As filed with the Securities and Exchange Commission on December 20,
1996
Securities Act File No. 33-54549
Investment Company Act File No. 811-7201
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM N-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [ X ]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 4 [ X ]
(check appropriate box or boxes)
___________
GREENWICH STREET CALIFORNIA
MUNICIPAL FUND INC.
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number, including Area Code: (212) 723-9218
Christina T. Sydor, Secretary
Greenwich Street California Municipal Fund Inc.
388 Greenwich Street, 22nd Floor
New York, New York 10013
(Name and Address of Agent for Service of Process)
___________
Copies to:
Jon S. Rand, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form N-2 are to be
offered on a delayed or continuous basis pursuant to Rule 415 of the
Securities Act of 1933, as amended (the "1933 Act"), other than securities
offered only in connection with dividend or interest reinvestment plans, check
the following box. [ X ]
It is proposed that this filing will become effective:
[ X ] when declared effective pursuant to section 8(c).
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. 33-54549).
Registrant amends this Registration Statement under the 1933 Act, on
such date as may be necessary to delay its effective date until Registrant
files a further amendment that specifically states that this Registration
Statement will thereafter become effective in accordance with the provisions
of Section 8(a) of the 1933 Act, or until the Registration Statement becomes
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
GREENWICH STREET CALIFORNIA MUNICIPAL FUND INC.
Form N-2
Cross-Reference Sheet
Parts A and B of Prospectus*
Items in Parts A and B of Form N-2*
Location
1.
Outside Front Cover
Outside Front Cover
2.
Inside Front and Outside Back Cover
Page
Inside Front and Outside Back Cover
Page
3.
Fee Table and Synopsis
Prospectus Summary; Fee Table
4.
Financial Highlights
Financial Highlights
5.
Plan of Distribution
Outside Front Cover
6.
Selling Shareholders
Not Applicable
7.
Use of Proceeds
Use of Proceeds; Investment Objective
and Management Policies
8.
General Description of Registrant
The Portfolio; Investment Objective and
Management Policies; Investment
Restrictions; Net Asset Value;
Securities Transactions and Turnover;
Description of Shares
9.
Management
Management of the Portfolio; Custodian,
Transfer Agent, Dividend-Paying Agent,
Registrar and Plan Agent
10.
Capital Stock, Long-Term Debt, and
Other Securities
Dividends and Distributions; Dividend
Reinvestment Plan; Description of
Shares; Taxation
11.
Defaults and Arrears on Senior
Securities
Not Applicable
12.
Legal Proceedings
Not Applicable
13.
Table of Contents of Statement of
Additional Information
Not Applicable
14
Cover Page
Not Applicable
15.
Table of Contents
Not Applicable
16.
General Information and History
The Portfolio, Investment Objective and
Management Policies
17.
Investment Objective and Policies
Investment Objective and Management
Policies; Investment Restrictions;
Securities Transactions and Turnover
18.
Management
Management of the Portfolio; Custodian,
Transfer Agent, Dividend-Paying Agent,
Registrar and Plan Agent
19.
Control Persons and Principal Holders
of Securities
Description of Shares
* Pursuant to General Instructions of Form N-2, all information required to be
set forth in
Part B: Statement of Additional Information, has been included in Part A:
The Prospectus.
20.
Investment Advisory and Other Services
Management of the Portfolio
21.
Brokerage Allocation and Other
Practices
Securities Transactions and Turnover
22.
Tax Status
Dividends and Distributions; Dividend
Reinvestment Plan; Taxation
23.
Financial Statements
Experts
SMITH BARNEY
------------
A Member of Travelers Group[LOGO]
Greenwich
Street
California
Municipal
Fund Inc.
Common Stock
388 Greenwich Street
New York, New York 10013
FD0620 12/96
<PAGE>
Greenwich Street California Municipal Fund Inc.
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Prospectus December 23, 1996
- --------------------------------------------------------------------------------
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Greenwich Street California Municipal Fund Inc. (the "Portfolio") is a
non-diversified, closed-end management investment company that seeks as high a
level of current income exempt from federal income tax and California personal
income tax as is consistent with the preservation of principal. Under normal
conditions, the Portfolio, in seeking to achieve its investment objective,
invests its assets primarily in long-term, investment grade obligations issued
by, or on behalf of, the State of California and its political subdivisions,
agencies and instrumentalities or multistate agencies or authorities. There is
no assurance that the Portfolio will achieve its investment objective. The
shares of closed-end investment companies have in the past frequently traded at
discounts from their net asset values. Investors should carefully assess the
risks associated with an investment in the Portfolio. See "Investment Objective
and Management Policies -- Risk Factors and Special Considerations."
This Prospectus sets forth concisely the information about the Portfolio
that a prospective investor ought to know before investing and should be
retained for future reference. Additional information about the Portfolio has
been filed with the Securities and Exchange Commission and is available upon
written or oral request by calling or writing to the Portfolio at the telephone
number or address set forth above or by contacting a Smith Barney Financial
Consultant.
Smith Barney Inc. ("Smith Barney") intends to make a market in the
Portfolio's Common Stock (the "Common Stock"), although it is not obligated to
conduct market-making activities and any such activities may be discontinued at
(Continued on page 2)
SMITH BARNEY INC.
Distributor
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Greenwich Street California Municipal Fund Inc.
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Prospectus (continued) December 23, 1996
- --------------------------------------------------------------------------------
any time, without notice by Smith Barney. The shares of Common Stock that may be
offered from time to time pursuant to this Prospectus were issued and sold by
the Portfolio on September 23, 1994 in an initial public offering at a price of
$12.00 per share. No assurance can be given as to the liquidity of, or the
trading market for, the Common Stock as a result of any market-making activities
undertaken by Smith Barney. The Portfolio will not receive any proceeds from the
sale of any Common Stock offered pursuant to this Prospectus. The Portfolio's
Common Stock has been approved for listing on the American Stock Exchange
("AMEX") under the symbol, "GCM."
All dealers effecting transactions in the registered securities, whether or
not participating in this distribution, may be required to deliver a Prospectus.
Investors are advised to read this Prospectus and to retain it for future
reference.
2
<PAGE>
Greenwich Street California Municipal Fund Inc.
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Table of Contents
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Prospectus Summary 4
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Portfolio Expenses 8
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Financial Highlights 9
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The Portfolio 10
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The Offering 10
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Use of Proceeds 10
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Investment Objective and Management Policies 10
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Investment Restrictions 32
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Share Price Data 33
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Management of the Portfolio 34
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Securities Transactions and Turnover 39
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Dividends and Distributions; Dividend Reinvestment Plan 40
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Net Asset Value 42
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Taxation 43
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Description of Shares 49
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Certain Provisions of the Articles of Incorporation 49
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Custodian, Transfer Agent, Dividend-Paying Agent,
Registrar and Plan Agent 52
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Reports to Shareholders 52
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Experts 52
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Further Information 52
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Appendix A A-1
- --------------------------------------------------------------------------------
Appendix B B-1
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations not contained in this Prospectus and, if given or made, the
information or representations must not be relied upon as having been authorized
by the Portfolio, the Investment Manager or Smith Barney. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
security other than the shares of Common Stock offered by this Prospectus, nor
does it constitute an offer to sell or a solicitation of an offer to buy the
shares of Common Stock by anyone in any jurisdiction in which the offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder will, under any circumstances, create any implication that
there has been no change in the affairs of the Portfolio since the date of this
Prospectus. If any material change occurs while this Prospectus is required by
law to be delivered, however, this Prospectus will be supplemented or amended
accordingly.
3
<PAGE>
Greenwich Street California Municipal Fund Inc.
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Prospectus Summary
- --------------------------------------------------------------------------------
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus. Cross references in this
summary are to headings in the body of the Prospectus.
THE PORTFOLIO The Portfolio is a non-diversified, closed-end management
investment company. See "The Portfolio."
INVESTMENT OBJECTIVE The Portfolio seeks as high a level of current income
exempt from federal income tax and California personal income tax as is
consistent with the preservation of principal. See "Investment Objective and
Management Policies."
TAX-EXEMPT INCOME The Portfolio is intended to operate in such a manner that
dividends paid by the Portfolio may be excluded by the Portfolio's shareholders
from their gross incomes for federal income tax and California personal income
tax purposes. See "Investment Objective and Management Policies" and "Taxation."
QUALITY INVESTMENTS The Portfolio invests substantially all of its assets in
long-term, investment grade obligations issued by state and local governments,
political subdivisions, agencies and public authorities. The Portfolio operates
subject to a fundamental investment policy providing that, under normal
conditions, the Portfolio will invest not less than 80% of its net assets in
municipal obligations and not less than 65% of its net assets in California
obligations. At least 80% of the Portfolio's total assets will be invested in
securities rated investment grade by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Rating Group ("S&P"), Fitch Investors Service,
Inc. ("Fitch") or another nationally recognized rating agency (that is, rated no
lower than Baa, MIG or Prime-1 by Moody's, BBB, SP-2 or A-1 by S&P or BBB or F-1
by Fitch). Up to 20% of the Portfolio's total assets may be invested in unrated
securities that are deemed by the Portfolio's investment manager to be of a
quality comparable to investment grade. See "Investment Objective and Management
Policies" and "Appendix A."
THE OFFERING Smith Barney intends to make a market in the Common Stock in
addition to trading the Common Stock on the AMEX. Smith Barney, however, is not
obligated to conduct market-making activities and any such activities may be
discontinued at any time without notice, at the sole discretion of Smith Barney.
LISTING AMEX.
SYMBOL GCM.
INVESTMENT MANAGER Greenwich Street Advisors, a division of Smith Barney Mutual
Funds Management Inc. ("SBMFM"), serves as the Portfolio's investment manager
(the "Investment Manager"). The Investment Manager provides invest-
4
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
ment advisory and management services to investment companies affiliated with
Smith Barney. SBMFM is a wholly owned subsidiary of Smith Barney Holdings Inc.
("Holdings") which is, in turn, a wholly owned subsidiary of Travelers Group
Inc. ("Travelers"), a diversified financial services holding company engaged,
through its subsidiaries, principally in four business segments: Investments
Services, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services. Subject to the supervision and direction of the
Portfolio's Board of Directors, the Investment Manager manages the securities
held by the Portfolio in accordance with the Portfolio's stated investment
objective and policies, makes investment decisions for the Portfolio, places
orders to purchase and sell securities on behalf of the Portfolio and employs
professional portfolio managers. SBMFM acts as administrator of the Portfolio
and in that capacity provides certain administrative services, including
overseeing the Portfolio's non-investment operations and its relations with
other service providers and providing executive and other officers to the
Portfolio. The Portfolio pays the Investment Manager a fee ("Management Fee")
for services provided to the Portfolio that is computed daily and paid monthly
at the annual rate of 0.90% of the value of the Portfolio's average daily net
assets. The Management Fee is higher than the rates for similar services paid by
other publicly offered, closed-end, management investment companies that have
investment objectives and policies similar to those of the Portfolio. The
Portfolio will bear other expenses and costs in connection with its operation in
addition to the costs of investment management services. See "Management of the
Portfolio -- Investment Manager."
CUSTODIAN PNC Bank, National Association ("PNC Bank") serves as the Portfolio's
custodian. See "Custodian, Transfer Agent, Dividend-Paying Agent, Registrar and
Plan Agent."
TRANSFER AGENT, DIVIDEND-PAYING AGENT, REGISTRAR AND PLAN AGENT First Data
Investor Services Group ("First Data") serves as the Portfolio's transfer agent,
dividend-paying agent and registrar. See "Custodian, Transfer Agent,
Dividend-Paying Agent, Registrar and Plan Agent."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (that is,
income other than net realized capital gains) are paid monthly and distributions
of net realized capital gains, if any, are paid annually. All dividends or
distributions with respect to shares of Common Stock are reinvested
automatically in additional shares through participation in the Portfolio's
Dividend Reinvestment Plan, unless a shareholder elects to receive cash. When
the market price of the Common Stock is equal to or exceeds net asset value,
participants in the Portfolio's Dividend Reinvestment Plan will receive
distributions through issuance of additional shares
5
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
of Common Stock valued at net asset value or, if the net asset value is less
than 95% of the then current market price of the Common Stock, then at 95% of
the market price. Whenever market price is less than net asset value,
participants will receive distributions through purchases of shares on the open
market. See "Dividends and Distributions; Dividend Reinvestment Plan."
RISK FACTORS AND SPECIAL CONSIDERATIONS The Portfolio is a closed-end investment
company. The net asset value of the Common Stock will change with changes in the
value of the securities held by the Portfolio. Because the Portfolio invests
primarily in fixed-income securities, the net asset value of the Common Stock
can be expected to change as levels of interest rates fluctuate; generally, when
prevailing interest rates increase, the value of fixed-income securities held by
the Portfolio can be expected to decrease and when prevailing interest rates
decrease, the value of the fixed-income securities held by the Portfolio can be
expected to increase. The value of the fixed-income securities held by the
Portfolio, and thus the Portfolio's net asset value, may also be affected by
other economic, market and credit factors. The net asset value of the Portfolio
may be subject to greater fluctuation to the extent that the Portfolio invests
in zero coupon securities. See "Investment Objective and Management Policies --
Risk Factors and Special Considerations."
The Portfolio does not purchase securities that are rated lower than Baa by
Moody's, BBB by S&P or BBB by Fitch at the time of purchase. Although
obligations rated Baa by Moody's, BBB by S&P or BBB by Fitch are considered to
be investment grade, they may be subject to greater risks than other higher
rated investment grade securities. Obligations rated Baa by Moody's, for
example, are considered medium grade obligations that lack outstanding
investment characteristics and have speculative characteristics as well;
obligations rated BBB by S&P are regarded as having an adequate capacity to pay
principal and interest, and obligations rated BBB by Fitch are deemed to be
subject to an increased likelihood that their rating will fall below investment
grade than higher rated bonds. See "Investment Objective and Management Policies
- -- Quality Standards" and "Investment Objective and Management Policies -- Risk
Factors and Special Considerations."
The Portfolio may invest up to 20% of its total assets in unrated
securities that the Investment Manager determines to be of comparable quality to
the securities rated investment grade in which the Portfolio may invest. Dealers
may not maintain daily markets in unrated securities and retail secondary
markets for many of them may not exist; this lack of markets may affect the
Portfolio's ability to sell these securities when the Investment Manager deems
it appropriate. The Portfolio has the right to invest without limitation in
state and local obligations that are "private activity bonds," the income from
which may be taxable as a specific preference item
6
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Prospectus Summary (continued)
- --------------------------------------------------------------------------------
for purposes of the federal alternative minimum tax. Thus, the Portfolio may not
be a suitable investment for investors who are subject to the alternative
minimum tax. See "Investment Objective and Management Policies" and "Taxation."
