SEMI-ANNUAL REPORT
[PHOTO]
SMITH BARNEY
CALIFORNIA
MUNICIPALS
FUND INC.
-----------------------------
August 31, 1996
SMITH BARNEY MUTUAL FUNDS
[LOGO] INVESTING FOR YOUR FUTURE.
EVERY DAY.
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SMITH BARNEY CALIFORNIA MUNICIPALS FUND INC.
DEAR SHAREHOLDER:
We are pleased to provide you with the semi-annual report for the Smith Barney
California Municipals Fund Inc. for the six months ended August 31, 1996. In
this report, we summarize the period's prevailing economic and market conditions
and outline our portfolio strategy. A detailed summary of the Fund's performance
can be found in the appropriate sections that follow in the semi-annual report.
FUND PERFORMANCE UPDATE
For the six months ended August 31, 1996, the Class A shares of the California
Municipals Fund had a total return of 0.56%. In comparison, the Fund's Lipper
Analytical Services, Inc. peer group average posted a total return of 0.05% for
the same time period. (Lipper is an independent fund tracking organization.)
Over the six-month period covered by this report, the Fund distributed dividends
totaling $0.426 per share; based on its net asset value (NAV) of $15.97 as of
August 31, 1996, this equates to an annualized distribution rate of 5.34%. For a
California resident in the combined federal and state income tax bracket of
45.3%, the Fund's tax free yield of 5.34% is equivalent to a taxable yield of
9.19%.
MUNICIPAL BOND MARKET UPDATE
Although this has been a challenging period for the fixed income markets, the
municipal bond market has outperformed the U.S. government bond market. In our
view, this can be attributed to the modest supply of municipal bonds that have
been issued. In recent months, investors have been seeking to reinvest proceeds
of municipal bonds that have either matured or been called back into the
municipal bond market. However, at the same time, the supply of new issues has
been far below recent averages, and is very close to the low for the year. This
increased demand combined with light supply has caused municipal bond prices to
stay higher, and yields to remain conversely lower, relative to those of U.S.
Treasury securities.
CALIFORNIA ECONOMIC HIGHLIGHTS
The California economy and California municipal bonds are back in an enviable
position. Gone is the economic torpor of a few years ago, as well as the taint
of Orange County's fiscal difficulties. One of the most notable improvements in
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the California economy has been its strong employment gains. Although total
employment still lags significantly behind California's pre-recessionary 1990
peak, the employment increases in the last two years have been impressive. The
aerospace and defense industries were devastated by defense cutbacks and the
relocation of several major companies to lower-cost states during the past six
years. However, these job losses have been offset by significant gains in the
entertainment, import, export and transportation industries. In our view, the
employment patterns in California indicate that the state now has a more
diversified and vibrant economy which is well on its way to stable growth. It
was not too long ago that investors avoided bonds issued by local California
municipalities. These issues are now in higher demand and in relatively short
supply. The bottom line is that the California municipal market is benefiting
from today's attractive rate structure and should more than hold its own in any
rate environment as we move toward the late 1990's.
FUND'S INVESTMENT STRATEGY
The Smith Barney California Municipals Fund had maintained a more defensive
investment strategy from the end of 1995 up until May of 1996. We purchased
higher coupon issues and shortened maturities so that at the beginning of 1996
we were in a position to protect the Fund's NAV in a rather hostile market
environment. We maintained this conservative position through the middle of May
until the yield on the 30-year U.S. Treasury bond rose above 7.10% and yields on
high grade long-term municipal bonds rose above 6.20%. At this point we changed
the Fund's investment strategy because we believed it was time to lock in those
yields as we became more positive on the market. Since May, every time municipal
bond yields have risen even close to those levels, we have added to our existing
high grade discount coupon positions because we feel the market at these rates
is quite attractive. In addition, we have added issues with longer maturities.
As of August 31, 1996, the Fund's average weighted maturity was 22.2 years
versus 19.6 years on February 29, 1996.
The Smith Barney California Municipals Fund continues to focus on essential
service revenue bonds, such as water and sewer, and transportation projects.
Given the turnaround in the California economy we have become willing to
purchase general obligation bonds that meet our investment criteria. However,
due to the lack of supply of these types of issues in the marketplace, we still
have not added any to the Fund.
As of August 31, 1996, approximately 94% of the Fund's holdings were rated
investment grade (BBB/Baa and higher) by either Standard and Poor's Corporation
or Moody's Investors Service Inc., with about 62% of the Fund invested in AAA
bonds, the highest possible rating. (Standard and Poor's and Moody's are two
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major credit reporting and bond rating agencies.) The Smith Barney California
Municipals Fund's largest holdings are concentrated in water/sewer bonds
(18.0%), tax allocation bonds (13.0%), hospital bonds (9.1%) and transportation
bonds (8.9%).
MUNICIPAL BOND MARKET OUTLOOK
Going forward, we expect the municipal bond market should benefit from a
comfortably low inflation rate, a Federal Reserve that seems content with
short-term rates right where they are, an economy that is not overly robust, and
municipalities that are issuing new debt sparingly. For these reasons, we
continue our positive view of the market for the balance of 1996.
As stated in our Municipal Bond Market Update, supply has been light, which has
allowed municipal bonds to outperform government bonds for all of 1996, and
should do so going forward. We believe the rate of U.S. economic growth will
moderate somewhat in the next quarter or two, and allow long-term rates to ease
from their current levels. In our view, the market at today's levels is
attractively priced and, with limited supply, provides investors with attractive
after-tax yields. Furthermore, municipal bonds may have some capital
appreciation possibilities if the economic numbers ease at all.
In closing, thank you for investing in the Smith Barney California Municipals
Fund. We look forward to continuing to help you achieve your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Joseph P. Deane
Heath B. McLendon Joseph P. Deane
Chairman and Vice President and
Chief Executive Officer Investment Officer
SEPTEMBER 24, 1996
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* * * * *
SMITH BARNEY CALIFORNIA MUNICIPALS FUND (CLASS A SHARES)
MORNINGSTAR RATINGS*
AS OF AUGUST 31, 1996
OVERALL 1-YEAR 3-YEAR 5-YEAR 10-YEAR
RATING RATING RATING RATING RATING
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5* 4* 5* 4* 5*
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Number of funds
in Morningstar's
Municipal Fund
rating universe 1,738 975 556 218
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WE ARE PLEASED TO SHARE WITH YOU THAT AS OF AUGUST 31, 1996, THE SMITH BARNEY
CALIFORNIA MUNICIPALS FUND CLASS A SHARES WERE RATED FIVE-STARS, THE HIGHEST
RATING BY MORNINGSTAR, INC., AN INDEPENDENT FUND TRACKING ORGANIZATION. ONE OF
THE KEY POINTS INCLUDED IN THE REPORT WAS THAT THE FUND'S "YEAR-TO-DATE RETURN
LANDS IN THE TOP 10% OF ALL LONG-TERM CALIFORNIA MUNI FUNDS." FURTHERMORE, THE
WRITTEN ANALYSIS CONCLUDED BY STATING, "THIS FUND'S TOTAL RETURN RECORD IS
SUPERB, WHILE ITS RISK SCORES ARE NOTICEABLY BELOW THE LONG-TERM CALIFORNIA
MUNI-FUND AVERAGE," AND HAS "PROVEN PROFITABLE FOR SHAREHOLDERS."
SOURCE: MORNINGSTAR MUTUAL FUNDS, SEPTEMBER 27, 1996
*MORNINGSTAR PROPRIETARY RATINGS REFLECT HISTORICAL RISK-ADJUSTED PERFORMANCE
AS OF 8/31/96. THE RATINGS ARE SUBJECT TO CHANGE EVERY MONTH. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS. MORNINGSTAR RATINGS ARE CALCULATED FROM A
FUND'S THREE-, FIVE- AND TEN-YEAR AVERAGE ANNUAL RETURNS (IF AVAILABLE) IN
EXCESS OF 90-DAY TREASURY BILL RETURNS WITH APPROPRIATE FEE AND SALES CHARGE
ADJUSTMENTS, AND A RISK FACTOR THAT REFLECTS FUND PERFORMANCE BELOW 90-DAY
TREASURY BILL RETURNS. THE ONE-YEAR RATING IS CALUCLATED USING THE SAME
METHODOLOGY, BUT IS NOT A COMPONENT OF THE OVERALL RATING. 10% OF THE FUNDS IN
THE MUNICIPAL CATEGORY RECEIVE FIVE STARS FROM MORNINGSTAR, 22.5% RECEIVE FOUR
STARS, 35% RECEIVE THREE STARS, 22.5% RECEIVE TWO STARS, AND 10% RECEIVE ONE
STAR.
