As filed with Securities and Exchange Commission on August 16, 1999
Securities Act Registration No. 33-58610
Investment Company Act No. 811-7524
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. 4/R>
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO.
5
__________________
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) 816-6474
(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
787 Seventh Avenue
New York, New York 10019-6099
_______________
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration
Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the
Securities Act of 1933, other than securities offered in connection
with a dividend reinvestment plan, check the following box. [X]
This Registration Statement relates to the registration of an
indeterminate number of shares solely for market-making transactions.
Pursuant to Rule 429, this Registration Statement relates to shares
previously registered on Form N-2 (Registration No. 33-58610).
It is proposed that this fiing will become effective:
[X] when declared effective pursuant to section 8(c).
GREENWICH STREET MUNICIPAL FUND INC.
Form N-2
Cross Reference Sheet
Part A
Item No. 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 Information
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; Investment 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
GREENWICH STREET MUNICIPAL FUND INC.
PART A
<PAGE>
Prospectus September 28, 1999
Greenwich Street Municipal Fund Inc.
Common Stock
Listed on the New York Stock Exchange
Trading symbol -- GSI
Greenwich Street Municipal Fund Inc. is a non-diversified, closed-end
management investment company. The fund's investment objective is to seek as
high a level of current income exempt from federal income tax as is consistent
with the preservation of capital. The fund invests primarily in long-term
investment grade municipal debt securities issued by state and local
governments, political subdivisions, agencies and public authorities (municipal
obligations).
Shares of closed-end funds frequently have market prices that are less than
the net asset value per share. For more information about this or other risks
of investing in the fund, see "Risk Factors and Special Considerations."
The prospectus contains important information about the fund. For your
benefit and protection, please read it before you invest, and keep it on hand
for future reference.
The statement of additional information (SAI) provides more detailed
information about the fund and is incorporated into this prospectus by
reference. The SAI and shareholder reports can be obtained without charge from
the fund by calling 1-800-331-1710 or writing to the fund at 388 Greenwich
Street, New York, New York 10013. You can review the fund's shareholder reports
at the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. The Commission charges a fee for this service. Information
about the Public Reference Room may be obtained by calling 1-800-SEC-0330. You
can get the same information free from the Commission's Internet web site at
www.sec.gov
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
Salomon Smith Barney Inc.
SSBC Fund Management Inc.
Investment Manager and Administrator
1
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Prospectus Summary 3
- ----------------------------------------------------------------------------
Fund Expenses 7
- ----------------------------------------------------------------------------
Financial Highlights 8
- ----------------------------------------------------------------------------
The Fund 9
- ----------------------------------------------------------------------------
The Offering 9
- ----------------------------------------------------------------------------
Use of Proceeds 9
- ----------------------------------------------------------------------------
Investment Objective and Policies 9
- ----------------------------------------------------------------------------
Risk Factors and Special Considerations 14
- ----------------------------------------------------------------------------
Investment Restrictions 18
- ----------------------------------------------------------------------------
Share Price Data 19
- ----------------------------------------------------------------------------
Net Asset Value 19
- ----------------------------------------------------------------------------
Taxation 20
- ----------------------------------------------------------------------------
Management of the Fund 21
- ----------------------------------------------------------------------------
Dividends and Distributions; Dividend Reinvestment Plan 23
- ----------------------------------------------------------------------------
Certain Provisions of the Articles of Incorporation and Market Discount 25
- ----------------------------------------------------------------------------
Description of Common Stock 27
- ----------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend-Paying Agent and Registrar 27
- ----------------------------------------------------------------------------
Independent Auditors 28
- ----------------------------------------------------------------------------
Further Information 28
- ----------------------------------------------------------------------------
Appendix A A-1
- ----------------------------------------------------------------------------
Appendix B B-1
- ----------------------------------------------------------------------------
</TABLE>
2
<PAGE>
Prospectus Summary
The following is a summary of more complete information appearing later in
the prospectus. You should read the entire prospectus because it contains
details that are not in the summary. Cross references in the summary to
headings in the prospectus will help you locate information.
Investment Objective and Primary Investments The fund's investment objective
is to seek as high a level of current income exempt from federal income tax as
is consistent with the preservation of capital. The fund invests primarily in
long-term investment grade municipal obligations. Investment grade debt
securities are those rated in one of the four highest rating categories by a
nationally recognized statistical rating organization.
Municipal obligations include bonds and notes such as:
. General obligation bonds issued for various public purposes and supported
by the municipal issuer's credit and taxing power.
. Revenue bonds whose principal and interest is payable only from the
revenues of a particular project or facility. Industrial revenue bonds
depend on the credit standing of a private issuer and may be subject to
the federal alternative minimum tax (AMT).
. Notes that are short-term obligations of municipalities or agencies sold
in anticipation of a bond sale, collection of taxes or receipt of other
revenues.
Municipal obligations may have all types of interest rate payment and reset
terms, including fixed rate, adjustable rate, zero coupon, payment in kind and
auction rate features. See "Investment Objective and Management Policies" and
Appendix A.
Tax-Exempt Income The fund invests with the objective that dividends paid by
the fund may be excluded by shareholders from their gross incomes for federal
income tax purposes. A portion of the fund's dividends may be taxable. The fund
may invest without limit in private activity bonds. Income from these bonds may
be a special preference item for purposes of the AMT. The fund may not be a
suitable investment if you are subject to the AMT. See "Investment Objective
and Policies" and "Taxation."
The Offering The fund's shares of common stock trade on the New York Stock
Exchange. In addition, Salomon Smith Barney may buy and sell the fund's shares
and will make a market in the common stock. Salomon Smith Barney is not
obligated to conduct market-making activities and may stop doing so at any time
without notice to the fund or its shareholders. See "The Offering" and "Use of
Proceeds."
Listing NYSE.
3
<PAGE>
Prospectus Summary (continued)
Symbol GSI.
Investment Manager SSBC Fund Management Inc. ("SSBC" or "manager") (formerly
Mutual Management Corp.). The manager selects and manages the fund's
investments in accordance with the fund's investment objective and policies.
SSBC is also the fund's administrator and oversees the fund's non-investment
operations and its relations with its service providers. For these services,
SSBC receives a combined fee equal on an annual basis to 0.90% of the fund's
average daily net assets.
SSBC and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup
businesses produce a broad range of financial services--asset management,
banking and consumer finance, credit and charge cards, insurance, investments,
investment banking and trading--and use diverse channels to make them available
to consumer and corporate customers around the world. See "Management of the
Fund."
Risk Factors and Special Considerations The value of the securities in the
fund's portfolio fluctuate in price and the value of your investment in the
fund may both appreciate and decline in value. This means that you could lose
money on your investment in the fund or the fund could perform less well than
other possible investments. In addition, the price of the shares is determined
by market prices on the NYSE and elsewhere, so you may receive a price that is
less than net asset value when you sell your shares. The principal risks
associated with an investment in the fund are described below.
Municipal obligations. The fund invests primarily in municipal obligations
and may be affected by any of the following:
. Interest rates rise, causing the value of the fund's portfolio to
decline.
. When interest rates are declining, the issuer of a security may exercise
its right to prepay principal earlier than scheduled, forcing the fund to
reinvest in lower yielding securities. This is known as call or
prepayment risk.
. The underlying revenue source for a municipal obligation, other than a
general obligation bond, is insufficient to pay principal or interest in
a timely manner.
. The issuer of a security owned by the fund has its credit rating
downgraded or defaults on its obligation to pay principal and/or
interest.
. The manager's judgment about the attractiveness, value or income
potential of a particular bond proves to be incorrect.
. Municipal obligations fall out of favor with investors.
. Unfavorable legislation affects the tax-exempt status of municipal
obligations.
4
<PAGE>
Prospectus Summary (continued)
Investment grade and unrated securities. The fund invests in investment
grade debt securities and up to 20% of its assets in unrated securities that
the manager believes are of comparable quality. The fund may experience more
difficulty selling unrated securities because markets for these securities may
be less liquid.
Concentration and non-diversification. The fund may invest more than 25% of
its assets in municipal securities that finance the same or similar facilities
or in issuers located in the same state. In addition, the fund is non-
diversified within the meaning of the Investment Company Act of 1940. This
means that, compared to a diversified fund, the fund may invest a greater
portion of its assets in the obligations of a smaller number of issuers. As a
result, the fund may be subject to greater risk than a diversified fund.
Possibility of taxable income or gains. It is possible that some of the
fund's income and gains may be subject to federal taxation. The fund may
realize taxable gains on the sale of its securities, and some of the fund's
income may be subject to the federal alternative minimum tax.
Derivatives. The fund may hold securities or use investment techniques that
provide for payments based on or "derived" from the performance of an
underlying asset, index or other economic benchmark.
Derivatives may be used:
. To shorten or lengthen the fund's effective maturity or duration.
. As a substitute for purchasing or selling securities.
. To hedge against adverse changes caused by changing interest rates in the
market value of securities held or to be bought by the fund.
A derivative contract will obligate or entitle the fund to deliver or
receive an asset or cash payment that is based on the change in value of one or
more securities or indices. Even a small investment in derivative contracts can
have a big impact on the fund's interest rate exposure. Therefore, using
derivatives can disproportionately increase losses and reduce opportunities for
gains when interest rates are changing. The fund may not fully benefit from or
may lose money on derivatives if changes in their value do not correspond
accurately to changes in the value of the fund's holdings. The other parties to
certain derivative contracts present the same types of default risk as issuers
of fixed income securities. Derivatives can also make the fund less liquid and
harder to value, especially in declining markets. Derivatives include futures
and options transactions.
Closed end investment company. The fund is a closed-end investment company
and its shares on the NYSE may trade at a price that is less than its net asset
value.
5
<PAGE>
Prospectus Summary (continued)
Certain provisions in the fund's governing documents may limit the ability
of other entities to acquire control of the fund. This could deprive
shareholders of the opportunity to sell their shares at a premium over
prevailing market prices.
See "Risk Factors and Special Considerations" and "Certain Provisions of the
Articles of Incorporation
and Market Discount."
Dividends and Distributions Any dividends from net investment income (that
is, income other than net realized capital gains) are paid monthly and any
distributions of net realized capital gains are paid annually. Your dividends
or distributions are reinvested in additional fund shares through participation
in the dividend reinvestment plan, unless you elect to receive cash. The number
of shares issued to you by the plan depends on the price of the shares. The
price of the shares is determined by the market price at the time the shares
are purchased for reinvestment.
<TABLE>
<CAPTION>
Price of Fund Shares
Purchased
Market Price of Fund Shares Pursuant to the Plan
--------------------------- ---------------------------
<S> <C>
Greater than or equal to net asset value Shares issued at net asset
value or 95% of market
price, whichever is greater
Less than net asset value Market price
</TABLE>
See "Dividends and Distributions; Dividend Reinvestment Plan."
Custodian PNC Bank, National Association (PNC Bank) is the fund's custodian.
