transaction"); (2)
the issuance or transfer by the Portfolio (in one or a series of transactions in
any 12-month period) of any securities of the Portfolio to any other person or
entity for cash, securities or other property (or combination thereof) having an
aggregate fair market value of $1,000,000 or more, excluding sales of securities
of the Portfolio in connection with a public offering, issuances of securities
of the Portfolio pursuant to a dividend reinvestment plan adopted by the
Portfolio and issuances of securities of the Portfolio upon the exercise of any
stock subscription rights distributed by the Portfolio; and (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 an aggregate fair market value of $1,000,000
or more, except for transactions in securities effected by the Portfolio in the
ordinary course of its business (each such sale, lease, exchange, mortgage,
pledge, transfer or other disposition being referred to individually as a
"Transfer Transaction"). The same affirmative votes are required with respect
to: any proposal as to the voluntary liquidation or dissolution of the Portfolio
or any amendment to the Portfolio's Articles of Incorporation to terminate its
existence (referred to individually as a "Termination Transaction"); and any
shareholder proposal as to specific investment decisions made or to be made with
respect to the Portfolio's assets.
A 75% shareholder vote will not be required with respect to a Business
Combination if the transaction is approved by a vote of at least 75% of the
Continuing Directors (as defined below) or if certain conditions regarding the
consideration paid by the person entering into, or proposing to enter into, a
Business Combination with the Portfolio and various other requirements are
satisfied. In such case, a majority of the votes entitled to be cast by
shareholders of the Portfolio will be required to approve the transaction if it
is a Reorganization Transaction or a Transfer Transaction that involves
substantially all of the Portfolio's assets, and no shareholder vote will be
required to approve the transaction if it is any other Business Combination. In
addition, a 75% shareholder vote will not be required with respect to a
Termination Transaction if it is approved by a vote of at least 75% of the
Continuing Directors, in which case a majority of the votes entitled to be cast
by shareholders of the Portfolio will be required to approve the transaction.
A "Continuing Director," as used in the discussion above, is any member of
the Portfolio's Board of Directors (1) who is not a person or affiliate of a
person who enters or proposes to enter into a Business Combination with the
Portfolio (such a person or affiliate being referred to individually as an
"Interested Party") and (2) who has been a member of the Portfolio's Board of
Directors for a period of at least 12 months, or is a successor of a Continuing
Director who is unaffiliated with an Interested Party and is recommended to
succeed a Continuing Director by a majority of the Continuing Directors then
members of the Portfolio's Board of Directors.
23
<PAGE>
The Portfolio's Board of Directors has determined that the 75% voting
requirements described above, which are generally greater than the minimum
requirements under Maryland law and the 1940 Act, are in the best interests of
shareholders generally. References should be made to the Articles of
Incorporation on file with the SEC for the full text of their provisions.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT AND
REGISTRAR
Boston Safe, a wholly owned subsidiary of TBC, located at One Boston Place,
Boston, Massachusetts 02108, acts as custodian of the Portfolio's investments.
TSSG, located at One Exchange Place, Boston, Massachusetts 02109, serves as the
Portfolio's transfer agent, dividend-paying agent and registrar. TSSG, a
subsidiary of First Data Corporation, also serves as agent in connection with
the Plan. Neither Boston Safe nor TSSG assists in or is responsible for
investment decisions involving assets of the Portfolio.
Under the Custody Agreement, Boston Safe holds the Portfolio's assets in
accordance with the provisions of the 1940 Act. Under the Transfer Agency and
Registrar Agreement, TSSG maintains the shareholder account records for the
Portfolio, distributes dividends and distributions payable by the Portfolio and
produces statements with respect to account activity for the Portfolio and its
shareholders. The services to be provided by TSSG as agent under the Plan are
described under "Dividends and Distributions; Dividend Reinvestment Plan."
FURTHER INFORMATION
Further information concerning the Common Stock and the Portfolio may be
found in the Registration Statement, of which this Prospectus and the SAI
constitute a part, on file with the SEC.
The Table of Contents for the SAI is as follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies................................. 2
Management of the Portfolio....................................... 14
Taxes............................................................. 19
Stock Purchases and Tenders....................................... 23
Additional Information............................................ 24
Financial Statements.............................................. 25
Appendix--Description of Moody's, S&P and Fitch Ratings........... 26
</TABLE>
24
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED
BY THE PORTFOLIO OR THE PORTFOLIO'S INVESTMENT ADVISER. THIS
PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO
BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK, NOR DOES IT CONSTITUTE
AN OFFER TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON
STOCK BY ANYONE IN
ANY JURISDICTION IN WHICH THE OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE
AFFAIRS OF THE PORTFOLIO SINCE THE DATE HEREOF. IF ANY MATERIAL
CHANGE OCCURS
WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
HOWEVER, THIS
PROSPECTUS WILL BE SUPPLEMENTED OR AMENDED ACCORDINGLY.
25
<PAGE>
APPENDIX A
TYPES OF MUNICIPAL OBLIGATIONS
The Portfolio may invest in the following types of Municipal Obligations and
in such other types of Municipal Obligations.
MUNICIPAL BONDS
Municipal bonds are debt obligations issued to obtain funds for various
public purposes. The two principal classifications of municipal bonds are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or from another specific
source, such as the user of the facility being financed. Certain municipal bonds
are "moral obligation" issues, which normally are issued by special purpose
public authorities. In the case of such issues, an express or implied "moral
obligation" of a 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 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
A-1
<PAGE>
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. In the case of a "non-appropriation" lease, the Portfolio's
ability to recover under the lease in the event of non-appropriation or default
will be limited solely to the repossession of the leased property, without
recourse to the general credit of the lessee, and disposition of the property in
the event of foreclosure might be difficult. The Portfolio will not invest more
than 5% of its assets in such "non-appropriation" municipal lease obligations.
ZERO COUPON OBLIGATIONS
The Portfolio may invest up to 10% of its total assets in zero coupon
Municipal Obligations. Such obligations include "pure zero" obligations, which
pay no interest for their entire life (either because they bear no stated rate
of interest or because their stated rate of interest is not payable until
maturity), and "zero/fixed" obligations, which pay no interest for an initial
period and thereafter pay interest currently. Zero coupon obligations also
include securities representing the principal-only components of Municipal
Obligations from which the interest components have been stripped and sold
separately by the holders of the underlying Municipal Obligations. Zero coupon
securities usually trade at a deep discount from their face or par value and
will be subject to greater fluctuations in market value in response to changing
rates than obligations of comparable maturity that make current distributions of
interest. While zero coupon Municipal Obligations will not contribute to the
cash available to the Portfolio, SBMFM believes that limited investments in such
securities may facilitate the Portfolio's ability to preserve capital while
generating tax-exempt income through the accrual of original interest discount.
Zero coupon Municipal Obligations generally are liquid, although such liquidity
may be reduced from time to time due to interest rate volatility and other
factors.
FLOATING RATE OBLIGATIONS
The Portfolio may purchase floating and variable rate municipal notes and
bonds, which frequently permit the holder to demand payment of principal at any
time, or at specified intervals, and permit the issuer to prepay principal, plus
accrued interest, at its discretion after a specified notice period. The
issuer's obligations under the demand feature of such notes and bonds generally
are secured by bank letters of credit or other credit support arrangements.
There frequently will be no secondary market for variable and floating rate
obligations held by the Portfolio, although the Portfolio may be able to obtain
payment of principal at face value by exercising the demand feature of the
obligation.
PARTICIPATION INTERESTS
The Portfolio may invest up to 5% of its total assets in participation
interests in municipal bonds, including IDBs, PABs and floating and variable
rate securities. A participation interest gives the Portfolio an undivided
interest in a municipal bond owned by a bank. The Portfolio has the right to
sell the instrument back to the bank. If the participation interest is unrated,
it will be backed by an irrevocable letter of credit or guarantee of a bank that
the Portfolio's Board of Directors has determined meets certain credit quality
standards or the payment obligation will otherwise be collateralized by U.S.
government securities. The Portfolio will have the right, with respect to
certain 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-2
<PAGE>
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. SBMFM will
monitor the pricing, quality and liquidity of the participation interests held
by the Portfolio and the credit standing of the banks issuing letters of credit
or guarantees supporting such participation interests on the basis of published
financial information reports of rating services and bank analytical services.
CUSTODIAL RECEIPTS
The Portfolio may acquire custodial receipts or certificates underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain Municipal Obligations. The underwriter of
these certificates or receipts typically purchases Municipal Obligations and
deposits the obligations in an irrevocable trust or custodial account with a
custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the obligations. Custodial receipts evidencing specific coupon or
principal payments have the same economic attributes as zero coupon Municipal
Obligations described above. Although under the terms of 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 that the trust or custodial account in which the underlying security has
been deposited is determined to be an association taxable as a corporation,
instead of a non-taxable entity, the yield on the underlying security would be
reduced in recognition of any taxes paid.
MUNICIPAL OBLIGATION COMPONENTS
The Portfolio may invest in Municipal Obligations, the interest rate on
which has been divided by the issuer into two different and variable components,
which together result in a fixed interest rate. Typically, the first of the
components (the "Auction Component") pays an interest rate that is reset
periodically through an auction process, whereas the second of the components
(the "Residual Component") pays a residual interest rate based on the difference
between the total interest paid by the issuer on the Municipal Obligation and
the auction rate paid on the Auction Component. The Portfolio may purchase both
Auction and Residual Components.
Because the interest rate paid to holders of Residual Components is generally
determined by subtracting the interest rate paid to the holders of Auction
Components from a fixed amount, the interest rate paid to Residual component
holders will decrease as the Auction Component's rate increases and increase as
the Auction Component's rate decreases. Moreover, the extent of the increases
and decreases in market value of Residual Components may be larger than
comparable changes in the market value of an equal principal amount of a fixed
rate Municipal Obligation having similar credit quality, redemption provisions
and maturity.
A-3
<PAGE>
APPENDIX B
TAX-EXEMPT INCOME COMPARED TO TAXABLE INCOME
The tables below show individual taxpayers how to translate the tax savings
from investments such as the Portfolio into an equivalent return from a taxable
investment. The yields used below are for illustration only and are not intended
to represent current or future yields for the Portfolio, which may be higher or
lower than those shown.
<TABLE>
<CAPTION>
SAMPLE
TAXABLE INCOME FEDERAL TAX-EXEMPT YIELDS
----------------------------------- MARGINAL -----------------------------------------
SINGLE RETURN JOINT RETURN RATE* 2.00% 3.00% 4.00% 5.00%
6.00% 7.00%
----------------- ----------------- -------- ----- ----- ----- ----- ----- ------
EQUIVALENT TAXABLE YIELDS
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
$0 - 22,100 $0 - 36,900 15.00% 2.35% 3.53% 4.71% 5.88% 7.06%
8.24%
22,101 - 53,500 36,901 - 89,150 28.00% 2.78% 4.17% 5.56% 6.94% 8.33%
9.72%
53,501 - 115,000 89,151 - 140,000 31.00% 2.90% 4.35% 5.80% 7.25% 8.70%
10.14%
115,001 - 250,000 140,001 - 250,000 36.00% 3.13% 4.69% 6.25% 7.81% 9.38%
10.94%
250,000 and up 250,000 and up 39.60% 3.31% 4.97% 6.62% 8.28% 9.93%
11.59%
<FN>
- -------------
* The federal tax rates shown are those currently in effect for 1994. The
calculations reflected in the table assume that no income will be subject
to any federal, state or local individual alternative minimum taxes.
</TABLE>
B-1
<PAGE>
- -------------------------------------------------------
MANAGED MUNICIPALS
PORTFOLIO II INC.
PROSPECTUS
DECEMBER 29, 1994
[LOGO]
- -------------------------------------------------------
C O M M O N S T O C K
Blacklined version
Managed Municipals Portfolio II Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1994
Managed Municipals Portfolio II Inc. (the "Portfolio") is a non-
diversified, closed-end management investment company that seeks as high a
level of current income exempt from Federal income tax as is consistent
with the preservation of principal. Under normal conditions, the Portfolio
will, in seeking its investment objective, invest substantially all of its
assets in a variety of obligations issued by or on behalf of states,
territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities
or multistate agencies or authorities ("Municipal Obligations"). No
assurance can be given that the Portfolio will be able to achieve its
investment objective.
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus of the
Portfolio, dated December 29, 1994, as amended or supplemented from
time to time (the "Prospectus"), and should be read in conjunction with the
Prospectus. The Prospectus may be obtained from any Smith Barney
Financial Consultant or by writing or calling the Portfolio at the
address or telephone number set forth above. This 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.
TABLE OF CONTENTS
Page
Investment Objective and Policies (see in the
Prospectus "Investment Objective and Policies"
and "Appendix A") . . . . . . . . . . . . . . . . . . . .
2
Management of the Portfolio (see in the Prospectus
"Management of the Portfolio"). . . . . . . . . . . . . . .
14
Taxes (see in the Prospectus "Taxation") . . . . . . . . .
19
Stock Purchases and Tenders (see in the Prospectus
"Stock Purchases and Tenders" and
"Description of Common Stock") . . . . . . . . . . . .
23
Additional Information (see in the Prospectus
"Custodian, Transfer Agent and Dividend-Paying
Agent and Registrar") . . . . . . . . . .
24
Financial Statements . . . . . . . . . . . . . . . . . . .
25
Appendix -- Description of Moody's, S&P and Fitch Ratings . . . .
26
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus discusses the Portfolio's investment objective and the
policies it employs to achieve that objective. The following discussion
supplements the description of the Portfolio's investment policies in the
Prospectus. The Portfolio's investment objective is high tax-exempt
current income by investing substantially all of its assets in
Municipal Obligations. The Portfolio's investment objective may not
be changed without the affirmative vote of the holders of a majority (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
of the Portfolio's outstanding voting shares. No assurance can be given
that the Portfolio's investment objective will be achieved.
Use of Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P") and Fitch Investors
Service, Inc. ("Fitch") represent the opinions of those agencies as to the
quality of the Municipal Obligations and long-term investments which they
rate. It should be emphasized, however, that such ratings are relative and
subjective, are not absolute standards of quality and do not evaluate the
market risk of securities. These ratings will be used as initial criteria
for the selection of securities, but the Portfolio also will rely upon the
independent advice of its investment adviser, Smith Barney Mutual Funds
Management Inc. ("SBMFM") . Among the factors that will also be
considered by SBMFM in evaluating potential Municipal Obligations to
be held by the Portfolio are the price, coupon and yield to maturity of the
obligations, SBMFM '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 SBMFM '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 SBMFM will consider such event in its determination
of whether the Portfolio should continue to hold the Municipal Obligations.
In addition, to the extent the ratings change as a result of changes in the
rating systems or due to a corporate restructuring of Moody's, S&P or
Fitch, the Portfolio will attempt to use comparable ratings as standards
for its investments in accordance with its investment objective and
policies.
The Portfolio will seek to invest substantially all of its assets in
Municipal Obligations, and under normal conditions, at least 80% of the
Portfolio's net assets will be invested in 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 comparable in 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 has not fully weathered a major economic
recession. Any such economic downturn could adversely affect the value
of such securities and the ability of the issuers of
these securities to repay principal and pay interest thereon.
Taxable Investments
Under normal conditions, the Portfolio may hold up to 20% of its
assets in cash or money market instruments, including taxable money market
instruments (collectively, "Taxable Investments").
