6
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.___
Post-Effective Amendment No. 1 x
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4 x
__________________
Greenwich Street Municipal Fund Inc.
(a Maryland Corporation)
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
(212) 723-9218
(Registrant's Telephone Number, including Area Code)
Christina T. Sydor, Secretary
Greenwich Street Municipal Fund Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
_____________________
Copies to:
Burton M.Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
_______________
Approximate Date of Proposed Public Offering: As soon as practi
cable after
the effective date of this Registration Statement.
If any securities being registered on this form will be
offered on a delayed or continuous basis in reliance on Rule 415
under the Securities Act of 1933, other than securities offered
in connection with a dividend reinvestment plan, check the
following box. x_______________
This Registration Statement relates to the registration of
an indeterminate number of shares solely for market-making
transactions. Pursuant to Rule 429, this Registration Statement
relates to shares previously registered on Form N-2.
(Registration No. 33-58610).
It is proposed that this fiing will become effective: x when
declared effective pursuant to section 8(c).
Registrant amends this Registration Statement under the
Securities Act of 1933, as amended, on such date as may be
necessary to delay its effective date until Registrant files a
further amendment that specifically states that this Registration
Statement will thereafter become effective in accordance with the
provisions of Section 8(a) of the Securities Act of 1933, as
amended, or until the Registration Statement becomes effective on
such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
GREENWICH STREET MUNICIPAL FUND INC.
Form N-2
Cross Reference Sheet
Part A
Item No. Caption Prospectus Caption
1. Outside Front Cover Outside Front Cover of
Prospectus
2. Inside Front and Outside Back Cover Page Inside
Front and Outside Back Cover Page
of Prospectus
3. Fee Table and Synopsis Prospectus Summary; Fund
Expenses
4. Financial Highlights Financial Highlights
5. Plan of Distribution Prospectus Summary; The
Offering;
Stock Purchases and
Tenders.
6. Selling Shareholders Not Applicable
7. Use of Proceeds Use
of Proceeds;
8. General Description of
the Registrant.........................................
Prospectus Summary; The Fund; Investment
Objectives and Policies; Description of Common
Stock; Share Price Data; Net Asset Value;
Certain Provisions of of the Articles of
Incorporation; Appendix.
9. Management Management of the Fund;
Description of
Common Stock; Custodian
and Transfer Agent
10. Capital Stock, Long-Term Debt, and Other
Securities Taxation; Dividend
Reinvestment Plan;
Dividends and
Distributions; Description of Common Stock; Share
Price Data
11. Defaults and Arrears on Senior Securities Not
Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of the Statement of
Additional Information Further Information
Part B Statement of Additional
Item No. Information Caption
14. Cover Page Cover Page
15. Table of Contents Cover Page
16. General Information and
History................................................ The
Fund; Description of Common Stock (see
Prospectus)
17. Investment Objective and Policies Investment Objective
and Policies; Invest-
ment Restrictions
18.
Management.......................................................
........................ Management of the Fund;
Directors and Executive Officers
of the Fund
19. Control Persons and Principal Holders of
Securities Not Applicable
20. Investment Advisory and Other Services Management of
the Fund
21. Brokerage Allocation and Other Practices Fund
Transactions
22. Tax Status Taxes; Taxation (see
Prospectus)
23. Financial Statements Financial Statements
PART A
SMITH BARNEY
- ------------
A Member of
Travelers Group[Logo]
Greenwich
Street
Municipal
Fund Inc.
Common Stock
388 Greenwich Street
New York, New York 10013
FD
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
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Prospectus
September 30, 1996
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388 Greenwich Street
New York, New York 10013
(212) 723-9218
Greenwich Street Municipal Fund Inc. (the "Fund") 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 Fund 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 Fund's investments, see
"Investment
Objective and Policies."
The Fund seeks to invest substantially all of its assets in
Municipal
Obligations and, under normal conditions, at least 80% of the
Fund's assets will
be invested in Municipal Obligations rated investment grade by
Moody's Investors
Service Inc. ("Moody's"), Standard & Poor's Ratings Group
("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 Fund is intended to
operate in such a
manner that dividends paid by the Fund may be excluded by the
Fund's
shareholders from their gross incomes for Federal income tax
purposes. See
"Investment Objective and Policies" and "Taxation."
This Prospectus sets forth concisely the information about
the Fund that a
prospective investor ought to know before investing and should be
retained for
future reference. A Statement of Additional Information dated
September 30, 1996
(the "SAI") containing additional information about the Fund has
been filed with
the Securities and Exchange Commission ("SEC") and is hereby
incorporated by
reference in its entirety into this Prospectus. A copy of the SAI
may be
obtained without charge by calling or writing to the Fund at the
telephone
number or address set forth above or by contacting a Smith Barney
Financial
Consultant.
(Continued on Page 2)
SMITH BARNEY INC.
Distributor
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
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Prospectus (continued)
September 30, 1996
- -----------------------------------------------------------------
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Smith Barney Inc. ("Smith Barney") intends to make a market
in the Fund's
Common Stock ("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 Fund in a public offering which commenced
July 16, 1994,
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 Fund will not receive
any proceeds
from the sale of any Common Stock offered pursuant to this
Prospectus.
2
<PAGE>
Greenwich Street Municipal Fund Inc.
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Table of Contents
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Prospectus Summary
4
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Fund Expenses
7
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Financial Highlights
8
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The Fund
9
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The Offering
9
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Use of Proceeds
9
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Investment Objective and Policies
9
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Share Price Data
17
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Taxation
17
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Management of the Fund
19
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Dividends and Distribution; Dividend Reinvestment Plan
21
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Description of Common Stock
23
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Certain Provisions of the Articles of Incorporation
and Market Discount
23
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Custodian and Transfer Agent
25
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Experts
25
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Further Information
25
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Appendix A
A-1
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3
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
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Prospectus Summary
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The following summary is qualified in its entirety by the
more detailed
information appearing elsewhere in this Prospectus and in the
SAI. Cross
references in this summary are to headings in the Prospectus.
THE FUND The Fund is a non-diversified, closed-end management
investment
company. See "The Fund."
INVESTMENT OBJECTIVE The Fund 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 Fund is intended to operate in such a
manner that
dividends paid by the Fund may be excluded by the Fund's
shareholders from their
gross income for Federal income tax purposes. See "Investment
Objective and
Management Policies" and "Taxation."
QUALITY INVESTMENTS The Fund will invest substantially all of its
assets in
long-term investment grade Municipal Obligations. At least 80% of
the Fund'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 Fund's total assets may be invested
in unrated
securities that are deemed by the Fund's investment manager to be
of a quality
comparable to investment grade. See "Investment Objective and
Policies."
THE OFFERING The Common Stock is listed for trading on the New
York Stock
Exchange, Inc. ("NYSE"). In addition, Smith Barney intends to
make a market in
the Common Stock. Smith Barney, however, is not obligated to
conduct
market-making activities and such activities may be discontinued
at any time
without notice, at the sole discretion of Smith Barney.
LISTING NYSE
SYMBOL GSI
INVESTMENT MANAGER AND ADMINISTRATOR Greenwich Street Advisors
(the "Investment
Manager"), a division of Smith Barney Mutual Funds Management
Inc. ("SBMFM"),
serves as the Fund's investment manager. The Investment Manager
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"), which is in turn a wholly owned subsidiary of
Travelers Group
Inc. ("Travelers"). Subject to the supervision and direction of
the Fund's Board
of Directors, the Investment Manager manages the securities held
by the Fund in
accordance with the Fund's stated investment objective and
policies, makes
investment decisions for the Fund, places orders to purchase and
sell securities
on behalf of the Fund and employs professional fund managers.
SBMFM also acts as
administrator of the Fund and in that capacity provides
4
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
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Prospectus Summary (continued)
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certain administrative services, including overseeing the Fund's
non-investment
operations and its relations with other service providers and
providing
executive and other officers to the Fund. The Fund pays the
Investment Manager a
fee ("Management Fee") for services provided to the Fund that is
computed daily
and paid monthly at the annual rate of 0.70% of the value of the
Fund's average
daily net assets. The Fund pays SBMFM a fee for administrative
services provided
to the Fund that is computed daily and paid monthly at the annual
rate of 0.20%
of the value of the Fund's average daily net assets. The Fund
will bear other
expenses and costs in connection with its operation in addition
to the costs of
investment management services. See "Management of the Fund --
Investment
Manager."
CUSTODIAN PNC Bank, National Association ("PNCBank")serves as the
Fund's
custodian. See "Custodian and Transfer Agent."
TRANSFER AGENT First Data Investor Services Group, Inc. ("First
Data") serves as
the Fund's transfer agent, dividend-paying agent and registrar.
See "Custodian
and Transfer Agent."
DIVIDENDS AND DISTRIBUTIONS The Fund expects to pay monthly
dividends of net
investment income (income other than net realized capital gains)
and to
distribute net realized capital gains, if any, annually. All
dividends or
distributions with respect to shares of Common Stock are
reinvested
automatically in additional shares through participation in the
Fund's Dividend
Reinvestment Plan (the "Plan"), unless a shareholder elects to
receive cash. See
"Dividends and Distributions" and "Dividend Reinvestment Plan."
RISK FACTORS AND SPECIAL CONSIDERATIONS Shares of common stock of
closed-end
investment companies frequently trade at a discount from net
asset value, or in
some cases trade at a premium. Shares of closed-end investment
companies
investing primarily in fixed income securities tend to trade on
the basis of
income yield on the market price of the shares and the market
price may also be
affected by trading volume, general market conditions and
economic conditions
and other factors beyond the control of the Fund. As a result,
the market price
of the Fund's shares may be greater or less than the net asset
value. Since the
commencement of the Fund's operations, the Fund's shares have
traded in the
market at prices that were at times equal to, but generally were
below, net
asset value.
Some closed-end companies have taken certain actions,
including the
repurchase of common stock in the market at market prices and the
making of one
or more tender offers for common stock at net asset value, in an
effort to
reduce or mitigate the discount, and others have converted to an
open-end
investment company, the shares of which are redeemable at net
asset value. The
Fund's Board of Directors has seen no reason to adopt any of the
steps, which
some other closed-end funds have used to address the discount. In
addition, the
experience of many closed-end funds suggests that the effect of
many of these
steps (other than open-
5
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
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Prospectus Summary (continued)
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ending) on the discount may be temporary or insignificant.
Accordingly, there
can be no assurance that any of these actions will be taken or,
if undertaken,
will cause the Fund's shares to trade at a price equal to their
net asset value.
The Fund will not purchase securities that are rated lower
than Baa by
Moody's or BBB by S&P or Fitch at the time of purchase. Although
obligations
rated Baa by Moody's or BBB by S&P or Fitch are considered to be
investment
grade, they may be subject to greater risks than other higher-
rated investment
grade securities.
The Fund may invest up to 20% of its total assets in unrated
securities
that the Investment Manager determines to be of comparable
quality to the
securities rated investment grade in which the Fund 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
Fund's ability
to sell these securities when the Investment Manager deems it
appropriate. The
Fund 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 Fund 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 Fund, and certain of
the investment
techniques that the Fund may employ, might expose the Fund to
special risks. The
instruments presenting the Fund 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 fund securities, and engaging
in financial
futures and options transactions are investment techniques
involving risks to
the Fund. As a non-diversified fund, within the meaning of the
Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund 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 Fund for
advisory and
administrative services, 0.90% of the value of the Fund'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 Fund. The Fund
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 Fund."
6
<PAGE>
Greenwich Street Municipal Fund Inc.
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Prospectus Summary (continued)
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The Fund'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 Fund 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."
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Fund Expenses
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The following tables are intended to assist investors in
understanding the
various costs and expenses associated with investing in the Fund.
=================================================================
===============
Annual Expenses
(as a percentage of net assets attributable to Common
Stock)
Management Fees
................................................ 0.90%
Other Expenses*
................................................ 0.16%
=================================================================
===============
Total Annual Operating Expenses*
...................................... 1.06%
=================================================================
===============
* "Other Expenses," as shown above, are based upon amounts of
expenses for
the fiscal year ended May 31, 1996.
EXAMPLE
The following example demonstrates the projected dollar
amount of total
cumulative expenses that would be incurred over various periods
with respect to
a hypothetical investment in the Fund. These amounts are based
upon payment by
the Fund of operating expenses at the levels set forth in the
table above.
An investor would pay the following expenses on a $1,000
investment,
assuming (1) a 5% annual return and (2) reinvestment of all
dividends and
distributions at net asset value:
One Year Three Years Five Years Ten Years
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$11 $34 $58 $129
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This example should not be considered a representation of
future expenses
of the Fund and actual expenses may be greater or less than those
shown.
Moreover, while the example assumes a 5% annual return, the
Fund's performance
will vary and may result in a return greater or less than 5%. In
addition, while
the example assumes reinvestment of all dividends and
distributions at net asset
value, participants in the Fund's Dividend Reinvestment Plan may
receive shares
purchased or issued at a price or value different from net asset
value. See
"Dividends and Distributions; Dividend Reinvestment Plan."
7
<PAGE>
Greenwich Street Municipal Fund Inc.
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Financial Highlights
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The following information for the fiscal year ended May 31, 1996
has been
audited by KMPG Peat Marwick LLP, independent auditors, whose
report thereon
appears in the Fund's Annual Report dated May 31, 1996. The
information for the
fiscal period ended May 31, 1995 has been audited by Coopers and
Lybrand,
L.L.P., independent auditors. The following information should be
read in
conjunction with the financial statements and related notes that
also appear in
the Fund's Annual Report, which is incorporated by reference into
this
Prospectus.
For a share of capital stock outstanding throughout each period:
1996
1995(a)
=================================================================
===============
Net Asset Value, Beginning of Period $ 12.84
$ 12.00
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Income From Operations:
Net investment income 0.66
0.63
Net realized and unrealized gain (loss) (0.42)
0.77
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Total Income From Operations 0.24
1.40
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Offering Costs Charged to Paid-In Capital --
(0.02)
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Less Distributions From:
Net investment income (0.66)
(0.54)
Net realized gains (0.23)
- --
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Total Distributions (0.89)
(0.54)
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Net Asset Value, End of Period $ 12.19
$ 12.84
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Total Return 2.40%
1.65%++
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Net Assets, End of Period (000s) $ 238,468
$ 251,219
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Ratios to Average Net Assets:
Expenses 1.06%
1.05%+
Net investment income 5.17
5.63+
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Portfolio Turnover Rate 42%
115%
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Market Value, End of Period $ 11.375
$ 11.625
=================================================================
===============
(a) For the period from June 24, 1994 (commencement of
operations) to May 31,
1995.
++ Total return represents aggregate total return based on
market value for
the period.
+ Annualized.
8
<PAGE>
Greenwich Street Municipal Fund Inc.
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The Fund
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The Fund 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 Fund, which
was
incorporated under the laws of the State of Maryland on February
19, 1993, is
registered under the 1940 Act, and has its principal office at
388 Greenwich
Street, New York, New York 10013. The Fund's telephone number is
(212) 723-9218.
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The Offering
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Smith Barney intends to make a market in the Fund's 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.
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Use of Proceeds
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The Fund will not receive any proceeds from the sale of
Common Stock
offered pursuant to this Prospectus. Proceeds received by Smith
Barney as a
result of its market-making in Common Stock will be utilized by
Smith Barney in
connection with its secondary market operations and for general
corporate
purposes.
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Investment Objective and Policies
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The Fund'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 Fund'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 Fund's outstanding shares. In seeking its objective, the Fund
will invest in
long-term Municipal Obligations. The Fund will operate subject to
a fundamental
investment policy providing that, under normal conditions, the
Fund will invest
at least 80% of its net assets in Municipal Obligations. No
assurance can be
given that the Fund's investment objective will be achieved.
The Fund normally invests at least 80% of its total assets
in Municipal
9
<PAGE>
Greenwich Street Municipal Fund Inc.
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- ---------------
Investment Objective and Policies (continued)
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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 Fund's total assets may be invested in unrated securities
that are deemed by
the Investment Manager to be of a quality comparable to
investment grade. The
Fund will not invest in Municipal Obligations that are rated
lower than Baa by
Moody's or BBB by S&P or 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 or BBB by S&P
or 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 Fund is classified as a non-diversified fund under the
1940 Act, which
means that the Fund is not limited by the 1940 Act in the
proportion of its
assets that it may invest in the obligations of a single issuer.
The Fund
intends to conduct its operations, however, so as to qualify as a
"regulated
investment company" for purposes of the Internal Revenue Code of
1986, as
amended (the "Code"), which will relieve the Fund 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 Fund 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 Fund'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 Fund 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 Fund's 25% industry
limitation. The Fund may
invest more than 25% of its total assets in a broad segment of
the Municipal
Obligations market if the Investment Manager determines that the
yields
available from obligations in a particular segment of the market
justify the
additional risks associated with a large investment in the
segment. The Fund
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 Fund were to invest more than 25% of its
total assets in
issuers located in the same state, it would be
10
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Investment Objective and Policies (continued)
- -----------------------------------------------------------------
- ---------------
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 particularly
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
Fund may invest
are described in Appendix A to this Prospectus.
The yields on, and values of, Municipal Obligations are
dependent on a
variety of factors, including general economic and monetary
conditions, money
market factors, conditions in the Municipal Obligations markets,
size of a
particular offering, maturity of the obligation and rating of the
issue.
Consequently, Municipal Obligations with the same maturity,
coupon and rating
may have different yields or values, whereas obligations of the
same maturity
and coupon with different ratings may have the same yield or
value.
Opinions relating to the validity of Municipal Obligations
and to the
exemption of interest on them from Federal taxes are rendered by
bond counsel to
the respective issuers at the time of issuance. Neither the Fund
nor the
Investment Manager will review the procedures relating to the
issuance of
Municipal Obligations or the basis for opinions of counsel.
Issuers of Municipal
Obligations may be subject to the provisions of bankruptcy,
insolvency and other
laws, such as the Federal Bankruptcy Reform Act of 1978,
affecting the rights
and remedies of creditors. In addition, the obligations of those
issuers may
become subject to laws enacted in the future by Congress, state
legislatures or
referenda extending the time for payment of principal and/or
interest, or
imposing other constraints upon enforcement of the obligations or
upon the
ability of municipalities to levy taxes. The possibility also
exists that, as a
result of litigation or other conditions, the power or ability of
any issuer to
pay, when due, the principal of, and interest on, its obligations
may be
materially affected.
Under normal conditions, the Fund 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 Fund may
take a
temporary defensive posture and invest without limitation in
short-term
Municipal Obligations and Taxable Investments, upon a
determination by the
Investment Manager that market conditions warrant such a posture.
To the extent
the Fund holds Taxable Investments, the Fund may not be fully
achieving its
investment objective.
11
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
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Investment Objective and Policies (continued)
- -----------------------------------------------------------------
- ---------------
INVESTMENT TECHNIQUES
The Fund may employ, among others, the investment techniques
described
below, which may give rise to taxable income:
When-Issued and Delayed Delivery Securities. The Fund 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 Fund prior to the actual delivery or
payment by the
other party to the transaction. The Fund will not accrue income
with respect to
a when-issued or delayed delivery security prior to its stated
delivery date.
The Fund will establish with PNC Bank a segregated account
consisting of cash,
U.S. government securities, or other liquid high grade debt
obligations, in an
amount equal to the amount of the Fund's when-issued and delayed
delivery
purchase commitments. Placing securities rather than cash in the
segregated
account may have a leveraging effect on the Fund's net asset
value per share;
that is, to the extent that the Fund 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 Fund 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 Fund'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 Fund 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 Fund 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 Fund will be
restricted to
those that are either based on an index of Municipal Obligations
or relate to
debt securities the prices of which are anticipated by the
Investment Manager to
correlate with the prices of the Municipal Obligations owned or
to be purchased
by the Fund. Regulations of the Commodity Futures Trading
Commission ("CFTC")
applicable to the Fund require that its transactions in futures
and options be
engaged in for "bona fide hedging" purposes or other permitted
purposes,
provided that aggregate initial margin deposits and premiums
required to
establish positions other than those considered
12
<PAGE>
Greenwich Street Municipal Fund Inc.
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Investment Objective and Policies (continued)
- -----------------------------------------------------------------
- ---------------
by the CFTC to be "bona fide hedging" will not exceed 5% of the
Fund'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 Fund.
Lending Securities. The Fund is authorized to lend
securities it holds to
brokers, dealers and other financial organizations, but it will
not lend
securities to any affiliate of the Investment Manager unless the
Fund applies
for and receives specific authority to do so from the SEC. Loans
of the Fund's
securities, if and when made, may not exceed 3311/43 % of the
value of the
Fund's total assets taken at value. The Fund's loans of
securities will be
collateralized by cash, letters of credit or U.S. government
securities that
will be maintained at all times in a segregated account with PNC
Bank in an
amount equal to the current market value of the loaned
securities.
Repurchase Agreements. The Fund 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 Fund would acquire an
underlying debt
obligation for a relatively short period subject to an obligation
of the seller
to repurchase, and the Fund to resell, the obligation at an
agreed-upon price
and time, thereby determining the yield during the Fund's holding
period. This
arrangement results in a fixed rate of return that is not subject
to market
fluctuations during the Fund's holding period. Under each
repurchase agreement,
the selling institution will be required to maintain the value of
the securities
subject to the repurchase agreement at not less than their
repurchase price.
13
<PAGE>
Greenwich Street Municipal Fund Inc.
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- ---------------
Investment Objective and Policies (continued)
- -----------------------------------------------------------------
- ---------------
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Fund involves risk factors and special
considerations,
such as those described below:
Municipal Obligations. Market rates of interest available
with respect to
Municipal Obligations generally may be lower than those available
with respect
to taxable securities, although the differences may be wholly or
partially
offset by the effects of Federal income tax on income derived
from taxable
securities. The amount of available information about the
financial condition of
issuers of Municipal Obligations may be less extensive than that
for corporate
issuers with publicly traded securities, and the market for
Municipal
Obligations may be less liquid than the market for corporate debt
obligations.
Although the Fund's policy will generally be to hold Municipal
Obligations until
their maturity, the relative illiquidity of some of the Fund's
securities may
adversely affect the ability of the Fund 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 Fund to the extent that the
Municipal
Obligations were purchased by the Fund at a premium to face
value.
Although the Municipal Obligations in which the Fund may
invest will be
rated, at the time of investment, 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 Fund, 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 Fund.
Unrated Securities. The Fund may invest in unrated
securities that the
Investment Manager determines to be of comparable quality to the
rated
securities in which the Fund 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 Fund's ability to sell these securities
when the
Investment Manager deems it appropriate may be diminished.
Municipal Leases. Municipal leases in which the Fund may
invest have
special risks not normally associated with Municipal Obligations.
Municipal
leases frequently contain non-appropriation clauses that provide
that the
governmental issuer
14
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Investment Objective and Policies (continued)
- -----------------------------------------------------------------
- ---------------
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 Fund
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 Fund.