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================================================================================
HISTORICAL PERFORMANCE -- CLASS A SHARES
================================================================================
Net Asset Value
-----------------
Capital
Gain
Beginning End of Income Distri- Return of Total
Period Ended of Period Period Dividends butions Capital Returns(1)
================================================================================
8/31/96 $16.31 $15.97 $0.43 $0.00 $0.00 0.56%+
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2/29/96 15.40 16.31 0.84 0.03 0.00 11.93
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2/28/95 16.15 15.40 0.89 0.19 0.00 2.46
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2/28/94 16.70 16.15 0.84 0.65 0.00 5.92
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2/28/93 15.78 16.70 0.97 0.29 0.04 14.76
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2/28/92 15.66 15.78 1.05 0.27 0.00 9.50
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2/28/91 15.61 15.66 1.07 0.12 0.00 8.29
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2/28/90 15.33 15.61 1.07 0.00 0.00 9.02
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2/28/89 15.49 15.33 1.12 0.03 0.00 6.67
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2/28/88 16.54 15.49 1.09 0.07 0.00 1.09
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2/28/87 16.16 16.54 1.14 0.33 0.00 12.13
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Total $10.51 $1.98 $0.04
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HISTORICAL PERFORMANCE -- CLASS B SHARES
================================================================================
Net Asset Value
-----------------
Capital
Gain
Beginning End of Income Distri- Return of Total
Period Ended of Period Period Dividends butions Capital Returns(1)
================================================================================
8/31/96 $16.32 $15.97 $0.39 $0.00 $0.00 0.19%+
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2/29/96 15.40 16.32 0.76 0.03 0.00 11.39
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2/28/95 16.15 15.40 0.80 0.19 0.00 1.89
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2/28/94 16.70 16.15 0.76 0.65 0.00 5.40
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Inception*-2/28/93 15.84 16.70 0.28 0.29 0.01 9.27+
================================================================================
Total $2.99 $1.16 $0.01
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HISTORICAL PERFORMANCE -- CLASS C SHARES
================================================================================
Net Asset Value
-----------------
Capital
Gain
Beginning End of Income Distri- Return of Total
Period Ended of Period Period Dividends butions Capital Returns(1)
================================================================================
8/31/96 $16.31 $15.96 $0.38 $0.00 $0.00 0.17%+
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2/29/96 15.40 16.31 0.76 0.03 0.00 11.30
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Inception*-2/28/95 14.19 15.40 0.23 0.19 0.00 11.72+
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Total $1.37 $0.22 $0.00
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IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.
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AVERAGE ANNUAL TOTAL RETURN
================================================================================
Without Sales Charge(1)
--------------------------------
Class A Class B Class C
================================================================================
Six Months Ended 8/31/96+ 0.56% 0.19% 0.17%
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Year Ended 8/31/96 7.00 6.48 6.37
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Five Years Ended 8/31/96 7.63 N/A N/A
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Ten Years Ended 8/31/96 7.51 N/A N/A
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Inception* through 8/31/96 8.92 7.31 12.99
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With Sales Charge(2)
--------------------------------
Class A Class B Class C
================================================================================
Six Months Ended 8/31/96+ (3.47)% (4.31)% (0.81)%
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Year Ended 8/31/96 2.69 1.98 5.37
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Five Years Ended 8/31/96 6.75 N/A N/A
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Ten Years Ended 8/31/96 7.07 N/A N/A
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Inception* through 8/31/96 8.57 6.88 12.99
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CUMULATIVE TOTAL RETURN
================================================================================
Without Sales Charge(1)
================================================================================
Class A (8/31/86 through 8/31/96) 106.27%
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Class B (Inception* through 8/31/96) 30.94
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Class C (Inception* through 8/31/96) 24.55
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the applicable
sales charges with respect to Class A shares or the applicable contingent
deferred sales charges ("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 4.00%; Class B shares reflect the
deduction of a 4.50% CDSC, which applies if shares are redeemed within one
year from initial purchase. This CDSC declines by 0.50% the first year after
purchase and thereafter by 1.00% per year until no CDSC is incurred. Class C
shares reflect the deduction of a 1.00% CDSC, which applies if shares are
redeemed within the first year of purchase.
* Inception dates for Class A, B and C shares are April 9, 1984, November 6,
1992 and November 14, 1994, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
6
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================================================================================
HISTORICAL PERFORMANCE (UNAUDITED)
================================================================================
GROWTH OF $10,000 INVESTED IN CLASS A SHARES OF
THE SMITH BARNEY CALIFORNIA MUNICIPALS FUND INC. VS.
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE
LIPPER CALIFORNIA MUNICIPAL FUND AVERAGE+
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AUGUST 1986--AUGUST 1996
[The following table represents a graph in the printed piece.]
Smith Barney California Lehman Brothers Lipper California
Municipals Fund Inc. Municipal Bond Index Municipal Fund Average
-------------------- -------------------- ----------------------
8/86 9,602 10,000 10,000
2/87 10,294 10,736 10,687
2/88 10,406 11,018 10,842
2/89 11,100 11,703 11,529
2/90 12,101 12,904 12,830
2/91 13,104 14,095 13,482
2/92 14,132 15,502 15,025
2/93 16,218 17,637 16,606
2/94 17,175 18,613 18,707
2/95 17,596 18,964 18,469
2/96 19,695 21,059 19,764
8/96 19,806 21,135 20,874
+ Hypothetical illustration of $10,000 invested in Class A shares on August
31, 1986, assuming deduction of the maximum 4.00% sales charge at the time
of investment and reinvestment of dividends and capital gains, if any, at
net asset value through August 31, 1996. The Lehman Brothers Municipal Bond
Index is a weighted composite which is comprised of more than 15,000 bonds
issued within the last 5 years, having a minimum credit rating of at least
Baa and a maturity of at least 2 years, excluding all bonds subject to the
Alternative Minimum Tax and bonds with floating or zero coupons. The index
is unmanaged and is not subject to the same management and trading expenses
of a mutual fund. The Lipper California Municipal Fund Average is composed
of an average of the Fund's peer group of 243 mutual funds investing in
California municipal bonds. The performance of the Fund's other classes may
be greater or less than the Class A shares' performance indicated on this
chart, depending on whether greater or lesser sales charges and fees were
incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
7
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================================================================================
PORTFOLIO HIGHLIGHTS (UNAUDITED) AUGUST 31, 1996
================================================================================
[The following table represents a graph in the printed piece.]
INDUSTRY BREAKDOWN
Water & Sewer 18.0%
Tax Allocation 10.6%
Hospital 9.1%
Transportation 8.9%
Utilities 5.8%
Education 5.4%
Housing: Multi-Family 4.9%
General Obligation 4.0%
Housing: Single-Family 3.1%
Other 30.2%
SUMMARY OF INVESTMENTS BY COMBINED RATINGS
STANDARD & PERCENTAGE OF
MOODY'S AND/OR POOR'S TOTAL INVESTMENTS
================================================================================
Aaa AAA 62.0%
Aa AA 6.3
A A 15.9
Baa BBB 10.0
VMIG 1/P-1 A-1 0.3
NR NR 5.5
-----
100.0%
=====
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================================================================================
SCHEDULE OF INVESTMENTS (UNAUDITED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
EDUCATION -- 5.8%
California Educational Facilities Authority Revenue:
$5,420,000 Aa1* Carnegie Institute Washington, Series A,
5.600% due 10/1/23 $ 5,088,025
5,450,000 AAA Pepperdine University, Series A, MBIA-Insured,
5.500% due 6/1/19 5,191,125
Southwestern University Project:
2,635,000 A* 6.600% due 11/1/14 2,760,162
4,505,000 A* 6.700% due 11/1/24 4,718,987
2,500,000 A* University of San Diego, 6.500% due 10/1/22 2,568,750
2,000,000 AAA California Public School District Finance Authority,
Insured, Lease Revenue, Palmdale School,
Series B, FSA- zero coupon due 10/1/23 1,515,000
California State Public Works Board, Lease Revenue
Series A:
2,000,000 A- California State University Project, 6.700%
due 10/1/17 2,087,500
1,000,000 A- High Technology Facility, 7.750% due 8/1/06 1,156,250
1,575,000 AAA University Project, CONNIE LEE-Insured,
5.000% due 6/1/23 1,370,250
2,000,000 AAA Desert Sands, California University School
District COP, FSA-Insured, 5.750% due 3/1/20 1,942,500
100,000 AAA Kern High School District, Series C,
MBIA-Insured, 8.750% due 8/1/03 122,500
Standard School District COP, (Capital Improvement
Project), Series A:
320,000 A- 6.200% due 3/1/10 321,200
340,000 A- 6.250% due 3/1/11 340,425
4,500,000 Baa1* Ukiah Unified School District COP, (Measure A
Capital Projects), 6.000% due 9/1/10 4,314,375
6,000,000 AAA University of California Revenue, (Multiple
Purpose Projects), Series C, AMBAC-Insured,
5.000% due 9/1/23 5,220,000
2,600,000 AAA Victor Valley Unified High School District,
MBIA-Insured, 5.750% due 11/1/17 2,574,000
2,500,000 Baa1* Yuba City Unified School District, COP,
(Andors Karperos School Construction Project),
6.700% due 2/1/13 2,512,500
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43,803,549
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ELECTRIC -- 0.8%
Sacramento Power Authority, Cogeneration Project Revenue:
1,800,000 BBB- 6.500% due 7/1/07 1,874,250
1,800,000 BBB- 6.500% due 7/1/08 1,863,000
2,200,000 BBB- 6.500% due 7/1/09 2,257,750
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5,995,000
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SEE NOTES TO FINANCIAL STATEMENTS
9
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================================================================================
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
GENERAL OBLIGATION -- 4.0%
$ 2,000,000 AAA Adelanto School District, Series B, FGIC-Insured,
zero coupon due 9/1/18 $ 530,000
California State GO, Veterans Series:
455,000 A+ Series AL, 9.700% due 4/1/02 560,787
725,000 A+ Series AM, 9.000% due 10/1/02 878,156
Series AT:
4,000,000 A+ 9.700% due 2/1/01 4,775,000
1,000,000 A+ 9.500% due 2/1/10 1,377,500
2,000,000 A+ Series AU, 8.400% due 10/1/06 2,472,500
50,000,000 Aaa* Dawson Ridge, CO Metropolitan District No. 1,
(Escrowed to Maturity with U.S. Government
Securities), zero coupon due 10/1/22(b) 8,000,000
1,400,000 AAA Eastside Unified High School District,
Santa Clara County, Series B, FGIC-Insured,
5.000% due 9/1/18 1,256,500
1,750,000 AAA Escondito Unified School District, Series A,
FGIC-Insured, 5.125% due 9/1/15 1,618,750
1,000,000 AA+ San Diego Public Safety Communication Project,
6.650% due 7/15/11 1,103,750
Santa Margarita/Dana Point Authority Revenue GO,
Water Districts 3, 3A, 4 & 4A, Series B:
1,500,000 AAA 7.250% due 8/1/14 1,762,500
5,000,000 AAA 5.750% due 8/1/20 4,856,250
1,530,000 AAA Santa Rosa High School District, FGIC-Insured,
5.900% due 5/1/14 1,543,388
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30,735,081
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HOSPITAL -- 9.1%
ABAG Finance Authority for Nonprofit Corps COP:
1,500,000 A Rehabilitation Mental Health Services Inc.
