As filed with the Securities and Exchange Commission
on November 16, 2001
Securities Act File No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
MANAGED MUNICIPALS PORTFOLIO INC.
(Exact Name of Registrant as Specified in Charter)
125 BROAD STREET, NEW YORK, NEW YORK 10004
(Address of Principal Executive Offices: Number,
Street, City, State, Zip Code)
(800) 331-1710
(Registrant's Area Code and Telephone Number)
-------------
Christina T. Sydor, Esq., Secretary
and
William J. Renahan, Esq., Assistant Secretary
Managed Municipals Portfolio Inc.
125 Broad Street
New York, New York 10004
(Name and Address of Agent for Service)
with copies to:
Burton M. Leibert, Esq.
and
J. Kevin Gao, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Approximate Date of Proposed Public Offering:
As soon as practicable after
this Registration Statement becomes effective
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
======================== ==================== ====================== ======================== ====================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED UNIT (1) PRICE (1) REGISTRATION FEE
- ------------------------ -------------------- ---------------------- ------------------------ --------------------
Common Stock ($0.001
par value) 10,000,000 $10.93 $109,300,000 $27,325
======================== ==================== ====================== ======================== ====================
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended,
based on the average of the high and low sales prices reported on the New
York Stock Exchange on November 9, 2001.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
MANAGED MUNICIPALS PORTFOLIO INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
o Cover Sheet
o Contents of Registration Statement
o Form N-14 Cross Reference Sheet
o Letter to Shareholders of Managed Municipals Portfolio Inc.
o Letter to Shareholders of Managed Municipals Portfolio II Inc.
o Notice of Special Meeting of Shareholders of Managed Municipals Portfolio
Inc.
o Notice of Annual Meeting of Shareholders of Managed Municipals Portfolio II
Inc.
o Part A - Proxy Statement/Prospectus
o Part B - Statement of Additional Information
o Part C - Other Information
o Signature Page
o Exhibits
CROSS REFERENCE SHEET
PART A Item No. and Caption Proxy Statement/Prospectus Caption
- --------------------------- ----------------------------------
1. Beginning of Registration Statement and Outside Front Cover Page
Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Prospectus Cover Page; Table of Contents
Contents
3. Fee Table, Synopsis Information, and Risk Factors Synopsis; Risk Factors and Special Considerations;
Comparison of Investment Objectives and Management
Policies
4. Information about the Transactions Synopsis - The Proposed Merger; Information about the
Merger; Additional Information about the Funds
5. Information about the Registrant Synopsis; Risk Factors and Special Considerations;
Comparison of Investment Objectives and Management
Policies; Additional Information about the Funds
6. Information about the Company Being Acquired Synopsis; Risk Factors and Special Considerations;
Comparison of Investment Objectives and Management
Policies; Additional Information about the Funds
7. Voting Information Notice of Meeting of Shareholders; General; Required
Vote
8. Interest of Certain Persons and Experts Additional Information about the Funds
9. Additional Information Required for Reoffering by (Not Applicable)
Persons Deemed to be Underwriters
PART B Item No. and Caption Statement of Additional Information Caption
- --------------------------- -------------------------------------------
10. Cover Page Cover Page
11. Table of Contents Incorporated by reference
12. Additional Information about the Registrant Incorporated by reference
13. Additional Information about the Company Being Acquired Incorporated by reference
14. Financial Statements Financial Statements
PART C
- ------
15 - 17 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 A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
MANAGED MUNICIPALS PORTFOLIO INC.
125 Broad Street
New York, New York 10004
_______, 2002
Dear Shareholder:
We are pleased to invite you to a special meeting of shareholders of
Managed Municipals Portfolio Inc., a Maryland corporation. Managed Municipals
Portfolio Inc. is sometimes referred to as "MMU" or the "Fund."
The special meeting is scheduled to be held at 9:00 a.m., Eastern time,
on Thursday, February 28, 2002, at the offices of Smith Barney Fund Management
LLC, 125 Broad Street, 11th Floor, New York, New York 10004. Shareholders who
are unable to attend this meeting are strongly encouraged to vote by proxy,
which is customary in corporate meetings of this kind. A Proxy
Statement/Prospectus regarding the meeting, a proxy card(s) for your vote at the
meeting and an envelope - postage prepaid - in which to return your proxy card
are enclosed. At the special meeting, you will be asked to vote on two matters.
First, you will be asked to vote on a Merger Agreement and Plan of
Reorganization (the "Merger Agreement") whereby Managed Municipals Portfolio II
Inc., sometimes referred to as "MTU," would merge with and into MMU in
accordance with the Maryland General Corporation Law. As a result of the merger,
each share of common stock of MTU would convert into an equivalent dollar amount
(to the nearest one tenth of one cent) of full shares of common stock of MMU,
based on the net asset value per share of each fund.
MMU will not issue any fractional shares to MTU shareholders. In lieu
of issuing fractional shares, MMU will purchase all shares of MTU at the current
net asset value of the shares and remit the cash proceeds to former shareholders
of MTU. The currently issued and outstanding shares of MMU will remain issued
and outstanding.
Both MMU and MTU are closed-end, non-diversified management investment
companies listed on the New York Stock Exchange. The funds have identical
investment objectives and invest primarily in the same markets. Both funds seek
as high a level of current income exempt from federal income tax as is
consistent with preservation of capital. The current investment objective and
policies of MMU will continue unchanged if the merger occurs.
The board of directors of MMU believes that combining the two funds
could benefit Fund shareholders by providing the potential for:
o economies of scale,
o a lower operating expense ratio, and
o enhanced market liquidity of MMU's shares.
The proposed merger and investment policies of the funds are described
in more detail in the combined Proxy Statement/Prospectus.
Second, you will be asked to approve a change in the Fund's investment
restriction relating to issuing senior securities. Currently, the Fund may not
issue senior securities. The proposed change would allow the Fund to issue
senior securities to the extent permitted under the Investment Company Act of
1940, and as interpreted, modified, or otherwise permitted by appropriate
regulatory authorities. The approval of this proposal would permit the Fund to
operate under a more flexible fundamental policy. The board of directors
believes that this more flexible fundamental policy is in the best interests of
the Fund and its shareholders because it would allow the Fund, subject to Board
approval, to adapt to future developments in investment practices and changes in
laws and regulations and regulatory positions without the delay and cost of a
shareholder meeting. The board of directors of MMU has stated its intention if
this policy is adopted, to cause the Fund to issue auction rate preferred
shares.
THE BOARD OF DIRECTORS OF YOUR FUND BELIEVES THAT THE PROPOSED MERGER
AND THE CHANGE IN THE FUNDAMENTAL INVESTMENT RESTRICTION ARE IN THE BEST
INTERESTS OF THE SHAREHOLDERS AND RECOMMENDS THAT YOU READ THE ENCLOSED
MATERIALS CAREFULLY AND THEN VOTE "FOR" PROPOSALS 1 AND 2.
Your vote is important. PLEASE TAKE A MOMENT TO SIGN AND RETURN YOUR
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. For more
information, please call 1-800-________. If you prefer, you can fax the signed
proxy card (both front and back sides) to __________; vote by telephone by
calling ______________ using the 14-digit control number located on your proxy
card; or vote through the internet by going to www.[website].com using the
14-digit control number located on your proxy card. The Fund may also solicit
proxies from shareholders by letter, telephone and/or telegraph. Voting by fax,
telephone or through the internet will reduce the time and costs associated with
the proxy solicitation. When the Fund records proxies by telephone or through
the internet, it will use procedures designed to (i) authenticate shareholders'
identities, (ii) allow shareholders to authorize the voting of their shares in
accordance with their instructions and (iii) confirm that their instructions
have been properly recorded.
Whichever voting method you choose, please read the full text of the
accompanying Prospectus/Proxy Statement before you vote.
Respectfully,
Heath B. McLendon
Chairman of the Board of Directors
YOU ARE URGED TO SIGN THE PROXY CARD(S) AND RETURN THE CARD(S) IN THE
POSTAGE-PAID ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT
REGARDLESS OF THE SIZE OF YOUR SHAREHOLDINGS.
MANAGED MUNICIPALS PORTFOLIO II INC.
125 Broad Street
New York, New York 10004
_______, 2002
Dear Shareholder:
We are pleased to invite you to the annual meeting of shareholders of
Managed Municipals Portfolio II Inc., a Maryland corporation. Managed Municipals
Portfolio II Inc. is sometimes referred to as "MTU" or the "Fund."
The annual meeting is scheduled to be held at 9:30 a.m., Eastern time,
on Thursday, February 28, 2002, at the offices of Smith Barney Fund Management
LLC, 125 Broad Street, 11th Floor, New York, New York 10004. Shareholders who
are unable to attend this meeting are strongly encouraged to vote by proxy,
which is customary in corporate meetings of this kind. A Proxy
Statement/Prospectus regarding the meeting, a proxy card(s) for your vote at the
meeting and an envelope - postage prepaid - in which to return your proxy card
are enclosed. At the annual meeting, you will be asked to vote on two matters.
First, you will be asked to vote on a Merger Agreement and Plan of
Reorganization (the "Merger Agreement"), whereby MTU would merge with and into
Managed Municipals Portfolio Inc., sometimes referred to as "MMU," in accordance
with the Maryland General Corporation Law. As a result of the merger, each share
of common stock of MTU would convert into an equivalent dollar amount (to the
nearest one tenth of one cent) of full shares of common stock of MMU, based on
the net asset value per share of each fund.
MMU will not issue any fractional shares to MTU shareholders. In lieu
of issuing fractional shares, MMU will purchase all shares of MTU at the current
net asset value of the shares and remit the cash proceeds to former shareholders
of MTU. The currently issued and outstanding shares of MMU will remain issued
and outstanding. Although the MMU shares received in the merger will have the
same total net asset value as the MTU shares you held immediately before the
merger (disregarding fractional shares), their stock price (market value) may be
greater or less than that of your MTU shares, based on current market discount
levels persisting at the time of the transaction.
Like MTU, MMU is a closed-end, non-diversified management investment
company listed on the New York Stock Exchange. The investment objective of both
funds is to seek as high a level of current income exempt from federal income
tax as is consistent with preservation of capital. The current investment
objective of MMU will continue unchanged if the merger occurs.
The board of directors of MTU believes that combining the two funds
could benefit Fund shareholders by providing the potential for:
o economies of scale,
o a lower operating expense ratio, and
o enhanced market liquidity of MMU's shares.
The proposed merger and the investment policies of the funds are
described in more detail in the combined Proxy Statement/Prospectus.
Second, in order that the board of directors of MTU will be properly
constituted in the event that Proposal One is not approved or, if approved, not
implemented in a timely fashion, you will be asked to elect three Class II
directors of the Fund, Robert A. Frankel, Heath B. McLendon and George M. Pavia.
THE BOARD OF DIRECTORS OF YOUR FUND BELIEVES THAT THE PROPOSED MERGER
AND THE ELECTION OF THE THREE DIRECTORS ARE IN THE BEST INTERESTS OF THE
SHAREHOLDERS AND RECOMMENDS THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND
THEN VOTE "FOR" PROPOSALS 1 AND 2.
Your vote is important. PLEASE TAKE A MOMENT TO SIGN AND RETURN YOUR
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. For more
information, please call 1-800-_______. If you prefer, you can fax the signed
proxy card (both front and back sides) to _____________; vote by telephone by
calling _____________ using the 14-digit control number located on your proxy
card; or vote through the internet by going to www.[website].com using the
14-digit control number located on your proxy card. The Fund may also solicit
proxies from shareholders by letter, telephone and/or telegraph. Voting by fax,
telephone or through the internet will reduce the time and costs associated with
the proxy solicitation. When the Fund records proxies by telephone or through
the internet, it will use procedures designed to (i) authenticate shareholders'
identities, (ii) allow shareholders to authorize the voting of their shares in
accordance with their instructions and (iii) confirm that their instructions
have been properly recorded.
Whichever voting method you choose, please read the full text of the
accompanying Prospectus/Proxy Statement before you vote.
Respectfully,
Heath B. McLendon
Chairman of the Board of Directors
YOU ARE URGED TO SIGN THE PROXY CARD(S) AND RETURN THE CARD(S) IN THE
POSTAGE-PAID ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT
REGARDLESS OF THE SIZE OF YOUR SHAREHOLDINGS.
MANAGED MUNICIPALS PORTFOLIO INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Managed Municipals Portfolio Inc.:
Please take notice that a special meeting of shareholders of Managed
Municipals Portfolio Inc. (sometimes referred to as "MMU"), a Maryland
corporation, will be held at the offices of Smith Barney Fund Management LLC,
125 Broad Street, 11th Floor, New York, New York 10004, on Thursday, February
28, 2002, at 9:00 a.m., Eastern time, for the following purposes:
1. To consider and vote upon the approval of a Merger Agreement and Plan
of Reorganization dated __________, 2001 whereby Managed Municipals
Portfolio II Inc. (sometimes referred to as "MTU"), a closed-end
investment company with an objective and policies virtually identical
to those of MMU, would merge with and into MMU in accordance with the
Maryland General Corporation Law; and
2. To consider and vote upon the approval of a change in the MMU's
investment restriction regarding issuance of senior securities.
3. To transact such other business as may properly come before the special
meeting or any adjournments thereof.
Holders of record of shares of common stock of MMU at the close of
business on January 7, 2002 are entitled to vote at the special meeting and at
any postponements or adjournments thereof. MTU shareholders also must approve
the merger.
The persons named as proxies may propose one or more adjournments of
the special meeting if the necessary quorum to transact business or the vote
required to approve or reject any proposal is not obtained at the meeting. Any
such adjournment will require the affirmative vote of the holders of a majority
of MMU's shares present in person or by proxy at the special meeting. The
persons named as proxies will vote those proxies which they are entitled to vote
on any such proposal in accordance with their best judgment in the interest of
MMU.
The enclosed proxy is being solicited on behalf of the board of
directors of MMU.
By Order of the Board of Directors,
Christina T. Sydor, Secretary
________, 2002
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS
INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S)
MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM
AT THE MEETING. IF YOU CAN ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES IN
PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
Managed Municipals Portfolio II Inc.
NOTICE OF annuAL MEETING OF SHAREHOLDERS
To the Shareholders of Managed Municipals Portfolio II Inc.:
Please take notice that the annual meeting of shareholders of Managed
Municipals Portfolio II Inc. (sometimes referred to as "MTU"), a Maryland
corporation, will be held at the offices of Smith Barney Fund Management LLC,
125 Broad Street, 11th Floor, New York, New York 10004, on Thursday, February
28, 2002, at 9:30 a.m., Eastern time, for the following purposes:
1. To consider and vote upon the approval of a Merger Agreement and Plan
of Reorganization dated __________, 2001 whereby MTU would merge with
and into Managed Municipals Portfolio Inc. (sometimes referred to as
"MMU"), a closed-end investment company with an objective and policies
virtually identical to those of MTU, in accordance with the Maryland
General Corporation Law; and
2. To consider and vote upon the election of MTU's three (3) Class II
Directors, Robert A. Frankel, Heath B. McLendon and George M. Pavia.
3. To transact such other business as may properly come before the annual
meeting or any adjournments thereof.
Holders of record of shares of common stock of MTU at the close of
business on January 7, 2002 are entitled to vote at the annual meeting and at
any postponements or adjournments thereof. MMU shareholders also must approve
the merger.
The persons named as proxies may propose one or more adjournments of
the annual meeting if the necessary quorum to transact business or the vote
required to approve or reject any proposal is not obtained at the meeting. Any
such adjournment will require the affirmative vote of the holders of a majority
of MTU's shares present in person or by proxy at the annual meeting. The persons
named as proxies will vote those proxies which they are entitled to vote on any
such proposal in accordance with their best judgment in the interest of MTU.
The enclosed proxy is being solicited on behalf of the board of
directors of MTU.
By Order of the Board of Directors,
Christina T. Sydor, Secretary
________, 2002
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS
INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S)
MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM
AT THE MEETING. IF YOU CAN ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES IN
PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
SUBJECT TO COMPLETION - DATED NOVEMBER 16, 2001
MANAGED MUNICIPALS PORTFOLIO II INC.
125 BROAD STREET
NEW YORK, NEW YORK 10004
(800) 331-1710
TO BE MERGED WITH AND INTO
MANAGED MUNICIPALS PORTFOLIO INC.
125 BROAD STREET
NEW YORK, NEW YORK 10004
(800) 331-1710
PROXY STATEMENT
MEETINGS OF SHAREHOLDERS
TO BE HELD FEBRUARY 28, 2002
MANAGED MUNICIPALS PORTFOLIO INC. PROSPECTUS
This Proxy Statement/Prospectus is being furnished to shareholders of
Managed Municipals Portfolio II and Managed Municipals Portfolio for use at a
special meeting of shareholders of Managed Municipals Portfolio and at the
annual meeting of shareholders of Managed Municipals Portfolio II to be held on
Thursday, February 28, 2002 at 9:00 a.m., Eastern time, with respect to Managed
Municipals Portfolio, and at 9:30 a.m., Eastern time, with respect to Managed
Municipals Portfolio II, and at any and all postponements or adjournments
thereof. The meeting of shareholders of each Fund will be held at the offices of
Smith Barney Fund Management LLC, 125 Broad Street, New York, New York 10004.
Managed Municipals Portfolio is sometimes referred to in this Proxy
Statement/Prospectus as "MMU," Managed Municipals Portfolio II is sometimes
referred to in this Proxy Statement/Prospectus as "MTU" and MMU and MTU are
sometimes collectively referred to as the "Funds" and individually, as the
context may require, as the "Fund." The approximate mailing date of this Proxy
Statement/Prospectus is ___________, 2002.
Purpose of the Meetings. At each of the meetings, shareholders of the
Funds will be asked to approve a Merger Agreement and Plan of Reorganization
dated as of __________, 2001 whereby MTU would merge with and into MMU, in
accordance with the Maryland General Corporation Law. The Merger Agreement and
Plan of Reorganization is sometimes referred to in this Proxy
Statement/Prospectus as the "Plan." In addition:
o MMU's shareholders are being asked to approve a change in
MMU's investment restriction regarding the issuance of senior
securities; and
o MTU's shareholders are being asked to vote on the election of
three Class II directors.
Specifics of the Proposed Merger. As a result of the merger, each share
of common stock of MTU will convert into an equivalent dollar amount (to the
nearest one tenth of one cent) of full shares of common stock of MMU, based on
the net asset value per share of each Fund.
Each MTU shareholder, in connection with the merger, will receive full
shares of MMU having an aggregate net asset value (disregarding fractional
shares) equal to the aggregate net asset value of the shareholder's MTU shares
before the merger.
MMU will not issue any fractional shares to MTU shareholders. In lieu
thereof, MMU will purchase all shares at the current net asset value of the
shares and remit the cash proceeds to former MTU shareholders in proportion to
their fractional shares. The currently issued and outstanding shares of MMU will
remain issued and outstanding. MTU shareholders will recognize no gain or loss
for federal income tax purposes as a result of the merger, except with respect
to any cash proceeds received from the purchase of fractional shares by MMU.
These shareholders will be treated for federal income tax purposes as if they
received fractional share interests and then sold such interests for cash.
Change in an Investment Restriction. MMU currently may not issue senior
securities. Shareholders of MMU are also being asked to approve a change in one
of the Fund's investment restrictions to allow MMU to issue senior securities to
the extent permitted under the Investment Company Act of 1940, as amended, and
as interpreted, modified, or otherwise permitted by appropriate regulatory
authorities. MMU's board of directors have indicated their intention to cause
the Fund to register a class of preferred shares and to offer those shares
promptly assuming that shareholders approve the change in the Fund's policy.
Information About The Funds. The Funds are closed-end, non-diversified
management investment companies listed on the New York Stock Exchange. The Funds
have identical investment objectives. Both Funds seek as high a level of current
income exempt from federal income tax as is consistent with preservation of
capital. The current investment objective and policies of MMU will continue
unchanged if the merger occurs.
The terms and conditions of the merger and related transactions are
more fully described in this Proxy Statement/Prospectus and in the Plan, a copy
of which is attached as Exhibit A.
This Proxy Statement/Prospectus serves as a prospectus for shares of
MMU under the Securities Act of 1933, which is referred to in this Proxy
Statement/Prospectus as the "Securities Act," in connection with the issuance of
MMU common shares in the merger.
Assuming the shareholders of the Funds approve the merger and all other
conditions to the consummation of the merger are satisfied or waived, the Funds
will jointly file articles of merger (the "Articles of Merger"), with the State
Department of Assessments and Taxation of Maryland (the "Department"). The
merger will become effective when the Department accepts for record the Articles
of Merger or at such later time, which may not exceed 30 days after the Articles
of Merger are accepted for record, as specified in the Articles of Merger. The
date when the Articles of Merger are accepted for record, or the later date, is
referred to in this Proxy Statement/Prospectus as the "Effective Date." MTU, as
soon as practicable after the Effective Date, will terminate its registration
under the Investment Company Act of 1940, as amended (the "Investment Company
Act").
You should retain this Proxy Statement/Prospectus for future reference
as it sets forth concisely information about MMU and MTU that you should know
before voting on the merger proposal described below.
2
A Statement of Additional Information, which is referred to in this
Proxy Statement/Prospectus as the "SAI," dated _______, 2002, which contains
additional information about the merger and the Funds has been filed with the
Securities and Exchange Commission ("SEC"). The SAI, the current prospectuses,
MMU's annual report for the fiscal year ended May 31, 2001 and MTU's annual
report for the fiscal year ended August 31, 2001 are incorporated by reference
into this Proxy Statement/Prospectus. A copy of these documents is available
upon request and without charge by writing to either Fund at 125 Broad Street,
New York, New York 10004, or by calling 1-(800) 331-1710. You may ask questions
about the Funds by calling 1-(800) 331-1710. MMU has provided the information
included in this Proxy Statement/Prospectus regarding that Fund. MTU has
provided the information included in this Proxy Statement/Prospectus regarding
that Fund.
MMU's shares of common stock are listed on the New York Stock Exchange
("NYSE") under the symbol "MMU". MTU's shares of common stock are listed on the
NYSE under the symbol "MTU". After the Effective Date, shares of common stock of
MMU will continue to be listed on the NYSE under the symbol "MMU". Reports,
proxy materials and other information concerning each Fund may be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The SEC has not approved or disapproved these securities or determined
if this Proxy Statement/Prospectus is truthful or complete. To state otherwise
is a crime.
The date of this Proxy Statement/Prospectus is ________, 2002
3
TABLE OF CONTENTS
Page
----
GENERAL...........................................................................................................5
PROPOSAL 1 (BOTH FUNDS): APPROVAL OF THE MERGER AGREEMENT AND PLAN OF
REORGANIZATION PURSUANT TO WHICH MANAGED MUNICIPALS PORTFOLIO II WILL
MERGE WITH AND INTO MANAGED MUNICIPALS PORTFOLIO..................................................................6
SYNOPSIS..........................................................................................................8
EXPENSE TABLE....................................................................................................13
FINANCIAL HIGHLIGHTS.............................................................................................15
RISK FACTORS AND SPECIAL CONSIDERATIONS..........................................................................20
COMPARISON OF INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES......................................................26
TAXATION.........................................................................................................31
INFORMATION ABOUT THE MERGER.....................................................................................35
ADDITIONAL INFORMATION ABOUT THE FUNDS...........................................................................41
MANAGEMENT OF THE FUNDS..........................................................................................51
INDEPENDENT ACCOUNTANTS..........................................................................................56
REQUIRED VOTE....................................................................................................56
LEGAL PROCEEDINGS................................................................................................56
LEGAL OPINIONS...................................................................................................56
PROPOSAL 2 (MANAGED MUNICIPALS PORTFOLIO SHAREHOLDERS ONLY): APPROVAL
OF CHANGE IN AN INVESTMENT RESTRICTION...........................................................................57
PROPOSAL 3 (MANAGED MUNICIPALS PORTFOLIO II SHAREHOLDERS ONLY): ELECTION
OF DIRECTORS.....................................................................................................62
BACKGROUND.......................................................................................................62
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..........................................................63
REPORT OF THE AUDIT COMMITTEE....................................................................................65
REQUIRED SHAREHOLDER VOTE........................................................................................66
ADDITIONAL INFORMATION...........................................................................................67
EXHIBIT A FORM OF MERGER AGREEMENT AND PLAN OF REORGANIZATION.................................................A-1
EXHIBIT B MANAGED MUNICIPALS PORTFOLIO II INC. AUDIT COMMITTEE CHARTER.........................................B-1
PROXY CARD FOR MANAGED MUNICIPALS PORTFOLIO INC................................................................C-1
PROXY CARD FOR MANAGED MUNICIPALS PORTFOLIO II INC.............................................................D-1
4
GENERAL
This Proxy Statement/Prospectus is furnished to the shareholders of the
Funds in connection with the solicitation of proxies on behalf of the boards of
directors of MMU and MTU. The board of directors of each Fund is soliciting
proxies for use at the meetings of the respective Fund. The mailing address for
both Funds is 125 Broad Street, New York, New York 10004.
This Proxy Statement/Prospectus, the Notice of Meeting to Shareholders
and the proxy card(s) are first being mailed to shareholders on or about
________, 2002 or as soon as practicable thereafter. Any shareholder who gives a
proxy has the power to revoke the proxy either:
o by mail, addressed to the Secretary of the respective Fund, at
the Fund's mailing address, or
o in person at the meeting
by executing a superseding proxy or by submitting a notice of revocation to the
respective Fund. All properly executed proxies received in time for the meetings
will be voted as specified in the proxy or, if no specification is made, in
favor of each proposal for that Fund referred to in the Proxy
Statement/Prospectus.
Shareholders of MMU and MTU will be asked to vote on the following
proposals:
- ------------------------------------------------------------ ---------------------------------------------------------
Proposal To Be Voted Upon By
- ------------------------------------------------------------ ---------------------------------------------------------
Proposal 1 -- Approval of the Plan MMU and MTU Shareholders
- ------------------------------------------------------------ ---------------------------------------------------------
Proposal 2 -- Approval of a change in the MMU's investment MMU Shareholders Only
restriction regarding issuance of senior securities
- ------------------------------------------------------------ ---------------------------------------------------------
Proposal 3 -- Election of Robert A. Frankel, Heath B. MTU Shareholders Only
McLendon and George M. Pavia to MTU's Board of Directors
- ------------------------------------------------------------ ---------------------------------------------------------
The presence, either in person or by proxy, of the holders of a
majority of the outstanding shares of common stock entitled to vote at a meeting
of a Fund, will constitute a quorum for the transaction of business by such
Fund. For purposes of determining the presence of a quorum for transacting
business at a meeting, abstentions and broker "non-votes" will be treated as
shares that are present. Broker non-votes are proxies received by a Fund from
brokers or nominees, indicating that the broker or nominee has neither received
instructions from the beneficial owner or other persons entitled to vote nor has
the discretionary power to vote on a particular matter. Shareholders are urged
to forward their voting instructions promptly.
Proposal 1 requires the affirmative vote of a majority of the
outstanding shares of common stock of each Fund.
5
Proposal 2 to be submitted at the special meeting of shareholders of
MMU requires the affirmative vote of a "majority of outstanding voting
securities" of MMU. A "majority of outstanding voting securities" is defined
under the Investment Company Act to mean the lesser of
o 67% of the shares of a fund's common stock represented at a
meeting at which more than 50% of the outstanding shares of
that fund's common stock are represented, or
o more than 50% of the outstanding shares of common stock.
Proposal 3 to be submitted at the annual meeting of shareholders of MTU
requires the affirmative vote of a plurality of the votes cast at such meeting
in person or by proxy.
Abstentions and broker non-votes will have the effect of a "no" vote
for each of Proposals 1 and 2 and will have no effect on Proposal 3.
Proxy solicitations will be made primarily by mail, but solicitations
may also be made by telephone, telegraph or personal interviews conducted by
officers or employees of the Funds, PFPC Global Fund Services ("PFPC"), the
transfer agent of the Funds, Smith Barney Fund Management LLC ("SBFM" or the
"Manager"), the investment manager to the Funds. The Funds will bear costs of
solicitation, including:
o printing and mailing of this Proxy Statement/Prospectus and
accompanying material,
o the reimbursement of brokerage firms and others for their
expenses in forwarding solicitation material to the beneficial
owners of each Fund's shares, and
o supplementary solicitations to submit proxies.
Only shareholders of record of each Fund at the close of business on
January 7, 2002, the Record Date, are entitled to vote. An outstanding share of
each Fund is entitled to one vote on all matters voted upon at a meeting of the
shareholders of that Fund. As of January 7, 2002, there were ________ shares of
MMU outstanding and ________ shares of MTU outstanding.
MMU and MTU provide periodic reports to all of their shareholders.
These reports highlight relevant information including investment results and a
review of portfolio changes for each Fund. You may receive a copy of the most
recent annual report for MMU or MTU and a copy of any more recent interim
report, without charge, by calling 1-(800) 331-1710 or writing to either Fund at
125 Broad Street, New York, New York 10004.
The boards of directors of the Funds know of no business other than the
proposals described above which will be presented for consideration at the
meetings. If any other matter is properly presented, it is the intention of the
persons named in the enclosed proxy to vote on that matter in their discretion.
6
PROPOSAL 1 (BOTH FUNDS): APPROVAL OF THE MERGER
AGREEMENT AND PLAN OF REORGANIZATION PURSUANT
TO WHICH MANAGED MUNICIPALS PORTFOLIO II WILL MERGE WITH
AND INTO MANAGED MUNICIPALS PORTFOLIO
On November 14, 2001, the boards of directors of MMU and MTU, including
at least a majority of the directors of each Fund who are not "interested
persons" of the respective Fund (the "non-interested directors"):
o declared the merger (the "Merger") of MTU with and into MMU
advisable,
o approved entering into the Plan, and
o recommended that the Plan be approved by the shareholders of
each Fund.
For more information about the Merger, see "Information About The
Merger." The Plan is subject to the approval of the shareholders of both Funds
and certain other conditions.
A copy of the Plan is attached to this Proxy Statement/Prospectus as
Exhibit A, and the description of the Plan included in this Prospectus/Proxy
Statement is qualified in its entirety by reference to Exhibit A.
The following provides a more detailed discussion about the Merger,
each Fund and additional information that you may find helpful in deciding how
to vote on the Plan.
7
SYNOPSIS
This summary highlights important information included in this Proxy
Statement/Prospectus. This summary is qualified by reference to the more
complete information included elsewhere in this Proxy Statement/Prospectus and
the Plan. Shareholders of the Funds should read this entire Proxy
Statement/Prospectus carefully.
The Proposed Merger. The boards of directors of MMU and MTU, including
at least a majority of the non-interested directors of each Fund, have approved
the Plan. The Plan provides for the merger of MTU with and into MMU. As a result
of the Merger:
o each share of common stock of MTU will convert into an
equivalent dollar amount (to the nearest one tenth of one
cent) of full shares of common stock of MMU, based on the net
asset value per share of each Fund calculated at 4:00 pm on
the Business Day preceding the Effective Date;
o each shareholder of MTU will become a shareholder of MMU and
will receive, on the Effective Date, that number of full
shares of common stock of MMU having an aggregate net asset
value (disregarding fractional shares) equal to the aggregate
net asset value of such shareholder's shares held in MTU as of
the close of business on the Business Day preceding the
Effective Date; and
o MMU will not issue any fractional shares to MTU shareholders.
In lieu thereof, MMU will purchase all fractional shares at
the current net asset value of the shares and remit the cash
proceeds to former MTU shareholders in proportion to their
fractional shares.
A "Business Day" is any day on which the New York Stock Exchange is
open for trading. For the reasons set forth below under "Information About The
Merger - Reasons for the Merger," the boards of directors of MMU and MTU,
including at least a majority of the non-interested directors of each Fund, have
concluded that:
o the Merger is in the best interests of each respective Fund,
and
o the interests of existing shareholders of each respective Fund
will not be diluted as a result of the transactions
contemplated by the Plan.
Accordingly, the board of directors of each Fund recommends approval of
the Merger. If the Merger is not approved, each Fund will continue as a separate
investment company, and the board of directors of each Fund will consider such
alternatives as it determines to be in the best interests of its shareholders,
including reproposing the Merger.
Form of Organization. Both Funds are closed-end, non-diversified
management investment companies registered under the Investment Company Act. MMU
was organized as a Maryland corporation on April 9, 1992 and MTU was organized
as a Maryland corporation on July 23, 1992. Each Fund's board of directors is
responsible for the management of the business and affairs of each Fund,
including the supervision of the duties performed by each Fund's investment
manager.
8
Investment Objectives and Management Policies. Each Fund's investment
objective is to seek a high level of current income exempt from federal income
tax as is consistent with preservation of principal. Each Fund seeks its
objective by investing primarily in long-term investment grade municipal debt
securities issued by state and local governments, political subdivisions,
agencies and public authorities (municipal obligations). Investment grade debt
securities are those rated in one of the four highest rating categories by a
nationally recognized statistical rating organization, or NRSRO. Under normal
conditions, MMU invests at least 80% of its total assets in investment grade
municipal obligations, while MTU invests at least 80% of its net assets in
municipal obligations. Each Fund's investment objective and the investment
policies in the previous sentence are fundamental, and can only be changed with
the approval of the holders of a "majority of each Fund's outstanding voting
securities," as defined under the Investment Company Act.
Under normal market conditions, each Fund will invest at least 80% of
its total assets in municipal securities rated, at the time of investment, no
lower than BBB, SP-2 or A-1 by Standard & Poor's Ratings Group, ("S&P"), or Baa,
MIG3 or Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or BBB or F1 by
Fitch IBCA, Inc. ("Fitch"). Up to 20% of each Fund's total assets may be
invested in unrated securities that are deemed by SBFM to be of a quality
comparable to investment grade. Under normal market conditions, neither Fund
will invest in municipal securities that are not rated investment grade by any
NRSRO, at the time of purchase, or deemed to be of comparable quality. Neither
Fund will invest more than 25% of its total assets in any industry. Each Fund
may invest more than 25% of its assets in industrial development bonds or in
issuers located in the same state.
On November 14, 2001, MMU's board of directors approved a change in
MMU's investment restriction regarding the issuance of senior securities,
subject to the approval by MMU's shareholders of Proposal 2.
The preceding summary of the Funds' investment objectives and certain
policies should be considered in conjunction with the discussion below under
"Risk Factors and Special Considerations" and "Comparison of Investment
Objectives and Management Policies."
Fees and Expenses - Managed Municipals Portfolio. SBFM serves as MMU's
investment manager with respect to all investments. As compensation for its
management services, SBFM is contractually entitled to receive from the Fund a
monthly fee in arrears equal to 0.70% per annum of the Fund's average daily net
assets at the end of each month. In addition, SBFM serves as administrator of
the Fund and is paid a fee by MMU that is computed daily and paid monthly at an
annual rate of 0.20% of the value of the Fund's average daily net assets. For
the years ended May 31, 1999, 2000 and 2001, MMU paid $3,487,650, $2,848,609 and
$3,344,379, respectively, in management and administration fees to SBFM.
Effective September 1, 1998, SBFM instituted a voluntary fee waiver whereby the
aggregate of its advisory and administration fees did not exceed an annual rate
of 0.33% of average daily net assets for the fiscal year ended May 31, 2001.
However, SBFM has determined to reduce or eliminate its waiver of fees with
regard to the Fund as soon as practicable, while taking into account the effect
on the Fund and its shareholders of the changes in the waiver. It is
undertaking, however, to leave the current fee waiver in place until the
preferred shares have been issued, assuming that Proposal 2 in this Proxy
Statement/Prospectus (relating to a proposed change in MMU's policy
9
regarding issuance of senior securities) is approved. SBFM is also agreeing to
reduce its aggregate management and administration fees to sixty-five basis
points (0.65%) on those assets of the Fund equal to the product of the number of
preferred shares outstanding multiplied by the liquidation value of such shares.
Assuming that the shareholders approve Proposal 2 and MMU issues preferred
shares equal to fifty percent (50%) of the Fund's current net assets, the
blended aggregate management and administration fees would equal 0.82%.
For the fiscal year ended May 31, 2001, MMU's total expense ratio was
1.01%. The Fund's total expense ratio is the ratio of total annual operating
expenses to average net assets, net of fee waivers and including taxes.
Fees and Expenses - Managed Municipals Portfolio II. SBFM also serves
as MTU's investment manager with respect to all investments. As compensation for
its management services, SBFM is contractually entitled to receive from the Fund
a monthly fee in arrears equal to 0.70% per annum of the Fund's average daily
net assets at the end of each month. In addition, SBFM serves as administrator
of the Fund and is paid a fee by MTU that is computed daily and paid monthly at
an annual rate of 0.20% of the value of the Fund's average daily net assets. For
the years ended August 31, 1999, 2000 and 2001, MTU paid $1,224,972, $1,059,714
and $1,070,366, respectively, in management and administration fees to SBFM.
Effective September 1, 1998, SBFM instituted a voluntary fee waiver whereby the
aggregate of its advisory and administration fees did not exceed an annual rate
of 0.39% of average daily net assets for the fiscal year ended August 31, 2001.
However, SBFM has determined to reduce or eliminate its waiver of fees with
regard to the Fund as soon as practicable after taking into account the effect
on the Fund and its shareholders of the changes in the waiver.
For the fiscal year ended August 31, 2001, MTU's total expense ratio
was 1.13%. The Fund's total expense ratio is the ratio of total annual operating
expenses to the average net assets, net of fee waivers and including taxes.
Without any fees and expenses that would be incurred if shareholders
approve Proposal 2 and the Fund's Board causes MMU to issue a class of auction
rate preferred shares, the expense ratio of MMU is projected to be approximately
1.01% after giving effect to the Merger. The actual expense ratios for MMU for
the current and future fiscal years, if the Merger occurs, may be higher or
lower than this projection and depend upon MMU's performance, general stock
market and economic conditions, net asset levels, stock price and other factors,
including the aforementioned issuance of preferred shares.
See "Expense Table" below for the current expenses of each Fund and pro
forma expenses following the Merger.
Unrealized Capital Gains and Losses. As of September 30, 2001, MMU had
approximately $5,241,622 of unrealized capital gains, representing approximately
1.4% of its net asset value. As of that same date, MTU had approximately
$233,044 of unrealized capital gains, representing approximately 0.2% of its net
asset value. As of September 30, 2001, MMU had approximately $13,879,000 of
capital loss carryforwards. MTU had approximately $5,412,000 of capital loss
carryforwards as of that same date.
10
Both Funds will pay their shareholders a cash distribution of
substantially all undistributed 2001 net investment income prior to the
Effective Date unless such amounts are immaterial. It is expected that any
undistributed realized net capital gains will be offset through the utilization
of capital loss carryforwards prior to the Effective Date.
Federal Income Tax Consequences of the Merger. As a condition to the
closing of the Merger, both Funds will receive an opinion of Willkie Farr &
Gallagher, counsel to the Funds and SBFM, stating that the Merger will
constitute a tax-free reorganization within the meaning of Section 368(a)(1) of
the Internal Revenue Code of 1986 (the "Code"). Accordingly, neither MTU, MMU
nor the shareholders of either Fund will recognize any gain or loss for federal
income tax purposes as a result of the Merger, except with respect to the
shareholders of MTU who receive cash proceeds from the purchase of fractional
share interests by MMU. These shareholders will be treated for federal income
tax purposes as if they received such fractional share interests and then sold
such interests for cash. The holding period of MMU shares (including fractional
share interests purchased by MMU) received by a MTU shareholder will include the
holding period of the shares of MTU previously held by the shareholder, and the
aggregate tax basis of MMU shares (including fractional share interests
purchased by MMU) received by a MTU shareholder will be the same as the
aggregate tax basis of the shares of MTU previously held by the shareholder. The
holding period and the aggregate tax basis of the assets received by MMU in the
Merger will be the same as the holding period and the tax basis of such assets
in the hands of MTU immediately before the Merger. For more information about
the tax consequences of the Merger, see "Information About The Merger - Tax
Considerations."