See "Custodian, Transfer Agent, Dividend-Paying Agent and Registrar."
Transfer Agent, Dividend-Paying Agent and Registrar First Data Investor
Services Group, Inc. (First Data) is the fund's transfer agent, dividend-paying
agent and registrar. See "Custodian, Transfer Agent, Dividend-Paying Agent and
Registrar."
6
<PAGE>
Fund Expenses
The following table shows the expenses the fund pays. As a shareholder, you
indirectly bear these expenses.
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Annual Expenses
(as a percentage of net assets)
Management fees*....................................................... .90%
Other expenses**....................................................... .11%
- --------------------------------------------------------------------------------
Total Annual Operating Expenses.......................................... 1.01%
- --------------------------------------------------------------------------------
</TABLE>
* On September 1, 1998, SSBC instituted a voluntary waiver of a portion of its
management fees in order to enable the Fund to increase its dividend yield.
The waiver is a temporary measure and may be terminated at any time by SSBC.
The amount stated above does not reflect this waiver. See "Management of the
Fund -- Investment Manager and Administrator" in the SAI for further
details.
** "Other expenses," as shown above are based on actual expenses for the fiscal
year ending May 31, 1999.
Example
An investor would directly or indirectly pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2) reinvestment of all
dividends and distributions at net asset value:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$103 $332 $558 $1,236
- ----------------------------------------------------------------------------------------------
</TABLE>
This example assumes reinvestment of all dividends and distributions at net
asset value and that the percentage amounts listed under Annual Expenses remain
the same in the years shown. This example should not be considered a
representation of future expenses of the fund. Actual expenses may be greater
or less than shown.
7
<PAGE>
Financial Highlights
The following information for the four years ended May 31, 1999 has been
audited by KPMG LLP, independent auditors whose report thereon appears in the
fund's annual report dated May 31, 1999. The information for the
fiscal year ended May 31, 1995 has been audited by other independent auditors.
This information should be read in conjunction with the financial statements
and related notes that also appear in the fund's annual report to shareholders,
which is incorporated by reference into this prospectus and the statement of
additional information.
For a share of capital stock outstanding throughout each period ended May 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995(1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year $11.78 $11.59 $12.19 $12.84 $12.00
Income (loss) From Operations:
Net investment income(2) 0.55 0.50 0.66 0.66 0.63
Net realized and unrealized
gain (loss) (0.33) 0.66 (0.26) (0.42) 0.77
- ------------------------------------------------------------------------------
Total Income From Operations 0.22 1.16 0.40 0.24 1.40
- ------------------------------------------------------------------------------
Offering Cost Charged to
Paid-In Capital -- -- -- -- (0.02)
- ------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.54) (0.60) (0.66) (0.66) (0.54)
In excess of net investment
income (0.03) (0.01) -- -- --
Net realized gains -- (0.36) (0.34) (0.23) --
- ------------------------------------------------------------------------------
Total Distributions (0.57) (0.97) (1.00) (0.89) (0.54)
- ------------------------------------------------------------------------------
Net Asset Value, End of Year $11.43 $11.78 $11.59 $12.19 $12.84
- ------------------------------------------------------------------------------
Total Return Based on Market
Value(3) 1.07% (0.20)% 8.97% 5.52% 1.65%++
- ------------------------------------------------------------------------------
Total Return, Based on Net
Asset Value(3) 2.37% 10.53% 3.61% 2.40% 12.28%++
- ------------------------------------------------------------------------------
Net Assets, End of Year
(millions) $227 $234 $228 $238 $251
- ------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.56% 1.00% 1.03% 1.06% 1.05%+
Net investment income 4.65 4.25 5.57 5.17 5.63+
- ------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 85% 115% 42% 115%
- ------------------------------------------------------------------------------
Market Value, End of Year $10.000 $10.438 $11.375 $11.375 $11.625
- ------------------------------------------------------------------------------
</TABLE>
(1) For the period from June 24, 1994 (commencement of operations) to May 31,
1995.
(2) The investment adviser waived a part of its fees for the year ended May 31,
1999. If such fees were not waived, the per share decrease on the net
investment income would have been $0.05. In addition, the annualized ratio
of expenses to average net assets would have been 1.01%.
(3) The total return calculation assumes dividends are reinvested in accordance
with the Fund's dividend reinvestment plan.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
8
<PAGE>
The Fund
The fund was incorporated under the laws of the State of Maryland on
February 19, 1993 and is registered under the 1940 Act. Its principal office is
located at 388 Greenwich Street, New York, New York 10013. The portfolio's
telephone number is (800) 331-1710.
The Offering
Salomon Smith Barney currently makes a market in the common stock. This
prospectus is to be used by Salomon Smith Barney in connection with offers and
sales of the common stock in market-making transactions in the over-the-counter
market at negotiated prices related to prevailing market prices at the time of
the sale. Salomon Smith Barney is not required to make a market in the common
stock and may stop doing so at any time. You should not rely on Salomon Smith
Barney's market making activities to provide an active or liquid trading market
for the common stock.
Use of Proceeds
The fund will not receive any proceeds from the sale of any common stock
offered pursuant to this prospectus. Proceeds received by Salomon Smith Barney
as a result of its market-making in the common stock will be used by Salomon
Smith Barney in connection with its secondary market operations and for general
corporate purposes.
Investment Objective and Policies
The 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 only be changed with the
affirmative vote of the holders of a "majority of the fund's outstanding voting
securities" (as defined in the 1940 Act). In seeking its objective, the fund
invests in long-term municipal obligations. The fund operates subject to a
fundamental investment policy providing that, under normal conditions, the fund
will invest at least 80% of its total assets in investment grade municipal
obligations. No assurance can be given that the fund's investment objective
will be achieved.
The fund will normally invest at least 80% of its total assets in municipal
obligations rated investment grade at the time of investment. Investment grade
securities are rated within the highest four rating categories by Moody's
9
<PAGE>
Investment Objective and Policies (continued)
Investor Services, Inc. ("Moody's"), Standard and Poor's Rating Group ("S&P")
and FitchIBCA, Inc. ("Fitch") or another nationally-recognized rating agency
("NRSRO"). A description of Moody's, S&P and Fitch ratings is set forth in the
Appendix to the SAI. Up to 20% of the fund's total assets may be invested in
unrated securities that are deemed by the manager to be of a quality comparable
to investment grade. The fund will not invest in municipal obligations that are
not rated investment grade by any NRSRO, at the time of purchase. Although
municipal obligations rated Baa by Moody's, BBB by S&P or BBB by Fitch are
considered to be investment grade, they may be subject to greater risks than
other higher rated investment grade securities. Municipal obligations rated Baa
by Moody's, for example, are considered medium grade obligations that lack
outstanding investment characteristics and have speculative characteristics as
well. Municipal obligations rated BBB by S&P are regarded as having an adequate
capacity to pay principal and interest. Municipal obligations rated BBB by
Fitch are deemed to be subject to a higher likelihood that their rating will
fall below investment grade than higher rated bonds.
The 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 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
single industry. Governmental issuers of municipal obligations are not
considered part of any industry. Municipal obligations backed only by the
assets and revenues of non-governmental users may be deemed to be issued by the
non-governmental users, and would be subject to the 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 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
10
<PAGE>
Investment Objective and Policies (continued)
invest more than 25% of its total in issuers located in the same state, it
would be more susceptible to adverse economic, business or regulatory
conditions in that state.
Municipal obligations are classified as general obligation bonds, revenue
bonds and notes. General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source, but not from the general
taxing power. Notes are short-term obligations of issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal obligations bear fixed, floating and
variable rates of interest, and variations exist in the security of municipal
obligations, both within a particular classification and between
classifications. The types of municipal obligations in which the 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 income taxes are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the fund nor
the manager will review the procedures relating to the issuance of municipal
obligations or the basis for opinions of counsel. Issuers of municipal
obligations may be subject to the provisions of bankruptcy, insolvency and
other laws, affecting the rights and remedies of creditors. In addition, the
obligations of those issuers may become subject to laws enacted in the future
by Congress, state legislatures or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of
the obligations or upon the ability of municipalities to levy taxes. The
possibility also exists that, as a result of litigation or other conditions,
the power or ability of any issuer to pay, when due, the principal of, and
interest on, its obligations may be materially affected.
Under normal conditions, the 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
manager that
11
<PAGE>
Investment Objective and Policies (continued)
market conditions warrant such a posture. To the extent the fund holds taxable
investments, the fund may not be fully achieving its investment objective.
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 Transactions. The fund may purchase
municipal securities on a "when-issued" and "delayed delivery" basis and may
purchase or sell municipal securities on a "delayed delivery" basis in order to
hedge against anticipated changes in interest rates and prices. No income
accrues to the fund on municipal securities in connection with such
transactions prior to the date the fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher than yields on the municipal securities obtained pursuant
to such transactions. Because the fund relies on the buyer or seller, as the
case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the fund is the
buyer in such a transaction, however, it will maintain, in a segregated
account, cash or liquid securities having a value equal to or greater than the
fund's purchase commitments, provided such securities have been determined by
the manager to be liquid and unencumbered, and are marked to market daily,
pursuant to guidelines established by the directors. When the fund is the
seller in such a transaction, it will cover its commitment to deliver the
security by maintaining positions in portfolio securities that would serve to
satisfy or offset the risk of such obligations. The fund will make commitments
to purchase municipal securities on such basis only with the intention of
actually acquiring these securities, but the fund may sell such securities
prior to the settlement date if such sale is considered to be advisable.
To the extent the fund engages in "when-issued" and "delayed delivery"
transactions, it will do so for the purpose of acquiring securities for the
fund's portfolio consistent with the fund's investment objective and policies.
However, although the fund does not intend to engage in such transactions for
speculative purposes, purchases of securities on such basis may involve more
risk than other types of purchases. For example, if the fund determines it is
necessary to sell the "when-issued" or "delayed delivery" securities before
delivery, it may incur a gain or a loss because of market fluctuations since
the time the commitment to purchase such securities was made. Subject to the
requirement of maintaining a segregated account, no specified limitation exists
as to the percentage of the fund's assets which may be used to acquire
securities on a "when-issued" or
12
<PAGE>
Investment Objective and Policies (continued)
"delayed delivery" basis. A significant percentage of the fund's assets
committed to the purchase of securities on a "when-issued" or "delayed
delivery" basis may increase the volatility of the fund's net asset value and
may limit the flexibility to manage the fund's investments.
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 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 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 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
13
<PAGE>
Investment Objective and Policies (continued)
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 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 33 1/3% of the value of the fund's
total assets. 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 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.
Risk Factors and Special Considerations
There are risks associated with an investment in the fund. You should
consider whether the fund is an appropriate investment for you. The fund
invests substantially all of its assets in municipal obligations, and
circumstances or events that affect the value of municipal obligations will
affect the fund's net asset value. While certain risks are discussed elsewhere
in this prospectus, the following is intended to provide a summary of the
principal risks of an investment in the fund.