Project, California Mortgage Insured, 6
.550% due 6/1/22 1,537,500
8,910,000 A+ Stanford University Hospital,
5.500% due 11/1/1 8,341,988
250,000 A+ California Health Facilities Authority Revenue,
Victory Valley Community Hospital,
Series 84-A, 9.875% due 7/1/12 254,033
California Health Facilities Financing Authority
Revenue, Industrial Development Health Facilities:
1,150,000 A Episcopal Homes, Series A, 7.700% due 7/1/18 1,217,563
Series A:
2,500,000 AAA MBAC-Insured, 5.750% due 7/1/15 2,462,500
220,000 AAA Community Provider Pooled Loan, Series A,
7.350% due 6/1/20 231,000
1,250,000 A South Coast Medical Center, 7.250% due 7/1/15 1,323,438
SEE NOTES TO FINANCIAL STATEMENTS.
10
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================================================================================
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
HOSPITAL--9.1% (CONTINUED)
California Statewide Community Development Authority
Revenue COP:
$ 4,515,000 AAA Industrial Health Facilities, Unihealth,
Series A, AMBAC-Insured,
5.500% due 10/1/07 $ 4,537,575
1,100,000 A Solheim Lutheran Home, 6.500% due 11/1/17 1,127,500
St. Joseph's Health System:
4,825,000 AA 5.500% due 7/1/14 4,559,625
6,000,000 AA 6.625% due 7/1/21 6,285,000
Sutter Health Obligated Group, MBIA-Insured:
3,500,000 AAA 5.500% due 8/15/09 3,456,250
1,000,000 AAA 6.000% due 8/15/25 1,010,000
1,150,000 A Villaview Community, 7.000% due 9/1/09 1,234,813
1,405,000 A+ Contra Costa County COP, Merrithew Memorial
Hospital, 6.500% due 11/1/06 1,478,763
1,500,000 AAA Desert Hospital District COP, (Pre-Refunded--
Escrowed with U.S. Government Securities
to 7/1/00 Call @ 102), 8.100% due 7/1/20 1,706,250
Fresno Health Facilities Revenue, Holy Cross
Health System Corp.:
2,200,000 AA- 5.200% due 12/1/04 2,186,250
2,435,000 AA- 5.375% due 12/1/06 2,413,694
1,000,000 Aa* St. Agnes, 6.625% due 6/1/21 1,031,250
250,000 BB+ Glendale Hospital Revenue Refunding, Glendale
Memorial Hospital, 9.000% due 11/1/17 268,750
1,000,000 A Inglewood Insured Hospital Revenue Bonds, Daniel
Freeman Hospital Inc., 6.750% due 5/1/13 1,032,500
1,000,000 A* Rancho Mirage COP, Eisenhower Memorial Hospital,
Joint Powers Financing Authority,
7.000% due 3/1/22 1,050,000
2,000,000 A Riverside County Asset Leasing Corp.,
(Riverside County Hospital Project),
Series A, 6.375% due 6/1/09 2,065,000
2,750,000 A- San Joaquin County COP, (General Hospital
Project 1993), 6.250% due 9/1/13 2,743,125
905,000 AAA Santa Rosa Hospital Revenue, (Santa Rosa
Hospital Memorial Project), (Escrowed to
Maturity with U.S. Government Securities),
10.300% due 3/1/11 1,190,075
1,250,000 BBB Sequoia Hospital District Revenue,
5.375% due 8/15/23 1,026,563
10,055,000 A Torrance Hospital Revenue Bonds, Little
County of Mary Hospital, 6.875% due 7/1/15(b) 10,406,925
1,500,000 NR Valley Health System COP, 6.875% due 5/15/23 1,518,750
SEE NOTES TO FINANCIAL STATEMENTS.
11
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================================================================================
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
HOSPITAL--9.1% (CONTINUED)
$1,000,000 BBB- Woodland Hospital Revenue COP, Woodland Memorial
Hospital, 8.200% due 8/1/15 $ 1,055,000
- --------------------------------------------------------------------------------
68,751,680
- --------------------------------------------------------------------------------
HOUSING: MULTI-FAMILY -- 4.9%
California HFA:
Series A:
5,000 AAA 1985, MBIA-Insured, 8.750% due 8/1/10 5,138
1,630,000 A+ 6.625% due 2/1/24(a) 1,662,600
480,000 AAA Series C, MBIA-Insured, 7.000% due 8/1/23(a) 499,200
Home Mortgage Revenue:
Series B:
350,000 AA- Project 1983, zero coupon due 8/1/15 51,625
210,000 AA- 8.600% due 8/1/19(a) 219,450
475,000 AA- Series C, 8.300% due 8/1/19(a) 492,813
Series E:
535,000 AA- 8.250% due 8/1/08(a) 550,381
460,000 AA- 8.350% due 8/1/19(a) 475,525
990,000 AA- Series F-1, 7.000% due 8/1/26(a) 1,013,513
6,000,000 AAA California Statewide Community Development
Authority COP, St. Josephs Health System Group,
Series E, 6.400% due 6/1/28(a) 6,030,000
1,715,000 NR Hayward Housing Authority Revenue,
FNMA-Collateralized, Family Revenue,
Cypress Gardens, Series C,
9.375% due 12/1/18 1,817,900
125,000 AAA Martinez Home Mortgage, (Pre-Refunded--Escrowed
with U.S. Government Securities to 8/1/02
Call @ 100), 10.750% due 2/1/16 187,656
6,000,000 AAA Pleasanton-Suisun City, HFA, Home Mortgage,
Series A, MBIA-Insured, (Escrowed to Maturity
with U.S. Government Securities), zero coupon
to yield 11.625% due 10/1/16 1,665,000
7,400,000 Aaa* San Francisco City & County Redevelopment Agency,
Multi-Family Revenue, GNMA-Collateralized,
(South Beach Project), 5.700% due 3/1/29 6,965,250
1,500,000 A1* San Jose, Multi-Family Timberwood
Apartments, Series A, LOC Wells Fargo Bank,
7.500% due 2/1/20 1,501,875
8,130,000 AAA Santa Clara County, Multi-Family Housing Revenue,
(Meadows Project), GNMA-Collateralized,
Series A, 5.875% due 5/20/26 8,028,375
SEE NOTES TO FINANCIAL STATEMENTS.
12
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
HOUSING: MULTI-FAMILY -- 4.9% (CONTINUED)
$1,320,000 AAA Santa Rosa Mortgage Revenue, (Village Square
Apartments Project), Series A, FHA-Insured,
6.875% due 9/1/27 $ 1,384,350
20,000 BBB+ Sonoma County Home Mortgage Multiple Lenders,
FHA-Insured, 9.125% due 6/1/15 20,675
1,700,000 A* Upland Hospital Revenue COP, San Antonio
Community Hospital, (Pre-Refunded--Escrowed
with U.S. Government Securities to 1/1/99
Call @ 102), 7.800% due 1/1/18(c) 1,857,250
2,755,000 AAA Victorville, GNMA-Collateralized,
6.300% due 4/20/31 2,744,669
- --------------------------------------------------------------------------------
37,173,245
- --------------------------------------------------------------------------------
HOUSING: SINGLE-FAMILY -- 3.1%
California HFA Revenue Bonds, Home Mortgage:
10,000 AA- 10.250% due 2/1/14 10,155
310,000 AA- Capital Appreciation, Series 1984-B,
zero coupon due 8/1/16 33,858
8,000,000 AAA Single-Family Mortgage, Issue A-2, FHA-Insured,
6.350% due 8/1/15(a)(b) 8,170,000
270,000 AAA Contra Costa County Home Mortgage Revenue,
GNMA-Collateralized, (Escrowed to Maturity with
U.S. Government Securities),
7.750% due 5/1/22(a) 331,425
10,000 NR Fresno County Housing Finance Revenue,
` Private Mortgage, 12.500% due 9/15/12 10,116
Los Angeles Home Mortgage Revenue Bonds,
GNMA-Collateralized:
1,245,000 Aaa* Second Mortgage Project, 8.100% due 5/1/17 1,313,475
660,000 AAA Single-Family Mortgage Revenue, Mortgage
Backed Securities Program, Issue A,
7.550% due 12/1/23(a) 683,100
1,450,000 BBB Orange County HFA, Single-Family Residential
Mortgage Revenue Bonds, zero coupon bond to
yield 10.037% due 7/1/17 192,125
3,325,000 AAA Perris County, Single-Family Mortgage,
GNMA-Collateralized, (Pre-Refunded--Escrowed
with U.S. Government Securities to 6/1/05
Call @ 100), 8.300% due 6/1/13(a) 4,147,938
Riverside County Housing Authority Revenue Bonds:
1,765,000 Baa* Series A, 7.900% due 10/1/18 1,828,981
Single-Family Mortgage Revenue,
GNMA-Collateralized, Series A, (Escrowed to
Maturity with U.S. Government Securities):
2,620,000 AAA 8.300% due 11/1/12(a) 3,265,175
1,000,000 AAA 7.800% due 5/1/21(a) 1,230,000
5,000 BBB+ Single-Family Revenue Bonds, 10.500%
due 9/1/14 5,263
SEE NOTES TO FINANCIAL STATEMENTS.