Discount from Net Asset Value. Shares of closed-end funds frequently
trade at a market price that is less than the value of the fund's net assets.
The possibility that shares of MMU will trade at a discount from its net asset
value is a risk separate and distinct from the risk that the Fund's net asset
value will decrease. Except for limited periods of time, MMU's shares have
traded in the market at a discount, and, as of ________, 2001, the last trading
day immediately before the announcement of the Merger, traded at a market price
discount of ____%. Similarly, MTU shares have traded in the market at a discount
and, as of the same date, traded at a market price discount of ____%.
[Recent Disparity in MMU and MTU Discount Levels. Recently, MTU's
market discount has narrowed substantially. Management believes that this
narrowing is largely attributable to market activity following the announcement
of the proposed Merger and other initiatives described in this Proxy
Statement/Prospectus. In contrast, as of the date of this Proxy
Statement/Prospectus, MMU's market discount remains at or near higher historical
levels. If this pattern continues, the total market value of MMU shares issued
to MTU shareholders on the Effective Date will be less than the total market
value of MTU shares outstanding immediately prior to the Effective Date,
although their total net asset values will be the same (disregarding fractional
shares). While the current disparity of market discounts would cause MTU
shareholders to receive shares in the Merger with a lower aggregate market
value, shareholders should consider that, over time, there has not been a
significant disparity between the two Fund's market discount levels.
Accordingly, the Boards' recommendations are based on long-term average market
discount levels. In other words, the initiatives described in this Proxy
Statement/Prospectus have led to a situation that the Boards believe is a
temporary aberration, but which could cause a MTU shareholder to receive assets
(MMU shares) that are less valuable,
11
from a market value perspective only, than the assets (MTU shares) owned
immediately prior to the transaction. Over time, the deviations in market
discounts between the Funds have not been significant, and, although there can
be no assurance, the board of directors of MMU believes that the initiatives
described in this Proxy Statement/Prospectus should have the effect of reducing
the discount at which MMU shares trade. The discount level of the Funds may be
different at the time the Merger occurs. For more information, see "Additional
Information about the Funds - Discount to Net Asset Value."]
Expenses of the Merger. In evaluating the proposed Merger, SBFM has
estimated the amount of expenses the Funds would incur, including NYSE listing
fees, SEC registration fees, legal and accounting fees and proxy solicitation
and distribution costs. The estimated total expenses pertaining to the Merger
are $131,000. The aggregate amount of estimated expenses of the Merger will
be borne by the Funds, in proportion to their respective total assets.
The expenses of the Merger are expected to result in a reduction in
MMU's net asset value per share of approximately $0.01, and a reduction in
MTU's net asset value per share of approximately $0.01.
12
EXPENSE TABLE
MANAGED MUNICIPALS MANAGED MUNICIPALS PRO FORMA
PORTFOLIO PORTFOLIO II POST-MERGER (4)
--------- ------------ ---------------
ANNUAL FUND OPERATING
EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS) (1)
- -----------------------------------
Management Fees 0.90%(1) 0.90%(1) 0.90%
Other Expenses 0.11%(2) 0.23% (3) 0.11%
Total Annual Operating Expenses 1.01% 1.13% 1.01%
- ----------
(1) On September 1, 1998, SBFM instituted a voluntary waiver of a portion
of its management fees in order to enable the Fund to increase its
dividend yield. The waiver is a temporary measure and may be terminated
at any time by SBFM. The amount stated above does not reflect its
waiver.
(2) "Other expenses," as shown above, are based on actual expenses for the
fiscal year ended May 31, 2001. These figures do not reflect the
expenses of the Merger.
(3) "Other expenses," as shown above, are based on expenses for the fiscal
year ended August 31, 2001. These figures do not reflect the expenses
of the Merger.
(4) The fees and expenses do not reflect the issuance by MMU (post-merger)
of preferred stock as contemplated by Proposal 2. For a discussion of
the potential impact of issuance of preferred stock on the Fund's fees
and expenses, see "Proposal 2 (Managed Municipals Portfolio
Shareholders Only): Approval of Change in an Investment Restriction."
Example. The purpose of the following example is to help you understand
the costs and expenses you may bear as an investor. This example is based on the
level of total annual operating expenses for each Fund listed in the table
above, the total expenses relating to a $1,000 investment, assuming a 5% annual
return and reinvestment of all dividends and distributions. Shareholders do not
pay these expenses directly; they are paid by the Funds before they distribute
net investment income to shareholders. This example should not be considered a
representation of future expenses, and actual expenses may be greater or less
than those shown. Federal regulations require the example to assume a 5% annual
return, but actual annual returns will vary.
13
Managed Municipals Pro Forma
Managed Municipals Portfolio Portfolio II Post-Merger
---------------------------- ------------ -----------
1 Year $ 10 $ 12 $ 10
3 Years $ 32 $ 36 $ 32
5 Years $ 56 $ 62 $ 56
10 Years $ 124 $ 138 $ 124
Performance. The table below provides performance data for period ended
May 31, 2001 for MMU and the period ended August 31, 2001 for MTU based on each
Fund's net asset value and market value. Past performance is not a guarantee of
future results, and it is not possible to predict whether or how investment
performance will be affected by the Merger. The eight-year comparison has been
included to illustrate the comparative performance of both Funds during a period
which closely approximates the period during which both Funds were in existence
and were fully invested.
MANAGED MUNICIPALS PORTFOLIO'S MANAGED MUNICIPALS
RETURN PORTFOLIO II'S RETURN
------------------------------ -------------------------------
AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL
---------- ------ ---------- ------
Net Asset Value One Year 13.90% 10% 9.75% 9.75%
Three Year 13.63% 4.35% 15.15% 4.81%
Five Year 35.83% 6.32% 38.61% 6.75%
Eight Year 60.27% 6.07% 58.17% 5.90%
Since inception (1) 82.03% 6.94% 84.20% 7.08%
Market Value One Year 20.69% 20.69% 14.53% 14.53%
Three Year 16.14% 5.11% 19.74% 6.19%
Five Year 27.91% 5.05% 27.33% 4.95%
Eight Year 54.57% 5.59% 50.92% 5.28%
Since inception (1) 82.03% 6.94% 84.20% 7.08%
- ----------
(1) MMU commenced operations on June 26, 1992. MTU commenced operations on
September 24, 1992.
14
FINANCIAL HIGHLIGHTS
The tables below are intended to help you understand the financial
performance of MMU and MTU. This information is derived from the financial and
accounting records of each Fund.
The following information for the six years ended May 31, 2001 with
respect to MMU and for the seven years ended August 31, 2001 with respect to MTU
has been audited by KPMG LLP, the Funds' independent auditors, whose reports,
along with the Funds' financial statements, are incorporated herein by reference
and included in the Funds' Annual Reports to Shareholders. The MMU's information
for the fiscal years ended May 31, 1993 through May 31, 1995, and the MTU's
information for the year ended August 31, 1994 and the period ended August 31,
1993 have been audited by other independent auditors. The Annual Reports may be
obtained without charge, by writing to either Fund at 125 Broad Street, New
York, New York 10004, or by calling 1-(800) 331-1710.
15
Managed Municipals Portfolio Inc.
Financial Highlights
================================================================================
- --------------------------------------------------------------------------------
The following table includes per share operating performance data for a share of
common stock outstanding, total investment return, ratios to average net assets
and other supplemental data for each year indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
Managed Municipals Portfolio Inc. 2001 2000 1999 1998 1997
------ ------ ------- ------- -------
Net Asset Value, Beginning of Year..... $10.93 $11.97 $12.37 $11.90 $12.11
------ ------ ------- ------- -------
Income (Loss) From Operations:
Net investment income (1)........... 0.60 0.58 0.58 0.54 0.67
Net realized and unrealized gain
(loss)............................. 0.79 (1.14) (0.32) 0.83 0.08
------ ------ ------- ------- -------
Total Income (Loss) from Operations.... 1.39 (0.56) 0.26 1.37 0.75
------ ------ ------- ------- -------
Gain From Repurchase of Treasury Stock. 0.02 0.12 -- -- --
Less Distributions From:
Net investment income............... (0.60) (0.60) (0.54) (0.61) (0.66)
Net realized gains.................. -- -- (0.12) (0.29) (0.30)
Total Distributions.................... (0.60) (0.60) (0.66) (0.90) (0.96)
------ ------ ------- ------- -------
Net Asset Value, End of Year........... $11.74 $10.93 $11.97 $12.37 $11.90
====== ====== ======= ======= =======
Total Return, Based on Market Value (2) 20.69% (3.88)% 0.11% 2.08% 7.89%
====== ====== ======= ======= =======
Total Return, Based on Net
Asset Value (2)...................... 13.90% (2.82)% 2.66% 12.14% 6.59%
====== ====== ======= ======= =======
Net Assets, End of Year (millions)..... $374 $352 $414 $428 $411
Ratios to Average Net Assets:
Expenses (1)........................ 0.68% 0.89% 0.94% 0.99% 1.00%
Net investment income............... 5.15 5.19 4.72 4.35 5.56
Portfolio Turnover Rate................ 58% 35% 23% 87% 113%
Market Value, End of Year.............. $10.67 $9.375 $10.375 $11.000 $11.625
====== ====== ======= ======= =======
16
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended May 31,
unless otherwise noted:
Managed Municipals Portfolio Inc. 1996 1995 1994 1993*
------- -------- ------ ------
Net Asset Value, Beginning of Year.................. $ 12.55 $ 12.26 $13.00 $12.00
------- -------- ------ ------
Income From Operations:
Net investment income (1)........................ 0.67 0.72 0.67 0.63
Net realized and unrealized gain (loss).......... (0.35) 0.49 (0.23) 0.97
------- -------- ------ ------
Total Income from Operations........................ 0.32 1.21 0.44 1.60
------- -------- ------ ------
Gain From Repurchase of Treasury Stock.............. -- -- -- (0.02)
------- -------- ------ ------
Less Distributions From:
Net investment income............................ (0.75) (0.67) (0.67) (0.55)
Net realized gains............................... (0.01) (0.25) (0.51) (0.03)
------- -------- ------ ------
Total Distributions................................. (0.76) (0.92) (1.18) (0.58)
------- -------- ------ ------
Net Asset Value, End of Year........................ $ 12.11 $ 12.55 $12.26 $13.00
======= ======== ====== ======
Total Return, Based on Market 8.26% 8.40% 2.98% 7.02%++
======= ======== ====== ======
Value (2).........................................
Total Return, Based on Net Asset Value (2).......... 2.79% 10.96% 3.45% 13.58%++
======= ======== ====== ======
Net Assets, End of Year (millions).................. $ 418 $433 $ 423 $444
Ratios to Average Net Assets:
Expenses (1)..................................... 1.00% 1.02% 1.00% 0.98+
Net investment income............................ 5.35 5.97 5.15 5.48+
Portfolio Turnover Rate............................. 45% 93% 72% 169%
Market Value, End of Year........................... $ 11.69 $ 11.50 $11.50 $12.25
======= ======== ====== ======
- -------------------
(1) SBFM waived a portion of its management fees for the years ended May
31, 2001 and 2000. In addition, SBFM waived a portion of its management
and administration fees for the year ended May 31, 1999. If such fees
had not been waived, the per share decreases in net investment income
and actual expense ratios would have been as follows:
Per share decreases in net Expense ratios without
investment income fee waivers
----------------- -----------
2001 $0.04 1.01%
2000 0.02 1.04
1999 0.01 1.02
(2) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
* For the period from June 26, 1992 (commencement of operations) to May 31,
1993.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
17
Managed Municipals Portfolio II Inc.
Financial Highlights
================================================================================
- --------------------------------------------------------------------------------
The following table includes per share operating performance data for a share of
common stock outstanding, total investment return, ratios to average net assets
and other supplemental data for each year indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
- --------------------------------------------------------------------------------
For a share of capital stock outstanding throughout each year ended August 31,
unless otherwise noted:
Managed Municipals Portfolio II Inc. 2001 2000 1999 1998 1997 1996
------ ------ ------- ------- ------- -------
Net Asset Value, Beginning of Year..... $11.51 $11.30 $12.48 $12.15 $11.98 $12.36
------ ------ ------- ------- ------- -------
Income (Loss) From Operations:
Net investment income (1)........... 0.60 0.59 0.56 0.55 0.63 0.66
Net realized and unrealized gain
(loss)............................. 0.40 0.05 (1.02) 0.53 0.48 (0.21)
------ ------ ------- ------- ------- -------
Total Income (Loss) from Operations.... 1.00 0.64 (0.46) 1.08 1.11 0.45
------ ------ ------- ------- ------- -------
Gains From Repurchase of Treasury Stock 0.01 0.17 -- -- -- --
Less Distributions From:
Net investment income............... (0.60) (0.60) (0.54) (0.58) (0.66) (0.67)
Net realized gains.................. -- -- (0.18) (0.17) (0.28) (0.16)
Total Distributions.................... (0.60) (0.60) (0.72) (0.75) (0.94) (0.83)
------ ------ ------- ------- ------- -------
Net Asset Value, End of Year........... $11.92 $11.51 $11.30 $12.48 $12.15 $11.98
====== ====== ======= ======= ======= =======
Total Return, Based on Market Value (2) 14.53% 5.21% (0.59)% (1.31)% 7.75% 7.35%
====== ====== ======= ======= ======= =======
Total Return, Based on Net Asset
Value (2)............................ 9.75% 8.49% (3.29)% 9.57% 9.86% 4.01%
====== ====== ======= ======= ======= =======
Net Assets, End of Year (millions)..... $122 $118 $127 $140 $137 $134
Ratios to Average Net Assets:
Expenses (1)........................ 0.79% 0.90% 1.03% 1.10% 1.10% 1.09%
Net investment income............... 5.15 5.28 4.62 4.46 5.23 5.31
Portfolio Turnover Rate................ 38% 37% 27% 66% 97% 63%
Market Value, End of Year.............. $10.74 $9.938 $10.063 $10.813 $11.688 $11.750
====== ====== ======= ======= ======= =======
18
For a share of capital stock outstanding throughout each year ended August 31,
unless otherwise noted:
Managed Municipals Portfolio II Inc. 1995 1994 1993*
------- ------- -------
Net Asset Value, Beginning of Year.......................... $12.15 $13.37 $12.00
------- ------- -------
Income From Operations: 0.69 0.64 0.62
Net investment income (1)................................
Net realized and unrealized gain (loss).................. 0.32 (0.61) 1.34
------- ------- -------
Total Income from Operations................................ 1.01 0.03 1.96
------- ------- -------
Gains From Repurchase of Treasury Stock..................... -- 0.01 (0.04)
Less Distributions From:
Net investment income.................................... (0.68) (0.67) (0.55)
Net realized gains....................................... (0.12) (0.59) --
Total Distributions......................................... (0.80) (1.26) (0.55)
Net Asset Value, End of Year................................ $12.36 $12.15 $13.37
======= ======= =======
Total Return, Based on Market Value (2)..................... 8.86% 0.72% 9.97%++
======= ======= =======
Total Return, Based on Net Asset Value (2).................. 9.20% 0.48% 16.46%++
======= ======= =======
Net Assets, End of Year (millions).......................... $139 $136 $150
Ratios to Average Net Assets:
Expenses (1)............................................. 1.14% 1.12% 1.10%+
Net investment income.................................... 5.80% 5.08% 5.21%+
Portfolio Turnover Rate..................................... 95% 85% 163%
Market Value, End of Year................................... $11.625 $11.500 $12.625
======= ======= =======
- -----------------
(1) SBFM waived a portion of its management and administration fees for
each of the years in the three-year period ended August 31, 2001. If
such fees had not been waived, the per share decreases in net
investment income and the actual ratios of expenses to average net
assets would have been as follows:
Per share decreases in Expense ratios
net investment income without fee waivers
--------------------- -------------------
2001 $0.04 1.13%
2000 0.03 1.17
1999 0.01 1.09
(2) The total return calculation assumes that dividends are reinvested in
accordance with the Fund's dividend reinvestment plan.
* For the period from September 24, 1992 (commencement of operations) to August
31, 1993.
++ Total return is not annualized as it may not be representative of
the total return for the year.
+ Annualized.
19
RISK FACTORS AND SPECIAL CONSIDERATIONS
Both MMU and MTU invest in substantially similar municipal obligations
and, accordingly, are subject to substantially the same investment risks. The
investment risks of each of the Funds are described below.
Municipal obligations
Each Fund invests primarily in municipal obligations and may be
affected by any of the following:
o Interest rates rise, causing the value of the Funds'
portfolios generally to decline;
o When interest rates are declining, the issuer of a security
may exercise its right to prepay principal earlier than
scheduled, forcing the Funds to reinvest in lower yielding
securities;
o The underlying revenue source for a municipal obligation other
than a general obligation bond is insufficient to pay
principal or interest in a timely manner;
o The credit rating of a security owned by the Funds is
downgraded or there is a default on its payment of principal
and/or interest;
o The manager's judgment about the attractiveness, value or
income potential of a particular bond proves to be incorrect;
o Municipal obligations fall out of favor with investors; and
o Unfavorable legislation affects the tax-exempt status of
municipal obligations, or the desirability from a tax
perspective of owning municipal obligations.
Investment grade and unrated securities
The Funds invest in investment grade debt securities, and unrated
securities that SBFM believes are of comparable quality. Investment grade
securities that are not in the highest rating category may be subject to greater
risk of downgrading and issuer default than higher rated securities and may have
speculative characteristics. The Funds may experience more difficulty selling
unrated securities because markets for these securities may be less liquid.
Concentration and non-diversification.
Each Fund may invest more than 25% of its assets in municipal
securities that finance the same or similar facilities or in issuers located in
the same state. In addition, each Fund is non-diversified within the meaning of
the Investment Company Act. This means that, compared to a diversified fund,
each Fund may invest a greater portion of its assets in the obligations of a
smaller number of issuers. As a result, the Funds may be subject to greater risk
than a diversified fund.
20
Possibility of taxable income or gains
It is possible that some of the Funds' income and gains may be subject
to federal taxation. The Funds may realize taxable gains on the sale of their
securities, and some of the Funds' income may be subject to the federal
alternative minimum tax.
Derivatives
The Funds hold securities or use investment techniques that provide for
payments based on or "derived" from the performance of an underlying asset,
index or other economic benchmark.
The Funds may use derivatives:
o to shorten or lengthen the Funds' effective maturity or
duration;
o as a substitute for purchasing or selling securities; or
o to hedge against adverse changes caused by changing interest
rates in the market value of securities held or to be bought
by either Fund.
A derivative contract will obligate or entitle the Funds to deliver or
receive an asset or cash payment that is based on the change in value of one or
more securities or indices. Even a small investment in derivative contracts can
have a big impact on the Funds' interest rate exposure. Therefore, using
derivatives can disproportionately increase losses and reduce opportunities for
gains when interest rates are changing. The Funds may not fully benefit from or
may lose money on derivatives if changes in their value do not correspond
accurately to changes in the value of the Funds' holdings. The other parties to
certain derivative contracts present the same types of default risk as issuers
of fixed-income securities. Derivatives can also make the Funds less liquid and
harder to value, especially in declining markets. Derivatives include futures
and options transactions.
Interest rate sensitivity
Municipal obligations are fixed-income securities which are sensitive
to changes in interest rates. Generally, when interest rates are rising, the
value of the Funds' fixed-income securities can be expected to decrease. When
interest rates are declining, the value of the Funds' fixed-income securities
can be expected to increase. The Funds' net asset values may fluctuate in
response to the increasing or decreasing value of the Funds' fixed-income
securities.
Less liquid markets for some municipal obligations
o The market for municipal obligations may be less liquid than
the market for corporate bonds. The market for special
obligation bonds, lease obligations, participation
certificates and variable rate instruments, which the Funds
may purchase, may be less liquid than the market for general
obligation bonds.
21
o Less liquid markets tend to be more volatile and react more
negatively to adverse publicity and investor perception than
more liquid markets. If markets are less liquid, the Funds may
not be able to dispose of municipal obligations in a timely
manner and at a fair price.
o Some of the Funds' investments may be restricted as to resale.
Although restricted securities may be sold in private
transactions, a security's value may be less than the price
originally paid by the Funds. The ability of SBFM to value
illiquid or restricted securities will be more difficult and
SBFM's judgment may play a greater role in their valuation.
Issuer of a municipal obligation may default on its obligation to pay
o The issuer of a municipal obligation may not be able to make
timely payments of interest and principal because of general
economic downturns or adverse allocation of government cost
burdens. If an issuer did not make timely payments, the Funds
would not receive the anticipated income from the investment
and the value of the investment might be reduced. This could
result in a decrease in each Fund's net asset value. This risk
of default may be greater for private activity bonds or other
municipal obligations whose payments are dependent upon a
specific source of revenue.
o Even if the issuer does not actually default, adverse changes
in the issuer's financial condition may negatively affect its
credit rating or presumed creditworthiness. These developments
would adversely affect the market value of the issuer's
obligations.
Issuer of a municipal obligation declares bankruptcy
o The issuer of a municipal obligation might declare bankruptcy
and the Funds could experience delays collecting interest and
principal. To enforce their rights, the Funds might be
required to take possession of and manage the assets securing
the issuer's obligation. This may increase the Funds'
expenses, reduce their net asset values and increase the
amount of the Funds' distributions that are in taxable form.
o If the Funds took possession of a bankrupt issuer's assets,
income derived from the Funds' ownership and management of the
assets may not be tax exempt. Shareholders may receive more of
the total distributions from the Funds in taxable form.
o The Funds might not be able to take possession of the assets
of a bankrupt issuer because of laws protecting state and
local institutions, limits on the investments the Funds are
permitted to make, and the nature of the income the Funds are
entitled to receive from their investments imposed on them by
the Code. If the Funds cannot take possession of the assets
and enforce their rights, the value of the security may be
greatly diminished. This could reduce each Fund's net asset
value.
22
Adverse governmental action
The U.S. government has enacted laws that have restricted or diminished
the income tax exemption on some municipal obligations and it may do so again in
the future. If this were to happen, shareholders could receive more of the
distributions from the Funds in taxable form.
A change in the effective tax rates for individuals would affect the
after-tax effects of tax exempt income payable on municipal obligations.
Municipal Obligations Purchased at a Premium
The issuer of a municipal obligation may be obligated to redeem the
security at face value, but if the Funds paid more than face value for the
security, the Funds may lose money on the security when it is sold.
Municipal Leases
o These leases frequently contain clauses that permit the
governmental issuer to stop making interest and principal
payments if money is not appropriated by the legislature
annually or on some other periodic basis.
o These leases are less liquid than municipal obligations and
may be difficult to value and to sell at a fair price.
o If the issuer is foreclosed upon, the assets securing these
leases may be difficult to dispose of.
Other risks of investing in municipal obligations
o The issuer of a municipal obligation may be obligated to
redeem the security at face value, but if the Funds paid more
than face value for the security, the Funds may lose money on
the security when it is sold.
o There may be less extensive information available about the
financial condition of issuers of municipal obligations than
for corporate issuers with publicly traded securities.
When-Issued and Delayed Delivery Transactions
The Funds may use when-issued and delayed delivery transactions to
purchase securities. The value of securities purchased in these transactions may
decrease before they are delivered to the Funds. Also, the yield on securities
purchased in these transactions may be higher in the market when the delivery
takes place.
Repurchase Agreements
Each Fund may use repurchase agreements to manage its cash position. If
the other party to the agreement defaults, the Funds may not be able to sell the
underlying securities. If the Funds must assert their rights against the other
party to recover the securities, the Funds will
23
incur unexpected expenses, risk losing the income on the security and bear the
risk of loss in the value of the security.
Lending Securities
If the party borrowing the Funds' securities fails financially, the
Funds may be unable to recover the loaned securities.
Financial Futures and Options
The Funds may use financial futures contracts and options on these
contracts to protect the Funds from a decline in the price of municipal
obligations they own or an increase in the price of a municipal obligation they
plan to buy. Risks associated with futures and options transactions include the
following:
o Because it is not possible to correlate perfectly the price of
the securities being hedged with the price movement in a
futures contract, it is not possible to provide a perfect
offset on losses on the futures contract or the option on the
contract.
o Because there is imperfect correlation between the Funds'
securities that are hedged and the futures contract, the hedge
may not be fully effective. Losses on the Funds' security may
be greater than gains on the futures contract, or losses on
the futures contract may be greater than gains on the
securities subject to the hedge.
o To compensate for imperfect correlation, the Funds may
over-hedge or under-hedge by entering into a futures contract
or options on futures contracts in dollar amounts greater or
lesser than the dollar amounts of the securities being hedged.
If market movements are not as anticipated, the Funds could
lose money from these positions.
o If the Funds hedge against an increase in interest rates, and
rates decline instead, the Funds will lose all or part of the
benefit of the increase in value of the securities they hedged
because they will have offsetting losses in their futures or
options positions. Also, in order to meet margin requirements,
the Funds may have to sell securities at a time they would not
normally choose.
Closed-end Investment Company
Shares of closed-end investment companies frequently trade at a
discount from net asset value. Trading at a discount is a risk separate and
distinct from the risk that the net asset value of each Fund will decrease. The
risk of purchasing shares of a closed-end fund that might trade at a discount is
more pronounced for shareholders who wish to sell their shares in a relatively
short period of time because for those shareholders, realization of a gain or
loss on their investments is likely to be more dependent upon the existence of a
premium or discount than upon portfolio performance. Although each Fund's shares
have at times been traded in the market above net asset value, since the
commencement of each Fund's operations, each Fund's shares have generally traded
in the market at a discount to net asset value. Neither Fund's shares is subject
to redemption. Investors desiring liquidity may, subject to applicable
securities laws, trade their
24
shares in the Funds on any exchange where such shares are then listed at the
then current market value, which may differ from the then current net asset
value.
Charter Provisions
Certain provisions of each Fund's Articles of Incorporation and Bylaws
may inhibit that Fund's possible conversion to open-end status and limit the
ability of other persons to acquire control of the Fund's board of directors. In
certain circumstances, these provisions might also inhibit the ability of
shareholders to sell their shares at a premium over prevailing market prices.
25
COMPARISON OF INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
Organization. MMU and MTU are both non-diversified, closed-end
management investment companies registered under the Investment Company Act.
Both Funds are organized as corporations under the laws of the State of
Maryland. Each Fund is managed by SBFM (formerly known as SSB Citi Fund
Management LLC). The shares of common stock of each Fund are listed and trade on
the NYSE under the symbols "MMU" and "MTU", respectively. After the Merger,
MMU's shares will continue to be traded on the NYSE under the symbol "MMU",
while MTU's shares will be delisted and MTU will cease to exist.
The shares of common stock of each Fund have similar non-cumulative
voting rights and equal rights with respect to dividends, assets and
dissolution. Each Fund's shares of common stock are fully paid and
non-assessable and have no preemptive, conversion or other subscription rights.
Fluctuations in the market price of the Fund's shares is the principal
investment risk of an investment in either Fund. Portfolio management, market
conditions, investment policies and other factors affect such fluctuations.
Although the investment objectives, policies and restrictions of the Funds are
similar, there are differences between them, as discussed below. There can be no
assurance that either Fund will achieve its stated objective.
Proposed Change in Investment Policy. Shareholders of MMU are being
asked to approve a change in MMU's investment restriction. Currently, MMU may
not issue senior securities. The proposed change would allow MMU to issue senior
securities to the extent permitted under the Investment Company Act, and as
interpreted, modified, or otherwise permitted by appropriate regulatory
authorities. See "Proposal 2 (Managed Municipals Portfolio Shareholders Only):
Approval of Change in an Investment Restriction."
Investment Objectives. Each Fund's investment objective is to seek as
high a level of current income exempt from federal income tax as is consistent
with preservation of capital. Each Fund seeks to achieve this objective by
investing primarily in long term, investment grade municipal obligations. The
investment objective is a fundamental policy of each Fund and cannot be changed
without the approval of the holders of a "majority of the Fund's outstanding
voting securities," as defined above under "General."
No assurance can be given that either Fund's investment objective will
be achieved.
Comparison of Current Investment Policies. MMU's policy under normal
market conditions is to invest at least 80% of its total assets in investment
grade municipal obligations. MTU's policy under normal market conditions is to
invest at least 80% of its net assets in municipal obligations. These policies
and the investment limitations described below under the caption "Investment
Restrictions" are fundamental and may not be changed without the approval of a
majority of each Fund's outstanding voting securities as defined above under
"General." All other policies and percentage limitations of each Fund as
described below may be modified by that Fund's board of directors if, in the
reasonable exercise of its business judgment, it determines that modification is
necessary or appropriate to carry out that Fund's investment objective.
26
Both Funds define municipal obligations to include bonds and notes such
as:
o general obligation bonds issued for various public purposes
and supported by the municipal issuer's credit and taxing
power;
o revenue bonds whose principal and interest is payable only
from the revenues of a particular project or facility.
Industrial revenue bonds depend on the credit standing of a
private issuer and may be subject to the federal alternative
minimum tax, or AMT; and
o notes that are short-term obligations of municipalities or
agencies sold in anticipation of a bond sale, collection of
taxes or receipt of other revenues.
Municipal obligations may have all types of interest rate payment and
reset terms, including fixed rate, floating and variable rate, zero coupon,
payment in kind and auction rate features.
Under normal market conditions, MMU is obligated, and MTU expects, to
invest at least 80% of its total assets in municipal securities rated, at the
time of investment, no lower than BBB, SP-2 or A-1 by S&P or Baa, MIG3 or
Prime-1 by Moody's, or BBB or F1 by Fitch. Up to 20% of each Fund's total assets
may be invested in unrated securities that are deemed by SBFM to be of a quality
comparable to investment grade. Under normal market conditions, neither Fund
will invest in municipal securities that are not rated investment grade by any
NRSRO, at the time of purchase. Although municipal obligations rated Baa by
Moody's, BBB by S&P or BBB by Fitch are considered to be investment grade, they
may be subject to greater risks than other higher rated investment grade
securities. Municipal obligations rated Baa by Moody's, for example, are
considered medium grade obligations that lack outstanding investment
characteristics and have speculative characteristics as well. Municipal
obligations rated BBB by S&P are regarded as having an adequate capacity to pay
principal and interest. Municipal obligations rated BBB by Fitch are deemed to
be subject to a higher likelihood that their rating will fall below investment
grade than higher rated bonds.
Each Fund's policies on the credit quality of its investments apply
only at the time of the purchase of a security, and the Funds are not required
to dispose of securities in the event that S&P or Moody's or any other NRSRO
downgrades its assessment of the credit characteristics of a particular issuer
or in the event the manager reassesses its view with respect to the credit
quality of the issuer thereof.
Each Fund invests with the objective that dividends paid by the Fund
may be excluded by shareholders from their gross incomes for federal income tax
purposes. A portion of the Fund's dividends may be taxable. The Funds may invest
without limit in private activity bonds. Income from these bonds may be a
special preference item for purposes of the AMT. The Funds may not be a suitable
investment if you are subject to the AMT.
Each Fund is classified as a non-diversified fund under the Investment
Company Act, which means that each Fund is not limited by the Investment Company
Act in the proportion of its assets that it may invest in the obligations of a
single issuer. Each Fund intends to conduct its operations, however, so as to
qualify as a "regulated investment company" for purposes of the
27
Code, which will relieve the Fund of any liability for federal income tax to the
extent its earnings are distributed to shareholders. To qualify as a regulated
investment company, each Fund will, among other things, limit its investments so
that, at the close of each quarter of its taxable year (1) not more than 25% of
the market value of the Fund's total assets will be invested in the securities
of a single issuer and (2) with respect to 50% of the market value of its total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer. See "Taxation."
Each Fund generally will not invest more than 25% of its total assets
in any single industry. Governmental issuers of municipal obligations are not
considered part of any "industry." Municipal obligations backed only by the
assets and revenues of non-governmental users may be deemed to be issued by the
non-governmental users, and would be subject to the Fund's 25% industry
limitation. Each Fund may invest more than 25% of its total assets in a broad
segment of the municipal obligations market, if SBFM 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. Each Fund
reserves the right to invest more than 25% of its assets in industrial
development bonds or in issuers located in the same state, although neither has
a current intention of investing more than 25% of its assets in issuers located
in the same state. If a Fund were to invest more than 25% of its total assets in
issuers located in the same state, it would be more susceptible to adverse
economic, business or regulatory conditions in that state.
Municipal obligations are classified as general obligation bonds,
revenue bonds and notes. General obligation bonds are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable from the revenue derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source, but not from the
general taxing power. Notes are short-term obligations of issuing municipalities
or agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal obligations bear fixed, floating and
variable rates of interest, and variations exist in the security of municipal
obligations, both within a particular classification and between
classifications.
The yields on, and values of, municipal obligations are dependent on a
variety of factors, including general economic and monetary conditions, money
market factors, conditions in the municipal obligations markets, size of a
particular offering, maturity of the obligation and rating of the issue.
Consequently, municipal obligations with the same maturity, coupon and rating
may have different yields or values, whereas obligations of the same maturity
and coupon with different ratings may have the same yield or value.
Opinions relating to the validity of municipal obligations and to the
exemption of interest on them from federal income taxes are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds nor
SBFM will review the procedures relating to the issuance of municipal
obligations or the basis for opinions of counsel. Issuers of municipal
obligations may be subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors. In addition, the
obligations of those issuers may become subject to laws enacted in the future by
Congress, state legislatures or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of
28
the obligations or upon the ability of municipalities to levy taxes. The
possibility also exists that, as a result of litigation or other conditions, the
power or ability of any issuer to pay, when due, the principal of, and interest
on its obligations may be materially affected.
Under normal conditions, each Fund may hold up to 20% of its total
assets in cash or money market instruments, including taxable money market
instruments (collectively, "taxable investments"). In addition, each Fund may
take a temporary defensive posture and invest without limitation in short-term
municipal obligations and taxable investments, upon a determination by the
manager that market conditions warrant such a posture. To the extent the Funds
hold taxable investments, the Funds may not be fully achieving their investment
objective.
Investment Techniques. Each Fund may employ, among others, the investment
techniques described below, which may give rise to taxable income:
Each Fund may:
o purchase municipal securities on a "when-issued" and "delayed
delivery" basis, and may purchase or sell municipal securities
on a "delayed delivery" basis in order to hedge against
anticipated changes in interest rates and prices;
o acquire "stand-by commitments" with respect to municipal
obligations it holds;
o 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, in order 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;
o lend securities it holds to brokers, dealers and other
financial organizations, but it will not lend securities to
any affiliate of SBFM unless each Fund applies for and
receives specific authority to do so from the SEC; and
o enter into repurchase agreement transactions with banks which
are the issuers of instruments acceptable for purchase by the
Funds and with certain dealers on the Federal Reserve Bank of
New York's list of reporting dealers.
Investment Restrictions. The following investment restrictions of each Fund are
fundamental and cannot be changed without the approval of the holders of a
majority of each Fund's outstanding voting securities as defined in the
Investment Company Act. If a percentage restriction on investment or use of
assets set forth below is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing market values will not be
considered a deviation from policy. The Funds may not:
1. Purchase securities other than municipal obligations and
taxable investments.
2. Borrow money, except for temporary or emergency purposes, or
for clearance of transactions, and then only in amounts not
exceeding 15% of its total assets (not including the amount
borrowed) and as otherwise described in the Fund's Prospectus
and SAI. When the
29
Fund's borrowings exceed 5% of the value of its total assets,
the Fund will not make any additional investments.
3. Sell securities short or purchase securities on margin, except
for such short-term credits as are necessary for the clearance
of transactions, but the Fund may make margin deposits in
connection with transactions in options, futures and options
on futures.
4. Underwrite any issue of securities, except to the extent that
the purchase of municipal obligations may be deemed to be an
underwriting.
5. Purchase, hold or deal in real estate or oil and gas
interests, except that the Fund may invest in municipal
obligations secured by real estate or interests in real
estate.
6. Invest in commodities, except that the Fund may enter into
futures contracts, including those relating to indexes and
options on futures contracts or indexes described in the
Fund's Prospectus and SAI.
7. Lend any funds or other assets except through purchasing
municipal obligations or taxable investments, lending
portfolio securities and entering into repurchase agreements
consistent with the Fund's investment objective.
8. Issue senior securities. (As noted, MMU's Board has approved
and has recommended that that Fund's shareholders approve a
change in this fundamental policy. If the change is approved
by the shareholders of MMU, the Board currently expects the
Fund to issue a class of auction rate preferred shares, as
described under Proposal 2 herein.)
9. Invest more than 25% of its total assets in the securities of
issuers in any single industry, except that this limitation
will not be applicable to the purchase of municipal
obligations and U.S. government securities.
10. Make any investments for the purpose of exercising control or
management of any company.
30
TAXATION
As described above, each Fund is designed to provide investors with
current income which is excluded from gross income for federal income tax
purposes. Neither Fund is intended to constitute a balanced investment program
and is not designed for investors seeking capital gains or maximum tax-exempt
income irrespective of fluctuations in principal. Investment in the Funds would
not be suitable for tax-exempt institutions, qualified retirement plans, H.R. 10
plans and individual retirement accounts because such investor would not gain
any additional tax benefit from the receipt of tax-exempt income.
The following is a summary of selected federal income tax
considerations that may affect each Fund and its shareholders. The summary is
not intended as a substitute for individual tax advice and investors are urged
to consult their own tax advisors as to the tax consequences of an investment in
the Funds.
Taxation of each Fund and its Investments
Each Fund has qualified and intends to continue to qualify each year as
a "regulated investment company" under Subchapter M of the Code. In addition,
each Fund intends to satisfy each year conditions contained in the Code that
will enable interest from municipal securities, excluded from gross income for
federal income tax purposes with respect to such Fund, to retain that tax-exempt
status when distributed to the shareholders of such Fund (that is, to be
classified as "exempt-interest" dividends of such Fund).
As a regulated investment company, neither Fund pays 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, each
Fund must, among other things: (1) distribute to its shareholders at least 90%
of its taxable net investment income (for this purpose consisting of taxable net
investment income and net realized short-term capital gain in excess of net
realized long-term capital loss) and 90% of its tax-exempt net investment income
(reduced by certain expenses); (2) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of securities, gains from
the sale or other disposition of securities, and other income (including, but
not limited to, gains from options, futures and forward contracts) derived with
respect to such Fund's business of investing in securities; and (3) diversify
its holdings so that, at the end of each quarter of such Fund's taxable year (a)
at least 50% of the market value of such Fund's assets is represented by cash,
U.S. Government securities, 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 such Fund's assets and 10% of the
outstanding voting securities of such issuer, (b) not more than 25% of the
market value of such Fund's assets is invested in the securities of any one
issuer (other than U.S. Government securities or securities of other regulated
investment companies) or of two or more issuers that such Fund controls and
which are determined to be in the same or similar trades or businesses or
related trades or businesses. As a regulated investment company, each Fund is
subject to a 4% non-deductible excise tax measured with respect to certain
undistributed amounts of ordinary income and capital gain. Each Fund pays
dividends and distributions necessary to avoid the application of this excise
tax.
31
As described above, each Fund may invest in financial futures contracts
and options on financial futures contracts that are traded on a U.S. exchange or
board of trade. 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 each Fund and, thus, will affect the amount of capital gains distributed to
each Fund's shareholders.
