As filed with the Securities and Exchange Commission
on January 11, 2002
Securities Act File No. 333-73556
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. /1/
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(2)
- ------------------------ -------------------- ---------------------- ------------------------ --------------------
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.
(2) Previously paid
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 4:00 p.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:
. economies of scale,
. a lower operating expense ratio, and
. 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 4:30 p.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 MMU shares to MTU shareholders. In lieu
thereof, MMU will purchase all fractional MMU shares 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:
. economies of scale,
. a lower operating expense ratio, and
. 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 4:00 p.m., Eastern time, for the following purposes:
1. To consider and vote upon the approval of a Merger Agreement and Plan
of Reorganization dated January 11, 2002 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 4:30 p.m., Eastern time, for the following purposes:
1. To consider and vote upon the approval of a Merger Agreement and Plan
of Reorganization dated January 11, 2002 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 JANUARY 11, 2002
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 4:00 p.m., Eastern time, with respect to Managed
Municipals Portfolio, and at 4:30 p.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 January 11, 2002 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:
. MMU's shareholders are being asked to approve a change in MMU's
investment restriction regarding the issuance of senior securities; and
. 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.
1
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 fractional MMU 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.
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
2
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...................... 7
SYNOPSIS................................................................ 7
EXPENSE TABLE........................................................... 11
FINANCIAL HIGHLIGHTS.................................................... 13
RISK FACTORS AND SPECIAL CONSIDERATIONS................................. 18
COMPARISON OF INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES............. 22
TAXATION................................................................ 26
INFORMATION ABOUT THE MERGER............................................ 29
ADDITIONAL INFORMATION ABOUT THE FUNDS.................................. 34
MANAGEMENT OF THE FUNDS................................................. 41
INDEPENDENT ACCOUNTANTS................................................. 46
REQUIRED VOTE........................................................... 46
LEGAL PROCEEDINGS....................................................... 46
LEGAL OPINIONS.......................................................... 46
PROPOSAL 2 (MANAGED MUNICIPALS PORTFOLIO SHAREHOLDERS ONLY): APPROVAL
OF CHANGE IN AN INVESTMENT RESTRICTION................................ 47
PROPOSAL 3 (MANAGED MUNICIPALS PORTFOLIO II SHAREHOLDERS ONLY): ELECTION
OF DIRECTORS.......................................................... 53
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................. 54
REPORT OF THE AUDIT COMMITTEE........................................... 55
REQUIRED SHAREHOLDER VOTE............................................... 56
ADDITIONAL INFORMATION.................................................. 56
EXHIBIT A FORM OF MERGER AGREEMENT AND PLAN OF REORGANIZATION........... A-1
EXHIBIT B ISSUANCES OF SENIOR SECURITIES--INVESTMENT COMPANY ACT
REQUIREMENTS.......................................................... B-1
EXHIBIT C MANAGED MUNICIPALS PORTFOLIO II INC. AUDIT COMMITTEE CHARTER.. C-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:
. by mail, addressed to the Secretary of the respective Fund, at the
Fund's mailing address, or
. 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 MMU Shareholders Only
investment 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.
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
. 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
. more than 50% of the outstanding shares of common stock.
5
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:
. printing and mailing of this Proxy Statement/Prospectus and accompanying
material,
. the reimbursement of brokerage firms and others for their expenses in
forwarding solicitation material to the beneficial owners of each Fund's
shares, and
. 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 31,848,644 shares
of MMU outstanding and 10,207,405 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"):
. declared the merger (the "Merger") of MTU with and into MMU advisable,
. approved entering into the Plan, and
. 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.
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:
. 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;
. 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
. MMU will not issue any fractional shares to MTU shareholders. In lieu
thereof, MMU will purchase all fractional MMU 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.
7
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:
. the Merger is in the best interests of each respective Fund, and
. 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.
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES. 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 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."
8
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 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.
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.
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.
9
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.
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, no shareholder of either Fund
will recognize any gain or loss for federal income tax purposes as a result of
the Merger, except with respect to those 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 generally 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.