When-Issued and Delayed Delivery Transactions. Securities
purchased on a
when-issued or delayed delivery basis may expose the Fund to risk
because the
securities may experience fluctuations in value prior to their
delivery.
Purchasing securities on a when-issued or delayed delivery basis
can involve the
additional risk that the yield available in the market when the
delivery takes
place may be higher than that obtained in the transaction itself.
Lending Securities. The risks associated with lending fund
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 Fund 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 Fund would be
required to make
daily cash payments of variation margin. In those circumstances,
an increase in
the value of the portion of the Fund's investments being hedged,
if any, may
offset partially or completely losses on the futures contract. No
assurance can
be given, however, that the price of the 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
Fund that are the subject of a hedging transaction and the
futures or options
used as a hedging device, the hedge may not be fully effective
because, for
example, losses on the securities held by the Fund may be in
excess of gains on
the futures contract or losses on the futures contract may be in
excess of gains
on the securities held by the Fund that were the subject of the
hedge. If the
Fund has hedged against the possibility of an increase in
interest rates
adversely affecting the value of securities it holds and rates
decrease instead,
the Fund 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.
15
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Investment Objective and Policies (continued)
- -----------------------------------------------------------------
- ---------------
Non-Diversified Classification. Investment in the Fund,
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 Fund'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 Fund has adopted certain fundamental investment
restrictions that may
not be changed without the prior approval of the holders of a
majority of the
Fund's outstanding voting securities. A "majority of the Fund's
outstanding
voting securities" for this purpose means the lesser of (1) 67%
or more of the
shares of the Fund'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 Fund is that the Fund is
prohibited from
borrowing 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
this
Prospectus. When the Fund's borrowings exceed 5% of the value of
its total
assets, the Fund will not make any additional investments. In
addition, the Fund
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 Fund may
not purchase
securities other than Municipal Obligations and Taxable
Investments. For a
complete listing of the investment restrictions applicable to the
Fund, 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
Fund to dispose of any security that it holds.
16
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Share Price Data
- -----------------------------------------------------------------
- ---------------
The Fund's Common Stock is listed on the NYSE under the
symbol "GSI". Smith
Barney intends to make a market in the Fund's Common Stock.
The following table sets forth the high and low sales prices
for the Fund'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
Fund's commencement of operations.
<TABLE>
<CAPTION>
Quarterly High Price
Quarterly Low Price
--------------------
- -------------------
Premium
Premium
Net Asset NYSE (Discount)
Net Asset NYSE (Discount)
Value Price to NAV
Value Price to NAV
=================================================================
=======================================
<S> <C> <C> <C>
<C> <C> <C>
8/31/94 $ 12.23 $ 12.125 (0.87)%
$ 12.17 $ 11.875 (2.48)%
11/30/94 12.32 11.875 (3.75)
10.98 9.875 (11.19)
2/28/95 12.28 11.875 (3.41)
11.40 10.125 (12.59)
5/31/95 12.65 11.750 (7.66)
12.48 11.250 (10.93)
8/31/95 12.87 11.875 (8.38)
12.61 11.375 (10.86)
11/30/95 13.09 11.875 (10.23)
12.73 11.375 (11.91)
2/29/96 12.94 12.250 (5.63)
12.80 11.750 (8.94)
5/31/96 12.80 12.000 (6.67)
12.20 11.250 (8.44)
8/31/96 11.98 11.750 (1.96)
12.10 11.250 (7.56)
=================================================================
=======================================
</TABLE>
As of September 3, 1996, the price of Common Stock as quoted
on the NYSE
was $11.69, representing a 2.57% discount from the Common Stock's
net asset
value calculated on that day.
- -----------------------------------------------------------------
- ---------------
Taxation
- -----------------------------------------------------------------
- ---------------
The following is a summary of the material Federal tax
considerations
affecting the Fund 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 Fund, there may be other
Federal, state,
local or foreign tax considerations applicable to particular
investors.
Prospective shareholders are therefore urged to consult their tax
advisors with
respect to the consequences to them of an investment in the Fund.
The Fund 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 Fund so qualifies, the Fund will be relieved of Federal
income tax on that
part of its
17
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Taxation (continued)
- -----------------------------------------------------------------
- ---------------
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 Fund 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
Fund, to retain
that tax-exempt status when distributed to the shareholders of
the Fund (that
is, to be classified as "exempt-interest" dividends of the Fund).
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 Fund's exempt-interest dividends may be excluded by
shareholders
from their gross income for Federal income tax purposes (1) some
or all of the
Fund'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 Fund may affect a corporate shareholder's
Federal
"environmental" tax liability. The receipt of dividends and
distributions from
the Fund 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 Fund
that
represents income derived from private activity bonds held by the
Fund 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.
A shareholder of the Fund 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 Fund
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 such
gain or loss
will be treated as a capital
18
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Taxation (continued)
- -----------------------------------------------------------------
- ---------------
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.
- -----------------------------------------------------------------
- ---------------
Management of the Fund
- -----------------------------------------------------------------
- ---------------
Board of Directors
Overall responsibility for management and supervision of the
Fund rests
with the Fund's Board of Directors. The Directors approve all
significant
agreements with the Fund's investment manager, administrator,
custodian and
transfer agent. The day-to-day operations of the Fund are
delegated to the
Fund's Investment Manager. The SAI contains background
information regarding
each Director and executive officer of the Fund.
INVESTMENT MANAGER AND ADMINISTRATOR
SBMFM, through its Greenwich Street Advisors division,
located at 388
Greenwich Street, New York, New York 10013, serves as the Fund's
Investment
Manager. SBMFM (through its predecessor entities) has been in the
investment
19
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Management of the Fund (continued)
- -----------------------------------------------------------------
- ---------------
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
September 3, 1996 in
excess of $77 billion.
Subject to the supervision and direction of the Fund's Board
of Directors,
the Investment Manager manages the securities held by the Fund in
accordance
with the Fund's stated investment objective and policies, makes
investment
decisions for the Fund, places orders to purchase and sell
securities on behalf
of the Fund and employs managers and securities analysts who
provide research
services to the Fund. The Fund pays the Investment Manager a fee
for investment
advisory services provided to the Fund that is computed daily and
paid monthly
at the annual rate of 0.70% of the value of the Fund's average
daily net assets.
In addition, SBMFM serves as the Fund's administrator and is paid
a fee by the
Fund that is computed daily and paid monthly at a rate of 0.20%
of the value of
its average daily net assets.
Transactions on behalf of the Fund are allocated to various
dealers by the
Investment Manager in its best judgment. The primary
consideration is prompt and
effective execution of orders at the most favorable price.
Subject to that
primary consideration, dealers may be selected for their
research, statistical
or other services to enable the Investment Manager to supplement
its own
research and analysis with the views and information of other
securities firms.
The Fund may use Smith Barney in connection with the purchase or
sale of
securities when the Investment Manager believes that the broker's
charge for the
transaction does not exceed usual and customary levels. The same
standard
applies to the use of Smith Barney as a broker in connection with
entering into
options and futures contracts. The Fund paid no brokerage
commissions in the
last fiscal year.
FUND MANAGEMENT
Joseph P. Deane, Vice President and Investment Officer of
the Fund, is
primarily responsible for the management of the Fund's assets.
Mr. Deane has
served the Fund in this capacity since the Fund commenced
operations in 1994 and
manages the day-to-day operations of the Fund, including making
all investment
decisions. Mr. Deane is an Investment Officer of SBMFM and is the
senior asset
manager for a number of investment companies and other accounts
investing in
tax-exempt securities. Mr. Deane serves as a Managing Director of
SBMFM. Prior
to 1993, Mr. Deane served as a Senior Vice President and Managing
Director of
Shearson Lehman Advisors.
20
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Dividends and Distribution; Dividend Reinvestment Plan
- -----------------------------------------------------------------
- ---------------
The Fund expects to pay monthly dividends of substantially
all net
investment income (that is income (including its tax-exempt
income and its
accrued original issue discount income) other than net realized
capital gains)
to the holders of Common Stock. Under the Fund's current policy,
which may be
changed at any time by its Board of Directors, the Fund's monthly
dividends will
be made at a level that reflects the past and projected
performance of the Fund,
which policy over time will result in the distribution of all net
investment
income of the Fund. Net income of the Fund consists of all
interest income
accrued on the Fund's assets less all expenses of the Fund.
Expenses of the Fund
are accrued each day. Net realized capital gains, if any, will be
distributed to
the shareholders at least once a year. Net income available for
distribution
will also be reduced by dividends on any preferred stock.
Under the Fund's Dividend Reinvestment Plan (the "Plan"), a
shareholder
whose shares of Common Stock are registered in his or her own
name will have all
distributions from the Fund reinvested automatically by First
Data as agent
under the Plan, unless the shareholder elects to receive cash.
Distributions
with respect to shares registered in the name of a broker-dealer
or other
nominee ("Street Name") will be reinvested by the broker or
nominee in
additional shares under the Plan, unless the service is not
provided by the
broker or nominee or the shareholder elects to receive
distributions in cash.
Investors who own Common Stock registered in Street Name should
consult their
broker-dealers for details regarding reinvestment. All
distributions to Fund
shareholders who do not participate in the Plan will be paid by
check mailed
directly to the record holder by or under the direction of First
Data as
dividend-paying agent.
The number of shares of Common Stock distributed to
participants in the
Plan in lieu of a cash dividend is determined in the following
manner. Whenever
the market price of the Common Stock is equal to or exceeds the
net asset value
per share at the time shares are valued for purposes of
determining the number
of shares equivalent to the cash dividend or capital gains
distribution, Plan
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
Fund issues
shares to participants in the Plan at a discount to net asset
value, the
remaining shareholders' interests in the Fund'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 Fund
declares a dividend
or capital gains distribution payable only in cash, First Data
will buy Common
Stock in the open market, on the NYSE or elsewhere, for the
participants'
accounts. If, following the commencement of the purchases and
before First Data
has completed its
21
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Dividends and Distribution; Dividend Reinvestment Plan
(continued)
- -----------------------------------------------------------------
- ---------------
purchases, the market price exceeds the net asset value of the
Common Stock,
First Data will attempt to terminate purchases in the open market
and cause the
Fund 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
Fund issues the
remaining shares. To the extent First Data is unable to stop open
market
purchases and cause the Fund to issue the remaining shares, the
average per
share purchase price paid by First Data may exceed the net asset
value of the
Common Stock, resulting in the acquisition of fewer shares than
if the dividend
or capital gains distribution had been paid in Common Stock
issued by the Fund
at net asset value. First Data will begin to purchase Common
Stock on the open
market as soon as practicable after the record date of the
dividend or capital
gains distribution, but in no event 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.
First Data maintains all shareholder accounts in the Plan
and furnishes
written confirmations of all transactions in each account,
including information
needed by a shareholder for personal and tax records. The
automatic reinvestment
of dividends and capital gains distributions will not relieve
Plan participants
of any income tax that may be payable on the dividends or capital
gains
distributions. Common Stock in the account of each Plan
participant will be held
by First Data in uncertificated form in the name of each Plan
participant, 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. First Data's fees for handling the
reinvestment of
dividends and capital gains distributions will be paid by the
Fund. No brokerage
charges apply with respect to shares of Common Stock issued
directly by the Fund
as a result of dividends or capital gains distributions payable
either in Common
Stock or in cash. Each Plan participant will, however, bear a
proportionate
share of brokerage commissions incurred with respect to open
market purchases
made in connection with the reinvestment of dividends or capital
gains
distributions.
Experience under the Plan may indicate that changes to it
are desirable.
The Fund reserves the right to amend or terminate the Plan as
applied to any
dividend or capital gains distribution paid subsequent to written
notice of the
change sent to participants at least 30 days before the record
date for the
dividend or capital gains distribution. The Plan also may be
amended or
terminated by First Data, with the Fund's prior written consent,
on at least 30
days' written notice to Plan participants. All correspondence
concerning the
Plan should be directed by mail to First Data, P.O. Box 9134,
Boston,
Massachusetts 02205-9134 or by telephone at (800) 331-1710.
22
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Description of Common Stock
- -----------------------------------------------------------------
- ---------------
The Fund has 500,000,000 authorized shares of Common Stock,
par value $.001
per share. At the close of business on September 3, 1996, there
were 19,558,334
shares of Common Stock outstanding. The Fund 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 the shareholders is sufficient
to take or
authorize action, except for election of Directors or as
otherwise provided in
the Fund'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 Fund will
be required to hold an annual meeting of shareholders in each
year. If the
Fund'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 Fund
may decide not to hold annual meetings of shareholders. See
"Stock Purchases and
Tenders."
The Fund 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 Fund's Board of Directors and will
be subject to
the requirement of the 1940 Act that shares may not be sold at a
price below the
then current net asset value (exclusive of underwriting discounts
and
commissions) except in connection with an offering to existing
shareholders or
with the consent of holders of a majority of the Fund's
outstanding shares.
- -----------------------------------------------------------------
- ---------------
Certain Provisions of the Articles of Incorporation and Market
Discount
- -----------------------------------------------------------------
- ---------------
ANTI-TAKEOVER PROVISIONS
The Fund presently has provisions in its Articles of
Incorporation and
By-Laws (commonly referred to as "anti-takeover" provisions)
which may have the
effect of limiting the ability of other entities or persons to
acquire control
of the Fund, to cause it to engage in certain transactions or to
modify its
structure.
The Board of Directors is classified into three classes,
each with a term
of three years with only one class of Directors standing for
election in any
year. Such classification may prevent replacement of a majority
of the Directors
for up to a two-year period. The Articles of Incorporation
provide that the
maximum number of
23
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Certain Provisions of the Articles of Incorporation (continued)
- -----------------------------------------------------------------
- ---------------
Directors that may constitute the Fund's entire board is 12.
Directors may be
removed from office, or the maximum number of Directors
increased, only by vote
of at least 75% of the shares entitled to be voted on the matter.
If approved by
two-thirds of the Fund's Directors, a majority of the shares
entitled to vote
may approve the conversion of the Fund from a closed-end to an
open-end
investment company. If fewer than two-thirds of the Directors
approve such
conversion, the affirmative vote of shareholders holding at least
two-thirds of
the outstanding shares will be required to approve such action.
If approved by
three-fourths of the Fund's Directors, a majority of the shares
entitled to vote
may approve: (i) the dissolution or liquidation of the Fund; (ii)
the merger,
consolidation or share exchange of the Fund with or into any
other person; or
(iii) any sale, lease, exchange or other disposition by the Fund
of any assets
of the Fund having an aggregate market value of $1,000,000,
except for
transactions in securities in the ordinary course of business. If
fewer than
three-fourths of the Directors approve the actions described in
(i) through
(iii) above, or in the case of any business combination described
above, the
affirmative vote of shareholders holding at least three-fourths
of the
outstanding shares will be required. The affirmative vote of at
least 75% of the
shares will be required to amend the Articles of Incorporation or
By-Laws to
change any of the foregoing provisions.
The percentage votes required under these provisions, which
are greater
than the minimum requirements under Maryland law or the 1940 Act,
will make more
difficult a change in the Fund's business or management and may
have the effect
of depriving shareholders of an opportunity to sell shares at a
premium over
prevailing market prices by discouraging a third party from
seeking to obtain
control of the Fund in a tender offer or similar transaction. The
Fund's Board
of Directors, however, has considered these anti-takeover
provisions and
believes they are in the best interests of shareholders.
MARKET DISCOUNT
Shares of common stock of closed-end investment companies
frequently trade
at a discount from net asset value, or in some cases trade at a
premium. Shares
of closed-end investment companies investing primarily in fixed-
income
securities tend to trade on the basis of income yield on the
market price of the
shares and the market price may also be affected by trading
volume, general
market conditions and economic conditions and other factors
beyond the control
of the Fund. As a result, the market price of the Fund's shares
may be greater
or less than the net asset value. Since the commencement of the
Fund's
operations, the Fund's shares have traded in the market at prices
that were at
times equal to, but generally were below, net asset value.
Some closed-end investment companies have taken certain
actions, including
the repurchase of common stock in the market at market prices and
the making of
24
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Certain Provisions of the Articles of Incorporation (continued)
- -----------------------------------------------------------------
- ---------------
one or more tender offers for common stock at net asset value, in
an effort to
reduce or mitigate the discount, and others have converted to an
open-end
investment company, the shares of which are redeemable at net
asset value.
The Fund's Board of Directors has seen no reason to adopt
any of the steps,
which some other closed-end funds have used to address the
discount. In
addition, the experience of many closed-end funds suggests that
the effect of
many of these steps (other than open-ending) on the discount may
be temporary or
insignificant. Accordingly, there can be no assurance that any of
these actions
will be taken or, if undertaken, will cause the Fund's shares to
trade at a
price equal to their net asset value.
- -----------------------------------------------------------------
- ---------------
Custodian and Transfer Agent
- -----------------------------------------------------------------
- ---------------
PNC Bank, 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103, acts
as custodian of the Fund's investments. First Data, One Exchange
Place, 53 State
Street, Boston, Massachusetts 02109, serves as agent in
connection with the Plan
and serves as the Fund's transfer agent, dividend-paying agent
and registrar.
- -----------------------------------------------------------------
- ---------------
Experts
- -----------------------------------------------------------------
- ---------------
The audited financial statements have been incorporated by
reference in the
SAI in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors,
and upon the authority of said firm as experts in accounting and
auditing.
- -----------------------------------------------------------------
- ---------------
Further Information
- -----------------------------------------------------------------
- ---------------
This Prospectus does not contain all of the information set
forth in the
Registration Statement filed with the SEC. The complete
Registration Statement
may be obtained from the SEC upon payment of the fee prescribed
by its Rules and
Regulations.
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 Fund, the Investment Manager, or Smith Barney. This
Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy
any security
other than the shares of
25
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Further Information (continued)
- -----------------------------------------------------------------
- ---------------
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 Fund 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.
26
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Appendix A
- -----------------------------------------------------------------
- ---------------
TYPES OF MUNICIPAL OBLIGATIONS
The Fund 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
A-1
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Appendix A (continued)
- -----------------------------------------------------------------
- ---------------
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 Fund will be considered illiquid securities unless the
Fund's Board of
Directors determines on an on-going basis that the leases are
readily
marketable. Certain municipal lease obligations contain "non-
appropriation"
clauses which provide that the municipality has no obligation to
make lease or
installment purchase payments in future years unless money is
appropriated for
such purpose on a yearly basis. In the case of a "non-
appropriation" lease, the
Fund'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 Fund
will not
invest more than 5% of its assets in such "non-appropriation"
municipal lease
obligations.
ZERO COUPON OBLIGATIONS
The Fund 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 Fund, SBMFM believes that limited
investments in such
securities may facilitate the Fund'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 Fund may purchase floating and variable rate municipal
notes and bonds,
which frequently permit the holder to demand payment of principal
at any time,
or
A-2
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Appendix A (continued)
- -----------------------------------------------------------------
- ---------------
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 Fund, although the Fund may be able to
obtain payment of
principal at face value by exercising the demand feature of the
obligation.
PARTICIPATION INTERESTS
The Fund 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 Fund an undivided
interest in a
municipal bond owned by a bank. The Fund 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
Fund'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
Fund 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 Fund's participation
interest, plus accrued
interest. Generally, the Fund intends to exercise the demand
under the letters
of credit or other guarantees only upon a default under the terms
of the
underlying bond, or to maintain the Fund'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 Fund
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 Fund 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.
A-3
<PAGE>
Greenwich Street Municipal Fund Inc.
- -----------------------------------------------------------------
- ---------------
Appendix A (continued)
- -----------------------------------------------------------------
- ---------------
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 Fund would
be typically
authorized to assert its rights directly against the issuer of
the underlying
obligation, the Fund 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 Fund may
be subject to delays, expenses and risks that are greater than
those that would
have been involved if the Fund 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 Fund 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 Fund may purchase both
Auction and
Residual Components.
Because the interest rate paid to holders of Residual
Components is
generally determined by subtracting the interest rate paid to the
holders of
Auction Components from a fixed amount, the interest rate paid to
Residual
component holders will decrease as the Auction Component's rate
increases and
increase as the Auction Component's rate decreases. Moreover, the
extent of the
increases and decreases in market value of Residual Components
may be larger
than comparable changes in the market value of an equal principal
amount of a
fixed rate Municipal Obligation having similar credit quality,
redemption
provisions and maturity.
A-4
PART B
Greenwich Street Municipal Fund Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
September 30, 1996
Greenwich Street Municipal Fund Inc. (the "Fund") 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 Fund will, in seeking its investment
objective, invest substantially all of its assets in long-term,
investment grade obligations issued by state and local
governments, political subdivisions, agencies and public
authorities ("Municipal Obligations"). No assurance can be given
that the Fund 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 Fund, dated September 30, 1996, as amended or
supplemented from time to time (the "Prospectus"), and should be
read in conjunction with the Prospectus. The Prospectus may be
obtained from any Smith Barney Financial Consultant or by writing
or calling the Fund 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 Fund or the Fund's
investment manager. 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 the Fund's Common Stock
("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 Fund 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
<TABLE>
<S> <C>
PAGE
Investment Objective and Policies 2
(see in the Prospectus
"Investment Objective and
Policies" and "Appendix A")
Management of the Fund (see in 13
the Prospectus "Management of
the Fund")
Taxes (see in Prospectus 17
"Taxation")
Stock Purchases and Tenders 21
Certain Provisions of the 22
Articles of Incorporation
Additional Information (see in 23
the Prospectus "Custodian and
Transfer Agent")
Appendix-- Description of A-1
Moody's, S&P and Fitch Ratings
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus discusses the Fund's investment objective and
the policies it employs to achieve that objective. The following
discussion supplements the description of the Fund's investment
policies in the Prospectus. The Fund'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
by investing substantially all of its assets in a variety of
Municipal Obligations. The Fund'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 Fund's outstanding voting
shares. No assurance can be given that the Fund's investment
objective will be achieved.
Use of Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") and Fitch
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 Fund also will rely upon
the independent advice of its investment manager, Greenwich
Street Advisors (the "Investment Manager"), a division of Smith
Barney Mutual Funds Management Inc. ("SBMFM"). Among the factors
that will also be considered by the Investment Manager in
evaluating potential Municipal Obligations to be held by the Fund
are the price, coupon and yield to maturity of the obligations,
the Investment Manager's assessment of the credit quality of the
issuer of the obligations, the issuer's available cash flow and
the related coverage ratios, the property, if any, securing the
obligations, and the terms of the obligations, including
subordination, default, sinking fund and early redemption
provisions. To the extent the Fund invests in lower-rated and
comparable unrated securities, the Fund's achievement of its
investment objective may be more dependent on the Investment
Manager's credit analysis of such securities than would be the
case for a portfolio consisting entirely of higher-rated
securities. The Appendix to this SAI contains information
concerning the ratings of Moody's, S&P and Fitch and their
significance.
Subsequent to its purchase by the Fund, 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 Fund. Neither event will require the sale of
such Municipal Obligations by the Fund, but the Investment
Manager will consider such event in its determination of whether
the Fund 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 Fund will attempt to use comparable
ratings as standards for its investments in accordance with its
investment objectives and policies.