For federal income tax purposes, gain or loss on the futures and
options described above (collectively referred to as "Section 1256 Contracts")
would, as a general rule, be taxed pursuant to a special "mark-to-market"
system. Under the mark-to-market system, each Fund may be treated as realizing a
greater or lesser amount of gains or losses than actually realized. As a general
rule, gain or loss on Section 1256 Contracts is treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss, and as a result, the
mark-to-market system will generally affect the amount of capital gains or
losses taxable to each Fund and the amount of distributions taxable to a
shareholder. Moreover, if a Fund invests in both Section 1256 Contracts and
offsetting positions in those contracts, then the Fund might not be able to
receive the benefit of certain realized losses for an indeterminate amount of
time. Each Fund 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 (to the extent it realizes corresponding gains in such
years).
Taxation of each Fund's Stockholders
Dividends paid by each Fund, other than dividends derived from taxable
investments and market discount on municipal securities and from income or gain
derived from securities transactions and from the use of certain of the
investment techniques described under "Investment Techniques," are derived from
interest on municipal securities and are exempt-interest dividends that may be
excluded by shareholders from their gross income for federal income tax purposes
if the Fund satisfies certain asset percentage and income distribution
requirements. Distributions of each Fund's net realized short-term capital gains
are taxable to shareholders of such Fund as ordinary income, and distributions
of net realized long-term capital gains are taxable to shareholders as long-term
capital gains, regardless of the length of time shareholders have held shares of
the Fund and whether the distributions are received in cash or reinvested in
additional shares. As a general rule, a shareholder's gain or loss on a sale of
his shares of a Fund 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. Long-term capital gains of individual
shareholders are generally subject to a maximum 20% capital gains tax rate.
Dividends and distributions paid by each Fund do not qualify for the federal
dividends-received deduction for corporations.
Exempt-Interest Dividends
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of a Fund is not deductible for federal income tax purposes to the extent
it is deemed related to exempt-interest dividends. If a shareholder receives
exempt-interest dividends with respect to any share of a Fund and if the share
is held by the shareholder for six months or less, then any loss on the
32
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 a Fund that
represents income derived from private activity bonds held by such Fund may not
retain its tax-exempt status in the hands of a shareholder who is a "substantial
user" of a facility financed by such bonds or who is a "related person" to such
substantial user. Although each Fund's exempt-interest dividends may be excluded
by shareholders from their gross income for federal income tax purposes, some or
all of each Fund's exempt-interest dividends may be a specific preference item,
or a component of an adjustment item, for purposes of the federal individual and
corporate alternative minimum taxes. The receipt of dividends and distributions
from each Fund 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 "branch profits" tax,
or the federal "excess net passive income" tax.
Dividend Reinvestment Plan
A shareholder of each Fund receiving dividends or distributions in
additional shares should be treated for federal income tax purposes as receiving
a distribution in an amount equal to the amount of money that a shareholder
receiving cash dividends or distributions receives, and should have a cost basis
in the shares received equal to that amount.
Statements and Notices
Statements as to the tax status of the dividends and distributions
received by shareholders of each Fund are mailed annually. These statements show
the dollar amount of income excluded from gross income for federal income tax
purposes and the dollar amount, if any, subject to federal income taxes
including the amount, if any, of long-term capital gains distributions. The
statements will also designate the amount of exempt-interest dividends that are
a specific preference item for purposes of the federal individual and corporate
alternative minimum taxes. Each Fund will notify shareholders annually as to the
interest excluded from gross income for federal income tax purposes earned by
each Fund with respect to those states and possessions in which such Fund has or
had investments. The dollar amount of dividends paid by each Fund that is
excluded from gross income for federal income tax purposes and the dollar amount
of dividends paid by each Fund that is subject to federal income taxation, if
any, will vary for each shareholder depending upon the size and duration of the
shareholder's investment in such Fund.
Backup Withholding
If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is not
subject to "backup withholding," the shareholder may be subject to a "backup
withholding" tax of up to 31% with respect to (1) taxable dividends and
distributions and (2) the proceeds of any sales or repurchases of shares of
common stock. An
33
individual's taxpayer identification number is his social security number. The
backup withholding tax is not an additional tax and may be credited against a
taxpayer's federal income tax liability.
34
INFORMATION ABOUT THE MERGER
General. Under the Plan, MTU will merge with and into MMU on the
Effective Date. As a result of the Merger and on the Effective Date:
o MTU will no longer exist, and
o MMU will be the surviving corporation.
MTU will then:
o deregister as an investment company under the Investment
Company Act,
o cease its separate existence under Maryland Law,
o remove its shares of common stock from listing on the NYSE,
and
o withdraw from registration under the Securities Exchange Act
of 1934 (the "Securities Exchange Act").
Each share of outstanding stock of MTU will convert into an equivalent
dollar amount of full shares of stock of MMU, based on the net asset value per
share of each Fund calculated at 4:00 p.m. on the Business Day preceding the
Effective Date. MMU will not issue any fractional shares to MTU shareholders. In
lieu thereof, MMU will purchase all fractional shares at the current net asset
value of the shares and remit the cash proceeds to former MTU shareholders in
proportion to their fractional shares. No sales charge or fee of any kind will
be charged to MTU shareholders in connection with their receipt of MMU common
stock in the Merger.
Under Maryland law, shareholders of a corporation whose shares are
traded publicly on a national securities exchange, such as the Funds' shares,
are not entitled to demand the fair value of their shares upon a merger;
therefore, the shareholders of the Funds will be bound by the terms of the
Merger. However, any shareholder of either Fund may sell his or her shares of
common stock on the NYSE at any time prior to the Merger.
The Plan may be terminated and the Merger abandoned, whether before or
after approval by the Funds' shareholders, at any time prior to the Effective
Date:
o by the mutual written consent of the board of directors of
each Fund, or
o by either Fund if the conditions to that Fund's obligations
under the Plan have not been satisfied or waived.
o If the Merger has not been consummated by December 31, 2002,
the Plan automatically terminates on that date, unless a later
date is mutually agreed upon by the board of directors of each
Fund.
Reasons for the Merger. The board of directors of each Fund considered
and approved the proposed Merger at meetings of each board held on November 14,
2001. Eight out of nine
35
Directors of each Fund, including at least a majority of the Directors who are
not interested persons of the Funds and SBFM, were present at the meeting in
person. For the reasons discussed below, the board of directors of each Fund,
including non-interested directors of each Fund, after consideration of the
potential benefits of the Merger to the shareholders of that Fund and the
expenses expected to be incurred by that Fund in connection with the Merger,
determined that:
o the interests of the existing shareholders of that Fund will
not be diluted as a result of the proposed Merger, and
o the proposed Merger is in the best interests of that Fund.
Each board of directors has, over the years, discussed the significance
of the existence of the discount to net asset value at which each Fund's shares
have traded on the NYSE and the impact on shareholders of the discount. Each
board has discussed and considered various alternative strategies to address the
discount, including instituting share repurchases, combining with other funds,
converting to an open-end format, or liquidating. The directors of each Fund
however, have consistently concluded that it was in the best interests of each
Fund and its shareholders to maintain the current closed-end format, because, in
the view of the Boards and of SBFM, the closed-end format is an attractive
investment vehicle for participating in the municipal bond market.
The alternatives available to the Funds, including a full range of
alternatives that has been reviewed in the past discussions of the discount
issue, were considered at meetings of each board of directors held on November
14, 2001. After consideration of these alternatives, the board of directors of
each Fund, assisted by counsel representing the directors who are not interested
persons of the Funds or the Manager, approved the course of action described
below.
IN THE JUDGMENT OF THE BOARD OF DIRECTORS OF EACH FUND, THE MERGER
SERVES THE BEST INTERESTS OF EACH FUND AND ITS SHAREHOLDERS.
In deciding to approve the course of action described below, the
non-interested directors considered many factors, including, but not limited to,
market information and analyses. In addition, in considering the merits of the
proposed Merger, the Boards also considered the larger asset size of the
combined Fund relative to each constituent Fund standing alone, and the
potential for economies of scale that may result from the larger asset size of
the combined Fund. Based on data presented by SBFM, the board of directors of
each Fund believes that a combination of the Funds may result in a total
operating expense ratio that will be lower than the total operating expense
ratio of either Fund currently. However, there is no assurance that SBFM will
continue to waive fees to the extent it has since September 1, 1998.
The Boards also considered whether a larger asset base would provide
benefits in portfolio management. After the Merger, a larger asset size could
result in a more liquid trading market for shares of MMU than either Fund
currently enjoys separately. Further, the Merger itself should focus the
attention of a wider circle of securities analysts on MMU, and after the Merger,
may facilitate securities analysts' following of this Fund because the Merger
may eliminate confusion in the marketplace that results from two funds with the
same objective, similar policies and similar names managed by the same manager.
36
There can be no guarantee that any of these potential beneficial
results will be realized.
The board of directors of each Fund, in declaring advisable and
recommending the proposed Merger, also considered the following:
1. the capabilities and resources of SBFM and its affiliates in
the areas of investment management and shareholder servicing;
2. expense ratios and information regarding fees and expenses of
the Funds, both currently and on a pro forma basis;
3. the terms and conditions of the Merger and whether it would
result in dilution of the interests of each Fund and its
existing shareholders;
4. the compatibility of each Fund's portfolio securities,
investment objective, policies and restrictions;
5. the tax consequences to each Fund and its shareholders in
connection with the Merger; and
6. the anticipated expenses of the Merger.
In reviewing issues relating to the structure of the Merger and the
selection of the surviving corporation in the Merger, each board also considered
information provided to them by SBFM concerning:
o the comparative performance records of the two Funds,
o public and market perception of the two Funds,
o the relative size of the two Funds,
o the investment policies, strategies and personnel SBFM intends
to utilize in managing the merged fund, and
o MMU as the surviving corporation.
Based on the factors discussed above, the board of directors of each
Fund concluded that the expenses of the Merger are outweighed by the benefits
that are anticipated to be derived from the Merger. In addition, the Boards of
each Fund, including at least a majority of the non-interested directors of each
Fund, have concluded that:
o the Merger is in the best interests of each respective Fund,
and
o the interests of existing shareholders of each respective Fund
will not be diluted as a result of the transactions
contemplated by the Plan.
37
Terms of the Merger Agreement. The following is a summary of the
significant terms of the Plan. This summary is qualified in its entirety by
reference to the Plan, attached hereto as Exhibit A.
At the Effective Date, each share of common stock of MTU will convert
into an equivalent dollar amount (to the nearest one tenth of one cent) of full
shares of MMU common stock, based on the net asset value per share of each Fund
calculated at 4:00 p.m. on the Business Day preceding the Effective Date. MMU
will not issue any fractional shares to MTU shareholders. In lieu thereof, MMU
will purchase all fractional shares at the current net asset value of the shares
and remit the cash proceeds to former MTU shareholders in proportion to their
fractional shares.
For purposes of valuing assets in connection with the Merger, the
assets of MTU will be valued pursuant to the principles and procedures
consistently utilized by MMU, which principles and procedures are also utilized
by MTU in valuing its own assets and determining its own liabilities. As a
result, it is not expected that MMU's valuation procedures as applied to MTU's
portfolio securities will result in any difference from the valuation that would
have resulted from the application of MTU's valuation procedures to such
securities. The net asset value per share of MMU common stock will be determined
in accordance with these principles and procedures, and MMU will certify the
computations involved. The net asset value per share of each Fund will not be
adjusted to take into account differences in unrealized gains and losses.
MMU will issue separate certificates or share deposit receipts for MMU
common stock to shareholders of MTU. MMU will deliver these certificates or
share deposit receipts representing shares of MMU common stock to PFPC, as the
transfer agent and registrar for MMU common stock. MMU will not permit any MTU
shareholder to receive new certificates representing shares of MMU common stock
until this shareholder has surrendered his or her outstanding certificates
representing shares of the common stock of MTU or, in the event of lost
certificates, posted adequate bond. MTU will request its shareholders to
surrender their outstanding certificates representing shares of the common stock
of MTU or post adequate bond therefor. Dividends payable to holders of record of
shares of MMU as of any date after the Effective Date and prior to the exchange
of certificates by any shareholder of MTU will be paid to such shareholder,
without interest; however, such dividends will not be paid unless and until such
shareholder surrenders his or her stock certificates of MTU for exchange.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. UPON
CONSUMMATION OF THE MERGER, SHAREHOLDERS OF MANAGED MUNICIPALS PORTFOLIO II WILL
BE FURNISHED WITH INSTRUCTIONS FOR EXCHANGING THEIR STOCK CERTIFICATES FOR
MANAGED MUNICIPALS PORTFOLIO STOCK CERTIFICATES.
The net asset value of the MMU shares received by MTU shareholders plus
the cash amounts received upon the purchase of fractional share interests by MMU
will equal the net asset value of the MTU shares exchanged.
38
The Plan provides, among other things, that the Merger will not take
place without:
o the requisite approval of the shareholders of MMU and MTU, and
o effectiveness of a Registration Statement on Form N-14.
The Plan may be terminated at any time prior to the Effective Date by
mutual agreement of each Fund's board of directors or by either Fund if the
other has violated a condition of the Plan. The Plan will automatically
terminate after December 31, 2002 if the Merger has not been consummated, unless
such time is extended by mutual agreement of the board of directors of each
Fund.
The Plan may be amended, modified or supplemented by mutual agreement
of MTU and MMU. However, no amendments which would have the effect of changing
the provisions for determining the number of shares issued to MTU shareholders
will be permitted following the annual meeting unless those shareholders consent
to the amendment.
Expenses of the Merger. In evaluating the proposed Merger, SBFM has
estimated the amount of expenses the Funds would incur, including NYSE listing
fees, SEC registration fees, legal and accounting fees and proxy and
distribution costs. The estimated total expenses pertaining to the Merger are
$131,000. For more information about the expenses of the Merger, see "Synopsis
- - Expenses of the Merger."
The expenses of the Merger are expected to result in a reduction in
MMU's net asset value per share of approximately $0.01, and a reduction in MTU's
net asset value per share of approximately $0.01.
Tax Considerations. The Plan and Merger are conditioned upon the
receipt by the Funds of an opinion from Willkie Farr & Gallagher, substantially
to the effect that, based upon the facts, assumptions and representations of the
parties, for federal income tax purposes:
o the Merger will constitute a tax-free "reorganization" within
the meaning of Section 368(a)(1) of the Code, and each Fund
will be "a party to a reorganization" within the meaning of
Section 368(b) of the Code,
o no gain or loss will be recognized by either Fund as a result
of the Merger,
o the basis of the assets of MTU in the hands of MMU will be the
same as the basis of such assets to MTU immediately prior to
the Merger,
o the holding period of the assets of MTU in the hands of MMU
will include the period during which such assets were held by
MTU,
o no gain or loss will be recognized by the shareholders of MTU
upon the conversion of their MTU shares into MMU common stock
except with respect to cash received upon the purchase of
fractional share interests by MMU,
39
o the basis of MMU shares received by the shareholders of MTU
(including the basis of fractional share interests purchased
by MMU) will be the same as the basis of the shares of MTU
exchanged therefor,
o the holding period of MMU shares received by each shareholder
of MTU and the holding period of fractional share interests
purchased by MMU will include the holding period during which
the shares of MTU exchanged therefor were held, provided that
at the time of the exchange the shares of MTU were held as
capital assets in the hands of such shareholder of MTU, and
o cash received for fractional share interests purchased by MMU
will generally generate capital gain or loss to shareholders
receiving such cash.
While MTU is not aware of any adverse state or local tax consequences
of the proposed Merger, it has not requested any ruling or opinion with respect
to such consequences and shareholders may wish to consult their own tax advisers
with respect to such matters.
History of Managed Municipals Portfolio II's Discount. MTU's shares
have generally traded at a discount to their net asset value per share since
shortly after its commencement of operations. See "Additional Information about
the Funds-Market Discount." The board of directors of MTU has considered a
number of actions in response to this discount.
The board of directors of MTU approved a plan pursuant to which the
Fund began to repurchase its common stock shares on June 21, 1999. These shares
are purchased on the NYSE at market prices and then retired. Over time, a share
repurchase program will reduce the number of shares outstanding and may increase
both the stock price and the net asset value per share of the Fund by increasing
the demand for the Fund's shares. As of September 30, 2001, the Fund has
repurchased 1,027,300 shares totaling $9,717,028 at an average price of $9.46
per share.
40
ADDITIONAL INFORMATION ABOUT THE FUNDS
Description of Securities to be Issued. The authorized stock of MMU
consists of 500,000,000 shares of common stock, U.S. $0.001 par value. Shares of
MMU entitle its holders to one vote per share. Holders of MMU's common stock are
entitled to share equally in dividends authorized by the Fund's board of
directors payable to the holders of such common stock and in the net assets of
MMU available for distribution to holders of such common stock. Shares have
noncumulative voting rights and no conversion, preemptive or other subscription
rights, and are not redeemable. The outstanding shares of common stock of MMU
are fully paid and non-assessable. In the event of liquidation, each share of
common stock is entitled to its proportion of the Fund's assets after payment of
debts and expenses. MMU holds shareholder meetings annually.
The following table shows information about the common stock of each
Fund as of September 30, 2001.
(4)
Amount Outstanding
Exclusive of Shares
(3) held by Fund for its
(1) (2) Amount held by Fund Own Account as of
Title of Class Amount Authorized for its Own Account September 30, 2001
-------------- ----------------- ------------------- ------------------
MANAGED MUNICIPALS Common Stock, $0.001 500,000,000 None 31,848,643.5460
PORTFOLIO par value
MANAGED MUNICIPALS Common Stock, $0.001 500,000,000 None 10,207,405.4310
PORTFOLIO II par value
The shares of common stock of MMU and MTU are listed and trade on the
NYSE under the symbols "MMU" and "MTU", respectively. As of November 14, 2001,
the net asset value of MMU common stock was $12.07, and the market price per
share was $10.93. As of that same date, the net asset value of MTU common stock
was $11.80, and the market price per share was $10.58.
Market Discount. Shares of closed-end investment companies, such as the
Funds, have frequently traded at a discount from net asset value, or in some
cases trade at a premium. Shares of closed-end investment companies investing
primarily in fixed income securities tend to trade on the basis of income yield
on the market price of the shares and the market price may also be affected by
trading volume, general market conditions and economic conditions and other
factors beyond the control of the fund. As a result, the market price of each
Fund's shares may be greater or less than the net asset value. Since the
commencement of each Fund's operations, each Fund's shares have traded in the
market at prices that were at times equal to, but generally were below, net
asset value.
41
Some closed-end companies have taken certain actions, including the
making of one or more tender offers for common stock at net asset value, in an
effort to reduce or mitigate the discount, and others have converted to an
open-end investment company, the shares of which are redeemable at net asset
value.
Each Fund's board of directors has seen no reason to adopt any of the
steps specified above, which some other closed-end funds have used to address
the discount. The experience of many closed-end funds suggests that the effect
of many of these steps (other than open-ending) on the discount may be temporary
or insignificant. Accordingly, there can be no assurance that any of these
actions will be taken or, if undertaken, will cause each Fund's shares to trade
at a price equal to their net asset value. SBFM may voluntarily waive its fees
from time to time in order to increase the Funds' dividend yield in an effort to
reduce the discount. Any such waiver may be terminated at any time, and there
can be no assurance that such actions would be successful at reducing the
discount.
42
SHARE PRICE DATA FOR
MANAGED MUNICIPALS PORTFOLIO INC.
COMMON STOCK TRADED ON THE NYSE
The following table sets forth the high and low sales prices for the
common stock, the net asset value per share and the discount or premium to net
asset value represented by the quotation for each quarterly period during the
last two fiscal years and for the first quarter of 2001.
Quarterly High Price Quarterly Low Price
-------------------- -------------------
Net Asset Value NYSE Price Discount to NAV Net Asset Value NYSE Price Discount to
NAV
- ------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
8/31/99 $ 11.79 $ 10.750 (8.82)% $ 11.27 $ 9.750 (13.49)%
11/30/99 11.35 10.000 (11.89) 10.85 9.063 (16.47)
2/29/00 11.12 9.625 (13.44) 10.75 9.000 (16.28)
5/31/00 11.31 9.500 (16.00) 10.77 9.063 (15.85)
8/31/00 11.59 10.125 (12.64) 10.98 9.375 (14.62)
11/30/00 11.62 10.0625 (13.40) 11.39 9.625 (15.50)
2/28/01 12.09 10.875 (10.05) 11.59 9.6875 (16.42)
5/31/01 12.02 10.87 (9.57) 11.64 10.36 (11.00)
8/31/01 12.12 11.01 (9.16) 11.76 10.38 (11.73)
- ------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
43
PER SHARE DATA FOR MANAGED MUNICIPALS PORTFOLIO II INC.
COMMON STOCK TRADED ON THE NYSE
The following table sets forth the high and low sales prices for the
Fund's common stock, the net asset value per share and the discount or premium
to net asset value represented by the quotation for each quarterly period for
the last two fiscal years and for the first three quarters of 2001.
Quarterly High Price Quarterly Low Price
-------------------- -------------------
Premium Premium
Net Asset Value NYSE Price (Discount) to Net Asset Value NYSE Price (Discount) to
NAV NAV
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
2/28/99 $12.47 $11.563 (7.28)% $12.21 $10.813 (11.45)%
5/31/99 12.17 11.000 (9.61) 11.96 10.125 (15.34)
8/31/99 11.80 10.875 (7.84) 11.24 9.750 (13.26)
11/30/99 11.29 10.063 (10.87) 11.09 9.063 (18.28)
2/29/00 11.13 9.563 (14.08) 10.78 9.000 (16.51)
5/31/00 11.28 9.438 (16.33) 10.79 9.063 (16.01)
8/31/00 11.51 10.000 (13.12) 10.98 9.250 (15.76)
11/30/00 11.54 10.000 (13.34) 11.34 9.625 (15.12)
2/28/01 11.94 10.77 (9.80) 11.50 9.75 (15.22)
5/31/01 11.85 10.68 (9.87) 11.49 10.18 (11.40)
8/31/01 11.92 10.77 (9.65) 11.60 10.30 (11.21)
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
44
Capitalization. The following table shows on an unaudited basis the
capitalization of MMU and MTU as of September 30, 2001 and on a pro forma basis
as of that same date giving effect to the Merger/1/:
MANAGED
MANAGED MUNICIPALS MUNICIPALS PRO FORMA
PORTFOLIO PORTFOLIO II ADJUSTMENTS PRO FORMA FOR MERGER
--------------------------- --------------------- ------------------ ------------------ ---------------------
Net assets $379,676,629 $119,277,286 -- $498,953,915
Net asset value per share/2/ $11.92 $11.69 -- $11.92/3/
Shares outstanding/4/ 31,848,644 10,207,406 (196,955) 41,859,095
1 Assumes that the Merger had been consummated on September 30, 2001, and
is for information purposes only. No assurance can be given as to how
many shares of MMU common stock shareholders of MTU will receive on the
date the Merger takes place, and the foregoing should not be relied
upon to reflect the number of shares of MMU common stock that actually
will be received on or after such date. Assumes distributions of
ordinary income and accrual of estimated Merger expenses of
$131,000.
2 Net asset value per share after distribution of ordinary income and
Merger-related expenses.
3 Subsequent to the proposed merger, MTU, the accounting survivor, will
restate its historical financial highlights to reflect the adjustment
to its net asset value per share which will result from the exchange of
its net assets for shares of MMU.
4 Assumes the issuance of 10,010,451 shares in exchange for the net
assets of MTU. The number of shares issued was based on the net asset
value of each Fund, net of estimated Merger expenses and distributions,
on September 30, 2001.
45
Dividends and Distributions; Dividend Reinvestment Plan. Each Fund
generally expects to pay monthly dividends of net investment income (income
other than net realized capital gains) and to distribute net realized capital
gains, if any, annually. From time to time, when each Fund makes a substantial
capital gains distribution, it may do so in lieu of paying its regular monthly
dividend. All dividends or distributions with respect to shares of common stock
are reinvested automatically in additional shares through participation in each
Fund's dividend reinvestment plan, unless a shareholder elects to receive cash.
Under each Fund's dividend reinvestment plan, a shareholder whose
shares of common stock are registered in his or her own name will have all
distributions from the Funds reinvested automatically by PFPC as purchasing
agent under the plan, unless the shareholder elects to receive cash.
Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (that is, in "street name") will be reinvested by the broker or
nominee in additional shares under the plan, unless the service is not provided
by the broker or nominee or the shareholder elects to receive distributions in
cash. Investors who own common stock registered in street name should consult
their broker-dealers for details regarding reinvestment. All distributions to
Fund shareholders who do not participate in the plan will be paid by check
mailed directly to the record holder by or under the direction of PFPC as
dividend-paying agent.
The number of shares of common stock distributed to participants in the
plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price of the common stock is equal to or exceeds the net asset value
per share on the date of valuation, plan participants will be issued shares of
common stock at a price equal to the greater of (1) the net asset value per
share most recently determined as described under "Net Asset Value" or (2) 95%
of the market price.
If the market price of the common stock is less than the net asset
value of the common stock at the time of valuation (which is the close of
business on the determination date), or if the Fund declares a dividend or
capital gains distribution payable only in cash, PFPC will buy common stock in
the open market, on the NYSE or elsewhere, for the participants' accounts. If,
following the commencement of the purchases and before PFPC has completed its
purchases, the market price exceeds the net asset value of the common stock,
PFPC will attempt to terminate purchases in the open market and cause the Fund
to issue the remaining portion of the dividend or distribution by issuing shares
at a price equal to the greater of (a) net asset value or (b) 95% of the then
current market price. In this case, the number of shares of common stock
received by a plan participant will be based on the weighted average of prices
paid for shares purchased in the open market and the price at which each Fund
issues the remaining shares. To the extent PFPC is unable to stop open market
purchases and cause the Funds to issue the remaining shares, the average per
share purchase price paid by PFPC 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 Funds at
net asset value. PFPC will begin to purchase common stock on the open market as
soon as practicable after the payment date of the dividend or capital gains
distribution, but in no event shall such purchases continue later than 30 days
after that date, except when necessary to comply with applicable provisions of
the federal securities laws.
46
PFPC maintains all shareholder accounts in the plan and furnishes
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends and capital gains distributions will not relieve plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common stock in the account of each plan participant will be held
by PFPC in uncertificated form in the name of each plan participant.
Plan participants are subject to no charge for reinvesting dividends
and capital gains distributions under the plan. PFPC's fees for handling the
reinvestment of dividends and distributions; dividend reinvestment plan
dividends and capital gains distributions will be paid by each Fund. No
brokerage charges apply with respect to shares of common stock issued directly
by each Fund under the plan. Each plan participant will, however, bear a
proportionate share of brokerage commissions incurred with respect to open
market purchases made under the plan.
Experience under the plan may indicate that changes to it are
desirable. Each Fund reserves the right to amend or terminate the plan as
applied to any dividend or capital gains distribution paid subsequent to written
notice of the change sent to participants at least 30 days before the record
date for the dividend or capital gains distribution. The plan also may be
amended or terminated by PFPC, with each Fund's prior written consent, on at
least 30 days' written notice to plan participants. All correspondence
concerning the plan should be directed by mail to PFPC Global Fund Services,
P.O. Box 8030, Boston, Massachusetts 02266 or by telephone at 1-800-331-1710.
Net Asset Value. Each Fund's net asset value will be calculated as of
the close of regular trading on the NYSE, currently 4:00 p.m. New York time, on
the last day of each week and month on which the NYSE is open for trading. Net
asset value is calculated by dividing the value of each Fund's net assets (the
value of its assets less its liabilities, exclusive of capital stock and
surplus) by the total number of shares of common stock outstanding. Investments
in U.S. Government securities having a maturity of 60 days or less are valued at
amortized cost. All other securities and assets are taken at fair value as
determined in good faith by or under the direction of the board of directors.
The valuation of each Fund's assets is made by SBFM after consultation
with an independent pricing service approved by the board of directors. When, in
the judgment of the service, quoted bid prices for investments are readily
available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices and asked
prices. Investments for which, in the judgment of the service, no readily
obtainable market quotation is available (which may constitute a majority of
each Fund's portfolio securities), are carried at fair value as determined by
the service. The service may use electronic data processing techniques and/or a
matrix system to determine valuations. The procedures of the service are
reviewed periodically by the officers of each Fund under the general supervision
and responsibility of the board of directors, which may replace the service at
any time if it determines it to be in the best interests of the Fund to do so.
Corporate Governance Provisions. Both Funds are Maryland corporations
and in many generally have similar charter and bylaw provisions.
47
Special Voting Provisions and Requirements. The Articles of
Incorporation and By-laws of each Fund contain provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund, to cause it to engage in certain transactions or to modify its
structure. The board of directors of each Fund is divided into three classes
each having a term of three years. Each year, the term of one class expires and
the successor or successors elected to such class will serve for a three-year
term. This provision could delay for up to two years the replacement of a
majority of the board of directors.
In addition, conversion of either of the Funds from a closed-end to an
open-end investment company requires the affirmative vote of at least two-thirds
of the outstanding shares of the respective Fund unless approved by at least
two-thirds of the Continuing Directors (as defined below). If the conversion is
approved by at least two-thirds of the Continuing Directors, the affirmative
vote of at least a majority of the outstanding shares of each Fund will be
required to approve such conversion. Converting to an open-end investment
company could restrict the ability of either Fund to redeem its shares otherwise
than in kind due to the limited depth of the markets for certain securities in
which the Funds may invest. As a result, there can be no assurance that the
Funds could realize the then market value of the portfolio securities the Funds
would be required to liquidate to meet redemption requests.
The affirmative vote of at least 75% of the directors and of the
holders of at least 75% of the shares of either Fund is required to authorize
any of the following transactions:
(i) merger, consolidation or share exchange of either of the Funds
with or into any other person;
(ii) issuance or transfer by either of the Funds (in one or a
series of transactions in any 12-month period) of any
securities of either of the Funds 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 Funds in
connection with a public offering, issuances of securities of
either of the Funds pursuant to a dividend reinvestment plan
adopted by the Funds and issuances of securities of either of
the Funds upon the exercise of any stock subscription rights
distributed by either of the Funds;
(iii) sale, lease, exchange, mortgage, pledge, transfer or other
disposition by either of the Funds (in one or a series of
transactions in any 12-month period) to or with any person of
any assets of either of the Funds having an aggregate fair
market value of $1,000,000 or more, except for portfolio
transactions effected by either of the Funds in the ordinary
course of its business (transactions within clauses (i) and
(ii) and this clause (iii) each being known individually as a
"Business Combination");
(iv) any proposal as to the voluntary liquidation or dissolution of
either of the Funds or any amendment to either of the Funds'
Articles of Incorporation to terminate its existence; and
48
(v) any shareholder proposal as to specific investment decisions
made or to be made with respect to either Fund's assets.
However, in the case of a Business Combination or a voluntary
liquidation or dissolution proposal as described in clause (iv) above, a 75%
shareholder vote will not be required if the transaction is approved by a vote
of at least 75% of the Continuing Directors or if certain conditions regarding
the consideration paid by the person entering into, or proposing to enter into,
a Business Combination with either Fund and various other requirements are
satisfied. In that event, a majority of the votes entitled to be cast by MMU's
shareholders will be required to approve such transaction if it is a transaction
described in clauses (i) or (iii) with respect to which a shareholder vote is
required under Maryland law or if it is a transaction described in clause (iv),
and no shareholder vote will be required otherwise. Similarly, in that event, a
majority of the votes entitled to be cast by MTU's shareholders will be required
to approve such transaction if it is a transaction described in clauses (i) or
(iv), or if it is a transaction described in clause (iii) involving a transfer
of substantially all of MTU's assets with respect to which shareholder approval
is required under Maryland law, and no shareholder action will be required
otherwise.
Each Fund's By-laws contain provisions the effect of which is to
prevent matters, including nominations of directors, from being considered at
shareholders' meetings where the Fund has not received sufficient prior notice
of the matters.
The provisions described above could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging a third party from seeking to obtain control of
either Fund in a tender offer or similar transaction. In the opinion of each
Fund's board of directors, however, these provisions offer several possible
advantages, including:
o they may require persons seeking control of either Fund to
negotiate with its management regarding the price to be paid
for the shares required to obtain such control,
o they promote continuity and stability, and
o they enhance each Fund's ability to pursue long-term
strategies that are consistent with its investment objectives.
The board of directors of each Fund has determined that the foregoing
voting requirements, which are generally greater than the minimum requirements
under Maryland law and the Investment Company Act, are in the best interests of
shareholders generally.
A "Continuing Director" is any member of the board of directors of
either Fund who:
- is not a person or affiliate of a person (other than an
investment company advised by the Fund's initial investment
adviser or any of its affiliates) who enters or proposes to
enter into a Business Combination with either Fund (such
person or affiliate, an "Interested Party"), and
49
- who has been a member of the board of directors of the
respective Fund for a period of at least 12 months, or is a
successor of a Continuing Director who is unaffiliated with an
Interested Party and is recommended to succeed a Continuing
Director by a majority of the Continuing Directors then on the
board of directors of the respective Fund.
Removal of Directors. Directors of both Funds may be removed, with or
without cause, only by a vote of the holders of 75% of the shares of the
respective Fund entitled to be voted on that matter.
By-Laws. Each Fund's By-laws provide, among other things, that:
- at least 25% of the outstanding capital stock of such Fund is
required to request a special meeting of shareholders,
- certain advance notice requirements must be met in order for
shareholders to submit proposals at annual meetings and for
nominations by stockholders for election to the board of
directors, and
- the power to amend the By-laws is reserved to the board of
directors, except as otherwise required by the Investment
Company Act.
The full text of MMU's Articles of Incorporation and Bylaws are on file
with the SEC and these documents, as may be amended from time to time, will
govern MMU after the Merger.
50
MANAGEMENT OF THE FUNDS
Directors and Officers. The business and affairs of each Fund,
including the general supervision of the duties performed by the manager under
the investment management agreement, are the responsibility of each Fund's board
of directors. The directors and officers of MMU, their addresses and their
principal occupations for at least the past five years are set forth below:
Principal Occupations
Name (Age) and Address Positions Held with the Fund During Past Five Years
---------------------- ---------------------------- ----------------------
*+ Heath B. McLendon (68) Chairman of the Board of Directors, Managing Director of Salomon Smith
125 Broad Street Chief Executive Officer and President Barney; Director of 77 investment
New York, NY 10004 companies associated with Citigroup;
President and Director of SBFM and
Travelers Investment Adviser, Inc.
("TIA"); formerly Chairman of the
Board of Smith Barney Strategy
Advisors Inc.
+ Allan J. Bloostein (71) Director President, Allan J. Bloostein
717 Fifth Avenue Associates, a consulting firm; retired
21st Floor Vice Chairman and Director of May
New York, NY 10022 Department Stores; Director of Taubman
Centers, Inc.; Retired Director of CVS
Corporation.
+Martin Brody (80) Director Consultant, HMK Associates; Retired
c\o HMK Associates Vice Chairman of the Board of
30 Columbia Turnpike Restaurant Associates Corp.
Florham Park, NJ 07932
+Dwight B. Crane (63) Director Professor, Harvard Business School
Harvard Business School Director of Micro Forum, Inc.
Soldiers Field Road
Horgan Hall # 375
Boston, MA 02163
+Paulo M. Cucchi (59) Director Vice President and Dean of College of
Drew University Liberal Arts at Drew University.
108 Brothers College
Madison, NJ 07940
+Robert A. Frankel (74) Director Managing Partner of Robert A. Frankel
8 John Walsh Blvd. Management Consultants; formerly
Peekskill, NY 10566 Corporate Vice President of The
Reader's Digest Association, Inc.
+Dr. Paul Hardin (70) Director Chancellor Emeritus and Professor of
12083 Morehead Law at the University of North
Chapel Hill, NC 27514-8426 Carolina at Chapel Hill; formerly
Chancellor of the University of North
Carolina at Chapel Hill.
51
Principal Occupations
Name (Age) and Address Positions Held with the Fund During Past Five Years
---------------------- ---------------------------- ----------------------
+William R. Hutchinson (58) Director President, WR Hutchinson & Associates,
535 N. Michigan Inc.; formerly Group Vice President,
Suite 1012 Mergers & Acquisitions BP Amoco
Chicago, IL 60611 p.l.c.; formerly Vice
President-Financial Operations Amoco
Corp.; Director of Associated Bank;
Director of Associated Banc-Corp.
+George M. Pavia (72) Director Senior Partner, Pavia & Harcourt,
Pavia & Harcourt Attorneys.
600 Madison Avenue
New York, NY 10022
Joseph P. Deane (54) Vice President and Managing Director of Salomon Smith
333 West 34th Street Investment Officer Barney; Investment Officer of SBFM.
New York, NY 10001
David Fare (38) Investment Officer Investment Officer of SBFM.
333 West 34th Street
New York, NY 10001
Lewis E. Daidone (44) Senior Vice President, Chief Financial Managing Director of Salomon Smith
125 Broad Street and Accounting Officer and Treasurer Barney, Senior Vice President or
New York, NY 10004 Executive Vice President and
Treasurer of 61 investment companies
associated with Citigroup; Director and
Senior Vice President of SBFM and TIA.
Christina T. Sydor (50) Secretary Managing Director of Salomon Smith
666 Fifth Avenue Barney; Secretary of 61 investment
New York, NY 10103 companies associated with Citigroup;
Secretary and General Counsel of SBFM and
TIA.
- ----------------
* Denotes a director who is an "interested person" of the Fund as defined in the
Investment Company Act.
+ Director, trustee and/or general partner of other investment companies
registered under the Investment Company Act with which Salomon Smith
Barney is affiliated.
All the directors and officers of MMU are also directors and officers
of MTU. In the event that Proposal 2 were approved by the MMU's shareholders and
the Fund issued preferred shares, the holders of the preferred shares, voting as
a separate class, will have the right to elect at least two directors at all
times and to elect a majority of the directors in the event two years' dividends
on preferred shares are unpaid. In each case, the remaining directors will be
elected by holders of shares of common stock and holders of preferred shares,
voting together as a single class.
MMU pays each of its directors who is not a director, officer or
employee of SBFM, or any of its affiliates, an annual fee of $5,000 plus $500
for each in-person board meeting and $100 for each telephonic board meeting
attended. In addition, MMU will reimburse these
52
directors for travel and out-of-pocket expenses incurred in connection with
board of directors meetings. For the fiscal year ended May 31, 2001, such fees
totaled $_________.
The Articles of Incorporation and Bylaws of each Fund provide that the
Fund will indemnify directors and officers and may indemnify employees or agents
of the Fund against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their positions with the
Fund to the fullest extent permitted by law. In addition, each Fund's Articles
of Incorporation provide that the Fund's directors and officers will not be
liable to shareholders for money damages, except in limited instances.
Each of the non-interested directors of the Funds is also party to
Indemnification Agreements with the Funds providing for contractual rights of
indemnity and advancement of expenses. However, nothing in the Articles of
Incorporation, the Bylaws or the Indemnification Agreements of either Fund
protects or indemnifies a director, officer, employee or agent against any
liability to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office. Insurance obtained by either
Fund shall not protect or purport to protect officers or directors or the
investment adviser of that Fund against any liability to the Fund or its
shareholders to which they would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of their
obligations and duties.
At the close of business on January 7, 2002, _____________ shares of
common stock or _____% of MMU's total shares outstanding on that date, and
_____________ shares of common stock or _____% of MTU's total shares outstanding
on that date, were held in accounts of, but were not beneficially owned by, CEDE
& Co., P.O. Box 20, Bowling Green Station, NY, NY 10004. [As of that date, the
officers and board members of MMU and MTU beneficially owned less than 1% of the
outstanding shares of each Fund.]