Certain of the instruments held by the Portfolio and certain of the
investment techniques that the Portfolio employs (which may include instruments
and techniques commonly referred to as "derivatives") might expose the Portfolio
to special risks. The instruments presenting the Portfolio with risks are
municipal leases, zero coupon securities, custodial receipts, municipal
obligation components, floating and variable rate demand notes and bonds, and
participation interests. Entering into securities transactions on a when-issued
or delayed delivery basis, entering into repurchase agreements, lending
portfolio securities, and engaging in financial futures and options
transactions, are investment techniques involving risks to the Portfolio. As a
non-diversified fund within the meaning of the Investment Company Act of 1940,
as amended (the "1940 Act"), the Portfolio may invest a greater proportion of
its assets in the obligations of a smaller number of issuers and, as a result,
may be subject to greater risk than a diversified fund with respect to its
holdings of securities. See "Investment Objective and Management Policies --
Types of Municipal Obligations Held by the Portfolio," "Investment Objective and
Management Policies -- Investment Techniques" and "Investment Objective and
Management Policies -- Risk Factors and Special Considerations."
The Portfolio's concentration in California obligations involves certain
additional risks that should be considered carefully by investors. Certain
California constitutional amendments, legislative measures, executive orders,
administrative regulations, court decisions and voter initiatives could result
in certain adverse consequences affecting California obligations. In particular,
there are risks resulting from certain amendments to the California Constitution
and other statutes that limit the taxing and spending authority of California
governmental entities, and these may have the effect of impairing the ability of
certain issuers of California obligations to pay principal and interest on their
obligations. In addition, investors purchasing municipal obligations of their
state of residence, or a fund comprised of such obligations, should recognize
that the benefits of the exemption from state and local taxes, in addition to
the exemption from federal taxes, necessarily limits the Portfolio's ability to
diversify geographically. See "Investment Objective and Management Policies --
Risk Factors and Special Considerations" and "Taxation."
The Portfolio's Articles of Incorporation include provisions that could
have the effect of limiting the ability of other entities or persons to acquire
control of the Portfolio and of depriving shareholders of an opportunity to sell
their shares of Common Stock at a premium over prevailing market prices. See
"Certain Provisions of the Articles of Incorporation."
7
<PAGE>
Greenwich Street California Municipal Fund Inc.
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Portfolio Expenses
- --------------------------------------------------------------------------------
The following tables are intended to assist investors in understanding the
various costs and expenses directly or indirectly associated with investing in
the Portfolio.
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Annual Expenses
(as a percentage of net assets attributable to Common Stock)
Management Fees 0.90%
Other Expenses* 0.25
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TOTAL ANNUAL OPERATING EXPENSES* 1.15%
================================================================================
* "Other Expenses," as shown above, is based upon amounts of expenses for the
fiscal year ended August 31, 1996.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Portfolio. These amounts are based upon payment
by the Portfolio of operating expenses at the levels set forth in the table
above.
An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) reinvestment of all dividends and
distributions at net asset value:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
$12 $37 $63 $140
This example should not be considered a representation of future expenses
of the Portfolio and actual expenses may be greater or less than those shown.
Moreover, while the example assumes a 5% annual return, the Portfolio's
performance will vary and may result in a return greater or less than 5%. In
addition, while the example assumes reinvestment of all dividends and
distributions at net asset value, participants in the Portfolio's Dividend
Reinvestment Plan may receive shares purchased or issued at a price or value
different from net asset value. See "Dividends and Distributions; Dividend
Reinvestment Plan."
8
<PAGE>
Greenwich Street California Municipal Fund Inc.
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Financial Highlights
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The following information for the fiscal year ended August 31, 1996 and for
the period from September 23, 1994 to August 31, 1995 has been audited in
conjunction with the annual audit of the financial statements of the Portfolio
by KPMG Peat Marwick LLP, independent auditors, whose report thereon appears in
the Portfolio's August 31, 1996 Annual Report to Shareholders. The information
set out below should be read in conjunction with the financial statements and
related notes that also appear in the Portfolio's Annual Report, which is
incorporated by reference into this Prospectus.
For a share of capital stock outstanding throughout each period:
1996 1995(1)(2)
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Net Asset Value, Beginning of Period $ 12.92 $ 12.00
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Income From Investment Operations:
Net investment income(3) 0.63 0.60
Net realized and unrealized gain on investments 0.30 0.84
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Total Income from Investment Operations 0.93 1.44
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Less Distributions From:
Net investment income (0.70) --
Net realized gains (0.02) (0.52)
- --------------------------------------------------------------------------------
Total Distributions (0.72) (0.52)
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Net Asset Value, End of Period $ 13.13 $ 12.92
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Total Return 7.96% 12.24%++
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Net Assets, End of Period (000s) $48,030 $47,250
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 1.15% 1.02%+
Net investment income 4.75 5.16+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 42.23% 7.32%
- --------------------------------------------------------------------------------
Market Price at End of Period $ 12.13 $ 11.50
================================================================================
(1) Based on weighted average shares outstanding for period.
(2) For the period from September 23, 1994 (commencement of operations) to
August 31, 1995.
(3) The Investment Manager waived a portion of its fees for the period from
September 23, 1994 to August 31, 1995. If such fees were not waived, the
per share decrease in net investment income would have been $0.01, and the
ratio of expenses to average net assets would have been 1.14%, annualized.
+ Annualized.
++ Total return is not annualized as it may not be representative of the total
return for the period.
9
<PAGE>
Greenwich Street California Municipal Fund Inc.
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The Portfolio
- --------------------------------------------------------------------------------
The Portfolio is a non-diversified, closed-end management investment
company that seeks as high a level of current income exempt from federal income
tax as is consistent with the preservation of principal. The Portfolio, which
was incorporated under the laws of the State of Maryland on July 8, 1994, is
registered under the 1940 Act, and has its principal office at 388 Greenwich
Street, New York, New York 10013. The Portfolio's telephone number is (212)
723-9218.
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The Offering
- --------------------------------------------------------------------------------
Smith Barney intends to make a market in the Common Stock, although it is
not obligated to conduct market-making activities and any such activities may be
discontinued at any time without notice at the sole discretion of Smith Barney.
No assurance can be given as to the liquidity of, or the trading market for, the
Common Stock as a result of any market-making activities undertaken by Smith
Barney. This Prospectus is to be used by Smith Barney in connection with offers
and sales of the Common Stock in market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of the sale.
- --------------------------------------------------------------------------------
Use of Proceeds
- --------------------------------------------------------------------------------
The Portfolio will not receive any proceeds from the sale of the Common
Stock offered pursuant to this Prospectus. Proceeds received by Smith Barney as
a result of its market-making in the Common Stock will be utilized by Smith
Barney in connection with its secondary market operations and for general
corporate purposes.
- --------------------------------------------------------------------------------
Investment Objective and Management Policies
- --------------------------------------------------------------------------------
Set out below is a description of the investment objective and principal
investment policies of the Portfolio. No assurance can be given that the
Portfolio will be able to achieve its investment objective, which may be changed
only with the approval of a majority of the Portfolio's outstanding voting
securities as defined in the 1940 Act, which is defined in the 1940 Act as the
lesser of (1) 67% or more of the shares present at a meeting of the Portfolio,
if the holders of more than 50% of the outstanding shares of the Portfolio are
present or represented by proxy or (2) more than 50% of the outstanding shares
of the Portfolio.
10
<PAGE>
Greenwich Street California Municipal Fund Inc.
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
GENERAL
The Portfolio's investment objective is to seek as high a level of current
income exempt from federal income tax and California personal income taxes as is
consistent with the preservation of principal. In seeking its objective, the
Portfolio invests primarily in investment grade debt obligations issued by, or
on behalf of, the State of California and its political subdivisions, agencies
and instrumentalities or multistate agencies or authorities, the interest from
which is, in the opinion of bond counsel to their issuers, excluded from gross
income for the purposes of federal income tax as well as California personal
income tax. The Portfolio operates subject to a fundamental investment policy
providing that, under normal conditions, the Portfolio will invest not less than
80% of its net assets in municipal obligations the interest on which is exempt
from federal income tax (other than the alternative minimum tax) ("Municipal
Obligations") and not less than 65% of its net assets in Municipal Obligations
the interest on which is also exempt from California personal income tax in the
opinion of bond counsel to the issuers ("California obligations"). The Portfolio
generally invests in long-term Municipal Obligations; under normal market
conditions, the weighted average maturity of the Portfolio's securities is
generally in excess of 20 years.
The Portfolio is classified as a non-diversified fund under the 1940 Act,
which means that the portfolio is not limited by the 1940 Act in the proportion
of its assets that it may invest in the obligations of a single issuer. The
Portfolio conducts 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 relieves the Portfolio of any liability for federal
income tax to the extent that its earnings are distributed to shareholders. To
qualify as a regulated investment company, the Portfolio, among other things,
limits its investments so that, at the close of each quarter of its taxable year
(1) not more than 25% of the market value of the Portfolio's total assets will
be invested in the securities of a single issuer and (2) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer. See
"Taxation."
The Portfolio generally does not invest more than 25% of its total assets
in any industry. Governmental issuers of Municipal Obligations are not
considered part of any "industry." Municipal Obligations backed only by the
assets and revenues of non-governmental users may be deemed to be issued by the
non-governmental users, and would be subject to the Portfolio's 25% industry
limitation.
The Portfolio may invest more than 25% of its total assets in a broad
segment of the Municipal Obligations market, such as revenue obligations of
hospitals and
11
<PAGE>
Greenwich Street California Municipal Fund Inc.
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Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
other health care facilities, housing agency revenue obligations,
or airport revenue obligations, if the Investment Manager determines that the
yields available from obligations in a particular segment of the market justify
the additional risks associated with a large investment in the segment. Although
these Municipal Obligations could be supported by the credit of governmental
users, or by the credit of non-governmental users engaged in a number of
industries, economic, business, political and other developments generally
affecting the revenues of the users (for example, proposed legislation or
pending court decisions affecting the financing of projects and market factors
affecting the demand for their services or products) may have a general adverse
effect on all municipal securities in such a market segment.
From time to time, the Portfolio's investments include securities as to
which the Portfolio, by itself or together with other funds or accounts managed
by the Investment Manager, holds a major portion or all of an issue of Municipal
Obligations. Because relatively few potential purchasers may by available for
these investments and, in some cases, contractual restrictions may apply on
resales, the Portfolio may find it more difficult to sell these securities at a
time when the Investment Manager believes it is advisable to do so.
MUNICIPAL OBLIGATIONS
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 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 yields on, and values of, Municipal Obligations are dependent on a
variety of factors, including general economic and monetary conditions, money
market factors, conditions in the Municipal Obligation markets, size of a
particular offering, maturity of the obligation and rating of the issue.
Consequently, Municipal Obligations with the same maturity, coupon and rating
may have different yields or values, whereas obligations of the same maturity
and coupon with different ratings may have the same yield or value. See "Risk
Factors and Special Considerations--Municipal Obligations."
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Investment Objective and Management Policies (continued)
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Issuers of Municipal Obligations may be subject to the provisions of
bankruptcy, insolvency and other laws, such as the Federal Bankruptcy Reform Act
of 1978, affecting the rights and remedies of creditors. In addition, the
obligations of those issuers may become subject to laws enacted in the future by
Congress, state legislatures or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of the
obligations or upon the ability of municipalities to levy taxes. The possibility
also exists that, as a result of litigation or other conditions, the power or
ability of any issuer to pay, when due, the principal of, and interest on, its
obligations may be materially affected.
QUALITY STANDARDS
The Portfolio typically purchases Municipal Obligations if the Investment
Manager believes that the yield of the obligation is sufficiently attractive in
light of the risks of ownership of the obligation. In determining whether the
Portfolio should invest in particular Municipal Obligations, the Investment
Manager will consider factors such as: the price, coupon and yield to maturity
of the obligations; the Investment Manager's assessment of the credit quality of
the issuer of the obligations; the issuer's available cash flow and the related
coverage ratios; the property, if any, securing the obligations; and the terms
of the obligations, including subordination, default, sinking fund and early
redemption provisions. The Investment Manager will also review the ratings, if
any, assigned to the securities by Moody's, S&P, Fitch or another nationally
recognized rating agency.
The Portfolio will invest at least 80% of its total assets in Municipal
Obligations rated investment grade, that is, rated no lower than Baa, MIG 3 or
Prime-1 by Moody's, BBB, SP-2 or A-1 by S&P or BBB or F-1 by Fitch. Up to 20% of
the Portfolio's total assets may be invested in unrated securities that are
deemed by the Investment Manager to be of a quality comparable to investment
grade. The Portfolio will not invest in Municipal Obligations that are rated
lower than Baa by Moody's, BBB by S&P or BBB by Fitch, at the time of purchase.
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.
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Investment Objective and Management Policies (continued)
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The ratings of agencies such as Moody's, S&P and Fitch represent their
opinions as to the quality of the Municipal Obligations that they undertake to
rate; the ratings are relative and subjective and are not absolute standards of
quality. The Investment Manager's judgment as to the credit quality of a
Municipal Obligation, thus, may differ from that suggested by the ratings
published by a rating service. A description of Moody's, S&P and Fitch ratings
relevant to the Portfolio's investments is included as Appendix A to this
Prospectus. The policies of the Portfolio described above as to ratings of
investments will apply only at the time of the purchase of a security, and the
Portfolio will not be required to dispose of a security in the event Moody's,
S&P or Fitch downgrades its assessment of the credit characteristics of the
security's issuer.
PRIVATE ACTIVITY BONDS
The Portfolio may invest without limit in Municipal Obligations that are
tax-exempt "private activity bonds," as defined in the Code, which are in most
cases revenue bonds. Private activity bonds 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. Interest income on certain types of
private activity bonds issued after August 7, 1986 to finance non-governmental
activities is a specific tax preference item for purposes of the federal
individual and corporate alternative minimum taxes. Individual and corporate
shareholders may be subject to a federal alternative minimum tax to the extent
that the Portfolio's dividends are derived from interest on these bonds.
Dividends derived from interest income on Municipal Obligations are a "current
earnings" adjustment item for purposes of the federal corporate alternative
minimum tax. See "Taxation." Private activity bonds held by the Portfolio will
be included in the term Municipal Obligations for purposes of determining
compliance with the Portfolio's policy of investing at least 80% of its total
assets in Municipal Obligations.
TYPES OF MUNICIPAL OBLIGATIONS HELD BY THE PORTFOLIO
Municipal Leases. Among the Municipal Obligations in which the Portfolio
may invest are municipal leases, which may take the form of a lease or an
installment purchase or conditional sales contract to acquire a wide variety of
equipment and facilities. Interest payments on qualifying municipal leases are
exempt from federal income taxes and state income taxes within the state of
issuance. The Portfolio may invest in municipal leases containing
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated
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Greenwich Street California Municipal Fund Inc.
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Investment Objective and Management Policies (continued)
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for the purpose by the applicable legislative body on a yearly or other periodic
basis.