The Fund will seek to invest substantially all of its assets
in Municipal Obligations, and under normal conditions at least
80% of the Fund's total assets will be invested in investment
grade Municipal Obligations.
The Fund may invest in Municipal Obligations rated as low as
Baa by Moody's or BBB by S&P or Fitch or in unrated Municipal
Obligations deemed by the Investment Manager to be of comparable
quality. Although such securities are considered investment
grade, they may be subject to greater risks than other higher-
rated investment grade securities.
While the market for Municipal Obligations is considered to
be generally adequate, the existence of limited markets for
particular lower-rated and comparable unrated securities may
diminish the Fund's ability to (1) obtain accurate market
quotations for purposes of valuing such securities and
calculating its net asset value and (2) sell the securities at
fair value to respond to changes in the economy or in the
financial markets. The market for certain lower-rated and
comparable unrated securities is relatively new and has not fully
weathered a major economic recession. Any such economic downturn
could adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon.
Taxable Investments
Under normal conditions, the Fund 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 Fund may invest
include: U.S. government securities; tax-exempt notes of
municipal issuers rated, at the time of purchase, no lower than
MIG1 by Moody's, SP-1 by S&P or F-1 by Fitch or, if not rated, by
issuers having outstanding unsecured debt then rated within the
three highest rating categories; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances
of domestic banks, domestic savings and loan associations and
similar institutions); commercial paper rated no lower than P-1
by Moody's, A-1 by S&P or F-l by Fitch or the equivalent from
another nationally recognized rating service or, if unrated, of
an issuer having an outstanding, unsecured debt issue then rated
within the three highest rating categories; and repurchase
agreements. At no time will the Fund's investments in bank
obligations, including time deposits, exceed 25% of the value of
its assets.
U.S. government securities in which the Fund may invest
include direct obligations of the United States and obligations
issued by U.S. government agencies and instrumentalities.
Included among direct obligations of the United States are
Treasury bills, Treasury notes and Treasury bonds, which differ
principally in terms of their maturities. Included among the
securities issued by U.S. government agencies and
instrumentalities are: securities that are supported by the full
faith and credit of the United States (such as Government
National Mortgage Association certificates); securities that are
supported by the right of the issuer to borrow from the U.S.
Treasury (such as securities of Federal Home Loan Banks); and
securities that are supported by the credit of the
instrumentality (such as Federal National Mortgage Association
and Federal Home Loan Mortgage Corporation bonds).
Lending Securities
By lending its securities, the Fund 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 Fund will
adhere to the following conditions whenever it lends its
securities: (1) the Fund 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 Fund must be able to terminate the loan at any time; (4) the
Fund 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 Fund 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 Fund's Board
of Directors must terminate the loan and retain the Fund's right
to vote the securities. From time to time, the Fund 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 Fund and that is acting as a
"finder."
Repurchase Agreements
The Fund may enter into repurchase agreements with certain
member banks of the Federal Reserve System and certain dealers on
the Federal Reserve Bank of New York's list of reporting dealers.
Under the terms of a typical repurchase agreement, the Fund 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 Fund to resell the obligation
at an agreed-upon price and time, thereby determining the yield
during the Fund's holding period. Under each repurchase
agreement, the selling institution will be required to maintain
the value of the securities subject to the repurchase agreement
at not less than their repurchase price. The Investment Manager,
acting under the supervision of the Fund's Board of Directors,
reviews on an ongoing basis the value of the collateral and the
creditworthiness of those banks and dealers with which the Fund
enters into such transactions. The Fund will bear a risk of loss
in the event that the other party to the transaction defaults on
its obligations and the Fund 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 Fund 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 Fund 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 Fund solely for
the purpose of hedging against changes in the value of its
portfolio securities due to anticipated changes in interest rates
and market conditions, and not for purposes of speculation.
Further, such investments will be made only in unusual
circumstances such as when the Investment Manager anticipates an
extreme change in interest rates or market conditions.
Municipal Obligation Index and Interest Rate Futures
Contracts. A Municipal Obligation index futures contract is an
agreement to take or make delivery of an amount of cash equal to
a specific dollar amount times the difference between the value
of the index at the close of the last trading day of the contract
and the price at which the index contract is originally written.
No physical delivery of the underlying Municipal Obligations in
the index is made. Interest rate futures contracts are contracts
for the future purchase or sale of specified interest rate
sensitive debt securities of the U.S. Treasury, such as U.S.
Treasury bills, bonds and notes, obligations of the Government
National Mortgage Association and bank certificates of deposit.
Although most interest rate futures contracts require the
delivery of the underlying securities, some settle in cash. Each
contract designates the price, date, time and place of delivery.
The purpose of the Fund's entering into a Municipal
Obligation index or interest rate futures contract, as the holder
of long-term Municipal Obligations, is to protect the Fund from
fluctuation in interest rates on tax-exempt securities without
actually buying or selling Municipal Obligations. The Fund will,
with respect to its purchases of financial futures contracts
establish a segregated account consisting of cash or cash
equivalents in an amount equal to the total market value of the
futures contracts less the amount of initial margin on deposit
for the contracts.
Unlike the purchase or sale of a Municipal Obligation, no
consideration is paid or received by the Fund upon the purchase
or sale of a futures contract. Initially, the Fund 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 Fund 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 Fund may elect to close the
position by taking an opposite position, which will operate to
terminate the Fund'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 Fund is subject to the Investment Manager's ability to
predict correctly movements in the direction of interest rates.
Such predictions involve skills and techniques which may be
different from those involved in the management of a long-term
Municipal Obligation portfolio. In addition, there can be no
assurance that a correlation would exist between movements in the
price of the Municipal Obligation index or the debt security
underlying the futures contract and movement in the price of the
Municipal Obligations which are the subject of the hedge. The
degree of imperfection of correlation depends upon various
circumstances, such as variations in speculative market demand
for futures contracts and Municipal Obligations and technical
influences on futures trading. The Fund'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 Fund 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 Fund would be required to make
daily cash payments of variation margin. In such circumstances,
an increase in the value of the portion of the Fund being hedged,
if any, may partially or completely offset losses on the futures
contract. As described above, however, there is no guarantee
that 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 Fund 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
Fund 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 Fund 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 Fund may have to sell securities at a time when it may be
disadvantageous to do so.
Options on Interest Rate Futures Contracts. The Fund 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 Fund 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 Fund.
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 Fund's purchase of put or call
options will be based upon predictions as to anticipated interest
rate trends by the Investment Manager, which could prove to be
inaccurate. Even if the Investment Manager's expectations are
correct, there may be an imperfect correlation between the change
in the value of the options and of the Fund's securities.
Municipal Obligations
General Information. Municipal Obligations generally are
understood to include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide
range of public facilities, refunding of outstanding obligations,
payment of general operating expenses and extensions of loans to
public institutions and facilities. Private activity bonds that
are issued by or on behalf of public authorities to obtain funds
to provide privately operated facilities are included within the
term Municipal Obligations if the interest paid thereon qualifies
as excludable from gross income (but not necessarily from
alternative minimum taxable income) for Federal income tax
purposes in the opinion of bond counsel to the issuer.
The yields on Municipal Obligations are dependent upon a
variety of factors, including general economic and monetary
conditions, general money market conditions, general conditions
of the Municipal Obligations market, the financial condition of
the issuer, the size of a particular offering, the maturity of
the obligation offered and the rating of the issue. Municipal
Obligations are also subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any,
that may be enacted by Congress or state legislatures extending
the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of the obligations or
upon the ability of municipalities to levy taxes. There is also
the possibility that as a result of litigation or other
conditions the power or ability of any one or more issuers to
pay, when due, principal of and interest on its, or their,
Municipal Obligations may be materially affected.
The net asset value of the Common Stock will change with
changes in the value of the Fund's portfolio securities. Because
the Fund 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 Fund can be expected to decrease and when prevailing
interest rates decrease, the value of the fixed-income securities
held by the Fund can be expected to increase. The value of the
fixed-income securities held by the Fund and thus the Fund's net
asset value, may also be affected by other economic, market and
credit factors.
From time to time, the Fund's investments may include
securities as to which the Fund, by itself or together with other
funds or accounts managed by the Investment Manager, holds a
major portion or all of an issue of Municipal Obligations.
Because relatively few potential purchasers may be available for
these investments and, in some cases, contractual restrictions
may apply on resales, the Fund may find it more difficult to
sell these securities at a time when the Investment Manager
believes it is advisable to do so.
When-Issued Securities. The Fund 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 Fund will purchase Municipal Obligations on a when-
issued basis only with the intention of actually acquiring the
securities, the Fund may sell these securities before the
settlement date if it is deemed advisable as a matter of
investment 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 Fund consisting
of cash or liquid debt securities equal to the amount of the when-
issued commitments will be established at the Fund's custodian
bank. For the purpose of determining the adequacy of the
securities in the account, the deposited securities will be
valued at market or fair value. If the market or fair value of
such securities declines, additional cash or securities will be
placed in the account on a daily basis so that the value of the
account will equal the amount of such commitments by the Fund.
Placing securities rather than cash in the segregated account may
have a leveraging effect on the Fund's net assets. That is, to
the extent the Fund remains substantially fully invested in
securities at the same time it has 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 Fund 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 Fund'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 Fund engages in when-issued transactions, it relies
on the seller to consummate the trade. Failure of the seller to
do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price 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
Fund 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 Fund may acquire will be both
rated and unrated. Rated leases that may be held by the Fund
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
Fitch). The Fund may acquire unrated issues that the Investment
Manager deems to be comparable in quality to rated issues in
which the Fund is authorized to invest. A determination by the
Investment Manager that an unrated lease obligation is comparable
in quality to a rated lease obligation will be made on the basis
of, among other things, consideration of whether the nature of
the leased equipment or other property is such that its ownership
or use is reasonably essential to a governmental function of the
issuing municipality. In addition, all such determinations made
by the Investment Manager will be subject to oversight and
approval by the Fund's Board of Directors.
Municipal leases held by the Fund will be considered
illiquid securities unless the Fund's Board of Directors
determines on an ongoing basis that the leases are readily
marketable. An unrated municipal lease with a non-appropriation
risk that is backed by an irrevocable bank letter of credit or an
insurance policy issued by a bank or insurer deemed by the
Investment Manager to be of high quality and minimal credit risk
is not deemed to be illiquid solely because the underlying
municipal lease is unrated, if the Investment Manager determines
that the lease is readily marketable because it is backed by the
letter of credit or insurance policy.
Investment Restrictions
The Fund has adopted certain fundamental investment
restrictions that may not be changed without the prior approval
of the holders of a majority of the Fund's outstanding voting
securities. A "majority of the Fund's outstanding voting
securities" for this purpose means the lesser of (1) 67% or more
of the shares of the Fund'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 Fund's portfolio.
Under its fundamental restrictions, the Fund may not:
Purchase securities other than Municipal Obligations and
Taxable Investments as those terms are described in the
Prospectus and this SAI.
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 Fund's borrowings exceed 5% of the value of its
total assets, the Fund will not make any additional investments.
Sell securities short or purchase securities on margin,
except for such short-term credits as are necessary for the
clearance of transactions, but the Fund may make margin deposits
in connection with transactions in futures and options on
futures.
Underwrite any issue of securities, except to the extent
that the purchase of Municipal Obligations may be deemed to be an
underwriting.
Purchase, hold or deal in real estate or oil and gas
interests, except that the Fund may invest in Municipal
Obligations secured by real estate or interests in real estate.
Invest in commodities, except that the Fund may enter into
futures contracts, including those relating to indexes and
options on futures contracts or indexes described in the
Prospectus and this SAI.
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 Fund's investment objective.
Issue senior securities.
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.
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 Fund to underwriters of newly issued
securities usually includes a concession paid by the issuer to
the underwriter, and purchases of after-market securities from
dealers normally are executed at a price between the bid and
asked prices. The Fund has paid no brokerage commissions since
its commencement of operations.
Allocation of transactions, including their frequency, to
various dealers is determined by the Investment Manager in its
best judgment and in a manner deemed fair and reasonable to
shareholders. The primary considerations are availability of the
desired security and the prompt execution of orders in an
effective manner at the most favorable prices. Subject to these
considerations, dealers that provide supplemental investment
research and statistical or other services to the Investment
Manager may receive orders for portfolio transactions by the
Fund. Information so received is in addition to, and not in lieu
of, services required to be performed by the Investment Manager,
and the fees of the Investment Manager are not reduced as a
consequence of their receipt of such supplemental information.
Such information may be useful to the Investment Manager in
serving both the Fund and other clients and, conversely,
supplemental information obtained by the placement of business of
other clients may be useful to the Investment Manager in carrying
out its obligations to the Fund.
The Fund 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 Fund may be at a disadvantage because of this limitation in
comparison with other investment companies which have a similar
investment objective but which are not subject to such
limitation.
While investment decisions for the Fund are made
independently from those of the other accounts managed by the
Investment Manager, investments of the type the Fund may make
also may be made by those other accounts. When the Fund and one
or more other accounts managed by the Investment Manager are
prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for sales will
be allocated in a manner believed by the Investment Manager to be
equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the
position obtained or disposed of by the Fund.
The Fund's Board of Directors will review periodically the
commissions paid by the Fund to determine if the commissions paid
over representative periods of time were reasonable in relation
to the benefits inuring to the Fund.
Portfolio Turnover
The Fund'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 Fund 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 Fund 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 periods
ended May 31, 1995 and 1996 the Fund's portfolio turnover rate
was 115% and 42%, respectively.
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain
of the organizations that provide services to the Fund. These
organizations are as follows:
<TABLE>
<S> <C>
Name Service
Greenwich Street Advisors Investment Manager
SBMFM Administrator
Smith Barney Distributor (Sponsor)
PNC Bank, N.A. Custodian
("PNC Bank")
First Data Investor Services Group, Inc. Transfer Agent
("First Data")
</TABLE>
These organizations and the functions they perform for the
Fund are discussed in the Prospectus and this SAI.
Directors and Executive Officers of the Fund
The overall management of the business and affairs of the
Fund is vested in its Board of Directors. The Board of Directors
approves all significant agreements between the Fund and persons
or companies furnishing services to it, including the Fund's
agreements with its investment manager, administrator, custodian
and transfer agent, dividend paying agent, registrar and plan
agent. The day-to day operations of the Fund are delegated to its
officers, the Investment Manager and SBMFM, subject always to the
investment objective and policies of the Fund and to general
supervision by the Fund's Board of Directors.
The Directors and executive officers of the Fund, their
addresses, together with information as to their principal
business occupations during the past five years, are shown below:
<TABLE>
<S> <C> <C>
Positions Held Principal Occupations
Name and Address With the Fund During Past 5 Years
**Heath B. Chairman of the Managing Director of
McLendon, age 63 Board, Smith Barney Inc.;
388 Greenwich Chief Executive Chairman of Smith Barney
Street Officer Strategy Advisers Inc.
New York NY 10013 and Director and President of SBMFM.
Prior to July 1993,
Senior Executive Vice
President of Shearson
Lehman Brothers Inc.;
Vice Chairman of Asset
Management Division of
Shearson Lehman Brothers
Inc.
*Charles F. Director Consultant; formerly
Barber, age 79 Chairman of the Board,
66 Glenwood Drive ASARCO Incorporated.
Greenwich, CT
06830
*Martin Brody, Director Retired. Vice Chairman
age 75 of the Board of
HMK Associates Restaurant Associates
Three ADP Corp.; Director of
Boulevard Jaclyn, Inc., an apparel
Roseland, NJ manufacturer.
07068
*Allan J. Director Consultant; formerly
Bloostein, age 67 Vice Chairman of the
27 West 67th Board of May Department
Street Stores Company; Director
Apt. 5FW of Crystal Brands, Inc.,
New York, NY Melville Corp., R.G.
10023 Barry Corp. and
Hechinger Co.
*Dwight B. Crane, Director Professor, Graduate
age 58 School of Business
Graduate School Administration, Harvard
of University. Director,
Business Peer Review Analysis,
Administration Inc.
Harvard
University
Soldiers Field
Road
Boston, MA 02163
*Robert A. Director Managing Partner of
Frankel, age 69 Robert A. Frankel
102 Grand Street Managing Consultants;
Croton-on-Hudson, formerly Vice President
New York, NY of The Reader's Digest
10520 Association, Inc.
*William R. Director Vice President,
Hutchinson, age 53 Financial Operations of
Amoco Corp. Amoco Corp.; Director of
200 East Randolph Associated Banks and
Drive Associated Banc-Corp.
Chicago, IL
60601
Jessica M. President Executive Vice President
Bibliowicz, age 36 of Smith Barney Inc.;
388 Greenwich Chairman and Chief
Street Executive Officer of
New York. NY SBMFM; prior to 1994,
10013 Director of Sales and
Marketing for Prudential
Mutual Funds.
Joseph P. Deane, Vice President Managing Director of
age 40 and SBMFM. Prior to July
388 Greenwich Investment 1993, Senior Vice
Street Officer President and Managing
New York. NY Director of Shearson
10013 Lehman Advisors.
David Fare, age Investment Vice President of SBMFM.
34 Officer Prior to July 1993, Vice
388 Greenwich President of Shearson
Street Lehman Advisors.
New York. NY
10013
Lewis E. Senior Vice Managing Director of
Daidone, age 38 President Smith Barney Inc.;
388 Greenwich and Treasurer Chief Financial Officer,
Street Director and Senior Vice
New York, NY President of SBMFM;
10105
Christina T. Secretary Managing Director of
Sydor, age 45 Smith Barney Inc.;
388 Greenwich General Counsel and
Street Secretary of SBMFM.
New York, NY
10013
</TABLE>
________________________________
*Directors who are "interested persons" of the Fund (as defined
in the 1940 Act).
* Director and/or trustee of other registered investment
companies with which Smith Barney is affiliated.
The Fund pays each of its Directors who is not a director,
officer or employee of SBMFM, or any of its affiliates, an annual
fee of $5,000 plus $500 for each in-person Board meeting and $100
for each telephonic Board meeting attended. In addition, the
Fund will reimburse these Directors for travel and out-of-pocket
expenses incurred connection with Board of Directors meetings.
For the fiscal year ended May 31, 1996, such fees totaled
$40,250.
<TABLE>
<S> <C> <C> <C>
Total Number of Funds
Total Compensation for which
Director Compensation from Fund and Director Serves
from Fund Fund Complex Within Fund
Complex
Charlse Barber* $7,000 $ 38,500 6
Martin Brody 7,000 112,700 19
Dwight Crane 7,000 143,350 22
Allan Bloostein 7,000 87,600 8
Robert Frankel 7,000 65,300 8
William R. 7,000 28,875 6
Hutchinson
Heath B. ----- ----- 42
McLendon
</TABLE>
*Pursuant to the Fund's deferred compensation plan, Mr. Barber
elected, effective January 2, 1996, to defer the payment of some
or all of the compensation due to him from the Fund.
Principal Stockholders
There are no persons known to the Fund to be "control
persons" of the Fund, as such term is defined in Section 2(a)(9)
of the 1940 Act. There is no person known to the Fund to hold
beneficially more than 5% of the outstanding shares of Common
Stock. The following person is the only person holding more than
5% of the Fund's outstanding shares of Common Stock as of
September 3, 1996:
<TABLE>
<S> <C> <C>
Percent of
Amount of Common
Name and Address Record Stock
of Record Owner Ownership Outstanding
Cede & Co., as Nominee for
19,209,752 98.22%
The Depository Trust Company
P.O. Box 20
Bowling Green Station
New York, New York 10004
</TABLE>
17,107,835 of the shares held of record by Cede & Co.,
representing 87.47% 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 September 3, 1996, the Directors and officers of the
Fund, as a group, beneficially owned less than 1% of the Fund's
outstanding shares of Common Stock.
Investment Manager and Administrator
The Investment Manager serves as investment adviser to the
Fund pursuant to a written agreement dated July 30, 1993 (the
"Advisory Agreement"), a form of which was most recently approved
by the Board of Directors, including a majority of those
Directors who are not "interested persons" of the Fund or the
Investment Manager ("Non-Interested Directors") on August 21,
1996. Unless terminated sooner, the Advisory Agreement will
continue for successive annual periods provided that such
continuance is specifically approved at least annually: (1) by a
majority vote of the Non-Interested Directors cast in person at a
meeting called for the purpose of voting on such approval; and
(2) by the Board of Directors or by a vote of a majority of the
outstanding shares of Common Stock. The Investment Manager is a
division of SBMFM, which is in turn a wholly owned subsidiary of
Smith Barney Holdings Inc. ("Holdings"), which is in turn a
wholly owned subsidiary of Travelers Group Inc. The Investment
Manager pays the salary of any officer or employee who is
employed by both it and the Fund. The Investment Manager bears
all expenses in connection with the performance of its services
as investment adviser.
For services rendered to the Fund, the Investment Manager
receives a fee from the Fund, computed and paid monthly at the
annual rate of 0.70% of the value of the Fund's average daily net
assets. For the fiscal periods ended May 31, 1995 and 1996, such
fees amounted to $1,521,137 and $1,737,608, respectively.
Under the Advisory Agreement, the Investment Manager will
not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the Advisory
Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Manager
in the performance of its duties or from reckless disregard of
its duties and obligations under the Advisory Agreement. The
Advisory Agreement is terminable by vote of the Board of
Directors or by the holders of a majority of the Common Stock, at
any time without penalty on 60 days' written notice to the
Investment Manager. The Advisory Agreement may also be
terminated by the Investment Manager on 90 days' written notice
to the Fund. The Advisory Agreement terminates automatically
upon its assignment.
SBMFM serves as administrator to the Fund pursuant to a
written agreement dated June 1, 1994 (the "Administration
Agreement"), a form of which was most recently approved by the
Board of Directors, including a majority of Non-Interested
Directors, on August 21, 1996. The Administration Agreement will
continue automatically for successive annual periods provided
that such continuance is approved at least annually by the Board
of Directors of the Fund including a majority of the Non-
Interested Directors by vote cast in person at a meeting called
for the purpose of voting such approval. The Agreement is
terminable, without penalty, upon 60 days' written notice, by the
Board of Directors of the Fund or by vote of holders of a
majority of the Fund's shares of Common Stock, or upon 90 days'
written notice, by SBMFM. The services provided by SBMFM under
the Administration Agreement are described in the Prospectus
under "Management of the Fund."
For services rendered to the Fund, SBMFM receives from the
Fund an administration fee computed and paid monthly at the
annual rate of 0.20% of the value of the Fund's average daily
assets. For the fiscal periods ended May 31, 1995 and 1996,
SBMFM received $434,610 and $496,459, respectively, in
administration fees.
Pursuant to the Administration Agreement, SBMFM will
exercise its best judgment in rendering its services to the Fund.
SBMFM will 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 the Administration Agreement relates, except by
reason of SBMFM's reckless disregard of its obligations and
duties under the Administration Agreement.