13
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
HOUSING: SINGLE-FAMILY -- 3.1% (CONTINUED)
$1,500,000 AAA Sacramento County, Single-Family Mortgage Revenue,
GNMA-Collateralized, Issue A, (Escrowed to
Maturity with U.S. Government Securities),
8.125% due 7/1/16(a) $ 1,876,875
110,000 AAA San Francisco City & County Single-Family
Mortgage Revenue, GNMA/FNMA-Collateralized,
7.450% due 1/1/24(a) 114,400
195,000 AAA Southern California HFA, Single-Family Mortgage
Revenue, GNMA/FNMA-Collateralized, Series B,
7.750% due 3/1/24(a) 205,481
- --------------------------------------------------------------------------------
23,418,367
- --------------------------------------------------------------------------------
INDUSTRIAL DEVELOPMENT -- 0.1%
1,000,000 Aa3* Los Angeles, IDA IDR, (Altshule Properties
Project), 7.200% due 10/1/11(a) 1,023,750
- --------------------------------------------------------------------------------
MISCELLANEOUS -- 19.0%
500,000 A3* ABAG Finance Authority Nonprofit Corps COP,
Peninsula Family, YMCA, Series A,
6.800% due 10/1/11 506,875
2,500,000 NR Alhambra, Arcadia, Azush Counties, Independent X
Cities, Risk Management Authority COP,
7.250% due 3/1/07 2,537,500
2,000,000 AAA Anaheim COP, 6.200% due 7/16/23 2,040,000
1,025,000 Baa* Azusa COP, (Capital Improvements Refinancing
Project), 6.625% due 8/1/13 1,031,406
California Public Capital Improvements Finance Authority
Revenue Pooled Project:
750,000 Baa1* Series A, 8.500% due 3/1/18 786,562
585,000 AAA Series B, MBIA-Insured, 8.100% due 3/1/18, 620,831
2,500,000 Baa1* California Special Districts Finance Authority
COP, Series A, 8.500% due 7/1/18 2,643,750
5,000,000 AAA California Public Works Board, Lease Revenue,
Department of Corrections State Prison,
Series A, AMBAC-Insured, 5.250% due 1/1/21 4,593,750
150,000 A- Concord Santa Cruz South Gate COP, Series A,
7.625% due 6/1/11 150,426
Dublin COP, Civic Center Project, AMBAC-Insured:
1,305,000 AAA 5.600% due 2/1/06 1,316,418
1,380,000 AAA 5.625% due 2/1/07 1,386,900
Fresno Joint Powers Financing Authority,
Local Agency Revenue, Series A:
2,000,000 BBB 6.000% due 9/2/01 2,000,000
1,000,000 BBB 6.200% due 9/2/03 1,000,000
1,500,000 BBB 6.550% due 9/2/12 1,494,375
SEE NOTES TO FINANCIAL STATEMENTS.
14
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
MISCELLANEOUS--19.0% (CONTINUED)
Los Angeles Convention & Exhibition Center Authority,
Lease Revenue:
$ 450,000 Aa1* 9.000% due 12/1/20 $ 577,125
Series A, MBIA-Insured:
8,700,000 AAA 5.375% due 8/15/18(b) 8,112,750
21,600,000 AAA 5.125% due 8/15/21 19,224,000
Los Angeles County COP, INFLOS:
2,000,000 BBB+ Special Linked SAVRS & RIBS,
6.566% due 6/1/15(e) 2,000,000
1,000,000 Baa1* Structured Yield Curve Note,
6.600% due 11/1/11(e) 1,021,250
3,750,000 AAA Los Banos, USD COP Series A, MBIA-Insured,
5.625% due 8/1/16 3,660,937
3,000,000 AAA Long Beach Finance Authority Revenue,
AMBAC-Insured, 5.500% due 11/1/22 2,850,000
2,515,000 AAA Oceanside COP, (Oceanside Civic Center Project),
MBIA-Insured, 5.750% due 8/1/15 2,477,275
6,315,000 AAA Oakland Joint Powers Financing Authority,
Lease Revenue, AMBAC-Insured,
5.750% due 8/1/26 6,070,294
2,670,000 AAA Ontario, Redevelopment Finance Authority Revenue,
Project No. 1, MBIA-Insured, (Escrowed to
Maturity with U.S. Government Securities),
5.800% due 8/1/23 2,633,287
1,500,000 AAA Orange County, Community Facility District 86-1,
7.125% due 8/15/17 1,597,500
Orange County, 96 Recovery COP, Series A,
MBIA-Insured:
5,000,000 AAA 5.875% due 7/1/19 4,937,500
8,000,000 AAA 6.000% due 7/1/26 8,030,000
970,000 Baa* Pleasanton Joint Powers Financing Authority,
Series A, 6.150% due 9/2/12 963,937
Sacramento, Area Flood Control Agency,
FGIC-Insured:
2,750,000 AAA 5.375% due 10/1/20 2,571,250
2,525,000 AAA 5.375% due 10/1/25 2,332,469
2,000,000 AAA San Bernadino COP, (Capital Facilities Project),
Series B, (Escrowed to Maturity with
U.S. Government Securities),
6.8750% due 8/1/24 2,310,000
1,000,000 AAA San Diego County COP, MBIA-Insured,
7.363% due 11/18/19 1,031,250
135,000 A* San Francisco Downtown Parking, Corporate Parking
Revenue Bonds, 6.250% due 4/1/04 141,412
5,325,000 A+ San Jose Finance Authority Revenue, Central Service
Yard, Series D, 5.250% due 10/15/23 4,639,406
4,310,000 Aaa* San Marcos Public Facilities Authority,
Public Facilities Revenue, (Escrowed to
Maturity with U.S. Government Securities),
zero coupon due 1/1/19 1,093,662
5,995,000 AAA San Ramone COP, Central Park Project,
FSA-Insured, 5.000% due 8/1/24 5,200,662
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
MISCELLANEOUS--19.0% (CONTINUED)
$ 2,875,000 AAA Santa Ana Financing Authority Lease Revenue,
Police Administration & Holding Facility,
Series A, MBIA-Insured, 6.250% due 7/1/24 $ 3,079,844
3,460,000 A+ Santa Barbara County COP, 5.700% due 3/1/11 3,338,900
7,180,000 AAA Santa Maria Redevelopment Agency, Town Center
Package, FSA-Insured, 5.000% due 6/1/16 6,408,150
6,900,000 AAA Signal Hill Redevelopment Agency, Ref Project 1-B,
MBIA-Insured, 5.250% due 10/1/23 6,227,250
2,375,000 AA- Simi Valley Community Development Agency, COP,
Simi Valley Business Center,
6.050% due 10/1/99 2,449,219
Sonoma County COP, Detention Facilities
Improvement Project:
4,200,000 A+ 5.000% due 11/15/13 3,701,250
3,000,000 A+ 5.000% due 11/15/17 2,572,500
South Orange County Public Finance Authority,
Special Tax Revenue:
2,195,000 AAA Foothill Area, Series C, FGIC-Insured,
5.750% due 8/15/18 2,120,919
2,000,000 AAA Series A, MBIA-Insured, 7.000% due 9/1/10 2,282,500
2,195,000 AAA Turlock, Auxiliary Organization, California State
University--Stanislaus Foundation, COP,
MBIA-Insured, 5.875% due 6/1/22 2,164,819
5,000,000 AAA University of California COP, Various Capital
Projects, Series B, MBIA-Insured,
5.550% due 9/1/10 4,843,750
- --------------------------------------------------------------------------------
144,773,860
- --------------------------------------------------------------------------------
POLLUTION CONTROL REVENUE -- 1.4%
California, Financing Authority, PCR:
Pacific Gas & Electric:
800,000 A Series A, 8.200% due 12/1/18(a) 835,160
2,500,000 A Series B, 6.350% due 6/1/09 2,575,000
San Diego Gas & Electric, Series A:
1,500,000 A+ 6.800% due 6/1/15(a) 1,635,000
5,000,000 A 5.900% due 6/1/14 5,056,250
500,000 A+ California PCR, Waste Management, Series A,
7.150% due 2/1/11(a) 538,750
- --------------------------------------------------------------------------------
10,640,160
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
PRE-REFUNDED -- 3.3%
$1,500,000 NR California Lease Finance Authority, COP,
Nevada County, (Escrowed with U.S. Government
Securities to 10/1/98 Call @ 101),
7.600% due 10/1/19(c) $1,591,875
1,450,000 A+ California Health Facilities Finance Authority,
St. Elizabeth Hospital, (Escrowed with
U.S. Government Securities to 11/15/02
Call @ 102), 6.200% due 11/15/09(c) 1,573,250
1,000,000 AAA California Public Works Board, Lease Revenue,
Department of Corrections, State Prison,
Series A, (Escrowed with U.S. Government
Securities to 9/1/00 Call @ 102),
7.000% due 9/1/09 1,105,000
1,245,000 AAA Concord Redevelopment Agency Tax Allocation Bonds,
Series 3, MBIA-Insured, (Escrowed with U.S.