Investment Manager. SBFM serves as each Fund's investment manager. SBFM
(through its predecessors) has been in the investment counseling business since
1934 and is a registered investment adviser. SBFM was formed in 1999 and
currently manages investment companies that had total assets in excess of $116
billion as of September 30, 2001, of which approximately $7 billion consisted of
municipal bond portfolios.
Pursuant to the investment management agreement, each Fund has retained
the manager to manage the investment of the Fund's assets and to provide such
investment research, advice and supervision, in conformity with the Fund's
investment objective and policies, as may be necessary for the investment
activities of each Fund. The manager also administers each Fund's corporate
affairs subject to the supervision of each Fund's board of directors and in
connection therewith furnishes each Fund with office facilities together with
such ordinary clerical and bookkeeping services (e.g., preparation of annual and
other reports to shareholders and the Commission and filing of federal, state
and local income tax returns) as are not being furnished by the Fund's
custodian.
The management agreement provides, among other things, that the manager
will bear all expenses of its employees and overhead incurred in connection with
its duties under the management agreement, other than those assumed by each
Fund, as described below, and will
53
pay all director's fees and salaries of each Fund's directors and officers who
are affiliated persons (as such term is defined in the Investment Company Act)
of the manager.
The management agreement provides that MMU and MTU shall pay to the
manager a monthly fee in arrears equal to 0.70% per annum of each Fund's average
daily net assets at the end of each month.
Although the manager intends to devote such time and effort to the
business of the Funds as reasonably necessary to perform its duties to the
Funds, the services of the manager are not exclusive and the manager provides
similar services to other investment companies and may engage in other
activities.
The management agreement also provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the manager is not liable to the Funds or any of the
Funds' shareholders for any act or omission by the manager in the supervision or
management of its investment activities or for any loss sustained by the Funds
or the Funds' shareholders.
The management agreement will continue in effect for successive periods
of 12 months, provided that each continuance is specifically approved at least
annually by both (1) the vote of a majority of each Fund's board of directors or
the vote of a majority of the outstanding voting securities of each Fund (as
such term is defined in the Investment Company Act) and (2) by the vote of a
majority of the directors who are not parties to such agreement or interested
persons (as such term is defined in the Investment Company Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The management agreement is terminable by vote of each Fund's board of
directors or by the holders of a majority of common stock of each Fund, at any
time without penalty on 60 days' written notice to the manager. The management
agreement may also be terminated by the manager on 90 days' written notice to
the Funds. The management agreement will terminate automatically in the event of
its assignment (as such term is defined in the Investment Company Act and the
rules thereunder).
For information about each Fund's management fees, including amounts
paid during the last fiscal year, see "Synopsis -- Fees and Expenses -- Managed
Municipals Portfolio" and "Synopsis -- Fees and Expenses -- Managed Municipals
Portfolio II."
Joseph P. Deane, Vice President and Investment Officer of each Fund, is
primarily responsible for management of each Fund's assets. Mr. Deane is a
Managing Director of the manager and is the senior asset manager for a number of
investment companies and other accounts.
Administrator. SBFM also serves as each Fund's administrator pursuant
to an administrative agreement with each Fund. Each Fund pays SBFM a fee
computed and paid monthly at the annual rate 0.20% of the value of each Fund's
average daily assets. For information about fees paid to SBFM, see
"Synopsis--Fees and Expenses--Managed Municipals Portfolio" and "Synopsis--Fees
and Expenses--Managed Municipals Portfolio II."
Pursuant to the administration agreement, SBFM will exercise its best
judgment in rendering its services to each Fund. SBFM will not be liable for any
error of judgment or
54
mistake of law or for any loss suffered by the Funds in connection with the
matters to which the administration agreement relates, except by reason of
SBFM's reckless disregard of its obligations and duties under the administration
agreement.
The administration agreement will continue automatically for successive
annual periods provided that such continuance is approved at least annually by
each Fund's board of directors including a majority of the non-interested
directors by vote cast in person at a meeting called for the purpose of voting
such approval. The administration agreement is terminable, without penalty, upon
60 days' written notice, by each Fund's board of directors or by vote of holders
of a majority of each Fund's shares of common stock, or upon 90 days' written
notice, by SBFM.
Code of Ethics. Pursuant to Rule 17j-1 of the Investment Company Act,
each Fund and its investment adviser have adopted codes of ethics that permit
personnel to invest in securities for their own accounts, including securities
that may be purchased or held by the Funds. All personnel must place the
interests of clients first and avoid activities, interests and relationships
that might interfere with the duty to make decisions in the best interests of
the clients. All personal securities transactions by employees must adhere to
the requirements of the codes and must be conducted in such a manner as to avoid
any actual or potential conflict of interest, the appearance of such a conflict,
or the abuse of an employee's position of trust and responsibility.
Each Fund's Code of Ethics can be reviewed and copied at the
Commission's Public Reference Room in Washington, D.C. In addition, information
on the operation of the Public Reference Room may be obtained by calling the
Commission at 1-202-942-8090. The Code of Ethics is available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov. A copy of the
Code of Ethics may be obtained for a duplicating fee by electronic request at
the following E-mail address: publicinfo@sec.gov, or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
Estimated Expenses. Except as indicated above, each Fund pays all other
expenses incurred in the operation of that Fund including, among other things:
o fees of the investment, adviser and administrator;
o taxes, interest, brokerage fees and commissions, if any;
o fees of directors who are not officers, directors,
shareholders or employees of Salomon Smith Barney or its
affiliates;
o SEC fees and state blue sky qualification fees;
o charges of the custodian;
o transfer and dividend disbursing agent's fees;
o certain insurance premiums;
o outside auditing and legal expenses;
55
o costs of any independent pricing service;
o costs of maintaining corporate existence;
o costs attributable to investor services (including allocated
telephone and personnel expenses);
o costs of preparation and printing of prospectuses and
statements of additional information for regulatory purposes
and for distribution to shareholders; and
o shareholders' reports and corporate meetings of the officers,
board of directors and shareholders of the Funds.
Portfolio Manager. If the Merger is consummated, it is anticipated that
Joseph Deane will continue as the Investment Officer of MMU.
Custodian, Transfer Agent, Dividend-Paying Agent, Registrar and
Dividend-Reinvestment-Plan Agent. PFPC Trust Company, is located at 17th and
Chestnut Streets, Philadelphia, Pennsylvania 19103 and serves as each Fund's
custodian pursuant to a custody agreement. Under the custody agreement, PFPC
Trust Company holds each Fund's securities and keeps all necessary accounts and
records. The assets of the portfolio are held under bank custodianship in
compliance with the Investment Company Act. PFPC is located at One Exchange
Place Boston, Massachusetts 02109, and serves as each Fund's transfer agent,
dividend-paying agent and registrar, as well as agent in connection with the
dividend reinvestment plan.
INDEPENDENT ACCOUNTANTS
Each Fund has selected KPMG LLP, 757 Third Avenue, New York, NY 10017,
as its independent public accountants who will audit its financial statements.
REQUIRED VOTE
The Merger has been approved by at least 75% of the board of directors
of each Fund, including at least 75% of the Continuing Directors of each Fund.
Accordingly, under the Articles of Incorporation of each Fund, approval of the
Merger requires the affirmative vote of the holders of a majority of the
outstanding shares of common stock of each Fund. The board of directors of each
Fund recommends that the shareholders of each Fund vote in favor of this
Proposal 1.
LEGAL PROCEEDINGS
There are currently no material legal proceedings to which the Funds
are a party.
LEGAL OPINIONS
Certain legal matters in connection with the Merger will be passed upon
for the Funds by Willkie Farr & Gallagher. Willkie Farr & Gallagher will rely as
to certain matters of Maryland law on the opinion of Venable, Baetjer and
Howard, LLP.
56
PROPOSAL 2 (MANAGED MUNICIPALS PORTFOLIO SHAREHOLDERS ONLY):
APPROVAL OF CHANGE IN AN INVESTMENT RESTRICTION
The Fund has adopted certain investment restrictions that govern
generally its operations. The Investment Company Act requires that those
investment restrictions which are designated as fundamental investment
restrictions may only be changed by shareholder vote. This type of investment
restriction is frequently referred to as a "fundamental investment policy."
It is being proposed that the Fund's fundamental investment restriction
with respect to issuing senior securities be changed, as discussed below. The
other fundamental investment restrictions, or fundamental investment policies,
currently applicable to the Fund will remain unchanged. The proposed revised
fundamental investment restriction will not result in a change to the Fund's
investment objective, which also constitutes a fundamental policy.
The Investment Company Act and the rules and regulations thereunder
regulate the conditions under which a fund may issue senior securities, in order
to limit the use of leverage. To the extent a fund increases its issuance of
securities senior to its common stock, it is subject to greater leverage risk,
which is the risk that the increased assets available for investment would
expose the fund to greater market risk, interest rate risk and other risks.
Although the definition of "senior security" involves complex statutory
and regulatory concepts, a senior security (which may represent either
indebtedness or stock) is generally considered to be an obligation of a fund
with respect to its earnings or assets that takes precedence over the claims of
the fund's shareholders (or, for a senior security representing stock, the
fund's common shareholders) with respect to the same earnings or assets. For
closed-end investment companies such as the Fund, the Investment Company Act
prohibits issuance of any class of senior security or sale of any senior
security unless, immediately after such issuance or sale, the class of senior
security has asset coverage (as such term is defined in the Investment Company
Act) of at least 300 percent if the senior security represents indebtedness and
200 percent if the senior security represents stock. The attached Exhibit B sets
forth in greater detail the Investment Company Act requirements with respect to
issuance of senior securities. Under its current fundamental investment
restriction concerning senior securities, the Fund may not issue senior
securities. Thus, the Fund presently is more restricted than is required by the
Investment Company Act with respect to issuing senior securities and is not
permitted to make use of the amount of leverage permitted by the Investment
Company Act.
The proposed revision will allow the Fund to issue senior securities to
the full extent permitted under the Investment Company Act. This revision will
permit the Board to utilize leverage as it deems appropriate and in the best
interests of the Fund and its shareholders, consistent with the Investment
Company Act and the rules and regulations thereunder. Adoption of the proposed
change will also give the Fund maximum flexibility with respect to future
changes in the Investment Company Act or regulatory interpretations regarding
restrictions on issuing senior securities without incurring the costs and delays
of soliciting a shareholder vote. The Investment Company Act and the applicable
regulations can change from time to time and may become more or less restrictive
as a result.
57
Text of Current Fundamental Investment Restriction. The current
fundamental investment restriction of the Fund with respect to senior securities
states that the Fund may not "issue senior securities."
Text of Proposed Fundamental Investment Restriction. The proposed
fundamental investment restriction of the Fund under Proposal 2 states that the
Fund may not:
"issue senior securities, except to the extent permitted under the
Investment Company Act of 1940, as amended, and as interpreted, modified or
otherwise permitted by appropriate regulatory authorities."
If approved, the revised fundamental investment restriction may be
modified only by a vote of the shareholders.
If the shareholders approve Proposal 2, the revised fundamental
investment restriction will become effective immediately. If the proposed change
is adopted, the Fund's Board has indicated its intention to cause the Fund to
register with the SEC a class of auction rate preferred stock (the "Preferred
Shares") and to offer those shares upon effectiveness of the registration
statement. As senior securities, the Preferred Shares will be senior to shares
of the Fund's outstanding Common Stock.
Set forth below is a general discussion of the risks associated with
the issuance of senior securities. Shareholders are not being asked to approve
or disapprove the issuance of preferred stock or other senior securities by the
Fund, only to approve the change in the fundamental investment restriction in
order to allow the Fund to issue senior securities to the extent permitted under
the Investment Company Act and the regulations thereunder.
Risks of Issuance of Senior Securities.
--------------------------------------
Increased leverage could result in greater volatility of the net asset
value and share price of the Fund. In addition, the issuance of preferred stock
involves offering expenses and other costs to the Fund (e.g., underwriting
commissions, rating agency fees and organization and offering expenses), which
expenses will be borne by the holders of Common Stock. If the Fund were to issue
preferred stock (including the Preferred Shares) or debt securities and thereby
incur an obligation to pay dividends or interest, any investment income or gains
that the Fund earns from the proceeds of such issuance which is in excess of the
sum of dividends or interest due on the senior securities and costs and expenses
thereof will cause the net asset value of the Fund's shares to increase to a
greater extent than would otherwise be the case. Conversely, if the return on
the proceeds of such issuance fails to cover the sum of dividends or interest
due on the issued senior securities and costs and expenses thereof, the net
asset value of the Fund would be lower than would otherwise be the case,
resulting in a possible reduction of dividends paid by the Fund to the holders
of shares of Common Stock. The requirement to pay interest on indebtedness or
dividends on preferred stock in full before any dividends may be paid on the
Common Stock means that dividends on the Common Stock may be reduced or
eliminated. Successful use of leveraging may depend on the Manager's ability to
predict correctly interest rates and market movements, and there can be no
assurance that a leveraging strategy will be successful during any period in
which it is employed.
58
The mandatory asset coverage requirements of the Investment Company Act
could also pose certain risks for the holders of shares of Common Stock. If the
Fund's asset coverage for any preferred stock or debt security falls below the
requirements of the Investment Company Act, the Fund would be unable to pay
dividends on its Common Stock. Further, the Fund might have to sell portfolio
securities to service the preferred stock or debt securities at a time or times
when investment considerations would not favor such sales.
Holders of shares of Common Stock would realize voting dilution as a
result of the issuance of preferred stock since the holders of preferred stock
would vote together with the Common Stock on all general matters. Furthermore,
the class voting requirements for all preferred stock could make it more
difficult for the Fund to take certain actions that may, in the future, be
proposed by the Board and/or holders of shares of Common Stock, such as a
merger, exchange of securities, liquidation or alteration of the rights of a
class of the Fund's securities if such actions would be adverse to the preferred
stock, changing the subclassification of the Fund or acting inconsistently with
its fundamental investment restrictions or other fundamental policies or ceasing
to be an investment company. In addition, mandatory redemption requirements may
make it more difficult or costly for the Fund to take certain actions. Under the
Investment Company Act, an open-end investment company may not issue any senior
security (other than certain bank borrowings) and, as a result, prior to
converting to an open-end investment company the Fund would likely be required
to redeem or repurchase any senior securities that it had issued. In addition to
the voting rights discussed above, the holders of any preferred stock, including
the Preferred Shares, would have the right to elect two directors at all times
and to elect a majority of the directors if the Fund failed to pay two years or
more of dividends on the preferred stock.
The investment advisory fee paid to the Advisor is based on a
percentage of the Fund's average weekly assets. The Fund's average weekly assets
include the Fund's net assets plus the proceeds of any outstanding borrowings
used for leverage and any proceeds from the issuance of preferred stock, minus
the sum of (i) accrued liabilities of the Fund (other than outstanding
leverage), (ii) any accrued and unpaid interest on outstanding borrowings and
(iii) accumulated dividends on shares of preferred stock. An issuance of
preferred stock, including the Preferred Shares, will result in an increase in
the Fund's assets. As a result, an issuance of preferred stock will result in an
increase in the investment advisory fee payable to SBFM by the Fund and
attributable to holders of Common Stock; however, the investment advisory fees
as a percentage of the Fund's net assets would not change as a result of the
issuance of any preferred stock.
Certain Federal Income Tax Consequences.
---------------------------------------
Set forth below is a general description of certain federal income tax
consequences that would apply to the Fund and to the holders of shares of Common
Stock with respect to any issuance by the Fund of senior securities, including
preferred stock. This description would apply to any issuance of senior
securities currently permitted under the Fund's fundamental investment
restriction and, as noted above, the shareholders are not being asked to approve
or disapprove the issuance of senior securities. The description assumes that
the Fund will continue to qualify as a regulated investment company under the
Code, so as to be relieved of federal income tax on net investment income and
net capital gains distributed to shareholders. Senior securities issued by the
Fund will provide that interest or dividends, as the case may be, payable
59
to the holders of such senior securities must be paid before dividends can be
paid to holders of Common Stock. Although an inability to pay dividends on the
Common Stock could conceivably cause the Fund to lose its special federal income
tax status, which would be materially adverse to the holders of the Common
Stock, such inability can be avoided through the use of mandatory redemption
requirements with respect to the senior securities that are designed to ensure
that the Fund maintains the necessary asset coverage. The Fund will include such
a mandatory redemption requirement in the terms of any Preferred Share, which it
may issue. If the Fund failed to qualify as a regulated investment company under
the Code in any taxable year, the Fund would be subject to tax on its taxable
income at corporate rates without any deduction for dividends paid to its
shareholders, and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net capital gains, would be taxable
to shareholders as ordinary income. In addition, the Fund could be required to
recognize unrealized gains, pay taxes and interest charges and make
distributions before re-qualifying as a regulated investment company.
As a regulated investment company, the Fund is generally entitled to
deductions for interest paid on senior securities issued in the form of
indebtedness and for dividends paid on its Common Shares and any Preferred
Shares. Under the Code, a distribution to shareholders will not qualify for the
deduction for dividends paid unless the distribution is pro rata, with no
preferences to any share of the Fund as compared with other shares of the same
class, and with no preference to one class of shares as compared with another
class except to the extent that the former is entitled (without reference to
waivers of their rights by shareholders) to such preference. The Fund intends to
make distributions in a manner that will allow such distributions to qualify for
the dividends paid deduction.
Recommendations of the Board of Directors
Prior to a meeting of the Fund's board of directors held on November
14, 2001, the Directors, including all of the non-interested directors, were
presented with materials discussing the benefits that would accrue to the
shareholders of the Fund if the Fund were to issue senior securities. These
materials were discussed at the meeting to the satisfaction of the Directors,
who were advised by independent counsel. The Board was also informed that SBFM
is agreeing to reduce its aggregate management and administration fees to
sixty-five basis points (0.65%) on those assets of the Fund equal to the product
of the number of preferred shares outstanding multiplied by the liquidation
value of such shares. Assuming that the shareholders approve Proposal 2 and MMU
issues preferred shares equal to fifty percent (50%) of the Fund's current net
assets, the blended aggregate management and administration fees would equal
0.82%.
The Board believes the proposed change in the fundamental investment
restriction is in the best interests of the Fund and its shareholders. In making
this determination, the Board has considered, among other factors, that the
proposed new fundamental investment restriction would provide the Fund with a
capacity to utilize leverage as deemed appropriate by the Board, consistent with
the Investment Company Act and the rules and regulations thereunder; that the
Fund may over time be able to earn an incremental return for the holders of the
Common Stock from the assets acquired with the proceeds of a preferred stock
offering, even though the total annual operating expenses could potentially
increase; and that the proposed revision would provide the Fund with maximum
flexibility to issue senior securities in the future to the extent
60
permitted under the Investment Company Act or regulatory interpretations
regarding restrictions on issuing senior securities, without incurring the
expense and delay of a shareholder vote. There can be no guarantee, however,
that an incremental return can be obtained for the holders of the Common Stock.
If Proposal 2 is not approved by shareholders of the Fund, the Fund's
existing fundamental investment policy with respect to issuance of senior
securities will continue in effect, and the Board will consider what other
course of action to take, if any, including resoliciting the shareholders of the
Fund.
Approval of Proposal 2 requires the affirmative vote of a "majority of
the outstanding voting securities" of the Fund, which for this purpose means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares of
the Fund or (2) 67% or more of the shares of the Fund present at the Meeting if
more than 50% of the outstanding shares of the Fund are represented at the
Meeting in person or by proxy.
THE BOARD OF DIRECTORS OF THE FUND, INCLUDING AT LEAST A MAJORITY OF THE
"NON-INTERESTED" DIRECTORS, RECOMMENDS
THAT YOU VOTE FOR PROPOSAL 2.
61
PROPOSAL 3 (MANAGED MUNICIPALS PORTFOLIO II SHAREHOLDERS ONLY):
ELECTION OF DIRECTORS
BACKGROUND
The Fund's board of directors is divided into three classes, each class
having a term of no more than three years. Each year the term of office of one
class expires and the successor or successors elected to such class will serve
for a three-year term.
Each of Robert A. Frankel, Heath B. McLendon and George M. Pavia,
directors whose current terms expire on December 13, 2001, the date of the
annual meeting, has been nominated for a three-year term to expire at the 2004
Annual Meeting of Shareholders. Messrs. Frankel, McLendon and Pavia currently
serve as directors of the Fund. Mr. Frankel has been a member of the board of
directors since 1994, Mr. McLendon has served as a director since 1992 and Mr.
Pavia has served as a director since 2001.
Each nominee has indicated an intention to continue to serve if elected
and has consented to being named in this Proxy Statement/Prospectus. Each
director named below who is deemed an "interested person" of the Fund, as
defined in the Investment Company Act, is indicated by an asterisk.
Certain information concerning the nominees is set forth below. All the
individuals listed are currently directors of the Fund. "Beneficial ownership"
is defined under Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"). Information as to beneficial ownership is based upon
information furnished to the Fund by Directors.
Number (and Percentage)
of the Fund's Shares
Beneficially
Served as a
Director Owned As Of September
Name Since Class+ 30, 2001
---- ----- ------ --------
PERSONS NOMINATED FOR ELECTION AS DIRECTORS
Robert A. Frankel 1994 II 302.103
(less than 1%)
Heath B. McLendon* 1992 II 931 (a)
(less than 1%)
George M. Pavia 2001 II 0.00
DIRECTORS CONTINUING IN OFFICE
Allan J. Bloostein 1992 I 137.8674
(less than 1%)
62
Number (and Percentage)
of the Fund's Shares
Served as a Beneficially
Director Owned As Of
Name Since Class+ September 30, 2001
---- ----------- ------ ------------------
Martin Brody 1992 I 141.0209
(less than 1%)
Dr. Paul Hardin 2001 I 0.00
Dwight B. Crane 1992 III 644.00
(less than 1%)
William R. Hutchinson 1995 III 110.590
(less than 1%)
Paolo M. Cucchi 2001 III 0.00
- -------------------
+ Number (I, II, III) indicates whether the director is in Class I, II or
III. Class II directors will be elected to serve for a three-year term
at the Annual Meeting. Class I directors will continue to serve until
the 2003 Annual Meeting. Class III directors will continue to serve
until the 2002 Annual Meeting.
* Designates a Director who is an "interested person" of the Fund as
defined in the Investment Company Act.
(a) Represents shares owned by members of this director's family.
For more information regarding the nominees for election to MTU's
Board, directors whose terms of office continue beyond the 2001 annual meeting,
and the officers and directors of MTU as a group, see "Proposal 1 (Both Funds):
Approval of the Merger Agreement and Plan of Reorganization pursuant to which
Managed Municipals Portfolio II Will Merge with and into Managed Municipals
Portfolio -- Management of the Funds."
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and Section
30(h)of the Investment Company Act require the Fund's officers and directors,
and persons who beneficially own more than ten percent of a registered class of
the Fund's equity securities, and certain entities to file reports of ownership
with the Securities and Exchange Commission, the New York Stock Exchange, Inc.
and the Fund. Based solely upon its review of the copies of such forms received
by it, the Fund believes that, during fiscal year 2001, all filing requirements
applicable to such persons were complied with.
The Fund has no compensation committee of the board of directors, or
any committee performing similar functions. The Fund has a nominating committee
composed of Directors who are the non-interested Directors, which is charged
with recommending nominees for election as
63
Directors of the Fund. The nominating committee will accept nominations for the
office of Director made by the stockholders in a written request addressed to
the Secretary of the Fund which includes biographical data and sets forth the
qualifications of the proposed nominee. The Fund has an audit committee composed
of the non-interested Directors, which is charged with recommending a firm of
independent auditors to the Fund and reviewing accounting matters with the
auditors as set forth in the committee's charter, which is attached hereto as
Exhibit C. The audit committee held one meeting during the Fund's most recent
fiscal year. The Fund has a pricing committee composed of the non-interested
Directors which is charged with determining fair value prices for securities
when required. The pricing committee held one meeting during the Fund's last
fiscal year.
Four meetings of the Board Directors of the Fund were held during the
last fiscal year, all of which were regular meetings. In the last fiscal year,
none of the Directors attended less than 75% of these meetings of the Board that
were held.
Only the non-interested Directors receive remuneration from the Fund
for acting as a director. Aggregate fees and expenses (including reimbursement
for travel and out-of-pocket expenses) of $__________ were paid to such
Directors by the Fund during the fiscal year ended on August 31, 2001. Fees for
the non-interested Directors are set at $5,000 per annum and, in addition, these
Directors receive $500 for each Board meeting attended in person, $100 for each
telephonic board meeting, plus travel and out-of-pocket expenses incurred in
connection with Board meetings. The out-of-pocket expenses are borne equally by
each individual fund in the group of funds served by the same Board members.
None of the officers of the Fund received any compensation from the Fund for
such period. Officers and interested Directors of the Fund are compensated by
the Manager or by Salomon Smith Barney.
The following table shows the compensation paid by the Fund to each
person who was a Director during the Fund's last fiscal year:
Pension or
Retirement Total Number of
Aggregate Benefits Accrued Total Compensation Funds for Which
Compensation as part of Fund from Fund and Fund Director Serves
Name of Person from Fund Expenses Complex within fund Complex
-------------- --------- -------- ------- -------------------
Martin Brody $6,517 0 $132,950 20
Paolo M. Cucchi 2,250 0 12,250 8
Dwight B. Crane 6,033 0 153,175 22
Allan J. Bloostein 6,533 0 109,500 18
Robert A. Frankel 7,033 0 72,850 9
Dr. Paul Hardin 1,250 0 93,150 20
William R. Hutchinson 6,550 0 38,300 7
Heath B. McLendon* 0 0 0 77
George M. Pavia 1,750 0 18,350 8
64
- -------------
* Designates a Director who is an "interested person" of the Fund as
defined under the Investment Company Act.
At the end of a calendar year during which a Director attains age 80,
Fund Directors are required to change to emeritus status. Directors Emeritus are
entitled to serve in emeritus status for a maximum of 10 years during which time
they are paid 50% of the annual retainer fee and meeting fees otherwise
applicable to Fund Directors, together with reasonable out-of-pocket expenses
for each meeting attended. During the Fund's last fiscal year, total
compensation paid by the Fund to Directors Emeritus totaled $2,750.
For information about executive officers of the Fund, see "Proposal 1
(Both Funds): Approval of the Merger Agreement and Plan of Reorganization
pursuant to which Managed Municipals Portfolios II Will Merge with and into
Managed Municipals Portfolio--Management of the Funds."
REPORT OF THE AUDIT COMMITTEE
The audit committee reports that it has (i) reviewed and
discussed the Fund's audited financial statements with management; (ii)
discussed with the independent auditors the matters (such as the quality of the
Fund's accounting principles and internal controls) required to be discussed by
Statement on Auditing Standards No. 61; and (iii) received oral confirmation
from KPMG LLP ("KPMG") that it is independent and written disclosures regarding
such independence as required by Independence Standards Board Standard No. 1,
and discussed with the auditors the auditor's independence. Based on the review
and discussions referred to in items (i) through (iii) above, the audit
committee recommended to the board of directors (and the board has approved)
that the audited financial statements be included in the Fund's annual report
for the Fund's fiscal year ended August 31, 2001. The membership of the audit
committee is comprised of the following Directors: Martin Brody, Dwight B.
Crane, Allan J. Bloostein, Robert A. Frankel, William R. Hutchinson, Paolo M.
Cucchi, Paul Hardin, and George M. Pavia.
Audit Fees. Fees for the annual audit of the Fund's financial
statements by KPMG for the fiscal year ended August 31, 2001 were $32,000.
Financial Information Systems Design and Implementation Fees. Neither
the Fund nor SBFM or other entities under common control engaged KPMG to provide
advice to the Fund regarding financial information system design and
implementation during the fiscal year ended August 31, 2001.
All Other Fees. The aggregate fees billed for all other non-audit
services, including fees for tax related services, rendered by KPMG to the Fund,
SBFM and entities controlled by or affiliated with SBFM that provide services to
the Fund for the fiscal year ended August 31, 2001 were $2,000. The audit
committee of the Fund has determined that provision of these non-audit services
is compatible with maintaining the independence of KPMG.
65
REQUIRED SHAREHOLDER VOTE
Approval of the election of Robert A. Frankel, Heath B. McLendon and
George M. Pavia as Directors of the Fund requires the affirmative vote of a
plurality of the votes cast on the matter at the annual meeting of the Fund in
person or by proxy.
THE BOARD OF DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION OF ROBERT A. FRANKEL,
HEATH B. MCLENDON AND GEORGE M. PAVIA AS DIRECTORS OF THE FUND.
66
ADDITIONAL INFORMATION
The Proxy Statement/Prospectus does not contain all of the information
set forth in the registration statements and the exhibits relating thereto which
the Funds have filed with the Commission, under the Securities Act and the
Investment Company Act, to which reference is hereby made.
The Funds are subject to the informational requirements of the
Securities Exchange Act and in accordance therewith, file reports and other
information with the SEC. Reports, proxy statements, registration statements and
other information filed by the Funds can be inspected and copied at the public
reference facilities of the SEC in Washington, D.C. and at the New York Regional
Office of the SEC at 233 Broadway, New York, New York 10279. Copies of such
materials also can be obtained by mail from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20594, at prescribed rates.
Proposals of MTU Shareholders. Notice is hereby given that for a
shareholder proposal to be considered for inclusion in MTU's proxy material
relating to its 2002 annual meeting of shareholders, the shareholder proposal
must be received by the Fund no later than July 17, 2002. The shareholder
proposal, including any accompanying supporting statement, may not exceed 500
words. A shareholder desiring to submit a proposal must be a record or
beneficial owner of shares with a market value of $2,000 and must have held such
shares for at least one year. Further, the shareholder must continue to hold
such shares through the date on which the meeting is held. Documentary support
regarding the foregoing must be provided along with the proposal. There are
additional requirements regarding proposals of shareholders, and a shareholder
contemplating submission of a proposal is referred to Rule 14a-8 promulgated
under the Securities Exchange Act. The timely submission of a proposal does not
guarantee its inclusion in MTU's proxy materials.
Pursuant to the By-laws of MTU, at any annual meeting of the
shareholders, only such business will be conducted as has been properly brought
before the annual meeting. To be properly brought before the annual meeting, the
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board, (ii) otherwise properly
brought before the meeting by or at the direction of the Board, or (iii)
otherwise properly brought before the meeting by a shareholder.
For business to be properly brought before the annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of MTU. To be timely, any such notice must be delivered to or
mailed and received by Managed Municipals Portfolio II Inc. c/o Smith Barney
Fund Management, LLC, 125 Broad Street, New York, NY 10004 not later than
September 30, 2002.
Any notice by a shareholder to the Fund must set forth as to each
matter the shareholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on MTU's books, of the shareholder proposing such
business, (iii) the class and number of shares of the capital stock of MTU which
67
are beneficially owned by the shareholder, (iv) a representation that the
shareholder is a holder of record of shares of MTU entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to present
such business, (v) whether the shareholder intends or is part of a group which
intends to solicit proxies from other shareholders in support of such business,
and (vi) any material interest of the shareholder in such business.
The Fund may exercise discretionary voting authority with respect to
any shareholder proposals that are not submitted in accordance with Rule 14a-8
under the Securities Exchange Act and which are submitted after the advance
notice deadline for submission of proposals pursuant to MTU's By-laws indicated
above. Even if timely notice is received, MTU may exercise discretionary voting
authority in certain other circumstances as described under Rule 14a-4(c) under
the Securities Exchange Act which governs MTU's use of discretionary proxy
voting authority. Discretionary voting authority is the ability to vote proxies
that shareholders have executed and returned to MTU on matters not specifically
reflected on the form of proxy.
Proposals of MMU Shareholders. A shareholder desiring to submit a
proposal for inclusion in MMU's proxy material for a shareholder meeting
subsequent to the special meeting, if any, must be a record or beneficial owner
of at least 1% of the outstanding shares of common stock of the Fund or shares
of the Fund with a market value of $2,000 entitled to be voted at the meeting
and must have held such shares for at least one year. Further, the shareholder
must continue to hold such shares through the date on which the meeting is held.
Documentary support regarding the foregoing must be provided along with the
proposal. There are additional requirements regarding proposals of the
shareholders, and a shareholder contemplating submission of a proposal is
referred to Rule 14a-8 promulgated under the Securities Exchange Act.
Shareholders who meet the above conditions and desire to submit a written
proposal, should send their written proposals to Managed Municipals Portfolio
Inc. c/o Smith Barney Fund Management LLC, 125 Broad Street, New York, New York
10004, within a reasonable time before the solicitation of proxies for the
meeting of shareholders. The timely submission of a proposal does not guarantee
its inclusion in either Fund's proxy materials.
Other Matters to Come Before the Meeting. The board of directors of
each Fund is not aware of any matters that will be presented for action at the
Meeting other than the matters set forth herein. Should any other matters
requiring a vote of shareholders arise, the proxy in the accompanying form will
confer upon the person or persons entitled to vote the shares represented by
such proxy the discretionary authority to vote the shares as to any such other
matters in their discretion in the interest of the respective Fund. PLEASE
COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By order of the boards of directors of Managed Municipals
Portfolio Inc. and Managed Municipals Portfolio II Inc.
Christina T. Sydor
Secretary, Managed Municipals Portfolio Inc.
Christina T. Sydor
Secretary, Managed Municipals Portfolio II Inc.
68
EXHIBIT A
FORM OF
MERGER AGREEMENT AND PLAN OF REORGANIZATION
MERGER AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
MANAGED MUNICIPALS PORTFOLIO INC.
AND
MANAGED MUNICIPALS PORTFOLIO II INC.
DATED AS OF __________, 2001
TABLE OF CONTENTS
1. DEFINITIONS.....................................................................1
2. BASIC TRANSACTION...............................................................1
2.1. The Merger.............................................................1
2.2. Actions at Closing.....................................................1
2.3. Effect of Merger.......................................................2
3. REPRESENTATIONS AND WARRANTIES OF THE TARGET FUND...............................2
3.1. Organization...........................................................2
3.2. Registrations and Qualifications.......................................2
3.3. Regulatory Consents and Approvals......................................2
3.4. Noncontravention.......................................................2
3.5. Financial Statements...................................................3
3.6. Annual and Semi-Annual Reports.........................................3
3.7. Qualification, Corporate Power, Authorization of Transaction...........3
3.8. Legal Compliance.......................................................3
3.9. Material Contracts.....................................................3
3.10. Undisclosed Liabilities................................................3
3.11. Tax Filings............................................................4
3.12. Qualification under Subchapter M.......................................4
3.13. Form N-14..............................................................4
3.14. Capitalization.........................................................5
3.15. Books and Records......................................................5
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING FUND............................5
4.1. Organization...........................................................5
4.2. Registrations and Qualifications.......................................5
4.3. Regulatory Consents and Approvals......................................5
4.4. Noncontravention.......................................................6
4.5. Financial Statements...................................................6
4.6. Annual Report..........................................................6
4.7. Qualification, Corporate Power, Authorization of Transaction...........6
4.8. Legal Compliance.......................................................6
4.9. Material Contracts.....................................................6
4.10. Undisclosed Liabilities................................................6
4.11. Tax Filings............................................................7
4.12. Qualification under Subchapter M.......................................7
4.13. Form N-14..............................................................7
4.14. Capitalization.........................................................7
4.15. Issuance of Stock......................................................8
4.16. Books and Records......................................................8
5. CONVERSION TO THE ACQUIRING FUND COMMON STOCK...................................8
5.1. Conversion.............................................................8
A-i
5.2. Computation of Net Asset Value.........................................8
5.3. Issuance of the Acquiring Fund Common Stock............................9
5.4. Surrender of the Target Fund Stock Certificates........................9
6. COVENANTS OF THE PARTIES........................................................9
6.1. Shareholders' Meetings.................................................9
6.2. Operations in the Normal Course........................................9
6.3. Articles of Merger....................................................10
6.4. Regulatory Filings....................................................10
6.5. Preservation of Assets................................................10
6.6. Tax Matters...........................................................10
6.7. Shareholder List......................................................11
6.8. Delisting, Termination of Registration as an Investment Company.......11
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND......................11
7.1. Approval of Merger....................................................11
7.2 Certificates and Statements by the Target Fund........................11
7.3. Absence of Litigation.................................................12
7.4. Legal Opinions........................................................12
7.5. Auditor's Consent and Certification...................................14
7.6. Liabilities...........................................................14
7.7. Effectiveness of N-14 Registration Statement..........................14
7.8. Regulatory Filings....................................................14
7.9. Administrative Rulings, Proceedings...................................14
7.10. Satisfaction of the Acquiring Fund....................................14
7.11. Dividends.............................................................14
7.12. Custodian's Certificate...............................................14
7.13. Books and Records.....................................................15
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE TARGET FUND.....................15
8.1. Approval of Merger....................................................15
8.2. Certificates and Statements by the Acquiring Fund.....................15
8.3. Absence of Litigation.................................................16
8.4. Legal Opinions........................................................16
8.5. Auditors' Consent and Certification...................................18
8.6. Effectiveness of N-14 Registration Statement..........................18
8.7. Regulatory Filings....................................................18
8.8. Satisfaction of the Target Fund.......................................18
8.9. Dividends.............................................................18
A-ii
9. PAYMENT OF EXPENSES............................................................18
10. COOPERATION FOLLOWING EFFECTIVE DATE...........................................19
11. INDEMNIFICATION................................................................19
11.1. The Target Fund......................................................19
11.2. The Acquiring Fund...................................................19
12. TERMINATION, POSTPONEMENT AND WAIVERS..........................................19
12.1. Termination...........................................................19
12.2. Waiver................................................................20
12.3. Expiration of Representations and Warranties..........................20
13. MISCELLANEOUS..................................................................21
13.1. Transfer Restriction..................................................21
13.2. Material Provisions...................................................21
13.3. Notices...............................................................21
13.4. Amendments............................................................22
13.5. Headings..............................................................23
13.6. Counterparts..........................................................23
13.7. Enforceability........................................................23
13.8. Successors and Assigns................................................23
13.9. Governing Law.........................................................23
A-iii
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made as of this ___day of _______, 2001, between Managed Municipals Portfolio II
Inc. (the "Target Fund"), a Maryland corporation and a registered investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and Managed Municipals Portfolio Inc. (the "Acquiring Fund"), a Maryland
corporation and a registered investment company under the 1940 Act.
This agreement contemplates a tax-free merger transaction which
qualifies for federal income tax purposes as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS
Certain capitalized terms used in this Agreement are specifically
defined herein.
2. BASIC TRANSACTION
2.1. The Merger. On and subject to the terms and conditions of this
-----------
Agreement, the Target Fund will merge with and into the Acquiring Fund (the
"Merger") at the Effective Date (as defined in Section 2.3 below) in accordance
with the Maryland General Corporation Law ("MGCL"). The Acquiring Fund shall be
the surviving investment company. The Target Fund shall cease to exist as a
separate investment company.
Each share of the Target Fund will be converted into an equivalent
dollar amount (to the nearest one tenth of one cent) of full shares of Common
Stock of the Acquiring Fund, with a par value of $0.001 per share, based on the
net asset value per share of each of the parties at 4:00 p.m. Eastern Time on
the Business Day prior to the Effective Date (the "Valuation Time"). No
fractional shares of the Acquiring Fund will be issued to the Target Fund
shareholders. In lieu thereof, the Acquiring Fund will purchase all fractional
shares of the Acquiring Fund at the current net asset value of the Acquiring
Fund for the account of all holders of fractional interests, and each such
holder will receive such holder's pro rata share of the proceeds of such
purchase. The Effective Date and the Business Day prior to it must each be a day
on which the New York Stock Exchange is open for trading (a "Business Day").
From and after the Effective Date, the Acquiring Fund shall possess
all of the properties, assets, rights, privileges, powers and shall be subject
to all of the restrictions, liabilities, obligations, disabilities and duties of
the Target Fund, all as provided under Maryland law.