The Fund bears expenses incurred in its operation including:
fees of the Investment Manager and SBMFM; 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; costs of shareholders' reports and
corporate meetings of the officers, Board of Directors and
shareholders of the Fund.
TAXES
As described above and in the Prospectus, the Fund is
designed to provide investors with current income which is
excluded from gross income for Federal income tax purposes. The
Fund is not intended to constitute a balanced investment program
and is not designed for investors seeking capital gains or
maximum tax-exempt income irrespective of fluctuations in
principal. Investment in the Fund would not be suitable for tax-
exempt institutions, qualified retirement plans, H.R. 10 plans
and individual retirement accounts 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 Fund 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 Fund.
Taxation of the Fund and its Investments
The Fund 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
Fund 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
Fund, to retain that tax-exempt status when distributed to the
shareholders of the Fund (that is, to be classified as "exempt
interest" dividends of the Fund).
If it qualifies as a regulated investment company the Fund
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 Fund
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 Fund'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 Fund (a) at least 50% of the market value of the
Fund'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
Fund's assets and (b) not more than 25% of the market value of
the Fund'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 Fund 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 Fund may be restricted in the
selling of securities held by the Fund 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 Fund will be subject to a 4%
non-deductible excise tax measured with respect to certain
undistributed amounts of ordinary income and capital gain. The
Fund 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
Fund 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 Fund anticipates that these investment
activities will not prevent the Fund from qualifying as a
regulated investment company. As a general rule, these investment
activities will increase or decrease the amount of long-term and
short-term capital gains or losses realized by the Fund and,
thus, will affect the amount of capital gains distributed to the
Fund 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 Fund 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 Fund and the
amount of distributions taxable to a shareholder. Moreover, if
the Fund invests in both Section 1256 Contracts and offsetting
positions in those contracts, then the Fund might not be able to
receive the benefit of certain realized losses for an
indeterminate period of time. The Fund expects that its
activities with respect to Section 1256 Contracts and offsetting
positions in those Contracts (1) will not cause the Fund or its
shareholders to be treated as receiving a materially greater
amount of capital gains or distributions than actually realized
or received and (2) will permit the Fund to use substantially all
of its losses for the fiscal years in which the losses actually
occur.
Taxation of the Fund's Shareholders
The Fund 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 Fund satisfies certain asset
percentage requirements. Dividends paid from the Fund's net
investment income and distributions of the Fund's net realized
short-term capital gains are taxable to shareholders of the Fund
as ordinary income, regardless of the length of time shareholders
have held shares of Common Stock and whether the dividends or
distributions are received in cash or reinvested in additional
shares. As a general rule, a shareholder's gain or loss on a sale
of his or her shares of Common Stock will be a long-term gain or
loss if he or she has held his or her shares for more than one
year and will be a short-term capital gain or loss if he or she
has held his or her shares for one year or less. Dividends and
distributions paid by the Fund 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 Fund that represents income derived from
private activity bonds held by the Fund 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 Fund's exempt-interest
dividends may be excluded by shareholders from their gross income
for Federal income tax purposes (1) some or all of the Fund'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 Fund may affect a
corporate shareholder's Federal "environmental" tax liability.
The receipt of dividends and distributions from the Fund 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 Fund 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 Fund 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 Fund. The
Fund will notify shareholders annually as to the interest
excluded from Federal income taxes earned by the Fund with
respect to those states and possessions in which the Fund has or
had investments. The dollar amount of dividends paid by the Fund
that is excluded from Federal income taxation and the dollar
amount of dividends paid by the Fund 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
Fund. To the extent that the Fund earns taxable net investment
income, it intends to designate as taxable dividends the same
percentage of each day's dividend as its taxable net investment
income bears to its total net investment income earned on that
day. Therefore, the percentage of each day's dividend designated
as taxable, if any, may vary from day to day.
Backup Withholding
If a shareholder fails to furnish a correct taxpayer
identification number, fails to report fully dividend or interest
income, or fails to certify that he has provided a correct
taxpayer identification number and that he is not subject to
"backup withholding," the shareholder may be subject to a 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 Fund may repurchase shares of its Common Stock in the
open market or in privately negotiated transactions when the Fund
can do so at prices below their then current net asset value per
share on terms that the Fund's Board of Directors believes
represent a favorable investment opportunity. In addition, the
Board of Directors currently intends to consider, at least once a
year, making an offer to each shareholder of record to purchase
at net asset value shares of Common Stock owned by the
shareholder.
No assurance can be given that repurchases and/or tenders
will result in the Fund's shares trading at a price that is equal
to their net asset value. The market prices of the Fund's shares
will, among other things, be determined by the relative demand
for and supply of the shares in the market, the Fund's investment
performance, the Fund's dividends and yield and investor
perception of the Fund's overall attractiveness as an investment
as compared with other investment alternatives. The Fund's
acquisition of Common Stock will decrease the total assets of the
Fund and therefore have the effect of increasing the Fund's
expense ratio. The Fund 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 Fund's
net income. Because of the nature of the Fund's investment
objective, policies and securities holdings, the Investment
Manager does not anticipate that repurchases and tenders will
have an adverse effect on the Fund'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 Fund'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 or her
for Federal income tax purposes under Section 38 of the Code). A
shareholder who tenders all shares owned or considered owned by
him or her, as required, will realize a taxable gain or loss
depending upon his or her basis in his or her shares.
If the Fund liquidates securities in order to repurchase
shares of Common Stock, the Fund may realize gains and losses.
These gains, if any, may be realized on securities held for less
than three months. Because the Fund must derive less than 30% of
its gross income for any taxable year from the sale or
disposition of stock and securities held less than three months
(in order to retain the Fund's regulated investment company
status under the Code), gains realized by the Fund 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 Fund could realize in the
ordinary course of its portfolio management, which may adversely
affect the Fund's performance. The portfolio turnover rate of the
Fund may or may not be affected by the Fund's repurchases of
shares of Common Stock pursuant to a tender offer.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Fund'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 Fund or to change the
composition of its Board of Directors and could have the
effective of depriving shareholders of an opportunity to sell
their shares of Common Stock at a premium over the prevailing
market prices by discouraging a third party from seeking to
obtain control of the Fund. The Board of Directors is divided
into three classes. At each annual meeting of shareholders, the
term of one class will expire and each Director elected to the
class will hold office for a term of three years. The
classification of the Board of Directors in this manner could
delay for up to two years the replacement of majority of the
Board. The Articles of Incorporation provide that the maximum
number of Directors that may constitute the Fund's entire board
is 12. A Director may be removed from office, or the maximum
number of Directors increased, only by vote of the holders of at
least 75% of shares of Common Stock entitled to be voted on the
matter.
The Fund'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 Fund 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 Fund's Articles of Incorporation providing
for the conversion of the Fund.
The affirmative votes of a least 75% of the Directors and
the holders of at least 75% of the shares of the Fund 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 Fund with or into any
other person (referred to individually as a "Reorganization
Transaction"): (2) the issuance or transfer by the Fund (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 combinations thereof)
having an aggregate fair market value of $1 million or more,
excluding sales of securities of the Fund in connection with a
public offering, issuance of securities of the Fund pursuant to a
dividend reinvestment plan adopted by the Fund and issuances of
securities of the Fund upon the exercise of any stock
subscriptions rights distributed by the Fund: or (3) a sale,
lease, exchange, mortgage, pledge, transfer or other disposition
by the Fund (in one or a series of transactions in any 12-month
period) to or with any person of any assets of the Fund having an
aggregate fair market value of $1 million or more, except for
transactions in securities effected by the Fund 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 Fund or any amendment
to the Fund'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
Fund's assets.
A 75% shareholder vote will not be required with respect to
a Business Combination if the transaction is approved by a vote
of a least 75% of the Continuing Directors (as defined below) or
if certain conditions regarding the consideration paid by the
person entering into, or proposing to enter into, a Business
Combination with the Fund and various other requirements are
satisfied. In such case, a majority of the votes entitled to be
cast by shareholders of the Fund will be required to approve the
transaction if it is a Reorganization Transactions or a Transfer
Transaction that involves substantially all of the Fund'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
Fund will be required to approve the transaction.
The voting provisions described above could have the effect
of depriving shareholders of the Fund of an opportunity to sell
their Common Stock at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the
Fund in a tender offer or similar transaction. In the view of
the Fund's Board of Directors, however, these provisions offer
several possible advantages including: (1) requiring persons
seeking control of the Fund to negotiate with its management
regarding the price to be paid for the amount of Common Stock
required to obtain control: (2) promoting continuity and
stability; and (3) enhancing the Fund's ability to pursue long-
term strategies that are consistent with its investment objective
and management policies. The Board of Directors has determined
that the voting requirements under Maryland law and the 1940 Act
are in the best interests of shareholders generally.
A "Continuing Director," as used in the discussion above, is
any member of the Fund's Board of Directors (1) who is not person
or affiliate of a person who enters or proposes to enter into a
Business Combination with the Fund (such person or affiliate
being referred to individually as an "Interested Party") and (2)
who has been a member of the Board of Directors for a period of
least 12 months, or is a successor of a Continuing Director who
is unaffiliated with an Interested Party and is recommended to
succeed a Continuing Director by a majority of the Continuing
Directors.
ADDITIONAL INFORMATION
Legal Matters
Willkie Farr & Gallagher serves as legal counsel to the
Fund. The Directors who are not "interested persons" of the Fund
have selected Stroock & Stroock & Lavan as their counsel.
Independent Public Accountants
KPMG Peat Marwick, LLP, 345 Park Avenue, New York, NY 10154,
has been selected as the Fund's independent auditor to examine
and report on the Fund's financial statements and highlights for
the fiscal year ending May 31, 1997.
Custodian and Transfer Agent
PNC Bank, N.A. is located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103 and serves as the Fund's
custodian pursuant to a custody agreement. Under the custody
agreement, PNC Bank holds the Fund's securities and keeps all
necessary accounts and records. The assets of the Fund are held
under bank custodianship in compliance with the 1940 Act. First
Data is located at One Exchange Place, 53 State Street, Boston,
Massachusetts 02109, and pursuant to a transfer agency agreement
serves as the Fund's transfer agent. Under the transfer agency
agreement, First Data maintains the shareholder account records
for the Fund, handles certain communications between shareholders
and the Fund, and distributes dividends and distributions payable
by the Fund.
FINANCIAL STATEMENTS
The Fund sends unaudited semi-annual and audited annual
financial statements of the Fund to shareholders, including a
list of the investments held by the Fund.
The Fund's Annual Report for the fiscal year ended May 31,
1996 and its semi-annual report for the six month period ended
November 30, 1995 are incorporated into this SAI by reference in
their entirety. A copy of these Reports may be obtained from any
Smith Barney Financial Consultant or by calling or writing to the
Fund at the telephone number or address set forth on the cover
page of this SAI.
APPENDIX
DESCRIPTION OF MOODY'S, S&P AND FITCH RATINGS
Description of Moody's Municipal Bond Ratings:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality, carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments with
respect to these bonds are protected by a large or by an
exceptionally stable margin, and principal is secure. Although
the various protective elements applicable to these bonds are
likely to change, those changes are most unlikely to impair the
fundamentally strong position of these bonds.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards and together with the Aaa group comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude, or other elements may be present that make
the long-term risks appear somewhat larger than in Aaa securities
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
with respect to these bonds are considered adequate, but elements
may be present that suggest a susceptibility to impairment
sometime in the fixture.
Baa - Bonds rated Baa are considered to be medium grade
obligations, that is they are neither highly protected nor poorly
secured. Interest payment and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and
may have speculative characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B. The modifier 1
indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
Description of Moody's Municipal Note Ratings:
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade (MIG)
and for variable demand obligations are designated Variable
Moody's Investment Grade (VMIG). This distinction recognizes the
differences between short- and long-term credit risk. Loans
bearing the designation MIG1/VMIG1 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 MIG2/VMIG2 are of high quality, with margins of
protection ample, although not as large as the preceding group.
Loans bearing the designation MIG3/VMIG3 are of favorable
quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well
established.
Description of Moody's Commercial Paper Ratings:
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Issuers rated Prime-1 (or related supporting
institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated
Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of short-term promissory
obligations, normally evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity
is maintained.
Description of S&P Municipal Bond Ratings:
AAA - These bonds are the obligations of the highest quality and
have the strongest capacity for timely payment of debt service.
General Obligation Bonds Rated AAA - In a period of economic
stress the issuers of these bonds will suffer the smallest
declines in income and will be least susceptible to autonomous
decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure
requirements. Quality of management appears superior.
Revenue Bonds Rated AAA - Debt service coverage with respect to
these bonds has been, and is expected to remain, substantial.
Stability of the pledged revenues is also exceptionally strong
due to the competitive position of the municipal enterprise or to
the nature of the revenues. Basic security provisions (including
rate covenant, earnings test for issuance of additional bonds,
debt service reserve requirements) are rigorous. There is
evidence of superior management
AA - The investment characteristics of bonds in this group are
only slightly less marked than those of the prime quality issues.
Bonds rated AA have the second strongest capacity for payment of
debt service
A - Principal and interest payments on bonds in this category are
regarded as safe although the bonds are somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than bonds in high rated categories. This rating
describes the third strongest capacity for payment of debt
service.
General Obligation Bonds Rated A - There is some weakness either
in the local economic base in debt burden, in the balance between
revenues and expenditures or in quality of management. Under
certain adverse circumstances, any one such weakness might impair
the ability of the issuer to meet debt obligations at some 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-l by S&P indicates that the degree
of safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety
characteristics are denoted A-1+. Capacity for timely payment of
commercial paper rated A-2 is stronger but the relative degree of
safety is not as high as issues designated A-1.
Description of Fitch Municipal Bond Ratings:
AAA - Bonds rated AAA by Fitch are considered to be investment
grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable
events.
AA - Bonds rated AA by Fitch are considered to be investment
grade and of high credit quality. The obligor's ability to pay
interest and repay principal, while very strong, is somewhat less
than for AAA rated securities or more subject to to possible
change over the term of the issue.
A - Bonds rated A by Fitch are considered to be investment grade
and of high credit quality. The obligor's ability to pay interest
and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings
BBB - Bonds rated BBB by Fitch are considered to be investment
grade and of satisfactory credit quality. The obligor's ability
to pay interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse consequences on these
bonds, and therefore impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
Plus and minus signs are used by Fitch to indicate the
relative position of a credit within a rating category. Plus and
minus signs, however, are not used in the AAA category.
Description of Fitch Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that
are payable on demand or have original maturities of generally up
to three years, including commercial paper, certificates of
deposit, medium-term notes, and municipal investment notes.
The short-term rating places greater emphasis than a long-
term rating on the existence of liquidity necessary to meet the
issuer's obligations in a timely manner.
Fitch's short-term ratings are as follows:
F-l + - Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
F-2 - Issues assigned this rating have a satisfactory degree of
assurance for timely payment but the margin of safety is not as
great as for issues assigned F- 1+ and F-1 ratings.
F-3 - Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate,
although near-term adverse changes could cause these securities
to be rated below investment grade.
LOC- The symbol LOC indicates that the rating is based on a
letter of credit issued by a commercial bank.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
Parts A
and B
(a) - Report of Independent Accountants.
Part C - None.
(2) Exhibits
(a) (1) - Articles of Incorporation of Registrant.*
(2) - Articles of Amendment.**
(b) - By-Laws of Registrant.*
(c) - Not applicable.
(d) - Form of Specimen certificate representing shares
of Common Stock, par value $.001 per share.
(e) - Registrant's Dividend Reinvestment Plan.***
(f) - Not applicable.
(g) - Form of Investment Management Agreement.****
(h) (1) - Form of Purchase Agreement.***
(2) - Form of Underwriting Agreement.****
(i) - Not applicable.
(j) (1) - Form of Custody Agreement.
(2) - Form of Transfer Agency and Registrar Agreement.***
(k) - Not applicable.
(l) (1) - Opinion and consent of Willkie Farr &
Gallagher.****
(2) - Opinion and consent of Venable, Baetjer and
Howard.****
(m) - Not applicable.
(n) - Consent of KPMG Peat Marwick.****
(o) - Not applicable.
(p) - Not applicable.
(q) - Not applicable.
Item 25. Marketing Arrangements
See the Forms of Purchase Agreement and Underwriting Agreement
filed as Exhibits (h)(1) and (2).
___________________
* Incorporated by reference to Registrant's initial Registration
Statement filed with the Commission on February 19, 1993.
**Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement files with the Commission
on April 19, 1994.
*** Incorporated by reference to Pre-Effective Amendment No.
2 to Registrant's Registration Statement filed with the
Commission on May 19, 1994.
**** Incorporated by reference to Pre-Effective Amendment No. 3
to Registrant's Registration Statement filed with
the Commission on June 16, 1994.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses expected
to be incurred in connection with the offering described in this
Registration Statement:
SEC Registration fees $
0.00
National Associations of Securities Dealers, Inc. fees $
0.00
New York Stock Exchange listing fee $ 0.00
Printing (other than stock certificates) and related delivery
expenses $5,000.00
Engraving and printing stock certificates $ 0.00
Fees and expenses of qualification under state securities laws
(including fees of
counsel) $ 0.00
Legal fees and expenses $3,500.00
Travel and related out-of pocket expenses and miscellaneous
$ 0.00
Accounting.......................................................
......................................................... $
15,000.00
Miscellaneous....................................................
........................................................$
17,543.00
Total $41,043.00
Item 27. Person Controlled by or Under Common Control
None
Item 28. Number of Holders of Securities
The number of record holders of Registrant as of September 20,
1996 is as follows:
(1) Title of Class:
Common Stock, $.001 par value
(2) Number or Record Holders: 441
Item 29. Indemnification
Under Article Seventh of Registrant's Articles of
Incorporation, any past or present director or officer of
Registrant is indemnified to the fullest extent permitted by the
Maryland General Corporation Law ("MGCL") against liability and
all expenses reasonably incurred by him in connection with any
action, suite 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 to is currently acting and its former
Directors and officers, to the fullest extent that
indemnification of directors is permitted by the MGCL, the 1933
Act and the 1940 Act, in advance of the final disposition of any
action, suit or proceeding. The Board may be bylaw, resolution
or agreement make further provision for indemnification of
Directors, officers, employees and agents to the fullest extent
permitted by the MGCL.
Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers and controlling
person of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that, in the opinion of
the SEC, such indemnification is against public policy as
expressed in the 1933 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 of whether such
indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of
such issue.
Item 30. Business and Other Connections of the Investment Adviser
Greenwich Street Advisers, through its predecessors, has been
in the investment counseling business since 1934 and is a
division of Mutual Management Corp. ("MMC"). MMC was incorporated
in 1978 and is a wholly owned subsidiary of Smith Barney Holdings
Inc. ("Holdings"), which is in turn a wholly owned subsidiary of
The Travelers Inc. ("Travelers") (formerly known as Primerica
Corporation).
The list required by this Item 30 of officers and directors of
MMC and Greenwich Street Advisors, together with information as
to any other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors
during the past two fiscal years, is incorporated by reference to
Schedules A and D of FORM ADV filed by MMC on behalf of Greenwich
Street Advisors pursuant to the Advisers Act (SEC File No. 801-
14437).
Item 31. Location of Accounts and Records
Each Person maintaining physical possession of accounts, books
and other documents required to be maintained pursuant to Section
31(a) of the 1940 Act is listed below:
(1) Greenwich Street Advisors
388 Greenwich Street
New York, NY 10013
(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvannia 19103
(4) First Data Invvestor Services Group, Inc.
One Exchange Place, 53 State Street
Boston, Massachusetts 02109
Item 32. Management Services
Not applicable
Item 33. Undertakings
(1) Registrant undertakes to suspend offering shares of Common
Stock covered by this Registration Statement until it amends the
Prospectus contained in this Registration Statement if (i)
subsequent to the effective date of this Registration Statement,
its net asset value per share declines more than 10 percent from
its net asset value per share as of the effective date of this
Registration Statement or (ii) its net asset value increases to
an amount greater than its net proceeds as stated in the
Prospectus contained in this Registration Statement.
(2) Registrant undertakes to file a post-effective amendment
with certified financial statements showing the initial capital
received before it accepts subscriptions from more than 25
persons if Registrant proposes to raise its initial capital under
Section 14(a)(3) of the 1940 Act.
(3) Not applicable.
(4) Not applicable.
(5) Registrant undertakes that:
(a) For purposes of determining any liability under the
1933 Act, the information omitted from the form of
Prospectus filed as part of this Registration Statement
in reliance upon Rule 430A under the 1933 Act and
contained in the form of Prospectus filed by Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
1933 Act shall be deemed to part of this Registration
Statement as of the time it was declared effective.
(b) For the purpose of determine any liability under the
1933 Act, each post-effective amendment that contains the
form of Prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of the securities at that time
will be deemed to be the initial bone fide offering
thereof.
(6) Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
the Registrant, GRREN WICH STREET MUNICIPAL FUND INC., has duly
caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, State of New York on the
27th day of September, 1996.
GREENWICH STREET MUNICIPAL
FUND INC.
/s/Heath B.
McLendon
Heath
B. McLendon, Chairman
of the Board.
We, the undersigned, hereby severally constitute and appoint
Heath B. McLendon, Christina T. Sydor and Michael Kocur and each
of them singly, our true and lawful attorney, with full power
to them and each of them to sign for us, and in our hands and
in the capacities indicated below, any and all 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 authority and
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 have been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/Heath B. McLendon
Heath B. McLendon Chairman of the Board
9/27/96
(Chief Executive Officer)
/s/Lewis E. Daidone
Lewis E. Daidone Treasurer (Chief
Financial 9/27/96
and Accounting Officer)
/s/Charlse Barber
Charlse Barber Director
9/27/96
/s/Martin Brody
Martin Brody Director
9/27/96
/s/Dwight Crane
Dwight Crane Director
9/27/96
/s/Allan Bloostein
Allan Bloostein Director
9/27/96
/s/Robert Frankel
Robert Frankel Director
9/27/96
/s/William B. Hutchinson
William B. Hutchinson Director
9/27/96
Independent Auditors' Consent
To the Shareholders and Directors of Greenwich Street Municipal
Fund Inc.:
We consent to the use of our report dated July 12, 1996
incorporated herein by reference and to the references to our
Firm under the headings "Financial Highlights" and "Experts"
in the Prospectus and "Independent Public Accountants" in the
Statement of Additional Information.
KPMG PEAT MARWICK LLP
New York, New York
September 30, 1996
CUSTODY AGREEMENT
Agreement made as of this day of
, 1994,
between Greenwich Street Municipals Portfolio
Inc, a corporation organized
and existing under the laws of the
State of Maryland, having its
principal office and place of business at 388
Greenwich Street, New York,
NY 10013 (hereinafter called the "Fund"), and
PNC Bank, National Association
Pennsylvania corporation authorized to do banking
business, hav-
ing its principal office and place of
business at 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103
(hereinafter called the
"Custodian").