Municipal leases that the Portfolio may acquire will be both rated and
unrated. Rated leases that may be held by the Portfolio include those rated
investment grade at the time of investment (that is, rated no lower than Baa by
Moody's, BBB by S&P or BBB by Fitch). The Portfolio may acquire unrated issues
that the Investment Manager deems to be comparable in quality to rated issues in
which the Portfolio is authorized to invest. A determination by the Investment
Manager that an unrated lease obligation is comparable in quality to a rated
lease obligation will be made on the basis of, among other things, a
consideration of whether the nature of the leased equipment or other property is
such that its ownership or use is reasonably essential to a governmental
function of the issuing municipality. In addition, all such determinations made
by the Investment Manager will be subject to oversight and approval by the
Portfolio's Board of Directors.
Municipal leases held by the Portfolio are considered illiquid securities
unless the Portfolio's Board of Directors determines on an ongoing basis that
the leases are readily marketable. An unrated municipal lease with a
non-appropriation risk that is backed by an irrevocable bank letter of credit or
an insurance policy issued by a bank or insurer deemed by the Investment Manager
to be of high quality and minimal credit risk will not be deemed to be illiquid
solely because the underlying municipal lease is unrated, if the Investment
Manager determines that the lease is readily marketable because it is backed by
the letter of credit or insurance policy.
Municipal leases are subject to special risks described below under "Risk
Factors and Special Considerations." To limit those risks, the Portfolio will
invest no more than 5% of its total assets in lease obligations that contain
non-appropriation clauses and will only purchase a non-appropriation lease
obligation with respect to which (1) the nature of the leased equipment or other
property is such that its ownership or use is reasonably essential to a
governmental function of the issuing municipality, (2) the lease payments will
begin to amortize the principal balance due at an early date, resulting in an
average life of five years or less for the lease obligation, (3) appropriate
covenants will be obtained from the municipal obligor prohibiting the
substitution or purchase of similar equipment or other property if lease
payments are not appropriated, (4) the lease obligor has maintained good market
acceptability in the past, (5) the investment is of a size that will be
attractive to institutional investors and (6) the underlying leased equipment or
other property has elements of portability and/or use that enhance its
marketability in the event that foreclosure on the underlying equipment or other
property were ever required.
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Greenwich Street California Municipal Fund Inc.
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Investment Objective and Management Policies (continued)
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Zero Coupon Securities. The Portfolio may invest its assets in zero coupon
Municipal Obligations. Zero coupon Municipal Obligations are generally divided
into two categories: Pure Zero Obligations, which are those that pay no interest
for their entire life, and Zero/Fixed Obligations, which pay no interest for
some initial period and thereafter pay interest currently. In the case of a Pure
Zero Obligation, the failure to pay interest currently may result from the
obligation's having no stated interest rate, in which case the obligation pays
only principal at maturity and is issued at a discount from its stated principal
amount. A Pure Zero Obligation may, in the alternative, specify a stated
interest rate, but provide that no interest is payable until maturity, in which
case accrued unpaid interest on the obligation may be capitalized as incremental
principal. The value to the investor of a zero coupon Municipal Obligation
consists of the economic accretion either of the difference between the purchase
price and the nominal principal amount (if no interest is stated to accrue) or
of accrued, unpaid interest during the Municipal Obligation's life or payment
deferral period.
Custodial Receipts. The Portfolio may acquire custodial receipts or
certificates underwritten by securities dealers or banks that evidence ownership
of future interest payments, principal payments or both on certain Municipal
Obligations. The underwriter of these certificates or receipts typically
purchases Municipal Obligations and deposits the obligations in an irrevocable
trust or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Custodial receipts
evidencing specific coupon or principal payments have the same general
attributes as zero coupon Municipal Obligations described above. Although under
the terms of a custodial receipt, the Portfolio would be typically authorized to
assert its rights directly against the issuer of the underlying obligation, the
Portfolio could be required to assert through the custodian bank those rights as
may exist against the underlying issuer. Thus, in the event the underlying
issuer fails to pay principal and/or interest when due, the Portfolio may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Portfolio had purchased a direct obligation of the
issuer. In addition, in the event that the trust or custodial account in which
the underlying security has been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, the yield on the
underlying security would be reduced in recognition of any taxes paid.
Municipal Obligation Components. The Portfolio may invest in Municipal
Obligations, the interest rate on which has been divided by the issuer into two
different and variable components, which together result in a fixed interest
rate.
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Investment Objective and Management Policies (continued)
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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, which are
also sometimes referred to as "inverse floaters," 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.
Floating and Variable Rate Instruments. The Portfolio may purchase floating
and variable rate demand notes and bonds, which are Municipal Obligations
normally having a stated maturity in excess of one year, but which permit their
holder to demand payment of principal at any time, or at specified intervals.
The issuer of floating and variable rate demand obligations normally has a
corresponding right, after a given period, to prepay at its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of the obligations. The interest
rate on a floating rate demand obligation is based on a known lending rate, such
as a bank's prime rate, and is adjusted automatically each time that rate is
adjusted. The interest rate on a variable rate demand obligation is adjusted
automatically at specified intervals. Frequently, floating and variable rate
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Use of letters of credit or other credit support
arrangements will not adversely affect the tax-exempt status of these
obligations. Because they are direct lending arrangements between the lender and
borrower, floating and variable rate obligations will generally not be traded.
In addition, no secondary market generally exists for these obligations,
although their holders may demand their payment at face value. For these
reasons, when floating and variable rate obligations held by the Portfolio are
not secured by letters of credit or other credit support arrangements, the
Portfolio's right to demand payment is dependent on the ability of the borrower
to pay principal and interest on demand. The Investment Manager, on behalf of
the Portfolio, will consider, on an ongoing basis, the creditworthiness of the
issuers of floating and variable rate demand
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Investment Objective and Management Policies (continued)
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obligations held by the Portfolio. To the extent the Portfolio holds certain
floating and variable rate demand obligations or Auction Components, the
Portfolio may not, under certain market conditions, be fully achieving its
investment objective.
Participation Interests. The Portfolio may purchase from financial
institutions tax-exempt participation interests in Municipal Obligations. A
participation interest gives the Portfolio an undivided interest in the
Municipal Obligation in the proportion that the Portfolio's participation
interest bears to the total amount of the Municipal Obligation. These
instruments may have floating or variable rates of interest. 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 quality standards or the payment obligation otherwise
will be collateralized by obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities ("U.S. Government securities").
The portfolio will have the right, with respect to certain participation
interests, to demand payment, on a specified number of days' notice, for all or
any part of the Portfolio's interest in the Municipal Obligation, plus accrued
interest. The Portfolio intends to exercise its right with respect to these
instruments to demand payment only upon a default under the terms of the
Municipal Obligation or to maintain or improve the quality of the instruments it
holds. In addition, the Portfolio will invest no more than 5% of its total
assets in participation interests.
TAXABLE INVESTMENTS
Under normal conditions, the Portfolio may hold up to 20% of its total
assets in cash or money market instruments, including taxable money market
instruments (collectively, "Taxable Investments"). In addition, the Portfolio
may take a temporary defensive posture and invest without limitation in
short-term Municipal Obligations and Taxable Investments, upon a determination
by the Investment Manager that market conditions warrant such a posture. To the
extent the Portfolio holds Taxable Investments, the Portfolio will not be
pursuing its investment objective.
Money market instruments in which the Portfolio may invest include: U.S.
Government securities; tax-exempt notes of municipal issuers rated, at the time
of purchase, no lower than MIG 1 by Moody's, SP-1 by S&P or F-1 by Fitch or, if
not rated, by issuers having outstanding, unsecured debt then rated within the
three highest rating categories; bank obligations (including certificates of
deposit, time deposits and bankers' acceptances of domestic banks, domestic
savings and loan associations and similar institutions); commercial paper rated
no lower than P-1 by Moody's, A-1 by S&P or F-1 by Fitch or the equivalent from
another nationally
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Investment Objective and Management Policies (continued)
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recognized rating agency or, if unrated, of an issuer having an outstanding,
unsecured debt issue then rated within the three highest rating categories; and
repurchase agreements. At no time will the Portfolio's investments in bank
obligations, including time deposits, exceed 25% of the value of its assets.
U.S. Government securities in which the Portfolio may invest include direct
obligations of the United States and obligations issued by U.S. Government
agencies and instrumentalities. Included among direct obligations of the United
States are Treasury Bills, Treasury Notes and Treasury Bonds, which differ
principally in terms of their maturities. Included among the securities issued
by U.S. Government agencies and instrumentalities are: securities that are
supported by the full faith and credit of the United States (such as Government
National Mortgage Association certificates); securities that are supported by
the right of the issuer to borrow from the U.S. Treasury (such as securities of
Federal Home Loan Banks); and securities that are supported by the credit of the
instrumentality (such as Federal National Mortgage Association and Federal Home
Loan Mortgage Corporation bonds).
The Portfolio may enter into repurchase agreement transactions with member
banks of the Federal Reserve System or with certain dealers listed on the
Federal Reserve Bank of New York's list of reporting dealers. A repurchase
agreement is a contract under which the buyer of a security simultaneously
commits to resell the security to the seller at an agreed-upon price on an
agreed-upon date. Under the terms of a typical repurchase agreement, the
portfolio would acquire an underlying debt obligation for a relatively short
period subject to an obligation of the seller to repurchase, and the Portfolio
to resell, the obligation at an agreed-upon price and time, thereby determining
the yield during the portfolio's holding period. This arrangement results in a
fixed rate of return that is not subject to market fluctuations during the
Portfolio's holding period. Under each repurchase agreement, the selling
institution will be required to maintain the value of the securities subject to
the repurchase agreement at not less than their repurchase price.
The value of the securities underlying a repurchase agreement of the
Portfolio will be monitored on an ongoing basis by the Investment Manager to
ensure that the value is at least equal at all times to the total amount of the
repurchase obligation, including interest. The Investment Manager will also
monitor, on an ongoing basis to evaluate potential risks, the creditworthiness
of the banks and dealers with which the Portfolio enters into repurchase
agreements.
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Investment Objective and Management Policies (continued)
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INVESTMENT TECHNIQUES
The Portfolio may employ, among others, the investment techniques described
below, which may give rise to taxable income:
When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued basis, or may purchase or sell securities for
delayed delivery. In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but no payment or
delivery will be made by the Portfolio prior to the actual delivery or payment
by the other party to the transaction. The Portfolio will not accrue income with
respect to a when-issued or delayed delivery security prior to its stated
delivery date. The Portfolio will establish with PNC Bank a segregated account
consisting of cash, U.S. Government securities, or other liquid high grade debt
obligations, in an amount equal to the amount of the Portfolio's when-issued and
delayed delivery purchase commitments. Placing securities rather than cash in
the segregated account may have a leveraging effect on the Portfolio's net asset
value per share; that is, to the extent that the Portfolio remains substantially
fully invested in securities at the same time that it has committed to purchase
securities on a when-issued or delayed delivery basis, greater fluctuations in
its net asset value per share may occur than if it had set aside cash to satisfy
its purchase commitments.
Stand-By Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations it holds. Under a stand-by commitment, which
resembles a put option, a broker, dealer or bank is obligated to repurchase at
the Portfolio's option specified securities at a specified price. Each exercise
of a stand-by commitment, therefore, is subject to the ability of the seller to
make payment on demand. The Portfolio will acquire stand-by commitments solely
to facilitate liquidity and does not intend to exercise the rights afforded by
the commitments for trading purposes. The Portfolio anticipates that stand-by
commitments will be available from brokers, dealers and banks without the
payment of any direct or indirect consideration. The Portfolio may pay for
stand-by commitments if payment is deemed necessary, thus increasing to a degree
the cost of the underlying Municipal Obligation and similarly decreasing the
obligation's yield to investors.
Financial Futures and Options Transactions. To hedge against a decline in
the value of Municipal Obligations it owns or an increase in the price of
Municipal Obligations it proposes to purchase, the Portfolio may enter into
financial futures contracts and invest in options on financial futures contracts
that are traded on a U.S. exchange or board of trade. The futures contracts or
options on futures
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Greenwich Street California Municipal Fund Inc.
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Investment Objective and Management Policies (continued)
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contracts that may be entered into by the Portfolio will be restricted to those
that are either based on an index of Municipal Obligations or relate to debt
securities the prices of which are anticipated by the Investment Manager to
correlate with the prices of the Municipal Obligations owned or to be purchased
by the Portfolio.
In entering into a financial futures contract, the Portfolio will be
required to deposit with the broker through which it undertakes the transaction
an amount of cash or cash equivalents equal to approximately 5% of the contract
amount. This amount, which is known as "initial margin," is subject to change by
the exchange or board of trade on which the contract is traded, and members of
the exchange or board of trade may charge a higher amount. Initial margin is in
the nature of a performance bond or good faith deposit on the contract that is
returned to the Portfolio upon termination of the futures contract, assuming all
contractual obligations have been satisfied. In accordance with a process known
as "marking-to-market," subsequent payments, known as "variation margin," to and
from the broker will be made daily as the price of the index or securities
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable. At any time prior to the
expiration of a futures contract, the Portfolio may elect to close the position
by taking an opposite position, which will operate to terminate the Portfolio's
existing position in the contract.
A financial futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of a specified property at a
specified price, date, time and place. Unlike the direct investment in a futures
contract, an option on a financial futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in the financial
futures contract at a specified exercise price at any time prior to the
expiration date of the option. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option on the futures contract. The potential
loss related to the purchase of an option on financial futures contracts is
limited to the premium paid for the option (plus transaction costs). The value
of the option may change daily, and that change would be reflected in the net
asset value of the Portfolio.
Regulations of the Commodity Futures Trading Commission applicable to the
Portfolio require that its transactions in financial futures contracts and
options on financial futures contracts be engaged in for bona fide hedging
purposes or other permitted purposes, and that no such transactions may be
entered into by the
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Greenwich Street California Municipal Fund Inc.
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Investment Objective and Management Policies (continued)
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Portfolio if the aggregate initial margin deposits and premiums paid by the
Portfolio exceed 5% of the market value of its assets. In addition, the
Portfolio will, with respect to its purchases of financial futures contracts,
establish a segregated account consisting of cash or cash equivalents in an
amount equal to the total market value of the futures contracts, less the amount
of initial margin on deposit for the contracts. The Portfolio's ability to trade
in financial futures contracts and options on financial futures contracts may be
limited to some extent by the requirements of the Code applicable to a regulated
investment company that are described below under "Taxation."
Lending Securities. The Portfolio is authorized to lend securities it holds
to brokers, dealers and other financial organizations, but it will not lend
securities to any affiliate of the Investment Manager, including Smith Barney,
unless the Portfolio applies for and receives specific authority to do so from
the Securities and Exchange Commission (the "SEC"). Loans of the Portfolio's
securities, if and when made, may not exceed 3311/43 % of the Portfolio's assets
taken at value. The Portfolio's loans of securities will be collateralized by
cash, letters of credit or U.S. Government securities that will be maintained at
all times in a segregated account with PNC Bank in an amount equal to the
current market value of the loaned securities. From time to time, the Portfolio
may pay a part of the interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party that is unaffiliated
with the Portfolio and that is acting as a "finder."