Interest rate sensitivity
. Municipal obligations are fixed-income securities which are sensitive to
changes in interest rates. Generally, when interest rates are rising, the value
of the fund's fixed-income securities can be expected to decrease. When
interest rates are declining, the value of the fund's fixed-income securities
can be expected to increase. The fund's net asset value may fluctuate in
response to the increasing or decreasing value of the fund's fixed-income
securities.
14
<PAGE>
Risk Factors and Special Considerations (continued)
Less liquid markets for some municipal obligations
. The market for municipal obligations may be less liquid than for corporate
bonds. The market for special obligation bonds, lease obligations,
participation certificates and variable rate instruments, which the fund may
purchase, may be less liquid than for general obligation bonds.
. Less liquid markets tend to be more volatile and react more negatively to
adverse publicity and investor perception than more liquid markets. If markets
are less liquid, the fund may not be able to dispose of municipal obligations
in a timely manner and at a fair price.
. Some of the fund's investments may be restricted as to resale. Although
restricted securities may be sold in private transactions, a security's value
may be less than the price originally paid by the fund. The ability of the
manager to value illiquid or restricted securities will be more difficult and
the manager's judgment may play a greater role in their valuation.
Issuer of a municipal obligation may default on its obligation to pay
. The issuer of a municipal obligation may not be able to make timely
payments of interest and principal because of general economic downturns or
adverse allocation of government cost burdens. If an issuer did not make timely
payments, the fund would not receive the anticipated income from the investment
and the value of the investment might be reduced. This could result in a
decrease in the fund's net asset value and adversely affect the fund's ability
to pay dividends. This risk of default may be greater for private activity
bonds or other municipal obligation whose payments are dependent upon a
specific source of revenue.
.Even if the issuer does not actually default, adverse changes in the
issuer's financial condition may negatively affect its credit rating or
presumed creditworthiness. These developments would adversely affect the market
value of the issuer's obligations.
Issuer of a municipal obligation declares bankruptcy
.The issuer of a municipal obligation might declare bankruptcy and the fund
could experience delays collecting interest and principal. To enforce its
rights, the fund might be required to take possession of and manage the assets
securing the issuer's obligation. This may increase the fund's expenses, reduce
its net asset value and increase the amount of the fund's distributions that is
in taxable form.
.If the fund took possession of a bankrupt issuer's assets, income derived
from the fund's ownership and management of the assets may not be tax exempt.
Shareholders may receive more of the total distributions from the fund in
taxable form.
.The fund might not be able to take possession of the assets of a bankrupt
issuer because of laws protecting state and local institutions, limits on the
15
<PAGE>
Risk Factors and Special Considerations (continued)
investments the fund is permitted to make, and the nature of the income the
fund is entitled to receive from its investments imposed on it by the Code. If
the fund cannot take possession of the assets and enforce its rights, the value
of the security may be greatly diminished. This could reduce the fund's net
asset value.
Adverse governmental action
.The U.S. government has enacted laws that have restricted or diminished the
income tax exemption on some municipal obligations and it may do so again in
the future. If this were to happen, shareholders could receive more of the
distributions from the fund in taxable form.
.There may be less extensive information available about the financial
condition of issuers of municipal obligations than for corporate issuers with
publicly traded securities.
Municipal Obligations Purchased at a Premium
.The issuer of a municipal obligation may be obligated to redeem the
security at face value, but if the fund paid more than face value for the
security, the fund may lose money on the security when it is sold.
Municipal Leases
.These leases frequently contain clauses that permit the governmental issuer
to stop making interest and principal payments if money is not appropriated by
the legislature annually or on some other periodic basis.
.These leases are less liquid than municipal obligations and may be
difficult to value and to sell at a fair price.
.If the issuer is foreclosed upon, the assets securing these leases may be
difficult to dispose of.
When-Issued and Delayed Delivery Transactions
The fund may use when-issued and delayed delivery transactions to purchase
securities. The value of securities purchased in these transactions may
decrease before they are delivered to the fund. Also, the yield on securities
purchased in these transactions may be higher in the market when the delivery
takes place.
Repurchase Agreements
The fund may use repurchase agreements to manage its cash position. If the
other party to the agreement defaults, the fund may not be able to sell the
underlying securities. If the fund must assert its rights against the other
party to recover the securities, the fund will incur unexpected expenses, risk
losing the income on the security and assume the risk of loss in the value of
the security.
16
<PAGE>
Risk Factors and Special Considerations (continued)
Lending Securities
If the party borrowing the fund's securities fails financially, the fund may
be unable to recover the loaned securities.
Financial Futures and Options
The fund may use financial futures contracts and options on these contracts
to protect the fund from a decline in the price of municipal obligations it
owns or an increase in the price of a municipal obligation it plans to buy.
There are risks associated with futures and options transactions.
.Because it is not possible to perfectly correlate the price of the
securities being hedged with the price movement in a futures contract, it is
not possible to provide a perfect offset on losses on the futures contract or
the option on the contract.
.Because there is imperfect correlation between the fund's securities that
are hedged and the futures contract, the hedge may not be fully effective.
Losses on the fund's security may be greater than gains on the future contract,
or losses on the futures contract may be greater than gains on the securities
subject to the hedge.
.To compensate for imperfect correlation, the fund may over-hedge or under-
hedge by entering into a futures contract or options on futures contracts in
dollar amounts greater or lesser than the dollar amounts of the securities
being hedged. If market movements are not as anticipated, the fund could lose
money from these positions.
.If the fund hedges against an increase in interest rates, and rates decline
instead, the fund will lose all or part of the benefit of the increase in value
of the securities it hedged. This loss will occur because it will have
offsetting losses in its futures or options positions. Also, in order to meet
margin requirements, the fund may have to sell securities at a time it would
not normally choose.
Concentration and Non-Diversification
The fund may concentrate its assets in municipal securities that finance the
same or similar facilities or in issuers located in the same state. If the fund
concentrates its assets, it may be more adversely affected by events affecting
those issuers than if it were investing in a broader range of securities. In
addition, the fund is non-diversified within the meaning of the Investment
Company Act of 1940. This means that, compared to a diversified fund, the fund
may invest a greater portion of its assets in the obligations of a smaller
number of issuers. As a result, the fund may be subject to greater risk than a
diversified fund.
Year 2000
Information technology experts are concerned about computer systems' ability
to process date-related information on and after January 1, 2000. This
17
<PAGE>
Risk Factors and Special Considerations (continued)
situation, commonly known as the "Year 2000" issue, could have an adverse
impact on the fund. The cost of addressing the Year 2000 issue, if substantial,
could adversely affect governments that issue securities held by the fund. The
manager is addressing the Year 2000 issue for their systems. The fund has been
informed by its other service providers that they are taking similar measures.
Although the fund does not expect the Year 2000 issue to adversely affect it,
the fund cannot guarantee that its efforts or those of its service providers to
correct the problem will be successful.
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
outstanding voting securities of the fund," within the meaning of the 1940 Act.
A "majority of the outstanding voting securities" for this purpose means the
lesser of (1) 67% or more of the shares of the 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.
The following are several of the restrictions applicable to the fund. For a
complete listing of the investment restrictions applicable to the fund, see
"Investment Restrictions" in the SAI. Any percentage limits apply only at the
time of initial investment. The fund is not required to sell securities if the
limits are exceeded after the investment is completed. The fund may not:
. Borrow money, except for temporary or emergency purposes, and then not in
amounts that are greater than 15% of total assets (including the amount
borrowed).
. Buy more securities if the fund had borrowed money in amounts greater
than 5% of net assets.
. Invest more than 25% of total assets in securities of issuers in a single
industry. This restriction does not apply to the fund's investments in
municipal obligations and U.S. government securities.
18
<PAGE>
Share Price Data
The fund's common stock is listed on the NYSE under the symbol "GSI."
Salomon Smith Barney currently intends to buy and sell the fund's shares in
order 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
-------------------- -------------------
Net Asset NYSE Discount Net Asset NYSE Discount
Value Price to NAV Value Price to NAV
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
8/31/97 $11.98 $12.000 0.17% $11.71 $11.500 (1.79)%
11/30/97 11.94 11.688 (2.11) 11.76 11.063 (5.93)
2/28/98 12.08 11.813 (2.21) 11.74 11.063 (5.77)
5/31/98 11.81 11.500 (2.62) 11.62 10.438 (10.17)
8/31/98 11.84 10.813 (8.67) 11.72 10.063 (14.14)
11/30/98 12.01 11.125 (7.37) 11.84 10.250 (13.43)
2/28/99 11.87 11.500 (3.12) 11.77 10.500 (10.79)
5/31/99 11.76 10.875 (7.53) 11.47 9.906 (13.64)
8/31/99
- ----------------------------------------------------------------
</TABLE>
As of , 1999, the price of common stock as quoted on the NYSE was $ ,
representing an % discount from the common stock's net asset value
calculated on that day.
Net Asset Value
The fund's net asset value is calculated as of the close of regular trading
on the NYSE, currently 4:00 p.m., New York time, on the last day on which the
NYSE is open for trading of each week and month. Net asset value is calculated
by dividing the value of the fund's net assets (the value of its assets less
its liabilities, exclusive of capital stock and surplus) by the total number of
shares of common stock outstanding. Investments in securities having a maturity
of 60 days or less are valued at amortized cost. All other securities and
assets are taken at fair value as determined in good faith by or under the
direction of the board of directors.
The valuation of the fund's assets is made by the manager after consultation
with an independent pricing service (the "service") approved by the board of
directors. When, in the judgment of the service, quoted bid prices for
investments are readily available and are representative of the bid side of the
market, these
19
<PAGE>
Net Asset Value (continued)
investments are valued at the mean between the quoted bid prices and asked
prices. Investments for which, in the judgment of the service, no readily
obtainable market quotation is available (which may constitute a majority of
the fund's portfolio securities), are carried at fair value as determined by
the service. The service may use electronic data processing techniques and/or a
matrix system to determine valuations. The procedures of the service are
reviewed periodically by the officers of the fund under the general supervision
and responsibility of the board of directors, which may replace the service at
any time if it determines it to be in the best interests of the fund to do so.
Taxation
The following is a summary of the material federal tax considerations
affecting the fund and fund shareholders. Please refer to the SAI for further
discussion. In addition to the considerations described below and in the SAI,
there may be other federal, state, local, or foreign tax implications to
consider. Because taxes are a complex matter, you are urged to consult your tax
advisor for more detailed information with respect to the consequences of an
investment.
The fund has qualified and intends to qualify, as it has in prior years,
under Subchapter M of the Code for tax treatment as a regulated investment
company so long as such qualification is in the best interests of its
shareholders. In each taxable year that the fund qualifies, the fund will pay
no federal income tax on its net investment income and long-term capital gain
that is distributed to shareholders. The fund also intends to satisfy
conditions that will enable it to pay "exempt-interest dividends" to
shareholders. Exempt-interest dividends are generally not subject to regular
federal income taxes but may be considered taxable for state and local income
(or intangible) tax purposes.