2.2. Actions at Closing. At the closing of the transactions
------------------
contemplated by this Agreement (the "Closing") on the date thereof (the "Closing
Date"), (i) the Target Fund will deliver to the Acquiring Fund the various
certificates and documents referred to in Article 7 below, (ii) the Acquiring
Fund will deliver to the Target Fund the various
A-1
certificates and documents referred to in Article 8 below, and (iii) the Target
Fund and the Acquiring Fund will file jointly with the State Department of
Assessments and Taxation of Maryland (the "Department") articles of merger (the
"Articles of Merger") and make all other filings or recordings required by
Maryland law in connection with the Merger.
2.3. Effect of Merger. Subject to the requisite approvals of the
----------------
shareholders of the parties, and to the other terms and conditions described
herein, the Merger shall become effective at such time as the Articles of Merger
are accepted for record by the Department or at such later time as is specified
in the Articles of Merger (the "Effective Date") and the separate corporate
existence of the Target Fund shall cease. As promptly as practicable after the
Merger, the Target Fund shall delist its shares from the New York Stock Exchange
("NYSE") and its registration under the 1940 Act shall be terminated. Any
reporting responsibility of the Target Fund is, and shall remain, the
responsibility of the Target Fund up to and including the Effective Date.
3. REPRESENTATIONS AND WARRANTIES OF THE TARGET FUND
The Target Fund represents and warrants to the Acquiring Fund that the
statements contained in this Article 3 are correct and complete in all material
respects as of the execution of this Agreement on the date hereof. The Target
Fund represents and warrants to, and agrees with, the Acquiring Fund that:
3.1. Organization. The Target Fund is a corporation duly organized,
------------
validly existing under the laws of the State of Maryland and is in good standing
with the Department, and has the power to own all of its assets and to carry on
its business as it is now being conducted and to carry out this Agreement.
3.2. Registrations and Qualifications. The Target Fund is duly
--------------------------------
registered under the 1940 Act as a closed-end, non-diversified management
investment company (File No. 811-7046), and such registration has not been
revoked or rescinded and is in full force and effect. The Target Fund has
elected and qualified for the special tax treatment afforded regulated
investment companies ("RICs") under Sections 851-855 of the Code at all times
since its inception. The Target Fund is qualified as a foreign corporation in
every jurisdiction where required, except to the extent that failure to so
qualify would not have a material adverse effect on the Target Fund.
3.3. Regulatory Consents and Approvals. No consent, approval,
---------------------------------
authorization, or order of any court or governmental authority is required for
the consummation by the Target Fund of the transactions contemplated herein,
except (i) such as have been obtained or applied for under the Securities Act of
1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934 (the
"1934 Act"), and the 1940 Act, (ii) such as may be required by state securities
laws and (iii) such as may be required under Maryland law for the acceptance for
record of the Articles of Merger by the Department.
3.4. Noncontravention. The Target Fund is not, and the execution,
----------------
delivery and performance of this Agreement by the Target Fund will not result,
in violation of the laws of the State of Maryland or of the Articles of
Incorporation or the Bylaws of the Target Fund, or of any material agreement,
indenture, instrument, contract, lease or other undertaking to which the Target
Fund is a party or by which it is bound, and the
A-2
execution, delivery and performance of this Agreement by the Target Fund will
not result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease, judgment
or decree to which the Target Fund is a party or by which it is bound.
3.5. Financial Statements. The Acquiring Fund has been furnished with
--------------------
a statement of assets, liabilities and capital and a schedule of investments of
the Target Fund, each as of August 31, 2001, said financial statements having
been examined by KPMG LLP, independent public accountants. These financial
statements are in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP") and present fairly, in all material
respects, the financial position of the Target Fund as of such date in
accordance with GAAP, and there are no known contingent liabilities of the
Target Fund required to be reflected on a balance sheet (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein.
3.6. Annual and Semi-Annual Reports. The Acquiring Fund has been
------------------------------
furnished with the Target Fund's Annual Report to Shareholders for the year
ended August 31, 2001.
3.7. Qualification, Corporate Power, Authorization of Transaction. The
------------------------------------------------------------
Target Fund has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement has been duly authorized by all necessary action of its board of
directors, and, subject to shareholder approval, this Agreement constitutes a
valid and binding contract enforceable in accordance with its terms, subject to
the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
3.8. Legal Compliance. No material litigation or administrative
-----------------
proceeding or investigation of or before any court or governmental body is
presently pending (in which service of process has been received) or to its
knowledge threatened against the Target Fund or any properties or assets held by
it. The Target Fund knows of no facts which might form the basis for the
institution of such proceedings which would materially and adversely affect its
business and is not a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transactions herein
contemplated.
3.9. Material Contracts. There are no material contracts outstanding
------------------
to which the Target Fund is a party that have not been disclosed in the N-14
Registration Statement (as defined in Section 3.13 below) or will not be
otherwise disclosed to the Acquiring Fund prior to the Effective Date.
3.10. Undisclosed Liabilities. Since August 31, 2001, there has not
-----------------------
been any material adverse change in the Target Fund's financial condition,
assets, liabilities or business and the Target Fund has no known liabilities of
a material amount, contingent or otherwise, required to be disclosed in a
balance sheet in accordance with GAAP other than those shown on the Target
Fund's statements of assets, liabilities and capital referred to above, those
incurred in the ordinary course of its business as an investment company
A-3
since September 1, 2001, and those incurred in connection with the Merger. Prior
to the Effective Date, the Target Fund will advise the Acquiring Fund in writing
of all known liabilities, contingent or otherwise, whether or not incurred in
the ordinary course of business, existing or accrued. For purposes of this
Section 3.10, a decline in net asset value per share of the Target Fund due to
declines in market values of securities in the Target Fund's portfolio or the
discharge of the Target Fund liabilities will not constitute a material adverse
change.
3.11. Tax Filings. All federal and other tax returns and information
-----------
reports of the Target Fund required by law to have been filed shall have been
filed and are or will be correct in all material respects, and all federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Target Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with respect to such
returns. All tax liabilities of the Target Fund have been adequately provided
for on its books, and no tax deficiency or liability of the Target Fund has been
asserted and no question with respect thereto has been raised by the Internal
Revenue Service or by any state or local tax authority for taxes in excess of
those already paid, up to and including the taxable year in which the Effective
Date occurs.
3.12. Qualification under Subchapter M. For each taxable year of its
--------------------------------
operation (including the taxable year ending on the Effective Date), the Target
Fund has met the requirements of Subchapter M of the Code for qualification as a
RIC and has elected to be treated as such, has been eligible to and has computed
its federal income tax under Section 852 of the Code, and will have distributed
substantially all of its investment company taxable income and net realized
capital gain (as defined in the Code) that has accrued through the Effective
Date.
3.13. Form N-14. The registration statement to be filed with the
---------
Securities and Exchange Commission (the "SEC") by the Acquiring Fund on Form
N-14 relating to the Acquiring Fund Common Stock to be issued pursuant to this
Agreement, and any supplement or amendment thereto or to the documents therein
(as amended, the "N-14 Registration Statement"), on the effective date of the
N-14 Registration Statement, at the time of the shareholders' meetings referred
to in Article 6 of this Agreement and at the Effective Date, insofar as it
relates to the Target Fund (i) shall have complied or will comply in all
material respects with the provisions of the 1933 Act, the 1934 Act and the 1940
Act and the rules and regulations thereunder and (ii) did not or will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; and the prospectus included therein did not or will not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the
representations and warranties in this Section 3.13 shall only apply to
statements in, or omissions from, the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by the Acquiring Fund
for use in the N-14 Registration Statement.
A-4
3.14. Capitalization.
--------------
(a) All issued and outstanding shares of the Target Fund (i) have been
offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws, (ii) are,
and on the Effective Date will be, duly and validly issued and outstanding,
fully paid and non-assessable, and (iii) will be held at the time of the Closing
by the persons and in the amounts set forth in the records of the transfer agent
as provided in Section 6.7. The Target Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of the Target
Fund shares, nor is there outstanding any security convertible into, or
exchangeable for, any of the Target Fund shares.
(b) The Target Fund is authorized to issue 500,000,000 shares of
stock, par value $0.001 per share, all of which shares are classified as Common
Stock and each outstanding share of which is fully paid, non-assessable and has
full voting rights.
3.15. Books and Records. The books and records of the Target Fund made
-----------------
available to the Acquiring Fund are substantially true and correct and contain
no material misstatements or omissions with respect to the operations of the
Target Fund.
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING FUND
The Acquiring Fund represents and warrants to the Target Fund that the
statements contained in this Article 4 are correct and complete in all material
respects as of the execution of this Agreement on the date hereof. The Acquiring
Fund represents and warrants to, and agrees with, the Target Fund that:
4.1. Organization. The Acquiring Fund is a corporation duly organized,
------------
validly existing under the laws of the State of Maryland and is in good standing
with the Department, and has the power to own all of its assets and to carry on
its business as it is now being conducted and to carry out this Agreement.
4.2. Registrations and Qualifications. The Acquiring Fund is duly
--------------------------------
registered under the 1940 Act as a closed-end, non-diversified management
investment company (File No. 811-6629) and such registration has not been
revoked or rescinded and is in full force and effect. The Acquiring Fund has
elected and qualified for the special tax treatment afforded RICs under Sections
851-855 of the Code at all times since its inception. The Acquiring Fund is
qualified as a foreign corporation in every jurisdiction where required, except
to the extent that failure to so qualify would not have a material adverse
effect on the Acquiring Fund.
4.3. Regulatory Consents and Approvals. No consent, approval,
---------------------------------
authorization, or order of any court or governmental authority is required for
the consummation by the Acquiring Fund of the transactions contemplated herein,
except (i) such as have been obtained or applied for under the 1933 Act, the
1934 Act and the 1940 Act, (ii) such as may be required by state securities laws
and (iii) such as may be required under Maryland law for the acceptance for
record of the Articles of Merger by the Department.
A-5
4.4. Noncontravention. The Acquiring Fund is not, and the execution,
----------------
delivery and performance of this Agreement by the Acquiring Fund will not
result, in violation of the laws of the State of Maryland or of the Articles of
Incorporation or the Bylaws of the Acquiring Fund, or of any material agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquiring Fund is a party or by which it is bound, and the execution, delivery
and performance of this Agreement by the Acquiring Fund will not result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, indenture, instrument, contract, lease, judgment or decree to which
the Acquiring Fund is a party or by which it is bound.
4.5. Financial Statements. The Target Fund has been furnished with a
--------------------
statement of assets, liabilities and capital and a schedule of investments of
the Acquiring Fund, each as of May 31, 2001, said financial statements having
been examined by KPMG LLP, independent public accountants. These financial
statements are in accordance with GAAP and present fairly, in all material
respects, the financial position of the Acquiring Fund as of such date in
accordance with GAAP, and there are no known contingent liabilities of the
Acquiring Fund required to be reflected on a balance sheet (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein.
4.6. Annual Report. The Target Fund has been furnished with the
-------------
Acquiring Fund's Annual Report to Shareholders for the year ended May 31, 2001.
4.7. Qualification, Corporate Power, Authorization of Transaction. The
------------------------------------------------------------
Acquiring Fund has full power and authority to enter into and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement has been duly authorized by all necessary action of its board of
directors, and, subject to shareholder approval, this Agreement constitutes a
valid and binding contract enforceable in accordance with its terms, subject to
the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
4.8. Legal Compliance. No material litigation or administrative
----------------
proceeding or investigation of or before any court or governmental body is
presently pending or to its knowledge threatened against the Acquiring Fund or
any properties or assets held by it. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or subject to
the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
4.9. Material Contracts. There are no material contracts outstanding
------------------
to which the Acquiring Fund is a party that have not been disclosed in the N-14
Registration Statement or will not be otherwise disclosed to the Target Fund
prior to the Effective Date.
4.10. Undisclosed Liabilities. Since May 31, 2001, there has not been
-----------------------
any material adverse change in the Acquiring Fund's financial condition, assets,
liabilities, or business and the Acquiring Fund has no known liabilities of a
material amount, contingent or otherwise, required to be disclosed in a balance
sheet with GAAP other than those shown on the Acquiring Fund's statements of
assets, liabilities and capital referred to
A-6
above, those incurred in the ordinary course of its business as an investment
company since June 1, 2001, and those incurred in connection with the Merger.
Prior to the Effective Date, the Acquiring Fund will advise the Target Fund in
writing of all known liabilities, contingent or otherwise, whether or not
incurred in the ordinary course of business, existing or accrued. For purposes
of this Section 4.10, a decline in net asset value per share of the Acquiring
Fund due to declines in market values of securities in the Acquiring Fund's
portfolio or the discharge of the Acquiring Fund liabilities will not constitute
a material adverse change.
4.11. Tax Filings. All federal and other tax returns and information
-----------
reports of the Acquiring Fund required by law to have been filed shall have been
filed and are or will be correct in all material respects, and all federal and
other taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquiring Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with respect to such
returns. All tax liabilities of the Acquiring Fund have been adequately provided
for on its books, and no tax deficiency or liability of the Acquiring Fund has
been asserted and no question with respect thereto has been raised by the
Internal Revenue Service or by any state or local tax authority for taxes in
excess of those already paid, up to and including the taxable year in which the
Effective Date occurs.
4.12. Qualification under Subchapter M. For each taxable year of its
--------------------------------
operation, the Acquiring Fund has met the requirements of Subchapter M of the
Code for qualification as a RIC and has elected to be treated as such, has been
eligible to and has computed its federal income tax under Section 852 of the
Code, and will have distributed substantially all of its investment company
taxable income and net realized capital gain (as defined in the Code) that has
accrued through the Effective Date.
4.13. Form N-14. The N-14 Registration Statement, on the effective
---------
date of the N-14 Registration Statement, at the time of the shareholders'
meetings referred to in Section 6 of this Agreement and at the Effective Date,
insofar as it relates to the Acquiring Fund (i) shall have complied or will
comply in all material respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder and (ii) did not
or will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the prospectus included therein did not or will not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the
representations and warranties in this Section 4.13 shall not apply to
statements in, or omissions from, the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by the Target Fund
for use in the N-14 Registration Statement.
4.14. Capitalization.
--------------
(a) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws, (ii) are,
and on the Effective Date will be, duly and validly issued and outstanding,
fully paid and non-assessable, and
A-8
(iii) will be held at the time of the Closing by the persons and in the amounts
set forth in the records of the transfer agent. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any of the Acquiring Fund shares, nor is there outstanding any security
convertible into, or exchangeable for, any of the Acquiring Fund shares.
(b) The Acquiring Fund is authorized to issue 500,000,000 shares of
stock, par value $0.001 per share, all of which shares are classified as Common
Stock and each outstanding share of which is fully paid, non-assessable and has
full voting rights.
4.15. Issuance of Stock.
-----------------
(a) The offer and sale of the shares to be issued pursuant to this
Agreement will be in compliance with all applicable federal and state securities
laws.
(b) At or prior to the Effective Date, the Acquiring Fund will have
obtained any and all regulatory, director and shareholder approvals necessary to
issue the Acquiring Fund Common Stock.
4.16. Books and Records. The books and records of the Acquiring Fund
-----------------
made available to the Target Fund are substantially true and correct and contain
no material misstatements or omissions with respect to the operations of the
Acquiring Fund.
5. CONVERSION TO THE ACQUIRING FUND COMMON STOCK
5.1. Conversion.
----------
(a) Subject to the requisite approval of the shareholders of the
parties, and the other terms and conditions contained herein, at the Effective
Date, each share of Common Stock of the Target Fund will be converted into an
equivalent dollar amount (to the nearest one tenth of one cent) of full shares
of the Acquiring Fund Common Stock, computed based on the net asset value per
share of each of the parties at the Valuation Time.
(b) No fractional shares of the Acquiring Fund will be issued to the
Target Fund shareholders. In lieu thereof, the Acquiring Fund will purchase all
fractional shares of the Acquiring Fund at the current net asset value of the
Acquiring Fund for the account of all holders of fractional interests, and each
such holder will receive such holder's pro rata share of the proceeds of such
purchase.
5.2. Computation of Net Asset Value. The net asset value per share of
------------------------------
the parties shall be determined as of the Valuation Time, and no formula will be
used to adjust the net asset value so determined of either of the parties to
take into account differences in realized and unrealized gains and losses. The
value of the assets of the Target Fund to be transferred to the Acquiring Fund
shall be determined by the Acquiring Fund pursuant to the principles and
procedures consistently utilized by the Acquiring Fund in valuing its own assets
and determining its own liabilities for purposes of the Merger, which principles
and procedures are substantially similar to those employed by the Target Fund
when valuing its own assets and determining its own liabilities. Such valuation
and
A-8
determination shall be made by the Acquiring Fund in cooperation with the Target
Fund and shall be confirmed in writing by the Acquiring Fund to the Target Fund.
The net asset value per share of the Acquiring Fund Common Stock shall be
determined in accordance with such procedures, and the Acquiring Fund shall
certify the computations involved.
5.3. Issuance of the Acquiring Fund Common Stock. The Acquiring Fund
-------------------------------------------
shall issue to the shareholders of the Target Fund separate certificates or
share deposit receipts for the Acquiring Fund Common Stock by delivering the
certificates or share deposit receipts evidencing ownership of the Acquiring
Fund Common Stock to PFPC, as the transfer agent and registrar for the Acquiring
Fund Common Stock.
5.4. Surrender of the Target Fund Stock Certificates. With respect to
-----------------------------------------------
any Target Fund shareholder holding certificates representing shares of the
Common Stock of the Target Fund as of the Effective Date, and subject to the
Acquiring Fund being informed thereof in writing by the Target Fund, the
Acquiring Fund will not permit such shareholder to receive new certificates
evidencing ownership of the Acquiring Fund Common Stock until such shareholder
has surrendered his or her outstanding certificates evidencing ownership of the
Common Stock of the Target Fund or, in the event of lost certificates, posted
adequate bond. The Target Fund will request its shareholders to surrender their
outstanding certificates representing certificates of the Common Stock of the
Target Fund or post adequate bond therefor. Dividends payable to holders of
record of shares of the Acquiring Fund as of any date after the Effective Date
and prior to the exchange of certificates by any shareholder of the Target Fund
shall be paid to such shareholder, without interest; however, such dividends
shall not be paid unless and until such shareholder surrenders his or her stock
certificates of the Target Fund for exchange.
6. COVENANTS OF THE PARTIES
6.1. Shareholders' Meetings.
----------------------
(a) Each of the parties shall hold a meeting of its respective
shareholders for the purpose of considering the Merger as described herein,
which meeting has been called by each party for February 28, 2002, and any
adjournments thereof.
(b) Each of the parties agrees to mail to each of its respective
shareholders of record entitled to vote at the meeting of shareholders at which
action is to be considered regarding the Merger, in sufficient time to comply
with requirements as to notice thereof, a combined Proxy Statement and
Prospectus which complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act,
and the rules and regulations, respectively, thereunder.
6.2. Operations in the Normal Course. Each party covenants to operate
-------------------------------
its business in the ordinary course between the date hereof and the Effective
Date, it being understood that such ordinary course of business will include (i)
the declaration and payment of customary dividends and other distributions and
(ii) in the case of the Target Fund, preparing for its deregistration, except
that the distribution of dividends pursuant to Sections 7.11 and 8.9 of this
Agreement shall not be deemed to constitute a breach of the provisions of this
Section 6.2.
A-9
6.3. Articles of Merger. The parties agree that, as soon as practicable
after satisfaction of all conditions to the Merger, they will jointly file
executed Articles of Merger with the Department and make all other filings or
recordings required by Maryland law in connection with the Merger.
6.4. Regulatory Filings.
------------------
(a) The Target Fund undertakes that, if the Merger is consummated, it
will file, or cause its agents to file, an application pursuant to Section 8(f)
of the 1940 Act for an order declaring that the Target Fund has ceased to be a
registered investment company.
(b) The Acquiring Fund will file the N-14 Registration Statement with
the SEC and will use its best efforts to ensure that the N-14 Registration
Statement becomes effective as promptly as practicable. The Target Fund agrees
to cooperate fully with the Acquiring Fund, and will furnish to the Acquiring
Fund the information relating to itself to be set forth in the N-14 Registration
Statement as required by the 1933 Act, the 1934 Act, the 1940 Act, and the rules
and regulations thereunder and the state securities or blue sky laws.
6.5. Preservation of Assets. The Acquiring Fund agrees that it has no
----------------------
plan or intention to sell or otherwise dispose of the assets of the Target Fund
to be acquired in the Merger, except for dispositions made in the ordinary
course of business.
6.6. Tax Matters. Each of the parties agrees that by the Effective
-----------
Date all of its federal and other tax returns and reports required to be filed
on or before such date shall have been filed and all taxes shown as due on said
returns either have been paid or adequate liability reserves have been provided
for the payment of such taxes. In connection with this covenant, the parties
agree to cooperate with each other in filing any tax return, amended return or
claim for refund, determining a liability for taxes or a right to a refund of
taxes or participating in or conducting any audit or other proceeding in respect
of taxes. The Acquiring Fund agrees to retain for a period of ten (10) years
following the Effective Date all returns, schedules and work papers and all
material records or other documents relating to tax matters of the Target Fund
for its final taxable year and for all prior taxable periods. Any information
obtained under this Section 6.6 shall be kept confidential except as otherwise
may be necessary in connection with the filing of returns or claims for refund
or in conducting an audit or other proceeding. After the Effective Date, the
Acquiring Fund shall prepare, or cause its agents to prepare, any federal, state
or local tax returns, including any Forms 1099, required to be filed and
provided to required persons by the Target Fund with respect to its final
taxable years ending with the Effective Date and for any prior periods or
taxable years for which the due date for such return has not passed as of the
Effective Date and further shall cause such tax returns and Forms 1099 to be
duly filed with the appropriate taxing authorities and provided to required
persons. Notwithstanding the aforementioned provisions of this Section 6.6, any
expenses incurred by the Acquiring Fund (other than for payment of taxes) in
excess of any accrual for such expenses by the Target Fund in connection with
the preparation and filing of said tax returns and Forms 1099 after the
Effective Date shall be borne by the Acquiring Fund.
A-10
6.7. Shareholder List. Prior to the Effective Date, the Target Fund
----------------
shall have made arrangements with its transfer agent to deliver to the Acquiring
Fund a list of the names and addresses of all of the shareholders of record of
the Target Fund on the Effective Date and the number of shares of Common Stock
of the Target Fund owned by each such shareholder, certified by the Target
Fund's transfer agent or President to the best of their knowledge and belief.
6.8. Delisting, Termination of Registration as an Investment Company.
---------------------------------------------------------------
The Target Fund agrees that the (i) delisting of the shares of the Target Fund
with the NYSE and (ii) termination of its registration as a RIC will be effected
in accordance with applicable law as soon as practicable following the Effective
Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund hereunder shall be subject to
the following conditions:
7.1. Approval of Merger. This Agreement shall have been approved by
------------------
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Acquiring Fund issued and outstanding and entitled to vote thereon and
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Target Fund issued and outstanding and entitled to vote thereon; and the
Target Fund shall have delivered to the Acquiring Fund a copy of the resolutions
approving this Agreement adopted by its board of directors and shareholders,
certified by its secretary.
7.2. Certificates and Statements by the Target Fund.
----------------------------------------------
(a) The Target Fund shall have furnished a statement of assets,
liabilities and capital, together with a schedule of investments with their
respective dates of acquisition and tax costs, certified on its behalf by its
President (or any Vice President) and its Treasurer, and a certificate executed
by both such officers, dated the Effective Date, certifying that there has been
no material adverse change in its financial position since August 31, 2001,
other than changes in its portfolio securities since that date or changes in the
market value of its portfolio securities.
(b) The Target Fund shall have furnished to the Acquiring Fund a
certificate signed by its President (or any Vice President), dated the Effective
Date, certifying that as of the Effective Dates, all representations and
warranties made in this Agreement are true and correct in all material respects
as if made at and as of such date and each has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied at or prior to such dates.
(c) The Target Fund shall have delivered to the Acquiring Fund a
letter from KPMG LLP, dated the Effective Date, stating that such firm has
performed a limited review of the federal, state and local income tax returns
for the period ended August 31, 2001, and that based on such limited review,
nothing came to their attention which caused them to believe that such returns
did not properly reflect, in all material respects, the federal, state and local
income taxes of the Target Fund for the period covered thereby;
A-11
and that for the period from August 31, 2001 to and including the Effective Date
and for any taxable year ending upon the Effective Date, such firm has performed
a limited review to ascertain the amount of such applicable federal, state and
local taxes, and has determined that either such amount has been paid or
reserves have been established for payment of such taxes, this review to be
based on unaudited financial data; and that based on such limited review,
nothing has come to their attention which caused them to believe that the taxes
paid or reserves set aside for payment of such taxes were not adequate in all
material respects for the satisfaction of federal, state and local taxes for the
period from August 31, 2001, to and including the Effective Date and for any
taxable year ending upon the Effective Date or that the Target Fund would not
continue to qualify as a RIC for federal income tax purposes.
7.3. Absence of Litigation. There shall be no material litigation
---------------------
pending with respect to the matters contemplated by this Agreement.
7.4. Legal Opinions.
--------------
(a) The Acquiring Fund shall have received an opinion of Willkie Farr
& Gallagher, as counsel to the Target Fund, in form and substance reasonably
satisfactory to the Acquiring Fund and dated the Effective Date, to the effect
that (i) the Target Fund is a corporation duly organized, validly existing under
the laws of the State of Maryland and in good standing with the Department; (ii)
the Agreement has been duly authorized, executed and delivered by the Target
Fund, and, assuming that the N-14 Registration Statement complies with the 1933
Act, 1934 Act and the 1940 Act, constitutes a valid and legally binding
obligation of the Target Fund, enforceable in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws pertaining to the enforcement of creditors' rights generally
and by equitable principles; (iii) to the best of such counsel's knowledge, no
consent, approval, authorization or order of any United States federal or
Maryland state court or governmental authority is required for the consummation
by the Target Fund of the Merger, except such as may be required under the 1933
Act, the 1934 Act, the 1940 Act, the published rules and regulations of the SEC
thereunder and under Maryland law and such as may be required by state
securities or blue sky laws; (iv) such counsel does not know of any contracts or
other documents with respect to the Target Fund related to the Merger of a
character required to be described in the N-14 Registration Statement which are
not described therein or, if required to be filed, filed as required; (v) the
execution and delivery of this Agreement does not, and the consummation of the
Merger will not, violate any material provision of the Articles of
Incorporation, as amended, the bylaws, as amended, or any agreement (known to
such counsel) to which the Target Fund is a party or by which the Target Fund is
bound, except insofar as the parties have agreed to amend such provision as a
condition precedent to the Merger; (vi) to the best of such counsel's knowledge,
no material suit, action or legal or administrative proceeding is pending or
threatened against the Target Fund; and (vii) all corporate actions required to
be taken by the Target Fund to authorize this Agreement and to effect the Merger
have been duly authorized by all necessary corporate actions on behalf of the
Target Fund. Such opinion shall also state that (A) while such counsel cannot
make any representation as to the accuracy or completeness of statements of fact
in the N-14 Registration Statement or any amendment or supplement thereto with
respect to the Target Fund, nothing has come to
A-12
their attention that would lead them to believe that, on the respective
effective dates of the N-14 Registration Statement and any amendment or
supplement thereto with respect to the Target Fund, (1) the N-14 Registration
Statement or any amendment or supplement thereto contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading with respect
to the Target Fund, and (2) the prospectus included in the N-14 Registration
Statement contained any untrue statement of a material fact or omitted to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading with respect to the
Target Fund; provided that such counsel need not express any opinion or belief
as to the financial statements, other financial data, statistical data or
information relating to the Target Fund contained or incorporated by reference
in the N-14 Registration Statement. In giving the opinion set forth above,
Willkie Farr & Gallagher may state that it is relying on certificates of
officers of the Target Fund with regard to matters of fact and certain
certificates and written statements of governmental officials with respect to
the good standing of the Target Fund and on the opinion of Venable, Baetjer and
Howard, LLP, as to matters of Maryland law.
(b) The Acquiring Fund shall have received an opinion from Willkie
Farr & Gallagher, as counsel to the Acquiring Fund, dated the Effective Date, to
the effect that for federal income tax purposes (i) the Merger as provided in
this Agreement will constitute a reorganization within the meaning of Section
368(a)(1) of the Code and that the Acquiring Fund and the Target Fund will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code; (ii) no gain or loss will be recognized to the Target Fund as a result of
the Merger or upon the conversion of Target Fund shares to Acquiring Fund Common
Stock; (iii) no gain or loss will be recognized to the Acquiring Fund as a
result of the Merger; (iv) no gain or loss will be recognized to the
shareholders of the Target Fund on the conversion of their Target Fund shares
into Acquiring Fund Common Stock except to the extent such shareholders are paid
cash in lieu of fractional shares of the Acquiring Fund in the Merger; (v) the
tax basis of the Target Fund assets in the hands of the Acquiring Fund will be
the same as the tax basis of such assets in the hands of the Target Fund
immediately prior to the consummation of the Merger; (vi) immediately after the
Merger, the aggregate tax basis of the Acquiring Fund Common Stock received by
each shareholder of the Target Fund in the Merger (including that of fractional
share interests purchased by the Acquiring Fund) will be equal to the aggregate
tax basis of the shares of the Target Fund owned by such Target Fund shareholder
immediately prior to the Merger; (vii) a Target Fund shareholder's holding
period for Acquiring Fund Common Stock (including that of fractional share
interests purchased by the Acquiring Fund) will be determined by including the
period for which he or she held the Target Fund shares converted pursuant to the
Merger, provided that such Target Fund shares were held as a capital asset;
(viii) the Acquiring Fund's holding period with respect to the Target Fund
assets transferred will include the period for which such assets were held by
the Target Fund; and (ix) the payment of cash to the Target Fund shareholders in
lieu of fractional shares of the Acquiring Fund will be treated as though such
fractional shares were distributed as part of the Merger and then redeemed by
the Acquiring Fund with the result that the Target Fund shareholder will
generally have a capital gain or loss to the extent the cash distribution
differs from such shareholder's basis allocable to the fractional Acquiring Fund
shares.
A-13
7.5. Auditor's Consent and Certification. The Acquiring Fund shall
-----------------------------------
have received from KPMG LLP a letter dated as of the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to the
Effective Date, in form and substance satisfactory to the Acquiring Fund, to the
effect that (i) they are independent public accountants with respect to the
Target Fund within the meaning of the 1933 Act and the applicable published
rules and regulations thereunder; and (ii) in their opinion, the financial
statements and supplementary information of the Target Fund included or
incorporated by reference in the N-14 Registration Statement and reported on by
them comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations thereunder.
7.6. Liabilities. The assets or liabilities of the Target Fund to be
-----------
transferred to the Acquiring Fund shall not include any assets or liabilities
which the Acquiring Fund, by reason of limitations in its Registration Statement
or Articles of Incorporation, may not properly acquire or assume. The Acquiring
Fund does not anticipate that there will be any such assets or liabilities but
the Acquiring Fund will notify the Target Fund if any do exist and will
reimburse the Target Fund for any reasonable transaction costs incurred by the
Target Fund for the liquidation of such assets and liabilities.
7.7. Effectiveness of N-14 Registration Statement. The N-14
--------------------------------------------
Registration Statement shall have become effective under the 1933 Act and no
stop order suspending such effectiveness shall have been instituted or, to the
knowledge of the Acquiring Fund, contemplated by the SEC.
7.8. Regulatory Filings. Any applicable waiting period under the HSR
------------------
Act relating to the transactions contemplated hereby shall have expired or been
terminated.
7.9. Administrative Rulings, Proceedings. The SEC shall not have
-----------------------------------
issued an unfavorable advisory report under Section 25(b) of the 1940 Act, nor
instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Merger under Section 25(c) of the 1940 Act; no other legal,
administrative or other proceeding shall be instituted or threatened which would
materially affect the financial condition of the Target Fund or would prohibit
the Merger.
7.10. Satisfaction of the Acquiring Fund. All proceedings taken by the
----------------------------------
Target Fund and its counsel in connection with the Merger and all documents
incidental thereto shall be satisfactory in form and substance to the Acquiring
Fund.
7.11. Dividends. Prior to the Effective Date, the Target Fund shall
---------
have declared and paid a dividend or dividends which, together with all such
previous dividends, shall have the effect of distributing to its shareholders
substantially all of its net investment company taxable income that has accrued
through the Effective Date, if any (computed without regard to any deduction of
dividends paid), and substantially all of its net capital gain, if any, realized
through the Effective Date.
7.12. Custodian's Certificate. The Target Fund's custodian shall have
-----------------------
delivered to the Acquiring Fund a certificate identifying all of the assets of
the Target Fund held or maintained by such custodian as of the Valuation Time.
A-14
7.13. Books and Records. The Target Fund's transfer agent shall have
-----------------
provided to the Acquiring Fund (i) the originals or true copies of all of the
records of the Target Fund in the possession of such transfer agent as of the
Exchange Date, (ii) a certificate setting forth the number of shares of the
Target Fund outstanding as of the Valuation Time, and (iii) the name and address
of each holder of record of any shares and the number of shares held of record
by each such shareholder.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE TARGET FUND
The obligations of the Target Fund hereunder shall be subject to the
following conditions:
8.1. Approval of Merger. This Agreement shall have been approved, by
------------------
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Target Fund issued and outstanding and entitled to vote thereon and the
affirmative vote of the holders of a majority of the shares of Common Stock of
the Acquiring Fund issued and outstanding and entitled to vote thereon; and that
the Acquiring Fund shall have delivered to the Target Fund a copy of the
resolutions approving this Agreement adopted by its board of directors and
shareholders, certified by its secretary.
8.2. Certificates and Statements by the Acquiring Fund.
-------------------------------------------------
(a) The Acquiring Fund shall have furnished a statement of assets,
liabilities and capital, together with a schedule of investments with their
respective dates of acquisition and tax costs, certified on its behalf by its
President (or any Vice President) and its Treasurer, and a certificate executed
by both such officers, dated the Effective Date, certifying that there has been
no material adverse change in its financial position since May 31, 2001, other
than changes in its portfolio securities since that date or changes in the
market value of its portfolio securities.
(b) The Acquiring Fund shall have furnished to the Target Fund a
certificate signed by its President (or any Vice President), dated the Effective
Date, certifying that as of the Effective Date, all representations and
warranties made in this Agreement are true and correct in all material respects
as if made at and as of such date and each has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied at or prior to such dates.
(c) The Acquiring Fund shall have delivered to the Target Fund a
letter from KPMG LLP, dated the Effective Date, stating that such firm has
performed a limited review of the federal, state and local income tax returns
for the period ended May 31, 2001, and that based on such limited review,
nothing came to their attention which caused them to believe that such returns
did not properly reflect, in all material respects, the federal, state and local
income taxes of the Acquiring Fund for the period covered thereby; and that for
the period from May 31, 2001 to and including the Effective Date, such firm has
performed a limited review to ascertain the amount of such applicable federal,
state and local taxes, and has determined that either such amount has been paid
or reserves established for payment of such taxes, this review to be based on
unaudited financial data; and that based on such limited review, nothing has
come to their attention which caused
A-15
them to believe that the taxes paid or reserves set aside for payment of such
taxes were not adequate in all material respects for the satisfaction of
federal, state and local taxes for the period from May 31, 2001, to and
including the Effective Date or that the Acquiring Fund would not continue to
qualify as a RIC for federal income tax purposes.
8.3. Absence of Litigation. There shall be no material litigation
---------------------
pending with respect to the matters contemplated by this Agreement.
8.4. Legal Opinions.
--------------
(a) The Target Fund shall have received an opinion of Willkie Farr &
Gallagher, as counsel to the Acquiring Fund, in form and substance reasonably
satisfactory to the Target Fund and dated the Effective Date, to the effect that
(i) the Acquiring Fund is a corporation duly organized, validly existing under
the laws of the State of Maryland and in good standing with the Department; (ii)
the Agreement has been duly authorized, executed and delivered by the Acquiring
Fund, and, assuming that the N-14 Registration Statement complies with the 1933
Act, 1934 Act and the 1940 Act, constitutes a valid and legally binding
obligation of the Acquiring Fund, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws pertaining to the enforcement of creditors'
rights generally and by equitable principles; (iii) to the best of such
counsel's knowledge, no consent, approval, authorization or order of any United
States federal or Maryland state court or governmental authority is required for
the consummation by the Acquiring Fund of the Merger, except such as may be
required under the 1933 Act, the 1934 Act, the 1940 Act and the published rules
and regulations of the SEC thereunder and under Maryland law and such as may be
required under state securities or blue sky laws; (iv) the N-14 Registration
Statement has become effective under the 1933 Act, no stop order suspending the
effectiveness of the N-14 Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the 1933 Act, and, with respect to the Acquiring Fund, the N-14
Registration Statement, and each amendment or supplement thereto, as of their
respective effective dates, appear on their face to be appropriately responsive
in all material respects to the requirements of the 1933 Act, the 1934 Act and
the 1940 Act and the published rules and regulations of the SEC thereunder; (v)
such counsel does not know of any statutes, legal or governmental proceedings or
contracts with respect to the Acquiring Fund or other documents related to the
Merger of a character required to be described in the N-14 Registration
Statement which are not described therein or, if required to be filed, filed as
required; (vi) the execution and delivery of this Agreement does not, and the
consummation of the Merger will not, violate any material provision of the
Articles of Incorporation, as amended, the bylaws, as amended, or any agreement
(known to such counsel) to which the Acquiring Fund is a party or by which the
Acquiring Fund is bound, except insofar as the parties have agreed to amend such
provision as a condition precedent to the Merger; (vii) to the best of such
counsel's knowledge, no material suit, action or legal or administrative
proceeding is pending or threatened against the Acquiring Fund; and (viii) all
corporate actions required to be taken by the Acquiring Fund to authorize this
Agreement and to effect the Merger have been duly authorized by all necessary
corporate actions on behalf of the Acquiring Fund. Such opinion shall also state
that (A) while such counsel cannot make any representation as to the accuracy or
completeness of statements of fact in the N-14
A-16
Registration Statement or any amendment or supplement thereto with respect to
the Acquiring Fund, nothing has come to their attention that would lead them to
believe that, on the respective effective dates of the N-14 Registration
Statement and any amendment or supplement thereto, (1) the N-14 Registration
Statement or any amendment or supplement thereto contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading with respect
to the Acquiring Fund; and (2) the prospectus included in the N-14 Registration
Statement contained any untrue statement of a material fact or omitted to state
any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading with respect to the
Acquiring Fund; provided that such counsel need not express any opinion or
belief as to the financial statements, other financial data, statistical data or
information relating to the Acquiring Fund contained or incorporated by
reference in the N-14 Registration Statement. In giving the opinion set forth
above, Willkie Farr & Gallagher may state that it is relying on certificates of
officers of the Acquiring Fund with regard to matters of fact and certain
certificates and written statements of governmental officials with respect to
the good standing of the Acquiring Fund and on the opinion of Venable, Baetjer
and Howard, LLP as to matters of Maryland law.