Money market instruments in which the Portfolio may invest include:
U.S. government securities; tax-exempt notes of municipal issuers rated, at
the time of purchase, no lower than MIG1 by Moody's, SP-1 by S&P or F-1 by
Fitch or, if not rated, by issuers having outstanding unsecured debt then
rated within the three highest rating categories; bank obligations
(including certificates of deposit, time deposits and bankers' acceptances
of domestic banks, domestic savings and loan associations and similar
institutions); commercial paper rated no lower than P-1 by Moody's, A-1 by
S&P or F-1 by Fitch or the equivalent from another nationally recognized
rating service or, if unrated, of an issuer having an outstanding,
unsecured debt issue then rated within the three highest rating categories;
and repurchase agreements. At no time will the Portfolio's investments in
bank obligations, including time deposits, exceed 25% of the value of its
assets.
U.S. government securities in which the Portfolio may invest include
direct obligations of the United States and obligations issued by U.S.
government agencies and instrumentalities. Included among direct
obligations of the United States are Treasury bills, Treasury notes and
Treasury bonds, which differ principally in terms of their maturities.
Included among the securities issued by U.S. government agencies and
instrumentalities are: securities that are supported by the full faith and
credit of the United States (such as Government National Mortgage
Association ("GNMA") 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 regain 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
banks which are the issuers of instruments acceptable for
purchase by the Fund 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. SBMFM , 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 SBMFM 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 GNMA and bank certificates of deposit. Although most
interest rate futures contracts require the delivery of the underlying
securities, some settle in cash. Each contract designates the price, date,
time and place of delivery.
The purpose of the Portfolio's entering into a Municipal Obligation
index or interest rate futures contract, as the holder of long-term
Municipal Obligations, is to protect the Portfolio from fluctuation in
interest rates on tax-exempt securities without actually buying or selling
Municipal Obligations. The Portfolio will, with respect to its purchases
of financial futures contracts, establish a segregated account consisting
of cash or cash equivalents in an amount equal to the total market value of
the futures contracts, less the amount of initial margin on deposit for the
contracts.
Unlike the purchase or sale of a Municipal Obligation, no
consideration is paid or received by the Portfolio upon the purchase or
sale of a futures contract. Initially, the Portfolio will be required to
deposit with the futures commission merchant an amount of cash or cash
equivalents equal to approximately 5% of the contract amount (this amount
is subject to change by the board of trade on which the contract is traded,
and members of such board of trade may charge a higher amount). This
amount is known as "initial margin" and is in the nature of a performance
bond or good faith deposit on the contract which is returned to the
Portfolio upon termination of the futures contract, assuming that all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the futures commission merchant, will be
made on a daily basis as the price of the index or securities fluctuates
making the long and short positions in the futures contract more or less
valuable, a process known as marking-to-market. At any time prior to the
expiration of the contract, the Portfolio may elect to close the position
by taking an opposite position, which will operate to terminate the
Portfolio's existing position in the futures contract.
There are several risks in connection with the use of Municipal
Obligation index and interest rate futures contracts as a hedging device.
Successful use of these futures contracts by the Portfolio is subject to
SBMFM '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
movements 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 SBMFM , which
could prove to be inaccurate. Even if SBMFM '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 issuer to pay,
when due, principal of and interest on its, or their, Municipal Obligations
may be materially affected.
The net asset value of the Common Stock will change with changes in
the value of the Portfolio's securities. Because the Portfolio will invest
primarily in fixed-income securities, the net asset value of the Common
Stock can be expected to change as levels of interest rates fluctuate;
generally, when prevailing interest rates increase, the value of fixed-
income securities held by the Portfolio can be expected to decrease and
when prevailing interest rates decrease, the value of the fixed-income
securities held by the Portfolio can be expected to increase. The value of
the fixed-income securities held by the Portfolio, and thus the Portfolio's
net asset value, may also be affected by other economic, market and credit
factors.
From time to time, the Portfolio's investments may include securities
as to which the Portfolio, by itself or together with other funds or
accounts managed by SBMFM, 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 SBMFM believes it is
advisable to do so.
When-Issued Securities. The Portfolio may purchase Municipal
Obligations on a "when-issued" basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). The payment obligation and
the interest rate that will be received on the Municipal Obligations
purchased on a when-issued basis are each fixed at the time the buyer
enters into the commitment. Although the Portfolio will purchase Municipal
Obligations on a when-issued basis only with the intention of actually
acquiring the securities, the Portfolio may sell these securities before
the settlement date if it is deemed advisable as a matter of investment
strategy.
Municipal Obligations are subject to changes in value based upon the
public's perception of the creditworthiness of the issuers and changes,
real or anticipated, in the level of interest rates. In general, Municipal
Obligations tend to appreciate when interest rates decline and depreciate
when interest rates rise. Purchasing Municipal Obligations on a when-
issued basis, therefore, can involve the risk that the yields available in
the market when the delivery takes place actually may be higher than those
obtained in the transaction itself. To account for this risk, a separate
account of the Portfolio consisting of cash or liquid debt securities equal
to the amount of the when-issued commitments will be established at the
Portfolio's custodian bank. For the purpose of determining the adequacy of
the securities in the account, the deposited securities will be valued at
market or fair value. If the market or fair value of such securities
declines, additional cash or securities will be placed in the account on a
daily basis so that the value of the account will equal the amount of such
commitments by the Portfolio. Placing securities rather than cash in the
segregated account may have a leveraging effect on the Portfolio's net
assets. That is, to the extent the Portfolio remains substantially fully
invested in securities at the same time it has committed to purchase
securities on a when-issued basis, there will be greater fluctuations in
its net assets than if it had set aside cash to satisfy its purchase
commitment. Upon the settlement date of the when-issued securities, the
Portfolio will meet its obligations from then-available cash flow, sale of
securities held in the segregated account, sale of other securities or,
although it would not normally expect to do so, from the sale of the when-
issued securities themselves (which may have a value greater or less than
the Portfolio's payment obligations). Sales of securities to meet such
obligations may involve the realization of capital gains, which are not
exempt from Federal income taxes.
When the Portfolio engages in when-issued transactions, it relies on
the seller to consummate the trade. Failure of the seller to do so may
result in the Portfolio's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
Municipal Leases. Municipal leases may take the form of a lease or
an installment purchase contract issued by state and local government
authorities to obtain funds to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, computer equipment and
other capital assets. These obligations have evolved to make it possible
for state and local government authorities to acquire property and
equipment without meeting constitutional and statutory requirements for the
issuance of debt. Thus, municipal leases have special risks not normally
associated with Municipal Obligations. These obligations frequently
contain "non-appropriation" clauses providing that the governmental issuer
of the obligation has no obligation to make future payments under the lease
or contract unless money is appropriated for such purposes by the
legislative body on a yearly or other periodic basis. In addition to the
"non-appropriation" risk, municipal leases represent a type of financing
that has not yet developed the depth of marketability associated with
Municipal Obligations; moreover, although the obligations will be secured
by the leased equipment, the disposition of the equipment in the event of
foreclosure might prove difficult.
To limit the risks associated with municipal leases, the Portfolio
will invest no more than 5% of its total assets in lease obligations that
contain non-appropriation clauses and will only purchase a non-
appropriation lease obligation with respect to which (1) the nature of the
leased equipment or other property is such that its ownership or use is
reasonably essential to a governmental function of the issuing
municipality, (2) the lease payments will begin to amortize the principal
balance due at an early date, resulting in an average life of five years or
less for the lease obligation, (3) appropriate covenants will be obtained
from the municipal obligor prohibiting the substitution or purchase of
similar equipment or other property if lease payments are not appropriated,
(4) the lease obligor has maintained good market acceptability in the past,
(5) the investment is of a size that will be attractive to institutional
investors and (6) the underlying leased equipment or other property has
elements of portability and/or use that enhance its marketability in the
event that foreclosure on the underlying equipment or other property were
ever required.
Municipal leases that the Portfolio may acquire will be both rated
and unrated. Rated leases that may be held by the Portfolio include those
rated investment grade at the time of investment (that is, rated no lower
than Baa by Moody's, BBB by S&P or BBB by Fitch). The Portfolio may
acquire unrated issues that SBMFM deems to be comparable in quality
to rated issues in which the Portfolio is authorized to invest. A
determination by SBMFM 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 SBMFM 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 SBMFM to be of high quality and minimal credit risk will not be
deemed to be illiquid solely because the underlying municipal lease is
unrated, if SBMFM determines that the lease is readily marketable
because it is backed by the letter of credit or insurance policy.
Investment Restrictions
The Portfolio has adopted certain fundamental investment restrictions
that may not be changed without the prior approval of the holders of a
majority of the Portfolio's outstanding voting securities. A "majority of
the Portfolio's outstanding voting securities" for this purpose means the
lesser of (1) 67% or more of the shares of the Portfolio's Common Stock
present at a meeting of shareholders, if the holders of 50% of the
outstanding shares are present or represented by proxy at the meeting or
(2) more than 50% of the outstanding shares. For purposes of the
restrictions listed below, all percentage limitations apply immediately
after a purchase or initial investment, and any subsequent change in
applicable percentage resulting from market fluctuations will not require
elimination of any security from the portfolio. Under its fundamental
restrictions, the Portfolio may not:
1. Purchase securities other than Municipal Obligations and
Taxable Investments as those terms are described in the Prospectus and this
SAI.
2. Borrow money, except for temporary or emergency purposes, or
for clearance of transactions, and then only in amounts not exceeding 15%
of its total assets (not including the amount borrowed) and as otherwise
described in the Prospectus and this SAI. When the Portfolio's borrowings
exceed 5% of the value of its total assets, the Portfolio will not make any
additional investments.
3. Sell securities short or purchase securities on margin, except
for such short-term credits as are necessary for the clearance of
transactions, but the Portfolio may make margin deposits in connection with
transactions in options, futures and options on futures.
4. Underwrite any issue of securities, except to the extent that
the purchase of Municipal Obligations may be deemed to be an underwriting.
5. Purchase, hold or deal in real estate or oil and gas interests,
except that the Portfolio may invest in Municipal Obligations secured by
real estate or interests in real estate.
6. Invest in commodities, except that the Portfolio may enter into
futures contracts, including those relating to indexes, and options on
futures contracts or indexes, as described in the Prospectus and this SAI.
7. Lend any funds or other assets except through purchasing
Municipal Obligations or Taxable Investments, lending portfolio securities
and entering into repurchase agreements consistent with the Portfolio's
investment objective.
8. Issue senior securities.
9. Invest more than 25% of its total assets in the securities of
issuers in any single industry, except that this limitation will not be
applicable to the purchase of Municipal Obligations and U.S. government
securities.
10. Make any investments for the purpose of exercising control or
management of any company.
Portfolio Transactions
Newly issued securities normally are purchased directly from the
issuer or from an underwriter acting as principal. Other purchases and
sales usually are placed with those dealers from which it appears the best
price or execution will be obtained; those dealers may be acting as either
agents or principals. The purchase price paid by the Portfolio to
underwriters of newly issued securities usually includes a concession paid
by the issuer to the underwriter, and purchases of after-market securities
from dealers normally are executed at a price between the bid and asked
prices. The Portfolio has paid no brokerage commissions since its
commencement of operations.
Allocation of transactions, including their frequency, to various
dealers is determined by SBMFM 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 SBMFM 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
SBMFM , and the fees of SBMFM are not reduced as a consequence
of their receipt of such supplemental information. Such information may be
useful to SBMFM 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 SBMFM in carrying out its
obligations to the Portfolio.
The Portfolio will not purchase Municipal Obligations during the
existence of any underwriting or selling group relating thereto of which
Smith Barney Inc. ("Smith Barney") or its affiliates are members
except to the extent permitted by the Securities and Exchange Commission
(the "SEC"). Under certain circumstances, the Portfolio may be at a
disadvantage because of this limitation in comparison with other investment
companies which have a similar investment objective but which are not
subject to such limitation.
While investment decisions for the Portfolio are made independently
from those of the other accounts managed by BMFM , 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 SBMFM 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 SBMFM 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
inurring to the Portfolio.
Portfolio Turnover
The Portfolio's portfolio turnover rate (the lesser of purchases or
sales of portfolio securities during the last fiscal year, excluding
purchases or sales of short-term securities, divided by the monthly average
value of portfolio securities) generally is not expected to exceed 100%,
but the portfolio turnover rate will not be a limiting factor whenever the
Portfolio deems it desirable to sell or purchase securities. Securities
may be sold in anticipation of a rise in interest rates (market decline) or
purchased in anticipation of a decline in interest rates (market rise) and
later sold. In addition, a security may be sold and another security of
comparable quality may be purchased at approximately the same time in order
to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities.
These yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, such as changes in the overall demand for or supply of various types
of tax-exempt securities. For the fiscal years ended August 31, 1994
and 1993, the Portfolio's portfolio turnover rate was 85% and
163%, 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
SBMFM Investment Adviser and
Administrator
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-
Administrator
Smith Barney Distributor
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc.
("TSSG") Transfer Agent
These organizations and the functions they perform for the Portfolio
are discussed in the Prospectus and this SAI.
Directors and Executive Officers of the Portfolio
The overall management of the business and affairs of the Portfolio
is vested with its Board of Directors. The Board of Directors approves all
significant agreements between the Portfolio and persons or companies
furnishing services to it, including the Portfolio's agreements with its
investment adviser and administrator, sub-administrator,
custodian and transfer agent, dividend paying agent, registrar and plan
agent. The day-to-day operations of the Portfolio are delegated to its
officers and to SBMFM and Boston Advisors , subject always to the
investment objective and policies of the Portfolio and to general
supervision by the Portfolio's Board of Directors.
The Directors and executive officers of the Portfolio, their
addresses together with information as to their principal business
occupations during the past five years, are shown below:
Name and Address
Positions Held
With the Fund
Principal
Occupations
During Past 5
Years
*+Heath B. McLendon
Two World Trade
Center
New York, NY 10048
Chairman of the
Board,
Chief Executive
Officer and
Director
Executive Vice President of
Smith Barney
; Chairman of Smith
Barney Strategy Advisers
Inc. Prior to July 1993,
Senior Executive Vice
President of Shearson Lehman
Brothers; Vice Chairman of
Shearson Asset Management,
a member of the Asset
Management Group of Shearson
Lehman Brothers;
Director of PanAgora Asset
Management, Inc. and
PanAgora Asset Management
Limited, investment advisory
affiliates of Shearson
Lehman Brothers.
+Charles Barber
66 Glenwood Drive
Greenwich, CT
06830
Director
Consultant; formerly
Chairman of the Board,
ASARCO Incorporated.
+Martin Brody
HMK
Associates
Three ADP
Boulevard
Roseland, NJ 07068
Director
Vice Chairman of the Board
of Restaurant Associates
Corp.; Director of Jaclyn,
Inc.
27 West 67th
Street
Apt. 5FW
New York, NY 10023
Director
Consultant; formerly Vice
Chairman of the Board of May
Department Stores Company;
Director of Crystal Brands,
Inc., Melville Corp., R.G.
Barry Corp. and Hechinger
Co.
+Dwight B. Crane
Graduate School of
Business
Administratio
n
Harvard University
Soldiers Field
Road
Boston, MA 02163
Director
Professor, Graduate School
of Business Administration,
Harvard University, Director
of Peer Review Analysis,
Inc.
+Robert A. Frankel
102 Grand Street
Croton-on-Hudson
New York, NY 10520
Director
Management Consultant;
formerly Vice President of
The Reader's Digest
Association, Inc.