Exempt-interest dividends attributable to interest received by the fund on
certain "private-activity" bonds will be treated as a specific tax preference
item to be included in an individual shareholder's alternative minimum tax
computation. Corporate shareholders must include 75% of all exempt-interest as
a component in the corporate minimum taxable income computation. Exempt-
interest dividends derived from the interest earned on private activity bonds
will not be exempt from federal income tax for those shareholders who are
"substantial users" (or persons related to "substantial users") of the
facilities financed by these bonds.
Shareholders who receive social security or equivalent railroad retirement
benefits should note that exempt-interest dividends are one of the items taken
into consideration in determining the amount of these benefits that may be
subject to federal income tax.
20
<PAGE>
Taxation (continued)
The interest expense incurred by a shareholder on borrowings made to
purchase, or carry fund shares, are not deductible for Federal income tax
purposes to the extent related to the exempt-interest dividends received on
such shares.
Dividends paid by the fund from interest income on taxable investments, net
realized short-term securities gains, and all or a portion of any gains
realized from the sale or other disposition of certain market discount bonds
are subject to federal income tax as ordinary income. Distributions, if any,
from net realized long-term securities gains are taxable as long-term capital
gains, regardless of the length of time a shareholder has owned fund shares.
Distributions, if any, from net realized long-term securities gains are
taxable as long-term capital gains, regardless of the length of time a
shareholder has owned fund shares.
Shareholders are required to pay tax on all taxable distributions even if
those distributions are automatically reinvested in additional fund shares.
None of the dividends paid by the fund will qualify for the corporate dividends
received deduction. The fund will inform shareholders of the source and tax
status of all distributions promptly after the close of each calendar year.
The fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for
shareholders who do not provide the fund with a correct taxpayer identification
number (social security or employer identification number). Withholding from
taxable dividends and capital gain distributions also is required for
shareholders who otherwise are subject to backup withholding. Any tax withheld
as a result of backup withholding does not constitute an additional tax, and
may be claimed as a credit on the shareholders' Federal income tax return.
Management of the 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 manager, administrator, custodian and transfer agent. The day-
to-day operations of the fund are delegated to the fund's manager. The SAI
contains background information regarding each Director and executive officer
of the fund.
Investment Manager and Administrator
SSBC, located at 388 Greenwich Street, New York, New York 10013, serves as
the fund's investment adviser. The manager, through its predecessors, has been
21
<PAGE>
Management of the Fund (continued)
in the investment counseling business since 1968 and renders investment advice
to a wide variety of individual, institutional and investment company clients
with aggregate assets under management as of , 1999 in excess of $
billion. The manager is an affiliate of Salomon Smith Barney. The manager and
Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses
produce a broad range of financial services--asset management, banking and
consumer finance, credit and charge cards, insurance, investments, investment
banking and trading--and use diverse channels to make them available to
consumer and corporate customers around the world.
Subject to the supervision and direction of the fund's board of directors,
SSBC 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 manager a fee for services provided to the fund that is
computed daily and paid monthly at the annual rate of 0.90% of the value of the
fund's average daily net assets.
Transactions on behalf of the fund are allocated to various dealers by the
manager in its best judgment. The primary consideration is prompt and effective
execution of orders at the most favorable price. Subject to that primary
consideration, dealers may be selected for their research, statistical or other
services to enable the manager to supplement its own research and analysis with
the views and information of other securities firms. The fund may use Salomon
Smith Barney or an affiliate broker in connection with the purchase or sale of
securities when the manager believes that the broker's charge for the
transaction does not exceed usual and customary levels. The same standard
applies to the use of Salomon Smith Barney as a broker in connection with
entering into options and futures contracts. The fund paid no brokerage
commissions in the last fiscal year, because transactions in fixed income
securities are executed as principal transactions by the various dealers.
Citigroup is a bank holding company subject to regulation under the Bank
Holding Company Act of 1956 (the "BHCA"), the requirements of the Glass-
Steagall Act and certain other laws and regulations.
Salomon Smith Barney and the manager believe that the manager's investment
management and administration services and the market-making activities
performed by Salomon Smith Barney are not underwriting and are consistent with
the BHCA, the Glass-Steagall Act and other federal and state laws applicable to
Citigroup. However, there is little controlling precedent regarding the
performance of the combination of investment advisory and administrative
activities by subsidiaries of bank holding companies. If Salomon Smith Barney
22
<PAGE>
Management of the Fund (continued)
and the manager, or their affiliates, were to be prevented from acting as the
manager or administrator, the fund would seek alternative means for obtaining
these services. The fund does not expect that shareholders would suffer any
adverse financial consequences as a result of any such occurrence.
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 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 SSBC and is the senior
portfolio manager for a number of investment companies and other accounts
investing in tax-exempt securities.
Dividends and Distributions; Dividend Reinvestment Plan
The fund generally expects to pay monthly dividends of net investment income
(income other than net realized capital gains) and to distribute net realized
capital gains, if any, annually. From time to time, when the fund makes a
substantial capital gains distribution, it may do so in lieu of paying its
regular monthly dividend. All dividends or distributions with respect to shares
of common stock are reinvested automatically in additional shares through
participation in the fund's dividend reinvestment plan (the "plan"), unless a
shareholder elects to receive cash.
Under the plan, a shareholder whose shares of common stock are registered in
his or her own name will have all distributions from the fund reinvested
automatically by First Data as purchasing agent under the plan, unless the
shareholder elects to receive cash. Distributions with respect to shares
registered in the name of a broker-dealer or other nominee (that is, in "street
name") will be reinvested by the broker or nominee in additional shares under
the plan, unless the service is not provided by the broker or nominee or the
shareholder elects to receive distributions in cash. Investors who own common
stock registered in street name should consult their broker-dealers for details
regarding reinvestment. All distributions to 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 on the date of valuation, Plan participants will be issued shares of
common
23
<PAGE>
Dividends and Distributions; Dividend Reinvestment Plan (continued)
stock at a price equal to the greater of (1) the net asset value per share most
recently determined as described under "Net Asset Value" or (2) 95% of the
market price.
If the net asset value per share of common stock at the time of valuation
exceeds the market price of the common stock, or if the 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 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 portion of the
dividend or distribution by issuing shares at a price equal to the greater of
(a) net asset value or (b) 95% of the then current market price. In this case,
the number of shares of common stock received by a plan participant will be
based on the weighted average of prices paid for shares purchased in the open
market and the price at which the 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 payment date of the dividend or capital gains distribution, but in no
event shall such purchases continue later than 30 days after that date, except
when necessary to comply with applicable provisions of the federal securities
laws.
First Data maintains all shareholder accounts in the plan and furnishes
written confirmations of all transactions in each account, including
information needed by a shareholder for personal and tax records. The automatic
reinvestment of dividends and capital gains distributions will not relieve plan
participants of any income tax that may be payable on the dividends or capital
gains distributions. Common stock in the account of each plan participant will
be held by First Data in uncertificated form in the name of each plan
participant.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the plan. First Data's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
fund. No brokerage charges apply with respect to shares of common stock issued
directly by the fund under the plan. Each plan participant will, however, bear
a proportionate share of brokerage commissions incurred with respect to any
open market purchases made under the plan.
24
<PAGE>
Dividends and Distributions; Dividend Reinvestment Plan (continued)
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 Investor Services Group, P.O. Box
8030, Boston, Massachusetts 02266-8030 or by telephone at 1-800-451-2010.
Certain Provisions of the Articles of Incorporation and Market Discount
Anti-Takeover Provisions
The fund presently has provisions in its articles of incorporation and
bylaws (commonly referred to as "anti-takeover" provisions) which may have the
effect of limiting the ability of other entities or persons to acquire control
of the fund, to cause it to engage in certain transactions or to modify its
structure.
The board of directors is classified into three classes, each with a term of
three years with only one class of directors standing for election in any year.
Such classification may prevent replacement of a majority of the directors for
up to a two-year period. The articles of incorporation provide that the maximum
number of 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 75% 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 75% of the directors approve the actions described in (i) through
(iii) 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 a
25
<PAGE>
Certain Provisions of the Articles of Incorporation and Market Discount
(continued)
change in the Fund's business or management more difficult 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, although in some cases they may trade at a
premium. Shares of closed-end investment companies investing primarily in
fixed-income securities tend to trade on the basis of income yield on the
market price of the shares and the market price may also be affected by trading
volume, general market conditions and economic conditions and other factors
beyond the control of the 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
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
specified above, which some other closed-end funds have used to address the
discount. The experience of many closed-end funds suggests that the effect of
many of these steps (other than open-ending) on the discount may be temporary
or insignificant. Accordingly, there can be no assurance that any of these
actions will be taken or, if undertaken, will cause the fund's shares to trade
at a price equal to their net asset value. The fund's manager may voluntarily
waive its fees from time to time in order to increase the fund's dividend yield
in an effort to reduce the discount. Any such waiver may be terminated at any
time, and there can be no assurance that such actions would be successful at
reducing the discount.
26
<PAGE>
Description of Common Stock
<TABLE>
<CAPTION>
Amount
Outstanding
Exclusive of
Amount Held Shares Held by
by Fund Fund for its
Shares for its Own Own Account as
Title of Class Authorized Account of September , 1999
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock 500,000,000 --
- ------------------------------------------------------------------------------------
</TABLE>
No shares, other than those currently outstanding, are offered for sale
pursuant to this prospectus. All shares of common stock have equal non-
cumulative voting rights and equal rights with respect to dividends, assets and
liquidations. Shares of common stock will be fully paid and non-assessable when
issued and have no preemptive, conversion or exchange rights. A majority of the
votes cast at any meeting of shareholders is sufficient to take or authorize
action, except for election of Directors or as otherwise provided in the fund's
articles of incorporation as described under "Certain Provisions of the
Articles of Incorporation and Market Discount."
Under the rules of the NYSE applicable to listed companies, the fund is
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.
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." Such 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 a majority of the fund's outstanding shares.
Custodian, Transfer Agent, Dividend-Paying Agent and Registrar
PNC Bank, located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, acts as custodian of the fund's investments. First Data, located at One
Exchange Place, Boston, Massachusetts 02109, serves as agent in connection with
the plan and serves as the fund's transfer agent, dividend-paying agent and
registrar.
27
<PAGE>
Independent Auditors
The audited financial statements have been incorporated by reference in the
SAI in reliance upon the report of KPMG LLP, independent auditors, and upon the
authority of said firm as experts in accounting and auditing.
Further Information
This prospectus does not contain all of the information set forth in the
registration statement filed with the SEC. The complete registration statement
may be obtained from the SEC upon payment of any applicable fee prescribed by
its rules and regulations.