W I T N E S S E T H :
that for and in consideration of the
mutual promises
hereinafter set forth, the Fund and the
Custodian agree as
follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the
following words and
phrases, unless the context otherwise requires,
shall have the
following meanings:
1. "Book-Entry System" shall mean
the Federal
Reserve/Treasury book-entry system for United
States and
federal agency securities, its successor or
successors and its
nominee or nominees.
2. "Call Option" shall mean an exchange
traded option
with respect to Securities other than Stock
Index Options,
Futures Contracts, and Futures Contract Options
entitling the
holder, upon timely exercise and payment of
the exercise
price, as specified therein, to purchase from
the writer
thereof the specified underlying Securities.
3. "Certificate" shall mean any notice,
instruction, or
other instrument in writing, authorized or
required by this
Agreement to be given to the Custodian
which is actually
received by the Custodian and signed on behalf of
the Fund by
any two Officers, and the term Certificate shall
also include
instructions by the Fund to the Custodian
communicated by a
Terminal Link.
4. "Clearing Member" shall mean a
registered
broker-dealer which is a clearing member under
the rules of
O.C.C. and a member of a national
securities exchange
qualified to act as a custodian for an investment
company, or
any broker-dealer reasonably believed by the
Custodian to be
such a clearing member.
5. "Collateral Account" shall mean a
segregated account
so denominated which is specifically allocated to
a Series and
pledged to the Custodian as security for, and in
consideration
of, the Custodian's issuance of (a) any Put
Option guarantee
letter or similar document described in paragraph
8 of Article
V herein, or (b) any receipt described in
Article V or VIII
herein.
6. "Covered Call Option" shall mean an
exchange traded
option entitling the holder, upon timely
exercise and payment
of the exercise price, as specified therein, to
purchase from
the writer thereof the specified
underlying Securities
(excluding Futures Contracts) which are owned by
the writer
thereof and subject to appropriate restrictions.
7. "Depository" shall mean The Depository
Trust Company
("DTC"), a clearing agency registered with the
Securities and
Exchange Commission, its successor or
successors and its
nominee or nominees. The term "Depository" shall
further mean
and include any other person authorized to act as
a depository
under the Investment Company Act of 1940, its
successor or
successors and its nominee or nominees,
specifically identi-
fied in a certified copy of a resolution of the
Fund's Board
of Trustees specifically approving deposits
therein by the
Custodian.
8. "Financial Futures Contract" shall
mean the firm
commitment to buy or sell fixed income
securities including,
without limitation, U.S. Treasury Bills, U.S.
Treasury Notes,
U.S. Treasury Bonds, domestic bank
certificates of deposit,
and Eurodollar certificates of deposit, during
a specified
month at an agreed upon price.
9. "Futures Contract" shall mean a
Financial Futures
Contract and/or Stock Index Futures Contracts.
10. "Futures Contract Option" shall mean an
option with
respect to a Futures Contract.
11. "Margin Account" shall mean a
segregated account in
the name of a broker, dealer, futures commission
merchant, or
a Clearing Member, or in the name of the Fund
for the benefit
of a broker, dealer, futures commission merchant,
or Clearing
Member, or otherwise, in accordance with an
agreement between
the Fund, the Custodian and a broker, dealer,
futures commis-
sion merchant or a Clearing Member (a "Margin
Account Agree-
ment"), separate and distinct from the custody
account, in
which certain Securities and/or money of the
Fund shall be
- 2 -
deposited and withdrawn from time to time in
connection with
such transactions as the Fund may from
time to time
determine. Securities held in the Book-Entry
System or the
Depository shall be deemed to have been
deposited in, or
withdrawn from, a Margin Account upon the
Custodian's effect-
ing an appropriate entry in its books and
records.
12. "Money Market Security" shall be
deemed to include,
without limitation, certain Reverse Repurchase
Agreements,
debt obligations issued or guaranteed as to
interest and
principal by the government of the United States
or agencies
or instrumentalities thereof, any tax, bond
or revenue
anticipation note issued by any state or
municipal government
or public authority, commercial paper,
certificates of deposit
and bankers' acceptances, repurchase agreements
with respect
to the same and bank time deposits, where the
purchase and
sale of such securities normally requires
settlement in
federal funds on the same day as such purchase or
sale.
13. "O.C.C." shall mean the Options
Clearing Corpora-
tion, a clearing agency registered under Section
17A of the
Securities Exchange Act of 1934, its successor
or successors,
and its nominee or nominees.
14. "Officers" shall be deemed to include
the President,
any Vice President, the Secretary, the Clerk,
the Treasurer,
the Controller, any Assistant Secretary, any
Assistant Clerk,
any Assistant Treasurer, and any other
person or persons,
whether or not any such other person is an
officer of the
Fund, duly authorized by the Board of Trustees
of the Fund to
execute any Certificate, instruction, notice or
other instru-
ment on behalf of the Fund and listed in the
Certificate an-
nexed hereto as Appendix A or such other
Certificate as may be
received by the Custodian from time to time.
15. "Option" shall mean a Call Option,
Covered Call Op-
tion, Stock Index Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal
instructions
actually received by the Custodian from an
Officer or from a
person reasonably believed by the Custodian to be
an Officer.
17. "Put Option" shall mean an exchange
traded option
with respect to Securities other than Stock
Index Options,
Futures Contracts, and Futures Contract Options
entitling the
holder, upon timely exercise and tender of
the specified
underlying Securities, to sell such Securities to
the writer
thereof for the exercise price.
18. "Reverse Repurchase Agreement" shall
mean an agree-
ment pursuant to which the Fund sells Securities
and agrees to
repurchase such Securities at a described or
specified date
and price.
- 3 -
19. "Security" shall be deemed to
include, without
limitation, Money Market Securities, Call
Options, Put Op-
tions, Stock Index Options, Stock Index
Futures Contracts,
Stock Index Futures Contract Options,
Financial Futures
Contracts, Financial Futures Contract
Options, Reverse
Repurchase Agreements, common stocks and other
securities hav-
ing characteristics similar to common
stocks, preferred
stocks, debt obligations issued by state or
municipal govern-
ments and by public authorities, (including,
without limita-
tion, general obligation bonds, revenue
bonds, industrial
bonds and industrial development bonds), bonds,
debentures,
notes, mortgages or other obligations, and any
certificates,
receipts, warrants or other instruments
representing rights to
receive, purchase, sell or subscribe for the
same, or evidenc-
ing or representing any other rights or interest
therein, or
any property or assets.
20. "Senior Security Account" shall
mean an account
maintained and specifically allocated to a
Series under the
terms of this Agreement as a segregated
account, by recorda-
tion or otherwise, within the custody account in
which certain
Securities and/or other assets of the Fund
specifically al-
located to such Series shall be deposited and
withdrawn from
time to time in accordance with Certificates
received by the
Custodian in connection with such transactions as
the Fund may
from time to time determine.
21. "Series" shall mean the various
portfolios, if any,
of the Fund as described from time to time in the
current and
effective prospectus for the Fund and listed
on Appendix B
hereto as amended from time to time.
22. "Shares" shall mean the shares of
beneficial inter-
est of the Fund, each of which is, in the case
of a Fund hav-
ing Series, allocated to a particular Series.
23. "Stock Index Futures Contract"
shall mean a
bilateral agreement pursuant to which the
parties agree to
take or make delivery of an amount of cash
equal to a
specified dollar amount times the difference
between the value
of a particular stock index at the close of the
last business
day of the contract and the price at
which the futures
contract is originally struck.
24. "Stock Index Option" shall mean an
exchange traded
option entitling the holder, upon timely
exercise, to receive
an amount of cash determined by reference to
the difference
between the exercise price and the value of the
index on the
date of exercise.
25. "Terminal Link" shall mean an
electronic data
transmission link between the Fund and the
Custodian requiring
in connection with each use of the Terminal
Link by or on
behalf of the Fund use of an authorization
code provided by
- 4 -
the Custodian and at least two access codes
established by the
Fund.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and
appoints the
Custodian as custodian of the Securities and
moneys at any
time owned by the Fund during the period of this
Agreement.
2. The Custodian hereby accepts
appointment as such
custodian and agrees to perform the duties
thereof as
hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in
paragraph 7 of this
Article and in Article VIII, the Fund will
deliver or cause to
be delivered to the Custodian all Securities
and all moneys
owned by it, at any time during the period of
this Agreement,
and shall specify with respect to such
Securities and money
the Series to which the same are specifically
allocated. The
Custodian shall segregate, keep and maintain the
assets of the
Series separate and apart. The Custodian
will not be
responsible for any Securities and moneys
not actually
received by it. The Custodian will be entitled
to reverse any
credits made on the Fund's behalf where such
credits have been
previously made and moneys are not finally
collected. The
Fund shall deliver to the Custodian a certified
resolution of
the Board of Trustees of the Fund, substantially
in the form
of Exhibit A hereto, approving, authorizing
and instructing
the Custodian on a continuous and on-going basis
to deposit in
the Book-Entry System all Securities
eligible for deposit
therein, regardless of the Series to which
the same are
specifically allocated and to utilize the Book-
Entry System to
the extent possible in connection with its
performance
hereunder, including, without limitation, in
connection with
settlements of purchases and sales of
Securities, loans of
Securities and deliveries and returns of
Securities col-
lateral. Prior to a deposit of Securities
specifically al-
located to a Series in the Depository, the Fund
shall deliver
to the Custodian a certified resolution of
the Board of
Trustees of the Fund, substantially in the form
of Exhibit B
hereto, approving, authorizing and instructing
the Custodian
on a continuous and ongoing basis until
instructed to the
contrary by a Certificate actually received by
the Custodian
to deposit in the Depository all Securities
specifically al-
located to such Series eligible for deposit
therein, and to
utilize the Depository to the extent possible
with respect to
such Securities in connection with its
performance hereunder,
- 5 -
including, without limitation, in connection
with settlements
of purchases and sales of Securities, loans of
Securities, and
deliveries and returns of Securities
collateral. Securities
and moneys deposited in either the Book-Entry
System or the
Depository will be represented in accounts which
include only
assets held by the Custodian for customers,
including, but not
limited to, accounts in which the Custodian
acts in a
fiduciary or representative capacity and will be
specifically
allocated on the Custodian's books to the
separate account for
the applicable Series. Prior to the
Custodian's accepting,
utilizing and acting with respect to Clearing
Member confirma-
tions for Options and transactions in Options for
a Series as
provided in this Agreement, the Custodian shall
have received
a certified resolution of the Fund's Board
of Trustees,
substantially in the form of Exhibit C
hereto, approving,
authorizing and instructing the Custodian on a
continuous and
on-going basis, until instructed to the
contrary by a
Certificate actually received by the Custodian,
to accept,
utilize and act in accordance with such
confirmations as
provided in this Agreement with respect to such
Series.
2. The Custodian shall establish and
maintain separate
accounts, in the name of each Series, and shall
credit to the
separate account for each Series all moneys
received by it for
the account of the Fund with respect to such
Series. Money
credited to a separate account for a Series shall
be disbursed
by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting
forth the name
and address of the person to whom the payment is
to be made,
the Series account from which payment is to be
made and the
purpose for which payment is to be made; or
(c) In payment of the fees and in
reimbursement of
the expenses and liabilities of the Custodian
attributable to
such Series.
3. Promptly after the close of business
on each day,
the Custodian shall furnish the Fund with
confirmations and a
summary, on a per Series basis, of all transfers
to or from
the account of the Fund for a Series, either
hereunder or with
any co-custodian or sub-custodian appointed in
accordance with
this Agreement during said day. Where
Securities are
transferred to the account of the Fund for a
Series, the
Custodian shall also by book-entry or
otherwise identify as
belonging to such Series a quantity of
Securities in a
fungible bulk of Securities registered in
the name of the
Custodian (or its nominee) or shown on the
Custodian's account
on the books of the Book-Entry System or the
Depository. At
least monthly and from time to time, the
Custodian shall
furnish the Fund with a detailed statement, on
a per Series
basis, of the Securities and moneys held by the
Custodian for
the Fund.
- 6 -
4. Except as otherwise provided in
paragraph 7 of this
Article and in Article VIII, all Securities
held by the
Custodian hereunder, which are issued or
issuable only in
bearer form, except such Securities as are
held in the
Book-Entry System, shall be held by the
Custodian in that
form; all other Securities held hereunder may be
registered in
the name of the Fund, in the name of any
duly appointed
registered nominee of the Custodian as the
Custodian may from
time to time determine, or in the name of
the Book-Entry
System or the Depository or their successor or
successors, or
their nominee or nominees. The Fund agrees to
furnish to the
Custodian appropriate instruments to enable the
Custodian to
hold or deliver in proper form for transfer, or
to register in
the name of its registered nominee or in the
name of the
Book-Entry System or the Depository any
Securities which it
may hold hereunder and which may from time
to time be
registered in the name of the Fund. The
Custodian shall hold
all such Securities specifically allocated to a
Series which
are not held in the Book-Entry System or in the
Depository in
a separate account in the name of such
Series physically
segregated at all times from those of any
other person or
persons.
5. Except as otherwise provided in this
Agreement and
unless otherwise instructed to the contrary by a
Certificate,
the Custodian by itself, or through the use of
the Book-Entry
System or the Depository with respect to
Securities held
hereunder and therein deposited, shall with
respect to all
Securities held for the Fund hereunder in
accordance with
preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect
the amount pay-
able upon such Securities which are called, but
only if either
(i) the Custodian receives a written notice of
such call, or
(ii) notice of such call appears in one
or more of the
publications listed in Appendix C annexed hereto,
which may be
amended at any time by the Custodian
without the prior
notification or consent of the Fund;
(c) Present for payment and collect
the amount pay-
able upon all Securities which mature;
(d) Surrender Securities in
temporary form for
definitive Securities;
(e) Execute, as custodian, any
necessary declara-
tions or certificates of ownership under the
Federal Income
Tax Laws or the laws or regulations of any
other taxing
authority now or hereafter in effect; and
(f) Hold directly, or through the Book-
Entry System
or the Depository with respect to
Securities therein
deposited, for the account of a Series, all
rights and similar
- 7 -
securities issued with respect to any Securities
held by the
Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not
otherwise, the
Custodian, directly or through the use of
the Book-Entry
System or the Depository, shall:
(a) Execute and deliver to such
persons as may be
designated in such Certificate proxies,
consents, authoriza-
tions, and any other instruments whereby the
authority of the
Fund as owner of any Securities held by
the Custodian
hereunder for the Series specified in such
Certificate may be
exercised;
(b) Deliver any Securities held by
the Custodian
hereunder for the Series specified in such
Certificate in
exchange for other Securities or cash issued or
paid in con-
nection with the liquidation, reorganization,
refinancing,
merger, consolidation or recapitalization of any
corporation,
or the exercise of any conversion privilege
and receive and
hold hereunder specifically allocated to such
Series any cash
or other Securities received in exchange;
(c) Deliver any Securities held by
the Custodian
hereunder for the Series specified in such
Certificate to any
protective committee, reorganization committee or
other person
in connection with the reorganization,
refinancing, merger,
consolidation, recapitalization or sale of
assets of any
corporation, and receive and hold hereunder
specifically al-
located to such Series such certificates of
deposit, interim
receipts or other instruments or documents as may
be issued to
it to evidence such delivery;
(d) Make such transfers or exchanges
of the assets
of the Series specified in such Certificate,
and take such
other steps as shall be stated in such
Certificate to be for
the purpose of effectuating any duly
authorized plan of
liquidation, reorganization, merger,
consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect
the amount pay-
able upon Securities not described in preceding
paragraph 5(b)
of this Article which may be called as
specified in the
Certificate.
7. Notwithstanding any provision
elsewhere contained
herein, the Custodian shall not be required to
obtain posses-
sion of any instrument or certificate
representing any Futures
Contract, any Option, or any Futures Contract
Option until
after it shall have determined, or shall
have received a
Certificate from the Fund stating, that any such
instruments
or certificates are available. The Fund shall
deliver to the
Custodian such a Certificate no later than the
business day
preceding the availability of any such
instrument or
certificate. Prior to such availability, the
Custodian shall
- 8 -
comply with Section 17(f) of the Investment
Company Act of
1940, as amended, in connection with the
purchase, sale,
settlement, closing out or writing of Futures
Contracts, Op-
tions, or Futures Contract Options by making
payments or
deliveries specified in Certificates received by
the Custodian
in connection with any such purchase, sale,
writing, settle-
ment or closing out upon its receipt from a
broker, dealer, or
futures commission merchant of a statement or
confirmation
reasonably believed by the Custodian to be
in the form
customarily used by brokers, dealers, or
future commission
merchants with respect to such Futures
Contracts, Options, or
Futures Contract Options, as the case may be,
confirming that
such Security is held by such broker, dealer or
futures com-
mission merchant, in book-entry form or
otherwise, in the name
of the Custodian (or any nominee of the
Custodian) as
custodian for the Fund, provided, however, that
notwithstand-
ing the foregoing, payments to or deliveries
from the Margin
Account and payments with respect to Securities
to which a
Margin Account relates, shall be made in
accordance with the
terms and conditions of the Margin Account
Agreement.
Whenever any such instruments or certificates
are available,
the Custodian shall, notwithstanding any
provision in this
Agreement to the contrary, make payment for
any Futures
Contract, Option, or Futures Contract Option for
which such
instruments or such certificates are available
only against
the delivery to the Custodian of such
instrument or such
certificate, and deliver any Futures
Contract, Option or
Futures Contract Option for which such
instruments or such
certificates are available only against
receipt by the
Custodian of payment therefor. Any such
instrument or
certificate delivered to the Custodian shall
be held by the
Custodian hereunder in accordance with, and
subject to, the
provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE
FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS
AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of
Securities by the
Fund, other than a purchase of an Option, a
Futures Contract,
or a Futures Contract Option, the Fund shall
deliver to the
Custodian (i) with respect to each purchase
of Securities
which are not Money Market Securities, a
Certificate, and (ii)
with respect to each purchase of Money Market
Securities, a
Certificate or Oral Instructions, specifying
with respect to
each such purchase: (a) the Series to which
such Securities
are to be specifically allocated; (b) the name
of the issuer
and the title of the Securities; (c) the number
of shares or
the principal amount purchased and accrued
interest, if any;
(d) the date of purchase and settlement; (e)
the purchase
price per unit; (f) the total amount
payable upon such
purchase; (g) the name of the person from whom or
the broker
- 9 -
through whom the purchase was made, and
the name of the
clearing broker, if any; and (h) the name of
the broker to
whom payment is to be made. The Custodian shall,
upon receipt
of Securities purchased by or for the Fund, pay
to the broker
specified in the Certificate out of the moneys
held for the
account of such Series the total amount
payable upon such
purchase, provided that the same conforms to the
total amount
payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities
by the Fund,
other than a sale of any Option, Futures
Contract, Futures
Contract Option, or any Reverse Repurchase
Agreement, the Fund
shall deliver to the Custodian (i) with respect
to each sale
of Securities which are not Money Market
Securities, a
Certificate, and (ii) with respect to each
sale of Money
Market Securities, a Certificate or Oral
Instructions,
specifying with respect to each such sale: (a)
the Series to
which such Securities were specifically
allocated; (b) the
name of the issuer and the title of the
Security; (c) the
number of shares or principal amount sold,
and accrued
interest, if any; (d) the date of sale; (e) the
sale price per
unit; (f) the total amount payable to the Fund
upon such sale;
(g) the name of the broker through whom or the
person to whom
the sale was made, and the name of the clearing
broker, if
any; and (h) the name of the broker to whom the
Securities are
to be delivered. The Custodian shall deliver
the Securities
specifically allocated to such Series to the
broker specified
in the Certificate against payment upon receipt
of the total
amount payable to the Fund upon such sale,
provided that the
same conforms to the total amount payable as set
forth in such
Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any
Option by the
Fund, the Fund shall deliver to the Custodian a
Certificate
specifying with respect to each Option
purchased: (a) the
Series to which such Option is specifically
allocated; (b) the
type of Option (put or call); (c) the name of
the issuer and
the title and number of shares subject to such
Option or, in
the case of a Stock Index Option, the stock
index to which
such Option relates and the number of Stock
Index Options
purchased; (d) the expiration date; (e) the
exercise price;
(f) the dates of purchase and settlement; (g) the
total amount
payable by the Fund in connection with such
purchase; (h) the
name of the Clearing Member through whom such
Option was
purchased; and (i) the name of the broker to
whom payment is
to be made. The Custodian shall pay, upon
receipt of a Clear-
ing Member's statement confirming the purchase
of such Option
held by such Clearing Member for the account of
the Custodian
(or any duly appointed and registered
nominee of the
Custodian) as custodian for the Fund, out of
moneys held for
- 10 -
the account of the Series to which such
Option is to be
specifically allocated, the total amount
payable upon such
purchase to the Clearing Member through whom the
purchase was
made, provided that the same conforms to the
total amount pay-
able as set forth in such Certificate.
2. Promptly after the sale of any Option
purchased by
the Fund pursuant to paragraph 1 hereof, the
Fund shall
deliver to the Custodian a Certificate specifying
with respect
to each such sale: (a) the Series to which such
Option was
specifically allocated; (b) the type of Option
(put or call);
(c) the name of the issuer and the title and
number of shares
subject to such Option or, in the case of a
Stock Index Op-
tion, the stock index to which such Option
relates and the
number of Stock Index Options sold; (d) the date
of sale; (e)
the sale price; (f) the date of settlement;
(g) the total
amount payable to the Fund upon such sale; and
(h) the name of
the Clearing Member through whom the sale was
made. The
Custodian shall consent to the delivery of the
Option sold by
the Clearing Member which previously supplied the
confirmation
described in preceding paragraph 1 of this
Article with
respect to such Option against payment to the
Custodian of the
total amount payable to the Fund, provided
that the same
conforms to the total amount payable as set
forth in such
Certificate.
3. Promptly after the exercise by the
Fund of any Call
Option purchased by the Fund pursuant to
paragraph 1 hereof,
the Fund shall deliver to the Custodian a
Certificate specify-
ing with respect to such Call Option: (a) the
Series to which
such Call Option was specifically allocated;
(b) the name of
the issuer and the title and number of shares
subject to the
Call Option; (c) the expiration date; (d) the
date of exercise
and settlement; (e) the exercise price per
share; (f) the
total amount to be paid by the Fund upon such
exercise; and
(g) the name of the Clearing Member through
whom such Call
Option was exercised. The Custodian shall,
upon receipt of
the Securities underlying the Call Option which
was exercised,
pay out of the moneys held for the account of
the Series to
which such Call Option was specifically
allocated the total
amount payable to the Clearing Member through
whom the Call
Option was exercised, provided that the same
conforms to the
total amount payable as set forth in such
Certificate.