(b) The Target Fund shall have received an opinion from Willkie Farr &
Gallagher and dated the Effective Date, to the effect that for federal income
tax purposes (i) the Merger as provided in this Agreement will constitute a
reorganization within the meaning of Section 368(a)(1) of the Code and that the
Acquiring Fund and the Target Fund will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized to the Target Fund as a result of the Merger or upon the conversion
of Target Fund shares to Acquiring Fund Common Stock; (iii) no gain or loss will
be recognized to the Acquiring Fund as a result of the Merger; (iv) no gain or
loss will be recognized to the shareholders of the Target Fund on the conversion
of their Target Fund shares into Acquiring Fund Common Stock except to the
extent such shareholders are paid cash in lieu of fractional shares of the
Acquiring Fund in the Merger; (v) the tax basis of the Target Fund assets in the
hands of the Acquiring Fund will be the same as the tax basis of such assets in
the hands of the Target Fund immediately prior to the consummation of the
Merger; (vi) immediately after the Merger, the aggregate tax basis of the
Acquiring Fund Common Stock received by each shareholder of the Target Fund in
the Merger (including that of fractional share interests purchased by the
Acquiring Fund) will be equal to the aggregate tax basis of the shares of the
Target Fund owned by such Target Fund shareholder immediately prior to the
Merger; (vii) a Target Fund shareholder's holding period for Acquiring Fund
Common Stock (including that of fractional share interests purchased by the
Acquiring Fund) will be determined by including the period for which he or she
held the Target Fund shares converted pursuant to the Merger, provided that such
Target Fund shares were held as a capital asset; (viii) the Acquiring Fund's
holding period with respect to the Target Fund assets transferred will include
the period for which such assets were held by the Target Fund; and (ix) the
payment of cash to the Target Fund shareholders in lieu of fractional shares of
the Acquiring Fund will be treated as though such fractional shares were
distributed as part of the Merger and then redeemed by the Acquiring Fund with
the result that the Target Fund shareholder will generally have a capital gain
or loss to the extent the cash distribution differs from such shareholder's
basis allocable to the fractional Acquiring Fund shares.
A-17
8.5. Auditors' Consent and Certification. The Target Fund shall have
-----------------------------------
received from KPMG LLP a letter dated as of the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to the
Effective Date, in form and substance satisfactory to the Target Fund, to the
effect that (i) they are independent public accountants with respect to the
Acquiring Fund within the meaning of the 1933 Act and the applicable published
rules and regulations thereunder; and (ii) in their opinion, the financial
statements and supplementary information of the Acquiring Fund incorporated by
reference in the N-14 Registration Statement and reported on by them comply as
to form in all material respects with the applicable accounting requirements of
the 1933 Act and the published rules and regulations thereunder.
8.6. Effectiveness of N-14 Registration Statement. The N-14
--------------------------------------------
Registration Statement shall have become effective under the 1933 Act and no
stop order suspending such effectiveness shall have been instituted or, to the
knowledge of the Target Fund, contemplated by the SEC.
8.7. Regulatory Filings.
------------------
(a) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(b) The SEC shall not have issued an unfavorable advisory report under
Section 25(b) of the 1940 Act, nor instituted or threatened to institute any
proceeding seeking to enjoin consummation of the Merger under Section 25(c) of
the 1940 Act; no other legal, administrative or other proceeding shall be
instituted or threatened which would materially affect the financial condition
of the Target Fund or would prohibit the Merger.
(c) The Acquiring Fund shall have received from any relevant state
securities administrator such order or orders as are reasonably necessary or
desirable under the 1933 Act, the 1934 Act, the 1940 Act, and any applicable
state securities or blue sky laws in connection with the transactions
contemplated hereby, and that all such orders shall be in full force and effect.
8.8. Satisfaction of the Target Fund. All proceedings taken by the
-------------------------------
Acquiring Fund and its counsel in connection with the Merger and all documents
incidental thereto shall be satisfactory in form and substance to the Target
Fund.
8.9. Dividends. Prior to the Effective Date, the Acquiring Fund shall
---------
have declared and paid a dividend or dividends which, together with all such
previous dividends, shall have the effect of distributing to its shareholders
substantially all of its net investment company taxable income that has accrued
through the Effective Date, if any (computed without regard to any deduction of
dividends paid), and substantially all of its net capital gain, if any, realized
through the Effective Date.
9. PAYMENT OF EXPENSES
All expenses incurred in connection with the Merger of the Acquiring
Fund and the Target Fund will be borne by the Funds in proportion to their
respective total
A-18
assets in the event the Merger is consummated. Such expenses shall include, but
not be limited to, all costs related to the preparation and distribution of the
N-14 Registration Statement, proxy solicitation expenses, SEC registration fees,
and NYSE listing fees. Neither of the Acquiring Fund and the Target Fund owes
any broker's or finder's fees in connection with the transactions provided for
herein.
10. COOPERATION FOLLOWING EFFECTIVE DATE
In case at any time after the Effective Date any further action is
necessary to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as the other party may reasonably request, all at the
sole cost and expense of the requesting party (unless the requesting party is
entitled to indemnification as described below). The Target Fund acknowledges
and agrees that from and after the Effective Date, the Acquiring Fund shall be
entitled to possession of all documents, books, records, agreements and
financial data of any sort pertaining to the Target Fund.
11. INDEMNIFICATION
11.1. The Target Fund. The Acquiring Fund agrees to indemnify and hold
---------------
harmless the Target Fund and each of the Target Fund's directors and officers
from and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the Target
Fund or any of its directors or officers may become subject, insofar as any such
loss, claim, damage, liability or expense (or actions with respect thereto)
arises out of or is based on any breach by the Acquiring Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
11.2. The Acquiring Fund. The Target Fund agrees to indemnify and hold
------------------
harmless the Acquiring Fund and each of the Acquiring Fund's directors and
officers from and against any and all losses, claims, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally, the Acquiring
Fund or any of its directors or officers may become subject, insofar as any such
loss, claim, damage, liability or expense (or actions with respect thereto)
arises out of or is based on any breach by the Target Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
12. TERMINATION, POSTPONEMENT AND WAIVERS
12.1. Termination.
-----------
(a) Notwithstanding anything to the contrary in this Agreement, this
Agreement may be terminated and the Merger abandoned at any time (whether before
or after adoption by the shareholders of each of the parties) prior to the
Effective Date, or the Effective Date may be postponed, (i) by mutual agreement
of the parties' board of directors; (ii) by the board of directors of the
Acquiring Fund if any of the obligations of the Target Fund set forth in this
Agreement has not been fulfilled or waived by such board or if the Target Fund
has made a material and intentional misrepresentation herein or in connection
herewith; or (iii) by the board of directors of the Target Fund if any of the
A-19
obligations of the Acquiring Fund set forth in this Agreement has not been
fulfilled or waived by such board or if the Acquiring Fund has made a material
and intentional misrepresentation herein or in connection herewith.
(b) If the transaction contemplated by this Agreement shall not have
been consummated by December 31, 2002, this Agreement automatically shall
terminate on that date, unless a later date is mutually agreed to by the boards
of directors of the parties.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the Agreement shall become void and have no further effect,
and there shall not be any liability hereunder on the part of either of the
parties or their respective directors or officers, except for any such material
breach or intentional misrepresentation, as to each of which all remedies at law
or in equity of the party adversely affected shall survive.
12.2. Waiver. At any time prior to the Effective Date, any of the
------
terms or conditions of this Agreement may be waived by the board of directors of
either the Target Fund or the Acquiring Fund (whichever is entitled to the
benefit thereof), if, in the judgment of such board after consultation with its
counsel, such action or waiver will not have a material adverse effect on the
benefits intended in this Agreement to the shareholders of their respective
fund, on behalf of which such action is taken.
12.3. Expiration of Representations and Warranties.
--------------------------------------------
(a) The respective representations and warranties contained in
Articles 3 and 4 of this Agreement shall expire with, and be terminated by, the
consummation of the Merger, and neither of the parties nor any of their
officers, directors, agents or shareholders shall have any liability with
respect to such representations or warranties after the Effective Date. This
provision shall not protect any officer, director, agent or shareholder of the
parties against any liability to the entity for which that officer, director,
agent or shareholder so acts or to its shareholders to which that officer,
director, agent or shareholder would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.
(b) If any order or orders of the SEC with respect to this Agreement
shall be issued prior to the Effective Date and shall impose any terms or
conditions which are determined by action of the boards of directors of the
parties to be acceptable, such terms and conditions shall be binding as if a
part of this Agreement without further vote or approval of the shareholders of
the parties, unless such terms and conditions shall result in a change in the
method of computing the number of shares of the Acquiring Fund Common Stock to
be issued pursuant to this Agreement, in which event, unless such terms and
conditions shall have been included in the proxy solicitation materials
furnished to the shareholders of the parties prior to the meetings at which the
Merger shall have been approved, this Agreement shall not be consummated and
shall terminate unless the parties call special meetings of shareholders at
which such conditions so imposed shall be submitted for approval.
A-20
13. MISCELLANEOUS
13.1. Transfer Restriction. Pursuant to Rule 145 under the 1933 Act,
and in connection with the issuance of any shares to any person who at the time
of the Merger is, to its knowledge, an affiliate of a party to the Merger
pursuant to Rule 145(c), the Acquiring Fund will cause to be affixed upon the
certificate(s) issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO MANAGED MUNICIPALS PORTFOLIO INC. (OR ITS STATUTORY
SUCCESSOR) UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT
REQUIRED.
and, further, that stop transfer instructions will be issued to the Acquiring
Fund's transfer agent with respect to such shares. The Target Fund will provide
the Acquiring Fund on the Effective Date with the name of any Target Fund
Shareholder who is to the knowledge of the Target Fund an affiliate of it on
such date.
13.2. Material Provisions. All covenants, agreements, representations
-------------------
and warranties made under this Agreement and any certificates delivered pursuant
to this Agreement shall be deemed to have been material and relied upon by each
of the parties, notwithstanding any investigation made by them or on their
behalf.
13.3. Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
A-21
If to the Target Fund:
Christina T. Sydor, Esq.
Secretary
Managed Municipals Portfolio II Inc.
666 Fifth Avenue
New York, New York 10103
With copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
If to the Acquiring Fund:
Christina T. Sydor, Esq.
Secretary
Managed Municipals Portfolio Inc.
666 Fifth Avenue
New York, New York 10103
With copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Any party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
13.4. Amendments. This Agreement may be amended, modified or
----------
supplemented in such manner as may be mutually agreed upon in writing by the
authorized officers of the Target Fund and the Acquiring Fund; provided,
however, that following the meeting of the Target Fund and the Acquiring Fund
shareholders to approve the Merger, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund shares
to be issued to the Target Fund shareholders under this Agreement to the
detriment of such shareholders without their further approval.
A-22
13.5. Headings. The Article headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.6. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original.
13.7. Enforceability. Any term or provision of this Agreement that is
--------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
13.8. Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the parties hereto and their respective successors and assigns,
but no assignment or transfer hereof or of any rights or obligations hereunder
shall be made by any party without the written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed to confer
upon or give any person, firm or corporation, other than the parties hereto and
the shareholders of the parties and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
13.9. Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with the laws of the State of Maryland,
without regard to its principles of conflicts of law.
A-23
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its President or Vice President and its seal to be
affixed thereto and attested by its Secretary or Assistant Secretary.
MANAGED MUNICIPALS PORTFOLIO INC.
By: --------------------------------------------------------------[SEAL]
Name:
------------------------------------------------------------------
Attest:
----------------------------------------------------------------
Title:
-----------------------------------------------------------------
MANAGED MUNICIPALS PORTFOLIO II INC.
By: --------------------------------------------------------------[SEAL]
Name:
------------------------------------------------------------------
Attest:
----------------------------------------------------------------
Title:
-----------------------------------------------------------------
A-24
EXHIBIT B
Issuances of Senior Securities - Investment Company Act Requirements
--------------------------------------------------------------------
The Investment Company Act permits a registered closed-end investment
company, such as Managed Municipals Portfolio Inc. (the "Fund"), to issue senior
securities, and to sell senior securities of which it is the issuer, under
certain circumstances as summarized below.
First of all, such issuance must be consistent with the fundamental
investment restrictions and any other fundamental policies of the fund. Proposal
2, if approved by the shareholders, will allow the Fund to issue senior
securities to the extent permitted under the Investment Company Act.
If such class of senior security represents an indebtedness ("debt
securities"), then the following requirements must be met:
(a) such debt securities must have an asset coverage (meaning the
ratio which the value of the total assets of the investment
company, less all liabilities and indebtedness not represented by
senior securities, bears to the aggregate amount of debt
securities) of at least 300% immediately after the issuance or
sale of such debt securities;
(b) provision must be made to prohibit the declaration of any
dividend (other than a stock dividend) or the declaration of any
other distribution upon any class of the capital stock of the
investment company, or the purchase of any such capital stock by
the company, unless, after giving effect to such action, such
debt securities have an asset coverage (at the time of the
declaration or purchase and after deducting the amount of such
dividend, distribution or purchase price) of at least 300% (200%
in the case of any dividends on preferred stock); and
(c) provision must be made either that:
(i) if on the last business day of each of twelve consecutive
calendar months such debt securities have an asset coverage
of less than 100%, the holders of the securities voting as a
class will be entitled to elect at least a majority of the
members of the board of directors of the investment company,
until such debt securities have an asset coverage of at
least 110% on the last business day of three consecutive
calendar months, or
(ii) if on the last business day of each of twenty-four
consecutive calendar months the debt securities have an
asset coverage of less than 100%, an event of default shall
be deemed to have occurred.
The Fund currently has a fundamental investment restriction
prohibiting the borrowing of money except under certain limited circumstances,
and thus the Fund generally may not issue senior securities in the form of debt.
The Fund has not sought and is not now seeking any changes to this fundamental
investment restriction.
B-1
If the senior securities are stock ("preferred stock"), then the
following requirements must be met:
(a) the preferred stock must have an asset coverage (meaning
the ratio which the value of the total assets of the investment
company, less all liabilities and indebtedness not represented by
senior securities, bears to the aggregate amount of debt securities
of such company plus the involuntary liquidation preference of the
preferred stock of such company) of at least 200% immediately after
such issuance or sale;
(b) provision must be made to prohibit the declaration of any
dividend (other than a dividend payable in common stock) or the
declaration of any other distribution upon the common stock of the
company, or the purchase of any such common stock, unless, after
giving effect to such action, such preferred stock has an asset
coverage of at least 200%;
(c) provision must be made to entitle the holders of such
preferred stock, voting as a class, to elect at least two directors
at all times, and, subject to the prior rights, if any, of the
holders of any debt securities outstanding, to elect a majority of
the directors if at any time dividends on the preferred stock are
unpaid in an amount equal to two full years' dividends, and to
continue to be so represented until all dividends in arrears are
paid or otherwise provided for;
(d) provision must be made requiring approval by the vote of a
majority of the outstanding shares of the preferred stock (which,
as defined under the Investment Company Act, means the lesser of
(i) 67% of the shares present at the meeting if a quorum is present
or (ii) more than 50% of the outstanding shares), voting as a
class, of any plan of reorganization adversely affecting such
preferred stock; of any action to change the classification of the
investment company from a non-diversified to a diversified company;
of any action to change its classification from a closed-end
investment company to an open-end investment company; or of any
action to borrow money, issue senior securities, underwrite
securities of other persons, purchase or sell real estate or
commodities or make loans to other persons (all other than as
authorized in such company's registration statement under the
Investment Company Act), deviate from fundamental investment
restrictions or other fundamental policies or change the nature of
the business of such company so as to cease to be an investment
company; and
(e) such class of stock must have complete priority over any
other class as to distribution of assets and payment of dividends,
which dividends must be cumulative.
The Investment Company Act limits a registered closed-end investment
company such as the Fund to one class of debt securities and to one class of
preferred stock, except that (i) any such class may be issued in one or more
series so long as no such series has a preference or priority over any other
series upon the distribution of the assets of such company or in respect of the
payment of interest or dividends and (ii) promissory notes or other evidences of
indebtedness issued in consideration of any loan, extension or renewal thereof,
made by a bank or other person and privately arranged, and not intended to be
B-2
publicly distributed, are not deemed to be a separate class of debt securities.
In addition, debt securities do not include any promissory note or other
evidence of indebtedness for temporary purposes only and in an amount not
exceeding 5% of the value of the total assets of the investment company at that
time.
B-3
EXHIBIT C
MANAGED MUNICIPALS PORTFOLIO II INC.
AUDIT COMMITTEE CHARTER
I. Composition of the Audit Committee: The Audit Committee shall
be comprised of at least three directors, each of whom shall have no
relationship to Managed Municipals Portfolio II Inc. (the "Company") that may
interfere with the exercise of their independence from management and the
Company and shall otherwise satisfy the applicable membership requirements under
the rules of the New York Stock Exchange, Inc., as such requirements are
interpreted by the board of directors in its business judgment.
II. Purposes of the Audit Committee: The purposes of the Audit
Committee are to assist the board of directors:
1. in its oversight of the Company's accounting and financial
reporting principles and policies and audit controls and procedures;
2. in its oversight of the Company's financial statements and the
independent audit thereof;
3. in selecting (or nominating the outside auditors to be proposed
for shareholder approval in any proxy statement), evaluating and, where deemed
appropriate, replacing the outside auditors; and
4. in evaluating the independence of the outside auditors.
The function of the Audit Committee is oversight. The management
of the Company is responsible for the preparation, presentation and integrity of
the Company's financial statements. Management and the internal auditing
department are responsible for maintaining appropriate accounting and financial
reporting principles and policies and internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and
regulations. The outside auditors are responsible for planning and carrying out
a proper audit in accordance with Generally Accepted Auditing Standards. In
fulfilling their responsibilities hereunder, it is recognized that members of
the Audit Committee are not full-time employees of the Company and are not, and
do not represent themselves to be, accountants or auditors by profession or
experts in the fields of accounting or auditing. As such, it is not the duty or
responsibility of the Audit Committee or its members to conduct "field work" or
other types of auditing or accounting reviews or procedures, and each member of
the Audit Committee shall be entitled to rely on (i) the integrity of those
persons and organizations within and outside the Company that it receives
information from and (ii) the accuracy of the financial and other information
provided to the Audit Committee by such persons and organizations absent actual
knowledge to the contrary (which shall be promptly reported to the board of
directors).
The outside auditors for the Company are ultimately accountable to
the Board of Directors (as assisted by the Audit Committee). The Board of
Directors, with the assistance of the Audit Committee, has ultimate authority
and responsibility to select,
C-1
evaluate and, where appropriate, replace the outside auditors (or to nominate
the outside auditors to be proposed for shareholder approval in the proxy
statement).
The outside auditors shall submit to the Audit Committee annually a
formal written statement delineating all relationships between the outside
auditors and the Company ("Statement as to Independence") which, in the
auditor's professional judgment may be reasonably thought to bear on the
independence, addressing at least the matters set forth in Independence
Standards Board No. 1.
III. Meetings of the Audit Committee: The Audit Committee shall meet at
least annually with the outside auditors to discuss the annual audited financial
statements and results of their audit. The Audit Committee may request any
officer or employee of the Company or the Company's outside counsel or outside
auditors to attend a meeting of the Audit Committee or to meet with any members
of, or consultants to, the Audit Committee.
IV. Duties and Powers of the Audit Committee: To carry out its
purposes, the Audit Committee shall have the following duties and powers:
1. to provide advice to the Board of Directors in selecting,
evaluating or replacing outside auditors;
2. to review the fees charged by the outside auditors for audit and
non-audit services;
3. to ensure that the outside auditors prepare and deliver annually
a Statement as to Independence (it being understood that the
outside auditors are responsible for the accuracy and
completeness of this Statement), to discuss with the outside
auditors any relationships or services disclosed in this
Statement that may impact the objectivity and independence of the
Company's outside auditors and to recommend that the Board of
Directors take appropriate action in response to this Statement
to satisfy itself of the outside auditors' independence;
4. to instruct the auditors that the outside auditors are ultimately
accountable to the Board of Directors and Audit Committee;
5. to advise management and the outside auditors that they are
expected to provide to the Audit Committee a timely analysis of
significant financial reporting issues and practices;
6. to consider any reports or communications (and management's
responses thereto) submitted to the Audit Committee by the
outside auditors required by or referred to in SAS 61 (as
codified by AU Section 380), as may be modified or supplemented,
including reports and communications related to:
o deficiencies noted in the audit in the design or operation
of internal controls;
C-2
o consideration of fraud in a financial statement audit;
o detection of illegal acts;
o the outside auditors' responsibility under generally
accepted auditing standards;
o significant accounting policies;
o management judgments and accounting estimates;
o adjustments arising from the audit;
o the responsibility of the outside auditors for other
information in documents containing audited financial
statements;
o disagreements with management;
o consultation by management with other accountants;
o major issues discussed with management prior to retention of
the outside auditors;
o difficulties encountered with management in performing the
audit;
o the outside auditors' judgments about the quality of the
entity's accounting principles; and
o reviews of interim financial information conducted by the
outside auditors.
7. with respect to reporting and recommendations, to discuss with the
Company's General Counsel any significant legal matters that may have a material
effect on the financial statements, the Company's compliance policies, including
material notices to or inquiries received from governmental agencies;
8. to prepare any report, including any recommendation of the Audit
Committee, required by the rules of the Securities and Exchange Commission to be
included in the Company's annual proxy statement;
9. to review this Charter at least annually and recommend any changes
to the full Board of Directors; and
10. to report its activities to the full Board of Directors on a
regular basis and to make such recommendations with respect to the above and
other matters as the Audit Committee may deem necessary or appropriate.
V. Resources and Authority of the Audit Committee: The Audit Committee
shall have the resources and authority appropriate to discharge its
responsibilities, including the authority to engage outside auditors for special
duties, reviews and other procedures and to retain special counsel and other
experts or consultants.
C-3
PROXY CARD FOR
MANAGED MUNICIPALS PORTFOLIO INC.
D-1
PROXY
MANAGED MUNICIPALS PORTFOLIO INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Heath B. McLendon, Christina T. Sydor
and William J. Renahan, and each of them, as Proxies, each with the power to
appoint his or her substitute, and hereby authorizes them to represent and to
vote, as designated on the reverse side and in accordance with their judgment on
such other matters as may properly come before the meeting or any adjournments
or postponements thereof, all shares of Managed Municipals Portfolio Inc. (the
"Fund") that the undersigned is entitled to vote at the special meeting of
shareholders to be held on February 28, 2002, and at any adjournments or
postponements thereof.
- ----------------- -------------------
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
- ----------------- -------------------
D-2
[ ] Please mark
votes as in
this example
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" the Proposals. The Board of Directors recommends a vote
"FOR" Proposal 1, and "FOR" Proposal 2.
FOR AGAINST ABSTAIN
1. To approve a Merger Agreement and Plan [ ] [ ] [ ]
of Reorganization whereby Managed
Municipals Portfolio II Inc. would merge
with and into the Fund.
2. To approve a change in the Fund's FOR AGAINST ABSTAIN
investmenT restriction regarding [ ] [ ] [ ]
issuance of senior securities.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If in a
partnership, please sign in partnership name by authorized person.
Signature: Date:
------------------------- ---------------
Signature: Date:
------------------------- ---------------
D-3
PROXY CARD FOR
MANAGED MUNICIPALS PORTFOLIO II INC.
E-1
PROXY
P MANAGED MUNICIPALS PORTFOLIO II INC.
R This Proxy is Solicited on Behalf of the Board of Directors
O The undersigned hereby appoints Heath B. McLendon, Christina
T. Sydor and William J. Renahan, and each of them, as
X Proxies, each with the power to appoint his or her
substitute, and hereby authorizes them to represent and to
Y vote, as designated on the reverse side and in accordance
with their judgment on such other matters as may properly
come before the meeting or any adjournments or postponements
thereof, all shares of Managed Municipals Portfolio II Inc.
(the "Fund") that the undersigned is entitled to vote at the
annual meeting of shareholders to be held on February 28,
2002, and at any adjournments or postponements thereof.
- ----------------- -------------------
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
- ----------------- -------------------
E-2
[ ] Please mark
votes as in
this example
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this proxy will be voted
"FOR" the Proposals.
The Board of Directors recommends a vote "FOR" Proposal 1 and "FOR" the nominees
in Proposal 2.
1. To approve a Merger Agreement and Plan of FOR AGAINST ABSTAIN
Reorganization whereby the Fund would merge [ ] [ ] [ ]
with and into Managed Municipals Portfolio Inc.
2. To elect the following nominees as
Directors Nominees: Robert A. Frankel (three-year term)
Heath B. McLendon (three-year term)
George M. Pavia (three-year term)
FOR [ ] [ ] WITHHOLD
ALL ALL
NOMINEES NOMINEES
- ---------------------------------------
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If in a
partnership, please sign in partnership name by authorized person.
Signature: Date:
------------------------- ---------------
Signature: Date:
------------------------- ---------------
E-3
PART B
SUBJECT TO COMPLETION, DATED November 16, 2001
MANAGED MUNICIPALS PORTFOLIO INC.
Statement of Additional Information
merger of
MANAGED MUNICIPALS PORTFOLIO II INC.
125 Broad street
NEW YORK, NEW YORK 10004
1 (800) 331-1710
WITH AND INTO
MANAGED MUNICIPALS PORTFOLIO inc.
125 Broad street
NEW YORK, NEW YORK 10004
1 (800) 331-1710
This Statement of Additional Information ("SAI") relates specifically
to the proposed merger (the "Merger") of Managed Municipals Portfolio II Inc.
("MTU") with and into Managed Municipals Portfolio Inc. ("MMU") in accordance
with the General Corporation Law of the State of Maryland. Each of the following
documents accompanies this Statement of Additional Information and is
incorporated by reference herein:
(1) Prospectus for MMU, dated September 28, 2000; (2) Prospectus for MTU, dated
December 29, 2000; (3) Annual Report for MMU for the year ended May 31, 2001;
and (4) Annual Report for MTU for the year ended August 31, 2001.
This Statement of Additional Information is not a prospectus and should
be read only in conjunction with the Proxy Statement/Prospectus dated
__________ , 2001, relating to the Merger. A copy of the Proxy
Statement/Prospectus may be obtained without charge by writing to either Fund at
125 Broad Street, New York, New York 10004 or by calling 1-(800) 331-1710.
This Statement of Additional Information is dated _________________ , 2001
FINANCIAL STATEMENTS
The audited financial statements, notes to the financial statements and
report of the independent auditors of the MMU and MTU for the fiscal years ended
May 31, 2001 and August 31, 2001, respectively, are incorporated by reference
herein and are included in the Funds' Annual Reports to Shareholders. The Annual
and Semi-Annual Reports may be obtained without charge, by writing to either
Fund at 125 Broad Street, New York, New York 10004, or by calling 1-(800)
331-1710.
PRO FORMA FINANCIAL STATEMENTS
The following tables set forth the unaudited pro forma condensed
statement of assets and liabilities and unaudited pro forma condensed statement
of operations for each Fund as of and for the period ending May 31, 2001 and as
adjusted to give effect to the Merger.
-2-
Merger of Managed Municipals Portfolio II into Managed Municipals Portfolio
Combined
Managed Managed Managed
Municipals Municipals Municipal-
Portfolio Portfolio II Adjustments Portfolio
---------- ------------ ----------- ---------
As of As of
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES (unaudited) 05/31/2001 05/31/2001
ASSETS:
Investments, at value (Cost -- $376,413,337 and $119,991,146) $376,607,220 $119,290,188 $495,897,408
Cash 91,970 -- 91,970
Interest receivable 5,506,047 1,635,927 7,141,974
Receivable for securities sold 2,998,885 -- 2,998,885
------------ ------------- ------------ -------------
Total Assets $385,204,122 $120,926,115 -- $506,130,237
============ ============ ============ ============
LIABILITIES:
Payable for securities purchased 10,646,336 2,437,594 13,083,930
Dividends payable 406,718 152,926 559,644
Management fees payable 152,340 50,122 202,462
Administration fees payable 63,556 14,137 77,693
Payable to bank -- 7,320 7,320
Accrued expenses and other liabilities 157,303 77,253 234,556
------------ ------------- ------------ ------------
Total Liabilities 11,426,253 2,739,352 -- 14,165,605
------------ ------------- ------------ ------------
Net Assets $373,777,869 $118,186,763 -- $491,964,632
============ ============ ============ ============
NET ASSETS:
Par value of capital shares 31,849 10,207 42,056
Capital paid in excess of par value 387,408,505 124,518,857 511,927,362
Undistributed net investment income (loss) 22,877 (76,222) (53,345)
Accumulated net realized gain (loss) (13,879,245) (5,565,121) (19,444,366)
Net unrealized appreciation (depreciation) of investments 193,883 (700,958) (507,075)
------------ ------------- ------------ ------------
Net Assets $373,777,869 $118,186,763 -- $491,964,632
============ ============ ============ ============
Outstanding Shares: 31,848,644 10,207,406 (139,113) 41,916,937
- ------------------ ============ ============ ============
Net Asset Value $11.74 $11.58 $11.74
- --------------- ============ ============ ============
See accompanying notes to unaudited pro forma financial statements.
-3-
Merger of Managed Municipals Portfolio II into Managed Municipals Portfolio
Combined
Managed Managed Managed
Municipals Municipals Municipal
Portfolio Portfolio II Adjustments Portfolio
--------- ------------ ----------- ---------
For the 12 Months For the 12 Months
PRO FORMA STATEMENT OF OPERATIONS (unaudited) Ended05/31/2001 Ended 05/31/2001
INVESTMENT INCOME:
Interest $21,668,862 $6,455,961 -- $28,124,823
----------- ---------- -------------- -----------
Total Investment Income $21,668,862 6,455,961 -- 28,124,823
----------- ---------- -------------- -----------
EXPENSES:
Management fees 2,601,184 825,617 3,426,801
Administration fees 743,195 235,890 -- 979,085
Shareholder communications 172,054 99,240 (73,432) (a) 197,862
Shareholder and system servicing fees 73,048 24,193 (18,155) (a) 79,086
Legal and auditing fees 50,193 93,966 (88,966) (a) 55,193
Directors' fees 49,815 30,877 -- 80,692
Registration fees 35,647 38,955 (29,687) (a) 44,915
Custodian fees 17,705 4,079 (2,040) (a) 19,744
Pricing Fees 16,838 9,021 (7,000) (a) 18,859
Other 10,789 12,328 (10,000) (a) 13,117
----------- ---------- -------------- -----------
Total Expenses 3,770,468 1,374,166 (229,280) 4,915,354
Less: Management Fee Waivers (1,233,933) (409,781) 1,643,714 (b)
----------- ---------- -------------- -----------
Net Expenses 2,536,535 964,385 1,414,434 4,915,354
----------- ---------- -------------- -----------
NET INVESTMENT INCOME 19,132,327 5,491,576 (1,414,434) 23,209,469
========== ========== =============== ==========
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain From:
Security Transactions (excluding short term securities) 3,688,224 1,088,214 -- $4,776,438
Net Change in Unrealized Appreciation of Investments 21,646,189 6,038,936 -- 27,685,125
----------- ---------- -------------- -----------
Net Gain On Investments 25,334,413 7,127,150 -- 32,461,563
Increase in Net Assets Resulting from Operations $44,466,740 $12,618,726 ($1,414,434) $55,671,032
=========== =========== ================ ===========
(a)Reflects adjustment to eliminate duplicate services.
(b)Reflects adjustment to eliminate management fee waiver.
See accompanying notes to unaudited pro forma financial statements.
-4-
Merger of Managed Municipals Portfolio II Inc. (MTU) into Managed Municipals
Portfolio Inc. (MMU)
- --------------------------------------------------------------------------------
Pro-forma Schedule of Investments (UNAUDITED) May 31, 2001
- --------------------------------------------------------------------------------
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES - 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Alabama - 1.1%
$5,500,000 AAA Jefferson County, AL Sewer Revenue, Series A, FGIC-Insured, 5.375%
due 2/1/36 $5,458,750
- ------------------------------------------------------------------------------------------------------------------------------------
Alaska - 1.4%
4,000,000 AA+ Valdez, AK Marine Term Revenue Refunding, (BP Pipelines Inc.
Project), Series A, 5.850% due 8/1/25 4,035,000
$2,895,000 A- Alaska Industrial Development & Export Authority Revolving Fund,
Series A, 6.500% due 4/1/14 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
4,035,000
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona - 0.8%
4,000,000 AAA Mesa AZ IDA, Discovery Health Systems, Series A, MBIA-Insured,
5.625% due 1/1/29 4,100,000
- ------------------------------------------------------------------------------------------------------------------------------------
California - 6.1%
4,540,000 2,500,000 Ba1* California Educational Facilities Authority Revenue, (Pooled College
& University Projects), Series A, 5.625% due 7/1/23 4,222,200
2,000,000 AAA California Educational Facilities Authority Revenue, Stanford
University, Series Q, 5.250% due 12/01/32 2,005,000
1,000,000 AAA California Educational Facilities Authority Revenue, Stanford
University, Series Q, 5.310% due 12/01/32
4,000,000 2,000,000 A3* California Health Facilities Authority Revenue, (Cedars-Sinai
Medical Center), Series A, 6.250% due 12/1/34 4,195,000
1,000,000 A+ California Health Facilities Financing Authority Revenue, Sutter
Health, Series A, 6.250% due 8/15/35 1,053,750
3,300,000 A- Los Angeles, CA Regional Airport Improvement Corp., Los Angeles
International Airport Lease Revenue, 6.500% due 1/1/32(b). 3,314,652
5,000,000 2,000,000 AAA Los Angeles County, CA COP, Antelope Valley Courthouse, Series A,
AMBAC-Insured, 5.250% due 11/1/33 4,975,000
2,750,000 AAA Sacramento County, CA COP, (Public Facilities Project),
MBIA-Insured, 5.375% due 2/1/19 2,805,000
- ------------------------------------------------------------------------------------------------------------------------------------
22,570,602
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado - 15.4%
3,000,000 1,000,000 AAA Arapahoe County, CO Capital Improvement Trust Fund, E-470 Public
Highway Authority Revenue, (Pre-Refunded-Escrowed with U.S.
government securities to 8/31/05 Call @ 103), 7.000% due 8/31/26 3,468,750
1,000,000 A- Aspen, CO Sales Tax Revenue, Series A, 5.400% due 11/1/19 Colorado
Health Facilities Authority Revenue:
4,000,000 AAA Colorado Educational & Cultural Facilities Revenue Refunding,
(University of Denver Project), AMBAC-Insured, 5.375% due 3/1/23 4,055,000
Colorado Health Facilities Authority Revenue:
1,000,000 1,000,000 AA- Catholic Health Initiatives, Series A, 5.000% due 12/1/28 927,500
3,000,000 1,000,000 A Series B, Remarketed 7/8/98, 5.350% due 8/1/15 2,951,250
2,000,000 4,000,000 BBB+ Colorado Springs, CO Airport Revenue, Series A, 7.000% due 1/1/22 (b) 2,065,000
60,000,000 30,000,000 Aaa* Dawson Ridge, CO Metropolitan District No. 1, Series B, (Escrowed to
maturity 14,475,000
MMU MTU
Face Face MTU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES - 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Alabama - 1.1%
$5,500,000 AAA Jefferson County, AL Sewer Revenue, Series A, FGIC-Insured, 5.375%
due 2/1/36
- ------------------------------------------------------------------------------------------------------------------------------------
Alaska - 1.4%
4,000,000 AA+ Valdez, AK Marine Term Revenue Refunding, (BP Pipelines Inc.
Project), Series A, 5.850% due 8/1/25
$2,895,000 A- Alaska Industrial Development & Export Authority Revolving Fund,
Series A, 6.500% due 4/1/14 (b) $2,989,174
- ------------------------------------------------------------------------------------------------------------------------------------
2,989,174
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona - 0.8%
4,000,000 AAA Mesa AZ IDA, Discovery Health Systems, Series A, MBIA-Insured,
5.625% due 1/1/29
- ------------------------------------------------------------------------------------------------------------------------------------
California - 6.1%
4,540,000 2,500,000 Ba1* California Educational Facilities Authority Revenue, (Pooled College
& University Projects), Series A, 5.625% due 7/1/23 2,325,000
2,000,000 AAA California Educational Facilities Authority Revenue, Stanford
University, Series Q, 5.250% due 12/01/32
1,000,000 AAA California Educational Facilities Authority Revenue, Stanford
University, Series Q, 5.310% due 12/01/32 1,002,500
4,000,000 2,000,000 A3* California Health Facilities Authority Revenue, (Cedars-Sinai
Medical Center), Series A, 6.250% due 12/1/34 2,097,500
1,000,000 A+ California Health Facilities Financing Authority Revenue, Sutter
Health, Series A, 6.250% due 8/15/35
3,300,000 A- Los Angeles, CA Regional Airport Improvement Corp., Los Angeles
International Airport Lease Revenue, 6.500% due 1/1/32(b).
5,000,000 2,000,000 AAA Los Angeles County, CA COP, Antelope Valley Courthouse, Series A,
AMBAC-Insured, 5.250% due 11/1/33 1,990,000
2,750,000 AAA Sacramento County, CA COP, (Public Facilities Project),
MBIA-Insured, 5.375% due 2/1/19
- ------------------------------------------------------------------------------------------------------------------------------------
7,415,000
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado - 15.4%
3,000,000 1,000,000 AAA Arapahoe County, CO Capital Improvement Trust Fund, E-470 Public
Highway Authority Revenue, (Pre-Refunded-Escrowed with U.S.
government securities to 8/31/05 Call @ 103), 7.000% due 8/31/26 1,156,250
1,000,000 A- Aspen, CO Sales Tax Revenue, Series A, 5.400% due 11/1/19 Colorado
Health Facilities Authority Revenue: 1,000,000
4,000,000 AAA Colorado Educational & Cultural Facilities Revenue Refunding,
(University of Denver Project), AMBAC-Insured, 5.375% due 3/1/23
Colorado Health Facilities Authority Revenue:
1,000,000 1,000,000 AA- Catholic Health Initiatives, Series A, 5.000% due 12/1/28 927,500
3,000,000 1,000,000 A Series B, Remarketed 7/8/98, 5.350% due 8/1/15 983,750
2,000,000 4,000,000 BBB+ Colorado Springs, CO Airport Revenue, Series A, 7.000% due 1/1/22 (b) 4,130,000
60,000,000 30,000,000 Aaa* Dawson Ridge, CO Metropolitan District No. 1, Series B, (Escrowed to
maturity 7,237,500
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Combined
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES - 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Alabama - 1.1%
$5,500,000 AAA Jefferson County, AL Sewer Revenue, Series A, FGIC-Insured, 5.375%
due 2/1/36 $5,458,750
- ------------------------------------------------------------------------------------------------------------------------------------
Alaska - 1.4%
4,000,000 AA+ Valdez, AK Marine Term Revenue Refunding, (BP Pipelines Inc.