Name and Address
Positions Held
With the Fund
Principal Occupations
During Past 5 Years
Stephen J. Treadway
1345 Avenue of the
Americas
New York, NY 10105
President
Executive Vice President
and Director of Smith
Barney ; Director
and President of
SBMFM; and Trustee
of Corporate Realty Income
Trust Inc.
Richard P. Roelofs
Two World Trade
Center
New York, NY 10048
Executive Vice
President
Managing Director of Smith
Barney and
President of Smith Barney
Strategy Advisers
Inc.; Prior to July 1993,
Senior Vice President of
Shearson Lehman Brothers;
Vice President of Shearson
Lehman Strategy Advisors
Inc., an investment
advisory affiliate of
Shearson Lehman Brothers.
Joseph P. Deane
Two World Trade
Center
New York, NY 10048
Vice President
and
Investment
Officer
Investment Officer
of SBMFM . Prior to
July 1993, Senior Vice
President and Managing
Director of Shearson
Lehman Advisors.
David Fare
Two World Trade
Center
New York, NY 10048
Investment
Officer
Vice President of
SBMFM . Prior to
July 1993, Vice President
of Shearson Lehman
Advisors.
Lewis E. Daidone
1345 Avenue of the
Americas
New York, NY
10105
Chief Financial
and
Accounting
Officer and
Treasurer
Managing Director and
Chief Financial Officer of
Smith Barney; Director and
Senior Vice President of
SBMFM.
Christina T. Sydor
1345 Avenue of the
Americas
New York, NY
10105
Secretary
Managing Director of
Smith Barney; General
Counsel and Secretary of
SBMFM.
_________________________________________
* Directors who are "interested persons" of the Portfolio (as defined
in the 1940 Act)
+Director and/or trustee of other registered investment companies with
which Smith Barney is affiliated.
The Portfolio pays each of its directors who is not a director,
officer or employee of Smith Barney , or any of its affiliates, an
annual fee of $5,000 plus $500 for each Board of Directors meeting
attended. In addition, the Portfolio will reimburse these directors for
travel and out-of-pocket expenses incurred in connection with Board of
Directors' meetings. For the fiscal year ended August 31, 1994 ,
such fees and expenses totaled $ 36,937 .
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 the Common Stock. The following person is
the only person holding more than 5% of the __________ outstanding
shares of Common Stock as of November 30, 1994 :
Name and Address
of Record Owner
Amount of
Record
Ownership
Percent of
Common Stock
Outstanding
Cede & Co., as Nominee for The Depository Trust
Company
P.O. Box 20
Bowling Green Station
New York, New York 10004
________
_________%
_________ of the shares held of record by Cede & Co.,
representing ________ _% of the outstanding shares of Common Stock,
were held by The Depository Trust Company as nominee for Smith
Barney , representing accounts for which Smith Barney has
discretionary and non-discretionary authority.
As of November 30, 1994 , the Directors and officers of the
Portfolio, as a group, beneficially owned less than 1% of the Portfolio's
outstanding shares of Common Stock.
Investment Adviser and Administrator -- SBMFM
Sub- Administrator -- Boston Advisors
SBMFM serves as investment adviser to the Portfolio pursuant to
a transfer of the written agreement dated July 30, 1993 (the
"Advisory Agreement"), which transfer was effective November 7, 1994,
from its affiliate, Mutual Management Corp. Investment advisory services
continue to be provided to the Portfolio by the same portfolio managers who
had provided services under the agreement with Mutual Management Corp.
A form of the Advisory Agreement was most recently approved by the Board of
Directors, including a majority of those Directors who are not "interested
persons" of the Portfolio or SBMFM ("Non-Interested Directors") on
September 7, 1994 and by the shareholders at an Annual Meeting of
the Portfolio on June 9, 1993. Unless terminated sooner, the Advisory
Agreement will continue for an initial two-year period and will continue
for successive annual periods thereafter provided that such continuance is
specifically approved at least annually: (1) by a majority vote of the
Non-Interested Directors cast in person at a meeting called for the purpose
of voting on such approval; and (2) by the Board of Directors or by a vote
of a majority of the outstanding shares of Common Stock. SBMFM is a
wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings").
Holdings in turn is a wholly owned subsidiary of The Travelers Inc .
SBMFM pays the salary of any officer or employee who is employed by
both it and the Portfolio. SBMFM bears all expenses in connection
with the performance of its services as investment adviser.
The services provided by SBMFM under the Advisory Agreement are
described in the Prospectus under "Management of the Portfolio." For
investment advisory services rendered to the Portfolio, SBMFM
receives from the Portfolio a fee, computed and paid monthly, at the annual
rate of .70% of the value of the Portfolio's average daily net assets. For
the fiscal years ended August 31, 1994 and 1993, the Portfolio
paid investment advisory fees to Mutual Management Corp. of $ 993,763
and $ 925,705, respectively .
Under the Advisory Agreement, SBMFM will not be liable for any
error of judgment or mistake of law or for any loss suffered by the
Portfolio in connection with the Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the
part of SBMFM 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 Portfolio's Board of
Directors or by the holders of a majority of Common Stock, at any time
without penalty, on 60 days' written notice to SBMFM . The Advisory
Agreement may also be terminated by SBMFM on 90 days' written notice
to the Portfolio. The Advisory Agreement terminates automatically upon its
assignment.
SBMFM (formerly known as Smith, Barney Advisers, Inc.) also
serves as administrator to the Portfolio pursuant to a written agreement
dated June 1, 1994 (the "Administration Agreement"). For
administration services rendered to the Portfolio, SBMFM
receives from the Portfolio a fee computed and paid monthly at the annual
rate of .20% of the value of the Portfolio's average daily net assets.
Prior to June 1, 1994, Boston Advisors served as administrator to the
Portfolio. For the fiscal year ended August 31, 1994, SBMFM and/or its
predecessor received $ 283,932 in administration fees from the
Portfolio. For the fiscal year ended August 31, 1993, such fees
amounted to $ 264,487.
Pursuant to the Administration Agreement, SBMFM will exercise
its best judgment in rendering its services to the Portfolio. SBMFM
will not be liable for any error of judgment or mistake of law or for any
loss suffered by the Portfolio in connection with the matters to which the
Administration Agreement relates, except by reason of SBMFM 's
reckless disregard of its obligations and duties under the Administration
Agreement.
Boston Advisors serves as the sub-administrator to the Portfolio
pursuant to a written agreement dated June 1, 1994 (the "Sub-Administration
Agreement"). Boston Advisors is an indirect wholly owned subsidiary of
Mellon Bank Corporation ("Mellon").
Certain of the services provided to the Portfolio by SBMFM and Boston
Advisors pursuant to the Administration Agreement and the Sub-
Administration Agreement (the "Agreements") are described in the Prospectus
under "Management of the Portfolio". In addition to these services,
SBMFM and Boston Advisors pay the salaries of all officers and
employees who are employed by both them and the Portfolio, maintain office
facilities for the Portfolio, furnish the Portfolio with statistical and
research data, clerical help and accounting, data processing, bookkeeping,
internal auditing and legal services and certain other services required by
the Portfolio, prepare reports to the Portfolio's shareholders, and prepare
tax returns and reports to and filings with the SEC and state blue sky
authorities. SBMFM and Boston Advisors bear all expenses in
connection with the performance of their services.
Boston Advisors is paid a portion of the fee paid by the Portfolio
to SBMFM at a rate agreed upon from time to time between Boston
Advisors and SBMFM.
Each of the Agreements will continue automatically for
successive annual periods provided that such continuance is approved at
least annually by the Board of Directors of the Portfolio including a
majority of the Non-Interested Directors, by vote cast in person at a
meeting called for the purpose of voting such approval. The
Agreements are terminable, without penalty, upon 60 days' written
notice, by the Board of Directors of the Portfolio or by vote of holders of
a majority of the Portfolio's shares of Common Stock, or upon 90 days'
written notice, by SBMFM or Boston Advisors, respectively .
The Portfolio bears expenses incurred in its operation including:
fees of the investment adviser and administrator; taxes, interest,
brokerage fees and commissions, if any; fees of Directors who are not
officers, directors, shareholders or employees of Smith Barney ; SEC
fees and state blue sky qualification fees; charges of the custodian;
transfer and dividend disbursing agent's fees; certain insurance premiums;
outside auditing and legal expenses; costs of any independent pricing
service; costs of maintaining corporate existence; costs attributable to
investor services (including allocated telephone and personnel expenses);
costs of preparation and printing of prospectuses and statements of
additional information for regulatory purposes and for distribution to
shareholders; shareholders' reports and corporate meetings of the officers,
Board of Directors and shareholders of the Portfolio.
TAXES
As described above and in the Prospectus, the Portfolio is designed
to provide investors with current income which is excluded from gross
income for Federal income tax purposes. The Portfolio is not intended to
constitute a balanced investment program and is not designed for investors
seeking capital gains or maximum tax-exempt income irrespective of
fluctuations in principal. Investment in the Portfolio would not be
suitable for tax-exempt institutions, qualified retirement plans, H.R. 10
plans and individual retirement accounts because such investors would not
gain any additional tax benefit from the receipt of tax-exempt income.
The following is a summary of selected Federal income tax
considerations that may affect the Portfolio and its shareholders. The
summary is not intended as a substitute for individual tax advice and
investors are urged to consult their own tax advisors as to the tax
consequences of an investment in the Portfolio.
Taxation of the Portfolio and its Investments
The Portfolio has qualified and intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). In addition, the Portfolio intends to
satisfy conditions contained in the Code that will enable interest from
Municipal Obligations, excluded from gross income for Federal income tax
purposes with respect to the Portfolio, to retain that tax-exempt status
when distributed to the shareholders of the Portfolio (that is, to be
classified as "exempt-interest" dividends of the Portfolio).
If it qualifies as a regulated investment company, the Portfolio will
pay no Federal income taxes on its taxable net investment income (that is,
taxable income other than net realized capital gains) and its net realized
capital gains that are distributed to shareholders. To qualify under
Subchapter M of the Code, the Portfolio must, among other things: (1)
distribute to its shareholders at least 90% of its taxable net investment
income (for this purpose consisting of taxable net investment income and
net realized short-term capital gains) and 90% of its tax-exempt net
investment income (reduced by certain expenses); (2) derive at least 90% of
its gross income from dividends, interest, payments with respect to loans
of securities, gains from the sale or other disposition of securities, or
other income (including, but not limited to, gains from options, futures,
and forward contracts) derived with respect to the Portfolio's business of
investing in securities; (3) derive less than 30% of its annual gross
income from the sale or other disposition of securities, options, futures
or forward contracts held for less than three months; and (4) diversify its
holdings so that, at the end of each fiscal quarter of the Portfolio (a) at
least 50% of the market value of the Portfolio's assets is represented by
cash, U.S. government securities and other securities, with those other
securities limited, with respect to any one issuer, to an amount no greater
than 5% of the Portfolio's assets and (b) not more than 25% of the market
value of the Portfolio's assets is invested in the securities of any one
issuer (other than U.S. government securities or securities of other
regulated investment companies) or of two or more issuers that the
Portfolio controls and that are determined to be in the same or similar
trades or businesses or related trades or businesses. In meeting these
requirements, the Portfolio may be restricted in the selling of securities
held by the Portfolio for less than three months and in the utilization of
certain of the investment techniques described above under "Investment
Objective and Policies." As a regulated investment company, the Portfolio
will be subject to a 4% non-deductible excise tax measured with respect to
certain undistributed amounts of ordinary income and capital gain. The
Portfolio expects to pay dividends and distributions necessary to avoid the
application of this excise tax.
As described above in this 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- and short-term capital gains or losses realized by the Portfolio and
thus, will affect the amount of capital gains distributed to the
Portfolio's shareholders.
For Federal income tax purposes, gain or loss on the futures and
options described above (collectively referred to as "Section 1256
Contracts") would, as a general rule, be taxed pursuant to a special "mark-
to-market system." Under the mark-to-market system, the Portfolio may be
treated as realizing a greater or lesser amount of gains or losses than
actually realized. As a general rule, gain or loss on Section 1256
Contracts is treated as 60% long-term capital gain or loss and 40% short-
term capital gain or loss, and as a result, the mark-to-market system will
generally affect the amount of capital gains or losses taxable to the
Portfolio and the amount of distributions taxable to a shareholder.
Moreover, if the Portfolio invests in both Section 1256 Contracts and
offsetting positions in those contracts, then the Portfolio might not be
able to receive the benefit of certain realized losses for an indeterminate
period of time. The Portfolio expects that its activities with respect to
Section 1256 Contracts and offsetting positions in those Contracts (1) will
not cause it or its shareholders to be treated as receiving a materially
greater amount of capital gains or distributions than actually realized or
received and (2) will permit it to use substantially all of its losses for
the fiscal years in which the losses actually occur.
Taxation of the Portfolio's Shareholders
The Portfolio anticipates that all dividends it pays, other than
dividends from Taxable Investments and from income or gain derived from
securities transactions and from the use of certain of the investment
techniques described under "Investment Objective and Policies," will be
derived from interest on Municipal Obligations and thus will be exempt-
interest dividends that may be excluded by shareholders from their gross
income for Federal income tax purposes if the Portfolio satisfies certain
asset percentage requirements. Dividends paid from the Portfolio's net
investment income and distributions of the Portfolio's net realized short-
term capital gains are taxable to shareholders of the Portfolio as ordinary
income, regardless of the length of time shareholders have held shares of
Common Stock and whether the dividends or distributions are received in
cash or reinvested in additional shares. As a general rule, a
shareholder's gain or loss on a sale of his or her shares of Common
Stock will be a long-term gain or loss if he or she has held his
or her shares for more than one year and will be a short-term
capital gain or loss if he or she has held his or he shares
for one year or less. Dividends and distributions paid by the Portfolio
will not qualify for the Federal dividends-received deduction for
corporations.
Exempt-Interest Dividends
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of Common Stock is not deductible for Federal income tax
purposes. If a shareholder receives exempt-interest dividends with respect
to any share of Common Stock and if the share is held by the shareholder
for six months or less, then any loss on the sale of the share may, to the
extent of the exempt-interest dividends, be disallowed. The Code may also
require a shareholder, if he or she receives exempt-interest
dividends, to treat as taxable income a portion of certain otherwise non-
taxable social security and railroad retirement benefit payments. In
addition, the portion of any exempt-interest dividend paid by the Portfolio
that represents income derived from private activity bonds held by the
Portfolio may not retain its tax-exempt status in the hands of a
shareholder who is a "substantial user" of a facility financed by the
bonds, or a "related person" of the substantial user. Although the
Portfolio's exempt-interest dividends may be excluded by shareholders from
their gross income for Federal income tax purposes (1) some or all of the
Portfolio's exempt-interest dividends may be a specific preference item, or
a component of an adjustment item, for purposes of the Federal individual
and corporate alternative minimum taxes and (2) the receipt of dividends
and distributions from the Portfolio may affect a corporate shareholder's
Federal "environmental" tax liability. The receipt of dividends and
distributions from the Portfolio may affect a foreign corporate
shareholder's Federal "branch profits" tax liability and a corporate
shareholder's Federal "excess net passive income" tax liability.
Shareholders should consult their own tax advisors to determine whether
they are (1) "substantial users" with respect to a facility or "related" to
those users within the meaning of the Code or (2) subject to a Federal
alternative minimum tax, the Federal "environmental" tax, the Federal
"branch profits" tax, or the Federal "excess net passive income" tax.