28
<PAGE>
Appendix A
Types of Municipal Obligations
The fund may invest in the following types of municipal obligations and in such
other types of municipal obligations as may be described in the prospectus.
Municipal Bonds
Municipal bonds are debt obligations issued to obtain funds for various
public purposes. The two principal classifications of municipal bonds are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or from another specific
source, such as the user of the facility being financed. Certain municipal
bonds are "moral obligation" issues, which normally are issued by special
purpose public authorities. In the case of such issues, an express or implied
"moral obligation" of a stated government unit is pledged to the payment of the
debt service but is usually subject to annual budget appropriations.
Industrial Development Bonds and Private Activity Bonds
Industrial development bonds ("IDBs") and private activity bonds ("PABs")
are municipal bonds issued by or on behalf of public authorities to finance
various privately operated facilities, such as airports or pollution control
facilities. IDBs and PABs generally do not carry the pledge of the credit of
the issuing municipality, but are guaranteed by the corporate entity on whose
behalf they are issued. IDBs and PABs are generally revenue bonds and thus are
not payable from the unrestricted revenue of the issuer. The credit quality of
IDBs and PABs is usually directly related to the credit standing of the user of
the facilities being financed.
Municipal Lease Obligations
Municipal lease obligations are municipal obligations that may take the form
of leases, installment purchase contracts or conditional sales contracts, or
certificates of participation with respect to such contracts or leases.
Municipal lease obligations are issued by state and local governments and
authorities to purchase land or various types of equipment and facilities.
Although municipal lease obligations do not constitute general obligations of
the municipality for which the municipality's taxing authority is pledged, they
ordinarily are backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease obligation. The leases underlying
certain municipal
A-1
<PAGE>
Appendix A (continued)
obligations, however, provide that lease payments are subject to partial or
full abatement if, because of material damage or destruction of the leased
property, there is substantial interference with the lessee's use or occupancy
of such property. This "abatement risk" may be reduced by the existence of
insurance covering the leased property, the maintenance by the lessee of
reserve funds or the provision of credit enhancements such as letters of
credit.
The liquidity of municipal lease obligations varies. Municipal leases held
by the portfolio will be considered illiquid securities unless the portfolio's
board of directors determines on an on-going basis that the leases are readily
marketable. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. In the case of a "non-appropriation" lease, the
portfolio's ability to recover under the lease in the event of non-
appropriation or default will be limited solely to the repossession of the
leased property, without recourse to the general credit of the lessee, and
disposition of the property in the event of foreclosure might be difficult. The
portfolio will not invest more than 5% of its assets in such "non-
appropriation" municipal lease obligations.
Zero Coupon Obligations
The portfolio may invest in zero coupon municipal obligations. Such
obligations include "pure zero" obligations, which pay no interest for their
entire life (either because they bear no stated rate of interest or because
their stated rate of interest is not payable until maturity), and "zero/fixed"
obligations, which pay no interest for an initial period and thereafter pay
interest currently. Zero coupon obligations also include securities
representing the principal-only components of municipal obligations from which
the interest components have been stripped and sold separately by the holders
of the underlying municipal obligations. Zero coupon securities usually trade
at a deep discount from their face or par value and will be subject to greater
fluctuations in market value in response to changing rates than obligations of
comparable maturity that make current distributions of interest. While zero
coupon municipal obligations will not contribute to the cash available to the
portfolio, the manager believes that limited investments in such securities may
facilitate the portfolio's ability to preserve capital while generating tax-
exempt income through the accrual of original interest discount. Zero coupon
municipal obligations generally are liquid, although such liquidity may be
reduced from time to time due to interest rate volatility and other factors.
The portfolio may invest up to 10% of its total assets in zero coupon municipal
obligations.
A-2
<PAGE>
Appendix A (continued)
Floating Rate Obligations
The portfolio may purchase floating and variable rate municipal notes and
bonds, which frequently permit the holder to demand payment of principal at any
time, or at specified intervals, and permit the issuer to prepay principal,
plus accrued interest, at its discretion after a specified notice period. The
issuer's obligations under the demand feature of such notes and bonds generally
are secured by bank letters of credit or other credit support arrangements.
There frequently will be no secondary market for variable and floating rate
obligations held by the portfolio, although the portfolio may be able to obtain
payment of principal at face value by exercising the demand feature of the
obligation.
Participation Interests
The portfolio may invest up to 5% of its total assets in participation
interests in municipal bonds, including IDBs, PABs and floating and variable
rate securities. A participation interest gives the portfolio an undivided
interest in a municipal bond owned by a bank. The portfolio has the right to
sell the instrument back to the bank. If the participation interest is unrated,
it will be backed by an irrevocable letter of credit or guarantee of a bank
that the portfolio's board of directors has determined meets certain credit
quality standards or the payment obligation will otherwise be collateralized by
U.S. government securities. The portfolio will have the right, with respect to
certain participation interests, to draw on the letter of credit on demand,
after specified notice for all or any part of the principal amount of the
portfolio's participation interest, plus accrued interest. Generally, the
portfolio intends to exercise the demand under the letters of credit or other
guarantees only upon a default under the terms of the underlying bond, or to
maintain the portfolio's assets in accordance with its investment objective and
policies. The ability of a bank to fulfill its obligations under a letter of
credit or guarantee might be affected by possible financial difficulties of its
borrowers, adverse interest rate or economic conditions, regulatory limitations
or other factors. The manager will monitor the pricing, quality and liquidity
of the participation interests held by the portfolio and the credit standing of
the banks issuing letters of credit or guarantees supporting such participation
interests on the basis of published financial information reports of rating
services and bank analytical services.
Custodial Receipts
The portfolio may acquire custodial receipts or certificates underwritten by
securities dealers or banks that evidence ownership of future interest
payments, principal payments or both on certain municipal obligations. The
underwriter of these certificates or receipts typically purchases municipal
obligations and deposits the obligations in an irrevocable trust or custodial
account with a
A-3
<PAGE>
Appendix A (continued)
custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the obligations. Custodial receipts evidencing specific coupon or
principal payments have the same economic attributes as zero coupon municipal
obligations described above. Although under the terms of the custodial receipt
the portfolio would be typically authorized to assert its rights directly
against the issuer of the underlying obligation, the portfolio could be
required to assert through the custodian bank those rights that may exist
against the underlying issuer. Thus, in the event the underlying issuer fails
to pay principal or interest when due, the portfolio may be subject to delays,
expenses and risks that are greater than those that would have been involved if
the portfolio had purchased a direct obligation of the issuer. In addition, in
the event the trust or custodial account in which the underlying security has
been deposited is determined to be an association taxable as a corporation,
instead of a non-taxable entity, the yield on the underlying security would be
reduced in recognition of any taxes paid.
Municipal Obligation Components
The portfolio may invest in municipal obligations, the interest rate on
which has been divided by the issuer into two different and variable
components, which together result in a fixed interest rate. Typically, the
first of the components (the "auction component") pays an interest rate that is
reset periodically through an auction process, whereas the second of the
components (the "residual component") pays a residual interest rate based on
the difference between the total interest paid by the issuer on the municipal
obligation and the auction rate paid on the auction component. The portfolio
may purchase both auction and residual components. Because the interest rate
paid to holders of residual components is generally determined by subtracting
the interest rate paid to the holders of auction components from a fixed
amount, the interest rate paid to residual component holders will decrease as
the auction component's rate increases and increase as the auction component's
rate decreases. Moreover, the extent of the increases and decreases in market
value of residual components may be larger than comparable changes in the
market value of an equal principal amount of a fixed rate municipal obligation
having similar credit quality, redemption provisions and maturity.
A-4
<PAGE>
Appendix B
Tax-Exempt Income Compared to Taxable Income
The tables below show individual taxpayers how to translate the tax savings
from investments such as the fund into an equivalent return from a taxable
investment. The yields used below are for illustration only and are not
intended to represent current or future yields for the fund, which may be
higher or lower than those shown.
<TABLE>
<CAPTION>
Federal Tax-Exempt Rate
Marginal ---------------
Rate 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
- --------------------------------------------------------------------------------
Single Joint Equivalent Taxable Yield
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 25,750 $ 0- 43,050 15.0% 2.35% 3.53% 4.71% 5.88% 7.06% 8.24%
25,751- 62,450 43,051-104,050 28.0 2.78 4.17 5.56 6.94 8.33 9.72
62,451-130,250 104,051-158,550 31.0 2.90 4.35 5.80 7.25 8.70 10.14
130,251-283,150 158,551-283,150 36.0 3.13 4.69 6.25 7.81 9.38 10.94
over 283,150 over 283,150 39.6 3.31 4.97 6.62 8.28 9.93 11.59
- --------------------------------------------------------------------------------
</TABLE>
* The Federal tax rates shown are those currently in effect for 1999. The
calculations assume that no income will be subject to the federal alternative
minimum tax.
B-1
<PAGE>
SALOMONSMITHBARNEY
--------------------------------------
A member of citigroup[LOGO]
Greenwich Street Municipal
Fund Inc.
388 Greenwich Street
New York, New York 10013
Common Stock
(Investment Company
Act File No. 811-7524)
FD01204 9/99
All dealers effecting transactions in the fund's securities, whether or not
participating in this distribution, may be required to give investors a
prospectus.
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. This prospectus does not offer any
security other than the fund's shares of common stock. Neither the fund nor
Salomon Smith Barney is offering to sell shares of the fund to any person to
whom the fund may not lawfully sell its shares.
There may be changes in the fund's affairs that occur after the date of the
prospectus. The fund will publish a supplement to the prospectus if there are
any material changes in its business.
PART B
Greenwich Street Municipal Fund Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION
September 28, 1999
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, invests
substantially all of its assets in long-term, investment grade
obligations issued by state and local governments, political
subdivisions, agencies and public authorities ("municipal obligations").
No assurance can be given that the fund will be able to achieve its
investment objective. SSBC Fund Management Inc. ("SSBC" or "manager")
(formally known as Mutual Management Corp. and Smith Barney Mutual
Funds) serves as investment manager of the fund.
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current prospectus of the
fund, dated September 28, 1999 as amended or supplemented from time to
time (the "prospectus"), and should be read in conjunction with the
Prospectus. The prospectus may be obtained from any Salomon Smith
Barney Financial Consultant or by writing or calling the 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.
CONTENTS
Investment Objective and Policies (see in the Prospectus
"Appendix")...............................2
Portfolio Transactions and Turnover............................................
..
........................11
Management of the fund (see in the Prospectus "Management of the fund")
.........................12
Taxes (see in the prospectus "Taxation").......................................
..........................17
Stock Purchases and Tenders (see in the Prospectus "Certain Provisions
of the Articles of
Incorporation" "Description of Common Stock").................................
......................20
Additional Information........................................................
..............................22
Financial Statements..........................................................
...............................23
Appendix......................................................................