Project), Series A, 5.850% due 8/1/25 4,035,000
$2,895,000 A- Alaska Industrial Development & Export Authority Revolving Fund,
Series A, 6.500% due 4/1/14 (b) 2,989,174
- ------------------------------------------------------------------------------------------------------------------------------------
7,024,174
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona - 0.8%
4,000,000 AAA Mesa AZ IDA, Discovery Health Systems, Series A, MBIA-Insured,
5.625% due 1/1/29 4,100,000
- ------------------------------------------------------------------------------------------------------------------------------------
California - 6.1%
4,540,000 2,500,000 Ba1* California Educational Facilities Authority Revenue, (Pooled College
& University Projects), Series A, 5.625% due 7/1/23 6,547,200
2,000,000 AAA California Educational Facilities Authority Revenue, Stanford
University, Series Q, 5.250% due 12/01/32 2,005,000
1,000,000 AAA California Educational Facilities Authority Revenue, Stanford
University, Series Q, 5.310% due 12/01/32 1,002,500
4,000,000 2,000,000 A3* California Health Facilities Authority Revenue, (Cedars-Sinai
Medical Center), Series A, 6.250% due 12/1/34 6,292,500
1,000,000 A+ California Health Facilities Financing Authority Revenue, Sutter
Health, Series A, 6.250% due 8/15/35 1,053,750
3,300,000 A- Los Angeles, CA Regional Airport Improvement Corp., Los Angeles
International Airport Lease Revenue, 6.500% due 1/1/32(b). 3,314,652
5,000,000 2,000,000 AAA Los Angeles County, CA COP, Antelope Valley Courthouse, Series A,
AMBAC-Insured, 5.250% due 11/1/33 6,965,000
2,750,000 AAA Sacramento County, CA COP, (Public Facilities Project),
MBIA-Insured, 5.375% due 2/1/19 2,805,000
- ------------------------------------------------------------------------------------------------------------------------------------
29,985,602
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado - 15.4%
3,000,000 1,000,000 AAA Arapahoe County, CO Capital Improvement Trust Fund, E-470 Public
Highway Authority Revenue, (Pre-Refunded-Escrowed with U.S.
government securities to 8/31/05 Call @ 103), 7.000% due 8/31/26 4,625,000
1,000,000 A- Aspen, CO Sales Tax Revenue, Series A, 5.400% due 11/1/19 Colorado
Health Facilities Authority Revenue: 1,000,000
4,000,000 AAA Colorado Educational & Cultural Facilities Revenue Refunding,
(University of Denver Project), AMBAC-Insured, 5.375% due 3/1/23 4,055,000
Colorado Health Facilities Authority Revenue:
1,000,000 1,000,000 AA- Catholic Health Initiatives, Series A, 5.000% due 12/1/28 1,855,000
3,000,000 1,000,000 A Series B, Remarketed 7/8/98, 5.350% due 8/1/15 3,935,000
2,000,000 4,000,000 BBB+ Colorado Springs, CO Airport Revenue, Series A, 7.000% due 1/1/22 (b) 6,195,000
60,000,000 30,000,000 Aaa* Dawson Ridge, CO Metropolitan District No. 1, Series B, (Escrowed to
maturity 21,712,500
-5-
Merger of Managed Municipals Portfolio II Inc. (MTU) into Managed Municipals
Portfolio Inc. (MMU)
- --------------------------------------------------------------------------------
Pro-forma Schedule of Investments (UNAUDITED) May 31, 2001
- --------------------------------------------------------------------------------
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
with REFCO Strips), zero coupon due 10/1/22
Denver, CO City & County Airport Revenue, Series C:
3,155,000 A 6.750% due 11/15/22 (b) 3,300,919
10,165,000 3,465,000 A 6.125% due 11/15/25 (b) 11,143,381
8,160,000 2,785,000 A Escrowed to maturity with U.S. government securities, 6.125% due
11/15/25(b)(c) 8,945,400
845,000 Aaa* Pre-Refunded - Escrowed with U.S. government securities to
11/15/02 Call @ 102, 6.750% due 11/15/22(b) 904,150
1,000,000 1,000,000 AAA Denver, CO City & County, COP Series B, AMBAC - Insured, 5.500% due
12/1/25 1,021,250
- ------------------------------------------------------------------------------------------------------------------------------------
53,257,600
- ------------------------------------------------------------------------------------------------------------------------------------
Connecticut - 0.2%
$1,000,000 AAA Connecticut State Health & Education (Child Care Facilities
Project), Series C, AMBAC-Insured, 5.625% due 7/1/29 $1,032,500
- ------------------------------------------------------------------------------------------------------------------------------------
Florida - 8.1%
3,000,000 $2,000,000 AAA Florida State Board & Educational Capital Outlay, GO, FSA-Insured,
5.000% due 6/1/24 2,887,500
3,000,000 AA+ Florida State Board of Education, GO, Series A, 5.125% due 6/1/21 2,966,250
3,000,000 Aaa* Hillsborough County, FL School Board, COP, Series A, 5.000% due
7/1/25
2,000,000 AA- Jacksonville, FL Electric Authority Water & Sewer Revenue, Series A,
5.375% due 10/1/35 1,957,500
3,000,000 AAA Jacksonville, FL, Sales Tax Revenue, AMBAC-Insured, 5.000% due
10/1/23 2,895,000
5,000,000 1,500,000 BBB- Martin County, FL IDA, (Indiantown Cogeneration Project), Series A,
7.875% due 12/15/25 (b) 5,237,500
1,000,000 AAA Miami Beach, FL Stormwater Revenue, FGIC-Insured, 5.375% due 9/1/30 1,003,750
2,000,000 Aaa* Orange County, FL School Board, Certificate Participation, Series A,
MBIA - Insured 5.250% due 8/1/23 1,997,500
2,000,000 AAA Orange County, FL Tourist Development Tax Revenue, Series A,
AMBAC-Insured, 4.750% due 10/1/24 1,822,500
2,000,000 Aaa* Pinellas County, FL Health Facilities Authority Revenue, FSA-Insured
5.000% due 11/15/30 1,875,000
2,500,000 Aaa* South Brevard, FL Recreational Facilities Improvement, Special
District, AMBAC-Insured, 5.000% due 7/1/20
Tampa, FL Revenue, (Florida Aquarium Inc. Project):
(Pre-Refunded - Escrowed
with U.S. Government
Securities to 5/1/02
Call @ 102):
2,345,000 NR 7.550% due 5/1/12 (c) 2,488,467
2,000,000 4,000,000 NR 7.750% due 5/1/27 (c) 2,125,900
- ------------------------------------------------------------------------------------------------------------------------------------
27,256,867
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia - 2.2%
3,500,000 2,500,000 AAA Augusta, GA Water & Sewer Revenue, FSA-Insured, 5.250% due 10/1/26
Private Colleges & Universities Authority Revenue, (Mercer
University Project), Series A: 3,486,875
2,000,000 A3* 5.250% due 10/1/25 1,922,500
MMU MTU
Face Face MTU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
with REFCO Strips), zero coupon due 10/1/22
Denver, CO City & County Airport Revenue, Series C:
3,155,000 A 6.750% due 11/15/22 (b)
10,165,000 3,465,000 A 6.125% due 11/15/25 (b) 3,798,506
8,160,000 2,785,000 A Escrowed to maturity with U.S. government securities, 6.125% due
11/15/25(b)(c) 3,053,056
845,000 Aaa* Pre-Refunded - Escrowed with U.S. government securities to
11/15/02 Call @ 102, 6.750% due 11/15/22(b)
1,000,000 1,000,000 AAA Denver, CO City & County, COP Series B, AMBAC - Insured, 5.500% due
12/1/25 1,021,250
- ------------------------------------------------------------------------------------------------------------------------------------
23,307,812
- ------------------------------------------------------------------------------------------------------------------------------------
Connecticut - 0.2%
$1,000,000 AAA Connecticut State Health & Education (Child Care Facilities
Project), Series C, AMBAC-Insured, 5.625% due 7/1/29
- ------------------------------------------------------------------------------------------------------------------------------------
Florida - 8.1%
3,000,000 $2,000,000 AAA Florida State Board & Educational Capital Outlay, GO, FSA-Insured,
5.000% due 6/1/24 $1,925,000
3,000,000 AA+ Florida State Board of Education, GO, Series A, 5.125% due 6/1/21
3,000,000 Aaa* Hillsborough County, FL School Board, COP, Series A, 5.000% due
7/1/25 2,872,500
2,000,000 AA- Jacksonville, FL Electric Authority Water & Sewer Revenue, Series A,
5.375% due 10/1/35
3,000,000 AAA Jacksonville, FL, Sales Tax Revenue, AMBAC-Insured, 5.000% due
10/1/23
5,000,000 1,500,000 BBB- Martin County, FL IDA, (Indiantown Cogeneration Project), Series A,
7.875% due 12/15/25 (b) 1,571,250
1,000,000 AAA Miami Beach, FL Stormwater Revenue, FGIC-Insured, 5.375% due 9/1/30
2,000,000 Aaa* Orange County, FL School Board, Certificate Participation, Series A,
MBIA - Insured 5.250% due 8/1/23
2,000,000 AAA Orange County, FL Tourist Development Tax Revenue, Series A,
AMBAC-Insured, 4.750% due 10/1/24
2,000,000 Aaa* Pinellas County, FL Health Facilities Authority Revenue, FSA-Insured
5.000% due 11/15/30
2,500,000 Aaa* South Brevard, FL Recreational Facilities Improvement, Special
District, AMBAC-Insured, 5.000% due 7/1/20 2,443,750
Tampa, FL Revenue, (Florida Aquarium Inc. Project):
(Pre-Refunded - Escrowed
with U.S. Government
Securities to 5/1/02
Call @ 102):
2,345,000 NR 7.550% due 5/1/12 (c)
2,000,000 4,000,000 NR 7.750% due 5/1/27 (c) 4,251,800
- ------------------------------------------------------------------------------------------------------------------------------------
13,064,300
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia - 2.2%
3,500,000 2,500,000 AAA Augusta, GA Water & Sewer Revenue, FSA-Insured, 5.250% due 10/1/26
Private Colleges & Universities Authority Revenue, (Mercer
University Project), Series A: 2,490,625
2,000,000 A3* 5.250% due 10/1/25
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Combined
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES - 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
with REFCO Strips), zero coupon due 10/1/22
Denver, CO City & County Airport Revenue, Series C:
3,155,000 A 6.750% due 11/15/22 (b) 3,300,919
10,165,000 3,465,000 A 6.125% due 11/15/25 (b) 14,941,887
8,160,000 2,785,000 A Escrowed to maturity with U.S. government securities, 6.125% due
11/15/25(b)(c) 11,998,456
845,000 Aaa* Pre-Refunded - Escrowed with U.S. government securities to
11/15/02 Call @ 102, 6.750% due 11/15/22(b) 904,150
1,000,000 1,000,000 AAA Denver, CO City & County, COP Series B, AMBAC - Insured, 5.500% due
12/1/25 2,042,500
- ------------------------------------------------------------------------------------------------------------------------------------
76,565,412
- ------------------------------------------------------------------------------------------------------------------------------------
Connecticut - 0.2%
$1,000,000 AAA Connecticut State Health & Education (Child Care Facilities
Project), Series C, AMBAC-Insured, 5.625% due 7/1/29 $1,032,500
- ------------------------------------------------------------------------------------------------------------------------------------
Florida - 8.1%
3,000,000 $2,000,000 AAA Florida State Board & Educational Capital Outlay, GO, FSA-Insured,
5.000% due 6/1/24 4,812,500
3,000,000 AA+ Florida State Board of Education, GO, Series A, 5.125% due 6/1/21 2,966,250
3,000,000 Aaa* Hillsborough County, FL School Board, COP, Series A, 5.000% due
7/1/25 2,872,500
2,000,000 AA- Jacksonville, FL Electric Authority Water & Sewer Revenue, Series A,
5.375% due 10/1/35 1,957,500
3,000,000 AAA Jacksonville, FL, Sales Tax Revenue, AMBAC-Insured, 5.000% due
10/1/23 2,895,000
5,000,000 1,500,000 BBB- Martin County, FL IDA, (Indiantown Cogeneration Project), Series A,
7.875% due 12/15/25 (b) 6,808,750
1,000,000 AAA Miami Beach, FL Stormwater Revenue, FGIC-Insured, 5.375% due 9/1/30 1,003,750
2,000,000 Aaa* Orange County, FL School Board, Certificate Participation, Series A,
MBIA - Insured 5.250% due 8/1/23 1,997,500
2,000,000 AAA Orange County, FL Tourist Development Tax Revenue, Series A,
AMBAC-Insured, 4.750% due 10/1/24 1,822,500
2,000,000 Aaa* Pinellas County, FL Health Facilities Authority Revenue, FSA-Insured
5.000% due 11/15/30 1,875,000
2,500,000 Aaa* South Brevard, FL Recreational Facilities Improvement, Special
District, AMBAC-Insured, 5.000% due 7/1/20 2,443,750
Tampa, FL Revenue, (Florida Aquarium Inc. Project):
(Pre-Refunded - Escrowed
with U.S. Government
Securities to 5/1/02
Call @ 102):
2,345,000 NR 7.550% due 5/1/12 (c) 2,488,467
2,000,000 4,000,000 NR 7.750% due 5/1/27 (c) 6,377,700
- ------------------------------------------------------------------------------------------------------------------------------------
40,321,167
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia - 2.2%
3,500,000 2,500,000 AAA Augusta, GA Water & Sewer Revenue, FSA-Insured, 5.250% due 10/1/26
Private Colleges & Universities Authority Revenue, (Mercer
University Project), Series A: 5,977,500
2,000,000 A3* 5.250% due 10/1/25 1,922,500
-6-
Merger of Managed Municipals Portfolio II Inc. (MTU) into Managed Municipals
Portfolio Inc. (MMU)
- --------------------------------------------------------------------------------
Pro-forma Schedule of Investments (UNAUDITED) May 31, 2001
- --------------------------------------------------------------------------------
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 A3* 5.375% due 10/1/29
1,000,000 1,000,000 BBB- Savannah, GA EDA Revenue, College
of Art & Design Inc., 6.900% due 10/1/29 1,038,750
- ------------------------------------------------------------------------------------------------------------------------------------
6,448,125
- ------------------------------------------------------------------------------------------------------------------------------------
Hawaii - 0.8%
2,000,000 2,000,000 A Hawaii State Department of Budget & Finance, Special Purpose
Revenue, Kaiser Permanente, Series A, 5.100% due 3/1/14 1,962,500
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois - 5.0%
4,095,000 AAA Chicago, IL GO, Series D, FGIC-Insured, 5.500% due 1/1/35 4,105,238
6,000,000 1,400,000 AAA Chicago, IL Skyway Toll Bridge Revenue, AMBAC-Insured, 5.500% due
1/1/31 6,030,000
Illinois Health Facilities Authority Revenue
8,000,000 A OSF Healthcare Systems, 6.250% due 11/15/29 8,040,000
5,000,000 AAA Illinois State GO, MBIA - Insured, 5.625% due 6/1/25 5,118,750
- ------------------------------------------------------------------------------------------------------------------------------------
23,293,988
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana - 1.1%
5,000,000 A2* Indiana Port Commission Revenue Refunding, (Cargill Inc. Project),
6.875% due 5/1/12 5,207,750
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa - 0.3%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project), 6.500% due 7/15/12
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky - 0.2%
1,000,000 AAA Kentucky State Property & Buildings Commission Revenues, (Project
No. 69), Series A, FSA-Insured, 5.000% due 8/1/19 981,250
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana - 1.2%
5,500,000 A1* St. Martin Parish, LA Industrial Revenue, (Cargill Inc. Project),
6.625% due 10/1/12 5,768,125
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland - 0.3%
$10,000,000 $4,000,000 NR Maryland State Energy Financing Administration, Solid Waste Disposal
Revenue, (Hagerstown Recycling Project), 9.000% due 10/15/16
(b)(d) $900,000
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 1.6%
2,000,000 1,000,000 AA+ Massachusetts Bay Transportation Authority, Sales Tax Revenue,
Series A, 5.500% due 7/1/30 2,027,500
2,000,000 1,000,000 Aaa* Massachusetts State College Building Authority Revenue, Series 1,
MBIA-Insured 5.375% due 5/1/39 1,985,000
1,000,000 1,000,000 AAA Massachusetts State Health & Educational Facilities Authority
Revenue, (Northeastern University Project), Series I,
MBIA-Insured, 5.000% due 10/1/29 940,000
- ------------------------------------------------------------------------------------------------------------------------------------
4,952,500
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan - 6.6%
2,000,000 1,000,000 AAA Anchor Bay, MI School District, GO, Q-SBLF-Insured, 5.000% due 5/1/29 1,897,500
3,000,000 2,000,000 AAA East Lansing, MI School District, GO, Q-SBLF-Insured, 5.625% due
5/1/30 3,086,250
2,000,000 1,000,000 AAA Howell, MI Public Schools, GO, Q-SBLF-Insured, 5.250% due 5/1/22
Michigan State COP, AMBAC-Insured: 2,000,000
2,345,000 AAA 5.500% due 6/1/19 2,394,831
4,000,000 2,000,000 AAA 5.500% due 6/1/27 4,055,000
8,000,000 4,000,000 NR Michigan State Strategic Fund Resources Recovery, Limited Obligation
Revenue, Central Wayne Energy Recovery L.P., Series A, 7.000% due
7/1/27 (b) 6,090,000
MMU MTU
Face Face MTU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 A3* 5.375% due 10/1/29 972,500
1,000,000 1,000,000 BBB- Savannah, GA EDA Revenue, College
of Art & Design Inc., 6.900% due 10/1/29 1,038,750
- ------------------------------------------------------------------------------------------------------------------------------------
4,501,875
- ------------------------------------------------------------------------------------------------------------------------------------
Hawaii - 0.8%
2,000,000 2,000,000 A Hawaii State Department of Budget & Finance, Special Purpose
Revenue, Kaiser Permanente, Series A, 5.100% due 3/1/14 1,962,500
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois - 5.0%
4,095,000 AAA Chicago, IL GO, Series D, FGIC-Insured, 5.500% due 1/1/35
6,000,000 1,400,000 AAA Chicago, IL Skyway Toll Bridge Revenue, AMBAC-Insured, 5.500% due
1/1/31 1,407,000
Illinois Health Facilities Authority Revenue
8,000,000 A OSF Healthcare Systems, 6.250% due 11/15/29
5,000,000 AAA Illinois State GO, MBIA - Insured, 5.625% due 6/1/25
- ------------------------------------------------------------------------------------------------------------------------------------
1,407,000
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana - 1.1%
5,000,000 A2* Indiana Port Commission Revenue Refunding, (Cargill Inc. Project),
6.875% due 5/1/12
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa - 0.3%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project), 6.500% due 7/15/12 1,560,000
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky - 0.2%
1,000,000 AAA Kentucky State Property & Buildings Commission Revenues, (Project
No. 69), Series A, FSA-Insured, 5.000% due 8/1/19
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana - 1.2%
5,500,000 A1* St. Martin Parish, LA Industrial Revenue, (Cargill Inc. Project),
6.625% due 10/1/12
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland - 0.3%
$10,000,000 $4,000,000 NR Maryland State Energy Financing Administration, Solid Waste Disposal
Revenue, (Hagerstown Recycling Project), 9.000% due 10/15/16
(b)(d) $360,000
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 1.6%
2,000,000 1,000,000 AA+ Massachusetts Bay Transportation Authority, Sales Tax Revenue,
Series A, 5.500% due 7/1/30 1,013,750
2,000,000 1,000,000 Aaa* Massachusetts State College Building Authority Revenue, Series 1,
MBIA-Insured 5.375% due 5/1/39 992,500
1,000,000 1,000,000 AAA Massachusetts State Health & Educational Facilities Authority
Revenue, (Northeastern University Project), Series I,
MBIA-Insured, 5.000% due 10/1/29 940,000
- ------------------------------------------------------------------------------------------------------------------------------------
2,946,250
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan - 6.6%
2,000,000 1,000,000 AAA Anchor Bay, MI School District, GO, Q-SBLF-Insured, 5.000% due 5/1/29 948,750
3,000,000 2,000,000 AAA East Lansing, MI School District, GO, Q-SBLF-Insured, 5.625% due
5/1/30 2,057,500
2,000,000 1,000,000 AAA Howell, MI Public Schools, GO, Q-SBLF-Insured, 5.250% due 5/1/22
Michigan State COP, AMBAC-Insured: 1,000,000
2,345,000 AAA 5.500% due 6/1/19
4,000,000 2,000,000 AAA 5.500% due 6/1/27 2,027,500
8,000,000 4,000,000 NR Michigan State Strategic Fund Resources Recovery, Limited Obligation
Revenue, Central Wayne Energy Recovery L.P., Series A, 7.000% due
7/1/27 (b) 3,045,000
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Combined
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 A3* 5.375% due 10/1/29 972,500
1,000,000 1,000,000 BBB- Savannah, GA EDA Revenue, College
of Art & Design Inc., 6.900% due 10/1/29 2,077,500
- ------------------------------------------------------------------------------------------------------------------------------------
10,950,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hawaii - 0.8%
2,000,000 2,000,000 A Hawaii State Department of Budget & Finance, Special Purpose
Revenue, Kaiser Permanente, Series A, 5.100% due 3/1/14 3,925,000
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois - 5.0%
4,095,000 AAA Chicago, IL GO, Series D, FGIC-Insured, 5.500% due 1/1/35 4,105,238
6,000,000 1,400,000 AAA Chicago, IL Skyway Toll Bridge Revenue, AMBAC-Insured, 5.500% due
1/1/31 7,437,000
Illinois Health Facilities Authority Revenue
8,000,000 A OSF Healthcare Systems, 6.250% due 11/15/29 8,040,000
5,000,000 AAA Illinois State GO, MBIA - Insured, 5.625% due 6/1/25 5,118,750
- ------------------------------------------------------------------------------------------------------------------------------------
24,700,988
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana - 1.1%
5,000,000 A2* Indiana Port Commission Revenue Refunding, (Cargill Inc. Project),
6.875% due 5/1/12 5,207,750
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa - 0.3%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project), 6.500% due 7/15/12 1,560,000
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky - 0.2%
1,000,000 AAA Kentucky State Property & Buildings Commission Revenues, (Project
No. 69), Series A, FSA-Insured, 5.000% due 8/1/19 981,250
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana - 1.2%
5,500,000 A1* St. Martin Parish, LA Industrial Revenue, (Cargill Inc. Project),
6.625% due 10/1/12 5,768,125
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland - 0.3%
$10,000,000 $4,000,000 NR Maryland State Energy Financing Administration, Solid Waste Disposal
Revenue, (Hagerstown Recycling Project), 9.000% due 10/15/16
(b)(d) $1,260,000
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts - 1.6%
2,000,000 1,000,000 AA+ Massachusetts Bay Transportation Authority, Sales Tax Revenue,
Series A, 5.500% due 7/1/30 3,041,250
2,000,000 1,000,000 Aaa* Massachusetts State College Building Authority Revenue, Series 1,
MBIA-Insured 5.375% due 5/1/39 2,977,500
1,000,000 1,000,000 AAA Massachusetts State Health & Educational Facilities Authority
Revenue, (Northeastern University Project), Series I,
MBIA-Insured, 5.000% due 10/1/29 1,880,000
- ------------------------------------------------------------------------------------------------------------------------------------
7,898,750
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan - 6.6%
2,000,000 1,000,000 AAA Anchor Bay, MI School District, GO, Q-SBLF-Insured, 5.000% due 5/1/29 2,846,250
3,000,000 2,000,000 AAA East Lansing, MI School District, GO, Q-SBLF-Insured, 5.625% due
5/1/30 5,143,750
2,000,000 1,000,000 AAA Howell, MI Public Schools, GO, Q-SBLF-Insured, 5.250% due 5/1/22
Michigan State COP, AMBAC-Insured: 3,000,000
2,345,000 AAA 5.500% due 6/1/19 2,394,831
4,000,000 2,000,000 AAA 5.500% due 6/1/27 6,082,500
8,000,000 4,000,000 NR Michigan State Strategic Fund Resources Recovery, Limited Obligation
Revenue, Central Wayne Energy Recovery L.P., Series A, 7.000% due
7/1/27 (b) 9,135,000
-7-
Merger of Managed Municipals Portfolio II Inc. (MTU) into Managed Municipals
Portfolio Inc. (MMU)
- --------------------------------------------------------------------------------
Pro-forma Schedule of Investments (UNAUDITED) May 31, 2001
- --------------------------------------------------------------------------------
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
4,480,000 AAA Royal Oak, MI Hospital Financing Authority Revenue, (William
Beaumont Hospital), Series M, MBIA-Insured, 5.250% due 11/15/31 4,334,400
- ------------------------------------------------------------------------------------------------------------------------------------
23,857,981
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota - 2.3%
1,500,000 AAA Dakota County, MN Community Development Agency, Multi-Family Housing
Revenue, FNMA-Collateralized, 5.625% due 2/1/26 1,513,125
2,500,000 A1* Duluth, MN IDA, Seaway Port Authority Dock & Wharf Revenue, (Cargill
Inc. Project), 6.800% due 5/1/12 2,599,950
1,000,000 1,000,000 AAA Minneapolis & St. Paul, MN Community Airport Revenue: Series A,
FGIC-Insured, 5.125% due 1/1/25 971,250
3,000,000 1,000,000 AAA Sub-Series C, FGIC-Insured, 5.250% due 1/1/26 2,970,000
1,225,000 AA+ Minnesota State Housing Financing Agency, Single-Family Mortgage,
Series I, 5.500% due 1/1/17 1,252,562
- ------------------------------------------------------------------------------------------------------------------------------------
9,306,887
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri - 1.2%
St Louis, MO Airport Revenue (Airport Development Program), Series
A, MBIA-Insured:
2,000,000 AAA 5.000% due 7/1/21 1,937,500
2,000,000 AAA 5.125% due 7/1/22
2,000,000 AAA 5.000% due 7/1/26 1,912,500
- ------------------------------------------------------------------------------------------------------------------------------------
3,850,000
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi - 0.0%
200,000 P-1* Jackson County, MS PCR, (Chevron USA Inc. Project), 3.050% due
6/1/23(e) 200,000
- ------------------------------------------------------------------------------------------------------------------------------------
Montana - 1.9%
8,000,000 2,000,000 NR Montana State Board Investment Resource Recovery Revenue,
(Yellowstone Energy L.P. Project), 7.000% due 12/31/19 (b) 7,520,000
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada - 1.0%
4,650,000 Baa2* Clark County, NV IDR, Southwest Gas Corp., Series B, 7.500% due
9/1/32 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
New Hampshire - 0.7%
3,715,000 AAA New Hampshire Health & Education Facilities Authority Revenue
University System of New Hampshire, AMBAC-Insured, 5.125% due
7/1/33 3,543,181
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey - 3.3%
$5,200,000 A+ Hudson County, NJ Improvement Authority, 6.625% due 8/1/25 $5,401,500
5,000,000 $3,000,000 A+ New Jersey Health Care Facilities Financing Authority Revenue,
Robert Wood Johnson University Hospital, 5.700% due 7/1/20 5,162,500
2,395,000 AA- New Jersey State Highway Authority, Garden State Parkway General
Revenue, 5.625% due 1/1/30 2,481,819
13,045,819
- ------------------------------------------------------------------------------------------------------------------------------------
New Mexico - 0.6%
1,980,000 1,085,000 AAA New Mexico Mortgage Financing Authority, Single - Family Mortgages,
Series D-3, 5.625% due 9/1/28 2,004,750
- ------------------------------------------------------------------------------------------------------------------------------------
New York - 5.9%
2,000,000 AAA Nassau Health Care Corp., NY Health Systems Revenue, Nassau County
Guaranteed, FSA-Insured, 5.500% due 8/1/19
MMU MTU
Face Face MTU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
4,480,000 AAA Royal Oak, MI Hospital Financing Authority Revenue, (William
Beaumont Hospital), Series M, MBIA-Insured, 5.250% due 11/15/31
- ------------------------------------------------------------------------------------------------------------------------------------
9,078,750
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota - 2.3%
1,500,000 AAA Dakota County, MN Community Development Agency, Multi-Family Housing
Revenue, FNMA-Collateralized, 5.625% due 2/1/26
2,500,000 A1* Duluth, MN IDA, Seaway Port Authority Dock & Wharf Revenue, (Cargill
Inc. Project), 6.800% due 5/1/12
1,000,000 1,000,000 AAA Minneapolis & St. Paul, MN Community Airport Revenue: Series A,
FGIC-Insured, 5.125% due 1/1/25 971,250
3,000,000 1,000,000 AAA Sub-Series C, FGIC-Insured, 5.250% due 1/1/26 990,000
1,225,000 AA+ Minnesota State Housing Financing Agency, Single-Family Mortgage,
Series I, 5.500% due 1/1/17
- ------------------------------------------------------------------------------------------------------------------------------------
1,961,250
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri - 1.2%
St Louis, MO Airport Revenue (Airport Development Program), Series
A, MBIA-Insured:
2,000,000 AAA 5.000% due 7/1/21
2,000,000 AAA 5.125% due 7/1/22 1,962,500
2,000,000 AAA 5.000% due 7/1/26
- ------------------------------------------------------------------------------------------------------------------------------------
1,962,500
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi - 0.0%
200,000 P-1* Jackson County, MS PCR, (Chevron USA Inc. Project), 3.050% due
6/1/23(e)
- ------------------------------------------------------------------------------------------------------------------------------------
Montana - 1.9%
8,000,000 2,000,000 NR Montana State Board Investment Resource Recovery Revenue,
(Yellowstone Energy L.P. Project), 7.000% due 12/31/19 (b) 1,880,000
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada - 1.0%
4,650,000 Baa2* Clark County, NV IDR, Southwest Gas Corp., Series B, 7.500% due
9/1/32 (b) 4,830,188
- ------------------------------------------------------------------------------------------------------------------------------------
New Hampshire - 0.7%
3,715,000 AAA New Hampshire Health & Education Facilities Authority Revenue
University System of New Hampshire, AMBAC-Insured, 5.125% due
7/1/33
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey - 3.3%
$5,200,000 A+ Hudson County, NJ Improvement Authority, 6.625% due 8/1/25
5,000,000 $3,000,000 A+ New Jersey Health Care Facilities Financing Authority Revenue,
Robert Wood Johnson University Hospital, 5.700% due 7/1/20 $3,097,500
2,395,000 AA- New Jersey State Highway Authority, Garden State Parkway General
Revenue, 5.625% due 1/1/30
3,097,500
- ------------------------------------------------------------------------------------------------------------------------------------
New Mexico - 0.6%
1,980,000 1,085,000 AAA New Mexico Mortgage Financing Authority, Single - Family Mortgages,
Series D-3, 5.625% due 9/1/28 1,098,563
- ------------------------------------------------------------------------------------------------------------------------------------
New York - 5.9%
2,000,000 AAA Nassau Health Care Corp., NY Health Systems Revenue, Nassau County
Guaranteed, FSA-Insured, 5.500% due 8/1/19 2,052,500
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Combined
- ------------------------------------------------------------------------------------------------------------------------------------
4,480,000 AAA Royal Oak, MI Hospital Financing Authority Revenue, (William
Beaumont Hospital), Series M, MBIA-Insured, 5.250% due 11/15/31 4,334,400
- ------------------------------------------------------------------------------------------------------------------------------------
32,936,731
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota - 2.3%
1,500,000 AAA Dakota County, MN Community Development Agency, Multi-Family Housing
Revenue, FNMA-Collateralized, 5.625% due 2/1/26 1,513,125
2,500,000 A1* Duluth, MN IDA, Seaway Port Authority Dock & Wharf Revenue, (Cargill
Inc. Project), 6.800% due 5/1/12 2,599,950
1,000,000 1,000,000 AAA Minneapolis & St. Paul, MN Community Airport Revenue: Series A,
FGIC-Insured, 5.125% due 1/1/25 1,942,500
3,000,000 1,000,000 AAA Sub-Series C, FGIC-Insured, 5.250% due 1/1/26 3,960,000
1,225,000 AA+ Minnesota State Housing Financing Agency, Single-Family Mortgage,
Series I, 5.500% due 1/1/17 1,252,562
- ------------------------------------------------------------------------------------------------------------------------------------
11,268,137
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri - 1.2%
St Louis, MO Airport Revenue (Airport Development Program), Series
A, MBIA-Insured:
2,000,000 AAA 5.000% due 7/1/21 1,937,500
2,000,000 AAA 5.125% due 7/1/22 1,962,500
2,000,000 AAA 5.000% due 7/1/26 1,912,500
- ------------------------------------------------------------------------------------------------------------------------------------
5,812,500
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi - 0.0%
200,000 P-1* Jackson County, MS PCR, (Chevron USA Inc. Project), 3.050% due
6/1/23(e) 200,000
- ------------------------------------------------------------------------------------------------------------------------------------
Montana - 1.9%
8,000,000 2,000,000 NR Montana State Board Investment Resource Recovery Revenue,
(Yellowstone Energy L.P. Project), 7.000% due 12/31/19 (b) 9,400,000
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada - 1.0%
4,650,000 Baa2* Clark County, NV IDR, Southwest Gas Corp., Series B, 7.500% due
9/1/32 (b) 4,830,188
- ------------------------------------------------------------------------------------------------------------------------------------
New Hampshire - 0.7%
3,715,000 AAA New Hampshire Health & Education Facilities Authority Revenue
University System of New Hampshire, AMBAC-Insured, 5.125% due
7/1/33 3,543,181
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey - 3.3%
$5,200,000 A+ Hudson County, NJ Improvement Authority, 6.625% due 8/1/25 $5,401,500
5,000,000 $3,000,000 A+ New Jersey Health Care Facilities Financing Authority Revenue,
Robert Wood Johnson University Hospital, 5.700% due 7/1/20 8,260,000
2,395,000 AA- New Jersey State Highway Authority, Garden State Parkway General
Revenue, 5.625% due 1/1/30 2,481,819
16,143,319
- ------------------------------------------------------------------------------------------------------------------------------------
New Mexico - 0.6%
1,980,000 1,085,000 AAA New Mexico Mortgage Financing Authority, Single - Family Mortgages,
Series D-3, 5.625% due 9/1/28 3,103,313
- ------------------------------------------------------------------------------------------------------------------------------------
New York - 5.9%
2,000,000 AAA Nassau Health Care Corp., NY Health Systems Revenue, Nassau County
Guaranteed, FSA-Insured, 5.500% due 8/1/19 2,052,500
-8-
Merger of Managed Municipals Portfolio II Inc. (MTU) into Managed Municipals
Portfolio Inc. (MMU)
- --------------------------------------------------------------------------------
Pro-forma Schedule of Investments (UNAUDITED) May 31, 2001
- --------------------------------------------------------------------------------
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
3,000,000 AAA Nassau Health Care Corp., NY Health Systems Revenue, Nassau County
Guaranteed, FSA-Insured, 5.750% due 8/1/29 3,127,500
1,400,000 A-1+ New York, NY GO, Sub Series A, 3.000% due 8/1/22 (e) 1,400,000
100,000 VMIG1* New York, NY Go, Series B-Sub Series B5, MBIA-Insured, 3.000% due
8/15/22 (e) 100,000
New York City, NY Municipal Water Financing Authority, Water & Sewer
System Revenue:
200,000 A-1+ Series G, FGIC-Insured, 3.000% due 6/15/24 (e) 200,000
200,000 A-1+ Series A, FGIC-Insured, 2.950% due 6/15/25 (e) 200,000
9,000,000 2,500,000 AA New York City, NY Municipal Water Financing Authority, Water & Sewer
System Revenue, Series D, 5.250% due 6/15/25 8,943,750
1,000,000 A-1+ New York City, NY Transitional Financing Authority, Future Tax
Secured, Series C, 3.000% due 5/1/28 (e) 1,000,000
300,000 VMIG1* New York State Job Development Authority, Series A-1 through A-21,
3.100% due 3/1/03 (e) 300,000
3,000,000 AAA New York State Dormitory Authority Revenue, Series B, FSA-Insured,
5.500% due 5/15/30 3,060,000
New York State Dormitory Authority Revenue:
1,150,000 AAA St. John's University, MBIA-Insured, 5.250% due 7/1/25
2,000,000 AAA State University, Series B, FSA-Insured, 5.500% due 5/15/30
3,000,000 AAA New York State Thruway Authority Highway & Bridge Revenue, Series
B-1, FGIC-Insured, 5.400% due 4/1/17. 3,093,750
- ------------------------------------------------------------------------------------------------------------------------------------
21,425,000
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina - 0.3%
1,500,000 A3* Coastal Regional Solid Waste Management Disposal Authority, Solid
Waste Disposal Revenue, 6.500% due 6/1/08
- ------------------------------------------------------------------------------------------------------------------------------------
North Dakota - 1.0%
5,000,000 AAA Oliver County, ND PCR, AMBAC-Insured, 5.300% due 1/1/27 4,925,000
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio - 10.0%
4,500,000 Aa2* Bexley, OH City School District, GO, 5.125% due 12/1/27 4,359,375
2,000,000 AAA Canton, OH City School District, GO, Series A, MBIA-Insured, 5.500%
due 12/1/20 2,050,000
Cincinnati, OH Water System Revenue:
1,345,000 AA+ 5.000% due 12/1/20 1,308,013
1,700,000 AA+ 5.125% due 12/1/21 1,670,250
3,000,000 3,000,000 AAA Cleveland, OH Airport System Revenue, Series A, FSA-Insured, 5.000%
due 1/1/31 2,850,000
Cuyahoga County, OH Hospital Revenue:
2,000,000 1,000,000 AAA University Hospitals Health System Inc., AMBAC-Insured, 5.500%
due 1/15/30 2,012,500
300,000 A-1+ Cleveland Clinic Foundation, Series D, 3.100% due 1/1/26 (e)
Hamilton County, OH Sales Tax Revenue:
10,000,000 Aaa* AMBAC-Insured, 5.250% due 12/1/32 9,850,000
MMU MTU
Face Face MTU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
3,000,000 AAA Nassau Health Care Corp., NY Health Systems Revenue, Nassau County
Guaranteed, FSA-Insured, 5.750% due 8/1/29
1,400,000 A-1+ New York, NY GO, Sub Series A, 3.000% due 8/1/22 (e)
100,000 VMIG1* New York, NY Go, Series B-Sub Series B5, MBIA-Insured, 3.000% due
8/15/22 (e)
New York City, NY Municipal Water Financing Authority, Water & Sewer
System Revenue:
200,000 A-1+ Series G, FGIC-Insured, 3.000% due 6/15/24 (e)
200,000 A-1+ Series A, FGIC-Insured, 2.950% due 6/15/25 (e)
9,000,000 2,500,000 AA New York City, NY Municipal Water Financing Authority, Water & Sewer
System Revenue, Series D, 5.250% due 6/15/25 2,484,375
1,000,000 A-1+ New York City, NY Transitional Financing Authority, Future Tax
Secured, Series C, 3.000% due 5/1/28 (e)
300,000 VMIG1* New York State Job Development Authority, Series A-1 through A-21,
3.100% due 3/1/03 (e)
3,000,000 AAA New York State Dormitory Authority Revenue, Series B, FSA-Insured,
5.500% due 5/15/30
New York State Dormitory Authority Revenue:
1,150,000 AAA St. John's University, MBIA-Insured, 5.250% due 7/1/25 1,148,563
2,000,000 AAA State University, Series B, FSA-Insured, 5.500% due 5/15/30 2,040,000
3,000,000 AAA New York State Thruway Authority Highway & Bridge Revenue, Series
B-1, FGIC-Insured, 5.400% due 4/1/17.