Dividend Reinvestment Plan
A shareholder of the Portfolio receiving dividends or distributions
in additional shares pursuant to the Plan should be treated for Federal
income tax purposes as receiving a distribution in an amount equal to the
amount of money that a shareholder receiving cash dividends or
distributions receives, and should have a cost basis in the shares received
equal to that amount.
Statements and Notices
Statements as to the tax status of the dividends and distributions
received by shareholders of the Portfolio are mailed annually. These
statements show the dollar amount of income excluded from Federal income
taxes and the dollar amount, if any, subject to Federal income taxes. The
statements will also designate the amount of exempt-interest dividends that
are a specific preference item for purposes of the Federal individual and
corporate alternative minimum taxes and will indicate the shareholder's
share of the investment expenses of the Portfolio. The Portfolio will
notify shareholders annually as to the interest excluded from Federal
income taxes earned by the Portfolio with respect to those states and
possessions in which the Portfolio has or had investments. The dollar
amount of dividends paid by the Portfolio that is excluded from Federal
income taxation and the dollar amount of dividends paid by the Portfolio
that is subject to Federal income taxation, if any, will vary for each
shareholder depending upon the size and duration of the shareholder's
investment in the Portfolio. To the extent that the Portfolio earns
taxable net investment income, it intends to designate as taxable dividends
the same percentage of each day's dividend as its taxable net investment
income bears to its total net investment income earned on that day.
Therefore, the percentage of each day's dividend designated as taxable, if
any, may vary from day to day.
Backup Withholding
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to
certify that he or she has provided a correct taxpayer identification
number and that he or she 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 or her social
security number. The 31 % backup withholding tax is not an
additional tax and may be credited against a taxpayer's Federal income tax
liability.
STOCK PURCHASES AND TENDERS
The Portfolio may repurchase shares of its Common Stock in the open
market or in privately negotiated transactions when the Portfolio can do so
at prices below their then current net asset value per share on terms that
the Portfolio's Board of Directors believes represent a favorable
investment opportunity. In addition, the Portfolio's Board of Directors
currently intends to consider, at least once a year, making an offer to
each shareholder of record to purchase at net asset value shares of Common
Stock owned by the shareholder.
No assurance can be given that repurchases and/or tenders will result
in the Portfolio's shares trading at a price that is equal to their net
asset value. The market prices of the Portfolio shares will, among other
things, be determined by the relative demand for and supply of the shares
in the market, the Portfolio's investment performance, the Portfolio's
dividends and yield and investor perception of the Portfolio's overall
attractiveness as an investment as compared with other investment
alternatives. The Portfolio's acquisition of Common Stock will decrease
the total assets of the Portfolio and therefore have the effect of
increasing the Portfolio's expense ratio. The Portfolio may borrow money
to finance the repurchase of shares subject to the limitations described in
the Prospectus. Any interest on the borrowings will reduce the Portfolio's
net income. Because of the nature of the Portfolio's investment objective,
policies and securities holdings, SBMFM does not anticipate that
repurchases and tenders will have an adverse effect on the Portfolio's
investment performance and does not anticipate any material difficulty in
disposing of securities to consummate Common Stock repurchases and
tenders.
When a tender offer is authorized to be made by the Portfolio's Board
of Directors, it will be an offer to purchase at a price equal to the net
asset value of all (but not less than all) of the shares owned by the
shareholder (or attributed to him for Federal income tax purposes under
Section 38 of the Code). A shareholder who tenders all shares owned or
considered owned by him or her , as required, will realize a taxable
gain or loss depending upon his or her basis in the shares.
If the Portfolio liquidates securities in order to repurchase shares
of Common Stock, the Portfolio may realize gains and losses. These gains,
if any, may be realized on securities held for less than three months.
Because the Portfolio must derive less that 30% of its gross income for any
taxable year from the sale or disposition of stock and securities held less
than three months (in order to retain the Portfolio's regulated investment
company status under the Code), gains realized by the Portfolio due to a
liquidation of securities held for less than three months would reduce the
amount of gain on sale of other securities held for less than three months
that the Portfolio could realize in the ordinary course of its portfolio
management, which may adversely affect the Portfolio's performance. The
portfolio turnover rate of the Portfolio may or may not be affected by the
Portfolio's repurchases of shares of Common Stock pursuant to a tender
offer.
ADDITIONAL INFORMATION
Legal Matters
Willkie Farr & Gallagher serves as legal counsel to the Portfolio.
The Directors who are not "interested persons" of the Portfolio have
selected Stroock & Stroock & Lavan as their counsel.
Independent Public Accountants
Coopers & Lybrand L.L.P. , independent accountants, One Post
Office Square, Boston, Massachusetts 02109, serve d as auditors of
the Portfolio for the fiscal year ended August 31, 1994 and
rendere d an opinion on the Portfolio's financial statements .
For the fiscal year ending August 31, 1995, KPMG Peat Marwick 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 and Transfer Agent
Boston Safe, an indirect wholly owned subsidiary of Mellon and an
affiliate of Boston Advisors, is located at One Boston Place, Boston,
Massachusetts 02108, and serves as the Portfolio's custodian pursuant to a
custody agreement. Under the custody agreement, Boston Safe holds the
Portfolio's securities and keeps all necessary accounts and records. The
assets of the Portfolio are held under bank custodianship in compliance
with the 1940 Act.
TSSG, a subsidiary of First Data Corporation, is located at Exchange
Place, Boston, Massachusetts 02109, and pursuant to a transfer agency
agreement serves as the Portfolio's transfer agent. Under the transfer
agency agreement, TSSG maintains the shareholder account records for the
Portfolio, handles certain communications between shareholders and the
Portfolio, and distributes dividends and distributions payable by the
Portfolio.
FINANCIAL STATEMENTS
The Portfolio sends unaudited quarterly and 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 August 31,
1994 is incorporated into this Statement of Additional Information by
reference in its entirety. A copy of the Annual Report may be obtained
from any Smith Barney Financial Consultant or by calling or writing
to the Portfolio at the telephone number or address set forth on the cover
page of this 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 future.
Baa Bonds rated Baa are considered to be medium grade
obligations, that is they are neither highly protected nor poorly secured.
Interest payment and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. These bonds lack outstanding
investment characteristics and may have speculative characteristics as
well.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Description of Moody's Municipal Note Ratings:
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for variable demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short- and long-term risk.
Loans bearing the designation MIG 1/VMIG 1 are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG 2/VMIG 2 are of
high quality, with margins of protection ample, although not as large as
the preceding group. Loans bearing the designation MIG3/VMIG 3 are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
Description of Moody's Commercial Paper Ratings:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of
short-term promissory obligations, normally evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is
maintained.
Description of S&P Municipal Bond Ratings:
AAA These bonds are 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 future date.
Revenue Bonds Rated A Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could show some variations
because of increased competition or economic influences on revenues. Basic
security provisions, while satisfactory, are less stringent. Management
performance appears adequate.
BBB The bonds in this group are regarded as having an adequate
capacity to pay interest and repay principal. Whereas bonds in this group
normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than
in higher rated categories. Bonds rated BBB have the fourth strongest
capacity for payment of debt service.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major rating
categories, except in the AAA category.
Description of S&P Municipal Note Ratings:
Municipal notes with maturities of three years or less are usually
given note ratings (designated SP-1, -2 or -3) to distinguish more clearly
the credit quality of notes as compared to bonds. Notes rated SP-1 have a
very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given the
designation of SP-1+. Notes rated SP-2 have a satisfactory capacity to pay
principal and interest.
Description of S&P Commercial Paper Ratings:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are
denoted A-1+. Capacity for timely payment on commercial paper rated A-2 is
strong, but the relative degree of safety is not as high as issues
designated A-1.
Description of Fitch Municipal Bond Ratings:
AAA Bonds rated AAA by Fitch are considered to be investment
grade and of the highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA Bonds rated AA by Fitch are considered to be investment grade
and of very high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term
debt of these issues is generally rated F1+ by Fitch.
A Bonds rated A by Fitch are considered to be investment grade
and of high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but to be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with
higher ratings.
BBB Bonds rated BBB by Fitch are considered to be investment
grade and of satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely to have
adverse consequences on these bonds, and therefore impair timely payment.
The likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
Plus and minus signs are used by Fitch to indicate the relative
position of a credit within a rating category. Plus and minus signs,
however, are not used in the AAA category.
Description of Fitch Short-Term Ratings:
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in
a timely manner.
Fitch's short-term ratings are as follows:
F-1+ Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
F-2 Issues assigned this rating have a satisfactory degree of
assurance for timely payment but the margin of safety is not as great as
for issues assigned F-1+ and F-1 ratings.
F-3 Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate, although near-
term adverse changes could cause these securities to be rated below
investment grade.
LOC The symbol LOC indicates that the rating is based on a letter
of credit issued by a commercial bank.
shared/domestic/clients/shearson/funds/mto/sai.doc
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 August 31, 1994 and the Report of Independent Accountants dated
October 7, 1994 are incorporated by reference to the definitive 30b2-1
filed on November 8, 1994 as Accession # 0000053798-94-000538.
- Included in Part C:
* To be filed by Amendment.
Exhibits (2) All references are to the Registrant's registration
statement on Form N-2 as filed with the Securities and Exchange Commission
on July 24, 1992 (File Nos. 33-49982 and 811-7046) (the "Registration
Statement").
(a)(i) Articles of Incorporation are incorporated by reference to the
Registration Statement.
(ii) Articles of Amendment to Articles of Incorporation dated
September 8, 1992 are incorporated by reference to Pre-Effective Amendment
No. 1 to the Registration Statement as filed on September 17, 1992 ("Pre-
Effective Amendment No. 1").
(b) Bylaws of the Registrant are incorporated by reference to the
Registration Statement.
(c) Not Applicable.
(d) Specimen Certificate for Common Stock, par value $.001 per share, is
incorporated by reference to Pre-Effective Amendment No. 1.
(e) Dividend Reinvestment Plan is filed herein.
(f) Not Applicable.
(g)(i) Investment Advisory Agreement between the Registrant and
SBMFM (formerly know as Greenwich Street Advisors is incorporated
by reference to Post-Effective Amendment No. 1 to the Registration
Statement as filed on November 17, 1993 ("Post-Effective Amendment No.
1").
(ii) Form of Transfer and Assumption of Investment Advisory
Agreement between the Registrant, Mutual Management Corp. and Smith, Barney
Advisers, Inc. is filed herein.
(h) Form of Underwriting agreement between the Registrant and Smith
Barney Shearson is incorporated by reference to Pre-Effective Amendment No.
1.
(i) Not Applicable.
(j) Custody Agreement between the Registrant and Boston Safe Deposit and
Trust Co. is filed herein.
(k)(i) Administration Agreement between the Registrant and Smith,
Barney Advisers, Inc., dated June 1, 1994, is filed herein.
(ii) Sub-Administration Agreement between the Registrant and The
Boston Company Advisors, Inc., dated June 1, 1994, is filed herein.
(l) Opinion and Consent of Counsel is incorporated by reference to Pre-
Effective Amendment No. 1.
(m) Not Applicable.
(n) Consent of Independent Auditors will be filed by Amendment.
(o) Not Applicable.
(p) Purchase Agreement between the Registrant and Shearson Lehman
Brothers Inc., dated as of September 11, 1992, is incorporated by reference
to Pre-Effective Amendment No. 1.
(q) Not Applicable.
(r) To be filed by Amendment.
Item 25. Marketing Arrangements
None
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the expenses to be incurred in
connection with the offering described in this Registration Statement:
Securities and Exchange Commission Fees $100.00
Printing and Engraving Expenses 10,000.00
Legal Fees 0
Accounting Expenses 0
Miscellaneous Expenses 0
Item 27. Persons Controlled by or Under Common Control
None
Item 28. Number of Holders of Securities
Number of
Record
Stockholders
as of
Title of Class November 11, 1994
Shares of Common Stock, par value
$0.01 per share 201
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 of his being or having
been a director or officer of Registrant. This provision does not
authorize indemnification when it is determined that the director or
officer would otherwise be liable to Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties. Expenses may be paid by Registrant in advance of
the final disposition of any action, suit or proceeding upon receipt of an
undertaking by a director or officer to repay those expenses to Registrant
in the event that it is ultimately determined that indemnification of the
expenses is not authorized under Registrant's Articles of Incorporation.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
See "Management of the Portfolio" in the Prospectus.
Smith Barney Mutual Funds Management Inc. ("SBMFM") was
incorporated in December 1968 under the laws of the State of Delaware.
SBMFM is a registered investment adviser and is a wholly owned subsidiary
of Smith Barney Holdings Inc., which in turn is a wholly owned subsidiary
of The Travelers Inc. SBMFM is primarily engaged in the investment
advisory business. Information as to executive officers and directors of
SBMFM is included in its Form ADV filed with the SEC (Registration number
801-8314) and is incorporated herein by reference.
Item 31. Location of Accounts and Records
Managed Municipals Portfolio II Inc.
388 Greenwich Street
New York, New York 10013
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
The Boston Company Advisors, Inc.
One Exchange Place
Boston, Massachusetts 02109.
The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02109
Item 32. Management Services
None
Item 33. Undertakings
1. Not Applicable.
2. Not Applicable.
3. Not Applicable.
4. The Portfolio hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act");
(2) to reflect in the Prospectus any facts or events arising after the
effective date of this 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 this
Registration Statement; and
(3) to include any material information with respect to the
plan of distribution not previously disclosed in
this Registration Statement or any material change to
such information in this 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 Portfolio undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional
Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, MANAGED MUNICIPALS PORTFOLIO II 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, and State of New York on the 15th day of November, 1994.
MANAGED MUNICIPALS
PORTFOLIO II INC.
By:
/s/ Heath B. McLendon
Heath B. McLendon, Chief Executive
Officer
We, the undersigned, hereby severally constitute and appoint Heath B.
McLendon, Christina T. Sydor and Lee D. Augsburger, and each of them
singly, our true and lawful attorneys, with full power to them, to sign for
us, and in our hands and in the capacities indicated below, any and all
Post-Effective Amendments to this Registration Statement and to file the
same, with all exhibits thereto, and other documents therewith, with the
Securities and Exchange Commission, granting unto said attorneys, and each
of them, acting alone, full power to do and perform each and every act and
thing requisite or necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys or any of them may lawfully do or
cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement and the above Power
of Attorney has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Heath B. McLendon
Heath B. McLendon Chairman of the Board and 11/15/94
Chief Executive Officer
Signature Title Date
/s/ Lewis E. Daidone
Lewis E. Daidone Treasurer (Chief Financial 11/15/94
and Accounting Officer
/s/ Charles F. Barber
Charles F. Barber Director 11/15/94
/s/ Allan J. Bloostein
Allan J. Bloostein Director
11/15/94
/s/ Martin Brody
Martin Brody Director
11/15/94
/s/ Dwight B. Crane
Dwight B. Crane Director
11/15/94
/s/ Robert A. Frankel
Robert A. Frankel Director 11/15/94
s:\domestic\clients\shearson\funds\mto\pea2.doc
EXHIBIT E
MANAGED MUNICIPALS PORTFOLIO II INC.