By lending its securities, the Portfolio can increase its income by
continuing to receive interest on the loaned securities, by investing the cash
collateral in short-term instruments or by obtaining yield in the form of
interest (which is taxable to shareholders as ordinary income) paid by the
borrower when U.S. Government securities are used as collateral. The Portfolio
will adhere to the following conditions whenever it lends its securities: (1)
the Portfolio must receive at least 100% cash collateral or equivalent
securities from the borrower which amount of collateral will be maintained by
daily marking to market; (2) the borrower must increase the collateral whenever
the market value of the securities loaned rises above the level of the
collateral; (3) the Portfolio must able to terminate the loan any time; (4) the
Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (6) voting rights on the loaned securities
may pass to the borrower, except that, if a material event adversely affecting
the investment in the loaned securities occurs, the Portfolio's Board of
Directors must terminate the loan and retain the Portfolio's right to vote the
securities.
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Investment Objective and Management Policies (continued)
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RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in the Portfolio involves risk factors and special
considerations, such as those described below:
Municipal Obligations. Substantially all of the Portfolio's total assets
will be invested, under normal market conditions, in Municipal Obligations rated
investment grade at the time of investment. Market rates of interest available
with respect to Municipal Obligations generally may be lower than those
available with respect to taxable securities, although the differences may be
wholly or partially offset by the effects of federal income tax on income
derived from taxable securities. The amount of available information about the
financial condition of issuers of Municipal Obligations may be less extensive
than that for corporate issuers with publicly traded securities, and the market
for Municipal Obligations may be less liquid than the market for corporate debt
obligations. Municipal Obligations in which the Portfolio may invest include
special obligation bonds, lease obligations, participation certificates and
variable rate instruments. The market for these Municipal Obligations may be
less liquid than the market for general obligation Municipal Obligations.
Although the Portfolio's policy is generally to hold Municipal Obligations until
their maturity, the relative illiquidity of some of the Portfolio's securities
may adversely affect the ability of the Portfolio to dispose of the securities
in a timely manner and at a fair price. The market for less liquid securities
tends to be more volatile than the market for more liquid securities and market
values of relatively illiquid securities may be more susceptible to change as a
result of adverse publicity and investor perceptions than are the market values
of more liquid securities. Although the issuer of certain Municipal Obligations
may be obligated to redeem the obligations at face value, redemption could
result in capital losses to the Portfolio to the extent that the Municipal
Obligations were purchased by the Portfolio at a premium to face value.
Although the Municipal Obligations in which the Portfolio may invest are,
at the time of investment, rated investment grade, municipal securities, like
other debt obligations, are subject to the risk of non-payment by their issuers.
The ability of issuers of Municipal Obligations to make timely payments of
interest and principal may be adversely affected in general economic downturns
and as relative governmental cost burdens are allocated and reallocated among
federal, state and local governmental units. Non-payment by an issuer would
result in a reduction of income to the Portfolio, and could result in a
reduction in the value of the Municipal Obligations experiencing non-payment and
a potential decrease in the net asset value of the Portfolio.
23
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Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
Issuers of Municipal Obligations may from time to time seek protection
under federal bankruptcy laws. In the event of bankruptcy of an issuer of a
Municipal Obligation it holds, the Portfolio could experience delays and
limitations with respect to the collection of principal and interest on the
obligation, and the Portfolio may not, in all circumstances, be able to collect
all principal and interest to which it is entitled. To enforce its rights in the
event of a default in the payment of interest or repayment of principal, or
both, the Portfolio may take possession of and manage the assets securing the
issuer's obligations on the securities, which may increase the Portfolio's
operating expenses and adversely affect the net asset value of the Portfolio.
Any income derived from the Portfolio's ownership or operation of these assets
may not be tax-exempt. In addition, the Portfolio's intention to qualify as a
regulated investment company under the Code may limit the extent to which the
Portfolio may exercise its rights by taking possession of the assets, because as
a regulated investment company the Portfolio is subject to certain limitations
on its investments and on the nature of its income. See "Taxation."
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest on them from federal income taxes are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Portfolio
nor the Investment Manager reviews the procedures relating to the issuance of
Municipal Obligations or the basis for opinions of counsel.
The Investment Manager values the Portfolio's investments pursuant to
guidelines adopted and periodically reviewed by the Portfolio's Board of
Directors. To the extent that no established retail market exists for some of
the securities in which the Portfolio may invest, trading in the securities may
be relatively inactive and the ability of the Investment Manager to value the
securities accurately may be adversely affected. During periods of reduced
market liquidity and in the absence of readily available market quotations for
Municipal Obligations held by the Portfolio, the responsibility of the
Investment Manager to value the Portfolio's securities will become more
difficult. The Investment Manager's judgment may play a greater role in the
valuation of the Portfolio's securities as a result of the reduced availability
of reliable objective data. To the extent that the Portfolio invests in illiquid
securities and securities that are restricted as to resale, the Portfolio may
incur additional risks and costs. The sale of illiquid and restricted securities
is particularly difficult.
The net asset value of the Common Stock will change when the value of the
Portfolio's securities changes. Because the Portfolio invests primarily in fixed
income securities, the net asset value of the Common Stock can be expected to
change as levels of interest rates fluctuate; generally, when prevailing
interest rates increase, the value of fixed-income securities held by the
Portfolio can be expected to decrease and when prevailing interest rates
decrease, the value of the fixed-income securities held by the Portfolio can be
expected
24
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
to increase. The value of the fixed-income securities held by the Portfolio, and
thus the Portfolio's net asset value, may also be affected by other economic,
market and credit factors.
Special Considerations Relating to California Obligations. The Portfolio's
concentration in California obligations involves certain additional risks that
should be considered carefully by investors. Certain California constitutional
amendments, legislative measures, executive orders, administrative regulations,
court decisions and voter initiatives could result in certain adverse
consequences affecting California obligations. In particular, there are risks
resulting from certain amendments to the California Constitution and other
statutes that limit the taxing and spending authority of California governmental
entities, and these may have the effect of impairing the ability of certain
issuers of California obligations to pay principal and interest on their
obligations.
The following information is a summary of special factors affecting
California obligations. It does not purport to be a complete description and is
based on information from statements relating to securities offerings of
California issuers.
Beginning in the 1990-91 fiscal year, California (the "State") has faced
the worst economic, fiscal and budget conditions since the 1930s. The State was
adversely affected by the national recession and the cutbacks in aerospace and
defense spending, both of which have had a severe impact on the economy in
Southern California. Job losses were the worst of any post-war recession and
have been estimated to exceed 800,000.
The recession has seriously affected State tax revenues. It also caused
increased expenditures for health and welfare programs. The State has also faced
a structural imbalance in its budget with the largest programs supported by the
General Fund -- K-12 schools and community colleges, health, welfare and
corrections -- growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. (The General Fund, the State's main
operating fund, consists of revenues which are not required to be credited to
any other fund.) The State experienced recurring budget deficits. The State
Controller reported that expenditures exceeded revenues for four of the six
fiscal years ending with 1992-93, and were essentially equal in 1993-94.
According to the Department of Finance, the State suffered a continuing budget
deficit of approximately $2.8 billion in the Special Fund for Economic
Uncertainties. (Special Funds account for revenues obtained from specific
revenue sources, and which are legally restricted to expenditures for specified
purposes.) The 1993-94 Budget Act incorporated a Deficit Reduction Plan
25
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
to repay this deficit over two years. The original budget for 1993-94 reflected
revenues which exceeded expenditures by approximately $2.8 billion. As a result
of continuing recession, the excess of revenues over expenditures for the
1993-94 fiscal year was less than $300 million. The accumulated budget deficit
at June 30, 1994 was not able to be retired by June 30, 1995 as planned. When
the economy failed to recover sufficiently in 1993-94, a second two-year plan
was implemented in 1994-95. The accumulated budget deficits over the past
several years, together with expenditures for school funding which have not been
reflected in the budget, and the reduction of available internal borrowable
funds, have combined to significantly deplete the State's cash resources to pay
its ongoing expenses. In order to meet its cash needs, the State has had to rely
for several years on a series of external borrowings, including borrowings past
the end of a fiscal year. At the end of its 1995-96 fiscal year, however, the
State did not borrow moneys into the subsequent fiscal year.
Since the severe recession, California's economy has been recovering.
Employment has grown by over 500,000 in 1994 and 1995, and the prerecession
level of total employment is expected to be matched by early 1996. The strongest
growth has been in export-related industries, business services, electronics,
entertainment and tourism, all of which have offset the recession-related losses
which were heaviest in aerospace and defense-related industries (accounting for
approximately two-thirds of the job losses), finance and insurance. Residential
housing construction, with new permits for under 100,000 annual new units issued
in 1994 and 1995, is weaker than in previous recoveries, but has been growing
slowly since 1993.
Sectors which are now contributing to California's recovery include
construction and related manufacturing, wholesale and retail trade,
transportation and several service industries such as amusements and recreation,
business services, and management consulting. Electronics is showing modest
growth and the rate of decline in aerospace manufacturing is slowly diminishing.
As a result of these factors, average 1994 non-farm employment exceeded
expectations and grew beyond 1993 levels.
Many California counties continue to be under severe fiscal stress. Such
stress has impacted smaller, rural counties and larger urban counties such as
Los Angeles, and Orange County, which declared bankruptcy in 1994. Orange County
has implemented significant reductions in services and personnel, and continues
to face fiscal constraints in the aftermath of its bankruptcy.
By June 30, 1994, the General Fund had an accumulated deficit, on a
budgeted basis, of approximately $2 billion. In addition, the accumulated budget
deficits over
26
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
the past several years had exhausted the State's available cash reserves and
resources. In July and August, 1994, the State was required to issue a total of
$7 billion of short-term revenue anticipation warrants to fund, in part, the
State's cash flow management needs for the 1994-95 fiscal year. The current
budget recognizes that the accumulated deficit cannot be repaid in one year. The
budget forecasts levels of revenues and expenditures which will result in
operating surpluses in both 1994-95 and 1995-96, leading to the elimination of
the accumulated budget deficit by June 30, 1996.
The 1995-96 Budget Act, signed by the Governor on August 3, 1995, projects
General Fund revenues and transfers of $44.1 billion, about $2.2 billion higher
than projected revenues in 1994-95. The Budget Act projects Special Fund
revenues of $12.7 billion, an increase from $12.1 billion projected in 1994-95.
The 1996-97 Budget Act was signed by the Governor on July 15, 1996, and
projected General Fund revenues and transfers of approximately $47.64 billion
and General Fund expenditures of approximately $47.25 billion. The Governor
vetoed about $82 million of appropriations (both General Fund and Special Fund)
and the State has implemented its regular cash flow borrowing program with the
issuance of $3.0 billion of Revenue Anticipation Notes to mature on or before
June 30, 1997. The 1996-97 Budget Act appropriated a budget reserve in the
Special Fund for Economic Uncertainties af $305 million, as of June 30, 1997.
The Department of Finance projects that, on June 30, 1997, the State's available
internal borrowable (cash) resources will be approximately $2.9 billion, after
payment of all obligations due by that date, so that no cross-fiscal year
borrowing will be needed.
The State Legislature rejected the Governor's proposed 15% cut in personal
income taxes (to be phased over three years), but did approve a 5% cut in bank
and corporation taxes, to be effective for income years starting on June 1,
1997. As a result, revenues for the Fiscal Year will be an estimated $550
million higher than projected in the May Revision to the 1996-97 Budget, and are
now estimated to total $47.643 billion, a 3.3 percent increase over the final
estimated 1995-96 revenues. Special Fund revenues are estimated to be $13.3
billion.
The State is subject to an annual appropriations limit imposed by Article
XIIIB of the State Constitution (the "Appropriations Limit"), and is prohibited
from spending "appropriations subject to limitation" in excess of the
Appropriations Limit. Article XIIIB, originally adopted in 1979, was modified
substantially by Propositions 98 and 111 in 1988 and 1990, respectively.
"Appropriations subject to limitation" are authorizations to spend "proceeds of
taxes," which consist of tax revenues and certain other funds, including
proceeds from regulatory licenses, user charges or other fees to the extent that
such proceeds exceed the reasonable cost of providing the regulation, product or
service. The Appropriations Limit is based on
27
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
the limit for the prior year, adjusted annually for certain changes, and is
tested over consecutive two-year periods. Any excess of the aggregate proceeds
of taxes received over such two-year period above the combined Appropriations
Limits for those two years is divided equally between transfers to K-14
districts and refunds to taxpayers.
Exempted from the Appropriations Limit are debt service costs of certain
bonds, court or federally mandated costs, and, pursuant to Proposition 111,
qualified capital outlay projects and appropriations or revenues derived from
any increase in gasoline taxes and motor vehicle weight fees above January 1,
1990 levels. Some recent initiatives were structured to create new tax revenues
dedicated to specific uses and expressly exempted from the Article XIIIB limits.
The Appropriations Limit may also be exceeded in cases of emergency arising from
civil disturbance or natural disaster declared by the Governor and approved by
two-thirds of the Legislature. If not so declared and approved, the
Appropriations Limit for the next three years must be reduced by the amount of
the excess.
Article XIIIB, as amended by Proposition 98 on November 8, 1988, also
establishes a minimum level of state funding for school and community college
districts and requires that excess revenues up to a certain limit be transferred
to schools and community college districts instead of returned to the taxpayers.
Determination of the minimum level of funding is based on several tests set
forth in Proposition 98.
Because of the complexities of Article XIIIB, the ambiguities and possible
inconsistencies in its terms, the applicability of its exceptions and exemptions
and the impossibility of predicting future appropriations, it is not currently
possible to predict with any confidence the impact of this or related
legislation on the California obligations in the Portfolio. Other Constitutional
amendments affecting state and local taxes and appropriations have been proposed
from time to time. If any such initiatives are adopted, the State could be
pressured to provide additional financial assistance to local governments or
appropriate revenues as mandated by such initiatives. Propositions such as
Proposition 98 and others that may be adopted in the future, may place
increasing pressure on the State's budget over future years, potentially
reducing resources available for other State programs, especially to the extent
the Article XIIIB spending limit would restrain the State's ability to fund such
other programs by raising taxes.
As of July 1, 1996, the State had over $18.20 billion aggregate amount of
its general obligation bonds outstanding. General obligation bond authorizations
in the aggregate amount of approximately $4.31 billion remain unissued as of
July 1, 1996. The State also builds and acquires capital facilities through the
use of lease purchase borrowing. As of July 1,
28
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
1996, the State had approximately $5.85 billion of outstanding Lease-Purchase
Debt.
In addition to the general obligation bonds, State agencies and authorities
had approximately $20.77 billion aggregate principal amount of revenue bonds and
notes outstanding as of June 30, 1996. Revenue bonds represent both obligations
payable from State revenue-producing enterprises and projects which are not
payable from the General Fund, and conduit obligations payable only from
revenues paid by private users of facilities financed by such revenue bonds.
Such enterprises and projects include transportation projects, various public
works and exposition projects, education facilities (including the California
State University and University of California systems), housing health
facilities and pollution control facilities.
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations. In addition, the State is involved in certain
other legal proceedings that, if decided against the State, might require the
State to make significant future expenditure or impair future revenue sources.