Government Securities to 7/1/98 Call @ 102),
8.000% due 7/1/18 1,352,381
750,000 AAA El Camino Hospital District, COP, Series A,
(Escrowed with U.S. Government Securities to
9/1/97 Call @ 102), 8.500% due 9/1/17 792,293
550,000 AAA Grossmont Hospital Revenue, Series A, MBIA-Insured,
(Escrowed with U.S. Government Securities
to 11/15/97 Call @ 102), 8.000% due 11/15/17 586,438
1,500,000 Aaa* Kings River Conservation District, Pine Flat Power
Revenue, Series C, (Escrowed with U.S. Government
Securities to 1/1/97 Call @ 102),
7.900% due 1/1/20(c) 1,549,350
465,000 A- Local Government Finance Joint Powers Authority
Revenue, Anaheim Redevelopment Agency, Series A,
(Pre-Refunded--Escrowed with U.S. Government
Securities to 9/1/98 Call @ 102),
8.200% due 9/1/15(c) 509,175
Los Angeles Department of Water & Power:
1,000,000 AA- Electric Plantation Revenue, (Escrowed with
U.S. Government Securities to 5/1/98
Call @ 102), 7.900% due 5/1/28(c) 1,078,750
1,550,000 AA Water Works Revenue, (Escrowed with U.S.
Government Securities to 2/15/99 Call @ 102),
7.200% due 2/15/19(c) 1,677,875
1,200,000 AAA Los Angeles Waste Water System Revenue,
(Escrowed with U.S. Government Securities to
11/1/97 Call @ 102), 8.125% due 11/1/17 1,279,500
500,000 AAA Los Angeles County Transportation Community,
Sales Tax Revenue, Series A, (Escrowed with
U.S. Government Securities to 7/1/98
Call @ 102), 8.000% due 7/1/18 543,125
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
$ 500,000 AAA Oceanside, COP, AMBAC-Insured, (Escrowed with
U.S. Government Securities to 8/1/02
Call @ 102), 7.300% due 8/1/21 $ 571,875
1,000,000 NR Orange County, Community Facility District 87-3,
Special Tax, Series A, (Escrowed with
U.S. Government Securities to 8/15/15 Call @102),
7.800% due 8/15/15(c) 1,130,000
1,000,000 AAA Orange County, Rancho Santa Margarita,
(Escrowed with U.S. Government Securities to
8/15/00 Call @ 102), 7.800% due 8/15/13 1,087,500
2,040,000 AAA Oxnard Public Facilities Corp. COP, Wastewater
Treatment Plant Project, AMBAC-Insured,
(Pre-Refunded--Escrowed with U.S. Government
Securities to 9/1/99 Call @ 100),
7.500% due 9/1/06 2,215,950
2,500,000 AAA Riverside County Asset Leasing Corp., Leasehold
Revenue, (Riverside County Hospital Project),
Series A, (Escrowed with U.S. Government
Securities to 6/1/99 Call @ 102),
7.400% due 6/1/14 2,737,500
1,000,000 AAA San Bernardino County, COP, West Valley
Detention Center Project, (Escrowed with U.S.
Government Securities to 11/1/98 Call @ 102),
7.700% due 11/1/18 1,091,250
1,000,000 AAA San Buenaventura COP, AMBAC-Insured, (Escrowed
with U.S. Government Securities to 10/1/00
Call @ 102), 7.500% due 10/1/20 1,123,750
1,300,000 AAA Yolo County Flood Control & Water Conservation
District, COP, FGIC-Insured, (Escrowed with
U.S. Government Securities to 7/15/03
Call @ 100), 7.125% due 7/15/15 1,469,000
- --------------------------------------------------------------------------------
25,065,837
- --------------------------------------------------------------------------------
SHORT-TERM(D) -- 0.3%
California Health Facilities Finance Authority Revenue,
Sutter Health:
1,900,000 VMIG 1* Series B, AMBAC-Insured, 3.650% due 7/1/12 1,900,000
100,000 A-1+ Series C, FSA-Insured, 3.650% due 7/1/22 100,000
200,000 A-1+ California Pollution Control Financing Authority
Revenue, Pacific Gas & Electric, Series C,
3.650% due 11/1/26 200,000
200,000 A-1+ California State Rans, Series C-5, 3.400% due
6/30/97 200,000
- --------------------------------------------------------------------------------
2,400,000
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
SOLID WASTE -- 2.5%
$ 2,770,000 AAA Fresno County Finance Authority, Solid Waste
Revenue Bonds, American Avenue Landfill,
MBIA-Insured, 5.75% due 5/15/14 $ 2,745,762
Inland Empire Solid Waste Authority Revenue,
FSA-Insured:
5,000,000 AAA 6.250% due 8/1/11 5,175,000
2,500,000 AAA 6.000% due 8/1/16 2,515,625
500,000 BBB+ Kings County Waste Management Authority,
Solid Waste Revenue, 7.200% due 10/1/14 527,500
1,000,000 Baa* Nevada County COP, West Nevada, Solid Waste
Revenue, 7.500% due 6/1/21 1,005,000
1,300,000 BBB Orange County Public Facility, COP, Solid
Waste Revenue, 7.875% due 12/1/07 1,368,250
2,000,000 BBB+ Redding Joint Powers Finance Authority,
Solid Waste & Corporate Yard, Series A,
5.500% due 1/1/13 1,797,500
4,135,000 Baa1* South Napa Waste Management Authority,
(Solid Waste Transfer
Facilities Project), 6.500% due 2/15/14(a) 4,109,156
- --------------------------------------------------------------------------------
19,243,793
- --------------------------------------------------------------------------------
TAX ALLOCATION -- 13.0%
3,000,000 AAA Adelanto Improvement Agency, Tax Allocation,
(Adelanto Improvement Project), Series B,
FGIC-Insured,5.500% due 12/1/23 2,827,500
2,000,000 AAA Anaheim, Public Finance Authority, Tax Allocation,
MBIA-Insured, 6.450% due 12/28/18 2,105,000
1,000,000 Baa* Azusa Redevelopment Agency, Tax Allocation,
Series A, 6.750% due 8/1/23 1,011,250
295,000 AAA Brea Public Finance Authority, Tax Allocation,
MBIA-Insured, 7.000% due 8/1/15 321,919
Brea Redevelopment Agency, Tax Allocation,
(Redevelopment Project), Series AB, MBIA-Insured:
3,510,000 AAA 5.500% due 8/1/08 3,527,550
3,000,000 AAA 5.750% due 8/1/23 2,928,750
Brisbane Redevelopment Agency, Tax Allocation
Bonds, Brisbane Community Redevelopment Bonds,
New England Mutual Life Insured:
200,000 A+ 9.400% due 5/1/05 205,290
220,000 A+ 9.400% due 5/1/06 225,819
5,000,000 AAA Chico Public Finance Authority, Tax Allocation
Redevelopment, FSA-Insured, 5.500% due 4/1/25 4,675,000
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
TAX ALLOCATION -- 13.0% (CONTINUED)
$ 30,000 AAA Concord Redevelopment Agency, Tax Allocation,
Series 3, MBIA-Insured, 8.000% due 7/1/18 $ 32,287
6,000,000 AAA Corona Redevelopment Agency, Tax Allocation,
Redevelopment Project Area A, Series A,
FGIC-Insured, 5.500% due 9/1/24 5,685,000
3,985,000 AAA Coronado Community Development Agency Tax
Allocation, FSA-Insured, 5.500% due 9/1/22 3,785,750
2,250,000 AAA Fontana Public Finance Authority, Tax
Allocation Revenue Bonds, MBIA-Insured,
Series A, 5.000% due 9/1/20 1,982,812
Garden Grove Community Development Agency, Tax
Allocation, (Garden Grove Community Project):
500,000 A 5.375% due 10/1/03 496,875
3,275,000 A 5.700% due 10/1/08 3,193,125
2,000,000 Baa* Hawthorne Community Redevelopment, Tax Allocation,
Project Area 2, 6.625% due 9/1/14 2,035,000
5,700,000 AAA Indian Wells Redevelopment Agency Tax Allocation,
MBIA-Insured, 5.375% due 12/1/22 5,315,250
4,200,000 AAA Mountainview Shoreline Reg. Park, Tax Allocation,
MBIA-Insured, 5.500% due 8/1/21 3,963,750
2,000,000 AAA Orange County Redevelopment Agency, Tax Allocation,
(Southwest Redevelopment Project), Series A,
AMBAC-Insured, 5.700% due 10/1/23 1,925,000
5,000,000 AAA Pittsburg Redevelopment Agency, Tax
Allocation, (Los Medanos County Development
Project), FGIC-Insured, 5.500% due 8/1/15 4,812,500
6,000,000 AAA Poway Redevelopment Agency, Tax Allocation,
(Paraguay Redevelopment Project), FGIC-Insured,
5.500% due 12/15/23 5,617,500
Rancho Cucamonga Redevelopment, Tax Allocation,
(Rancho Redevelopment Project), MBIA-Insured:
2,445,000 AAA 5.250% due 9/1/16 2,279,962
12,500,000 AAA 5.500% due 9/1/23 11,781,250
5,000,000 AAA 5.250% due 9/1/26 4,525,000
3,250,000 AAA Riverside Redevelopment Agency, Tax Allocation,
(Casa Blanca Project), Series A, MBIA-Insured,
5.625% due 8/1/23 3,115,937
2,000,000 AAA San Diego Redevelopment Agency, (Marina
Redevelopment Project), Tax Allocation,
(Pre-Refunded--escrowed with U.S. Government
Securities to 12/1/97 Call @ 101.50),
8.750% due 12/1/08 2,145,000
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
TAX ALLOCATION -- 13.0% (CONTINUED)
$1,500,000 A San Francisco City & County Redevelopment Finance
Authority, Tax Allocation, (Redevelopment
Project), Series C, 5.400% due 8/1/21 $ 1,321,875
15,325,000 AAA San Jose Redevelopment Agency, Tax Allocation
Bonds, (Merged Area Redevelopment Project),
MBIA-Insured, 5.000% due 8/1/20 3,600,937
1,500,000 AAA Suison City Redevelopment Agency, Tax