TERMS AND CONDITIONS OF
DIVIDEND REINVESTMENT PLAN
1. Each holder of shares (a "Shareholder") of common stock in
Managed Municipals Portfolio II Inc. (the "Portfolio") will automatically
be a participant ("Participant") in the Dividend Reinvestment Plan (the
"Plan"), unless any such Shareholder specifically elects to receive all
dividends and capital gains in cash paid by check mailed directly to the
Shareholder. A Shareholder whose shares are registered in the name of a
broker-dealer or other nominee (the "Nominee") will be a Participant if (a)
such a service is provided by the Nominee and (b) the Nominee makes an
election on behalf of the Shareholder to participate in the Plan. Smith
Barney Inc. intends to make such an election on behalf of Shareholders
whose shares are registered in its name, as Nominee, unless a Shareholder
specifically instructs his or her broker to pay dividends and capital gains
in cash. The Shareholder Services Group, Inc. (the "Agent") will act as
agent for Participants and will open an account under the Plan for each
Participant in the same name as such Participant's common stock is
registered on the books and records of the transfer agent for the common
stock.
2. Whenever the Portfolio declares a capital gains distribution or
an income dividend payable in shares of common stock or cash, Participants
will receive such distribution or dividend in the manner described in
paragraph 3 below.
3. Whenever the market price of the Portfolio's common stock is
equal to or exceeds the net asset value per share at the time shares of
common stock are valued for the purpose of determining the number of shares
equivalent to the cash dividend or capital gains distribution, Participants
will be issued shares of common stock valued at the greater of (i) the net
asset value per share most recently determined or (ii) 95% of the then
current market price. Participants will receive any such distribution or
dividend entirely in shares of common stock, and the Agent shall
automatically receive such shares of common stock, including fractions, for
all Participants' accounts. If the net value per share of the common stock
at the time of valuation exceeds the market price of the common stock, or
if the Portfolio should declare a dividend or capital gains distribution
payable only in cash, a broker-dealer not affiliated with Smith Barney
will, as purchasing agent (the "Purchasing Agent") for the Participants,
buy shares of common stock in the open market, on the New York Stock
Exchange (the "Exchange") or elsewhere, for each Participant's account.
If, following the commencement of such purchases and before the Agent has
completed its purchases, the market price exceeds the net asset value per
share, the average per share purchase price paid by the Agent may exceed
the net asset value of the common stock, resulting in the acquisition of
fewer shares of common stock than if the dividend or capital gains
distribution had been paid in common stock issued by the Portfolio at net
asset value per share. Additionally, if the market price exceeds the net
asset value of shares before the Agent has completed its purchases, the
Agent is permitted to cease purchasing shares and the Portfolio may issue
the remaining shares at a price equal to the greater of (a) net asset value
or (b) 95% of the then current market price. In a case where the Agent has
terminated open market purchases and the Portfolio has issued the remaining
shares, the number of shares received by the Participant in respect of the
cash dividend or distribution will be based on the weighted average of
prices paid for shares purchased in the open market and the price at which
the Portfolio issues remaining shares.
The Agent will apply all cash received as a dividend or capital
gains distribution to purchase shares of common stock on the open market as
soon as practicable after the payment date of such dividend or capital
gains distribution, but in no event later than 30 days after such date,
except where necessary to comply with applicable provisions of the Federal
securities laws.
Notwithstanding the preceding paragraph, the Agent may begin to
purchase shares of common stock on the open market as soon as practicable
after the record date with respect to a dividend or distribution and retain
any such shares purchased in its own account until the payment date, at
which time such shares would be placed in each Participant's account on a
pro rata basis. No such shares shall be deemed to be purchased for any
Participant until the payment date therefor. Any shares purchased prior to
the payment date with respect thereto shall be purchased by the Agent at
such time as will permit the Agent to settle the purchases on or after the
payment date.
4. For all purposes of the Plan: (a) the market price of the
Portfolio's common stock on a particular date shall be the last sale price
on the Exchange at the close of the previous trading day or, if there is no
sale on the Exchange on the date, then the mean between the closing bid and
asked quotations for such common stock on the Exchange on such date, (b)
net asset value per share of common stock on a particular date shall be as
determined by or on behalf of the Portfolio, and (c) the valuation date for
a distribution or dividend shall be the record date for such distribution
or dividend.
5. The open market purchases provided for above may be made
on any securities exchange where the shares of common stock of the
Portfolio are traded, in the over-the-counter market or in negotiated
transactions and may be on such terms as to price, delivery and otherwise
as the Purchasing Agent shall determine. Funds held by the Purchasing
Agent uninvested will not bear interest, and it is understood that, in any
event, the purchasing agent shall have no liability in connection with any
inability to purchase shares of common stock within 30 days after the
payment date as herein provided, or with the timing of any purchases
effected. The Purchasing Agent shall have no responsibility as to the
value of the shares of common stock of the Portfolio acquired for any
Participant's account.
6. Except as provided in the ultimate paragraph of paragraph
3 hereof, the Agent will hold shares of common stock acquired pursuant to
the Plan in noncertificated form in the Participant's name. The Agent will
forward to each Participant any proxy solicitation material and will vote
any shares of common stock so held for each Participant only in accordance
with the proxy returned by any such Participant to the Portfolio. Upon any
Participant's written request, the Agent will deliver to her or him,
without charge, a certificate or certificates for the full shares of common
stock.
7. The Agent will confirm to each Participant acquisitions
made for her or his account as soon as practicable but not later than 60
days after the date thereof. Although a Participant may from time to time
have an undivided fractional interest (computed to three decimal places) in
a share of common stock of the Portfolio, no certificates for fractional
shares will be issued. However, dividends and distributions on fractional
shares of common stock will be credited to Participants' accounts. In the
event of termination of a Participant account under the Plan, the Agent
will adjust for any such undivided fractional interest in cash at the
market value of the shares of common stock at the time of termination.
8. Any stock dividends or split shares distributed by the
Portfolio on shares of common stock held by the Agent for any Participant
will be credited to such Participant's account. In the event that the
Portfolio makes available to Participants rights to purchase additional
shares of common stock or other securities, the Agent will sell such rights
and apply the proceeds of the sale to the purchase of additional shares of
common stock of the Portfolio for the account of Participants.
9. The Agent's service for handling capital gains
distributions or income dividends will be paid by the Portfolio.
Participants will be charged a pro rata share of brokerage commissions on
all open market purchases.
10. Any Participant may withdraw shares from such
Participant's account or terminate such Participant's account under the
Plan by notifying the Agent in writing. Such withdrawal or termination
will be effective immediately if notice is received by the Agent not less
than 10 days prior to any dividend or distribution record date; otherwise
such withdrawal or termination will be effective, with respect to any
subsequent dividend or distribution, on the first trading day after the
dividends paid for such record date have been credited to the Participant's
account. The Plan may be terminated by the Agent or the Portfolio upon
notice in writing mailed to each Participant at least 30 days prior to any
record date for the payment of any dividend or distribution by the
Portfolio. Upon any withdrawal or termination, the Agent will cause to be
delivered to each Participant a certificate or certificate for the
appropriate number of full shares and a cash adjustment for any fractional
share (valued at the market value of the shares at the time of withdrawal
or termination); provided, however, that any Participant may elect by
notice to the Agent in writing in advance of such termination to have the
Agent sell part or all of the shares in question and remit the proceeds to
such Participant, net of any brokerage commissions. A $5.00 fee will be
charged by the Agent upon any cash withdrawal or termination, and the Agent
is authorized to sell a sufficient number of the Participant's shares to
cover such fee and any brokerage commission on such sale.
11. These terms and conditions may be amended or supplemented
by the Agent or the Portfolio at any time or times but, except when
necessary or appropriate to comply with applicable law or the rules or
policies of the Securities and Exchange Commission or any other regulatory
authority, only by mailing to each Participant appropriate written notice
at least 30 days prior to the effective date thereof. The amendment or
supplement shall be deemed to be deemed to be accepted by each Participant
unless, with respect to any such Participant, prior to the effective date
thereof, the Agent receives written notice of the termination of that
Participant's account under the Plan. Any such amendment may include an
appointment by the Agent in its place and stead of a successor Agent under
these terms and conditions, with full power and authority to perform all or
any of the acts to be performed by the Agent under these terms and
conditions. Upon any such appointment of an Agent for the purpose of
receiving dividends and distributions, the Portfolio will be authorized to
pay to such successor Agent, for Participants' accounts, all dividends and
distributions payable on the shares of common stock held in each
Participant's name or under the Plan for retention or application by such
successor Agent as provided in these terms and conditions.
12. The Agent shall at all times act in good faith and agree
to use its best efforts within reasonable limits to ensure the accuracy of
all services performed under this agreement and to comply with applicable
law, but assumes no responsibility and shall not be liable for loss or
damage due to errors unless such error is caused by its or its employees'
negligence, bad faith or willful misconduct.
13. The Participant shall have no right to draw checks or
drafts against such Participant's account or to give instructions to the
Plan Agent in respect of any shares or cash held therein except as
expressly provided herein.
14. The Participant agrees to notify the Plan Agent promptly
in writing of any change of address. Notices to the Participant may be
given by he Plan Agent by letter addressed to the Participant as shown on
the records of the Plan Agent.
15. This Agreement and the account established hereunder for
the Participant shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts and the Rules and Regulations of
the Securities and Exchange Commission, as they may be changed or amended
from time to time.
Dated: _______________, 1994
shearsn2/closed/mtu/drip94.doc
EXHIBIT G(ii)
Form of
TRANSFER AND ASSUMPTION OF
INVESTMENT ADVISORY AGREEMENT
for
[*]
TRANSFER AND ASSUMPTION OF INVESTMENT ADVISORY AGREEMENT, made as of
the __ day of October, 1994, by and among [*], a [Massachusetts business
trust (the "Trust")/Maryland corporation (the "Company")], Mutual
Management Corp., a Delaware corporation ("MMC"), and Smith, Barney
Advisers, Inc., a Delaware corporation ("SBA").
WHEREAS, the Trust/Company is registered with the Securities and
Exchange Commission as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "Act");
and
[WHEREAS, the Trust/Company consists of several distinct investment
portfolios or series (collectively, the "Funds"); and]
WHEREAS, the Trust/Company, [on behalf of the Funds,] and MMC entered
into an Investment Advisory Agreement on July 30, 1993, under which MMC
serves as the investment adviser (the "Investment Adviser") for [the Funds
of] the Trust/Company; and
WHEREAS, MMC desires that its interest, rights, responsibilities and
obligations in and under the Investment Advisory Agreement be transferred
to SBA and SBA desires to assume MMC's interest, rights, responsibilities
and obligations in and under the Investment Advisory Agreement; and
WHEREAS, this Agreement does not result in a change of actual control
or management of the Investment Adviser to the Trust/Company and,
therefore, is not an "assignment" as defined in Section 2(a)(4) of the Act
nor an "assignment" for the purposes of Section 15(a)(4) of the Act.
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Assignment. Effective as of November 7, 1994 (the "Effective
Date"), MMC hereby transfers to SBA all of MMC's interests, rights,
responsibilities and obligations in and under the Investment Advisory
Agreement dated July 30, 1993, to which MMC is a party with the
Trust/Company.
2. Assumption and Performance of Duties. As of the Effective
Date, SBA hereby accepts all of MMC's interest and rights, and assumes and
agrees to perform all of MMC's responsibilities and obligations in and
under the Investment Advisory Agreement; SBA agrees to be subject to all of
the terms and conditions of said Agreement; and SBA shall indemnify and
hold harmless MMC from any claim or demand made thereunder arising or
incurred after the Effective Date.
3. Representation of SBA. SBA represents and warrants that: (1)
it is registered as an investment adviser under the Investment Advisers Act
of 1940, as amended; and (2) Smith Barney Holdings, Inc. is its sole
shareholder.
4. Consent. The Trust/Company hereby consents to this transfer by
MMC to SBA of MMC's interest, rights, responsibilities and obligations in
and under the Investment Advisory Agreement and to the acceptance and
assumption by SBA of the same. The Trust/Company agrees, subject to the
terms and conditions of said Agreement, to look solely to SBA for the
performance of the Investment Adviser's responsibilities and obligations
under said Agreement from and after the Effective Date, and to recognize as
inuring solely to SBA the interest and rights heretofore held by MMC
thereunder.
5. [Trusts only: Limitation of Liability of Trustees, Officers
and Shareholders. It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents, or employees of the Trust, personally, but
shall bind only the trust property of the Trust, as provided in the
Declaration of Trust of the Trust. The execution and delivery of this
Agreement have been authorized by the Trustees of the Trust and signed by
the President of the Trust, acting as such, and neither such authorization
by such Trustees nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose any
liability on any of them, personally, but shall bind only the trust
property of the Trust as provided in its Declaration of Trust.]
6. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers hereunto duly attested.
Attest:
By:
Secretary [*]
Date: , 1994
Attest:
By:
Secretary
Mutual Management Corp.
Date: , 1994
Attest:
By:
Secretary
Smith, Barney Advisers, Inc.
Date: , 1994
[*]=List
shared/domestic/clients/shearson/funds/mto/transfer
EXHIBIT J
CUSTODY AGREEMENT
AGREEMENT dated as of September 17, 1992, between MANAGED MUNICIPALS
PORTFOLIO II INC, a Maryland Corporation (the "Fund"), having its principal
office and place of business at Two World Trade Center, New York, New York
10048 and BOSTON SAFE DEPOSIT AND TRUST COMPANY (the "Custodian"), a
Massachusetts trust company with its principal place of business at One
Boston Place, Boston, Massachusetts 02108.
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Fund and the Custodian agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this
Agreement, the following words and phrases, unless the context otherwise
requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation of the Fund as now in effect and as may be amended from time.
(b) "Authorized Person" shall be deemed to include the Chairman
of the Board of Directors, the President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer
or any other person, whether or not any such person is an officer or
employee of the Fund duly authorized by the Board of Directors of the Fund
to give Oral Instructions and Written Instructions on behalf of the Fund
and listed in the certification as may be received by the Custodian from
time to time.
(c) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency Securities, its
successor or successors and its nominee or nominees.
(d) "Certificate" shall mean any notice, instruction or other
instrument in writing, authorized or required by this Agreement to be given
to the Custodian, which is actually received by the Authorized Persons or
any two officers of the Custodian.
(e) "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission
under Section 17(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), its successor or successors and its nominee or nominees,
in which the Custodian is hereby specifically authorized to make deposits.
The term "Depository" shall further mean and include any other person to be
named in a Certificate authorized to act as a depository under the 1940
Act, its successors and its nominee or nominees
(f) "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and
principal by the Government of the United States or agencies or
instrumentalities thereof, commercial paper, bank certificates of deposit,
bankers' acceptances and short-term corporate obligations, where the
purchase or sale of such securities normally requires settlement in federal
funds on the same day as such purchase or sale, and repurchase and reverse
repurchase agreements with respect to any of the foregoing types of
securities.
(g) "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person.
(h) "Prospectus" shall mean the Fund's current prospectus relating
to the registration of the Fund's Shares under the Securities Act of 1933,
as amended.
(i) "Shares" refers to shares of common stock, $.001 par value per
share of the Fund.
(j) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities, commodities interests and investments from time to time owned
by the Fund, including forward currency contracts, futures contracts and
options on futures contracts.
(k) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing agent
functions for the Fund.
(l) "Written Instructions" shall mean a written communication
actually received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person by any system where by the receiver of
such communication is able to verify through codes or otherwise with a
reasonable degree of certainty the authenticity of the sender of such
communication.