..............................A-1
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 IBCA,
Inc. ("Fitch") and other nationally recognized statistical rating
organizations ("NRSROs") represent the opinions of the NRSROs as to the
quality of the municipal obligations and other debt securities they
rate. It should be emphasized, however, that such ratings are relative
and subjective, are not absolute standards of quality and do not
evaluate the market risk of securities. These ratings will be used as
initial criteria for the selection of securities, but the fund also will
rely upon the independent advice of its manager. Among the factors that
will also be considered by the manager in evaluating potential municipal
obligations to be held by the fund are the price, coupon and yield to
maturity of the obligations, the manager's assessment of the credit
quality of the issuer of the obligations, the issuer's available cash
flow and the related coverage ratios, the property, if any, securing the
obligations, and the terms of the obligations, including subordination,
default, sinking fund and early redemption provisions. To the extent
the fund invests in lower-rated and comparable unrated securities, the
fund's achievement of its investment objective may be more dependent on
the manager's credit analysis of such securities than would be the case
for a portfolio consisting entirely of higher-rated securities. The
Appendix to this SAI contains information concerning the ratings of
Moody's, S&P and Fitch and their significance.
Subsequent to its purchase by the 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 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 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 ("CDs"), 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 ("GNMA") certificates); securities that are supported by the
right of the issuer to borrow from the U.S. Treasury (such as securities
of Federal Home Loan Banks); and securities that are supported by the
credit of the instrumentality (such as Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation bonds).
Lending Securities
By lending its securities, the 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 regain 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 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 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 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
Treasury bills, bonds and notes, obligations of the GNMA and bank CDs.
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, U.S. government securities, equity securities or
debt securities of any grade in an amount equal to at least 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 hedging devices.
Successful use of these futures contracts by the fund is subject to the
manager's ability to predict correctly movements in the direction of
interest rates. Such predictions involve skills and techniques which
may be different from those involved in the management of a long-term
municipal obligation portfolio. In addition, there can be no assurance
that a correlation would exist between movements in the price of the
municipal obligation index or the debt security underlying the futures
contract and movement in the price of the municipal obligations which
are the subject of the hedge. The degree of 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 with respect to 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 manager, which
could prove to be inaccurate. Even if the manager's expectations are
correct, there may be an imperfect correlation between the change in the
value of the options and of the 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 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 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 will be
established. Such separate account will consist of cash, U.S.
government securities, equity securities or debt securities of any grade
equal to or greater than the amount of the when-issued commitments,
provided such securities have been determined by the manager to be
liquid and unencumbered, and are marked to market daily pursuant to
guidelines established by the fund's directors. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the market or
fair value of such securities declines, additional cash or securities
will be placed in the account on a daily basis so that the value of the
account will at least 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 or BBB by S&P or Fitch). The fund may acquire unrated
issues that the manager deems to be comparable in quality to rated
issues in which the Fund is authorized to invest. A determination by
the manager that an unrated lease obligation is comparable in quality to
a rated lease obligation will be made on the basis of, among other
things, consideration of whether the nature of the leased equipment or
other property is such that its ownership or use is reasonably essential
to a governmental function of the issuing municipality. In addition,
all such determinations made by the manager will be subject to oversight
and approval by the 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 manager to be of high quality and minimal credit risk will
not be deemed illiquid solely because the underlying municipal lease is
unrated, if the manager determines that the lease is readily marketable
because it is backed by the letter of credit or insurance policy.
Investment Restrictions
The 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:
1. Purchase securities other than municipal obligations and taxable
investments as those terms are described in the prospectus and this
SAI.
2. Borrow money, except for temporary or emergency purposes, or for
clearance of transactions, and then only in amounts not exceeding
15% of its total assets (not including the amount borrowed) and as
otherwise described in the prospectus and this SAI. When the
fund's borrowings exceed 5% of the value of its total assets, the
fund will not make any additional investments.
3. Sell securities short or purchase securities on margin, except for
such short-term credits as are necessary for the clearance of
transactions, but the fund may make margin deposits in connection
with transactions in futures and options on futures.
4. Underwrite any issue of securities, except to the extent that the
purchase of municipal obligations may be deemed to be an
underwriting.
5. Purchase, hold or deal in real estate or oil and gas interests,
except that the fund may invest in municipal obligations secured by
real estate or interests in real estate.
6. Invest in commodities, except that the fund may enter into futures
contracts as described in the prospectus and this SAI.
7. Lend any funds or other assets except through purchasing municipal
obligations or taxable investments, lending portfolio securities
and entering into repurchase agreements consistent with the fund's
investment objective.
8. Issue senior securities.
9. Invest more than 25% of its total assets in the securities of
issuers in any single industry, except that this limitation will
not be applicable to the purchase of municipal obligations and U.S.
government securities.
10. Make any investments for the purpose of exercising control or
management of any company.
PORTFOLIO TRANSACTIONS AND TURNOVER
Portfolio Transactions
Newly issued securities normally are purchased directly from the
issuer or from an underwriter acting as principal. Other purchases and
sales usually are placed with those dealers from which it appears the
best price or execution will be obtained; those dealers may be acting as
either agents or principals. The purchase price paid by the 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 manager in its best judgment and in a
manner deemed fair and reasonable to shareholders. The primary
considerations are availability of the desired security and the prompt
execution of orders in an effective manner at the most favorable prices.
Subject to these considerations, dealers that provide supplemental
investment research and statistical or other services to the manager may
receive orders for portfolio transactions by the fund. Information so
received is in addition to, and not in lieu of, services required to be
performed by the manager, and the fees of the manager are not reduced as
a consequence of their receipt of such supplemental information. Such
information may be useful to the manager in serving both the fund and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the manager in
carrying out its obligations to the fund.
The fund will not purchase municipal obligations during the
existence of any underwriting or selling group relating thereto of which
Salomon Smith Barney Inc. ("Salomon Smith Barney") or its affiliates are
members except to the extent permitted by the Securities and Exchange
Commission (the "SEC") including under Rule 10f-3 under the 1940 Act.
Under certain circumstances, the 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 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 manager are
prepared to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be allocated in a
manner believed by the manager to be equitable to each. In some cases,
this procedure may adversely affect the price paid or received by the
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 inured 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 years ended May 31, 1997, 1998 and
1999 the fund's portfolio turnover rate was 115%, 85%, and 24%,
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:
Name Service
SSBC Investment Manager and
Administrator
Salomon Smith Barney Market Maker
PNC Bank, National Association ("PNC Bank") Custodian
First Data Investor Services Group, Inc. ("First Data") Transfer
Agent
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 the
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 manager and SSBC, 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:
Name and Address
Positions Held
With the Fund
Principal Occupations
During Past 5 Years
*+Heath B. McLendon,
age 66
388 Greenwich Street
New York NY 10013
Chairman of the
Board,
Chief Executive
Officer
And President
Managing Director of Salomon
Smith Barney Inc.; Director
of 64 investment companies
associated with Citigroup;
former Chairman of Salomon
Smith Barney Strategy
Advisers Inc.; President of
SSBC and Travelers Investment
Adviser, Inc. ("TIA").
+Martin Brody, age 78
c/o HMK Associates
30 Columbia Turnpike
Florham Park, NJ
07932
Director
Consultant, HMK Associates;
Retired Vice Chairman of the
Board of Restaurant
Associates Corp.; Director of
Jaclyn, Inc.
+Allan J. Bloostein,
age 69
717 Fifth Avenue-
21st Floor
New York, NY 10022
Director
President of Allan J.
Bloostein Associates, a
consulting firm; retired Vice
Chairman and Director of the
Board of May Department
Stores Company; Director of
CVS Corporation and Taubman
Centers Inc.
+Dwight B. Crane, age
61
Harvard Business
School
Soldiers Field Road
Boston, MA 02163
Director
Professor, Harvard Business
School; Director Peer Review
Analysis, Inc.
+Robert A. Frankel,
age 72
102 Grand Street
Croton-on-Hudson,
New York, NY 10520
Director
Managing Partner of Robert A.
Frankel Management
Consultants; formerly
Corporate Vice President of
The Reader's Digest
Association, Inc.
+William R.
Hutchinson, age 56
Amoco Corp.
200 East Randolph
Drive
Chicago, IL 60601
Director
Group Vice President, Mergers
& Acquisitions BP Amoco
p.l.c. since January 1, 1999;
formerly Vice President-
Financial Operations of Amoco
Corp.; Director of Associated
Bank and Associated Banc-
Corp.
Joseph P. Deane, age
51
388 Greenwich Street
New York, NY 10013
Vice President and
Investment Officer
Managing Director of Salomon
Smith Barney and Investment
Officer of SSBC.
David Fare, age 37
388 Greenwich Street
New York, NY 10013
Investment Officer
Investment Officer of SSBC.
Lewis E. Daidone,
age 42
388 Greenwich Street
New York, NY 10013
Senior Vice
President
and Treasurer
Managing Director of Salomon
Smith Barney; Chief Financial
Officer, Director and Senior
Vice President of SSBC and
TIA.
Christina T. Sydor,
age 48
388 Greenwich Street
New York, NY 10013
Secretary
Managing Director of Salomon
Smith Barney; General Counsel
and Secretary of SSBC and
TIA.
________________________________
* Directors who are "interested persons" of the Fund (as defined in the
1940 Act).
+Director and/or trustee of other registered investment companies with
which Salomon Smith Barney is affiliated.
The Fund pays each of its Directors who is not a director, officer
or employee of SSBC, or any of its affiliates, an annual fee of $5,000
plus $500 for each in-person Board meeting and $100 for each telephonic
Board meeting attended. In addition, the Fund will reimburse these
Directors for travel and out-of-pocket expenses incurred in connection
with Board of Directors meetings. For the fiscal year ended May 31,
1999, such fees totaled $39,213.98.
Director
Aggregate
Compensation from
Fund
Pension or
Retirement
Benefits
Accrued as
part of
Fund
Expenses
Total
Compensati
on from
Fund and
Fund
Complex
Total
Number of
Funds for
which
Director
Serves
Within Fund
Complex
Martin Brody
6,800
0
132,500
20
Dwight Crane
7,200
0
139,975
23
Allan Bloostein
7,200
0
90,500
9
Robert Frankel
7,300
0
72,250
9
William R.
Hutchinson
7,200
0
42,450
7
Heath B. McLendon*
- -----
0
- -----
64
* Designates an "interested person" of the Fund.
Upon attainment of age 80, fund directors are required to change to
emeritus status. Directors emeritus are entitled to serve in emeritus
status for a maximum of 10 years, during which time they are paid 50%
of the annual retainer fee and meeting fees otherwise applicable to
fund directors, together with reasonable out-of-pocket expenses for
each meeting attended. During the fund's last fiscal year, aggregate
compensation paid by the fund to directors Emeritus totaled $19,550.
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 ____, 1999:
Percent
of
Amount of Common
Name and Address Record Stock
of Record Owner Ownership
Outstanding
Cede & Co., as Nominee for [
] [ ]
The Depository Trust Company
P.O. Box 20
Bowling Green Station
New York, New York 10004
As of September ___, 1999, the Directors and officers of the Fund,
as a group, beneficially owned less than 1% of the Fund's outstanding
shares of Common Stock.