Examples of such cases include challenges to certain vehicle license fees, and
challenges to the State's use of Public Employee Retirement System funds to
offset future State and local pension contributions. Other cases which could
significantly impact revenue or expenditures involve challenges of payments of
wages under the Fair Labor Standards Act, the method of determining gross
insurance premiums involving health insurance, property tax challenges,
challenges of transfer of moneys from State Treasury Special Fund accounts to
the State's General Fund pursuant to 1991, 1992, 1993 and 1994 Budget Acts.
Because of the prospective nature of such proceedings, it is not presently
possible to predict the outcome of such litigation or estimate the potential
impact on the ability of the State to pay debt service on its obligations.
During 1996, the ratings of California's general obligation bonds was
upgraded by the following rating agencies. Recently Standard & Poor's Ratings
Group upgraded its rating of such debt to A+; the same rating has been assigned
to such debt by Fitch Investor Service. Moody's Investors Service has assigned
such debt an A1 rating. Any explanation of the significance of such ratings may
be obtained only from the rating agency furnishing such ratings. There is no
assurance that such ratings will continue for any given period of time or that
they will not be revised downward or withdrawn entirely if, in the judgment of
the particular rating agency, circumstances so warrant.
29
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
Potential Legislation. In past years, the U.S. Government has enacted
various laws that have restricted or diminished the income tax exemption on
various types of Municipal Obligations and may enact other similar laws in the
future. If any such laws are enacted that would reduce the availability of
Municipal Obligations for investment by the Portfolio so as to affect the
Portfolio's shareholders adversely, the Portfolio's Board of Directors will
reevaluate the Portfolio's investment objective and management policies and
might submit possible changes in the Portfolio's structure to the shareholders
for their consideration. If legislation was enacted that would treat a type of
Municipal Obligation as taxable for federal income tax purposes, the Portfolio
would treat the security as a permissible Taxable Investment within the
applicable limits described in this Prospectus.
Unrated Securities. The Portfolio may invest in unrated securities that the
Investment Manager determines to be of comparable quality to the rated
securities in which the Portfolio may invest. Dealers may not maintain daily
markets in unrated securities and retail secondary markets for many of them may
not exist. As a result, the Portfolio's ability to sell these securities when
the Investment Manager deems it appropriate may be diminished.
Municipal Leases. Municipal leases in which the Portfolio may invest have
special risks not normally associated with Municipal Obligations. These
obligations frequently contain non-appropriation clauses that provide that the
governmental issuer of the obligation need not make future payments under the
lease or contract unless money is appropriated for that purpose by a legislative
body annually or on another periodic basis. Municipal leases have additional
risks because they represent a type of financing that has not yet developed the
depth of marketability generally associated with other Municipal Obligations.
Moreover, although a municipal lease typically will be secured by financed
equipment or facilities, the disposition of the equipment or facilities in the
event of foreclosure might prove difficult. In addition, in certain instances
the tax-exempt status of the municipal lease will not be subject to the legal
opinion of a nationally recognized bond counsel, although in all cases the
Investment Manager will require that a municipal lease purchased by the
Portfolio be covered by a legal opinion to the effect that, as of the effective
date of the municipal lease, the lease is the valid and binding obligation of
the governmental issuer.
Non-Publicly Traded Securities. As suggested above, the Portfolio may, from
time to time, invest a portion of its assets in non-publicly traded Municipal
Obligations. Non-publicly traded securities may be less liquid than publicly
traded securities. Although non-publicly traded securities may be resold in
privately negotiated transactions, the prices realized from these sales could be
less than those originally paid by the Portfolio.
30
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
Repurchase Agreements. By entering into a repurchase agreement, the
Portfolio bears a risk of loss in the event that the other party to the
transaction defaults on its Obligations and the Portfolio is delayed or
prevented from exercising its rights to dispose of the underlying securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which the Portfolio seeks to assert its rights
to them, the risk of incurring expenses associated with asserting those rights
and the risk of losing all or a part of the income from the agreement.
When-Issued and Delayed Delivery Transactions. Securities purchased on a
when-issued or delayed delivery basis may expose the Portfolio to risk because
the securities may experience fluctuations in value prior to their delivery.
Purchasing securities on a when-issued or delayed delivery basis can involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.
Financial Futures and Options. Although the Portfolio intends to enter into
financial futures contracts and options on financial futures contracts that are
traded on a U.S. exchange or board of trade only if an active market exists for
those instruments, no assurance can be given that an active market will exist
for them at any particular time. If closing a futures position in anticipation
of adverse price movements is not possible, the Portfolio would be required to
make daily cash payments of variation margin. In those circumstances, an
increase in the value of the portion of the Portfolio's investments being
hedged, if any, may offset partially or completely losses on the futures
contract. No assurance can be given, however, that the price of the securities
being hedged will correlate with the price movements in a futures contract and,
thus, provide an offset to losses on the futures contract or option on the
futures contract. In addition, in light of the risk of an imperfect correlation
between securities held by the Portfolio that are the subject of a hedging
transaction and the futures or options used as a hedging device, the hedge may
not be fully effective because, for example, losses on the securities held by
the Portfolio may be in excess of gains on the futures contract or losses on the
futures contract may be in excess of gains on the securities held by the
Portfolio that were the subject of the hedge. In an effort to compensate for the
imperfect correlation of movement in the price of the securities being hedged
and movements in the price of futures contracts, the Portfolio may enter into
financial futures contracts or options on financial futures contracts in a
greater or lesser dollar amount than the dollar amount of the securities being
hedged if the historical volatility of the futures contract has been less or
greater than that of the securities. This "over hedging" or "under hedging" may
adversely affect the Portfolio's net investment results if market movements are
not as anticipated when the hedge is established.
31
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
- --------------------------------------------------------------------------------
If the Portfolio has hedged against the possibility of an increase in
interest rates adversely affecting the value of securities it holds and rates
decrease instead, the Portfolio will lose part or all of the benefit of the
increased value of securities that it has hedged because it will have offsetting
losses in its futures or options positions. In addition, in those situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements on the futures contracts at a time when it
may be disadvantageous to do so. These sales of securities may, but will not
necessarily, be at increased prices that reflect the decline in interest rates.
Non-Diversified Classification. Investment in the Portfolio, which is
classified as a non-diversified fund under the 1940 Act, may present greater
risks to investors than an investment in a diversified fund. The investment
return on a non-diversified fund typically is dependent upon the performance of
a smaller number of securities relative to the number of securities held in a
diversified fund. The Portfolio's assumption of large positions in the
obligations of a small number of issuers will affect the value of the securities
it holds to a greater extent than that of a diversified fund in the event of
changes in the financial condition, or in the market's assessment, of the
issuers.
- --------------------------------------------------------------------------------
Investment Restrictions
- --------------------------------------------------------------------------------
The Portfolio has adopted certain fundamental investment restrictions that
may not be changed without the prior approval of the holders of a majority of
the Portfolio's outstanding voting securities as defined in the 1940 Act. All
percentage limitations included in the investment restrictions below apply
immediately after a purchase or initial investment, and any subsequent change in
any applicable percentage resulting from market fluctuations will not require
the Portfolio to dispose of any security that it holds. Under its fundamental
restrictions, the Portfolio may not:
1. 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 this Prospectus. When the Portfolio's borrowings exceed 5% of
the value of its total assets, the Portfolio will not make any additional
investments.
32
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Investment Restrictions (continued)
- --------------------------------------------------------------------------------
2. Sell securities short or purchase securities on margin, except for
short-term credits as are necessary for the clearance of transactions, but
the Portfolio may make margin deposits in connection with transactions in
options, futures and options on futures.
3. Underwrite any issue of securities, except to the extent that the
purchase of Municipal Obligations may be deemed to be an underwriting.
4. Purchase, hold or deal in real estate or oil and gas interests, except
that the Portfolio may invest in Municipal Obligations secured by real
estate or interests in real estate.
5. Invest in commodities, except that the Portfolio may enter into futures
contracts, including those relating to indexes, and options on futures
contracts or indexes, as described in this Prospectus.
6. Lend any funds or other assets, except through purchasing Municipal
Obligations or Taxable Investments, lending securities and entering into
repurchase agreements consistent with the Portfolio's investment objective.
7. Issue senior securities.
8. Invest more than 25% of its total assets in the securities of issuers in
any single industry, except that this limitation will not be applicable to
the purchase of U.S. Government securities.
9. Make any investments for the purpose of exercising control or management
of any company.
- --------------------------------------------------------------------------------
Share Price Data
- --------------------------------------------------------------------------------
The Common Stock is listed on the AMEX under the symbol "GCM." Smith Barney
also intends to make a market in the Common Stock.
33
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Share Price Data (continued)
- --------------------------------------------------------------------------------
The following table sets forth the high and low sales prices for the
Portfolio's Common Stock, the net asset value per share and the discount or
premium to net asset value represented by the quotation for each quarterly
period since inception.
<TABLE>
<CAPTION>
AMEX
AMEX NAV Price at NAV at
Price Price Quarter- Quarter- Premium
Three Months Ended Range Range End End (Discount)
=======================================================================================
<C> <C> <C> <C> <C> <C>
11/30/94* $11.00-$ 12.00 $11.04-$12.00 $ 11.38 $11.34 .31%
2/28/95 10.25- 11.75 11.37- 12.63 11.38 12.63 (9.94)
5/31/95 11.00- 11.875 11.46- 13.19 11.50 13.19 (12.81)
8/31/95 11.25- 12.125 12.50- 13.45 11.50 12.92 (10.99)
11/30/95 11.25- 12.00 12.83- 13.69 11.94 13.69 (12.80)
2/29/96 11.625-12.125 13.58- 14.02 11.875 13.60 (12.68)
5/31/96 11.625-12.375 12.85- 13.73 12.125 13.01 (6.80)
8/31/96 11.375-12.875 12.82- 13.53 12.125 13.13 (7.65)
11/30/96 11.75- 12.75 13.08- 13.76 12.625 13.49 (6.41)
=======================================================================================
</TABLE>
* The Fund commenced operations on September 23, 1994.
As of December 16, 1996, the price per share of Common Stock as quoted on
the AMEX was $12.50, representing a 5.73% discount from the Common Stock's net
asset value calculated on that day.
- --------------------------------------------------------------------------------
Management of the Portfolio
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
The business and affairs of the Portfolio, including the general
supervision of the duties performed by the Investment Manager under the
Investment Management Agreement, are the responsibility of the Portfolio's Board
of Directors. The Directors and officers of the Portfolio, their addresses and
their principal occupations for at least the past five years are set forth
below:
Positions Held Principal Occupations
Name and Address with the Portfolio During Past Five Years and Age
================================================================================
*+Heath B. McLendon Chairman of the Board of Managing Director of Smith
388 Greenwich Street Directors and Chief Barney; Director of
New York, NY 10013 Executive Officer forty-two investment
companies associated with
Smith Barney; Chairman of
the Board of Smith Barney
Strategy Advisers Inc. and
Director and President of
SBMFM; prior to July, 1993,
Senior Executive Vice
President of Shearson
Lehman Brothers Inc.; Vice
Chairman of Shearson Asset
Management; 63.
34
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Management of the Portfolio (continued)
- --------------------------------------------------------------------------------
Positions Held Principal Occupations
Name and Address with the Portfolio During Past Five Years and Age
================================================================================
*+Jessica M. Bibliowicz Director and President Executive Vice President of
388 Greenwich Street Smith Barney, Chairman of
New York, NY 10013 the Board of SBMFM; Director
of twelve investment
companies associated with
Smith Barney; President of
forty-two investment
companies associated with
Smith Barney. Prior to
January 1994, Director of
Sales and Marketing for
Prudential Mutual Funds.
Prior to September 1991,
First Vice President, Asset
Management Division of
Shearson Lehman Brothers,
Inc.; 37.
+Joseph H. Fleiss Director Retired; Director of ten
3849 Torrey Pines Blvd. investment companies
Sarasota, FL 34238 associated with Smith
Barney; formerly Senior Vice
President of Citibank,
Manager of Citibank's Bond
Investment Portfolio and
Money Management Desk and a
Director of Citicorp
Securities Co., Inc.; 79.
+Donald R. Foley Director Retired; Director of ten
3668 Freshwater Drive investment companies
Jupiter, FL 33477 associated with Smith
Barney. Formerly Vice
President of Edwin Bird
Wilson, Incorporated
(advertising); 74.
+Paul Hardin Director Professor of Law at the
60134 Davie Street University of North Carolina
Chapel Hill, NC 27599 at Chapel Hill; Director of
twelve investment companies
associated with Smith
Barney. Director of The
Summit Bancorporation.
Formerly, Chancellor of the
University of North Carolina
at Chapel Hill; 65.
+Francis P. Martin Director Practicing physician;
2000 North Village Ave. Director of ten investment
Rockville Centre, NY 11570 companies associated with
Smith Barney; formerly
President of the Nassau
Physicians' Fund, Inc.; 72.
+Roderick C. Rasmussen Director Investment Counselor;
81 Mountain Road Director of ten investment
Verona, NJ 07044 companies associated with
Smith Barney. Formerly Vice
President of Dresdner and
Company Inc. (Investment
counselors); 70.
+John P. Toolan Director Retired; Director of ten
82 Druid Road investment companies
Summit, NJ 07901 associated with Smith
Barney; Director of John
Hancock Funds. Formerly,
Director and Chairman of
Smith Barney Trust Company,
Director of Smith Barney and
SBMFM. Prior to 1992, Senior
Executive Vice President and
Member of the Executive
Committee of Smith Barney;
66.
35
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Management of the Portfolio (continued)
- --------------------------------------------------------------------------------
Positions Held Principal Occupations
Name and Address with the Portfolio During Past Five Years and Age
================================================================================
+C. Richard Youngdahl Director Retired; Director of ten
339 River Drive investment companies
Tequesta, FL 33469 associated with Smith Barney
and member of the Board of
Directors of D.W. Rich &
Company, Inc. Formerly
Chairman of the Board of
Pensions Lutheran Church in
America; Chairman of the
Board and Chief Executive
Officer of Aubrey G. Lanston
& Co. (dealers in U.S.
Government securities) and
President of the Association
of Primary Dealers in U.S.
Government Securities; 81.
Lewis F. Daidone Senior Vice President Managing Director of Smith
388 Greenwich Street and Treasurer Barney, Senior Vice
New York, NY 10013 President and Treasurer of
other investment companies
associated with Smith
Barney; Director and Senior
Vice President of SBMFM, and
Senior Vice President of
Smith Barney Strategy
Advisers Inc.; 39.
Joseph P. Deane Vice President Managing Director of Smith
388 Greenwich Street and Investment Officer Barney and investment
New York, NY 10013 officer of other investment
companies associated with
Smith Barney; 49.
Thomas M. Reynolds Controller and Director of Smith Barney and
388 Greenwich Street Assistant Secretary Controller and Assistant
New York, NY 10013 Secretary of certain other
investment companies
associated with Smith
Barney; 36.
Christina T. Sydor Secretary Managing Director of Smith
388 Greenwich Street Barney; Secretary of the
New York, NY 10013 other investment companies
associated with Smith
Barney; Secretary and
General Counsel of SBMFM;
45.