Except for consequences regularly attributable to a termination of MTU's
taxable year, neither MTU nor MMU will recognize any gain or loss for federal
income tax purposes as a result of the Merger. Except with respect to assets
which must be revalued as a consequence of a termination of MTU's taxable year,
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 November 16, 2001, the last
trading day immediately before the announcement of the Merger, traded at a
market price discount of 10.1%. Similarly, MTU shares have traded in the market
at a discount and, as of the same date, traded at a market price discount of
10.2%.
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.
10
EXPENSE TABLE
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)/(1)/
MANAGED MUNICIPALS MANAGED MUNICIPALS PRO FORMA
PORTFOLIO PORTFOLIO II POST-MERGER/(4)/
------------------ ------------------ ---------------
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 shares as contemplated by Proposal 2. For a discussion of the
potential impact of issuance of preferred shares 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.
MANAGED MUNICIPALS MANAGED MUNICIPALS PRO FORMA
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
11
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 MANAGED MUNICIPALS
PORTFOLIO'S RETURN PORTFOLIO II 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.
12
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.
13
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
====== ====== ======= ======= =======
14
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 Value/(2)/... 8.26% 8.40% 2.98% 7.02%++
====== ====== ====== ======
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 EXPENSE RATIOS
NET INVESTMENT INCOME WITHOUT 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.
15
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
====== ====== ======= ======= ======= =======
16
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:
Net investment income/(1)/.............. 0.69 0.64 0.62
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.
17
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:
. Interest rates rise, causing the value of the Funds' portfolios
generally to decline;
. 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;
. The underlying revenue source for a municipal obligation other than a
general obligation bond is insufficient to pay principal or interest in
a timely manner;
. The credit rating of a security owned by the Funds is downgraded or
there is a default on its payment of principal and/or interest;
. The manager's judgment about the attractiveness, value or income
potential of a particular bond proves to be incorrect;
. Municipal obligations fall out of favor with investors; and
. 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.
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.
18
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:
. to shorten or lengthen the Funds' effective maturity or duration;
. as a substitute for purchasing or selling securities; or
. 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
. 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.
. 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.
. 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
. 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
19
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.
. Even if the issuer does not actually default, adverse changes in the
issuer's financial condition may negatively affect its credit rating or
presumed creditworthiness. These developments would adversely affect the
market value of the issuer's obligations.
ISSUER OF A MUNICIPAL OBLIGATION DECLARES BANKRUPTCY
. The issuer of a municipal obligation might declare bankruptcy and the
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.
. 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.
. 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.
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
. 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.
20
. These leases are less liquid than municipal obligations and may be
difficult to value and to sell at a fair price.
. If the issuer is foreclosed upon, the assets securing these leases may
be difficult to dispose of.
OTHER RISKS OF INVESTING IN MUNICIPAL OBLIGATIONS
. 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.
. 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 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:
. 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.
. 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.
21
. 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.
. 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 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.
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.
22
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 the 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.
Both Funds define municipal obligations to include bonds and notes such as:
. general obligation bonds issued for various public purposes and
supported by the municipal issuer's credit and taxing power;
. revenue bonds whose principal and interest is payable only from the
revenues of a particular project or facility. Industrial revenue bonds
depend on the credit standing of a private issuer and may be subject to
the federal alternative minimum tax, or AMT; and
. 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.
23
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 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
24
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
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:
. 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;
. acquire "stand-by commitments" with respect to municipal obligations it
holds;
. 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;
. lend securities it holds to brokers, dealers and other financial
organizations, but it will not lend securities to any affiliate of SBFM
unless the Fund applies for and receives specific authority to do so
from the SEC; and
. 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
25
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 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.
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 investors would not gain any
additional tax benefit from the receipt of tax-exempt income.
The following is a summary of selected federal income tax considerations
that may affect 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.
26
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.
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 period 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).
27
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 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
28
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 30% with respect to (1) taxable dividends and distributions
and (2) the proceeds of any sales or repurchases of shares of common stock. An
individual's taxpayer identification number is his social security number. The
backup withholding tax is not an additional tax and may be credited against a
taxpayer's federal income tax liability.
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:
. MTU will no longer exist, and
. MMU will be the surviving corporation.
MTU will then:
. deregister as an investment company under the Investment Company Act,
. cease its separate existence under Maryland Law,
. remove its shares of common stock from listing on the NYSE, and
. 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 MMU 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;
29
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:
. by the mutual written consent of the board of directors of each Fund, or
. by either Fund if the conditions to that Fund's obligations under the
Plan have not been satisfied or waived.