Investment Manager and Administrator
The 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 manager ("Non-Interested Directors"), on August 25, 1999.
Unless terminated sooner, the Advisory Agreement will continue for
successive annual periods provided that such continuance is specifically
approved at least annually by: (1) 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) the Board of Directors or by a vote of a
majority of the outstanding shares of Common Stock. The manager is an
affiliate of Salomon Smith Barney and an indirect wholly owned
subsidiary of Citigroup Inc. The manager pays the salary of any officer
or employee who is employed by both it and the Fund. The manager bears
all expenses in connection with the performance of its services as
investment adviser.
For services rendered to the fund, the manager receives a fee from
the fund, computed and paid monthly at the annual rate of 0.90% of the
value of the fund's average daily net assets. For the fiscal years
ended May 31, 1997, 1998 and 1999, such fees amounted to $2,102,362,
$2,093,526, and $1,028,253, respectively. Effective September 1, 1999,
the manager instituted a voluntary fee waiver whereby its advisory Fees
were received at an annual rate of 0.28% of average daily net assets.
This voluntary waiver may be terminated at any time by the manager
without notice.
Under the Advisory Agreement, the manager will not be liable for
any error of judgment, mistake of law or 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
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 a 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 manager. The Advisory Agreement may
also be terminated by the manager on 90 days' written notice to the
Fund. The Advisory Agreement terminates automatically upon its
assignment.
SSBC serves as administrator (the "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
25, 1999. The Administration Agreement will continue automatically for
successive annual periods provided such continuance is approved at least
annually by the board of directors of the fund including a majority of
the non-interested directors by a 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 the
Administrator. The services provided by the Administrator under the
Administration Agreement are described in the prospectus under
"Management of the Fund."
Pursuant to the Administration Agreement, SSBC will exercise its
best judgment in rendering its services to the fund. SSBC will not be
liable for any error of judgment, mistake of law or any loss suffered by
the fund in connection with the matters to which the Administration
Agreement relates, except by reason of SSBC's reckless disregard of its
obligations and duties under the Administration Agreement.
The fund bears expenses incurred in its operation including: fees
of the manager taxes, interest, brokerage fees and commissions, if any;
fees of directors who are not officers, directors, shareholders or
employees of Salomon Smith Barney; SEC fees and state Blue Sky
qualification fees; charges of the custodian; transfer and dividend
disbursing agent's fees; certain insurance premiums; outside auditing
and legal expenses; costs of any independent pricing service; costs of
maintaining corporate existence; costs attributable to investor services
(including allocated telephone and personnel expenses); costs of
preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to
shareholders; and 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 be taxed
as a regulated investment company, 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; and (3) 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. 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. Investments in both Section 1256 Contracts and offsetting
positions to those contracts, may result in the fund not being able to
receive the benefit of certain realized losses for an indeterminate
period of time.
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, whether paid in cash or shares. Distributions of net long-term
capital gains, if any, that the fund designates as capital gains
dividends are taxable as long-term capital gains regardless of the
length of time shareholders have held shares of common stock and whether
the dividends or distributions are received in cash or reinvested in
additional shares. As a general rule, a shareholder's gain or loss on a
sale of his or her shares of common stock will be a long-term gain or
loss if he or she has held his or her shares for more than one year and
will be a short-term capital gain or loss if he or she has held his or
her shares for one year or less.
Exempt-Interest Dividends
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of common stock is not deductible for Federal income tax
purposes to the extent it is deemed related to exempt-interest
dividends. If a shareholder receives exempt-interest dividends with
respect to any share of common stock and if the share is held by the
shareholder for six months or less, then any loss on the sale of the
share may, to the extent of the exempt-interest dividends, be
disallowed. The Code may also require a shareholder, if he or she
receives exempt-interest dividends, to treat as taxable income a portion
of certain otherwise non-taxable social security and railroad retirement
benefit payments. In addition, the portion of any exempt-interest
dividend paid by the 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
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. 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 the Federal alternative minimum 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
including the amount, if any, of long-term capital gain distributions.
The statements will also designate the amount of exempt interest
dividends that are a specific preference item for purposes of the
Federal individual and corporate alternative minimum taxes. The 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.
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.
The market prices of the fund's shares may, 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. Any
acquisition of common stock by the fund 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.
If a tender offer for common stock of the fund is authorized to be
made by the fund 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. 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 effect 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 a 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 issuance 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
Transaction 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 LLP as their counsel.
Independent Auditors
KPMG LLP, 345 Park Avenue, New York, NY 10154, has been selected
as the fund's independent auditors to examine and report on the Fund's
financial statements and financial highlights for the fiscal year ending
May 31, 2000.
Custodian, Transfer Agent, Dividend-Paying Agent and Registrar
PNC Bank, National Association 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, 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, 1999
are incorporated into this SAI by reference in their entirety. A copy of
these reports may be obtained from any Salomon Smith Barney Financial
Consultant or by calling or writing to the 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 strong but the relative degree of safety is not as high as issues
designated A-1.
Description of Fitch Municipal Bond Ratings:
AAA - Bonds rated AAA by Fitch have the lowest expectation of credit
risk. The obligor has an exceptionally strong ability for timely payment
of financial commitments, which is highly unlikely to be adversely
affected by foreseeable events.
AA - Bonds rated AA by Fitch have a very low expectation of credit risk.
They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
A - Bonds rated A by Fitch are considered to have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be strong, but may be more vulnerable to changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds rated BBB by Fitch currently have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to impair this capacity. This is
the lowest investment grade category assigned by Fitch.
Plus and minus signs are used by Fitch to indicate the relative
position of a credit within a rating category. Plus and minus signs,
however, are not used in the AAA category.
Description of Fitch Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three
years, including commercial paper, certificates of deposit, medium-term
notes, and municipal investment notes.
The short-term rating places greater emphasis than a long-term
rating on the existence of liquidity necessary to meet financial
commitments in a timely manner.
Fitch's short-term ratings are as follows:
F-l + - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments. The "+" denotes an
exceptionally strong credit feature.
F-1 - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.
F-2 - Issues assigned this rating have a satisfactory capacity for
timely payment of financial commitments, but the margin of safety is not
as great as in the case of the higher ratings.
F-3 - The capacity for the timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction
to non-investment grade.
18
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements:
- - Included in Part A:
* Financial Highlights
- - Included in Part B:
* The Registrant's Annual Report for the fiscal year ended
May 31, 1999 and Report of Independent Accountants dated
July 15, 1999 are incorporated by reference to the
Definitive 30(b)2-1 filed on August 13, 1999, Accession
#0000091155-99-000509.
(2) Exhibits:
(a) (i) Articles of Incorporation of Registrant are
incorporated by reference to the Registrant's initial
Registration Statement filed with the Securities and
Exchange Commission (the "SEC") on February 19, 1993
("Initial Registration Statement").
(ii) Articles of Amendment to Articles of Incorporation
are incorporated by reference to Pre-Effective Amendment
No. 1 to the Initial Registration Statement filed with
the SEC on April 19, 1994 ("Pre-Effective Amendment No.
1").
(b) Bylaws of Registrant are incorporated by reference to
Registrant's Initial Registration Statement.
(c) Not Applicable.
(d) Form of specimen certificate representing shares of
Common Stock, par value $0.001 per share, is incorporated
by reference to Pre-Effective Amendment No. 3. to
Registrant's Registration Statement filed with the SEC on
June 16, 1994 ("Pre-Effective Amendment No. 3").
(e) Dividend Reinvestment Plan is filed herewith.
(f) Not Applicable.
(g) Form of Investment Management Agreement is incorporated
by reference to Pre-Effective Amendment No. 3.
(h) (i) Form of Purchase Agreement is incorporated by
reference to Pre-Effective Amendment No. 2.
(ii) Form of Underwriting Agreement is incorporated by
reference to Pre-Effective Amendment No. 3.
(i) Not Applicable.
(j) (i) Form of Custody Agreement is incorporated by
reference to Post-Effective Amendment No. 1.
(ii) Form of Transfer Agency and Registrar Agreement is
incorporated by reference to Pre-Effective Amendment No.
2.
(k) Not Applicable.
(l) (i) Opinion and Consent of Willkie Farr & Gallagher is
incorporated by reference to Pre-Effective No. 3.
(ii) Opinion and Consent of Venable, Baetjer & Howard is
incorporated by reference to Pre-Effective No. 3.
(m) Not Applicable.
(n) Consent of KPMG LLP, independent auditors
for the Fund (filed herewith).
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable
(r) Financial Data Schedule (filed herewith).
Item 25. Marketing Arrangements
See Forms of Purchase Agreement and Underwriting Agreement filed
as Exhibits (h)(i) and
(ii).
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the expenses to be incurred in
connection with the offering described in this Registration
Statement:
SEC registration fees $0
Printing (other than stock certificates) and
related delivery expenses $8,000
Engraving and printing stock certificates $0
Fees and expenses of qualification under state
securities laws (including fees of counsel) $0
Legal fees and expenses $0
Accounting expenses $0
Miscellaneous expenses $0
Total $8,000
Item 27. Persons Controlled by or Under Common Control
None
Item 28. Number of Holders of Securities
Number of
Record
Stockholders
Title of Class as of August 12, 1999
Shares of Common Stock,
par value $0.001 per share 11,455
Item 29. Indemnification
Under Article Seven 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 Investment Adviser
See "Management of the Portfolio" in the Prospectus.
SSBC Fund Management Inc. (formerly known as Smith Barney Mutual
Funds Management Inc.) ("SSBC") a New York corporation, is a
registered investment adviser and is wholly owned by Salomon Smith
Barney Holdings Inc., which in turn is wholly owned by
Citigroup Inc. SSBC is primarily engaged in the investment
advisory business. Information as to executive officers and
directors of SSBC is included in its Form ADV filed with the
Securities and Exchange Commission (SEC File No. 801-8314) and is
incorporated herein by reference.
Item 31. Location of Accounts and Records
SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
First Data Investor Services Group, Inc.
101 Federal Street
Boston, Massachusetts 02210
PNC Bank, N.A.
17th & Chestnut Streets
Philadelphia, Pennsylvania 19103
Item 32. Management Services
Not Applicable.
Item33. Undertakings
1. Not Applicable.
2. Not Applicable.
3. Not Applicable
4. The registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective
Amendment to this Registrant Statement:
(1) to include any prospectus required by Section 10(a)(3)
of the Securities Act
of 1933 (the "Act");
(2) to reflect in the Prospectus any facts or events
arising after the effective date
of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in
the information set forth in the Registration
Statement; and
(3) to include any material information with respect to
the plan of distribution
not previously disclosed in the Registration Statement
or any material change to such information in the
Registration Statement.