================================================================================
* "Interested person" of the Portfolio as defined in the 1940 Act.
+ Director, trustee and/or general partner of other investment companies
registered under the 1940 Act with which Smith Barney is affiliated.
Fees for Directors who are not "interested persons" of the Portfolio and
who are directors of a group of funds sponsored by Smith Barney are set at
$42,000 per annum and are allocated based on relative net assets of each fund in
the group. In addition, these Directors receive $100 per fund or portfolio for
each day of Board meetings attended plus travel and out-of-pocket expenses
incurred in connection with Board meetings. The Board meeting fees and
out-of-pocket expenses are borne equally by each individual fund or portfolio in
the group.
36
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Management of the Portfolio (continued)
- --------------------------------------------------------------------------------
The following table shows the compensation paid by the Portfolio to each
incumbent Director for the Portfolio's fiscal year ended to August 31, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Pension or Compensation Number of
Retirement from Portfolio Funds for
Aggregate Benefits Accrued and Fund Which Director
Compensation as part of Complex Serves Within
Name of Person from Portfolio Portfolio Expenses Paid to Directors Fund Complex
-------------- -------------- ------------------ --------------- --------------
<S> <C> <C> <C> <C>
Jessica Bibliowicz* $ 0 $0 $ 0 12
Joseph H. Fleiss 550.00+ 0 35,450.00 10
Donald R. Foley 649.00+ 0 38,050.00 10
Paul Hardin 548.00 0 72,600.00 12
Francis P. Martin 649.00+ 0 58,300.00 10
Heath B. McLendon* 0 0 0 42
Roderick C. Rasmussen 649.00 0 58,500.00 10
John P. Toolan 649.00+ 0 58,500.00 10
C. Richard Youngdahl 549.00 0 55,700.00 10
</TABLE>
- ----------
* Designates an "interested director."
+ Pursuant to the Portfolio's deferred compensation plan, the indicated
Directors have elected to defer the following payment of some or all of
their compensation: Joseph H. Fleiss: $527.00, Donald R. Foley: $627.00,
Francis P. Martin: $649.00, and John P. Toolan: $649.00.
At the close of business on December 16, 1996, 3,569,847 shares of Common
Stock or 97.58% of the Portfolio's total shares outstanding on that date were
held in accounts, but not beneficially owned by, CEDE & Co., c/o Depository
Trust Company, Box 20, Bowling Green Station, NY, NY 10004-9998. As of that
date, the officers and Board members of the Portfolio beneficially owned less
than 1% of the outstanding shares of the Portfolio.
INVESTMENT MANAGER
Greenwich Street Advisors, a division of SBMFM, (the "Investment Manager"),
serves as the Portfolio's investment manager. The Investment Manager provides
investment advisory and management services to investment companies affiliated
with Smith Barney. SBMFM was incorporated in 1968 and manages investment
companies that had total assets in excess of $80 billion as of November 30,
1996, of which approximately $7.9 billion consisted of municipal bond
portfolios. SBMFM is located at 388 Greenwich Street, New York, New York 10013.
Subject to the supervision and direction of the Portfolio's Board of
Directors, the Investment Manager manages the securities held by the Portfolio
in accordance with the Portfolio's stated investment objectives and policies,
makes investment
37
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Management of the Portfolio (continued)
- --------------------------------------------------------------------------------
decisions for the Portfolio, places orders to purchase and sell securities on
behalf of the Portfolio and employs managers and securities analysts who provide
research services to the Portfolio. SBMFM also provides certain administration
services to the Portfolio, including overseeing the Portfolio's non-investment
operations and its relations with other service providers and providing
executive and other officers to the Portfolio. The Portfolio pays the Investment
Manager a management fee for the services provided to the Portfolio, that is
computed daily and paid monthly at the annual rate of 0.90% of the value of the
Portfolio's average daily net assets, which is higher than the rates for similar
services paid by other recently organized publicly offered, closed-end,
management investment companies that have investment objectives and policies
similar to those of the Portfolio. For the fiscal year ended August 31, 1996,
the Portfolio paid $439,250 in management fees to SBMFM.
Joseph P. Deane, Vice President and Investment Officer of the Portfolio, is
primarily responsible for management of the Portfolio's assets. Mr. Deane is a
Managing Director of Smith Barney and is the senior asset manager for seven
other investment companies and other accounts investing in tax-exempt securities
with aggregate assets of $4.58 billion as of November 30, 1996.
The Investment Manager bears all expenses in connection with the
performance of the services it provides to the Portfolio. The Portfolio will
bear all other expenses to be incurred in its operation, including, but not
limited to the costs incurred in connection with the Portfolio's organization;
management fees; fees for necessary professional and brokerage services fees for
any pricing service; the costs of regulatory compliance; the costs associated
with maintaining the Portfolio's corporate existence; and costs of corresponding
with the Portfolio's shareholders.
38
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Securities Transactions and Turnover
- --------------------------------------------------------------------------------
GENERAL
The Portfolio's securities ordinarily are purchased from and sold to
parties acting as either principal or agent. Newly issued securities ordinarily
are purchased directly from the issuer or from an underwriter; other purchases
and sales usually are placed with those dealers from which the Investment
Manager determines that the best prices or execution will be obtained. Usually
no brokerage commissions, as such, are paid by the Portfolio for purchases and
sales undertaken through principal transactions, although the price paid usually
includes an undisclosed compensation to the dealer acting as agent. The prices
paid to underwriters of newly issued securities typically include a concession
paid by the issuer to the underwriter, and purchases of after-market securities
from dealers ordinarily are executed at a price between the bid and asked price.
Transactions on behalf of the Portfolio are allocated to various dealers by
the Investment Manager in its best judgment. The primary consideration is prompt
and effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Investment Manager to supplement its own research
and analysis with the views and information of other securities firms.
Research services furnished by broker-dealers through which the Portfolio
effects securities transactions may be used by the Investment Manager in
managing other investment funds and accounts and conversely, research services
furnished to the Investment Manager by broker-dealers in connection with other
funds and accounts the Investment Manager advises may be used by the Investment
Manager in advising the Portfolio. Although it is not possible to place a dollar
value on these services, the Investment Manager is of the view that the receipt
of the services should not reduce the overall costs of its research services.
Investment decisions for the Portfolio are made independently from those of
other investment companies or accounts managed by the Investment Manager. If
those investment companies or accounts are prepared to invest in, or desire to
dispose of, Municipal Obligations or Taxable Investments at the same time as the
Portfolio, however, available investments or opportunities for sales will be
allocated equitably to each client of the Investment Manager. In some cases,
this procedure may adversely affect the size of the position obtained for or
disposed of by the Portfolio or the price paid or received by the Portfolio.
The Portfolio's Board of Directors will review periodically the commissions
paid by the Portfolio to determine if the commissions paid over representative
periods of time were reasonable in relation to the benefits inuring to the
Portfolio.
39
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Securities Transactions and Turnover (continued)
- --------------------------------------------------------------------------------
The Portfolio may seek an exemptive order from the SEC permitting it to
enter into principal transactions involving certain money market instruments
with Smith Barney and certain Smith Barney-affiliated dealers; no assurance can
be given that such an order will be sought or granted.
TURNOVER
The Portfolio cannot accurately predict its turnover rate, but anticipates
that its annual turnover rate will not exceed 100%. The Portfolio's turnover
rate is calculated by dividing the lesser of the Portfolio's sales or purchases
of securities during a year (excluding any security the maturity of which at the
time of acquisition is one year or less) by the average monthly value of the
Portfolio's securities for the year. Higher turnover rates can result in
corresponding increases in the Portfolio's transaction costs. The Portfolio will
not consider turnover rate a limiting factor in making investment decisions
consistent with its investment objective and policies.
- --------------------------------------------------------------------------------
Dividends and Distributions; Dividend Reinvestment Plan
- --------------------------------------------------------------------------------
The Portfolio expects to pay monthly dividends of substantially all net
investment income (that is, income (including its tax-exempt income and its
accrued original issue discount income) other than net realized capital gains)
to the holders of the Common Stock. Under the Portfolio's current policy, which
may be changed at any time by its Board of Directors, the Portfolio's monthly
dividends will be made at a level that reflects the past and projected
performance of the Portfolio, which policy over time will result in the
distribution of all net investment income of the Portfolio. Net income of the
Portfolio consists of all interest income accrued on the Portfolio's assets less
all expenses of the Portfolio. Expenses of the Portfolio are accrued each day.
Net realized capital gains, if any, will be distributed to the shareholders at
least once a year.
Under the Portfolio's Dividend Reinvestment Plan (the "Plan"), a
shareholder whose shares of Common Stock are registered in his own name will
have all distributions from the Portfolio reinvested automatically by First Data
as agent under the Plan, unless the shareholder elects to receive cash.
Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (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
40
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Dividends and Distributions; Dividend Reinvestment Plan (continued)
- --------------------------------------------------------------------------------
in Street Name should consult their broker-dealers or other nominees for details
regarding reinvestment. All distributions to Portfolio shareholders who do not
participate in the Plan will be paid by check mailed directly to the record
holder by or under the direction of First Data as dividend-paying agent.
If the Portfolio declares a dividend or capital gains distribution payable
either in shares of Common Stock or in cash, shareholders who are not Plan
participants will receive cash, and Plan participants will receive the
equivalent amount in shares of Common Stock. When the market price of the Common
Stock is equal to or exceeds the net asset value per share of the Common Stock
on the date of valuation, Plan participants will be issued shares of Common
Stock valued at the net asset value most recently determined as described below
under "Net Asset Value" or, if net asset value is less than 95% of the then
current market price of the Common Stock, then at 95% of the market value.
If the market price of the Common Stock is less than the net asset value of
the Common Stock, or if the Portfolio declares a dividend or capital gains
distribution payable only in cash, a broker-dealer not affiliated with Smith
Barney, as purchasing agent for Plan participants (the "the Purchase Agent"),
will buy Common Stock in the open market, on the AMEX or elsewhere, for the
participants' accounts. If, following the commencement of the purchases and
before the Purchasing Agent has completed its purchases, the market price
exceeds the net asset value of the Common Stock, the average per share purchase
price paid by the Purchasing Agent may exceed the net asset value of the Common
Stock, resulting in the acquisition of fewer shares than if the dividend or
capital gains distribution had been paid in Common Stock issued by the Portfolio
at net asset value. First Data will apply all cash received as a dividend or
capital gains distribution to purchase Common Stock on the open market as soon
as practicable after the record date of the dividend or capital gains
distribution (and may place orders to purchase Common Stock five business days
in advance of the payment date), but in no event later than 30 days after that
date, except when necessary to comply with applicable provisions of the federal
securities laws.
First Data will maintain all shareholder accounts in the Plan and will
furnish 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 the Plan
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
41
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Dividends and Distributions; Dividend Reinvestment Plan (continued)
- --------------------------------------------------------------------------------
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions. First Data's fees for handling the reinvestment of
dividends and capital gains distributions will be paid by the Portfolio. No
brokerage charges apply with respect to shares of Common Stock issued directly
by the Portfolio as a result of dividends or capital gains distributions payable
either in Common Stock or in cash. Each Plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to open
market purchases made in connection with the reinvestment of dividends or
capital gains distributions.
Experience under the Plan may indicate that changes to it are desirable.
The Portfolio reserves the right to amend or terminate the Plan as applied to
any dividend or capital gains distribution paid subsequent to written notice of
the change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by First Data, with the Portfolio's prior written consent, on at
least 30 days' written notice to Plan participants. All correspondence
concerning the Plan should be directed by mail to First Data Investor Services
Group, One Exchange Place, Boston, Massachusetts 02109 or by telephone at
1-800-331-1710.
- --------------------------------------------------------------------------------
Net Asset Value
- --------------------------------------------------------------------------------
The net asset value of shares of the Common Stock will be calculated as of
the close of regular trading on the New York Stock Exchange (the "NYSE"),
currently 4:00 p.m., New York time, on each day on which the NYSE is open for
trading. The Portfolio reserves the right to cause its net asset value to be
calculated on a less frequent basis as determined by the Portfolio's Board of
Directors. For purposes of determining net asset value, futures contracts and
options on futures contracts will be valued 15 minutes after the close of
regular trading on the NYSE.
Net asset value per share of Common Stock is calculated by dividing the
value of the Portfolio's total assets less liabilities. In general, the
Portfolio's investments will be valued at market value, or, in the absence of
market value, at fair value as determined by or under the direction of the
Portfolio's Board of Directors. Short-term investments that mature in 60 days or
less are valued on the basis of amortized cost (which involves valuing an
investment at its cost and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the effect of fluctuating
interest rates on the market value of the investment) when the Board of
Directors has determined that amortized cost represents fair value.
42
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Net Asset Value (continued)
- --------------------------------------------------------------------------------
The valuation of the Portfolio's assets is made after consultation with an
independent pricing service (the "Service") approved by the Portfolio's Board of
Directors. When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of the
market, these investments are valued at the mean between the quoted bid prices
and asked prices. Investments for which, in the judgment of the Service, no
readily obtainable market quotation is available, are carried at fair value as
determined by the Service, based on methods that include consideration of:
yields or prices of Municipal Obligations of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. The Service may use electronic data processing techniques and/or a
matrix system to determine valuations. The procedures of the Service are
reviewed periodically by the officers of the Portfolio under the general
supervision and responsibility of the Board of Directors, which may replace the
Service at any time if it determines it to be in the best interests of the
Portfolio to do so.
- --------------------------------------------------------------------------------
Taxation
- --------------------------------------------------------------------------------
The discussion set out below of tax considerations generally affecting the
Portfolio and its shareholders is intended to be only a summary and is not
intended as a substitute for careful tax planning by prospective shareholders.
TAXATION OF THE PORTFOLIO AND ITS INVESTMENTS
The Portfolio has qualified and intends to continue to qualify each year as
a "regulated investment company" under Subchapter M of the Code. In addition,
the Portfolio intends to satisfy each year conditions contained in the Code that
will enable interest from Municipal Obligations, excluded from gross income for
federal income tax purposes with respect to the Portfolio, to retain that
tax-exempt status when distributed to the shareholders of the Portfolio (that
is, to be classified as "exempt-interest" dividends of the Portfolio).