. 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 Directors of each Fund, including 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:
. the interests of the existing shareholders of that Fund will not be
diluted as a result of the proposed Merger, and
. 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
30
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.
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:
. the comparative performance records of the two Funds,
. public and market perception of the two Funds,
. the relative size of the two Funds,
. the investment policies, strategies and personnel SBFM intends to
utilize in managing the merged fund, and
. 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 a majority of the non-interested directors of each Fund, have
concluded that:
. the Merger is in the best interests of each respective Fund, and
. the interests of existing shareholders of each respective Fund will not
be diluted as a result of the transactions contemplated by the Plan.
31
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.
The Plan provides, among other things, that the Merger will not take place
without:
. the requisite approval of the shareholders of MMU and MTU, and
. 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
32
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:
. 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,
. except for consequences regularly attributable to a termination of MTU's
taxable year, no gain or loss will be recognized by either Fund as a
result of the Merger,
. except with respect to assets which must be revalued as a consequence of
a termination of MTU's taxable year, 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,
. except with respect to assets which must be revalued as a consequence of
a termination of MTU's taxable year, 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,
. no gain or loss will be recognized by the shareholders of MTU upon the
conversion of their MTU shares to MMU common stock except with respect
to cash received upon the purchase of fractional share interests by MMU,
. 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,
. 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 such
shares of MTU were held as capital assets in the hands of such
shareholder of MTU, and
. 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.
33
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 increase
the net asset value per share of the Fund and may also increase the market
price of the 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.
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
Portfolio....... Common Stock,
$0.001 par value 500,000,000 None 31,848,643.5460
Managed Municipals
Portfolio II.... Common Stock,
$0.001 par value 500,000,000 None 10,207,405.4310
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
34
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.
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.
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)
35
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
(DISCOUNT) TO (DISCOUNT) TO
NET ASSET VALUE NYSE PRICE NAV NET ASSET VALUE NYSE PRICE 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)
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 PRO FORMA FOR
PORTFOLIO PORTFOLIO II ADJUSTMENTS MERGER
------------ ------------ ----------- -------------
Net assets.................. $379,676,629 $119,277,286 -- $498,953,915
Net asset value per share/2/ $11.92 $11.69 -- $11.92
Shares outstanding/3/....... 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/ 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.
36
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.
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.
37
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.
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
38
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
(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.
39
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:
. 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,
. they promote continuity and stability, and
. 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
--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.
40
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 Managing Director of Salomon Smith
125 Broad Street Directors, Chief Executive Barney; Director of 77 investment
New York, NY 10004 Officer and President 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.
41
PRINCIPAL OCCUPATIONS
NAME (AGE) AND ADDRESS POSITIONS HELD WITH THE FUND DURING PAST FIVE YEARS
- ---------------------- ---------------------------- ----------------------
+ William R. Hutchinson (58) Director President, WR Hutchinson &
535 N. Michigan Associates, Inc.; formerly Group Vice
Suite 1012 President, Mergers & Acquisitions BP
Chicago, IL 60611 Amoco 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 Investment Managing Director of Salomon Smith
333 West 34th Street 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 Managing Director of Salomon Smith
125 Broad Street Financial and Accounting Barney, Senior Vice President or
New York, NY 10004 Officer and Treasurer 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.
42
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 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, 31,129,406 shares of common
stock or 98% of MMU's total shares outstanding on that date, and 10,032,005
shares of common stock or 98% 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 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.
43
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 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
44
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:
. fees of the investment, adviser and administrator;
. taxes, interest, brokerage fees and commissions, if any;
. fees of directors who are not officers, directors, shareholders or
employees of Salomon Smith Barney or its affiliates;
. SEC fees and state blue sky qualification fees;
. charges of the custodian;
. transfer and dividend disbursing agent's fees;
. certain insurance premiums;
. outside auditing and legal expenses;
. costs of any independent pricing service;
. costs of maintaining corporate existence;
. costs attributable to investor services (including allocated telephone
and personnel expenses);
. costs of preparation and printing of prospectuses and statements of
additional information for regulatory purposes and for distribution to
shareholders; and
. 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.
45
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.
46
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.
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."
47
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.
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.