4. Promptly after the exercise by the
Fund of any Put
Option purchased by the Fund pursuant to
paragraph 1 hereof,
the Fund shall deliver to the Custodian a
Certificate specify-
ing with respect to such Put Option: (a) the
Series to which
such Put Option was specifically allocated;
(b) the name of
the issuer and the title and number of shares
subject to the
Put Option; (c) the expiration date; (d) the
date of exercise
and settlement; (e) the exercise price per
share; (f) the
total amount to be paid to the Fund upon such
exercise; and
(g) the name of the Clearing Member through whom
such Put Op-
tion was exercised. The Custodian shall, upon
receipt of the
- 11 -
amount payable upon the exercise of the Put
Option, deliver or
direct the Depository to deliver the Securities
specifically
allocated to such Series, provided the same
conforms to the
amount payable to the Fund as set forth in such
Certificate.
5. Promptly after the exercise by the Fund
of any Stock
Index Option purchased by the Fund pursuant to
paragraph 1
hereof, the Fund shall deliver to the Custodian
a Certificate
specifying with respect to such Stock Index
Option: (a) the
Series to which such Stock Index Option was
specifically al-
located; (b) the type of Stock Index Option (put
or call); (c)
the number of Options being exercised; (d) the
stock index to
which such Option relates; (e) the expiration
date; (f) the
exercise price; (g) the total amount to be
received by the
Fund in connection with such exercise; and (h)
the Clearing
Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered
Call Option, the
Fund shall promptly deliver to the Custodian a
Certificate
specifying with respect to such Covered Call
Option: (a) the
Series for which such Covered Call Option was
written; (b) the
name of the issuer and the title and number
of shares for
which the Covered Call Option was written and
which underlie
the same; (c) the expiration date; (d) the
exercise price; (e)
the premium to be received by the Fund; (f)
the date such
Covered Call Option was written; and (g)
the name of the
Clearing Member through whom the premium is to
be received.
The Custodian shall deliver or cause to be
delivered, in
exchange for receipt of the premium
specified in the
Certificate with respect to such Covered Call
Option, such
receipts as are required in accordance with
the customs
prevailing among Clearing Members dealing in
Covered Call Op-
tions and shall impose, or direct the Depository
to impose,
upon the underlying Securities specified in
the Certificate
specifically allocated to such Series such
restrictions as may
be required by such receipts. Notwithstanding
the foregoing,
the Custodian has the right, upon prior written
notification
to the Fund, at any time to refuse to issue any
receipts for
Securities in the possession of the
Custodian and not
deposited with the Depository underlying a
Covered Call Op-
tion.
7. Whenever a Covered Call Option written
by the Fund
and described in the preceding paragraph of
this Article is
exercised, the Fund shall promptly deliver to the
Custodian a
Certificate instructing the Custodian to deliver,
or to direct
the Depository to deliver, the Securities
subject to such
Covered Call Option and specifying: (a) the
Series for which
such Covered Call Option was written; (b) the
name of the is-
suer and the title and number of shares subject
to the Covered
Call Option; (c) the Clearing Member to whom
the underlying
Securities are to be delivered; and (d) the
total amount pay-
able to the Fund upon such delivery. Upon the
return and/or
cancellation of any receipts delivered pursuant
to paragraph 6
of this Article, the Custodian shall deliver, or
direct the
- 12 -
Depository to deliver, the underlying Securities
as specified
in the Certificate against payment of the
amount to be
received as set forth in such Certificate.
8. Whenever the Fund writes a Put
Option, the Fund
shall promptly deliver to the Custodian a
Certificate specify-
ing with respect to such Put Option: (a) the
Series for which
such Put Option was written; (b) the name of the
issuer and
the title and number of shares for which the
Put Option is
written and which underlie the same; (c) the
expiration date;
(d) the exercise price; (e) the premium to be
received by the
Fund; (f) the date such Put Option is written;
(g) the name of
the Clearing Member through whom the premium is
to be received
and to whom a Put Option guarantee letter is to
be delivered;
(h) the amount of cash, and/or the amount and
kind of Securi-
ties, if any, specifically allocated to such
Series to be
deposited in the Senior Security Account for
such Series; and
(i) the amount of cash and/or the amount and kind
of Securi-
ties specifically allocated to such Series to
be deposited
into the Collateral Account for such Series.
The Custodian
shall, after making the deposits into the
Collateral Account
specified in the Certificate, issue a Put
Option guarantee
letter substantially in the form utilized by the
Custodian on
the date hereof, and deliver the same to the
Clearing Member
specified in the Certificate against receipt
of the premium
specified in said Certificate. Notwithstanding
the foregoing,
the Custodian shall be under no obligation to
issue any Put
Option guarantee letter or similar document if it
is unable to
make any of the representations contained
therein.
9. Whenever a Put Option written by
the Fund and
described in the preceding paragraph is
exercised, the Fund
shall promptly deliver to the Custodian a
Certificate specify-
ing: (a) the Series to which such Put Option was
written; (b)
the name of the issuer and title and number of
shares subject
to the Put Option; (c) the Clearing Member
from whom the
underlying Securities are to be received; (d) the
total amount
payable by the Fund upon such delivery; (e) the
amount of cash
and/or the amount and kind of Securities
specifically al-
located to such Series to be withdrawn from
the Collateral
Account for such Series and (f) the amount of
cash and/or the
amount and kind of Securities, specifically
allocated to such
Series, if any, to be withdrawn from the Senior
Security Ac-
count. Upon the return and/or cancellation of
any Put Option
guarantee letter or similar document issued by
the Custodian
in connection with such Put Option, the
Custodian shall pay
out of the moneys held for the account of the
Series to which
such Put Option was specifically allocated the
total amount
payable to the Clearing Member specified in the
Certificate as
set forth in such Certificate against delivery of
such Securi-
ties, and shall make the withdrawals
specified in such
Certificate.
10. Whenever the Fund writes a Stock Index
Option, the
Fund shall promptly deliver to the Custodian
a Certificate
- 13 -
specifying with respect to such Stock Index
Option: (a) the
Series for which such Stock Index Option was
written; (b)
whether such Stock Index Option is a put or a
call; (c) the
number of options written; (d) the stock index
to which such
Option relates; (e) the expiration date; (f)
the exercise
price; (g) the Clearing Member through whom
such Option was
written; (h) the premium to be received by the
Fund; (i) the
amount of cash and/or the amount and kind of
Securities, if
any, specifically allocated to such Series to be
deposited in
the Senior Security Account for such Series; (j)
the amount of
cash and/or the amount and kind of
Securities, if any,
specifically allocated to such Series to be
deposited in the
Collateral Account for such Series; and (k) the
amount of cash
and/or the amount and kind of Securities, if any,
specifically
allocated to such Series to be deposited in a
Margin Account,
and the name in which such account is to
be or has been
established. The Custodian shall, upon receipt
of the premium
specified in the Certificate, make the deposits,
if any, into
the Senior Security Account specified in the
Certificate, and
either (1) deliver such receipts, if any, which
the Custodian
has specifically agreed to issue, which are in
accordance with
the customs prevailing among Clearing Members
in Stock Index
Options and make the deposits into the
Collateral Account
specified in the Certificate, or (2) make the
deposits into
the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written
by the Fund
and described in the preceding paragraph of
this Article is
exercised, the Fund shall promptly deliver to the
Custodian a
Certificate specifying with respect to such
Stock Index Op-
tion: (a) the Series for which such Stock Index
Option was
written; (b) such information as may be
necessary to identify
the Stock Index Option being exercised; (c)
the Clearing
Member through whom such Stock Index
Option is being
exercised; (d) the total amount payable upon
such exercise,
and whether such amount is to be paid by or to
the Fund; (e)
the amount of cash and/or amount and kind of
Securities, if
any, to be withdrawn from the Margin
Account; and (f) the
amount of cash and/or amount and kind of
Securities, if any,
to be withdrawn from the Senior Security
Account for such
Series; and the amount of cash and/or the amount
and kind of
Securities, if any, to be withdrawn from the
Collateral Ac-
count for such Series. Upon the return and/or
cancellation of
the receipt, if any, delivered pursuant to
the preceding
paragraph of this Article, the Custodian shall
pay out of the
moneys held for the account of the Series to
which such Stock
Index Option was specifically allocated to the
Clearing Member
specified in the Certificate the total amount
payable, if any,
as specified therein.
12. Whenever the Fund purchases any Option
identical to
a previously written Option described in
paragraphs, 6, 8 or
10 of this Article in a transaction expressly
designated as a
"Closing Purchase Transaction" in order to
liquidate its posi-
tion as a writer of an Option, the Fund shall
promptly deliver
- 14 -
to the Custodian a Certificate specifying with
respect to the
Option being purchased: (a) that the transaction
is a Closing
Purchase Transaction; (b) the Series for which
the Option was
written; (c) the name of the issuer and the title
and number
of shares subject to the Option, or, in the
case of a Stock
Index Option, the stock index to which such
Option relates and
the number of Options held; (d) the exercise
price; (e) the
premium to be paid by the Fund; (f) the
expiration date; (g)
the type of Option (put or call); (h) the
date of such
purchase; (i) the name of the Clearing Member
to whom the
premium is to be paid; and (j) the amount of
cash and/or the
amount and kind of Securities, if any, to be
withdrawn from
the Collateral Account, a specified Margin
Account, or the
Senior Security Account for such Series. Upon
the Custodian's
payment of the premium and the return and/or
cancellation of
any receipt issued pursuant to paragraphs 6, 8 or
10 of this
Article with respect to the Option being
liquidated through
the Closing Purchase Transaction, the Custodian
shall remove,
or direct the Depository to remove, the
previously imposed
restrictions on the Securities underlying the
Call Option.
13. Upon the expiration, exercise or
consummation of a
Closing Purchase Transaction with respect to
any Option
purchased or written by the Fund and
described in this
Article, the Custodian shall delete such
Option from the
statements delivered to the Fund pursuant to
paragraph 3
Article III herein, and upon the return and/or
cancellation of
any receipts issued by the Custodian, shall
make such
withdrawals from the Collateral Account, and
the Margin Ac-
count and/or the Senior Security Account as may
be specified
in a Certificate received in connection with
such expiration,
exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into
a Futures
Contract, the Fund shall deliver to the
Custodian a
Certificate specifying with respect to such
Futures Contract,
(or with respect to any number of
identical Futures
Contract(s)): (a) the Series for which the
Futures Contract is
being entered; (b) the category of Futures
Contract (the name
of the underlying stock index or financial
instrument); (c)
the number of identical Futures Contracts
entered into; (d)
the delivery or settlement date of the Futures
Contract(s);
(e) the date the Futures Contract(s) was (were)
entered into
and the maturity date; (f) whether the Fund is
buying (going
long) or selling (going short) on such Futures
Contract(s);
(g) the amount of cash and/or the amount and kind
of Securi-
ties, if any, to be deposited in the Senior
Security Account
for such Series; (h) the name of the broker,
dealer, or
futures commission merchant through whom the
Futures Contract
was entered into; and (i) the amount of fee or
commission, if
- 15 -
any, to be paid and the name of the broker,
dealer, or futures
commission merchant to whom such amount is to be
paid. The
Custodian shall make the deposits, if any, to
the Margin Ac-
count in accordance with the terms and
conditions of the
Margin Account Agreement. The Custodian shall
make payment
out of the moneys specifically allocated to such
Series of the
fee or commission, if any, specified in the
Certificate and
deposit in the Senior Security Account for such
Series the
amount of cash and/or the amount and kind
of Securities
specified in said Certificate.
2. (a) Any variation margin payment or
similar payment
required to be made by the Fund to a
broker, dealer, or
futures commission merchant with respect to an
outstanding
Futures Contract, shall be made by the Custodian
in accordance
with the terms and conditions of the Margin
Account Agree-
ment.
(b) Any variation margin payment or
similar payment
from a broker, dealer, or futures commission
merchant to the
Fund with respect to an outstanding Futures
Contract, shall be
received and dealt with by the Custodian in
accordance with
the terms and conditions of the Margin Account
Agreement.
3. Whenever a Futures Contract held by
the Custodian
hereunder is retained by the Fund until delivery
or settlement
is made on such Futures Contract, the Fund
shall deliver to
the Custodian a Certificate specifying: (a)
the Futures
Contract and the Series to which the same
relates; (b) with
respect to a Stock Index Futures Contract, the
total cash
settlement amount to be paid or received, and
with respect to
a Financial Futures Contract, the Securities
and/or amount of
cash to be delivered or received; (c) the
broker, dealer, or
futures commission merchant to or from whom
payment or
delivery is to be made or received; and (d) the
amount of cash
and/or Securities to be withdrawn from the
Senior Security
Account for such Series. The Custodian shall
make the payment
or delivery specified in the Certificate, and
delete such
Futures Contract from the statements
delivered to the Fund
pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into
a Futures
Contract to offset a Futures Contract held by
the Custodian
hereunder, the Fund shall deliver to the
Custodian a
Certificate specifying: (a) the items of
information required
in a Certificate described in paragraph 1 of this
Article, and
(b) the Futures Contract being offset. The
Custodian shall
make payment out of the money specifically
allocated to such
Series of the fee or commission, if any,
specified in the
Certificate and delete the Futures Contract being
offset from
the statements delivered to the Fund pursuant
to paragraph 3
of Article III herein, and make such
withdrawals from the
Senior Security Account for such Series as may be
specified in
such Certificate. The withdrawals, if any, to
be made from
- 16 -
the Margin Account shall be made by the
Custodian in ac-
cordance with the terms and conditions of the
Margin Account
Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any
Futures Contract
Option by the Fund, the Fund shall promptly
deliver to the
Custodian a Certificate specifying with
respect to such
Futures Contract Option: (a) the Series to which
such Option
is specifically allocated; (b) the type of
Futures Contract
Option (put or call); (c) the type of Futures
Contract and
such other information as may be necessary to
identify the
Futures Contract underlying the Futures
Contract Option
purchased; (d) the expiration date; (e) the
exercise price;
(f) the dates of purchase and settlement; (g)
the amount of
premium to be paid by the Fund upon such
purchase; (h) the
name of the broker or futures commission merchant
through whom
such option was purchased; and (i) the name of
the broker, or
futures commission merchant, to whom payment is
to be made.
The Custodian shall pay out of the moneys
specifically al-
located to such Series, the total amount to be
paid upon such
purchase to the broker or futures commissions
merchant through
whom the purchase was made, provided that the
same conforms to
the amount set forth in such Certificate.
2. Promptly after the sale of any Futures
Contract Op-
tion purchased by the Fund pursuant to paragraph
1 hereof, the
Fund shall promptly deliver to the Custodian
a Certificate
specifying with respect to each such sale: (a)
Series to which
such Futures Contract Option was specifically
allocated; (b)
the type of Future Contract Option (put or call);
(c) the type
of Futures Contract and such other
information as may be
necessary to identify the Futures Contract
underlying the
Futures Contract Option; (d) the date of sale;
(e) the sale
price; (f) the date of settlement; (g) the total
amount pay-
able to the Fund upon such sale; and (h)
the name of the
broker of futures commission merchant through
whom the sale
was made. The Custodian shall consent to the
cancellation of
the Futures Contract Option being closed against
payment to
the Custodian of the total amount payable
to the Fund,
provided the same conforms to the total amount
payable as set
forth in such Certificate.
3. Whenever a Futures Contract Option
purchased by the
Fund pursuant to paragraph 1 is exercised by
the Fund, the
Fund shall promptly deliver to the Custodian
a Certificate
specifying: (a) the Series to which such Futures
Contract Op-
tion was specifically allocated; (b) the
particular Futures
Contract Option (put or call) being exercised;
(c) the type of
Futures Contract underlying the Futures
Contract Option; (d)
the date of exercise; (e) the name of the broker
or futures
- 17 -
commission merchant through whom the Futures
Contract Option
is exercised; (f) the net total amount, if any,
payable by the
Fund; (g) the amount, if any, to be received by
the Fund; and
(h) the amount of cash and/or the amount and kind
of Securi-
ties to be deposited in the Senior Security
Account for such
Series. The Custodian shall make, out of the
moneys and
Securities specifically allocated to such
Series, the pay-
ments, if any, and the deposits, if any, into
the Senior
Security Account as specified in the
Certificate. The
deposits, if any, to be made to the Margin
Account shall be
made by the Custodian in accordance with the
terms and condi-
tions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures
Contract Option,
the Fund shall promptly deliver to the Custodian
a Certificate
specifying with respect to such Futures Contract
Option: (a)
the Series for which such Futures Contract Option
was written;
(b) the type of Futures Contract Option (put or
call); (c) the
type of Futures Contract and such other
information as may be
necessary to identify the Futures Contract
underlying the
Futures Contract Option; (d) the expiration
date; (e) the
exercise price; (f) the premium to be received
by the Fund;
(g) the name of the broker or futures
commission merchant
through whom the premium is to be received; and
(h) the amount
of cash and/or the amount and kind of
Securities, if any, to
be deposited in the Senior Security Account for
such Series.
The Custodian shall, upon receipt of the premium
specified in
the Certificate, make out of the moneys
and Securities
specifically allocated to such Series the
deposits into the
Senior Security Account, if any, as
specified in the
Certificate. The deposits, if any, to be made
to the Margin
Account shall be made by the Custodian in
accordance with the
terms and conditions of the Margin Account
Agreement.
5. Whenever a Futures Contract Option
written by the
Fund which is a call is exercised, the Fund
shall promptly
deliver to the Custodian a Certificate
specifying: (a) the
Series to which such Futures Contract Option was
specifically
allocated; (b) the particular Futures
Contract Option
exercised; (c) the type of Futures Contract
underlying the
Futures Contract Option; (d) the name of the
broker or futures
commission merchant through whom such Futures
Contract Option
was exercised; (e) the net total amount, if
any, payable to
the Fund upon such exercise; (f) the net total
amount, if any,
payable by the Fund upon such exercise; and (g)
the amount of
cash and/or the amount and kind of Securities to
be deposited
in the Senior Security Account for such Series.
The Custodian
shall, upon its receipt of the net total amount
payable to the
Fund, if any, specified in such Certificate make
the payments,
if any, and the deposits, if any, into the
Senior Security
Account as specified in the Certificate. The
deposits, if any,
to be made to the Margin Account shall be
made by the
Custodian in accordance with the terms and
conditions of the
Margin Account Agreement.
- 18 -
6. Whenever a Futures Contract Option
which is written
by the Fund and which is a put is exercised,
the Fund shall
promptly deliver to the Custodian a Certificate
specifying:
(a) the Series to which such Option was
specifically al-
located; (b) the particular Futures Contract
Option exercised;
(c) the type of Futures Contract underlying
such Futures
Contract Option; (d) the name of the broker or
futures commis-
sion merchant through whom such Futures
Contract Option is
exercised; (e) the net total amount, if any,
payable to the
Fund upon such exercise; (f) the net total
amount, if any,
payable by the Fund upon such exercise; and (g)
the amount and
kind of Securities and/or cash to be
withdrawn from or
deposited in, the Senior Security Account for
such Series, if
any. The Custodian shall, upon its receipt of
the net total
amount payable to the Fund, if any,
specified in the
Certificate, make out of the moneys
and Securities
specifically allocated to such Series, the
payments, if any,
and the deposits, if any, into the Senior
Security Account as
specified in the Certificate. The deposits
to and/or
withdrawals from the Margin Account, if any,
shall be made by
the Custodian in accordance with the terms and
conditions of
the Margin Account Agreement.
7. Whenever the Fund purchases any
Futures Contract
Option identical to a previously written Futures
Contract Op-
tion described in this Article in order to
liquidate its posi-
tion as a writer of such Futures Contract
Option, the Fund
shall promptly deliver to the Custodian a
Certificate specify-
ing with respect to the Futures Contract
Option being
purchased: (a) the Series to which such Option is
specifically
allocated; (b) that the transaction is a closing
transaction;
(c) the type of Future Contract and such other
information as
may be necessary to identify the Futures
Contract underlying
the Futures Option Contract; (d) the exercise
price; (e) the
premium to be paid by the Fund; (f) the
expiration date; (g)
the name of the broker or futures commission
merchant to whom
the premium is to be paid; and (h) the amount of
cash and/or
the amount and kind of Securities, if any, to
be withdrawn
from the Senior Security Account for such
Series. The
Custodian shall effect the withdrawals from
the Senior
Security Account specified in the Certificate.
The withdraw-
als, if any, to be made from the Margin Account
shall be made
by the Custodian in accordance with the terms
and conditions
of the Margin Account Agreement.
8. Upon the expiration, exercise, or
consummation of a
closing transaction with respect to, any Futures
Contract Op-
tion written or purchased by the Fund and
described in this
Article, the Custodian shall (a) delete such
Futures Contract
Option from the statements delivered to the
Fund pursuant to
paragraph 3 of Article III herein and, (b) make
such withdraw-
als from and/or in the case of an exercise such
deposits into
the Senior Security Account as may be
specified in a
Certificate. The deposits to and/or
withdrawals from the
- 19 -
Margin Account, if any, shall be made by the
Custodian in ac-
cordance with the terms and conditions of the
Margin Account
Agreement.
9. Futures Contracts acquired by the Fund
through the
exercise of a Futures Contract Option
described in this
Article shall be subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any
Series of the
Fund, the Fund shall promptly deliver to
the Custodian a
Certificate specifying: (a) the Series for which
such short
sale was made; (b) the name of the issuer and the
title of the
Security; (c) the number of shares or principal
amount sold,
and accrued interest or dividends, if any; (d)
the dates of
the sale and settlement; (e) the sale price per
unit; (f) the
total amount credited to the Fund upon such
sale, if any, (g)
the amount of cash and/or the amount and kind of
Securities,
if any, which are to be deposited in a Margin
Account and the
name in which such Margin Account has been
or is to be
established; (h) the amount of cash and/or the
amount and kind
of Securities, if any, to be deposited in a
Senior Security
Account, and (i) the name of the broker
through whom such
short sale was made. The Custodian shall upon
its receipt of
a statement from such broker confirming such sale
and that the
total amount credited to the Fund upon such sale,
if any, as
specified in the Certificate is held by such
broker for the
account of the Custodian (or any nominee of the
Custodian) as
custodian of the Fund, issue a receipt or make
the deposits
into the Margin Account and the Senior
Security Account
specified in the Certificate.