As a regulated investment company, the Portfolio pays no federal income
taxes on its taxable net investment income (that is, taxable income other than
net realized capital gains) and its net realized capital gains that are
distributed to shareholders. To qualify under Subchapter M of the Code, the
Portfolio must, among other things: (1) distribute to its shareholders at least
90% of its taxable net investment income (for this purpose consisting of taxable
net investment income and net realized short-term capital gains) and 90% of its
tax-exempt net investment income
43
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Taxation (continued)
- --------------------------------------------------------------------------------
(reduced by certain expenses); (2) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of securities, gains from
the sale or other disposition of securities, or other income (including, but not
limited to, gains from options, futures and forward contracts) derived with
respect to the Portfolio's business of investing in securities; (3) derive less
than 30% of its annual gross income from the sale or other disposition of
securities, options, futures or forward contracts held for less than three
months; and (4) diversify its holdings so that, at the end of each fiscal
quarter of the Portfolio (a) at least 50% of the market value of the Portfolio's
assets is represented by cash, U.S. Government securities and securities of
other regulated investment companies, and other securities, with those other
securities limited, with respect to any one issuer, to an amount no greater than
5% of the Portfolio's assets and (b) not more than 25% of the market value of
the Portfolio's assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies) or of two or more issuers that the Portfolio controls and that are
determined to be in the same or similar trades or businesses or related trades
or businesses. In meeting these requirements, the Portfolio may be restricted in
the selling of securities held by the Portfolio for less than three months and
in the utilization of certain of the investment techniques described above under
"Investment Objective and Management Policies--Investment Techniques." As a
regulated investment company, the Portfolio is subject to a 4% non-deductible
excise tax measured with respect to certain undistributed amounts of ordinary
income and capital gain. The Portfolio pays dividends and distributions
necessary to avoid the application of this excise tax.
Legislation currently pending before the U.S. Congress would repeal the
requirement contained in Subchapter M of the Code that a regulated investment
company must derive less than 30% of its gross income from the sale or other
disposition of assets described above that are held for less than three months.
It is unclear at this time whether this legislation will become law and, if it
is so enacted, the form it will take.
As described above, the Portfolio may invest in financial futures contracts
and options on financial futures contracts that are traded on a U.S. exchange or
board of trade. As a general rule, these investment activities will increase or
decrease the amount of long-term and short-term capital gains or losses realized
by the Portfolio and, thus, will affect the amount of capital gains distributed
to the Portfolio's shareholders.
For federal income tax purposes, gain or loss on the futures and options
described above (collectively referred to as "Section 1256 Contracts") would, as
a
44
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Taxation (continued)
- --------------------------------------------------------------------------------
general rule, be taxed pursuant to a special "mark-to-market system." Under
the mark-to-market system, the Portfolio may be treated as realizing a greater
or lesser amount of gains or losses than actually realized. As a general rule,
gain or loss on Section 1256 Contracts is treated as 60% long-term capital gain
or loss and 40% short-term capital gain or loss, and as a result, the
mark-to-market system will generally affect the amount of capital gains or
losses taxable to the Portfolio and the amount of distributions taxable to a
shareholder. Moreover, if the Portfolio invests in both Section 1256 Contracts
and offsetting positions in those contracts, then the Portfolio might not be
able to receive the benefit of certain realized losses for an indeterminate
period of time. The Portfolio expects that its activities with respect to
Section 1256 Contracts and offsetting positions in those Contracts (1) will not
cause it or its shareholders to be treated as receiving a materially greater
amount of capital gains or distributions than actually realized or received and
(2) will permit it to use substantially all of its losses for the fiscal years
in which the losses actually occur.
TAXATION OF THE PORTFOLIO'S STOCKHOLDERS
Dividends paid by the Portfolio, other than dividends from Taxable
Investments and market discount on Municipal Obligations and from income or gain
derived from securities transactions and from the use of certain of the
investment techniques described under "Investment Objective and Management
Policies--Investment Techniques," are derived from interest on Municipal
Obligations and are exempt-interest dividends that may be excluded by
shareholders from their gross income for federal income tax purposes if the
Portfolio satisfies certain asset percentage requirements. Dividends paid from
the Portfolio's net investment income and distributions of the Portfolio's net
realized short-term capital gains are taxable to stockholders of the Portfolio
as ordinary income, regardless of the length of time stockholders 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 stockholder's
gain or loss on a sale of his shares of Common Stock will be a long-term gain or
loss if he has held his shares for more than one year and will be a short-term
capital gain or loss if he has held his shares for one year or less. Dividends
and distributions paid by the Portfolio do not qualify for the federal
dividends-received deduction for corporations.
In general, investors should recognize that the benefits of the exemption
from state and local taxes, in addition to the exemption from federal taxes,
necessarily limits the Portfolio's ability to diversify geographically.
45
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Taxation (continued)
- --------------------------------------------------------------------------------
EXEMPT-INTEREST DIVIDENDS
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of Common Stock is not deductible for federal income tax purposes. If a
shareholder receives exempt-interest dividends with respect to any share of
Common Stock and if the share is held by the shareholder for six months or less,
then any loss on the sale of the share may, to the extent of the exempt-interest
dividends, be disallowed. The Code may also require a shareholder, if he
receives exempt-interest dividends, to treat as taxable income a portion of
certain otherwise non-taxable social security and railroad retirement benefit
payments. In addition, the portion of any exempt-interest dividend paid by the
Portfolio that represents income derived from private activity bonds held by the
Portfolio may not retain its tax-exempt status in the hands of a shareholder who
is a "substantial user" of a facility financed by the bonds, or a "related
person" of the substantial user. Although the Portfolio's exempt-interest
dividends may be excluded by shareholders from their gross income for federal
income tax purposes (1) some or all of the Portfolio's exempt-interest dividends
may be a specific preference item, or a component of an adjustment item, for
purposes of the federal individual and corporate alternative minimum taxes and
(2) the receipt of dividends and distributions from the Portfolio may affect a
corporate shareholder's federal "environmental" tax liability. The receipt of
dividends and distributions from the Portfolio may affect a foreign corporate
shareholder's federal "branch profits" tax liability and the federal "excess net
passive income" tax liability of a shareholder of an S corporation. Shareholders
should consult their own tax advisors to determine whether they are (1)
"substantial users" with respect to a facility or "related" to those users
within the meaning of the Code or (2) subject to a federal alternative minimum
tax, the federal "environmental" tax, the federal "branch profits" tax, or the
federal "excess net passive income" tax.
TAX-EXEMPT INCOME VS. TAXABLE INCOME
The tables set out in Appendix B to this Prospectus show individual
taxpayers how to translate the tax savings from investments such as the
Portfolio into an equivalent return from a taxable investment. The yields used
in the tables are for illustration only and are not intended to represent
current or future yields for the Portfolio, which may be higher or lower than
those shown.
DIVIDEND REINVESTMENT PLAN
A shareholder of the Portfolio receiving dividends or distributions in
additional shares pursuant to the Plan should be treated for federal income tax
purposes as
46
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Taxation (continued)
- --------------------------------------------------------------------------------
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.
CALIFORNIA TAXATION
California law relating to taxation of regulated investment companies and
their shareholders was generally conformed to federal law effective January 1,
1993. In any year in which the Portfolio qualifies as a regulated investment
company under the Code and is exempt from federal income tax, (i) the Portfolio
will also be exempt from the California corporate income and franchise taxes to
the extent it distributes its income and (ii) provided 50% or more of the value
of the total assets of the Portfolio at the close of each quarter of its taxable
year consists of "California obligations, the interest on which (when held by an
individual) is exempt from personal income taxation under the laws of
California, the Portfolio will be qualified under California law to pay
exempt-interest dividends which will be exempt from the California personal
income tax.
Individual shareholders of the Portfolio who reside in California will not
be subject to the California personal income tax on distributions received from
the Portfolio which are exempt-interest dividends. The portion of any
distribution constituting exempt-interest dividends is that (i) portion derived
from California obligations and (ii) designated as such by the Portfolio. The
total amount of exempt-interest dividends paid by the Portfolio to its
shareholders with respect to any taxable year cannot exceed the amount of
interest received by the Portfolio during such year on California obligations
less any expenses and expenditures deemed to have been paid from such interest.
Distributions from the Portfolio that are attributable to sources other
than California obligations, generally will be taxable to such shareholders as
ordinary income. In addition, distributions of short-term capital gains realized
by the Portfolio will be taxable to the shareholders as ordinary income.
Distributions of long-term capital gains will be taxable as such to the
shareholders regardless of how long they held their shares. Any dividends paid
to corporate shareholders subject to the California franchise tax will be taxed
to such shareholders.
Interest on indebtedness incurred or continued by shareholders to purchase
or carry shares of the Portfolio will not be deductible for California personal
income tax purposes. As a result of California's incorporation of certain
provisions of the Code, a loss realized by a shareholder upon the sale of shares
held for six months or less may be disallowed to the extent of any
exempt-interest dividends received with
47
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Taxation (continued)
- --------------------------------------------------------------------------------
respect to such shares. Any loss realized upon the redemption of shares within
30 days before or after the acquisition of other shares of the same series may
be disallowed under the "wash sale" rules. With respect to individual
shareholders, California does not treat tax-exempt interest as a tax preference
item for purposes of its alternative minimum tax. To the extent a corporate
shareholder receives dividends which are exempt from California taxation, a
portion of such dividends may be subject to the alternative minimum tax.
STATEMENTS AND NOTICES
Statements as to the tax status of the dividends and distributions received
by shareholders of the Portfolio are mailed annually. These statements show the
dollar amount of income excluded from federal income taxes and the dollar
amount, if any, subject to federal income taxes. The statements will also
designate the amount of exempt-interest dividends that are a specific preference
item for purposes of the federal individual and corporate alternative minimum
taxes. The Portfolio will notify shareholders annually as to the interest
excluded from federal income taxes earned by the Portfolio with respect to those
states and possessions in which the Portfolio has or had investments. The dollar
amount of dividends paid by the Portfolio that is excluded from federal income
taxation and the dollar amount of dividends paid by the Portfolio that is
subject to federal income taxation, if any, will vary for each shareholder
depending upon the size and duration of the shareholder's investment in the
Portfolio. To the extent that the Portfolio earns taxable net investment income,
it intends to designate as taxable dividends the same percentage of each day's
dividend as its taxable net investment income bears to its total net investment
income earned on that date. Therefore, the percentage of each day's dividend
designated as taxable, if any, may vary from day to day.
BACKUP WITHHOLDING
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that he
has provided a correct taxpayer identification number and that he is not subject
to "backup withholding," the shareholder may be subject to a 31% "backup
withholding" tax with respect to (1) taxable dividends and distributions and (2)
the proceeds of any sales or repurchases of shares of Common Stock. An
individual's taxpayer identification number is his 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.
48
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Description of Shares
- --------------------------------------------------------------------------------
The Portfolio was incorporated under the laws of the State of Maryland on
July 8, 1994 pursuant to the Articles of Incorporation. The Articles of
Incorporation authorize issuance of the Common Stock. The Articles of
Incorporation provide that the Fund shall continue without limitation of time.
COMMON STOCK
Amount
Outstanding
Exclusive of Shares
Held by Portfolio for its
Amount Held Own Account as of
Shares by Portfolio for Its December 16,
Title of Class Authorized Own Account 1996
================================================================================
Common Stock 500,000,000 0 3,658,334
No shares, other than those currently outstanding, are offered for sale
pursuant to this Prospectus. All shares of Common Stock have equal
non-cumulative voting rights and equal rights with respect to dividends, assets
and liquidation. Shares of Common Stock will be fully paid and non-assessable
when issued and have no preemptive, conversion or exchange rights.
- --------------------------------------------------------------------------------
Certain Provisions of the Articles of Incorporation
- --------------------------------------------------------------------------------
Anti-Takeover Provisions
The Portfolio's Articles of Incorporation include provisions that could
have the effect of limiting the ability of other entities or persons to acquire
control of the Portfolio or to change the composition of its Board of Directors
and could have the effect of depriving shareholders of an opportunity to sell
their shares of Common Stock at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the Portfolio.
Commencing with the first annual meeting of shareholders, the Board of Directors
will be divided into three classes. At the annual meeting of shareholders in
each year thereafter, the term of one class will expire and each Director
elected to the class will hold office for a term of three years. The
classification of the Board of Directors in this manner could delay for up to
two years the replacement of a majority of the Board. The Articles of
Incorporation provide that the maximum number of Directors that may constitute
the Portfolio's entire board is 12. A Director may be removed from office, or
the
49
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Certain Provisions of the Articles of Incorporation (continued)
- --------------------------------------------------------------------------------
maximum number of Directors increased, only by vote of the holders of at least
75% of the shares of Common Stock entitled to be voted on the matter.
The affirmative votes of at least 75% of the Directors and the holders of
at least 75% of the shares of the Portfolio are required to authorize any of the
following transactions (referred to individually as a "Business Combination"):
(1) a merger, consolidation or share exchange of the Portfolio with or into any
other person (referred to individually as a "Reorganization Transaction"); (2)
the issuance or transfer by the Portfolio (in one or a series of transactions in
any 12-month period) of any securities of the Portfolio to any other person or
entity for cash, securities or other property (or combination thereof) having an
aggregate fair market value of $1,000,000 or more, excluding sales of securities
of the Portfolio in connection with a public offering, issuances of securities
of the Portfolio pursuant to a dividend reinvestment plan adopted by the
Portfolio and issuances of securities of the Portfolio upon the exercise of any
stock subscription rights distributed by the Portfolio; or (3) a sale, lease,
exchange, mortgage, pledge, transfer or other disposition by the Portfolio (in
one or a series of transactions in any 12-month period) to or with any person of
any assets of the Portfolio having an aggregate fair market value of $1,000,000
or more, except for transactions in securities effected by the Portfolio in the
ordinary course of its business (each such sale, lease, exchange, mortgage,
pledge, transfer or other disposition being referred to individually as a
"Transfer Transaction"). The same affirmative votes are required with respect
to: any proposal as to the voluntary liquidation or dissolution of the Portfolio
or any amendment to the Portfolio's Articles of Incorporation to terminate its
existence (referred to individually as "Termination Transaction"); and any
shareholder proposal as to specific investment decisions made or to be made with
respect to the Portfolio's assets.
A 75% shareholder vote will not be required with respect to a Business
Combination if the transaction is approved by a vote of at least 75% of the
Continuing Directors (as defined below) or if certain conditions regarding the
consideration paid by the person entering into, or proposing to enter into, a
Business Combination with the Portfolio and various other requirements are
satisfied. In such case, a majority of the votes entitled to be cast by
shareholders of the Portfolio will be required to approve the transaction if it
is a Reorganization Transaction or a Transfer Transaction that involves
substantially all of the Portfolio's assets and no shareholder vote will be
required to approve the transaction if it is any other Business Combination. In
addition, a 75% shareholder vote will not be required with respect to a
Termination Transaction if it is approved by a vote of at least 75% of the
Continuing Directors, in which case a majority of
50
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Certain Provisions of the Articles of Incorporation (continued)
- --------------------------------------------------------------------------------
the votes entitled to be cast by shareholders of the Portfolio will be required
to approve the transaction.
The voting provisions described above could have the effect of depriving
shareholders of the Portfolio of an opportunity to sell their Common Stock at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Portfolio in a tender offer or similar transaction. In
view of the Portfolio's Board of Directors, however, these provisions offer
several possible advantages, including: (1) requiring persons seeking control of
the Portfolio to negotiate with its management regarding the price to be paid
for the amount of Common Stock required to obtain control; (2) promoting
continuity and stability; and (3) enhancing the Portfolio's ability to pursue
long-term strategies that are consistent with its investment objective and
management policies. The Board of Directors has determined that the voting
requirements described above, which are generally greater than the minimum
requirements under Maryland law and the 1940 Act, are in the best interests of
shareholders generally.