48
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 total assets would not change as a result of the issuance of any
preferred stock.
49
The table below compares (a) the current total operating expenses of the
Fund with (b) on a pro forma basis, the operating expenses of the Fund assuming
that the Fund will utilize leverage by issuing Preferred Shares.
FEE TABLE
CURRENT PRO FORMA
SHAREHOLDER TRANSACTION EXPENSES ------- ---------
Maximum Sales Load (as a percentage of offering price)/(a)/................. None None
Dividend Reinvestment Plan Fees............................................. None None
ANNUAL EXPENSES (as a percentage of net assets attributable to Common Stock)
Management Fees............................................................. 0.90% 0.82%/(b)/
Other Expenses.............................................................. 0.11% 0.65%/(c)/
Total Annual Expenses....................................................... 1.01% 1.47%
- --------
/(a)/The sales load to be paid for the Preferred Shares will not be an expense
of the holders of the Fund's Common Stock.
/(b)/Management fee is based on a weighted average of 0.90% charged on
pre-leveraged assets and 0.65% charged on leveraged assets.
/(c)/Costs included among "Other Expenses" are anticipated to increase due to
the increase in expenses associated with the issuance of Preferred Shares.
However, based on current market conditions and assuming the proceeds from
the Preferred Shares issuance are invested in accordance with the Fund's
investment objective and policies, it is anticipated that the Fund's yield
to common stockholders may increase from 4.70% to 5.86%.
EXAMPLE. The example below is based on the current and pro forma total
annual expenses listed in the table above, the total expenses relating to a
$1,000 investment, and assuming a 5% annual return throughout the periods shown:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Current: $10 $32 $56 $124
Pro Forma: $15 $47 $80 $178
The example set forth above assumes reinvestment of all dividends and
distributions. The example should not be considered a representation of future
expenses or annual rate of return. Actual expenses, leverage amount or annual
rate of return may be greater or lesser than those shown.
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 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
50
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
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.
51
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.
52
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. In order that the board of directors of the Fund will be
properly constituted in the event that Proposal One is not approved or, if
approved, not implemented in a timely fashion, you are being asked to elect
three Class II directors of the Fund, Robert A. Frankel, Heath B. McLendon and
George M. Pavia.
Each of Messrs. Frankel, McLendon and 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)
SERVED AS A OF THE FUND'S SHARES
DIRECTOR BENEFICIALLY OWNED AS OF
NAME SINCE CLASS+ SEPTEMBER 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%)
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.
53
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 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.
54
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
- --------
* 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
was 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.
55
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, SBFM or entities under common control with SBFM that
provided services 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.
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.
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.
56
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 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
57
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.
58
EXHIBIT A
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 JANUARY 11, 2002
TABLE OF CONTENTS
PAGE
----
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........................................ 2
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................................................. 3
3.12. Qualification under Subchapter M............................ 3
3.13. Form N-14................................................... 4
3.14. Capitalization.............................................. 4
3.15. Books and Records........................................... 4
4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING FUND.............. 4
4.1. Organization................................................ 4
4.2. Registrations and Qualifications............................ 5
4.3. Regulatory Consents and Approvals........................... 5
4.4. Noncontravention............................................ 5
4.5. Financial Statements........................................ 5
4.6. Annual Report............................................... 5
4.7. Qualification, Corporate Power, Authorization of Transaction 5
4.8. Legal Compliance............................................ 5
4.9. Material Contracts.......................................... 6
4.10. Undisclosed Liabilities..................................... 6
4.11. Tax Filings................................................. 6
4.12. Qualification under Subchapter M............................ 6
4.13. Form N-14................................................... 6
4.14. Capitalization.............................................. 6
4.15. Issuance of Stock........................................... 7
4.16. Books and Records........................................... 7
A-i
PAGE
----
5. CONVERSION TO THE ACQUIRING FUND COMMON STOCK........................ 7
5.1. Conversion..................................................... 7
5.2. Computation of Net Asset Value................................. 7
5.3. Issuance of the Acquiring Fund Common Stock.................... 8
5.4. Surrender of the Target Fund Stock Certificates................ 8
6. COVENANTS OF THE PARTIES............................................. 8
6.1. Shareholders' Meetings......................................... 8
6.2. Operations in the Normal Course................................ 8
6.3. Articles of Merger............................................. 8
6.4. Regulatory Filings............................................. 8
6.5. Preservation of Assets......................................... 9
6.6. Tax Matters.................................................... 9
6.7. Shareholder List............................................... 9
6.8. Delisting, Termination of Registration as an Investment Company 9
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND............ 9
7.1. Approval of Merger............................................. 9
7.2 Certificates and Statements by the Target Fund................. 10
7.3. Absence of Litigation.......................................... 10
7.4. Legal Opinions................................................. 10
7.5. Auditor's Consent and Certification............................ 12
7.6. Liabilities.................................................... 12
7.7. Effectiveness of N-14 Registration Statement................... 12
7.8. Regulatory Filings............................................. 12
