[Federal Register Volume 60, Number 80 (Wednesday, April 26, 1995)]
[Notices]
[Pages 20547-20548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10183]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21022/812-9550]


Smith Barney Muni Funds, et al.; Notice of Application

April 19, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: Smith Barney Muni Funds (the ``Trust''), Smith Barney 
Income Trust (the ``Income Trust''), Smith Barney Mutual Funds 
Management Inc. (``SBMFM'') and Smith Barney Inc. (``Smith Barney'').

RELEVANT ACT SECTIONS: Order requested under section 17(b) for an 
exemption from section 17(a).

SUMMARY OF APPLICATION: Applicants request an order to allow Smith 
Barney Intermediate Maturity California Municipals Fund (the 
``Intermediate Maturity Fund''), a series of the Income Trust, to 
acquire substantially all of the assets of the California Limited Term 
Portfolio (the ``Limited Term Portfolio''), a series of the Trust. 
Because of certain affiliations, the two series may not rely on rule 
17a-8 under the Act.

FILING DATE: The application was filed on March 24, 1995.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on May 15, 1995, 
and should be accompanied by proof of service on applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, 388 Greenwich Street, 22nd Floor, New York, New York 10013.

FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Robert A. 
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. The Limited Term Portfolio is a series of the Trust and the 
Intermediate Maturity Fund is a series of the Income Trust. The Trust 
and the Income Trust each are registered under the Act as open-end 
management investment companies and are organized as Massachusetts 
business trusts. The Limited Term Portfolio and the Intermediate 
Maturity Fund are referred to herein as the ``Funds.''
    2. SBMFM serves as investment adviser to the Intermediate Maturity 
Fund and the Limited Term Portfolio. Smith Barney is the Funds' 
distributor and, as of February 13, 1995, owned 12.22% of the 
outstanding shares of the Limited Term Portfolio. SBMFM and Smith 
Barney are each a wholly-owned subsidiary of Smith Barney Holdings, 
Inc. (``Holdings'').
    3. Each Fund offers three classes of shares, Class A, Class C and 
Class Y shares. Class A shares of each Fund are sold with an initial 
sales charge of 2.00% of the net asset value of the shares. Class C 
shares of each Fund are sold without an initial sales charge but are 
subject to a contingent deferred sales charge (``CDSC'') of 1.00% 
payable upon certain redemptions. Class Y shares of each Fund are sold 
without an initial sales charge or CDSC and are available only to 
investors investing a minimum of $5.0 million. Class A and Class C 
shares of each Fund are sold subject to substantially similar 12b-1 
distribution plans. [[Page 20548]] 
    4. The investment objectives, policies and restrictions of the 
Limited Term Portfolio and the Intermediate Maturity Fund are 
substantially similar. The Limited Term Portfolio seeks to pay its 
shareholders as high a level of income exempt from federal taxes and 
California personal income taxes by investing primarily in obligations 
issued by the State of California and its political subdivisions, 
agencies and instrumentalities. The Intermediate Maturity Fund seeks to 
provide its shareholders with as high a level of income exempt from 
federal income taxes and California personal income taxes by investing 
an investment-grade obligations issued by the State of California and 
its political subdivisions, agencies and public authorities.
    5. The Intermediate Maturity Fund proposes to acquire all or 
substantially all of the assets and certain liabilities of the Limited 
Term Portfolio in exchange for shares of the Intermediate Maturity Fund 
pursuant to an agreement and plan of reorganization (``Reorganization 
Agreement''). Under the Reorganization Agreement, the number of shares 
of each class of the Intermediate Maturity Fund to be issued to the 
Limited Term Portfolio will be determined on the basis of the Funds' 
relative net asset values per their respective classes of shares. The 
Limited Term Portfolio then will liquidate and distribute such shares 
of the Intermediate Maturity Fund pro rata to its shareholders. Class 
A, Class C and Class Y shareholders of the Limited Term Portfolio would 
receive Class A, Class C and Class Y shares, respectively, of the 
Intermediate Maturity Fund.
    6. The proposed reorganization was unanimously approved by the 
boards of trustees of the Trust and the Income Trust, including a 
majority of the trustees who are not interested persons, on December 1, 
1994 and December 20, 1994, respectively. In approving the proposed 
reorganization, each board found that participation in the 
reorganization is in the best interests of the relevant Fund and that 
the interest of existing Fund shareholders will not be diluted as a 
result of the reorganization. Each board based its decision to approve 
the reorganization on a number of factors, including: (a) The terms and 
conditions of the reorganization; (b) the fact that the reorganization 
will be effected as a tax-free reorganization; (c) the costs of the 
reorganization to the Funds; (d) the compatibility of the objectives, 
policies and restrictions of the two Funds; (e) the savings in expenses 
borne by shareholders expected to be realized by the reorganization; 
and (f) the potential benefits to the Funds' affiliates, including 
SBMFM, Smith Barney and Holdings.
    7. Applicants contemplate that the Reorganization Agreement will be 
submitted for approval by the shareholders of the Limited Term 
Portfolio at a meeting scheduled to be held on or about June 23, 1995, 
and that a prospectus/proxy statement will be sent to shareholders of 
the Limited Term Portfolio in May 1995. Assuming that the required 
shareholder vote is obtained at the shareholders' meeting, the closing 
date is expected to be held shortly thereafter.
    8. Smith Barney will bear any expenses incurred in connection with 
the reorganization, except that each Fund will be liable for any fees 
and expenses of its own custodian and transfer agent incurred in 
connection with the reorganization and the Limited Term Portfolio will 
be liable for all fees and expenses incurred relating to its 
liquidation and termination.

Applicants' Legal Analysis

    1. Section 17(a), in pertinent part, prohibits an affiliated person 
of a registered investment company, acting as principal, from selling 
to or purchasing from such registered company, any security or other 
property. Section 17(b) provides that the SEC may exempt a transaction 
from section 17(a) if evidence establishes that the terms of the 
proposed transaction, including the consideration to be paid, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and that the proposed transaction is consistent with 
the policy of the registered investment company concerned and with the 
general purposes of the Act.
    2. Rule 17a-8 under the Act exempts from section 17(a) mergers, 
consolidations, or purchases or sales of substantially all the assets 
involving registered investment companies that may be affiliated 
persons solely by reason of having a common investment adviser, common 
directors/trustees and/or common officers provided that certain 
conditions are satisfied. SBMFM is the investment adviser to both the 
Intermediate Maturity Fund and the Limited Term Portfolio, and Smith 
Barney is the distributor to both of the Funds. However, Smith Barney 
also is an ``affiliated person'' of the Limited Term Portfolio because 
it beneficially owns 5% or more of the shares of the Limited Term 
Portfolio; therefore, applicants may not rely on rule 17a-8.
    3. Applicants believe that the terms of the proposed reorganization 
satisfy the standards set forth in section 17(b). The boards of the 
Trust and the Income Trust have reviewed the terms of the 
reorganization as set forth in the Reorganization Agreement, including 
the consideration to be paid or received, and have found that 
participation in the reorganization is in the best interests of each 
Fund and that the interests of the existing shareholders of each Fund 
will not be diluted as a result of the reorganization. The investment 
objectives of the Funds, moreover, are essentially the same. 
Accordingly, the proposed reorganization will be consistent with the 
policies of each Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-10183 Filed 4-25-95; 8:45 am]
BILLING CODE 8010-01-M