Allocation, (Suison City Redevelopment Project),
MBIA-Insured, 5.500% due 10/1/23 1,413,750
2,000,000 AAA Vista Community Development, Tax Allocation
Revenue, MBIA-Insured, 5.250% due 9/1/15 1,867,500
- --------------------------------------------------------------------------------
98,724,138
- --------------------------------------------------------------------------------
TRANSPORTATION -- 8.9%
20,915,000 Baa* Foothills Eastern Transportation Toll Revenue,
6.000% due 1/1/34 19,712,388
2,000,000 AA Port of Oakland Special Facilities Revenue,
Series A, 6.750% due 1/1/12(a) 2,062,500
3,260,000 AAA Sacramento Airport System Revenue, Series B,
MBIA-Insured, 5.750% due 7/1/26 3,198,875
400,000 A1* Sacramento Regional Transportation District,
COP, Series A, 6.400% due 3/1/03 424,500
180,000 AAA San Francisco Airport Improvement Corp.,
Lease Revenue, 8.000% due 7/1/13 211,500
3,000,000 AAA San Francisco Airport Community International
Airport Revenue, FGIC-Insured,
6.500% due 5/1/19(a) 3,146,250
San Joaquin Hills Transcorridor Agency, Toll
Road Revenue, Sr. Lien:
5,000,000 NR Zero coupon due 1/1/14(b) 1,581,250
60,000,000 NR Zero coupon due 1/1/16(b) 16,650,000
17,500,000 NR Zero coupon due 1/1/17(b) 4,550,000
25,000,000 NR Zero coupon due 1/1/18(b) 6,062,500
20,000,000 NR Zero coupon due 1/1/19(b) 4,550,000
San Jose Airport Revenue Bonds, FGIC-Insured:
200,000 AAA 5.400% due 3/1/04(a) 202,750
1,945,000 AAA 5.500% due 3/1/07(a) 1,947,431
2,150,000 AAA 5.625% due 3/1/13(a) 2,082,813
1,250,000 A* Santa Barbara COP, (Harbor Reference Project),
6.750% due 10/1/27 1,290,625
- --------------------------------------------------------------------------------
67,673,382
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
UTILITIES -- 5.8%
$ 2,500,000 Aa* Los Angeles Department of Water & Power,
5.250% due 11/15/26 $ 2,221,875
Northern California Power Agency Public Power:
1,110,000 A- Geothermal Project No. 3, Series A,
5.000% due 7/1/09 1,023,975
2,000,000 AAA Hydroelectric Project No. 1, Series A,
MBIA-Insured, 5.500% due 7/1/16 1,912,500
2,000,000 AAA Redding Electric System Revenue, COP, MBIA-Insured,
6.226% due 7/8/22 2,117,500
2,670,000 AAA Redding Joint Powers Finance Authority,
Electric System Revenue, Series D, MBIA-Insured,
5.250% due 6/1/15 2,509,800
Sacramento Municipal Utility District Electric Revenue:
4,000,000 AAA Series D, FGIC-Insured, 5.250% due 11/15/12 3,800,000
4,500,000 AAA Series D, MBIA-Insured, 5.250% due 11/15/20 4,106,250
3,000,000 A Series E, 5.700% due 5/15/12 2,842,500
5,425,000 AAA Series I, MBIA-Insured, 5.750% due 1/1/15 5,404,656
Southern California Public Power Authority,
Power Project Revenue:
600,000 A 5.500% due 7/1/20 546,750
1,500,000 AAA Palo Verde, Series C, AMBAC-Insured,
5.750% due 7/1/17 1,573,125
3,000,000 AA Southern Transmission Project,
5.500% due 7/1/20 2,767,500
12,500,000 AAA Transmission Project, Subseries A,
MBIA-Insured, 5.000% due 7/1/22 10,968,750
1,960,000 BBB- Trinity County Public Utility District, COP,
Electric District Facilities,
6.750% due 4/1/23(a) 1,960,000
- --------------------------------------------------------------------------------
43,755,181
- --------------------------------------------------------------------------------
WATER & SEWER -- 18.0%
Banning COP, Banning Wastewater Facilities Corporation:
115,000 AAA Pre-Refunded -- Escrowed with U.S. Government
Securities to 11/1/97 Call @ 101.50,
11.500% due 11/1/03 126,356
125,000 AAA Pre-Refunded -- Escrowed with U.S. Government
Securities to 11/1/97 Call @ 101.75,
11.500% due 11/1/04 137,656
140,000 AAA Pre-Refunded -- Escrowed with U.S. Government
Securities to 11/1/97 Call @ 102,
11.600% due 11/1/05 154,525
155,000 AAA Pre-Refunded -- Escrowed with U.S. Government
Securities to 11/1/97 Call @ 102.25,
11.650% due 11/1/06 171,663
175,000 AAA Pre-Refunded -- Escrowed with U.S. Government
Securities to 11/1/97 Call @ 102.50,
11.700% due 11/1/07 194,250
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
================================================================================
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
WATER & SEWER -- 18.0% (CONTINUED)
$ 195,000 AAA Pre-Refunded-- Escrowed with U.S. Government
Securities to 11/1/97 Call @ 102.75,
11.750% due 11/1/08 $ 217,181
220,000 AAA Pre-Refunded -- Escrowed with U.S. Government
Securities to 11/1/97 Call @ 103,
11.750% due 11/1/09 245,300
1,200,000 A1* Bakersfield COP, (Waste Water Treatment Plant
3 Projects), 8.000% due 1/1/10 1,270,500
2,500,000 AA California State Department of Water Resources,
Central Valley Project Revenue, Water System,
Series L,5.700% due 12/1/16 2,425,000
East Bay, Municipal Utility District, FGIC-Insured:
9,300,000 AAA Waste & Water Revenue, 5.000% due 6/1/26 8,160,750
7,600,000 AAA Water Revenue, 5.000% due 6/1/26 6,669,000
Eastern Municipal Water District, COP, Water & Sewer
Revenue, Series A, FGIC-Insured:
1,000,000 AAA- 6.750% due 7/1/12 1,121,250
1,000,000 AAA- 5.375% due 7/1/13 951,250
3,000,000 AAA- El Dorado Irrigation District Finance Authority
Revenue, FGIC-Insured, 5.500% due 2/15/21 2,872,500
13,150,000 AAA- Fresno County, Sewer Revenue, Series A, MBIA-
Insured, 5.000% due 9/1/23 11,588,438
2,550,000 AAA- Garden Grove Public Finance Authority Revenue,
Water Services (Capital Improvement Project),
FGIC-Insured, 5.500% due 12/15/23 2,403,375
Irvine Ranch Water District Joint Powers Agency,
Local Pool Revenue:
9,000,000 A AIG-Insured, 7.800% due 2/15/08(b) 9,393,750
1,750,000 A+ AIG-Insured, 7.875% due 2/15/23(b) 1,826,563
9,500,000 A+ FNMA-Collateralized, Issue II,
8.250% due 8/15/23(b) 10,117,500
1,500,000 AA Kings River Water Conservation District,
Pine Flat Power Revenue, Series D,
5.500% due 1/1/20 1,408,125
1,950,000 AA- Los Angeles Department, Water & Power Electric
Plant Revenue, 7.100% due 1/15/31 2,157,188
200,000 AA Los Angeles COP, 6.600% due 11/1/99 210,750
Los Angeles Waste Water System Revenue,
MBIA-Insured, Series A:
2,430,000 AAA 5.700% due 6/1/09 2,457,338
7,960,000 AAA 5.750% due 6/1/11(b) 7,999,800
1,000,000 AAA 5.700% due 6/1/20 958,750
2,000,000 AA Los Angeles County Finance Authority Revenue,
(Sanitation Districts Capital Projects),
Series A, 5.250% due 10/1/19 1,827,500
SEE NOTES TO FINANNCIAL STATEMENTS.
23
<PAGE>
================================================================================
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) AUGUST 31, 1996
================================================================================
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
WATER & SEWER -- 18.0% (CONTINUED)
$ 3,000,000 AAA Metro Water District Southern California Water
Works, Series A, 5.500% due 7/1/25 $ 2,842,500
Mojave Water Agency, Improvement District,
Morongo Basin:
1,500,000 BBB+ 6.600% due 9/1/13 1,665,000
5,510,000 BBB+ 6.600% due 9/1/22 6,116,100
3,250,000 AAA Moulton-Niguel, Water District COP,
AMBAC-Insured, 5.300% due 9/1/23 2,937,188
4,560,000 AAA Pittsburg Public Finance Authority, Waste Water
Revenue, Series A, FGIC-Insured,
5.375% due 6/1/22 4,257,900
2,855,000 AAA Pomona Public Financing Authority, Series Q,
5.750% due 12/1/15 2,797,900
Rancho Water District Financing Authority
Revenue Bonds:
2,000,000 AAA AMBAC-Insured, (Pre-Refunded -- Escrowed with U.S.
Government Securities to 9/11/01 Call @ 102),
6.287% due 8/17/21 2,180,000
3,000,000 AAA FGIC-Insured, 5.875% due 11/1/10 3,071,250
3,200,000 AAA Redding Joint Powers Finance Authority Waste Water
Revenue, Series A, FGIC-Insured,
5.500% due 12/1/18 3,068,000
28,875,000 AAA San Diego, PFA Sewer Revenue, FGIC-Insured,
5.000% due 5/15/20 25,088,684
6,000,000 AAA San Francisco Sewer Revenue Reference,
FGIC-Insured, 5.375% due 10/1/22 5,520,000
- --------------------------------------------------------------------------------
136,610,780
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost-- $735,326,106**) $759,787,803
================================================================================
(a) Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Security segregated by Custodian for open purchase commitments.