7.9. Administrative Rulings, Proceedings............................ 12
7.10. Satisfaction of the Acquiring Fund............................. 12
7.11. Dividends...................................................... 12
7.12. Custodian's Certificate........................................ 13
7.13. Books and Records.............................................. 13
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE TARGET FUND........... 13
8.1. Approval of the Merger......................................... 13
8.2. Certificates and Statements by the Acquiring Fund.............. 13
8.3. Absence of Litigation.......................................... 14
8.4. Legal Opinions................................................. 14
8.5. Auditors' Consent and Certifications........................... 15
8.6. Effectiveness of N-14 Registration Statement................... 15
8.7. Regulatory Filings............................................. 16
8.8. Satisfaction of the Target Fund................................ 16
8.9. Dividends...................................................... 16
9. PAYMENT OF EXPENSES.................................................. 16
10. COOPERATION FOLLOWING EFFECTIVE DATE................................. 16
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PAGE
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11. INDEMNIFICATION................................................... 16
11.1. The Target Fund............................................ 16
11.2. The Acquiring Fund......................................... 17
12. TERMINATION, POSTPONEMENT AND WAIVERS............................. 17
12.1. Termination................................................ 17
12.2. Waiver..................................................... 17
12.3. Expiration of Representations and Warranties............... 17
13. MISCELLANEOUS..................................................... 18
13.1. Transfer Restriction....................................... 18
13.2. Material Provisions........................................ 18
13.3. Notices.................................................... 19
13.4. Amendments................................................. 19
13.5. Headings................................................... 19
13.6. Counterparts............................................... 20
13.7. Enforceability............................................. 20
13.8. Successors and Assigns..................................... 20
13.9. Governing Law.............................................. 20
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THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
as of this 11th day of January, 2002, 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 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.
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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 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.
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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 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
A-3
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.
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.
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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.
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.
A-5
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 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,
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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. 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 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.
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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.
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.
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(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.
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
A-9
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; 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
A-10
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 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) except for consequences regularly attributable to a termination of
the Target Fund's taxable year, 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 or upon the conversion of
Target Fund shares to Acquiring Fund Common Stock; (iv) no gain or loss will be
recognized to the shareholders of the Target Fund on the conversion of their
Target Fund shares to 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) except with respect to assets which must be revalued as a
consequence of a termination of the Target Fund's taxable year; 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
A-11
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 capital assets; (viii) except with respect to assets which
must be revalued as a consequence of a termination of the Target Fund taxable
year, 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.
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
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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.
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
A-13
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 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 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
A-14
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) except for consequences
regularly attributable to a termination of the Target Fund's taxable year, 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 or upon the conversion of Target Funds shares to Acquiring Funds Common
Stock; (iv) no gain or loss will be recognized to the shareholders of the
Target Fund on the conversion of their Target Fund shares to 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) except with respect
to assets which must be revalued as a consequence of a termination of the
Target Fund's taxable year, 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 capital assets; (viii) except with respect
to assets which must be revalued as a consequence of a termination of the
Target Fund taxable year, 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.
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.
A-15
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 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.
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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 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.
A-17
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.
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.
A-18
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:
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.
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.
A-19
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-20
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.
/S/ LEWIS E. DAIDONE
By: __________________________ [SEAL]
Lewis E. Daidone
Name: __________________________
/S/ WILLIAM J. RENAHAN
Attest: __________________________
Assistant Secretary
Title: __________________________
MANAGED MUNICIPALS PORTFOLIO II INC.