(m) The "1940 Act" refers to the Investment Company Act of 1940, as
amended and the Rules and Regulations thereunder, all as amended from time
to time.
2. Appointment of Custodian.
(a) The Fund hereby constitutes and appoints the Custodian as
custodian of all the Securities and monies at any time owned by or in the
possession of the Fund during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. Compensation.
(a) The Fund will compensate the Custodian for its services
rendered under this Agreement in accordance with the fees set forth in the
Fee Schedule annexed hereto as Schedule A and incorporated herein. Such
Fee Schedule does not include out-of-pocket disbursements of the Custodian
for which the Custodian shall be entitled to bill separately. Out-of-
pocket disbursements shall include, but shall not be limited to, the items
specified in the Schedule of Out-of-Pocket charges annexed hereto as
Schedule B and incorporated herein, which schedule may be modified from
time to time by attaching a revised Schedule of Out-of-Pocket Charges,
dated and signed by an Authorized Officer of each party hereto.
(b) Any compensation agreed to hereunder may be adjusted from time
to time by attaching to Schedule A of this Agreement a revised Fee
Schedule, dated and signed by an Authorized Officer or authorized
representative of each party hereto.
(c) The Custodian will bill the Fund as soon as practicable after
the end of each calendar month, and said billings will be detailed in
accordance with the Fee Schedule for the Fund. The Fund will promptly pay
to the Custodian the amount of such billing.
4. Custody of Cash and Securities.
(a) Receipt and Holding of Assets. The Fund will deliver or
cause to be delivered to the Custodian all Securities and monies owned by
it at any time during the period of this Agreement. The Custodian will not
be responsible for such Securities and monies until actually received by
it. The Fund shall instruct the Custodian from time to time in its sole
discretion, by means of Certificate, or, in connection with the purchase or
sale of Money Market Securities, by means of Oral Instructions or
Certificate, as to the manner in which and in what amounts Securities and
monies of the Fund are to be deposited on behalf of the Fund in the Book-
Entry System or the Depository and specifically allocated on the books of
the Custodian to the Fund; provided, however, that prior to the deposit of
Securities of the Fund in the Book-Entry System or the Depository,
including a deposit in connection with the settlement of a purchase or
sale, the Fund shall have received a Certificate specifically approving
such deposits by the Custodian in the Book-Entry System or Depository.
Securities and monies of the Fund deposited in the Book-Entry System or the
Depository will be represented in accounts which include only assets held
by the Custodian for Customers, including but not limited to accounts in
which the Custodian acts in a fiduciary or representative capacity.
(b) Accounts and Disbursements. The Custodian shall establish and
maintain an account for the Fund and shall credit to the Account of the
Fund all monies received by it for the account of such Fund and shall
disburse the same only:
1. In payment for Securities purchased for the Fund, as
provided in Section 5 hereof;
2. In payment of dividends or distributions with respect to
the Shares of the Fund, as provided in Section 7 hereof;
3. In payment of original issue or other taxes with respect
to the Shares of the Fund, as provided in Section 8 hereof;
4. In payment for Shares which have been redeemed by the
Fund, as provided in Section 8 hereof;
5. Pursuant to Certificates, or with respect to Money Market
Securities, Oral Instructions or Certificates, setting forth the name of
the Fund, the name and address of the person to whom the payment is to be
made, the amount to be paid and the purpose for which payment is to be
made; or
6. In payment of fees and in reimbursement of the expenses
and liabilities of the Custodian attributable to the Fund, as provided in
Section 11(h) hereof.
(c) Confirmation and Statements. Promptly after the close of
business on each day, the Custodian shall furnish the Fund with
confirmations and a summary of all transfers to or from the account of the
Fund during said day. Where securities purchased by the Fund are in a
fungible bulk of securities registered in the name of the Custodian (or its
nominee) or shown on the custodian's account on the books of the Depository
or the Book-Entry System, the Custodian shall by book entry or otherwise
identify the quantity of those securities belonging to the Fund. At least
monthly, the Custodian shall furnish the Fund with a detailed statement of
the Securities and monies held for the Fund under this Agreement.
(d) Registration of Securities and Physical Separation. All
Securities held for the Fund that are issued or issuable only in bearer
form, except such Securities as are held in the Book-Entry System, shall be
held by the Custodian in that form; all other Securities held for the Fund
may be registered in the name or the Fund, in the name of any duly
appointed registered nominee of the Custodian as the Custodian may from
time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees.
The Fund reserves the right to instruct the Custodian as to the method of
registration and safekeeping of the Securities of the Fund. The Fund
agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in
the name of its registered nominee or in the name of the Book-Entry System
or the Depository, any Securities that it may hold for the account of the
Fund and that may from time to time by registered in the name of the Fund.
The Custodian shall hold all such Securities specifically allocated to the
which are not held in the Book-Entry System or the Depository in a separate
account for the Fund in the name of the Fund physically segregated at all
times from those of any other person or persons.
(e) Segregated Accounts. Upon receipt of a Certificate, the
Custodian will establish segregated accounts on behalf of the Fund to hold
liquid or other assets as it shall be directed by a Certificate and shall
increase or decrease the assets in such Segregated Account only as it shall
be directed by subsequent Certificate.
(f) Collection of Income and Other Matters Affecting Securities.
Unless otherwise instructed to the contrary by a Certificate, the Custodian
by itself, or through the use of the Book-Entry System or the Depository
with respect to Securities therein deposited, shall with respect to all
Securities held for the Fund in accordance with this Agreement:
1. Collect all income due or payable;
2. Present for payment and collect the amount payable upon
all Securities which may mature or be called, redeemed or retired, or
otherwise become payable. Notwithstanding the foregoing, the Custodian
shall have no responsibility to the Fund for monitoring or ascertaining any
call, redemption or retirement dates with respect to put bonds which are
owned by the Fund and held by the Custodian or its nominee, nor shall the
Custodian have any responsibility or liability to the Fund for any loss by
the Fund for any missed payments or other defaults resulting therefrom;
unless the Custodian receives timely notification from the Fund specifying
the time, place and manner for the presentment of any such put bond owned
by the Fund and held by the Custodian or its nominee. The Custodian shall
not be responsible and assumes no liability to the Fund for the accuracy or
completeness of any notification the Custodian may furnish to the Fund with
respect to put bonds;
3. Surrender Securities in temporary form for definitive
Securities;
4. Execute any necessary declarations or certificates of
ownership under the Federal income tax laws or the laws or regulations of
any other taxing authority now or hereafter in effect; and
5. Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of
the Fund all rights and similar Securities issued with respect to any
Securities held by the Custodian hereunder for the Fund.
(g) Delivery of Securities and Evidence of Authority. Upon
receipt of a Certificate and not otherwise, except for subparagraphs 5, 6,
7, 8, 9, 10 and 14 which may be effected by Oral or Written Instructions
and confirmed by Certificates, the Custodian, directly or through the use
of the Book-Entry System or the Depository, shall:
1. Execute and deliver or cause to be executed and delivered
to such persons as may be designated in such Certificates, proxies,
consents, authorizations and any other instruments whereby the Authority of
the Fund as owner of any Securities may be exercised;
2. Deliver or cause to be delivered any Securities held for
the Fund in exchange for other Securities or cash issued or paid in
connection with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the exercise of
any conversion privilege;
3. Deliver or cause to be delivered any Securities held for
the Fund to any protection committee, reorganization committee or other
person in connection with the reorganization, refinancing, merger,
consolidation or recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement in the Fund's account
such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
4. Make or cause to be made such transfers or exchanges of
Fund assets and take such other steps as shall be stated in said
Certificate to be for the purpose effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or recapitalization of
the Fund.
5. Deliver Securities owned by the Fund upon sale of such
Securities for the account of the Fund pursuant to Section 5;
6. Deliver Securities owned by the Fund upon the receipt of
payment in connection with any repurchase agreement related to such
Securities entered into by the Fund;
7. Deliver Securities owned by the Fund to the issuer
thereof or its agent when such Securities are called, redeemed, retired or
otherwise become payable; provided, however, that in any such case the cash
or other consideration is to be delivered to the Custodian.
Notwithstanding the foregoing, the Custodian shall have no responsibility
to the Fund for monitoring or ascertaining any call, redemption or
retirement dates with respect to the put bonds which are owned by the Fund
and held by the Custodian or its nominee. Nor shall the Custodian have any
responsibility or liability to the Fund for any loss by the Fund for any
missed payments or other default resulting therefrom; unless the Custodian
received timely notification from the Fund specifying the time, place and
manner for the presentment of any such put bond owned by the Fund and held
by the Custodian or its nominee. The Custodian shall not be responsible
and assumes no liability to the Fund for the accuracy or completeness of
any notification the Custodian may furnish to the Fund with respect to put
bonds;
8. Deliver Securities owned by the Fund for delivery in connection
with any loans of securities made by the Fund but only against receipt of
adequate collateral as agreed upon from time to time by the Custodian and
the Fund which may be in the form of cash or obligations issued by the
United States government, its agencies or instrumentalities;
9. Deliver securities owned by the Fund to the broker for
examination in accordance with the "street delivery" custom;
10. Deliver Securities owned by the Fund for delivery as security
in connection with any borrowings by the Fund requiring a pledge of Fund
assets, but only against receipt of amounts borrowed;
11. Deliver Securities owned by the Fund upon receipt of Written
Instructions from the Fund for delivery to the Transfer Agent or to the
holders of Shares in connection with distributions in kind, as may be
described from time to time in the Fund's Prospectus, in satisfaction of
requests by holders of Shares for repurchase or redemption;
12. Deliver Securities owned by the Fund as collateral in
connection with short sales by the Fund of common stock for which the Fund
owns the stock or owns preferred stocks or debt securities convertible or
exchangeable, without payment or further consideration, into shares of the
common stock sold short;
13. Deliver Securities owned by the Fund for any purpose expressly
permitted by and in accordance with procedures described in the Fund's
Prospectus; and
14. Deliver securities owned by the Fund for any other proper
business purpose, but only upon receipt of, in addition to Written
Instructions, a certified copy of a resolution of the Board of Directors
signed by an Authorized Person and certified by the Secretary or Assistant
Secretary of the Fund, specifying the Securities to be delivered, setting
forth the purpose for which such delivery is to be made, declaring such
purpose to be a proper business purpose, and naming the person or persons
to whom delivery of such Securities shall be made.
(h) Endorsement and Collection of Checks, Etc. The Custodian
is hereby authorized to endorse and collect all checks, drafts or other
orders for the payment of money received by the Custodian for the account
of the Fund; provided, however, that the Custodian shall not be liable for
any money, whether or not represented by any check, draft, or other
instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or
by the final crediting of the account representing the Fund's interest in
the Book-Entry System or the Depository.
5. Purchase and Sale of Investments of the Fund.
(a) Promptly after each purchase of Securities for the Fund, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities that are not Money Market Securities, either written
instructions or oral instructions, and (ii) with respect to each purchase
of Money Market Securities, either Written Instructions or Oral
Instructions, in either case specifying with respect to each purchase: (1)
the name of the Fund; (2) the name of the issuer and title of securities;
(3) the number of shares or principal amount purchased, and accrued
interest, if any; (4) the date of purchase and settlement; (5) the purchase
price per unit; (6) the total amount payable upon such purchase; (6) the
name of the person from whom or the broker through whom the purchase was
made, if any; (8) whether or not such purchase is to be settled through the
Book-Entry System or the depository; and (9) whether the Securities
purchased are to be deposited in the Book-Entry System or the Depository.
The Custodian shall receive the Securities purchased by or for the Fund and
upon receipt of Securities shall pay out of the monies held for the account
of the Fund the total amount payable upon such purchase, provided that the
same conforms to the total amount payable as set forth in such Written
Instructions or Oral Instructions.
(b) Promptly after each sale of Securities of the Fund, the Fund
shall deliver to the Custodian (i) with respect to each sale of Securities
that are not Money Market Securities, Written Instructions, and (ii) with
respect to each sale of Money Market Securities, either Written
Instructions or Oral Instructions, in either case specifying with respect
to such sale: (1) the name of the Fund; (2) the name of the issuer and the
title of the Securities; (3) the number of shares or principal amount sold,
and accrued interest, if any; (4) the number of shares or principal amount
sold, and accrued interest, if any; (5) the date of the sale; (6) the sale
price per unit; (7) the total amount payable to the Fund upon such sale;
(8) the name of the broker through whom or the person to whom the sale was
made; and (9) whether or not such sale is to be settled through the Book-
Entry System or the Depository. The Custodian shall deliver or cause to be
delivered the Securities to the broker or other person designated by the
Fund upon receipt of the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable to the Fund as
set forth in such Written Instructions or such Oral Instructions. Subject
to the foregoing, the Custodian may accept payment in such form as shall be
satisfactory to it, and may deliver Securities and arrange for payment in
accordance with the customs prevailing among dealers in Securities.
6. Lending of Securities.
Within 24 hours after each loan of Securities, the Fund shall
deliver or cause to be delivered to the Custodian Written Instructions
specifying with respect to each such loan: (a) the name of the Fund (b)
the name of the issuer and the title of the Securities; (c) the number of
shares or the principal amount loaned; (d) the date of loan and delivery;
(e) the total amount to be delivered to the Custodian, including the amount
of cash collateral and the premium, if any, separately identified; (f) the
name of the broker, dealer or financial institution to which the loan was
made; and (g) whether the Securities loaned are to be delivered through the
Book-Entry System or the Depository.
Promptly after each termination of a loan of Securities, the
Fund shall deliver to the Custodian Written Instructions specifying with
respect to each such loan termination and return of Securities: (a) the
name of the Fund (b) the name of the issuer and the title of the Securities
to be returned; (c) the number of shares or the principal amount to be
returned; (d) the date of termination; (e) the total amount to be delivered
by the Custodian (including the cash collateral for such Securities minus
any offsetting credits as described in said Written Instructions); (f) the
name of the broker, dealer or financial institution to which such
Securities were loaned and upon receipt thereof shall pay the total amount
payable upon such return of Securities as set forth in the Written
Instructions. Securities returned to the Custodian shall be held as they
were prior to such loan.
7. Payment of Dividends or Distributions.
(a) The Fund shall furnish to the Custodian a copy of the
resolution of the Board of Directors of the Fund certified by the Secretary
or an Assistant Secretary (i) authorizing the declaration of dividends or
distributions, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined and the amount payable
per share to the shareholders of record as of the record date or (ii)
setting forth the date of declaration of any dividend or distribution by
the Fund, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined and the amount payable
per share to the shareholders of record as of the record date.
(b) Prior to the payment date specified in such resolution, Oral
Instructions or Written Instructions, as the case may be, the Fund shall
deliver to the Custodian Oral Instructions or Written instructions
specifying the total amount payable to the Transfer Agent.
(c) Upon the payment date specified in such vote, Oral Instructions
or Written Instructions, as the case may be, the Custodian shall pay out
the monies held for the account of the Fund the total amount payable to the
Transfer Agent of the Fund.