(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.
(d) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
(e) Residual interest bonds-coupon varies inversely with level of short-term
tax-exempt interest rates.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 25 and 26 for definition of ratings and certain security
descriptions.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
================================================================================
BOND RATINGS
================================================================================
All ratings are by Standard & Poor's Corporation ("Standard & Poor's") except
those identified by an asterisk (*) are rated by Moody's Investors Services
("Moody's"). The definitions of the applicable rating symbols are set forth
below:
STANDARD & POOR'S -- Rating from "AA" to "BB" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standings within the major rating
categories.
AAA -- Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issue only in a small
degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet timely interest and
principal payments.
MOODY'S--Numerical modifiers 1, 2 and 3 may be applied to each generic rating
from "Aa" to "Baa," where 1 is the highest and 3 the lowest ranking
within its generic category.
Aaa -- Bonds that are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds that are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
25
<PAGE>
================================================================================
SHORT-TERM SECURITIES RATINGS
================================================================================
SP-1 --Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety regarding
timely payment is either overwhelming or very strong; those issues
determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign.
VMIG 1-- Moody's highest rating for issues having a demand feature -- VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to the
advent of the VMIG 1 rating.
================================================================================
SECURITY DESCRIPTIONS
================================================================================
ABAG -- Association of Bay Area Governors
AIG -- American International Guaranty
AMBAC -- American Municipal Bond
Assurance Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance
Company
CHFCLI -- California Health Facility
Construction Loan Insurance
CONNIE LEE-- College Construction Loan
Insurance Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
ETM -- Escrowed To Maturity
FAIRS -- Floating Adjustable Interest
Rate Securities
FGIC -- Financial Guaranty Insurance
Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage
Corporation
FNMA -- Federal National Mortgage
Association
FRTC -- Floating Rate Trust Certificates
FSA -- Federal Savings Association
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage
Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
ISD -- Independent School District
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PCR -- Pollution Control Revenue
PSF -- Permanent School Fund
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
SAVRS -- Select Auction Variable Rate Securities
RITES -- Residual Interest Tax-Exempt Securities
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
SYCC -- Structured Yield Curve Certificate
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
26
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) AUGUST 31, 1996
================================================================================
ASSETS:
Investments, at value (Cost-- $735,326,106) $759,787,803
Interest receivable 10,955,922
Receivable for Fund shares sold 1,096,743
Receivable for securities sold 230,750
Other assets 10,728
- --------------------------------------------------------------------------------
TOTAL ASSETS 772,081,946
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 29,344,192
Dividend payable 3,215,165
Investment advisory fees payable 191,930
Distribution fees payable 172,672
Administration fees payable 114,514
Accrued expenses and other liabilities 115,889
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 33,154,362
- --------------------------------------------------------------------------------
TOTAL NET ASSETS $738,927,584
================================================================================
NET ASSETS:
Par value of capital shares $ 46,278
Capital paid in excess of par value 711,579,014
Undistributed net investment income 41,269
Accumulated net realized gain
on security transactions and futures contracts 2,799,326
Net unrealized appreciation of investments 24,461,697
- --------------------------------------------------------------------------------
TOTAL NET ASSETS $738,927,584
================================================================================
SHARES OUTSTANDING:
Class A 35,413,696
- --------------------------------------------------------------------------------
Class B 10,013,375
- --------------------------------------------------------------------------------
Class C 850,487
- --------------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $15.97
- --------------------------------------------------------------------------------
Class B * $15.97
- --------------------------------------------------------------------------------
Class C ** $15.96
- --------------------------------------------------------------------------------
CLASS A MAXIMUM PUBLIC OFFERING PRICE PER SHARE
(net asset value plus 4.17% of net asset value per share) $16.64
================================================================================
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed less than one year from initial purchase (See Note 2).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
================================================================================
STATEMENT OF OPERATIONS (UNAUDITED)
================================================================================
FOR THE SIX MONTHS ENDED AUGUST 31, 1996
INVESTMENT INCOME:
Interest $22,300,719
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,111,970
Distribution fees (Note 2) 977,725
Administration fees (Note 2) 717,594
Shareholder and system servicing fees 81,138
Registration fees 60,231
Shareholder communications 42,174
Audit and legal 32,533
Pricing service fees 19,134
Directors' fees 17,846
Custody 15,561
Other 6,039
- --------------------------------------------------------------------------------
TOTAL EXPENSES 3,081,945
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 19,218,774
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 3 AND 4):
Realized Gain From:
Security transactions (excluding short-term securities) 700,185
Futures contracts 5,118,062
- --------------------------------------------------------------------------------
NET REALIZED GAIN 5,818,247
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 46,126,568
End of period 24,461,697
- --------------------------------------------------------------------------------
DECREASE IN NET UNREALIZED APPRECIATION (21,664,871)
- --------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS AND FUTURES CONTRACTS (15,846,624)
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $ 3,372,150
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
FOR THE SIX MONTHS ENDED AUGUST 31, 1996 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 1996
AUGUST 31 FEBRUARY 29
================================================================================
OPERATIONS:
Net investment income $19,218,774 $ 30,479,419
Net realized gain 5,818,247 7,626,812
Increase (decrease) in net unrealized
appreciation (21,664,871) 25,439,325
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 3,372,150 63,545,556
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
FROM (NOTE 8):
Net investment income (19,177,505) (30,014,089)
Net realized gains -- (1,031,485)
- --------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (19,177,505) (31,045,574)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 45,786,627 85,442,523
Net asset value of shares issued in
connection with the transfer of the
Smith Barney Muni Funds: California
Portfolio's net assets (Note 7) -- 161,660,791
Net asset value of shares issued for
reinvestment of dividends 8,702,334 17,890,834
Cost of shares reacquired (45,932,853) (81,711,126)
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 8,556,108 183,283,022
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS (7,249,247) 215,783,004
NET ASSETS:
Beginning of period 746,176,831 530,393,827
- --------------------------------------------------------------------------------
END OF PERIOD* $738,927,584 $746,176,831
- --------------------------------------------------------------------------------
*Includes undistributed net investment income of: $41,269 --
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney California Municipals Fund Inc. (the "Fund"), a Maryland
corporation, is registered under the Investment Company Act of 1940, as amended,
as a non-diversified, open-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on the trade date; (b) securities
are valued at the mean between the quoted bid and ask prices as provided by an
independent pricing service; (c) securities maturing within 60 days are valued
at cost plus accreted discount or minus amortized premium, which approximates
market value; (d) gains or losses on the sale of securities are calculated by
using the specific identification method; (e) interest income, adjusted for
amortization of premiums and accretion of original issue discount, is recorded
on the accrual basis; market discount is recognized upon the disposition of the
security; (f) direct expenses are charged to the Fund and each class; management
fees and general fund expenses are allocated on the basis of relative net
assets; (g) dividends and distributions to shareholders are recorded on the
ex-dividend date; (h) the Fund intends to comply with the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes;
(i) the character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. At February 29, 1996, reclassifications were made to the
Fund's capital accounts to reflect permanent book/tax differences and income and
gains available for distributions under income tax regulations. Net investment
income, net realized gains and net assets were not affected by this change; (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; and (k) certain prior year numbers have been restated to reflect
current year's presentation. Net investment income, net realized gains, and net
assets were not affected by this change.
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment adviser to the Fund. The Fund
30
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
pays SBMFM an advisory fee calculated at an annual rate of 0.30% of the average
daily net assets. The investment advisory fee is calculated daily and paid
monthly.
SBMFM 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 up to $500
million and 0.18% of the average daily net assets in excess of $500 million.
This fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. For the six months ended August 31, 1996, SB received sales charges
of approximately $371,000 on sales of the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B
shares, which applies if redemption occurs less than one year from initial
purchase. This CDSC declines by 0.50% the first year after purchase and
thereafter by 1.00% per year until no CDSC is incurred. Class C shares have a
1.00% CDSC, which applies if redemption occurs within the first year of
purchase. For the six months ended August 31, 1996, CDSCs paid to SB were:
CLASS B CLASS C
================================================================================
CDSCs $158,000 $1,000
================================================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect
to their Class A, B and C shares calculated at the annual rate of 0.15% of the
average daily net assets for each respective class. In addition, the Fund pays a
distribution fee with respect to its Class B and C shares calculated at the
annual rate of 0.50% and 0.55% of the average daily net assets of each class,
respectively.
For the six months ended August 31, 1996, total Distribution Plan fees
incurred were:
CLASS A CLASS B CLASS C
================================================================================
Distribution Plan Fees $430,357 $505,648 $41,720
================================================================================
All officers and one Director of the Fund are employees of SB.
31
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
3. INVESTMENTS
During the six months ended August 31, 1996, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
================================================================================
Purchases $263,051,695
- --------------------------------------------------------------------------------
Sales 190,034,101
================================================================================
At August 31, 1996, the aggregate gross unrealized appreciation and
depreciation of investments were as follows:
================================================================================
Gross unrealized appreciation $28,568,326*
Gross unrealized depreciation (4,106,629)*
- --------------------------------------------------------------------------------
Net unrealized appreciation $24,461,697*
================================================================================
*Substantially the same for Federal income tax purposes.
4. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian and is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transactions and
the Fund's basis in the contract. The Fund enters into such contracts to hedge a
portion of its portfolio. The Fund bears the market risk that arises from
changes in the value of the financial instruments and securities indices
(futures contracts) and the credit risk should a counterparty fail to perform
under such contracts.
At August 31, 1996 the Fund had no open futures contracts.
32
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
5. CAPITAL SHARES
At August 31, 1996, the Fund had 500 million shares of $0.001 par value
capital stock authorized. The Fund has the ability to establish multiple classes
of shares. Each share of a class represents an identical interest in the Fund
and has the same rights, except that each class bears certain expenses
specifically related to the distribution of its shares. At August 31, 1996,
total paid-in capital amounted to the following for each class:
CLASS A CLASS B CLASS C
================================================================================
Total Paid-in Capital $536,501,701 $161,408,789 $13,714,802
================================================================================
Transactions in shares of each class were as follows:
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1996 FEBRUARY 29, 1996
------------------ --------------------
SHARES AMOUNT SHARES AMOUNT
================================================================================
CLASS A
Shares sold 1,471,194 $23,427,526 3,014,516 $ 48,218,164
Net asset value of shares
issued in connection with
transfer of the Smith Barney
Muni Funds: California
Portfolio's net assets
(Note 7) -- -- 9,484,273 154,421,573
Shares issued on reinvestment 428,962 6,841,921 879,885 13,984,197
Shares redeemed (2,179,746) (34,833,861) (3,775,198) (60,397,322)
- --------------------------------------------------------------------------------
Net Increase (Decrease) (279,590) $(4,564,414) 9,603,476 $156,226,612
================================================================================
CLASS B
Shares sold 1,160,520 $ 18,546,600 1,998,416 $ 31,876,656
Net asset value of shares
issued in connection with
transfer of the Smith Barney
Muni Funds: California
Portfolio's net assets
(Note 7) -- -- 56,465 918,920
Shares issued on reinvestment 108,468 1,730,236 240,003 3,813,151
Shares redeemed (635,439) (10,159,711) (1,221,047) (19,453,093)
- --------------------------------------------------------------------------------
Net Increase 633,549 $ 10,117,125 1,073,837 $ 17,155,634
================================================================================
CLASS C
Shares sold 238,386 $ 3,812,501 333,004 $ 5,347,703
Net asset value of shares
issued in connection with
transfer of the Smith Barney
Muni Funds: California
Portfolio's net assets (Note 7) -- -- 388,346 6,320,298
Shares issued on reinvestment 8,167 130,177 5,792 93,486
Shares redeemed (58,950) (939,281) (113,763) (1,860,711)
- --------------------------------------------------------------------------------
Net Increase 187,603 $ 3,003,397 613,379 $ 9,900,776
================================================================================
33
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
6. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of
California and local governments in the State of California, its political
subdivisions, agencies and public authorities to obtain funds for various public
purposes. The Fund is more susceptible to factors adversely affecting issuers of
California municipal securities than is a municipal bond fund that is not
concentrated in these issuers to the same extent.
7. TRANSFER OF NET ASSETS
On December 15, 1995, the Fund acquired the net assets and certain
liabilities of the Smith Barney Funds - California Portfolio (the "California
Portfolio") pursuant to a plan of reorganization approved by California
Portfolio shareholders on December 15, 1995. Total shares issued by the Fund and
the total net assets of the California Portfolio and the Fund on the date of
transfer were:
TOTAL NET
SHARES ASSETS OF TOTAL NET
ISSUED BY ACQUIRED ASSETS OF
ACQUIRED PORTFOLIO THE FUND PORTFOLIO THE FUND
================================================================================
California Portfolio 9,929,084 $161,660,791 $585,851,812
================================================================================
The total net assets of the California Portfolio before acquisition
included unrealized appreciation of $11,643,540 and a net realized gain of
$1,479. The total net assets of California Portfolio immediately after the
transfer were $747,512,603. The transaction was structured for tax purposes to
qualify as a tax-free reorganization under the Code.
8. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
34
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
CLASS A SHARES 1996(1) 1996(2) 1995 1994(2) 1993 1992
================================================================================
NET ASSET VALUE,
BEGINNING OF PERIOD $16.31 $15.40 $16.15 $16.70 $15.78 $15.66
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.43 0.85 0.89 0.86 0.97 1.04
Net realized and unrealized
gain (loss) (0.34) 0.93 (0.56) 0.08 1.25 0.40
- -----------------------------------------=--------------------------------------
Total Income From Operations 0.09 1.78 0.33 0.94 2.22 1.44
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.43) (0.84) (0.87) (0.83) (0.97) (1.05)
Overdistribution of net
investment income -- -- (0.02) (0.01) -- --
Net realized gains -- (0.03) (0.19) (0.65) (0.29) (0.27)
Capital -- -- -- -- (0.04) --
- --------------------------------------------------------------------------------
Total Distributions (0.43) (0.87) (1.08) (1.49) (1.30) (1.32)
- --------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $15.97 $16.31 $15.40 $16.15 $16.70 $15.78
- --------------------------------------------------------------------------------
TOTAL RETURN 0.56%++ 11.93% 2.46% 5.92% 14.76% 9.50%
- --------------------------------------------------------------------------------
NET ASSETS,
END OF PERIOD (000S) $565,475 $582,324 $401,743 $425,181 $423,504 $364,809
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.71%+ 0.76% 0.80% 0.80% 0.70% 0.65%
Net investment income 5.30+ 5.26 5.76 5.20 6.04 6.54
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 26% 44% 59% 76% 72% 86%
================================================================================
(1) For the six months ended August 31, 1996 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed net investment income method does not
accord with the results of operations.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
35
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS (CONTINUED)
================================================================================
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
CLASS B SHARES 1996(1) 1996(2) 1995 1994(2) 1993(3)
================================================================================
NET ASSET VALUE, BEGINNING OF
PERIOD $16.32 $15.40 $16.15 $16.70 $15.84
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.38 0.75 0.81 0.77 0.29
Net realized and unrealized
gain (loss) (0.34) 0.96 (0.57) 0.09 1.15
- --------------------------------------------------------------------------------
Total Income From Operations 0.04 1.71 0.24 0.86 1.44
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.39) (0.76) (0.78) (0.75) (0.28)
Overdistribution of net
investment income -- -- (0.02) (0.01) --
Net realized gains -- (0.03) (0.19) (0.65) (0.29)
Capital -- -- -- -- (0.01)
- --------------------------------------------------------------------------------
Total Distributions (0.39) (0.79) (0.99) (1.41) (0.58)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.97 $16.32 $15.40 $16.15 $16.70
- --------------------------------------------------------------------------------
TOTAL RETURN 0.19%++ 11.39% 1.89% 5.40% 9.27%++
- --------------------------------------------------------------------------------
NET ASSETS, END OF
PERIOD (000S) $159,882 $153,044 $127,888 $107,740 $37,924
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.23%+ 1.29% 1.32% 1.33% 1.30%+
Net investment income 4.79+ 4.71 5.25 4.67 5.44+
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 26% 44% 59% 76% 72%
================================================================================
(1) For the six months ended August 31, 1996 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed net investment income method does not
accord with the results of operations.
(3) For the period from November 6, 1992 (inception date) to February 28, 1993.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
36
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS (CONTINUED)
================================================================================
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
CLASS C SHARES 1996(1) 1996(2) 1995(3)
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $16.31 $15.40 $14.19
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.38 0.78 0.24
Net realized and unrealized gain (loss) (0.35) 0.92 1.39*
- --------------------------------------------------------------------------------
Total Income From Operations 0.03 1.70 1.63
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.38) (0.76) (0.23)
Overdistribution of net investment income -- -- (0.00)**
Net realized gains -- (0.03) (0.19)
- --------------------------------------------------------------------------------
Total Distributions (0.38) (0.79) (0.42)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.96 $16.31 $15.40
- --------------------------------------------------------------------------------
TOTAL RETURN 0.17%++ 11.30% 11.72%++
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $13,571 $10,809 $762
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.28%+ 1.39% 1.37%+
Net investment income 4.75+ 4.44 5.19+
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 26% 44% 59%
================================================================================
(1) For the six months ended August 31, 1996 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed net investment income method does not
accord with the results of operations.
(3) For the period from November 14, 1994 (inception date) to February 28,
1995.
* The amount shown may not accord with the change in aggregate gains and
losses of portfolio securities due to the timing of sales and the
redemptions of Fund shares.
** Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
37
<PAGE>
Smith Barney
California
Municipals
Fund Inc.
DIRECTORS
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliott S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon, CHAIRMAN
Cornelius Rose
OFFICERS
Heath B. McLendon
CHIEF EXECUTIVE OFFICER
Jessica M. Bibliowicz
PRESIDENT
Lewis E. Daidone
SENIOR VICE PRESIDENT
AND TREASURER
Joseph P. Deane
VICE PRESIDENT AND
INVESTMENT OFFICER
David Fare
INVESTMENT OFFICER
Thomas M. Reynolds
CONTROLLER
Christina T. Sydor
SECRETARY
SMITH BARNEY
- ------------
A Member of TravelersGroup
INVESTMENT ADVISER
AND ADMINISTRATOR
Smith Barney Mutual Funds
Management Inc.
DISTRIBUTOR
Smith Barney Inc.
CUSTODIAN
PNC Bank, N.A.
SHAREHOLDER
SERVICING AGENT
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the shareholders of
Smith Barney California Municipals Fund Inc. It is not authorized for
distribution to prospective investors unless accompanied or preceded by a
current Prospectus for the Fund, which contains information concerning the
Fund's investment policies and expenses as well as other pertinent information.
SMITH BARNEY CALIFORNIA MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
FD0433 10/96