/S/ LEWIS E. DAIDONE
By: __________________________ [SEAL]
Lewis E. Daidone
Name: __________________________
/S/ WILLIAM J. RENAHAN
Attest: __________________________
Assistant Secretary
Title: __________________________
A-21
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.
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-1
(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
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-2
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, 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.
C-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:
. deficiencies noted in the audit in the design or operation of
internal controls;
. consideration of fraud in a financial statement audit;
. detection of illegal acts;
. the outside auditors' responsibility under generally accepted
auditing standards;
. significant accounting policies;
. management judgments and accounting estimates;
. adjustments arising from the audit;
. the responsibility of the outside auditors for other information in
documents containing audited financial statements;
. disagreements with management;
. consultation by management with other accountants;
. major issues discussed with management prior to retention of the
outside auditors;
. difficulties encountered with management in performing the audit;
. the outside auditors' judgments about the quality of the entity's
accounting principles; and
. reviews of interim financial information conducted by the outside
auditors.
C-2
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
PART B
SUBJECT TO COMPLETION, DATED January 11, 2002
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
__________ , 2002, 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 _________________ , 2002
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 77,253 131,000(d) 365,556
------------ ------------- ------------ ------------
Total Liabilities 11,426,253 2,739,352 131,000 14,296,605
------------ ------------- ------------ ------------
Net Assets $373,777,869 $118,186,763 (131,000) $491,833,632
============ ============ ============ ============
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) (131,000)(d) (184,345)
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 (131,000) $491,833,632
============ ============ ============ ============
Outstanding Shares: 31,848,644 10,207,406 (139,113)(c) 41,916,937
- ------------------ ============ ============ ============
Net Asset Value $11.74 $11.58 $11.73
- --------------- ============ ============ ============
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 12,328 121,000 (a),(d) 144,117
----------- ---------- -------------- -----------
Total Expenses 3,770,468 1,374,166 (98,280) 5,046,354
Less: Management Fee Waivers (1,233,933) (409,781) 1,643,714 (b)
----------- ---------- -------------- -----------
Net Expenses 2,536,535 964,385 1,545,434 5,046,354
----------- ---------- -------------- -----------
NET INVESTMENT INCOME 19,132,327 5,491,576 (1,545,434) 23,078,469
========== ========== =============== ==========
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 ($1,545,434) $55,540,032
=========== =========== ================ ===========
(a)Reflects adjustment to eliminate duplicate services.
(b)Reflects adjustment to eliminate management fee waiver.
(c)Reflects difference between shares outstanding on Managed Municipals
Portfolio II and the shares assumed to be issued by Managed Municipals
Portfolio in connection with the merger.
(d)Includes $131,000 of merger related expenses.
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.**
15. Not Applicable
16. Powers of Attorney.**
- ----------------------
* Filed herewith.
** Incorporated by reference to the Registrant's Registration Statement on Form
N-14 filed on November 16, 2001 (No. 333-73556).
-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 11th
day of January, 2002.
Managed Municipals Portfolio Inc.
By: /s/ Heath B. McLendon
--------------------------------------
Heath B. McLendon, Chief Executive Officer
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 January 11, 2002
- --------------------
Heath B. McLendon and President (Principal Executive Officer)
/s/Lewis E. Daidone Senior Vice President and Treasurer (Principal January 11, 2002
- -------------------
Lewis E. Daidone Financial Officer)
* Director January 11, 2002
- ----------------------
Allan J. Bloostein
-20-
* Director January 11, 2002
- ----------------
Martin Brody
* Director January 11, 2002
- -------------------
Dwight B. Crane
* Director January 11, 2002
- -------------------
Paulo M. Cucchi
* Director January 11, 2002
- ---------------------
Robert A. Frankel
* Director January 11, 2002
- ---------------
Paul Hardin
* Director January 11, 2002
- -------------------------
William R. Hutchinson
* Director January 11, 2002
- -------------------
George M. Pavia
* By: Lewis E. Daidone Attorney-in-Fact January 11, 2002
- -------------------------
Lewis E. Daidone
-21-
Exhibit No. Exhibit
- ---------- -------
11(a) Opinion and Consent of Willke Farr & Gallagher.
11(b) Opinion and Consent of Venable, Baetjer and Howard, LLP.
12 Form of Opinion and Consent of Willke Farr & Gallagher with
respect to tax matters.