A "Continuing Director," as used in the discussion above, is any member of
the Portfolio's Board of Directors (1) who is not a person or affiliate of a
person who enters or proposes to enter into a Business Combination with the
Portfolio (such a person or affiliate being referred to individually as an
"Interested Party") and (2) who has been a member of the Board of Directors for
a period of at least 12 months (or since the commencement of the Portfolio's
operations, if less than 12 months), or is a successor of a Continuing Director
who is unaffiliated with an Interested Party and is recommended to succeed a
Continuing Director by a majority of the Continuing Directors then members of
the Board of Directors.
Conversion to Open-End Fund
The Portfolio's Articles of Incorporation require the favorable vote of the
holders of at least two-thirds of the shares of Common Stock then entitled to be
voted to authorize the conversion of the Portfolio from a closed-end to an
open-end investment company as defined in the 1940 Act, unless two-thirds of the
Continuing Directors (as defined above) approve such a conversion. In the latter
case, the affirmative vote of a majority of the shares outstanding will be
required to approve the amendment to the Portfolio's Articles of Incorporation
providing for the conversion of the Portfolio.
51
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend-Paying Agent, Registrar and Plan Agent
- --------------------------------------------------------------------------------
PNC Bank, located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, acts as custodian of the Portfolio's investments.
First Data, located at One Exchange Place, Boston, Massachusetts 02109,
serves as the Portfolio's transfer agent, dividend-paying agent and registrar.
First Data also serves as agent in connection with the Plan.
- --------------------------------------------------------------------------------
Reports to Shareholders
- --------------------------------------------------------------------------------
The Portfolio sends unaudited quarterly and audited annual reports,
including a list of investments held, to its stockholders.
- --------------------------------------------------------------------------------
Experts
- --------------------------------------------------------------------------------
The audited financial statements incorporated into this Prospectus have
been so included in reliance on the report of KPMG Peat Marwick LLP, independent
auditors, given on the authority of said firm as experts in auditing and
accounting.
KPMG Peat Marwick LLP, has been selected as the Fund's independent auditor
to examine and report on the Fund's financial statements and highlights for the
fiscal year ending August 31, 1997.
- --------------------------------------------------------------------------------
Further Information
- --------------------------------------------------------------------------------
This Prospectus does not contain all of the information set forth in the
Registration Statement filed with the SEC. The complete Registration Statement
may be obtained from the SEC upon payment of the fee prescribed by its Rules and
Regulations.
52
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Appendix A
- --------------------------------------------------------------------------------
DESCRIPTION OF MOODY'S, S&P AND FITCH RATINGS
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS:
Aaa--Bonds that are rated Aaa are judged to be of the best quality, carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments with respect to these bonds are protected by a large or
by an exceptionally stable margin, and principal is secure. Although the various
protective elements applicable to these bonds are likely to change, those
changes are most unlikely to impair the fundamentally strong position of these
bonds.
Aa--Bonds that are rated Aa are judged to be of high quality by all
standards and together with the Aaa group comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or other elements may be
present that make the long-term risks appear somewhat larger than in Aaa
securities.
A--Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest with respect to these bonds are considered adequate,
but elements may be present that suggest a susceptibility to impairment sometime
in the future.
Baa--Bonds rated Baa are considered to be medium grade obligations, that is
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. These bonds lack outstanding investment characteristics and may
have speculative characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
A-1
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Appendix A (continued)
- --------------------------------------------------------------------------------
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-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the description MIG 2/VMIG 2 are of high
quality, with margins of protection ample, although not as large as the
preceding group. Loans bearing the designation MIG 3/VMIG 3 are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Market access for refinancing, in particular,
is likely to be less well established.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rates 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 higher 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.
A-2
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Appendix A (continued)
- --------------------------------------------------------------------------------
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 higher 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
appearance 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 or 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.
A-3
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Appendix A (continued)
- --------------------------------------------------------------------------------
DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS:
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given the designation of SP-1+.
Notes rated SP-2 have a satisfactory capacity to pay principal and interest.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.
DESCRIPTION OF FITCH MUNICIPAL BOND RATINGS:
AAA--Bonds rated AAA by Fitch are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds rated AA by Fitch are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issues
is generally rated F-1+ by Fitch.
A--Bonds rated A by Fitch are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB--Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse consequences on
these
A-4
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Appendix A (continued)
- --------------------------------------------------------------------------------
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus and minus signs are used by Fitch to indicate the relative position of
a credit within a rating category. Plus and minus signs, however, are not used
in the AAA category.
DESCRIPTION OF FITCH SHORT-TERM RATINGS:
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch's short-term ratings are as follows:
F-1+--Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
F-1--Issues assigned this rating reflect an assurance of timely payment
only slightly less in degree than issues rated F-1+.
F-2--Issues assigned this rating have a satisfactory degree of assurance
for timely payment, but the margin of safety is not as great as for issues
assigned F-1+ and F-1 ratings.
F-3--Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, although near-term adverse
changes could cause these securities to be rated below investment grade.
LOC--The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
A-5
<PAGE>
Greenwich Street California Municipal Fund Inc.
- --------------------------------------------------------------------------------
Appendix B
- --------------------------------------------------------------------------------
TAX-EXEMPT INCOME COMPARED TO TAXABLE INCOME
The tables below show individual taxpayers how to translate the tax savings
from investments such as the Portfolio into an equivalent return from a taxable
investment. The yields used below are for illustration only and are not intended
to represent current or future yields for the portfolio, which may be higher or
lower than those shown.
Tax
Bracket
California Tax-Exempt Yields
& ==============================================
Taxable Income Federal 5.00% 5.50% 6.00% 6.50% 7.00%
================================================================================
Equivalent Taxable Yield
Single Return
$0-$24,000 20.10% 6.26% 6.88% 7.51% 8.14% 8.76%
$24,001-$58,150 34.70 7.66 8.42 9.19 9.95 10.72
$58,151-$121,300 37.90 8.05 8.86 9.66 10.47 11.27
$121,301-$263,750 43.04 8.78 9.66 10.53 11.41 12.29
over $263,750 46.24 9.30 10.23 11.16 12.09 13.02
Joint Return
$0-$40,100 20.10% 6.26% 6.88% 7.51% 8.14% 8.76%
$40,101-$96,900 34.70 7.66 8.42 9.19 9.95 10.72
$96,901-$147,700 37.42 7.99 8.79 9.59 10.39 11.19
$147,701-$263,750 42.40 8.68 9.55 10.42 11.28 12.15
$263,751-$446,780 45.64 9.20 10.12 11.04 11.96 12.88
over-$446,780 46.24 9.30 10.23 11.16 12.09 13.02
================================================================================
* The combined California and federal tax rates shown are based on 1996
federal tax tables and 1996 California tax tables. These tax rates are
subject to change. The calculations in the table assume that no income will
be subject to any federal, state or local individual alternative minimum
taxes and do not reflect the federal phase-out of itemized deductions and
personal exemptions. For ease of illustration, the tax brackets shown are
those corresponding to federal taxes and in each case the California tax
rate believed to be most representative of the rates applicable to
California taxpayers within that bracket is used to determine the combined
rate; as a result, a California taxpayer with taxable income in the lower
or upper portion of a given bracket may bear a lower or higher combined
California and federal rate than that shown, as the case may be.
B-1
PART C
Information required to be included in Part C is set forth, under the
appropriate item so numbered, in Part C of this Registration Statement.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements
Parts A and B
(a) Financial Highlights
(b) The Registrant's Annual Report for the period ended
August
31, 1996, and the Independent Auditors' Report are
incorporated
by reference to the definitive 30b2-1 filed on November 8,
1996 as accession number 0000091155-96-000457.
Part C
None
(2) Exhibits:
Exhibit
Number Description
(a) Articles of Incorporation of Registrant*
(b) By-Laws*
(c) Not Applicable
(d) Form of Specimen Certificate representing shares
of
Common Stock, par value $.001 per share**
(e) Registrant's Dividend Reinvestment Plan*
(f) Not Applicable
(g)(1) Form of Investment Management Agreement**
(2) Form of Transfer and Assumption of
Investment
Management Agreement between Registrant, Mutual
Management Corp. and Smith Barney Mutual Funds
Management Inc. ***
(h)(1) Form of Purchase Agreement*
(2) Form of Underwriting Agreement**
(i) Not Applicable
(j) Form of Custodian Services Agreement**
(k) Form of Transfer Agency and Registrar Agreement*
(l)(1) Opinion and consent of Willkie Farr &
Gallagher**
(2) Opinion and consent of Venable, Baetjer
and Howard**
(m) Not Applicable.
(n) Consent of KPMG Peat Marwick LLP (filed
herewith)
(o) Not Applicable.
(p) Not Applicable
(q) Not Applicable.
(r) Financial Data Schedule (filed herewith)
Item 25. Marketing Arrangements
Reference is made to the Purchase Agreement and the Underwriting
Agreement filed as Exhibits (h)(1) and (h)(2) by Registrant with Pre-Effective
Amendment No. 2 to its Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
Securities and Exchange Commission registration
fees.......................................$ _____
Printing (other than stock
certificates)..................................................... $
5,000
Legal fees and
expenses......................................................................
..............$_________
Accounting fees and
expenses......................................................................
......$______
Miscellaneous.................................................................
...................................$________
TOTAL.......................................................................
........................... $5,000
Item 27. Person Controlled by or Under Common Control
None.
Item 28. Number of Holders of Securities
The number of record holders of Registrant as of December 16, 1996
is as follows:
(1) (2)
Title of Class: Number of Record Holders:
Shares of Common Stock, 61
$.001 Par Value
Item 29. Indemnification
Under Article Seventh of Registrant's Articles of Incorporation, any
past or present director or officer of Registrant is indemnified to the
fullest extent permitted by the Maryland General Corporation Law ("MGCL")
against liability and all expenses reasonable incurred by him in connection
with any action, suit or proceeding to which he may be a party or otherwise
involved by reason of his being or having been a Director or officer of
Registrant. This provision does not authorize indemnification when it is
determined that the Director or officer would otherwise be liable to
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his duties. Expenses may be paid by
Registrant to its 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 dispositions of any
action, suit or proceeding. The Board may, by by-law, resolution or agreement,
make further provision for indemnification of Directors, officers, employees
and agents to the fullest extent permitted by MGCL.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of Registrant
pursuant to the foregoing provisions, or otherwise, Registrant has been
advised that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the 1933 Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Registrant of expenses incurred or paid by a director,
officer or controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 30. Business and Other Connections of the Investment Adviser
Greenwich Street Advisors, through its predecessors, has been in the
investment counseling business since 1934 and is a division of Smith Barney
Mutual Funds Management Inc. ("SBMFM"). SBMFM was incorporated in 1968 and is
a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings"), which is
in turn a wholly owned subsidiary of Travelers Group Inc. ("Travelers").
The list required by this Item 30 of officers and directors of SBMFM and
Greenwich Street Advisors, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by SBMFM pursuant to the
Investment Advisers Act of 1940, as amended (SEC File No. 801-8314).
Item 31. Location of Accounts and Records
Each Person maintaining physical possession of accounts, books and other
documents required to be maintained pursuant to Section 31(a) of the 1940 Act
is listed below:
(1) Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(2) Greenwich Street California Municipal Fund Inc.
388 Greenwich Street
New York, New York 10013
(3) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
` New York, New York 10013
(4) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(5) First Data Investor Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(1) Not Applicable.
(2) Not Applicable.
(3) Not applicable.
(4) (a) Registrant undertakes to file, during any period in which
offers or sales are being made, a Post-Effective Amendment to the Registration
Statement:
(1) to include any prospectus required by Section 10(a)(3) of
the 1933 Act;
(2) to reflect in the prospectus any facts or events after the
effective date of the Registration Statement (or the most recent Post-
Effective Amendment hereof) 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 this Registration Statement or any
material change to such information in this Registration Statement.
(4) (b) Registrant undertakes that, for the purpose of determining
any liability under the 1933 Act, each subsequent Post-Effective Amendment
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) (c) Not applicable.
(5) Not applicable.
(6) Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 2 to its Registration Statement on
Form N-2 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, on the 20th day of December, 1996.
GREENWICH STREET CALIFORNIA
MUNICIPAL FUND INC.
By /s/ HEATH B. MCLENDON
_________________
Heath B. McLendon
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Heath B. Mclendon
Heath B. McLendon
Chairman of the Board and
Chief Executive Officer
12/20/96
/s/ Jessica M
Bibliowicz
Jessica Bibliowicz
President and Director
12/20/96
/s/ Joseph H. Fleiss*
Joseph H. Fleiss
Director
12/20/96
/s/ Donald R. Foley*
Donald R. Foley
Director
12/20/96
/s/ Paul Hardin III*
Paul Hardin III
Director
12/20/96
/s/ Francis P. Martin*
Francis P. Martin
Director
12/20/96
/s/ Roderick C.
Rasmussen*
Roderick C. Rasmussen
Director
12/20/96
/s/ John P. Toolan*
John P. Toolan
Director
12/20/96
/s/ C. Richard
Youngdahl*
C. Richard Youngdahl
Director
12/20/96
/s/ Lewis E. Daidone
Lewis E. Daidone
Senior Vice President,
Treasurer (Chief Financial
and Accounting Officer)
12/20/96
*By: /s/ Lewis E. Daidone
Lewis E. Daidone
Pursuant to a Power of Attorney
GREENWICH STREET CALIFORNIA MUNICIPAL FUND INC.
EXHIBIT INDEX
Exhibit No. Description of Exhibit
(n) Consent of KPMG Peat Marwick LLP, independent
accountants for the Fund .
(r) Financial Data Schedule
* Previously filed by Registrant with its initial Registration Statement
(No. 33-54549) on July 12, 1994.
** Previously filed by Registrant with Pre-Effective Amendment No. 2 to
its Registration Statement (No. 33-54549) on September 22,
1994.
***Previously filed by Registrant with Post-Effective Amendment No. 2 to
its Registration Statement on December 21, 1995.
Independent Auditors' Consent
To the Shareholders and Directors of Greenwich Street California
Municipal Fund Inc.:
We consent to the use of our report dated October 15, 1996 incorporated
herein by reference and to the references to our Firm under the headings
"Financial Highlights" and "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
New York, New York
December 20, 1996
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<NAME> GREENWICH STREET CALIFORNIA MUNICIPALS FUND INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 46,042,150
<INVESTMENTS-AT-VALUE> 49,271,129
<RECEIVABLES> 732,870
<ASSETS-OTHER> 62,855
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,066,854
<PAYABLE-FOR-SECURITIES> 1,833,885
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 203,112
<TOTAL-LIABILITIES> 2,036,997
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<PAID-IN-CAPITAL-COMMON> 43,835,008
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<ACCUMULATED-NII-CURRENT> 51,414
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<ACCUM-APPREC-OR-DEPREC> 3,228,979
<NET-ASSETS> 48,029,857
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<APPREC-INCREASE-CURRENT> 179,466
<NET-CHANGE-FROM-OPS> 3,412,733
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