8. Indebtedness.
(a) The Fund will cause to be delivered to the Custodian by any
bank (excluding the Custodian) from which the Fund borrows money using
Securities as collateral for such borrowings, a notice or undertaking in
the form currently employed by any such bank setting forth the amount which
such bank will loan to the Fund against delivery of a stated amount of
collateral. The Fund shall promptly deliver to the Custodian Written
Instruction stating with respect to each such borrowing: (1) the name of
the Fund (2) the name of the bank; (3) the amount and terms of the
borrowing, which may be set forth by incorporating by reference an attached
promissory note, duly endorsed by the Fund, or other loan agreement; (4)
the time and date, if known, on which the loan is to be entered into (the
"borrowing date"); (5) the date on which the loan becomes due and payable;
(6) the total amount payable to the Fund on the borrowing date; (7) the
market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities; (8) whether the Custodian is
to deliver such collateral through the Book-Entry System or the Depository;
and (9) a statement that such loan is in conformance with the 1940 Act and
the Fund's Prospectus.
(b) Upon receipt of the Written or Oral Instructions referred to in
subparagraph (a) above, the Custodian shall deliver on the borrowing date
the specified collateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in
the Written or Oral Instructions. The Custodian may, at the option of the
lending bank, keep such collateral in its possession, but such collateral
shall be subject to all rights therein given the lending bank by virtue of
any promissory note or loan agreement. The Custodian shall deliver as
additional collateral in the manner directed by the Fund from time to time
such Securities as may be specified in Written or Oral Instructions to
collateralize further any transaction described in this Section. The Fund
shall cause all Securities released from collateral status to be returned
directly to the Custodian, and the Custodian shall receive from time to
time such return of collateral as may be tendered to it. In the event that
the Fund fails to specify in Written or Oral Instructions all of the
information required by this Section, the Custodian shall not be under any
obligation to deliver any Securities. Collateral returned to the Custodian
shall be held hereunder as it was prior to being used as Collateral.
9. Persons Having Access to Assets of the Fund.
(a) No Director, officer, employee or agent of the Fund, or no
officer, director, employee or agent of the Adviser, shall have physical
access to the assets of the Fund held by the Custodian or be authorized or
permitted to withdraw any investments of the Fund, nor shall the Custodian
deliver any assets of the Fund to any such person. No officer, director,
employee or agent of the Custodian who holds any similar position with the
Fund or the Adviser shall have access to the assets of the Fund.
(b) The individual employees of the Custodian duly authorized by
the Board of Directors of the Custodian to have access to the assets of the
Fund are listed in the certification annexed hereto as Appendix C. The
Custodian shall advise the Fund of any change in the individuals authorized
to have access to the assets of the Fund by written notice to the Fund
accompanied by a certified copy of the authorizing resolution of the
Custodian's Board of Directors approving such change.
(c) Nothing in this Section shall prohibit any officer, employee or
agent of the Fund, or any officer, director, employee or agent of the
Adviser, from giving Oral Instructions or Written Instructions to the
Custodian or executing a Certificate so long as it does not result in
delivery of or access to assets of the Fund prohibited by paragraph (a) of
this Section.
10. Concerning the Custodian.
(a) Standard of Conduct. Except as otherwise provided herein,
neither the Custodian nor its nominee shall be liable for any loss or
damage, including counsel fees, resulting from its action or omission to
act or otherwise, except for any such loss or damage arising out of its own
negligence or willful misconduct. The Custodian may, with respect to
questions of law, apply for and obtain the advice and opinion of counsel to
the Fund or of its own counsel, at the expense of the Fund, and shall be
fully protected with respect to anything done or omitted by it in good
faith in conformity with such advice or opinion. The Custodian shall be
liable to the Fund for any loss or damage resulting from the use of the
Book-Entry System or the Depository arising by reason of any negligence,
misfeasance or misconduct on the part of the Custodian or any of its
employees, sub-custodians or agents.
(b) Limit of Duties. Without limiting the generality of the
foregoing, the Custodian shall be under no duty or obligation to inquire
into, and shall not be liable for:
1. The validity of the issue of any Securities purchased by
the Fund, the legality of
the purchase thereof, or the propriety of the amount paid
therefor;
2. The legality of the sale of any Securities by the Fund,
or the propriety of the
amount for which the same are sold;
3. The legality of the issue or sale of any Shares, or the
sufficiency of the amount
to be received therefor;
4. The legality of the repurchase of any Shares, or the
propriety of the amount to
be paid therefor;
5. The legality of the declaration or payment of any
dividend or other distribution
of the Fund; or
6. The legality of any borrowing for temporary or emergency
administrative
purposes.
(c) No Liability Until Receipt. The Custodian shall not be liable
for, or considered to be the Custodian of, any money, whether or not
represented by any check, draft, or other instrument for the payment of
money, received by it on behalf of the Fund until the Custodian actually
receives and collects such money directly or by the final crediting of the
account representing the Fund's interest in the Book-Entry System or the
Depository.
(d) Amounts Due from Transfer Agent. The Custodian shall not be
under any duty or obligation to take action to effect collection of any
amount due to the Fund from the Transfer Agent nor to take any action to
effect payment or distribution by the Transfer Agent in accordance with
this Agreement.
(e) Collection Where Payment Refused. The Custodian shall not be
under any duty or obligation to take action to effect collection of any
amount, if the Securities upon which such amount is payable are in default,
or if payment is refused after due demand or presentation, unless and until
(a) it shall be directed to take such action by Written Instructions and
(b) it shall be assured to its satisfaction of reimbursement of its costs
and expenses in connection with any such action.
(f) Appointment of Sub-Custodians. The Custodian may appoint
one or more qualified banking institutions, including but not limited to
banking institutions located in foreign countries, to act as Depository or
Depositories or as Sub-Custodian or as Sub-Custodians of Securities and
monies at any time owned by the Fund, upon terms and conditions specified
in a Board Resolution. The Custodian shall use reasonable care in
selecting a Depository and/or Sub-Custodian located in a country other than
the United States, provided that any such institution shall constitute an
"Eligible Foreign Sub-Custodian", within the meaning of Rule 17f-5 under
the 1940 Act. The Custodian shall enter into agreements with such sub-
custodians containing provisions conforming to paragraph (a) (1) (iii) of
Rule 17f-5 under the 1940 Act (or any successor provision of like import).
It is understood by both parties that the use of any such sub-custodian
will not affect any of the Custodian's responsibilities to the Fund under
this Agreement.
The Custodian shall maintain such records as shall be necessary
to identify the assets of the Fund held by any foreign sub-custodians. The
Custodian shall furnish to the Fund such periodic reports as the Fund shall
reasonably request with the respect to the assets of the Fund held by each
foreign sub-custodian, and shall furnish to the Fund such notices of
transfers of securities, deposits or other assets to or from the Fund's
account by any foreign sub-custodian as the Fund shall request.
The Custodian shall advise the Fund promptly if it learns that
any foreign agent or sub-custodian no longer constitutes an "Eligible
Foreign Custodian" and of any failure by any foreign sub-custodian to
observe any "material term" of its appointment within the meaning of Rule
17f-5 under the 1940 Act.
The Custodian may authorize one or more of the foreign sub-
custodians to use the facilities of one or more foreign central securities
depositories or clearing agencies listed in Exhibit B hereto, or as may
hereafter be approved by resolution of the Directors of the Fund; provided
that any such organization shall constitute an "Eligible Foreign
Custodian."
In the event that any foreign sub-custodian fails to perform
any of its obligations under the terms of its appointment, the Custodian
shall use its best efforts to cause such foreign sub-custodian to perform
such obligations. At the written request of the Fund, the Custodian shall
use its best efforts to assert and collect any claim for liability for any
loss or damage incurred by the Fund arising out of the failure of any such
sub-custodian to perform such obligations.
(g) Appointment of of Agents. The Custodian may at any time or
times in its discretion appoint, and may at any time remove any other bank
or trust company which is itself qualified under the 1940 Act to act as a
custodian, as its agent to carry out such of the provisions of this
Agreement as the Custodian may from time to time direct.
(h) No Duty to Ascertain Authority. The Custodian shall not be
under any duty or obligation to ascertain whether any Securities at any
time delivered to or held by it for the Fund are such as may properly be
held by the Fund under the provisions of the Articles of Incorporation and
the Prospectus.
(i) Compensation of the Custodian. The Custodian shall be
entitled to receive, and the Fund agrees to pay to the Custodian, such
compensation as may be agreed upon from time to time between the Custodian
and the Fund. The Custodian may charge against any moneys of the Fund held
by it the amount of compensation and any expenses incurred by the Custodian
in the performance of its duties pursuant to this Agreement. The Custodian
shall also be entitled to charge against any money of the Fund held by it
the amount of any loss, damage, liability or expense incurred with respect
to the Fund, including counsel fees, for which it shall be entitled to
reimbursement under the provisions of this Agreement.
The expenses which the Custodian may charge against such
account include, but are not limited to, the expenses of Sub-Custodians
incurred in settling transactions outside of Boston, Massachusetts or New
York, New York involving the purchase and sale of Securities of the Fund.
(j) Reliance on Certificates and Instructions. The Custodian
shall be entitled to rely upon any Certificate, notice or other instrument
in writing received by the Custodian and reasonably believed by the
Custodian to be genuine and to be signed by two officers of the Fund. The
Custodian shall be entitled to rely upon any Written or Oral Instructions
actually received by the Custodian pursuant to the applicable Sections of
this Agreement and reasonably believed by the Custodian to be genuine and
to be given by an Authorized Person. The Fund agrees to forward to the
Custodian Written Instructions from an Authorized Person confirming such
Oral Instructions in such manner so that such Written Instructions are
received by the Custodian, whether by hand delivery, telex or otherwise, by
the close of business on the same day that such Oral Instructions are given
to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way affect the
validity of the transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to the
Custodian hereunder concerning such transactions provided such instructions
reasonably appear to have been received from a duly Authorized Person.
11. Records. The Custodian shall create and maintain all records
relating to its activities and obligations under this Agreement in such a
manner as will meet the obligations of the Fund under the 1940 Act, with
particular attention to Section 31 thereof, Rules 31a-1 and 31a-2
therunder, applicable federal and state tax laws and any law or
administrative rules or procedures which may be applicable to the Fund.
All such records shall be the property of the Fund and shall at all times
during regular business hours of the Custodian be open for inspection by
duly authorized officers, employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission.
12. Term and Termination.
(a) This Agreement shall become effective on the date first set
forth above (the "Effective Date") and shall continue in effect thereafter
as the parties may mutually agree.
(b) Either of the parties hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than 60 days after the date of receipt
of such notice. In the event such notice is given by the Fund, it shall be
accompanied by a certificate vote of the Board of Directors of the Fund,
electing to terminate this Agreement and designating a successor custodian
or custodians, which shall be a person qualified to so act under the 1940
Act. In the event such notice is given by the Custodian, the Fund shall,
on or before the termination date, deliver to the Custodian a certified
vote of the Board of Directors of the Fund, designating a successor
custodian or custodians. In the absence of such designation by the Fund,
the Custodian may designate a successor custodian, which shall be a person
qualified to so act under the 1940 Act. If the Fund fails to designate a
successor custodian, the Fund shall upon the date specified in the notice
of termination of this Agreement and upon the delivery by the Custodian of
all Securities (other than Securities held in the Book-Entry System which
cannot be delivered to the Fund) and monies then owned by the Fund, be
deemed to be its own custodian and the Custodian shall thereby be relieved
of all duties and responsibilities pursuant to this Agreement, other than
the duty with respect to Securities held in the Book-Entry System which
cannot be delivered to the Fund.
(c) Upon the date set forth in such notice under paragraph (b) of
this Section, this Agreement shall terminate to the extent specified in
such notice, and the Custodian shall upon receipt of a notice of acceptance
by the successor custodian on that date deliver directly to the successor
custodian all Securities and monies then held by the Custodian on behalf of
the Fund, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled.
13. Limitation of Liability
The Fund and the Custodian agree that the obligations of the
Fund under this Agreement shall not be binding upon any of the Directors,
shareholders, nominees, officers, employees or agents, whether past,
present or future, of the Fund, individually, but are binding only upon the
assets and property of the Fund, as provided in the Articles of
Incorporation. The execution and delivery of this Agreement have been
authorized by the Directors of the Fund, and signed by an authorized
officer of the Fund, acting as such, and neither such authorization by such
Directors not such execution and delivery by such officer shall be deemed
to have been made by any of them or any shareholder of the Fund
individually or to impose any liability on any of them or any shareholder
of the Fund personally, but shall bind only the assets and property of the
Fund as provided in the Master Fund Agreement.
14. Miscellaneous.
(a) Annexed hereto as Appendix A is a certification signed by two
of the present officers of the Fund setting forth the names and the
signatures of the present Authorized Persons. The Fund agrees to furnish
to the Custodian a new certification in similar form in the event that any
such present Authorized Person ceases to be such an Authorized Person or in
the event that other or additional Authorized Persons are elected or
appointed. Until such new certification shall be received, the Custodian
shall be fully protected in acting under the provisions of this Agreement
upon Oral Instructions or signatures of the present Authorized Persons as
set forth in the last delivered certification.
(b) Annexed hereto as Appendix B is a certification signed by the
Secretary or an Assistant Secretary of the Fund setting forth the names and
the signatures of the present officers of the Fund. The Fund agrees to
furnish to the Custodian a new certification in similar form in the event
any such present officer ceases to be an officer of the Fund or in the
event that other or additional officers are elected or appointed. Until
such new certification shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement upon the
signature of the officers as set forth in the last delivered certification.
(c) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or delivered to
it at its offices at One Boston Place, Boston, Massachusetts 02108 or at
such other place as the Custodian may from time to time designate in
writing.
(d) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund, shall be sufficiently
given if addressed to the Fund and mailed or delivered to it at its offices
at Two World Trade Center, New York, New York 10048 or at such other place
as the Fund may from time to time designate in writing.
(e) This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties with the same
formality as this Agreement, (i) authorized and approved by a vote of the
Board of Directors of the Fund, including a majority of the members of the
Board of Directors of the Fund who are not "interested persons" of the Fund
(as defined in the 1940 Act), or (ii) authorized and approved by such other
procedures as may be permitted or required by the 1940 Act.
(f) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund without
the written consent of the Custodian, or by the Custodian without the
written consent of the Fund authorized or approved by a vote of the Board
of Directors of the Fund, and any attempted assignment without such written
consent shall be null and void.
(g) The Fund represents that a copy of the Articles of
Incorporation and By-laws is on file with the State of Maryland.
(h) This Agreement shall be construed in accordance with in
accordance with the laws of the Commonwealth of Massachusetts.
(i) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(j) This agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers duly authorized as of
the day and year first above written.
MANAGED MUNICIPALS PORTFOLIO II INC.
By:/s/ Richard P. Roelofs
Name:Richard P. Roelofs
Title: President
BOSTON SAFE DEPOSIT AND
TRUST COMPANY
By:/s/ Merton E. Thompson, III
Name: Merton E. Thompson, III
Title:Senior Vice President
APPENDIX A
We, Vincent Nave, Treasurer and Francis J. McNamara, III, Secretary,
of Managed Municipals Portfolio II Inc, a Maryland corporation (the
"Fund"), do hereby certify that:
The following individuals have been duly authorized as Authorized
Persons to give Oral Instructions and Written Instructions on behalf of the
Fund and the signatures set forth opposite there respective names are their
true and correct signatures:
Name Signature
Robert Dwight /s/ Robert Dwight
Diane Leone /s/ Diane Leone
John Hawke /s/ John Hawke
Kristin Steadfast /s/ Kristin Steadfast
/s/ Vincent Nave
Vincent Nave, Treasurer
/s/ Francis J. McNamara, III
Francis J. McNamara, III, Secretary
AFFIDAVIT OF SIGNATURES
I, Francis J. McNamara, III, Senior Vice President and General
Counsel of The Boston Company Advisors, Inc., do hereby certify that the
signatures set forth opposite the respective names of John Hawke, Patrice
Hurley and Diane Leone are their true and correct signatures.