2. In connection with the closing-out
of any short
sale, the Fund shall promptly deliver to the
Custodian a
Certificate specifying with respect to each such
closing out:
(a) the Series for which such transaction is
being made; (b)
the name of the issuer and the title of the
Security; (c) the
number of shares or the principal amount, and
accrued interest
or dividends, if any, required to effect such
closing-out to
be delivered to the broker; (d) the dates of
closing-out and
settlement; (e) the purchase price per unit; (f)
the net total
amount payable to the Fund upon such closing-out;
(g) the net
total amount payable to the broker upon such
closing-out; (h)
the amount of cash and the amount and kind of
Securities to be
withdrawn, if any, from the Margin Account; (i)
the amount of
cash and/or the amount and kind of Securities, if
any, to be
withdrawn from the Senior Security Account; and
(j) the name
of the broker through whom the Fund is
effecting such
closing-out. The Custodian shall, upon
receipt of the net
total amount payable to the Fund upon such
closing-out, and
the return and/or cancellation of the receipts,
if any, issued
- 20 -
by the Custodian with respect to the short
sale being
closed-out, pay out of the moneys held for the
account of the
Fund to the broker the net total amount payable
to the broker,
and make the withdrawals from the Margin
Account and the
Senior Security Account, as the same are
specified in the
Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a
Reverse Repurchase
Agreement with respect to Securities and money
held by the
Custodian hereunder, the Fund shall deliver to
the Custodian a
Certificate, or in the event such Reverse
Repurchase Agreement
is a Money Market Security, a Certificate or Oral
Instructions
specifying: (a) the Series for which the
Reverse Repurchase
Agreement is entered; (b) the total amount
payable to the Fund
in connection with such Reverse Repurchase
Agreement and
specifically allocated to such Series; (c)
the broker or
dealer through or with whom the Reverse
Repurchase Agreement
is entered; (d) the amount and kind of
Securities to be
delivered by the Fund to such broker or dealer;
(e) the date
of such Reverse Repurchase Agreement; and (f)
the amount of
cash and/or the amount and kind of
Securities, if any,
specifically allocated to such Series to be
deposited in a
Senior Security Account for such Series in
connection with
such Reverse Repurchase Agreement. The
Custodian shall, upon
receipt of the total amount payable to the Fund
specified in
the Certificate or Oral Instructions make the
delivery to the
broker or dealer, and the deposits, if any, to
the Senior
Security Account, specified in such
Certificate or Oral
Instructions.
2. Upon the termination of a Reverse
Repurchase Agree-
ment described in preceding paragraph 1 of this
Article, the
Fund shall promptly deliver a Certificate or,
in the event
such Reverse Repurchase Agreement is a Money
Market Security,
a Certificate or Oral Instructions to
the Custodian
specifying: (a) the Reverse Repurchase
Agreement being
terminated and the Series for which same was
entered; (b) the
total amount payable by the Fund in
connection with such
termination; (c) the amount and kind of
Securities to be
received by the Fund and specifically allocated
to such Series
in connection with such termination; (d) the date
of termina-
tion; (e) the name of the broker or dealer
with or through
whom the Reverse Repurchase Agreement is to be
terminated; and
(f) the amount of cash and/or the amount and
kind of Securi-
ties to be withdrawn from the Senior Securities
Account for
such Series. The Custodian shall, upon receipt
of the amount
and kind of Securities to be received by the Fund
specified in
the Certificate or Oral Instructions, make the
payment to the
broker or dealer, and the withdrawals, if any,
from the Senior
- 21 -
Security Account, specified in such
Certificate or Oral
Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE
FUND
1. Promptly after each loan of
portfolio Securities
specifically allocated to a Series held by
the Custodian
hereunder, the Fund shall deliver or cause to be
delivered to
the Custodian a Certificate specifying with
respect to each
such loan: (a) the Series to which the loaned
Securities are
specifically allocated; (b) the name of the
issuer and the
title of the Securities, (c) the number of
shares or the
principal amount loaned, (d) the date of loan
and delivery,
(e) the total amount to be delivered to the
Custodian against
the loan of the Securities, including the amount
of cash col-
lateral and the premium, if any, separately
identified, and
(f) the name of the broker, dealer, or
financial institution
to which the loan was made. The Custodian shall
deliver the
Securities thus designated to the broker, dealer
or financial
institution to which the loan was made upon
receipt of the
total amount designated as to be delivered
against the loan of
Securities. The Custodian may accept payment
in connection
with a delivery otherwise than through the Book-
Entry System
or Depository only in the form of a
certified or bank
cashier's check payable to the order of
the Fund or the
Custodian drawn on New York Clearing House
funds and may
deliver Securities in accordance with the
customs prevailing
among dealers in securities.
2. Promptly after each termination of
the loan of
Securities by the Fund, the Fund shall deliver
or cause to be
delivered to the Custodian a Certificate
specifying with
respect to each such loan termination and
return of Securi-
ties: (a) the Series to which the loaned
Securities are
specifically allocated; (b) the name of the
issuer and the
title of the Securities to be returned, (c)
the number of
shares or the principal amount to be returned,
(d) the date of
termination, (e) the total amount to be
delivered by the
Custodian (including the cash collateral for
such Securities
minus any offsetting credits as
described in said
Certificate), and (f) the name of the
broker, dealer, or
financial institution from which the
Securities will be
returned. The Custodian shall receive all
Securities returned
from the broker, dealer, or financial
institution to which
such Securities were loaned and upon receipt
thereof shall
pay, out of the moneys held for the account of
the Fund, the
total amount payable upon such return of
Securities as set
forth in the Certificate.
- 22 -
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR
SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to
time, make such
deposits to, or withdrawals from, a Senior
Security Account as
specified in a Certificate received by the
Custodian. Such
Certificate shall specify the Series for which
such deposit or
withdrawal is to be made and the amount of cash
and/or the
amount and kind of Securities specifically
allocated to such
Series to be deposited in, or withdrawn from,
such Senior
Security Account for such Series. In the event
that the Fund
fails to specify in a Certificate the Series, the
name of the
issuer, the title and the number of shares or
the principal
amount of any particular Securities to be
deposited by the
Custodian into, or withdrawn from, a Senior
Securities Ac-
count, the Custodian shall be under no obligation
to make any
such deposit or withdrawal and shall so notify
the Fund.
2. The Custodian shall make deliveries or
payments from
a Margin Account to the broker, dealer,
futures commission
merchant or Clearing Member in whose name,
or for whose
benefit, the account was established as
specified in the
Margin Account Agreement.
3. Amounts received by the Custodian
as payments or
distributions with respect to Securities
deposited in any
Margin Account shall be dealt with in
accordance with the
terms and conditions of the Margin Account
Agreement.
4. The Custodian shall have a
continuing lien and
security interest in and to any property at any
time held by
the Custodian in any Collateral Account described
herein. In
accordance with applicable law the Custodian
may enforce its
lien and realize on any such property whenever
the Custodian
has made payment or delivery pursuant to
any Put Option
guarantee letter or similar document or any
receipt issued
hereunder by the Custodian. In the event the
Custodian should
realize on any such property net proceeds which
are less than
the Custodian's obligations under any Put
Option guarantee
letter or similar document or any receipt,
such deficiency
shall be a debt owed the Custodian by the
Fund within the
scope of Article XIV herein.
5. On each business day the Custodian
shall furnish the
Fund with a statement with respect to each
Margin Account in
which money or Securities are held specifying as
of the close
of business on the previous business day: (a)
the name of the
Margin Account; (b) the amount and kind of
Securities held
therein; and (c) the amount of money held
therein. The
Custodian shall make available upon request to
any broker,
dealer, or futures commission merchant
specified in the name
of a Margin Account a copy of the statement
furnished the Fund
with respect to such Margin Account.
- 23 -
6. Promptly after the close of business
on each busi-
ness day in which cash and/or Securities are
maintained in a
Collateral Account for any Series, the Custodian
shall furnish
the Fund with a statement with respect to such
Collateral Ac-
count specifying the amount of cash and/or the
amount and kind
of Securities held therein. No later than the
close of busi-
ness next succeeding the delivery to the Fund
of such state-
ment, the Fund shall furnish to the Custodian a
Certificate
specifying the then market value of the
Securities described
in such statement. In the event such then
market value is
indicated to be less than the Custodian's
obligation with
respect to any outstanding Put Option
guarantee letter or
similar document, the Fund shall promptly
specify in a
Certificate the additional cash and/or
Securities to be
deposited in such Collateral Account to
eliminate such
deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR
DISTRIBUTIONS
1. The Fund shall furnish to the Custodian
a copy of
the resolution of the Board of Trustees of the
Fund, certified
by the Secretary, the Clerk, any Assistant
Secretary or any
Assistant Clerk, either (i) setting forth with
respect to the
Series specified therein the date of the
declaration of a
dividend or distribution, the date of payment
thereof, the
record date as of which shareholders entitled to
payment shall
be determined, the amount payable per Share of
such Series to
the shareholders of record as of that date
and the total
amount payable to the Dividend Agent and any
sub-dividend
agent or co-dividend agent of the Fund on the
payment date, or
(ii) authorizing with respect to the Series
specified therein
the declaration of dividends and distributions
on a daily
basis and authorizing the Custodian to rely on
Oral Instruc-
tions or a Certificate setting forth the
date of the
declaration of such dividend or
distribution, the date of
payment thereof, the record date as of which
shareholders
entitled to payment shall be determined, the
amount payable
per Share of such Series to the shareholders of
record as of
that date and the total amount payable to the
Dividend Agent
on the payment date.
2. Upon the payment date specified in such
resolution,
Oral Instructions or Certificate, as the
case may be, the
Custodian shall pay out of the moneys held for
the account of
each Series the total amount payable to the
Dividend Agent and
any sub-dividend agent or co-dividend agent of
the Fund with
respect to such Series.
- 24 -
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any
Shares, it shall
deliver to the Custodian a Certificate duly
specifying:
(a) The Series, the number of Shares
sold, trade
date, and price; and
(b) The amount of money to be
received by the
Custodian for the sale of such Shares and
specifically al-
located to the separate account in the name of
such Series.
2. Upon receipt of such money from the
Transfer Agent,
the Custodian shall credit such money to the
separate account
in the name of the Series for which such money
was received.
3. Upon issuance of any Shares of any
Series described
in the foregoing provisions of this Article,
the Custodian
shall pay, out of the money held for the
account of such
Series, all original issue or other taxes
required to be paid
by the Fund in connection with such issuance
upon the receipt
of a Certificate specifying the amount to be
paid.
4. Except as provided hereinafter,
whenever the Fund
desires the Custodian to make payment out of the
money held by
the Custodian hereunder in connection with a
redemption of any
Shares, it shall furnish to the Custodian
a Certificate
specifying:
(a) The number and Series of Shares
redeemed; and
(b) The amount to be paid for such
Shares.
5. Upon receipt from the Transfer Agent
of an advice
setting forth the Series and number of Shares
received by the
Transfer Agent for redemption and that such
Shares are in good
form for redemption, the Custodian shall make
payment to the
Transfer Agent out of the moneys held in the
separate account
in the name of the Series the total amount
specified in the
Certificate issued pursuant to the foregoing
paragraph 4 of
this Article.
6. Notwithstanding the above provisions
regarding the
redemption of any Shares, whenever any Shares
are redeemed
pursuant to any check redemption privilege which
may from time
to time be offered by the Fund, the
Custodian, unless
otherwise instructed by a Certificate, shall,
upon receipt of
an advice from the Fund or its agent setting
forth that the
redemption is in good form for redemption in
accordance with
the check redemption procedure, honor the check
presented as
part of such check redemption privilege out of
the moneys held
in the separate account of the Series of the
Shares being
redeemed.
- 25 -
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its
sole discretion
advance funds on behalf of any Series which
results in an
overdraft because the moneys held by the
Custodian in the
separate account for such Series shall be
insufficient to pay
the total amount payable upon a purchase
of Securities
specifically allocated to such Series, as set
forth in a
Certificate or Oral Instructions, or which
results in an
overdraft in the separate account of such
Series for some
other reason, or if the Fund is for any other
reason indebted
to the Custodian with respect to a Series,
including any
indebtedness to The Bank of New York under
the Fund's Cash
Management and Related Services Agreement,
(except a borrowing
for investment or for temporary or emergency
purposes using
Securities as collateral pursuant to a separate
agreement and
subject to the provisions of paragraph 2 of
this Article),
such overdraft or indebtedness shall be deemed to
be a loan
made by the Custodian to the Fund for such
Series payable on
demand and shall bear interest from the date
incurred at a
rate per annum (based on a 360-day year for the
actual number
of days involved) equal to 1/2% over
Custodian's prime
commercial lending rate in effect from time to
time, such rate
to be adjusted on the effective date of any
change in such
prime commercial lending rate but in no event to
be less than
6% per annum. In addition, the Fund hereby
agrees that the
Custodian shall have a continuing lien and
security interest
in and to any property specifically allocated to
such Series
at any time held by it for the benefit of such
Series or in
which the Fund may have an interest which is
then in the
Custodian's possession or control or in
possession or control
of any third party acting in the Custodian's
behalf. The Fund
authorizes the Custodian, in its sole
discretion, at any time
to charge any such overdraft or indebtedness
together with
interest due thereon against any balance of
account standing
to such Series' credit on the Custodian's books.
In addition,
the Fund hereby covenants that on each Business
Day on which
either it intends to enter a Reverse Repurchase
Agreement and/
or otherwise borrow from a third party, or which
next succeeds
a Business Day on which at the close of business
the Fund had
outstanding a Reverse Repurchase Agreement or
such a borrow-
ing, it shall prior to 9 a.m., New York City
time, advise the
Custodian, in writing, of each such borrowing,
shall specify
the Series to which the same relates, and shall
not incur any
indebtedness not so specified other than from the
Custodian.
2. The Fund will cause to be delivered to
the Custodian
by any bank (including, if the borrowing is
pursuant to a
separate agreement, the Custodian) from which it
borrows money
for investment or for temporary or emergency
purposes using
Securities held by the Custodian hereunder as
collateral for
such borrowings, a notice or undertaking in the
form currently
- 26 -
employed by any such bank setting forth the
amount which such
bank will loan to the Fund against delivery of a
stated amount
of collateral. The Fund shall promptly
deliver to the
Custodian a Certificate specifying with respect
to each such
borrowing: (a) the Series to which such borrowing
relates; (b)
the name of the bank, (c) the amount and terms of
the borrow-
ing, which may be set forth by incorporating by
reference an
attached promissory note, duly endorsed by the
Fund, or other
loan agreement, (d) the time and date, if known,
on which the
loan is to be entered into, (e) the date on
which the loan
becomes due and payable, (f) the total amount
payable to the
Fund on the borrowing date, (g) the market value
of Securities
to be delivered as collateral for such loan,
including the
name of the issuer, the title and the number of
shares or the
principal amount of any particular
Securities, and (h) a
statement specifying whether such loan is
for investment
purposes or for temporary or emergency purposes
and that such
loan is in conformance with the Investment
Company Act of 1940
and the Fund's prospectus. The Custodian shall
deliver on the
borrowing date specified in a Certificate the
specified col-
lateral and the executed promissory note, if
any, against
delivery by the lending bank of the total amount
of the loan
payable, provided that the same conforms to the
total amount
payable as set forth in the Certificate. The
Custodian may,
at the option of the lending bank, keep such
collateral in its
possession, but such collateral shall be subject
to all rights
therein given the lending bank by virtue of
any promissory
note or loan agreement. The Custodian shall
deliver such
Securities as additional collateral as may be
specified in a
Certificate to collateralize further any
transaction described
in this paragraph. The Fund shall cause
all Securities
released from collateral status to be returned
directly to the
Custodian, and the Custodian shall receive from
time to time
such return of collateral as may be tendered to
it. In the
event that the Fund fails to specify in a
Certificate the
Series, the name of the issuer, the title and
number of shares
or the principal amount of any particular
Securities to be
delivered as collateral by the Custodian, the
Custodian shall
not be under any obligation to deliver any
Securities.
ARTICLE XV
TERMINAL LINK
1. At no time and under no circumstances
shall the Fund
be obligated to have or utilize the Terminal
Link, and the
provisions of this Article shall apply if, but
only if, the
Fund in its sole and absolute discretion elects
to utilize the
Terminal Link to transmit Certificates to the
Custodian.
2. The Terminal Link shall be utilized by
the Fund only
for the purpose of the Fund providing
Certificates to the
Custodian with respect to transactions involving
Securities or
for the transfer of money to be applied to the
payment of
- 27 -
dividends, distributions or redemptions of
Fund Shares, and
shall be utilized by the Custodian only for the
purpose of
providing notices to the Fund. Such use shall
commence only
after the Fund shall have delivered to the
Custodian a
Certificate substantially in the form of
Exhibit D and shall
have established access codes. Each use of the
Terminal Link
by the Fund shall constitute a representation
and warranty
that the Terminal Link is being used only for
the purposes
permitted hereby, that at least two
Officers have each
utilized an access code, that such safekeeping
procedures have
been established by the Fund, and that such
use does not
contravene the Investment Company Act of 1940, as
amended, or
the rules or regulations thereunder.
3. The Fund shall obtain and maintain at
its own cost
and expense all equipment and services,
including, but not
limited to communications services, necessary
for it to uti-
lize the Terminal Link, and the Custodian shall
not be re-
sponsible for the reliability or
availability of any such
equipment or services.
4. The Fund acknowledges that any data
bases made
available as part of, or through the Terminal
Link and any
proprietary data, software, processes,
information and docu-
mentation (other than any such which are or
become part of the
public domain or are legally required to be made
available to
the public) (collectively, the
"Information"), are the
exclusive and confidential property of the
Custodian. The
Fund shall, and shall cause others to which it
discloses the
Information, to keep the Information confidential
by using the
same care and discretion it uses with
respect to its own
confidential property and trade secrets, and
shall neither
make nor permit any disclosure without the
express prior
written consent of the Custodian.
5. Upon termination of this Agreement for
any reason,
the Fund shall return to the Custodian any and
all copies of
the Information which are in the Fund's
possession or under
its control, or which the Fund distributed to
third parties.
The provisions of this Article shall not affect
the copyright
status of any of the Information which may be
copyrighted and
shall apply to all Information whether or not
copyrighted.
6. The Custodian reserves the right to
modify the Ter-
minal Link from time to time without notice to
the Fund except
that the Custodian shall give the Fund notice not
less than 75
days in advance of any modification which
would materially
adversely affect the Fund's operation, and the
Fund agrees
that the Fund shall not modify or attempt
to modify the
Terminal Link without the Custodian's prior
written consent.
The Fund acknowledges that any software or
procedures provided
the Fund as part of the Terminal Link are the
property of the
Custodian and, accordingly, the Fund
agrees that any
modifications to the Terminal Link, whether by
the Fund, or by
- 28 -
the Custodian and whether with or without
the Custodian's
consent, shall become the property of the
Custodian.
7. Neither the Custodian nor any
manufacturers and
suppliers it utilizes or the Fund utilizes in
connection with
the Terminal Link makes any warranties or
representations,
express or implied, in fact or in law,
including but not
limited to warranties of merchantability and
fitness for a
particular purpose.
8. The Fund will cause its Officers and
employees to
treat the authorization codes and the access
codes applicable
to Terminal Link with extreme care, and
irrevocably authorizes
the Custodian to act in accordance with
and rely on
Certificates received by it through the
Terminal Link. The
Fund acknowledges that it is its responsibility
to assure that
only its Officers use the Terminal Link on
its behalf, and
that a Custodian shall not be responsible nor
liable for use
of the Terminal Link on the Fund's behalf by
persons other
than such persons or Officers, or by only a
single Officer,
nor for any alteration, omission, or
failure to promptly
forward.
9(a). Except as otherwise specifically
provided in
Section 9(b) of this Article, the Custodian
shall have no
liability for any losses, damages, injuries,
claims, costs or
expenses arising out of or in connection with
any failure,
malfunction or other problem relating to the
Terminal Link
except for money damages suffered as the direct
result of the
negligence of the Custodian in an amount not
exceeding for any
incident $25,000 provided, however, that the
Custodian shall
have no liability under this Section 9 if the
Fund fails to
comply with the provisions of Section 11.
9(b). The Custodian's liability for its
negligence in
executing or failing to execute in
accordance with a
Certificate received through Terminal Link shall
be only with
respect to a transfer of funds which is not made
in accordance
with such Certificate after such Certificate
shall have been
duly acknowledged by the Custodian, and shall
be contingent
upon the Fund complying with the provisions of
Section 12 of
this Article, and shall be limited to (i)
restoration of the
principal amount mistransferred, if and to the
extent that the
Custodian would be required to make such
restoration under
applicable law, and (ii) the lesser of (A) a
Fund's actual
pecuniary loss incurred by reason of its loss of
use of the
mistransferred funds or the funds which were not
transferred,
as the case may be, or (B) compensation for the
loss of the
use of the mistransferred funds or the funds
which were not
transferred, as the case may be, at a rate per
annum equal to
the average federal funds rate as computed
from the Federal
Reserve Bank of New York's daily
determination of the
effective rate for federal funds, for the period
during which
a Fund has lost use of such funds. In no
event shall the
Custodian have any liability for failing to
execute in
- 29 -
accordance with a Certificate a transfer of
funds where the
Certificate is received by the Custodian through
Terminal Link
other than through the applicable transfer
module for the
particular instructions contained in such
Certificate.
10. Without limiting the generality of the
foregoing, in
no event shall the Custodian or any manufacturer
or supplier
of its computer equipment, software or
services relating to
the Terminal Link be responsible for any
special, indirect,
incidental or consequential damages which the
Fund may incur
or experience by reason of its use of the
Terminal Link even
if the Custodian or any manufacturer or
supplier has been
advised of the possibility of such damages, nor
with respect
to the use of the Terminal Link shall the
Custodian or any
such manufacturer or supplier be liable for acts
of God, or
with respect to the following to the
extent beyond such
person's reasonable control: machine or computer
breakdown or
malfunction, interruption or malfunction of
communication
facilities, labor difficulties or any other
similar or
dissimilar cause.
11. The Fund shall notify the Custodian
of any errors,
omissions or interruptions in, or delay or
unavailability of,
the Terminal Link as promptly as practicable, and
in any event
within 24 hours after the earliest of (i)
discovery thereof,
(ii) the Business Day on which discovery should
have occurred
through the exercise of reasonable care and (iii)
in the case
of any error, the date of actual receipt of
the earliest
notice which reflects such error, it being
agreed that
discovery and receipt of notice may only occur
on a business
day. The Custodian shall promptly advise the
Fund whenever
the Custodian learns of any errors, omissions or
interruption
in, or delay or unavailability of, the Terminal
Link.
12. The Custodian shall verify to the Fund,
by use of
the Terminal Link, receipt of each Certificate
the Custodian
receives through the Terminal Link, and in the
absence of such
verification the Custodian shall not be liable
for any failure
to act in accordance with such Certificate and
the Fund may
not claim that such Certificate was received by
the Custodian.
Such verification, which may occur after the
Custodian has
acted upon such Certificate, shall be
accomplished on the same
day on which such Certificate is received.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO
PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED
STATES
1. The Custodian is authorized and
instructed to
employ, as sub-custodian for each Series'
Foreign Securities
(as such term is defined in paragraph (c)(1) of
Rule 17f-5
under the Investment Company Act of 1940, as
amended) and
other assets, the foreign banking institutions
and foreign
- 30 -
securities depositories and clearing agencies
designated on
Schedule I hereto ("Foreign Sub-Custodians")
to carry out
their respective responsibilities in accordance
with the terms
of the sub-custodian agreement between each such
Foreign Sub-
Custodian and the Custodian, copies of
which have been
previously delivered to the Fund and receipt
of which is
hereby acknowledged (each such agreement, a
"Foreign Sub-
Custodian Agreement"). Upon receipt of a
Certificate,
together with a certified resolution
substantially in the form
attached as Exhibit E of the Fund's Board of
Trustees, the
Fund may designate any additional foreign sub-
custodian with
which the Custodian has an agreement for such
entity to act as
the Custodian's agent, as its sub-custodian
and any such
additional foreign sub-custodian shall be
deemed added to
Schedule I. Upon receipt of a Certificate from
the Fund, the
Custodian shall cease the employment of any
one or more
Foreign Sub-Custodians for maintaining custody
of the Fund's
assets and such Foreign Sub-Custodian shall be
deemed deleted
from Schedule I.
