ANNUAL REPORT
1997
1997
1997
1997
1997
SMITH BARNEY
CALIFORNIA
MUNICIPALS
FUND INC.
-------------------------------------------------------
February 28, 1997
SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
SMITH BARNEY CALIFORNIA MUNICIPALS FUND INC.
DEAR SHAREHOLDER:
We are pleased to provide you with the annual report for the Smith Barney
California Municipals Fund Inc. ("Fund") for the year ended February 28, 1997.
In this report, we outline our current portfolio strategy and provide a brief
performance update. A detailed summary of performance and current holdings can
be found in the appropriate sections that follow.
FUND PERFORMANCE UPDATE
For the year ended February 28, 1997, Class A shares of the Fund had a total
return of 6.37% and outperformed the Fund's Lipper Analytical Services, Inc.
peer group total return average of all California municipal bond funds of 4.99%
for the same time period. (Lipper Analytical Services, Inc. is an independent
fund tracking organization.) Over the one-year period covered by this report,
the Fund distributed income dividends totaling $0.85 per share for Class A
shares; based on its net asset value (NAV) of $16.26 as of February 28, 1997,
this equates to an annualized distribution rate of 5.24%. For a California
resident in the combined federal and state income tax bracket of 45.3%, the
Fund's tax-free yield of 5.24% is equivalent to a taxable yield of 9.58%.
MUNICIPAL BOND MARKET UPDATE
The year ended February 28, 1997 proved to be a volatile one for both the
municipal and the U.S. government bond markets. In early 1996, a significant
bond market sell-off was precipitated by a pick-up in inflationary fears that
was caused by unexpected strength in the U.S. economy and concerns that the
Federal Reserve Board ("Fed") would tighten rates in response. In retrospect,
those concerns were unfounded because Fed monetary policy did not change
throughout 1996. In fact, as U.S. economic growth moderated and concerns about
the Fed tightening eased, bond prices improved significantly.
This bond market rally was in full swing in early December when Fed Chairman
Alan Greenspan made his now infamous comments concerning "irrational exuberance"
in the financial markets. In our view, Greenspan's comments caused a rise in
U.S. interest rates that persists to this day.
1
<PAGE>
CALIFORNIA ECONOMIC HIGHLIGHTS
The California economy continues to display impressive growth. Led by the
electronics, manufacturing, international trade and entertainment industries,
employment gains continue to diversify and strengthen California's economy. The
state's robust job growth has in turn caused strong increases in both retail
sales and industrial production. Although residential real estate prices have
recently showed signs of leveling off, California's commercial real estate
market has improved dramatically with lower office vacancies and stronger
overall sales. In fact, the marked improvements in California's economy has
helped its state budget revenues to consistently exceed state treasury forecasts
throughout the year.
FUND'S INVESTMENT STRATEGY
The Fund's investment focus in California has been to purchase high grade
essential service bonds such as transportation, water, and sewer bonds. These
types of securities tend to be very liquid and should provide maximum upside
potential if interest rates decline. In addition, since the California state
economy has improved dramatically during the reporting period, we have recently
added state general obligation bonds and state appropriated debt bonds (i.e.,
bonds that rely on state budget appropriations for payment of debt service) to
the Fund. As of February 28, 1997, the Fund's weighted average maturity was 22.1
years.
At the end of February, approximately 94% of the Fund's holdings were rated
investment grade (BBB/Baa and higher) by either Standard & Poor's Corporation or
Moody's Investors Service Inc. with about 61% of the Fund invested in AAA bonds,
the highest possible rating. (Standard & Poor's and Moody's are two major credit
reporting and bond rating agencies.)
MUNICIPAL BOND MARKET OUTLOOK
We believe that low inflation and some moderation of recent economic activity
should be positive for interest rates for the balance of 1997. Notwithstanding
any increase by the Fed in short-term rates, long-term interest rates today
relative to the rate of inflation bodes well for municipal bonds as the year
progresses. Until we see a significant increase in inflation fundamentals, we
remain positive about the municipal bond market's prospects.
2
<PAGE>
In closing, thank you for investing in the Smith Barney California Municipals
Fund Inc. 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
April 2, 1997
3
<PAGE>
- --------------------------------------------------------------------------------
JOE DEANE:
Morningstar, Inc.'s
Top-Rated Fixed Income Manager of the Year
We are pleased to report that Joe Deane, your Fund's portfolio manager, has
been named the top-rated fixed income manager of 1996 by Morningstar, Inc., a
major fund ranking organization.