(b) For the purpose of determining any liability under the Act,
each post-effective
Amendment shall be deemed to be a new Registration Statement
relating to the
Securities offered therein, and the offering of such
securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Not Applicable.
5. Not Applicable.
6. The registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within two
business days of receipt of a written or oral request, any
Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, GREENWICH STREET MUNICIPAL FUND INC., has duly caused
this Amendment to the Registration Statement on Form N-2 to be signed
on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York, State of New York on the 16th day of August,
1999.
GREENWICH STREET MUNICIPAL FUND INC.
By: /s/Heath B. McLendon_____
Heath B. McLendon
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/Heath B. McLendon____
Heath B. McLendon Chairman of the Board,
Chief Executive Officer, 8/16/99
and President
/s/Lewis E. Daidone_____
Lewis E. Daidone Senior Vice President
and Treasurer 8/16/99
*/s/Allan J. Bloostein
Allan J. Bloostein Director 8/16/99
*/s/Martin Brody
Martin Brody Director 8/16/99
*/s/Dwight B. Crane
Dwight B. Crane Director 8/16/99
*/s/Robert A. Frankel
Robert A. Frankel Director 8/16/99
*/s/William R. Hutchinson
William R. Hutchinson Director 8/16/99
* By: /s/ Christina T. Sydor
Christina T. Sydor
Pursuant to a Power of Attorney dated 9/27/96
EXHIBIT INDEX
(e) Dividend Reinvestment Plan
(n) Auditors' Consent
(r) Financial Data Schedule
GREENWICH STREET MUNICIPAL FUND INC.
RESTATED TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT PLAN
1. You, First Data Investor Services Group, Inc., will
act as agent ("Agent") for the participating stockholders (the
"Participants") of each fund referenced above (each, the "Fund"),
and
will open an account for each of the Participants under the Dividend
Reinvestment Plan (the "Plan") in the name of the record owner in
which
shares of the Fund's common stock, par value $.001 per share
("Common
Stock") are registered, and put into effect for the Participants the
distribution reinvestment provisions of the Plan.
2. If the Fund declares a distribution payable either in
Common Stock or in cash, non-participants in the Plan will receive
cash,
and Participants will receive the equivalent amount in Common Stock
valued in the following manner: if the market price of the Common
Stock
on the determination date is equal to or exceeds 98% of the net
asset
value per share of the Common Stock, you will acquire shares
directly
from the Fund at a price equal to the greater of (1) 98% of the net
asset value per share at the valuation time or (2) 95% of the market
price per share of the Common Stock on the determination date. If
98%
of the net asset value of the Common Stock exceeds the market price
of
the Common Stock on the determination date, you will buy Common
Stock in
the open market, on the New York Stock Exchange or elsewhere, for
the
Participants' accounts as soon as practicable commencing on the
trading
day following the determination date and terminating no later than
the
earlier of (a) 30 days after the dividend or distribution payment
date,
or (b) the record date for the next succeeding dividend or
distribution
to be made to the holders of the Common Stock; except when necessary
to
comply with applicable provisions of the federal securities laws.
If
the market price equals or exceeds 98% of the net asset value per
share
of the Common Stock at the valuation time before you have completed
the
open market purchases or if you are unable to invest the full amount
eligible to be reinvested hereunder in open market purchases during
the
time period referred to in the previous sentence, you shall cease
purchasing shares in the open market and the Fund shall issue the
remaining shares of Common Stock at a price per share equal to the
greater of (a) 98% of the net asset value per share at the valuation
time or (b) 95% of the then current market price per share.
3. For all purposes of the Plan: (a) the valuation time
will be the close of trading on the New York Stock Exchange on the
determination date for the relevant dividend or distribution; (b)
the
determination date will be the record date for determining
shareholders
eligible to receive the relevant dividend or distribution, except
that
if such day is not a New York Stock Exchange trading day, it will be
the
immediately preceding trading day; (c) the market price of the
Fund's
Common Stock on a particular date shall be the mean between the
highest
and lowest sales prices on the New York Stock Exchange on that date,
or,
if there is no sale on such Exchange on that date, then the mean
between
the closing bid and asked quotations for such stock on such Exchange
on
such date; (d) the net asset value per share of the Fund's Common
Stock
as of the valuation time on a particular date shall be as determined
by
or on behalf of the Fund; and (e) all distributions and other
payments
shall be made net of any applicable withholding tax.
4. The open market purchases provided for above may be
made on any securities exchange where the Fund's Common Stock is
traded,
in the over-the-counter market or in negotiated transactions, and
may be
on such terms as to price, delivery and otherwise as you shall
determine. Participant funds held by you pending investment will
not
bear interest, and it is understood that, in any event, you shall
have
no liability in connection with any inability to purchase shares
within
the time period for open market purchases, as herein provided, or
with
respect to the timing of any purchases effected. You shall have no
responsibility as to the value of the Common Stock of the Fund
acquired
for a Participant's account. In connection with open market
purchases,
you may commingle a Participant's funds with those of other
Participants
and the average price (including brokerage commissions) of all
shares
purchased by you as Agent shall be the price per share allocable to
each
Participant in connection therewith.
5. You may hold shares acquired pursuant to the Plan,
together with the shares of other Participants acquired pursuant to
the
Plan, in noncertificated form in your name or that of your nominee.
You
will forward to Participants any proxy solicitation material and
will
vote any shares so held for any Participant only in accordance with
instructions given through a proxy executed by the Participant.
Upon a
Participant's written request, you will deliver to him, without
charge,
a certificate or certificates for the full shares.
6. You will confirm to each Participant each acquisition
made for his account as soon as practicable but not later than 60
days
after the date thereof. Although Participants may from time to time
have an undivided fractional interest (computed to three decimal
places)
in a share of Common Stock, no certificates for a fractional share
will
need to be issued. However, distributions on fractional shares will
be
credited to Participant accounts. In the event the of termination
of a
Participant's account under the Plan, you will adjust for any such
undivided fractional interest in cash at the market value of the
Fund's
shares at the time of termination less the pro rata expense of any
sale
required to make such an adjustment.
7. Any stock dividends or split shares distributed by the
Fund on shares held by you for a Participant will be credited to his
account. In the event that the Fund makes available to its
stockholders
rights to purchase additional shares or other securities, the shares
held for a Participant under the Plan will be added to other shares
held
by such Participant in calculating the number of rights to be issued
to
him.
8. No service fee for handling the reinvestment of
capital gains distributions or income dividends will be charged to
Participants or their accounts. Participants will be charged a pro
rata
share of any brokerage commissions actually incurred on open market
purchases.
9. A Participant may terminate his account under the Plan
by notifying you in writing or by calling you at 1-800-331-1710.
Such
termination will be effective immediately if notice is received by
you
not less than ten business days prior to any dividend or
distribution
record date; otherwise such termination will be effective as soon as
practicable after your investment of the most recently declared
dividend
or distribution on the Common Stock. The Plan may be terminated by
the
Fund upon notice in writing mailed to all Participants at least 30
days
prior to the record date for the payment of any dividend or
distribution
by the Fund for which the termination is to be effective. Upon any
termination you will cause a certificate or certificates for the
full
shares held for each Participant under the Plan and cash adjustment
for
any fractional shares to be delivered to each Participant without
charge. If a Participant elects by notice to you in writing in
advance
of such termination to have you sell part or all of his shares and
remit
the proceeds to him, you are authorized to deduct a $5.00 fee plus
brokerage commissions actually incurred for this transaction from
the
proceeds.
10. These terms and conditions may be amended or
supplemented by you or the Fund at any time or times but, except
when
necessary or appropriate to comply with applicable law or the rules
or
policies of the Securities and Exchange Commission or any other
regulatory authority, only by mailing to Participants appropriate
written notice at least 30 days prior to the record date for the
first
distribution or dividend to which such amendment or supplement is to
be
effective, if by the Fund or, if to be amended or supplemented by
you,
30 days prior to the effective date of such amendment or supplement
and
only upon your receipt of the written consent of the Fund's Board of
Directors. The amendment or supplement shall be deemed to be
accepted
by Participants unless, prior to the effective date thereof, you
receive
written notice of the termination of a Participant's account under
the
Plan. Any such amendment may include an appointment by you in your
place and stead of a successor agent under these terms and
conditions,
with full power and authority to perform all or any of the acts to
be
performed by the Agent under these terms and conditions. Upon any
such
appointment of an agent for the purpose of receiving distributions,
the
Fund will be authorized to pay such successor agent, for a
Participant's
account, all distributions payable on Common Stock of the Fund held
in
his name under the Plan for retention or application by such
successor
agent as provided in these terms and conditions.
11. You shall at all times act in good faith and agree to
use your best efforts within reasonable limits to insure the
accuracy of
all services performed under this Agreement and to comply with
applicable law, but assume no responsibility and shall not be liable
for
loss or damage due to errors unless such error is caused by your
negligence, bad faith or willful misconduct or that of your
employees.
12. These terms and conditions shall be governed by the
laws of the State of New York.
Adopted: November 12, 1998
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Greenwich Street Municipal Fund Inc.:
We consent to the use of our report dated July 15, 1999 for the
Greenwich Street Municipal Fund Inc. incorporated herein by reference
and to the references to our Firm under the headings "Financial
Highlights" and "Independent Auditors" in the Prospectus and
"Independent Auditors" in the Statement of Additional Information.
KPMG LLP
New York, New York
August 9, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000897800
<NAME> GREENWICH STREET MUNICIPALS FUND INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<INVESTMENTS-AT-COST> 230,442,570
<INVESTMENTS-AT-VALUE> 227,177,461
<RECEIVABLES> 3,627,449
<ASSETS-OTHER> 35,191
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230,840,101
<PAYABLE-FOR-SECURITIES> 2,928,587
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 581,764
<TOTAL-LIABILITIES> 3,510,351
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,124,498
<SHARES-COMMON-STOCK> 19,882,045
<SHARES-COMMON-PRIOR> 19,882,045
<ACCUMULATED-NII-CURRENT> (413,120)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,116,519)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,265,109)
<NET-ASSETS> 227,329,750
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,212,023
<OTHER-INCOME> 0
<EXPENSES-NET> 1,306,533
<NET-INVESTMENT-INCOME> 10,905,490
<REALIZED-GAINS-CURRENT> (5,424,793)
<APPREC-INCREASE-CURRENT> (914,987)
<NET-CHANGE-FROM-OPS> 4,565,710
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,392,419
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (6,826,709)
<ACCUMULATED-NII-PRIOR> (477,355)
<ACCUMULATED-GAINS-PRIOR> (692,829)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,103,816
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,382,096
<AVERAGE-NET-ASSETS> 234,324,043
<PER-SHARE-NAV-BEGIN> 11.78
<PER-SHARE-NII> 00.55
<PER-SHARE-GAIN-APPREC> (0.33)
<PER-SHARE-DIVIDEND> 00.57
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.43
<EXPENSE-RATIO> 00.56
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