- ------------------------------------------------------------------------------------------------------------------------------------
7,725,438
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina - 0.3%
1,500,000 A3* Coastal Regional Solid Waste Management Disposal Authority, Solid
Waste Disposal Revenue, 6.500% due 6/1/08 1,582,485
- ------------------------------------------------------------------------------------------------------------------------------------
North Dakota - 1.0%
5,000,000 AAA Oliver County, ND PCR, AMBAC-Insured, 5.300% due 1/1/27
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio - 10.0%
4,500,000 Aa2* Bexley, OH City School District, GO, 5.125% due 12/1/27
2,000,000 AAA Canton, OH City School District, GO, Series A, MBIA-Insured, 5.500%
due 12/1/20
Cincinnati, OH Water System Revenue:
1,345,000 AA+ 5.000% due 12/1/20
1,700,000 AA+ 5.125% due 12/1/21
3,000,000 3,000,000 AAA Cleveland, OH Airport System Revenue, Series A, FSA-Insured, 5.000%
due 1/1/31 2,850,000
Cuyahoga County, OH Hospital Revenue:
2,000,000 1,000,000 AAA University Hospitals Health System Inc., AMBAC-Insured, 5.500%
due 1/15/30 1,006,250
300,000 A-1+ Cleveland Clinic Foundation, Series D, 3.100% due 1/1/26 (e) 300,000
Hamilton County, OH Sales Tax Revenue:
10,000,000 Aaa* AMBAC-Insured, 5.250% due 12/1/32
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Combined
- ------------------------------------------------------------------------------------------------------------------------------------
3,000,000 AAA Nassau Health Care Corp., NY Health Systems Revenue, Nassau County
Guaranteed, FSA-Insured, 5.750% due 8/1/29 3,127,500
1,400,000 A-1+ New York, NY GO, Sub Series A, 3.000% due 8/1/22 (e) 1,400,000
100,000 VMIG1* New York, NY Go, Series B-Sub Series B5, MBIA-Insured, 3.000% due
8/15/22 (e) 100,000
New York City, NY Municipal Water Financing Authority, Water & Sewer
System Revenue:
200,000 A-1+ Series G, FGIC-Insured, 3.000% due 6/15/24 (e) 200,000
200,000 A-1+ Series A, FGIC-Insured, 2.950% due 6/15/25 (e) 200,000
9,000,000 2,500,000 AA New York City, NY Municipal Water Financing Authority, Water & Sewer
System Revenue, Series D, 5.250% due 6/15/25 11,428,125
1,000,000 A-1+ New York City, NY Transitional Financing Authority, Future Tax
Secured, Series C, 3.000% due 5/1/28 (e) 1,000,000
300,000 VMIG1* New York State Job Development Authority, Series A-1 through A-21,
3.100% due 3/1/03 (e) 300,000
3,000,000 AAA New York State Dormitory Authority Revenue, Series B, FSA-Insured,
5.500% due 5/15/30 3,060,000
New York State Dormitory Authority Revenue:
1,150,000 AAA St. John's University, MBIA-Insured, 5.250% due 7/1/25 1,148,563
2,000,000 AAA State University, Series B, FSA-Insured, 5.500% due 5/15/30 2,040,000
3,000,000 AAA New York State Thruway Authority Highway & Bridge Revenue, Series
B-1, FGIC-Insured, 5.400% due 4/1/17. 3,093,750
- ------------------------------------------------------------------------------------------------------------------------------------
29,150,438
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina - 0.3%
1,500,000 A3* Coastal Regional Solid Waste Management Disposal Authority, Solid
Waste Disposal Revenue, 6.500% due 6/1/08 1,582,485
- ------------------------------------------------------------------------------------------------------------------------------------
North Dakota - 1.0%
5,000,000 AAA Oliver County, ND PCR, AMBAC-Insured, 5.300% due 1/1/27 4,925,000
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio - 10.0%
4,500,000 Aa2* Bexley, OH City School District, GO, 5.125% due 12/1/27 4,359,375
2,000,000 AAA Canton, OH City School District, GO, Series A, MBIA-Insured, 5.500%
due 12/1/20 2,050,000
Cincinnati, OH Water System Revenue:
1,345,000 AA+ 5.000% due 12/1/20 1,308,013
1,700,000 AA+ 5.125% due 12/1/21 1,670,250
3,000,000 3,000,000 AAA Cleveland, OH Airport System Revenue, Series A, FSA-Insured, 5.000%
due 1/1/31 5,700,000
Cuyahoga County, OH Hospital Revenue:
2,000,000 1,000,000 AAA University Hospitals Health System Inc., AMBAC-Insured, 5.500%
due 1/15/30 3,018,750
300,000 A-1+ Cleveland Clinic Foundation, Series D, 3.100% due 1/1/26 (e) 300,000
Hamilton County, OH Sales Tax Revenue:
10,000,000 Aaa* AMBAC-Insured, 5.250% due 12/1/32 9,850,000
-9-
Merger of Managed Municipals Portfolio II Inc. (MTU) into Managed Municipals
Portfolio Inc. (MMU)
- --------------------------------------------------------------------------------
Pro-forma Schedule of Investments (UNAUDITED) May 31, 2001
- --------------------------------------------------------------------------------
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
1,750,000 AAA Hamilton County Football Project, Series B,
MBIA - Insured, 5.000% due 12/1/27 1,671,250
4,000,000 1,990,000 AAA Lucas County, OH Hospital Revenue, Promedia
Healthcare Obligation Group, AMBAC-Insured,
5.375% due 11/15/29 3,985,000
$3,025,000 Aaa* Muskingum County, OH GO County Facilities
Improvement, MBIA-Insured, 5.125% due 12/1/19 $3,025,000
1,375,000 AAA Ohio State Higher Educational Facility Commission Revenue,
(University of Dayton Project), AMBAC - Insured, 5.500% due
12/1/25 1,397,344
2,500,000 AAA Portage County, OH GO, MBIA-Insured, 5.250% due 12/1/17 2,543,750
$1,500,000 A3* Steubenville, OH Hospital Revenue, Trinity Healthcare Obligation
Group, 6.375% due 10/1/20
1,500,000 Aaa* Trumbull County, OH, MBIA-Insured, 5.200% due 12/1/20 1,490,625
2,000,000 AAA University of Cincinnati, OH General Receipts Revenue, Series A,
FGIC-Insured, 5.250% due 6/1/24 1,990,000
1,500,000 AAA Warrensville Heights, OH City School District, School Improvements,
FGIC-Insured, 5.625% due 12/1/20 1,558,125
- ------------------------------------------------------------------------------------------------------------------------------------
41,761,232
- ------------------------------------------------------------------------------------------------------------------------------------
Oregon - 1.7%
5,000,000 Aaa* Clackamas County, OR School District No 007J, Lake Oswego, GO
MBIA-Insured, 5.000% due 6/1/26 4,781,250
2,000,000 AAA Oregon State, Department of Administrative Services, COP, Series B,
AMBAC-Insured, 5.000% due 5/1/26 1,915,000
2,000,000 Aaa* Portland, OR GO, Limited Tax Revenue, Series A, MBIA-Insured, 5.125%
due 6/1/30 1,940,000
- ------------------------------------------------------------------------------------------------------------------------------------
8,636,250
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 1.0%
2,500,000 AAA Allegheny County, PA Sanitary Authority, Sewer Revenue,
MBIA-Insured, 5.375% due 12/1/24 2,512,500
200,000 A-1+ Philadelphia, PA IDR, (Fox Chase Cancer Center), Series A, 3.100%
due 7/1/13 (e)
2,500,000 AA- St. Mary Hospital Authority, Bucks County Catholic Health
Initiatives, Series A, 5.000% due 12/1/18 2,378,125
100,000 A-1+ Schuylkill County, PA Industrial Development Authority, Resource
Recovery Revenue, Northeastern Power Co., Series A, 3.050% due
12/1/22 (e) 100,000
- ------------------------------------------------------------------------------------------------------------------------------------
4,990,625
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina - 1.7%
2,000,000 2,120,000 A3* Myrtle Beach, SC COP, Myrtle Beach Convention Center, (Pre-Refunded
- Escrowed with U.S. government securities to 7/1/02 Call @ 102),
6.875% due 7/1/07 (c) 2,123,600
1,140,000 AAA Piedmont, SC Municipal Power Agency, Electric Revenue Refunding,
Series A, MBIA-Insured, 4.875% due 1/1/16 1,115,775
3,000,000 AAA South Carolina Transportation Infrastructure Bank Revenue, Series A,
MBIA-Insured, 5.500% due 10/1/30 3,037,500
- ------------------------------------------------------------------------------------------------------------------------------------
6,276,875
- ------------------------------------------------------------------------------------------------------------------------------------
MMU MTU
Face Face MTU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
1,750,000 AAA Hamilton County Football Project, Series B,
MBIA - Insured, 5.000% due 12/1/27
4,000,000 1,990,000 AAA Lucas County, OH Hospital Revenue, Promedia
Healthcare Obligation Group, AMBAC-Insured,
5.375% due 11/15/29 1,982,538
$3,025,000 Aaa* Muskingum County, OH GO County Facilities
Improvement, MBIA-Insured, 5.125% due 12/1/19
1,375,000 AAA Ohio State Higher Educational Facility Commission Revenue,
(University of Dayton Project), AMBAC - Insured, 5.500% due
12/1/25
2,500,000 AAA Portage County, OH GO, MBIA-Insured, 5.250% due 12/1/17
$1,500,000 A3* Steubenville, OH Hospital Revenue, Trinity Healthcare Obligation
Group, 6.375% due 10/1/20 $1,533,750
1,500,000 Aaa* Trumbull County, OH, MBIA-Insured, 5.200% due 12/1/20
2,000,000 AAA University of Cincinnati, OH General Receipts Revenue, Series A,
FGIC-Insured, 5.250% due 6/1/24
1,500,000 AAA Warrensville Heights, OH City School District, School Improvements,
FGIC-Insured, 5.625% due 12/1/20
- ------------------------------------------------------------------------------------------------------------------------------------
7,672,538
- ------------------------------------------------------------------------------------------------------------------------------------
Oregon - 1.7%
5,000,000 Aaa* Clackamas County, OR School District No 007J, Lake Oswego, GO
MBIA-Insured, 5.000% due 6/1/26
2,000,000 AAA Oregon State, Department of Administrative Services, COP, Series B,
AMBAC-Insured, 5.000% due 5/1/26
2,000,000 Aaa* Portland, OR GO, Limited Tax Revenue, Series A, MBIA-Insured, 5.125%
due 6/1/30
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 1.0%
2,500,000 AAA Allegheny County, PA Sanitary Authority, Sewer Revenue,
MBIA-Insured, 5.375% due 12/1/24
200,000 A-1+ Philadelphia, PA IDR, (Fox Chase Cancer Center), Series A, 3.100%
due 7/1/13 (e) 200,000
2,500,000 AA- St. Mary Hospital Authority, Bucks County Catholic Health
Initiatives, Series A, 5.000% due 12/1/18
100,000 A-1+ Schuylkill County, PA Industrial Development Authority, Resource
Recovery Revenue, Northeastern Power Co., Series A, 3.050% due
12/1/22 (e)
- ------------------------------------------------------------------------------------------------------------------------------------
200,000
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina - 1.7%
2,000,000 2,120,000 A3* Myrtle Beach, SC COP, Myrtle Beach Convention Center, (Pre-Refunded
- Escrowed with U.S. government securities to 7/1/02 Call @ 102),
6.875% due 7/1/07 (c) 2,251,016
1,140,000 AAA Piedmont, SC Municipal Power Agency, Electric Revenue Refunding,
Series A, MBIA-Insured, 4.875% due 1/1/16
3,000,000 AAA South Carolina Transportation Infrastructure Bank Revenue, Series A,
MBIA-Insured, 5.500% due 10/1/30
- ------------------------------------------------------------------------------------------------------------------------------------
2,251,016
- ------------------------------------------------------------------------------------------------------------------------------------
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Combined
- ------------------------------------------------------------------------------------------------------------------------------------
1,750,000 AAA Hamilton County Football Project, Series B,
MBIA - Insured, 5.000% due 12/1/27 1,671,250
4,000,000 1,990,000 AAA Lucas County, OH Hospital Revenue, Promedia
Healthcare Obligation Group, AMBAC-Insured,
5.375% due 11/15/29 5,967,538
$3,025,000 Aaa* Muskingum County, OH GO County Facilities
Improvement, MBIA-Insured, 5.125% due 12/1/19 $3,025,000
1,375,000 AAA Ohio State Higher Educational Facility Commission Revenue,
(University of Dayton Project), AMBAC - Insured, 5.500% due
12/1/25 1,397,344
2,500,000 AAA Portage County, OH GO, MBIA-Insured, 5.250% due 12/1/17 2,543,750
$1,500,000 A3* Steubenville, OH Hospital Revenue, Trinity Healthcare Obligation
Group, 6.375% due 10/1/20 1,533,750
1,500,000 Aaa* Trumbull County, OH, MBIA-Insured, 5.200% due 12/1/20 1,490,625
2,000,000 AAA University of Cincinnati, OH General Receipts Revenue, Series A,
FGIC-Insured, 5.250% due 6/1/24 1,990,000
1,500,000 AAA Warrensville Heights, OH City School District, School Improvements,
FGIC-Insured, 5.625% due 12/1/20 1,558,125
- ------------------------------------------------------------------------------------------------------------------------------------
49,433,770
- ------------------------------------------------------------------------------------------------------------------------------------
Oregon - 1.7%
5,000,000 Aaa* Clackamas County, OR School District No 007J, Lake Oswego, GO
MBIA-Insured, 5.000% due 6/1/26 4,781,250
2,000,000 AAA Oregon State, Department of Administrative Services, COP, Series B,
AMBAC-Insured, 5.000% due 5/1/26 1,915,000
2,000,000 Aaa* Portland, OR GO, Limited Tax Revenue, Series A, MBIA-Insured, 5.125%
due 6/1/30 1,940,000
- ------------------------------------------------------------------------------------------------------------------------------------
8,636,250
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania - 1.0%
2,500,000 AAA Allegheny County, PA Sanitary Authority, Sewer Revenue,
MBIA-Insured, 5.375% due 12/1/24 2,512,500
200,000 A-1+ Philadelphia, PA IDR, (Fox Chase Cancer Center), Series A, 3.100%
due 7/1/13 (e) 200,000
2,500,000 AA- St. Mary Hospital Authority, Bucks County Catholic Health
Initiatives, Series A, 5.000% due 12/1/18 2,378,125
100,000 A-1+ Schuylkill County, PA Industrial Development Authority, Resource
Recovery Revenue, Northeastern Power Co., Series A, 3.050% due
12/1/22 (e) 100,000
- ------------------------------------------------------------------------------------------------------------------------------------
5,190,625
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina - 1.7%
2,000,000 2,120,000 A3* Myrtle Beach, SC COP, Myrtle Beach Convention Center, (Pre-Refunded
- Escrowed with U.S. government securities to 7/1/02 Call @ 102),
6.875% due 7/1/07 (c) 4,374,616
1,140,000 AAA Piedmont, SC Municipal Power Agency, Electric Revenue Refunding,
Series A, MBIA-Insured, 4.875% due 1/1/16 1,115,775
3,000,000 AAA South Carolina Transportation Infrastructure Bank Revenue, Series A,
MBIA-Insured, 5.500% due 10/1/30 3,037,500
- ------------------------------------------------------------------------------------------------------------------------------------
8,527,891
- ------------------------------------------------------------------------------------------------------------------------------------
-10-
Merger of Managed Municipals Portfolio II Inc. (MTU) into Managed Municipals
Portfolio Inc. (MMU)
- --------------------------------------------------------------------------------
Pro-forma Schedule of Investments (UNAUDITED) May 31, 2001
- --------------------------------------------------------------------------------
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee - 1.8%
1,150,000 NR Hardeman County, TN Correctional Facilities Corp., 7.750% due 8/1/17 1,108,313
VMIG1* Sevier County, TN Public Building Authority Revenue, AMBAC -Insured:
100,000 3.150% due 6/1/30 (e) 100,000
900,000 3.600% due 6/1/30 (e)
4,100,000 AA+ Shelby County, TN GO, Refunding, Series A, 5.000% due 3/1/20 3,982,125
3,000,000 AA+ Tennessee State GO, Series A, 5.250% due 3/1/17 3,048,750
- ------------------------------------------------------------------------------------------------------------------------------------
8,239,188
- ------------------------------------------------------------------------------------------------------------------------------------
Texas - 5.5%
1,160,000 435,000 AAA Burleson, TX ISD, GO, PSFG 6.750% due 8/1/24 1,242,650
Fort Worth, TX International Airport Facility Improvement Corp.
Revenue, (American Airlines Inc. Project):
8,000,000 4,000,000 BBB- 6.375% due 5/1/35 (b). 7,910,000
2,000,000 1,400,000 BBB- Series A, 5.950% due 5/1/29 (b). 2,042,500
2,000,000 1,000,000 BBB- Series B, 6.050% due 5/1/29 (b) 2,057,500
1,000,000 AAA Harris County, TX Health Facilities, Development Corp., Hospital
Revenue, School Health Care Systems, Series B, (Escrowed to
maturity with U.S. Government Securities), 5.750% due 7/1/27 1,048,750
$200,000 A-1+ Harris County , TX Industrial Development Corp., PCR, (Exxon Capital
Ventures Project), 3150% due 8/15/27 (e)
$6,000,000 AAA Houston, TX Water & Sewer System Revenue, Junior Lien, Series A,
FGIC-Insured, 5.375% due 12/1/27 $5,940,000
- ------------------------------------------------------------------------------------------------------------------------------------
20,241,400
- ------------------------------------------------------------------------------------------------------------------------------------
Virgin Islands - 0.4%
1,000,000 1,000,000 BBB- Virgin Islands, PFA Revenue, Sr. Lien, Series A, 5.500% due 10/1/22 945,000
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia - 2.3%
4,700,000 A2* Harrisonburg, VA Redevelopment & Housing Authority, (Jail &
Courthouse Project), Public Facilities Lease Revenue,
(Pre-refunded - Escrowed with U.S. Government Securities to
9/1/01, Call @ 102), 6.500% due 9/1/14 (c) 4,739,245
Virginia State HAD, Commonwealth Mortgage Revenue:
1,245,000 AA+ Series D, Sub. Series D-3, Remarketed 5/30/96, 5.700% due 7/1/09
715,000 AA+ Series F, Sub. Series F-1, Remarketed 9/12/95, 6.400% due 7/1/17
Virginia State HDA, Multi-Family Housing:
1,655,000 AA+ Series D, 6.250% due 1/1/15 1,731,544
1,235,000 AAA Series H, AMBAC-Insured, 6.300% due 11/1/15 1,304,469
600,000 Aa1* Series K, 5.800% due 11/1/10 636,000
925,000 AA+ Series K, 5.900% due 11/1/11
- ------------------------------------------------------------------------------------------------------------------------------------
8,411,258
- ------------------------------------------------------------------------------------------------------------------------------------
Washington - 3.0%
3,000,000 AAA Central Puget Sound WA Regional Transportation Authority Sales Tax &
Motor Revenue, FGIC-Insured, 4.750% due 2/1/28 2,662,500
Chelan County, WA GO, Public Utilities, District No. 1,
Columbus River Rock, MBIA-Insured:
22,685,000 AAA Series A, Zero coupon due 6/1/22 7,089,062
MMU MTU
Face Face MTU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee - 1.8%
1,150,000 NR Hardeman County, TN Correctional Facilities Corp., 7.750% due 8/1/17
VMIG1* Sevier County, TN Public Building Authority Revenue, AMBAC -Insured:
100,000 3.150% due 6/1/30 (e)
900,000 3.600% due 6/1/30 (e) 900,000
4,100,000 AA+ Shelby County, TN GO, Refunding, Series A, 5.000% due 3/1/20
3,000,000 AA+ Tennessee State GO, Series A, 5.250% due 3/1/17
- ------------------------------------------------------------------------------------------------------------------------------------
900,000
- ------------------------------------------------------------------------------------------------------------------------------------
Texas - 5.5%
1,160,000 435,000 AAA Burleson, TX ISD, GO, PSFG 6.750% due 8/1/24 465,994
Fort Worth, TX International Airport Facility Improvement Corp.
Revenue, (American Airlines Inc. Project):
8,000,000 4,000,000 BBB- 6.375% due 5/1/35 (b). 3,955,000
2,000,000 1,400,000 BBB- Series A, 5.950% due 5/1/29 (b). 1,429,750
2,000,000 1,000,000 BBB- Series B, 6.050% due 5/1/29 (b) 1,028,750
1,000,000 AAA Harris County, TX Health Facilities, Development Corp., Hospital
Revenue, School Health Care Systems, Series B, (Escrowed to
maturity with U.S. Government Securities), 5.750% due 7/1/27
$200,000 A-1+ Harris County , TX Industrial Development Corp., PCR, (Exxon Capital
Ventures Project), 3150% due 8/15/27 (e) $200,000
$6,000,000 AAA Houston, TX Water & Sewer System Revenue, Junior Lien, Series A,
FGIC-Insured, 5.375% due 12/1/27
- ------------------------------------------------------------------------------------------------------------------------------------
7,079,494
- ------------------------------------------------------------------------------------------------------------------------------------
Virgin Islands - 0.4%
1,000,000 1,000,000 BBB- Virgin Islands, PFA Revenue, Sr. Lien, Series A, 5.500% due 10/1/22 945,000
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia - 2.3%
4,700,000 A2* Harrisonburg, VA Redevelopment & Housing Authority, (Jail &
Courthouse Project), Public Facilities Lease Revenue,
(Pre-refunded - Escrowed with U.S. Government Securities to
9/1/01, Call @ 102), 6.500% due 9/1/14 (c)
Virginia State HAD, Commonwealth Mortgage Revenue:
1,245,000 AA+ Series D, Sub. Series D-3, Remarketed 5/30/96, 5.700% due 7/1/09 1,310,362
715,000 AA+ Series F, Sub. Series F-1, Remarketed 9/12/95, 6.400% due 7/1/17 735,556
Virginia State HDA, Multi-Family Housing:
1,655,000 AA+ Series D, 6.250% due 1/1/15
1,235,000 AAA Series H, AMBAC-Insured, 6.300% due 11/1/15
600,000 Aa1* Series K, 5.800% due 11/1/10
925,000 AA+ Series K, 5.900% due 11/1/11 978,187
- ------------------------------------------------------------------------------------------------------------------------------------
3,024,105
- ------------------------------------------------------------------------------------------------------------------------------------
Washington - 3.0%
3,000,000 AAA Central Puget Sound WA Regional Transportation Authority Sales Tax &
Motor Revenue, FGIC-Insured, 4.750% due 2/1/28
Chelan County, WA GO, Public Utilities, District No. 1,
Columbus River Rock, MBIA-Insured:
22,685,000 AAA Series A, Zero coupon due 6/1/22
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Combined
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee - 1.8%
1,150,000 NR Hardeman County, TN Correctional Facilities Corp., 7.750% due 8/1/17 1,108,313
VMIG1* Sevier County, TN Public Building Authority Revenue, AMBAC -Insured:
100,000 3.150% due 6/1/30 (e) 100,000
900,000 3.600% due 6/1/30 (e) 900,000
4,100,000 AA+ Shelby County, TN GO, Refunding, Series A, 5.000% due 3/1/20 3,982,125
3,000,000 AA+ Tennessee State GO, Series A, 5.250% due 3/1/17 3,048,750
- ------------------------------------------------------------------------------------------------------------------------------------
9,139,188
- ------------------------------------------------------------------------------------------------------------------------------------
Texas - 5.5%
1,160,000 435,000 AAA Burleson, TX ISD, GO, PSFG 6.750% due 8/1/24 1,708,644
Fort Worth, TX International Airport Facility Improvement Corp.
Revenue, (American Airlines Inc. Project):
8,000,000 4,000,000 BBB- 6.375% due 5/1/35 (b). 11,865,000
2,000,000 1,400,000 BBB- Series A, 5.950% due 5/1/29 (b). 3,472,250
2,000,000 1,000,000 BBB- Series B, 6.050% due 5/1/29 (b) 3,086,250
1,000,000 AAA Harris County, TX Health Facilities, Development Corp., Hospital
Revenue, School Health Care Systems, Series B, (Escrowed to
maturity with U.S. Government Securities), 5.750% due 7/1/27 1,048,750
$200,000 A-1+ Harris County , TX Industrial Development Corp., PCR, (Exxon Capital
Ventures Project), 3150% due 8/15/27 (e) $200,000
$6,000,000 AAA Houston, TX Water & Sewer System Revenue, Junior Lien, Series A,
FGIC-Insured, 5.375% due 12/1/27 5,940,000
- ------------------------------------------------------------------------------------------------------------------------------------
27,320,894
- ------------------------------------------------------------------------------------------------------------------------------------
Virgin Islands - 0.4%
1,000,000 1,000,000 BBB- Virgin Islands, PFA Revenue, Sr. Lien, Series A, 5.500% due 10/1/22 1,890,000
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia - 2.3%
4,700,000 A2* Harrisonburg, VA Redevelopment & Housing Authority, (Jail &
Courthouse Project), Public Facilities Lease Revenue,
(Pre-refunded - Escrowed with U.S. Government Securities to
9/1/01, Call @ 102), 6.500% due 9/1/14 (c) 4,739,245
Virginia State HAD, Commonwealth Mortgage Revenue:
1,245,000 AA+ Series D, Sub. Series D-3, Remarketed 5/30/96, 5.700% due 7/1/09 1,310,362
715,000 AA+ Series F, Sub. Series F-1, Remarketed 9/12/95, 6.400% due 7/1/17 735,556
Virginia State HDA, Multi-Family Housing:
1,655,000 AA+ Series D, 6.250% due 1/1/15 1,731,544
1,235,000 AAA Series H, AMBAC-Insured, 6.300% due 11/1/15 1,304,469
600,000 Aa1* Series K, 5.800% due 11/1/10 636,000
925,000 AA+ Series K, 5.900% due 11/1/11 978,187
- ------------------------------------------------------------------------------------------------------------------------------------
11,435,363
- ------------------------------------------------------------------------------------------------------------------------------------
Washington - 3.0%
3,000,000 AAA Central Puget Sound WA Regional Transportation Authority Sales Tax &
Motor Revenue, FGIC-Insured, 4.750% due 2/1/28 2,662,500
Chelan County, WA GO, Public Utilities, District No. 1,
Columbus River Rock, MBIA-Insured:
22,685,000 AAA Series A, Zero coupon due 6/1/22 7,089,062
-11-
Merger of Managed Municipals Portfolio II Inc. (MTU) into Managed Municipals
Portfolio Inc. (MMU)
- --------------------------------------------------------------------------------
Pro-forma Schedule of Investments (UNAUDITED) May 31, 2001
- --------------------------------------------------------------------------------
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
4,750,000 AA Series B, Remarketed 7/1/92, Mandatory put 7/1/19, 6.750% due
7/1/62 (b) 4,993,438
- ------------------------------------------------------------------------------------------------------------------------------------
14,745,000
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin - 2.0%
Wisconsin Housing EDA, Series A:
2,000,000 AA Home Ownership Revenue, 6.450% due 3/1/17
1,370,000 AA Housing Revenue, 5.650% due 11/1/23
4,070,000 AA Wisconsin State GO, Series B, 6.600% due 1/1/22 (b) 4,145,905
Wisconsin State Health & Educational Facilities Authority Revenue,
MBIA-Insured:
1,100,000 A Kenosha Hospital & Medical Center Project, 5.700% due 5/15/20 1,045,000
250,000 1,000,000 AAA The Medical College of Wisconsin Inc. Project, MBIA-Insured, 5.400%
due 12/1/16 255,312
- ------------------------------------------------------------------------------------------------------------------------------------
5,446,217
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100% (Cost - $496,404,483)** $376,607,220
- ------------------------------------------------------------------------------------------------------------------------------------
MMU MTU
Face Face MTU
Amount Amount Ratings (a) Security Value
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES - 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
4,750,000 AA Series B, Remarketed 7/1/92, Mandatory put 7/1/19, 6.750% due
7/1/62 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin - 2.0%
Wisconsin Housing EDA, Series A:
2,000,000 AA Home Ownership Revenue, 6.450% due 3/1/17 2,082,500
1,370,000 AA Housing Revenue, 5.650% due 11/1/23 1,383,700
4,070,000 AA Wisconsin State GO, Series B, 6.600% due 1/1/22 (b)
Wisconsin State Health & Educational Facilities Authority Revenue,
MBIA-Insured:
1,100,000 A Kenosha Hospital & Medical Center Project, 5.700% due 5/15/20
250,000 1,000,000 AAA The Medical College of Wisconsin Inc. Project, MBIA-Insured, 5.400%
due 12/1/16 1,021,250
- ------------------------------------------------------------------------------------------------------------------------------------
4,487,450
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100% (Cost - $496,404,483)** $119,290,188
- ------------------------------------------------------------------------------------------------------------------------------------
MMU MTU
Face Face MMU
Amount Amount Ratings (a) Security Combimed
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES - 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
4,750,000 AA Series B, Remarketed 7/1/92, Mandatory put 7/1/19, 6.750% due
7/1/62 (b) 4,993,438
- -----------------------------------------------------------------------------------------------------------------------------------
14,745,000
- -----------------------------------------------------------------------------------------------------------------------------------
Wisconsin - 2.0%
Wisconsin Housing EDA, Series A:
2,000,000 AA Home Ownership Revenue, 6.450% due 3/1/17 2,082,500
1,370,000 AA Housing Revenue, 5.650% due 11/1/23 1,383,700
4,070,000 AA Wisconsin State GO, Series B, 6.600% due 1/1/22 (b) 4,145,905
Wisconsin State Health & Educational Facilities Authority Revenue,
MBIA-Insured:
1,100,000 A Kenosha Hospital & Medical Center Project, 5.700% due 5/15/20 1,045,000
250,000 1,000,000 AAA The Medical College of Wisconsin Inc. Project, MBIA-Insured, 5.400%
due 12/1/16 1,276,562
- -----------------------------------------------------------------------------------------------------------------------------------
9,933,667
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100% (Cost - $496,404,483)** $495,897,408
- -----------------------------------------------------------------------------------------------------------------------------------
(a) all ratings are by Standard & Poor's Ratings Service, with the exception of
those identified by an asterisk (*), which are rated by Moody's Investor's
Service Inc.
(b) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) Pre-Refunded bonds escrowed by U.S. government securities and bonds
escrowed to maturity by U.S. government securities are considered by
manager to be triple-A rated even if issuer has not applied for new
ratings.
(d) Security is in default.
(e) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
-12-
Pro Forma Footnotes of Merger Between Managed Municipals Portfolio Inc. and
Managed Municipals Portfolio II Inc.
May 31, 2001 (unaudited)
1. General
The accompanying unaudited pro forma financial statements are presented to show
the effect of the proposed acquisition of substantially all of the assets of the
Managed Municipals Portfolio II Inc. (the "Acquired Fund") by the Managed
Municipals Portfolio Inc. ("The Fund") in exchange for shares of the Fund and
the assumption by the Fund of substantially all of the liabilities of the
Acquired Fund as described elsewhere in this proxy statement/prospectus. Under
the terms of the Merger Agreement and Plan of Reorganization, the exchange of
assets of the Acquired Fund for shares of the Fund will be treated as a tax-free
reorganization and accordingly will be accounted for as a tax-free merger. The
acquisition would be accomplished by an acquisition of the net assets of the
Acquired Fund in exchange for shares of the Fund at net asset value. The
unaudited pro forma schedule of investments and the unaudited pro forma
statement of assets and liabilities have been prepared as though the acquisition
had been effective on May 31, 2001. The unaudited pro forma statement of
operations has been prepared as though the acquisition had been effective May
31, 2001. The unaudited pro forma financial statements are as of the annual
period end of the Fund.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedule of investments of the Acquired Fund
and the Fund which are included in their respective annual reports dated August
31, 2001 and May 31, 2001, respectively. The expense of the reorganization,
including the cost of the proxy solicitation, will be borne by the Acquired Fund
and the Fund based on their proportional net assets prior to the merger.
2. Significant Accounting Policies
The Fund, a Maryland corporation, is registered under the Investment Company Act
of 1940, as amended, as a non-diversified, closed-end management investment
company.
The significant accounting policies consistently followed by the Fund
are:
(a) security transactions are accounted for on trade date; (b) securities
are valued at the mean between bid and ask prices provided by an
independent pricing service that are based on transactions in
municipal obligations, quotations from municipal bond dealers, market
transactions in comparable securities and various relationships
between securities; (c) securities maturing within 60 days are valued
at cost plus accreted discount, or minus amortized premium, which
approximates value; (d) interest income, adjusted for amortization of
premiums and accretion of original issue discount, is recorded on an
accrual basis; (e) gains or losses on the sale of securities are
calculated using the specific identification method; (f) dividends and
distributions to shareholders are recorded on the ex-dividend date;
(g) the character of income and gains to be distributed is determined
in accordance with income tax regulations which may differ from
generally accepted accounting principles; (i) the
-13-
Fund intends to comply with the applicable provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment
companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes; and
(j) estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used
in determining these estimates could cause actual results to differ.
3. Pro-Forma Adjustments
The accompanying unaudited pro forma portfolio of investments and pro forma
financial statements reflect changes in shares and fund expenses as if the
merger had taken place on May 31, 2001. Adjustments were made to certain
expenses to reflect the merged entities' operations.
4. Investment Advisory Agreement and Other Transactions
Smith Barney Fund Management LLC ("SBFM") acts as investment advisor of the
Fund. SBFM is a subsidiary of Salomon Smith Barney Holdings Inc., which in turn
is a subsidiary of Citigroup Inc. The Fund pays SBFM an advisory fee calculated
at an annual rate of 0.70%. This fee is calculated daily and paid monthly.
Under an administration agreement, SBFM also acts as the Fund's administrator
for which the Fund pays a fee calculated at an annual rate of 0.20% of the
average daily net assets. This fee is also calculated daily and paid monthly.
Under these agreements, the Fund pays SBFM a maximum annual combined fee of
0.90% of average net assets for both investment advisory and administration
services. Under an agreement between SBFM and the Acquired Fund, SBFM receives
0.90% for such services. All officers and one Director of the Fund are employees
of Citigroup or its affiliates.
-14-
PART C
OTHER INFORMATION
Item 15. Indemnification
Under Article VII of Registrant's Articles of Incorporation, any past or present
director or officer of Registrant is indemnified to the fullest extent permitted
by law against liability and all expenses reasonably incurred by him in
connection with any action, suit or proceeding to which he may be a party or
otherwise involved by reason or his being or having been a director or officer
of Registrant. This provision does not authorize indemnification when it is
determined that the director or officer would otherwise be liable to Registrant
or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties. Expenses may be paid by
Registrant in advance of the final disposition of any action, suit or proceeding
upon receipt of an undertaking by a director or officer to repay those expenses
to Registrant in the event that it is ultimately determined that indemnification
of the expenses is not authorized under Registrant's Articles of Incorporation.
Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "Securities Act"), may be permitted to directors, officers
and controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
-15-
Item 16. Exhibits
1.(a) Articles of Incorporation of Registrant incorporated by
reference to the Registrant's Pre-effective Amendment
No. 1 to its initial Registration Statement on Form N-2
(No. 33-47116) filed by Registrant on May 14, 1992
("Pre-Effective Amendment No.1").
1.(b) Articles of Amendment to Articles of Incorporation
incorporated by reference to the Pre-Effective Amendment
No. 1.
2.(a) Bylaws of Registrant incorporated by reference to the
Pre-effective Amendment No. 1.
2.(b) Amended Bylaws incorporated by reference to the
Pre-effective Amendment No. 1.
3. Not Applicable.
4. Form of Merger Agreement and Plan of Reorganization is
attached as Exhibit A to the Proxy Statement/Prospectus
filed herewith.
5. Not Applicable.
6.(a) Form of Investment Advisory Agreement between Registrant
and Shearson Lehman Advisors incorporated by reference
to the Pre-effective Amendment No. 1.
6.(b) Form of Investment Advisory Agreement between Registrant
and Greenwich Street Advisers incorporated by reference
to Registrant's Post-Effective Amendment No. 5 to its
Registration Statement on Form N-2 (No. 33-47116) filed
by Registrant on August 4, 1993.
7. Form of Underwriting Agreement between Registrant and
Shearson Lehman Brothers Inc. incorporated by reference
to the Registrant's Pre-Effective Amendment No. 3 to its
Registration Statement on Form N-2 (No. 33-47116) filed
by Registrant on June 18, 1992.
-16-
8. Not Applicable.
9. Form of Custody Agreement
between Registrant and PNC
Bank, National Association
incorporated by reference to
the Registrant's Post-Effective
Amendment No. 8 to its initial
registration statement on form
N-2 (33-47116) filed by
Registrant on September 23,
1996.
10. Not Applicable
11.(a) Opinion and Consent of Willkie Farr & Gallagher.*
11.(b) Opinion and consent of Venable, Baetjer and Howard, LLP.*
12. Form of Opinion and Consent of Willkie Farr & Gallagher
with respect to tax matters.*
13.(a) Transfer Agency and Registrar Agreement between
Registrant and TSSG incorporated by reference to the
Registrant's Post-Effective Amendment No. 4 to its
Registration Statement on Form N-2 (No. 33-47116) filed
by Registrant on August 4, 1993.
13.(b) Administration Agreement between Registrant and Mutual
Management Corp. incorporated by reference to the
Registrant's Post-Effective Amendment No. 7 to its
Registration Statement on Form N-2 (No. 33-47116) filed
by Registrant on September 30, 1996.
14. Consent of KPMG LLP is filed herewith.
15. Not Applicable
16. Powers of Attorney are filed herewith.
- ----------------------
* To be filed by amendment.
-17-
17. (a) Code of Ethics of Smith Barney Fund Management LLC
incorporated by reference to the Registrant's
Post-Effective Amendment No. 12 to its Registration
Statement on Form N-2 (No. 33-47116) filed by Registrant
on August 31, 2000.
17.(b) Annual Report of Managed Municipals Portfolio II Inc.,
dated August 31, 2001, incorporated by reference to the
definitive N-30D filed on November 6, 2001, as accession
number 0000950109-01-504705.
17.(c) Annual Report of the
Registrant, dated May 31, 2001,
incorporated by reference to
the definitive N-30D filed on
August 7, 2001, as accession
number 0000950130-01-503574.
17.(d) Prospectus of Managed Municipals Portfolio II Inc.,
dated December 29, 2000, incorporated by reference to
the filing made pursuant to Rule 497 on January 3, 2001
(File #:33-49982).
17.(e) Prospectus of the Registrant,
dated September 28, 2000,
incorporated by reference to
the filing made pursuant to
Rule 497 on October 3, 2000
(File #:33-47116).
-18-
Item 17. Undertakings
(1)The Registrant agrees that prior to any public reoffering of the securities
registered through the use of a prospectus which is a part of this registration
statement by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will
contain the information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2)The Registrant agrees that every prospectus that is filed under paragraph (1)
above will be filed as a part of an amendment to the registration statement and
will not be used until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment shall be deemed to
be a new registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial bona
fide offering of them.
-19-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the 16th
day of November, 2001.
Managed Municipals Portfolio Inc.
By: /s/ Heath B. McLendon
--------------------------------------
Heath B. McLendon, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each of the undersigned
hereby constitutes and appoints Heath B. McLendon, Lewis E. Daidone and
Christina T. Sydor, and each and any of them, his or her attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
her or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- -----
/s/Heath B. McLendon Chairman of the Board, Chief Executive Officer November 16, 2001
- --------------------
Heath B. McLendon and President (Principal Executive Officer)
/s/Lewis E. Daidone Senior Vice President and Treasurer (Principal November 16, 2001
- -------------------
Lewis E. Daidone Financial Officer)
/s/ Allan J. Bloostein Director November 16, 2001
- ----------------------
Allan J. Bloostein
-20-
/s/ Martin Brody Director November 16, 2001
- ----------------
Martin Brody
/s/ Dwight B. Crane Director November 16, 2001
- -------------------
Dwight B. Crane
/s/ Paulo M. Cucchi Director November 16, 2001
- -------------------
Paulo M. Cucchi
/s/ Robert A. Frankel Director November 16, 2001
- ---------------------
Robert A. Frankel
/s/ Paul Hardin Director November 16, 2001
- ---------------
Paul Hardin
/s/ William R. Hutchinson Director November 16, 2001
- -------------------------
William R. Hutchinson
/s/ George M. Pavia Director November 16, 2001
- -------------------
George M. Pavia
-21-
Exhibit No. Exhibit
- ---------- -------
4 Form of Merger Agreement and Plan of
Reorganization (included as Exhibit A to the
Registrant's Prospectus/Proxy Statement contained
in Part A of this Registration Statement).
14 Consent of KPMG LLP.
16 Powers of Attorney (included on signature page to this
Regisgtration Statement).