Name Signature
Robert Dwight /s/ Robert Dwight
Diane Leone /s/ Diane Leone
John Hawke /s/ John Hawke
Kristin Steadfast /s/ Kristin Steadfast
_____________________ /s/ Francis J. McNamara, III
Witness Francis J. McNamara, III
Date:________________ Date5/7/93
APPENDIX B - OFFICERS
I, Lee D. Augsburger, Assistant Secretary of Managed Municipals
Portfolio II Inc. a Maryland corporation (the "Fund"), do hereby certify
that:
The following individuals serve in the following positions with the
Fund and each individual has been duly elected or appointed to each such
position and qualified therefor in conformity with the Fund's Articles of
Incorporation and the signatures set forth opposite their respective names
are their respective names are their true and correct signatures:
Name Position Signature
Heath B. McLendon Chairman of the Board
Chief Executive Officer
and Investment Officer /s/ Heath B.
McLendon
Thomas A. Belshe President /s/ Thomas A. Belshe
Joseph Deane Vice President and
Investment Officer /s/ Joseph
Deane
David Fare Investment Officer /s/ David Fare
Vincent Nave Treasurer /s/ Vincent
Nave
Richard Rose Assistant Treasurer /s/
Richard Rose
Richard W. Ingram Assistant Treasurer /s/ Richard W.
Ingram
Francis J. McNamara Secretary /s/ Francis J.
McNamara, III
Lee D. Augsburger Assistant Secretary /s/ Lee
Augsburger
Elizabeth Nystedt Assistant Secretary /s/ Elizabeth
Nystedt
/s/ Lee D. Augsburger
Lee D. Augsburger, Assistant Secretary
APPENDIX C - INDIVIDUALS WITH ACCESS
I, Lynne E. Larkin, Secretary of Boston Safe Deposit and Fund
Company, a Massachusetts corporation (the "Custodian"), do hereby certify
that:
The following named individuals have been duly authorized by the
Executive Committee of the Board of Directors of the Custodian to have
access to the assets of Managed Municipals Portfolio II Inc. a Maryland
corporation, held by the Custodian in its capacity as such:
Kevin Connolly
Karen D. DeVitto
Joan M. Donahue
Eric Greene
Priscilla Hardy
Russsell G. McAdams, II
Eleanor Millan
Cynthia Peluso
Geraldine E. Ryan
Virginia Shea
Merton E. Thompson, III
/s/ Lynne E. Larkin
Lynne E. Larkin, Secretary
Boston Safe Deposit and Fund Company
SCHEDULE
A
BOSTON SAFE DEPOSIT AND TRUST COMPANY
CUSTODY FEE SCHEDULE
A. Domestic Safekeeping:
First $50 million - .033%
Next $50 million - .017%
Excess - .010%
B. PLUS $5/security holding
charge per month
C. PLUS Transaction charges:
DTC eligible - $10
Non-DTC eligible - $30
Fed Book Entry - $10
Options - $25
Futures - $ 8
GNMA Paydowns - $ 5
Repo - depository - $10
- non-deposit - $17
Physical - Govt - $30
Physical - Corp/Muni - $30
Commercial Paper - $30
Euro-CDs (London) - $30
BOSTON SAFE DEPOSIT AND TRUST COMPANY
GLOBAL CUSTODY FEE SCHEDULE
A. Global Safekeeping:
Group I Assets - 5.0 BP
* Group II Assets
First $50 million - 12.0 BP
Next $50 ,illion - 9.0 BP
Next $200 million - 6.0 BP
Excess - 4.0 BP
Group III Assets - 12.0 BP
Group IV Assets - 15.0 BP
Group V Assets - 18.0 BP
Group VI Assets - 25.0 BP
B. PLUS Transaction Charges:
Group I Transactions - $25
Group II Transactions - $30
Group III Transactions - $30
Group IV Transactions - $45
Group V Transactions - $60
Group VI Transactions - $75
** Third pary F/X -$20
Country Groups
Group I Group II Group III Group IV
Group V Group VI
Japan Euroclear Austria Australia
Denmark Mexico
Cedel Canada Belgium
Finland Spain
Germany Netherlands
France Sweden
Switzerland
Hong Kong Greece
Luxembourg
Italy Indonesia
Malaysia Jordan
Norway Philippin
Singapore Turkey
Thailand Venezuela
Portugal Argentina
Irelenad
United Kingdom
_____________________
* The breakpoint levels are based upon assets within each
category.
** A Third Pary F/X is one in which Boston Safe is not the
currency broker. This charge will be assessed only on transactions
where funds are actually transferred.
Reimbursable out-of-pocket expenses will be added to each monthly
invoice and will include, but not be limited to, such customary items
as telephone,
wire charges ($5.25 per wire), stamp duties, securities registration,
postage, courier
services and duplication charges.
A-2
SCHEDULE B
The Fund will pay to the Custodian as soon as possible after the end of
each month all out-of-pocket expenses reasonablyincurred in connection with
the assets of the Fund.
B-1
g/shared/domestic/clients/shearson/funds/mmu/custagr
EXHIBIT K(i)
ADMINISTRATION AGREEMENT
MANAGED MUNICIPALS PORTOFLIO II INC.
June 1, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
Managed Municipals Portfolio II Inc. (the "Fund"), a corporation
organized under the laws of the State of Maryland, confirms its agreement
with Smith, Barney Advisers, Inc. ("SBA") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Articles of Incorporation dated July 23, 1992,
as amended from time to time (the "Articles"), in its Prospectus and
Statement of Additional Information as from time to time in effect and in
such manner and to such extent as may from time to time be approved by the
Board of Directors of the Fund (the "Board"). Copies of the Fund's
Prospectus, Statement of Additional Information and Articles have been or
will be submitted to SBA. Greenwich Street Advisors Division of Mutual
Management Corp. ("Greenwich Street Advisors") serves as the Fund's
investment adviser and the Fund desires to employ and hereby appoints SBA
to act as its administrator. SBA accepts this appointment and agrees to
furnish the services to the Fund for the compensation set forth below. SBA
is hereby authorized to retain third parties and is hereby authorized to
delegate some or all of its duties and obligations hereunder to such
persons provided that such persons shall remain under the general
supervision of SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Fund's operations except
those performed by the Fund's investment adviser under its investment
advisory agreement; (b) supply the Fund with office facilities (which may
be in SBA's own offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of shares of the
Fund, (ii) applicable contingent deferred sales charges and similar fees
and charges and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationary
and office supplies; and (c) prepare reports to shareholders of the Fund,
tax returns and reports to and filings with the Securities and Exchange
Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month a
fee for the previous month at an annual rate of .20 of 1.00% of the Fund's
average daily net assets. The fee for the period from the date the Fund's
initial registration statement is declared effective by the SEC to the end
of the month during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period
bears to the full monthly period. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. For the purpose of determining fees payable to SBA, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
SBA will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of the members of the Board of
the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc. or its affiliates or any person who is an affiliate of any
person to whom duties may be delegated hereunder; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities commissions, extraordinary
expenses) exceed the expense limitations of any state having jurisdiction
over the Fund, SBA will reimburse the Fund for that excess expense to the
extent required by state law in the same proportion as its respective fees
bear to the combined fees for investment advice and administration. The
expense reimbursement obligation of SBA will be limited to the amount of
its fees hereunder. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the services
listed in paragraph 2 above, and SBA shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect SBA against
liability to the Fund or to its shareholders to which SBA would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by reason of SBA's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other investment
companies, and the Fund has no objection to SBA so acting. In addition,
the Fund understands that the persons employed by SBA or its affiliates to
assist in the performance of its duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of SBA or its affiliates to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers, directors,
employees, affiliates, controlling persons, agents (including persons to
whom responsibilities are delegated hereunder) ("indemnitees") against any
loss, claim, expense or cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this Agreement or from the
performance or failure to perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee violated the standard
of care in paragraph 6 above. This indemnification shall be limited by the
1940 Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the 1940
Act and the rules, regulations and interpretations thereof as in effect
from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Articles and
Bylaws. The execution and delivery of this Agreement has been duly
authorized by the Fund, SBA and Boston
Advisors, and signed by an authorized officer of each, acting as such.
Neither the authorization by the Board members of the Fund, nor the
execution and delivery by the officer of the Fund shall be deemed to have
been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the assets and property of the Fund as
provided in the Articles and Bylaws.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning to us the enclosed
copy hereof.
Very truly yours,
Managed Municipals Portfolio II
Inc.
By: ______________________
Name: Heath B. McLendon
Title: Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: ______________________
Name: Christina T. Sydor
Title: Secretary
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliations - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution Funds - Calculate income on purchase and sales, calculate
change in income due to variable rate change, combine all daily income
less expenses to arrive at net income, calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual,
semi-annual and quarterly portfolio of investments and financial
statements included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting
(for money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with
outside printers for annual and semi-annual reports, prospectuses,
statements of additional information, proxy statements and special
letters or supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the
Fund;
Determine expenses properly chargeable to the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's
Board (e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market
funds;
Recommend valuation to be used for securities which
are not readily saleable;
Function as a liaison with the Fund's outside auditors
and arrange for audits;
Provide accounting, financial and tax support relating
to portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue
Service
* Form 8613
* Form 1120-RIC
* Board Members' and Shareholders' 1099s
* Mailings in connection with Section 852 and
related regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with
the appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder
communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the
Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder
meetings;
Maintain Master Trust Agreement and By-Laws of the
Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and
procedures to improve overall compliance by the Fund and its various
agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares.
2
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shared\domestic\clients\shearson\funds\mamu\admin.doc
EXHIBIT K(ii)
SUB-ADMINISTRATION AGREEMENT
MANAGED MUNICIPALS PORTFOLIO II INC.
June 1, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02109
Dear Sirs:
Managed Municipals Portfolio II Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland and Smith,
Barney Advisers, Inc. ("SBA") confirm their agreement with The Boston
Company Advisors, Inc. ("Boston Advisors") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Articles of Incorporation dated July 23, 1992,
as amended from time to time (the "Articles"), in its Prospectus and
Statement of Additional Information as from time to time in effect, and in
such manner and to such extent as may from time to time be approved by the
Board of Directors of the Fund (the "Board"). Copies of the Fund's
Prospectus, Statement of Additional Information and Articles have been or
will be submitted to you. The Fund employs SBA as its administrator, and
the Fund and SBA desire to employ and hereby appoint Boston Advisors as the
Fund's sub-administrator. Boston Advisors accepts this appointment and
agrees to furnish the services to the Fund, for the compensation set forth
below, under the general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and SBA,
Boston Advisors will: (a) assist in supervising all aspects of the Fund's
operations except those performed by the Fund's investment adviser under
the Fund's investment advisory agreement; (b) supply the Fund with office
facilities (which may be in Boston Advisor's own offices), statistical and
research data, data processing services, clerical, accounting and
bookkeeping services, including, but not limited to, the calculation of (i)
the net asset value of shares of the Fund, (ii) applicable contingent
deferred sales charges and similar fees and changes and (iii) distribution
fees, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; and (c)
prepare reports to shareholders of the Fund, tax returns and reports to and
filings with the Securities and Exchange Commission (the "SEC") and state
blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of each
month a fee for the previous month calculated in accordance with the terms
set forth in Appendix B, and as agreed to from time to time by the Fund,
SBA and Boston Advisors. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly
period and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Boston Advisors, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of the Board members
of the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc., Boston Advisors of their affiliates; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and its Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston Advisors
will reimburse the Fund for that excess expense to the extent required by
state law in the same proportion as its respective fees bear to the
combined fees for investment advice and administration. The expense
reimbursement obligation of Boston Advisors will be limited to the amount
of its fees hereunder. Such expense reimbursement, if any, will be
estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in rendering
the services listed in paragraph 2 above. Boston Advisors shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed to protect or purport
to protect Boston Advisors against liability to the Fund or to its
shareholders to which Boston Advisors would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of
Boston Advisor's reckless disregard of its obligations and duties under
this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without the
written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or more
other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of Boston
Advisors or its affiliates to engage in and devote time and attention to
other businesses or to render services of whatever kind of nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including reasonable
attorney's fees) resulting or arising in connection with this Agreement or
from the performance or failure to perform any act hereunder, provided that
not such indemnification shall be available if the indemnitee violated the
standard of care in paragraph 6 above. This indemnification shall be
limited by the 1940 Act, and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance with the requirements
of the 1940 Act and the rules, regulations and interpretations thereof as
in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Articles and
Bylaws. The execution and delivery of this Agreement has been duly
authorized by the Fund, SBA and Boston Advisors, and signed by an
authorized officer of each, acting as such. Neither the authorization by
the Board Members of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Fund as provided in the
Articles.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us the
enclosed copy hereof.
Very truly yours,
Managed Municipals Portfolio II Inc.
By: _________________________
Name: Heath B. McLendon
Title: Chairman of the Board
Smith, Barney Advisers, Inc.
By:_____________________
Name: Christina T. Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By:______________________
Name:
Title:
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act" ), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
- Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
- Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
- Formal Reconciliation - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
- Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
- Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
- Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
- Calculate Net Income, Mil Rate and Yield for Daily
Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income
less expenses to arrive at net income; calculate mil rate and yields (1
day, 7 day and 30 day);
- Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
- Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian reports;
- Pricing - Determine N.A.V. for the Fund using market value
of all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
- Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
- System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
- Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
- Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
- Reporting of Price to Transfer Agent - N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio mangers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board, tax authorities, statistical and performance reporting
companies and the Fund's auditors; interface with Fund's auditors;
prepare monthly reconciliation packages, including expense pro forma;
prepare amortization schedules for premium and discount bonds based on
the effective yield method; prepare vault reconciliation reports to
indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
- Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
- Total return reporting;
- SEC 30-day yield reporting and 7-day yield reporting (for
money market funds);
- Prepare dividend summary;
- Prepare quarter-end reports;
- Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.).
Publications
- Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available
to the Fund:
- Provide an Assistant Treasurer for the Fund;
- Authorize payment of bills for expenses of the Fund;
- Establish and monitor the rate of expense accruals;
- Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
- Monitor mark-to-market comparisons for money market funds;
- Recommend valuations to be used for securities which are not
readily saleable;
- Function as a liaison with the Fund's outside auditors and
arrange for audits;
- Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's
structure or operations;
- Prepare and file forms with the Internal Revenue Service
* Form 8613
* Form 1120-RIC
* Board Members' and Shareholders' 1099s
* Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
- File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
- File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
- Prepare and file proxy statements;
- Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
- Provide an Assistant Secretary for the Fund;
- Maintain general corporate calendar;
- Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
- Organize, attend and keep minutes of shareholder meetings;
- Maintain Articles of Incorporation or Master Trust
Agreements and By-Laws of the Fund.
Legal Consultation and Business Planning
- Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
- Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
- Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
- Manage Fund litigation matters and assume full
responsibility for the handling of routine fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel
and performing on-going testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with prospectus guidelines and
limitations, 1940 Act requirements and Internal Revenue Code
requirements. The Department may also act as liaison to the SEC during
its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-
going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
Schedule B
Fee
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shared\domestic\clients\shearson\funds\mamu\subadmin.doc