2. Each Foreign Sub-Custodian
Agreement shall be
substantially in the form previously delivered to
the Fund and
will not be amended in a way that materially
adversely affects
the Fund without the Fund's prior written
consent.
3. The Custodian shall identify on
its books as
belonging to each Series of the Fund the Foreign
Securities of
such Series held by each Foreign Sub-
Custodian. At the
election of the Fund, it shall be entitled to be
subrogated to
the rights of the Custodian with respect to any
claims by the
Fund or any Series against a Foreign Sub-
Custodian as a
consequence of any loss, damage, cost, expense,
liability or
claim sustained or incurred by the Fund or any
Series if and
to the extent that the Fund or such Series has
not been made
whole for any such loss, damage, cost, expense,
liability or
claim.
4. Upon request of the Fund, the
Custodian will,
consistent with the terms of the applicable
Foreign Sub-
Custodian Agreement, use reasonable efforts to
arrange for the
independent accountants of the Fund to be
afforded access to
the books and records of any Foreign Sub-
Custodian insofar as
such books and records relate to the
performance of such
Foreign Sub-Custodian under its agreement with
the Custodian
on behalf of the Fund.
5. The Custodian will supply to the Fund
from time to
time, as mutually agreed upon, statements in
respect of the
securities and other assets of each Series
held by Foreign
Sub-Custodians, including but not limited
to, an
identification of entities having possession of
each Series'
Foreign Securities and other assets, and
advices or
notifications of any transfers of Foreign
Securities to or
from each custodial account maintained by a
Foreign Sub-
Custodian for the Custodian on behalf of the
Series.
- 31 -
6. The Custodian shall furnish annually to
the Fund, as
mutually agreed upon, information concerning the
Foreign Sub-
Custodians employed by the Custodian. Such
information shall
be similar in kind and scope to that furnished to
the Fund in
connection with the Fund's initial approval of
such Foreign
Sub-Custodians and, in any event, shall include
information
pertaining to (i) the Foreign Custodians'
financial strength,
general reputation and standing in the countries
in which they
are located and their ability to provide
the custodial
services required, and (ii) whether the Foreign
Sub-Custodians
would provide a level of safeguards for
safekeeping and
custody of securities not materially different
form those
prevailing in the United States. The Custodian
shall monitor
the general operating performance of each
Foreign Sub-
Custodian. The Custodian agrees that it will
use reasonable
care in monitoring compliance by each Foreign
Sub-Custodian
with the terms of the relevant Foreign Sub-
Custodian Agreement
and that if it learns of any breach of such
Foreign Sub-
Custodian Agreement believed by the
Custodian to have a
material adverse effect on the Fund or any
Series it will
promptly notify the Fund of such breach. The
Custodian also
agrees to use reasonable and diligent efforts to
enforce its
rights under the relevant Foreign Sub-Custodian
Agreement.
7. The Custodian shall transmit
promptly to the Fund
all notices, reports or other written
information received
pertaining to the Fund's Foreign Securities,
including without
limitation, notices of corporate action,
proxies and proxy
solicitation materials.
8. Notwithstanding any provision of this
Agreement to
the contrary, settlement and payment for
securities received
for the account of any Series and delivery
of securities
maintained for the account of such Series may be
effected in
accordance with the customary or
established securities
trading or securities processing practices and
procedures in
the jurisdiction or market in which the
transaction occurs,
including, without limitation, delivery of
securities to the
purchaser thereof or to a dealer therefor (or
an agent for
such purchaser or dealer) against a receipt
with the
expectation of receiving later payment for
such securities
from such purchaser or dealer.
9. Notwithstanding any other
provision in this
Agreement to the contrary, with respect to
any losses or
damages arising out of or relating to any actions
or omissions
of any Foreign Sub-Custodian the sole
responsibility and
liability of the Custodian shall be to take
appropriate action
at the Fund's expense to recover such loss or
damage from the
Foreign Sub-Custodian. It is expressly
understood and agreed
that the Custodian's sole responsibility and
liability shall
be limited to amounts so recovered from the
Foreign Sub-
Custodian.
- 32 -
ARTICLE XVII
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or
as provided in
Article XVI neither the Custodian nor its
nominee shall be
liable for any loss or damage, including
counsel fees,
resulting from its action or omission to act
or otherwise,
either hereunder or under any Margin Account
Agreement, except
for any such loss or damage arising out of its
own negligence
or willful misconduct. In no event shall the
Custodian be
liable to the Fund or any third party for
special, indirect or
consequential damages or lost profits or loss
of business,
arising under or in connection with this
Agreement, even if
previously informed of the possibility of
such damages and
regardless of the form of action. The
Custodian may, with
respect to questions of law arising hereunder
or under any
Margin Account Agreement, apply for and obtain
the advice and
opinion of counsel to the Fund or of its own
counsel, at the
expense of the Fund, and shall be fully protected
with respect
to anything done or omitted by it in good faith
in conformity
with such advice or opinion. The Custodian shall
be liable to
the Fund for any loss or damage resulting from
the use of the
Book-Entry System or any Depository arising by
reason of any
negligence or willful misconduct on the part of
the Custodian
or any of its employees or agents.
2. Without limiting the generality of
the foregoing,
the Custodian shall be under no obligation to
inquire into,
and shall not be liable for:
(a) The validity of the issue of
any Securities
purchased, sold, or written by or for the Fund,
the legality
of the purchase, sale or writing thereof, or the
propriety of
the amount paid or received therefor;
(b) The legality of the sale or
redemption of any
Shares, or the propriety of the amount to be
received or paid
therefor;
(c) The legality of the declaration
or payment of
any dividend by the Fund;
(d) The legality of any borrowing by
the Fund using
Securities as collateral;
(e) The legality of any loan of
portfolio Securi-
ties, nor shall the Custodian be under any duty
or obligation
to see to it that any cash collateral
delivered to it by a
broker, dealer, or financial institution or held
by it at any
time as a result of such loan of portfolio
Securities of the
Fund is adequate collateral for the Fund against
any loss it
might sustain as a result of such loan.
The Custodian
specifically, but not by way of limitation, shall
not be under
any duty or obligation periodically to check
or notify the
- 33 -
Fund that the amount of such cash collateral held
by it for
the Fund is sufficient collateral for the Fund,
but such duty
or obligation shall be the sole responsibility of
the Fund.
In addition, the Custodian shall be under no
duty or obliga-
tion to see that any broker, dealer or financial
institution
to which portfolio Securities of the Fund are
lent pursuant to
Article X of this Agreement makes payment to
it of any
dividends or interest which are payable to or
for the account
of the Fund during the period of such loan or at
the termina-
tion of such loan, provided, however, that the
Custodian shall
promptly notify the Fund in the event that such
dividends or
interest are not paid and received when due; or
(f) The sufficiency or value of
any amounts of
money and/or Securities held in any Margin
Account, Senior
Security Account or Collateral Account in
connection with
transactions by the Fund. In addition, the
Custodian shall be
under no duty or obligation to see that any
broker, dealer,
futures commission merchant or Clearing Member
makes payment
to the Fund of any variation margin payment or
similar payment
which the Fund may be entitled to receive from
such broker,
dealer, futures commission merchant or Clearing
Member, to see
that any payment received by the Custodian from
any broker,
dealer, futures commission merchant or Clearing
Member is the
amount the Fund is entitled to receive, or to
notify the Fund
of the Custodian's receipt or non-receipt of
any such pay-
ment.
3. The Custodian shall not be liable for,
or considered
to be the Custodian of, any money, whether or
not represented
by any check, draft, or other instrument for the
payment of
money, received by it on behalf of the
Fund until the
Custodian actually receives and collects such
money directly
or by the final crediting of the account
representing the
Fund's interest at the Book-Entry System or the
Depository.
4. The Custodian shall have no
responsibility and shall
not be liable for ascertaining or acting
upon any calls,
conversions, exchange offers, tenders, interest
rate changes
or similar matters relating to Securities
held in the
Depository, unless the Custodian shall have
actually received
timely notice from the Depository. In no
event shall the
Custodian have any responsibility or liability
for the failure
of the Depository to collect, or for the late
collection or
late crediting by the Depository of any amount
payable upon
Securities deposited in the Depository which may
mature or be
redeemed, retired, called or otherwise
become payable.
However, upon receipt of a Certificate from
the Fund of an
overdue amount on Securities held in the
Depository the
Custodian shall make a claim against the
Depository on behalf
of the Fund, except that the Custodian shall not
be under any
obligation to appear in, prosecute or defend
any action suit
or proceeding in respect to any Securities
held by the
Depository which in its opinion may involve it
in expense or
liability, unless indemnity satisfactory to it
against all
- 34 -
expense and liability be furnished as often
as may be
required.
5. The Custodian shall not be under any
duty or obliga-
tion to take action to effect collection of any
amount due to
the Fund from the Transfer Agent of the Fund nor
to take any
action to effect payment or distribution by the
Transfer Agent
of the Fund of any amount paid by the
Custodian to the
Transfer Agent of the Fund in accordance with
this Agreement.
6. The Custodian shall not be under any
duty or obliga-
tion to take action to effect collection of any
amount if the
Securities upon which such amount is payable
are in default,
or if payment is refused after due demand or
presentation,
unless and until (i) it shall be directed to
take such action
by a Certificate and (ii) it shall be assured to
its satisfac-
tion of reimbursement of its costs and expenses
in connection
with any such action.
7. The Custodian may in addition to the
employment of
Foreign Sub-Custodians pursuant to Article XVI
appoint one or
more banking institutions as Depository or
Depositories, as
Sub-Custodian or Sub-Custodians, or as Co-
Custodian or
Co-Custodians including, but not limited
to, banking
institutions located in foreign countries, of
Securities and
moneys at any time owned by the Fund, upon
such terms and
conditions as may be approved in a Certificate or
contained in
an agreement executed by the Custodian, the
Fund and the
appointed institution.
8. The Custodian shall not be under any
duty or obliga-
tion (a) to ascertain whether any Securities
at any time
delivered to, or held by it or by any Foreign
Sub-Custodian,
for the account of the Fund and specifically
allocated to a
Series are such as properly may be held by the
Fund or such
Series under the provisions of its then current
prospectus, or
(b) to ascertain whether any transactions by the
Fund, whether
or not involving the Custodian, are such
transactions as may
properly be engaged in by the Fund.
9. The Custodian shall be entitled to
receive and the
Fund agrees to pay to the Custodian all out-of-
pocket expenses
and such compensation as may be agreed upon from
time to time
between the Custodian and the Fund. The
Custodian may charge
such compensation and any expenses with
respect to a Series
incurred by the Custodian in the performance of
its duties
pursuant to such agreement against any money
specifically al-
located to such Series. Unless and until the
Fund instructs
the Custodian by a Certificate to apportion any
loss, damage,
liability or expense among the Series in a
specified manner,
the Custodian shall also be entitled to
charge against any
money held by it for the account of a Series such
Series' pro
rata share (based on such Series net asset
value at the time
of the charge to the aggregate net asset value of
all Series
at that time) of the amount of any loss, damage,
liability or
- 35 -
expense, including counsel fees, for which
it shall be
entitled to reimbursement under the provisions
of this Agree-
ment. The expenses for which the Custodian shall
be entitled
to reimbursement hereunder shall include, but
are not limited
to, the expenses of sub-custodians and foreign
branches of the
Custodian incurred in settling outside of
New York City
transactions involving the purchase and sale of
Securities of
the Fund.
10. The Custodian shall be entitled to
rely upon any
Certificate, notice or other instrument in
writing received by
the Custodian and reasonably believed by the
Custodian to be a
Certificate. The Custodian shall be entitled to
rely upon any
Oral Instructions actually received by
the Custodian
hereinabove provided for. The Fund agrees to
forward to the
Custodian a Certificate or facsimile thereof
confirming such
Oral Instructions in such manner so that such
Certificate or
facsimile thereof is received by the
Custodian, whether by
hand delivery, telecopier or other similar
device, or
otherwise, by the close of business of the same
day that such
Oral Instructions are given to the Custodian.
The Fund agrees
that the fact that such confirming
instructions are not
received, or that contrary instructions are
received, by the
Custodian shall in no way affect the
validity of the
transactions or enforceability of the
transactions hereby
authorized by the Fund. The Fund agrees that
the Custodian
shall incur no liability to the Fund in
acting upon Oral
Instructions given to the Custodian hereunder
concerning such
transactions provided such instructions
reasonably appear to
have been received from an Officer.
11. The Custodian shall be entitled to
rely upon any
instrument, instruction or notice received by
the Custodian
and reasonably believed by the Custodian to be
given in ac-
cordance with the terms and conditions of any
Margin Account
Agreement. Without limiting the generality of
the foregoing,
the Custodian shall be under no duty to
inquire into, and
shall not be liable for, the accuracy of any
statements or
representations contained in any such
instrument or other
notice including, without limitation, any
specification of any
amount to be paid to a broker, dealer,
futures commission
merchant or Clearing Member.
12. The books and records pertaining to
the Fund which
are in the possession of the Custodian shall be
the property
of the Fund. Such books and records shall be
prepared and
maintained as required by the Investment Company
Act of 1940,
as amended, and other applicable securities laws
and rules and
regulations. The Fund, or the Fund's authorized
representa-
tives, shall have access to such books and
records during the
Custodian's normal business hours. Upon the
reasonable
request of the Fund, copies of any such
books and records
shall be provided by the Custodian to the Fund or
the Fund's
authorized representative, and the Fund shall
reimburse the
- 36 -
Custodian its expenses of providing such copies.
Upon reason-
able request of the Fund, the Custodian shall
provide in hard
copy or on micro-film, whichever the Custodian
elects, any
records included in any such delivery which are
maintained by
the Custodian on a computer disc, or are
similarly maintained,
and the Fund shall reimburse the Custodian for
its expenses of
providing such hard copy or micro-film.
13. The Custodian shall provide the Fund
with any report
obtained by the Custodian on the system of
internal accounting
control of the Book-Entry System, the Depository
or O.C.C.,
and with such reports on its own systems of
internal account-
ing control as the Fund may reasonably request
from time to
time.
14. The Fund agrees to indemnify the
Custodian against
and save the Custodian harmless from all
liability, claims,
losses and demands whatsoever, including
attorney's fees,
howsoever arising or incurred because of or in
connection with
this Agreement, including the Custodian's
payment or
non-payment of checks pursuant to paragraph 6 of
Article XIII
as part of any check redemption privilege program
of the Fund,
except for any such liability, claim, loss and
demand arising
out of the Custodian's own negligence or willful
misconduct.
15. Subject to the foregoing provisions
of this Agree-
ment, including, without limitation, those
contained in
Article XVI the Custodian may deliver and
receive Securities,
and receipts with respect to such Securities, and
arrange for
payments to be made and received by the
Custodian in
accordance with the customs prevailing from time
to time among
brokers or dealers in such Securities. When the
Custodian is
instructed to deliver Securities against payment,
delivery of
such Securities and receipt of payment
therefor may not be
completed simultaneously. The Fund assumes all
responsibility
and liability for all credit risks involved in
connection with
the Custodian's delivery of Securities pursuant
to instruc-
tions of the Fund, which responsibility and
liability shall
continue until final payment in full has been
received by the
Custodian.
16. The Custodian shall have no
duties or
responsibilities whatsoever except such
duties and
responsibilities as are specifically set forth
in this Agree-
ment, and no covenant or obligation shall be
implied in this
Agreement against the Custodian.
ARTICLE XVIII
TERMINATION
1. Either of the parties hereto may
terminate this
Agreement by giving to the other party a notice
in writing
specifying the date of such termination, which
shall be not
- 37 -
less than ninety (90) days after the date of
giving of such
notice. In the event such notice is given by
the Fund, it
shall be accompanied by a copy of a resolution of
the Board of
Trustees of the Fund, certified by the
Secretary, the Clerk,
any Assistant Secretary or any Assistant Clerk,
electing to
terminate this Agreement and designating a
successor custodian
or custodians, each of which shall be a bank or
trust company
having not less than $2,000,000 aggregate
capital, surplus and
undivided profits. In the event such notice is
given by the
Custodian, the Fund shall, on or before the
termination date,
deliver to the Custodian a copy of a resolution
of the Board
of Trustees of the Fund, certified by the
Secretary, the
Clerk, any Assistant Secretary or any
Assistant Clerk,
designating a successor custodian or
custodians. In the
absence of such designation by the Fund, the
Custodian may
designate a successor custodian which shall be a
bank or trust
company having not less than $2,000,000
aggregate capital,
surplus and undivided profits. Upon the date
set forth in
such notice this Agreement shall terminate, and
the Custodian
shall upon receipt of a notice of acceptance by
the successor
custodian on that date deliver directly to
the successor
custodian all Securities and moneys then owned by
the Fund and
held by it as Custodian, after deducting all
fees, expenses
and other amounts for the payment or
reimbursement of which it
shall then be entitled.
2. If a successor custodian is not
designated by the
Fund or the Custodian in accordance with
the preceding
paragraph, the Fund shall upon the date
specified in the
notice of termination of this Agreement and upon
the delivery
by the Custodian of all Securities (other than
Securities held
in the Book-Entry System which cannot be
delivered to the
Fund) and moneys then owned by the Fund be deemed
to be its
own custodian and the Custodian shall thereby
be relieved of
all duties and responsibilities pursuant to
this Agreement,
other than the duty with respect to
Securities held in the
Book Entry System which cannot be delivered to
the Fund to
hold such Securities hereunder in accordance
with this Agree-
ment.
ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a
Certificate signed
by two of the present Officers of the Fund
under its seal,
setting forth the names and the signatures of
the present
Officers. The Fund agrees to furnish to the
Custodian a new
Certificate in similar form in the event that any
such present
Officer ceases to be an Officer or in the event
that other or
additional Officers are elected or appointed.
Until such new
Certificate shall be received, the Custodian
shall be fully
protected in acting under the provisions of
this Agreement
- 38 -
upon Oral Instructions or signatures of the
present Officers
as set forth in the last delivered Certificate.
2. Any notice or other instrument
in writing,
authorized or required by this Agreement to be
given to the
Custodian, shall be sufficiently given if
addressed to the
Custodian and mailed or delivered to it at its
offices at 90
Washington Street, New York, New York 10286, or
at such other
place as the Custodian may from time to time
designate in
writing.
3. Any notice or other instrument
in writing,
authorized or required by this Agreement to be
given to the
Fund shall be sufficiently given if addressed to
the Fund and
mailed or delivered to it at its office at the
address for the
Fund first above written, or at such other place
as the Fund
may from time to time designate in writing.
4. This Agreement may not be amended or
modified in any
manner except by a written agreement executed by
both parties
with the same formality as this Agreement and
approved by a
resolution of the Board of Trustees of the Fund.
5. This Agreement shall extend to and
shall be binding
upon the parties hereto, and their respective
successors and
assigns; provided, however, that this Agreement
shall not be
assignable by the Fund without the written
consent of the
Custodian, or by the Custodian without the
written consent of
the Fund, authorized or approved by a resolution
of the Fund's
Board of Trustees.
6. This Agreement shall be construed in
accordance with
the laws of the State of New York without
giving effect to
conflict of laws principles thereof. Each
party hereby
consents to the jurisdiction of a state or
federal court
situated in New York City, New York in
connection with any
dispute arising hereunder and hereby waives its
right to trial
by jury.
7. This Agreement may be executed in
any number of
counterparts, each of which shall be deemed to be
an original,
but such counterparts shall, together,
constitute only one
instrument.
8. A copy of the Declaration of Trust of
the Fund is on
file with the Secretary of The Commonwealth of
Massachusetts,
and notice is hereby given that this instrument
is executed on
behalf of the Board of Trustees of the Fund as
Trustees and
not individually and that the obligations of
this instrument
are not binding upon any of the Trustees or
shareholders
individually but are binding only upon the assets
and property
of the Fund; provided, however, that the
Declaration of Trust
of the Fund provides that the assets of a
particular Series of
the Fund shall under no circumstances be
charged with li-
abilities attributable to any other Series of
the Fund and
- 39 -
that all persons extending credit to, or
contracting with or
having any claim against a particular Series of
the Fund shall
look only to the assets of that particular Series
for payment
of such credit, contract or claim.
- 40 -
IN WITNESS WHEREOF, the parties hereto
have caused this
Agreement to be executed by their
respective Officers,
thereunto duly authorized and their
respective seals to be
hereunto affixed, as of the day and year first
above written.
Greenwich
Street Municipals Portfolio Inc.
[SEAL]
By:_______________________
Attest:
_______________________
PNC Bank, NA
[SEAL]
By:_______________________
Name:
Title:
Attest:
_______________________
[ARTICLE] 6
[CIK] 0000897800
[NAME] GREENWICH STREET MUNICIPALS
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] MAY-31-1996
[PERIOD-END] MAY-31-1996
[INVESTMENTS-AT-COST] 240,569,479
[INVESTMENTS-AT-VALUE] 239,443,618
[RECEIVABLES] 7,086,178
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 246,529,796
[PAYABLE-FOR-SECURITIES] 7,087,940
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 974,074
[TOTAL-LIABILITIES] 8,062,014
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 234,100,151
[SHARES-COMMON-STOCK] 0
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 1,634,936
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 3,858,556
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (1,125,861)
[NET-ASSETS] 238,467,782
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 15,491,690
[OTHER-INCOME] 0
[EXPENSES-NET] 2,631,641
[NET-INVESTMENT-INCOME] 12,860,049
[REALIZED-GAINS-CURRENT] 5,005,387
[APPREC-INCREASE-CURRENT] (13,167,657)
[NET-CHANGE-FROM-OPS] 4,697,779
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 12,908,597
[DISTRIBUTIONS-OF-GAINS] 4,540,862
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (12,751,680)
[ACCUMULATED-NII-PRIOR] 1,638,484
[ACCUMULATED-GAINS-PRIOR] 3,394,031
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,234,067
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 397,574
[AVERAGE-NET-ASSETS] 248,681,022
[PER-SHARE-NAV-BEGIN] 12.84
[PER-SHARE-NII] 0.66
[PER-SHARE-GAIN-APPREC] (0.42)
[PER-SHARE-DIVIDEND] 0.66
[PER-SHARE-DISTRIBUTIONS] 0.23
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.19
[EXPENSE-RATIO] 1.058
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