[PHOTO]
Joe Deane
- --------------------------------------------------------------------------------
4
<PAGE>
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HISTORICAL PERFORMANCE--CLASS A SHARES
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
-----------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
=======================================================================================
<S> <C> <C> <C> <C> <C> <C>
2/28/97 $16.31 $16.26 $0.85 $0.20 $0.00 6.37%
- ---------------------------------------------------------------------------------------
2/29/96 15.40 16.31 0.84 0.03 0.00 11.93
- ---------------------------------------------------------------------------------------
2/28/95 16.15 15.40 0.89 0.19 0.00 2.46
- ---------------------------------------------------------------------------------------
2/28/94 16.70 16.15 0.84 0.65 0.00 5.92
- ---------------------------------------------------------------------------------------
2/28/93 15.78 16.70 0.97 0.29 0.04 14.76
- ---------------------------------------------------------------------------------------
2/29/92 15.66 15.78 1.05 0.27 0.00 9.50
- ---------------------------------------------------------------------------------------
2/28/91 15.61 15.66 1.07 0.12 0.00 8.29
- ---------------------------------------------------------------------------------------
2/28/90 15.33 15.61 1.07 0.00 0.00 9.02
- ---------------------------------------------------------------------------------------
2/28/89 15.49 15.33 1.12 0.03 0.00 6.67
- ---------------------------------------------------------------------------------------
2/29/88 16.54 15.49 1.09 0.07 0.00 1.09
=======================================================================================
Total $9.79 $1.85 $0.04
=======================================================================================
</TABLE>
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HISTORICAL PERFORMANCE--CLASS B SHARES
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
-----------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
=======================================================================================
<S> <C> <C> <C> <C> <C> <C>
2/28/97 $16.32 $16.25 $0.77 $0.20 $0.00 5.73%
- ---------------------------------------------------------------------------------------
2/29/96 15.40 16.32 0.76 0.03 0.00 11.39
- ---------------------------------------------------------------------------------------
2/28/95 16.15 15.40 0.80 0.19 0.00 1.89
- ---------------------------------------------------------------------------------------
2/28/94 16.70 16.15 0.76 0.65 0.00 5.40
- ---------------------------------------------------------------------------------------
Inception*- 2/28/93 15.84 16.70 0.28 0.29 0.01 9.27+
=======================================================================================
Total $3.37 $1.36 $0.01
=======================================================================================
</TABLE>
================================================================================
HISTORICAL PERFORMANCE--CLASS C SHARES
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
-----------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
=======================================================================================
<S> <C> <C> <C> <C> <C> <C>
2/28/97 $16.31 $16.24 $0.77 $0.20 $0.00 5.68%
- ---------------------------------------------------------------------------------------
2/29/96 15.40 16.31 0.76 0.03 0.00 11.30
- ---------------------------------------------------------------------------------------
Inception*-2/28/95 14.19 15.40 0.23 0.19 0.00 11.72+
=======================================================================================
Total $1.76 $0.42 $0.00
=======================================================================================
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.
</TABLE>
5
<PAGE>
================================================================================
AVERAGE ANNUAL TOTAL RETURN
================================================================================
Without Sales Charge(1)
-----------------------------
Class A Class B Class C
================================================================================
Year Ended 2/28/97 6.37% 5.73% 5.68%
- --------------------------------------------------------------------------------
Five Years Ended 2/28/97 8.19 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 2/28/97 7.36 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 2/28/97 9.04 7.78 12.70
================================================================================
With Sales Charge(2)
-----------------------------
Class A Class B Class C
================================================================================
Year Ended 2/28/97 2.11% 1.23% 4.68%
- --------------------------------------------------------------------------------
Five Years Ended 2/28/97 7.31 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 2/28/97 6.93 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 2/28/97 8.70 7.60 12.70
================================================================================
================================================================================
CUMULATIVE TOTAL RETURN
================================================================================
Without Sales Charge(1)
================================================================================
Class A (2/28/87 through 2/28/97) 103.52%
- --------------------------------------------------------------------------------
Class B (Inception* through 2/28/97) 38.18
- --------------------------------------------------------------------------------
Class C (Inception* through 2/28/97) 31.55
================================================================================
(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
<PAGE>
================================================================================
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+
- --------------------------------------------------------------------------------
February 1987 -- February 1997
Smith Barney
California Municipals Lehman Brothers Lipper California
Fund Inc. Municipal Bond Index Municipal Fund Average
--------------------- -------------------- ----------------------
2/87 $ 9,600 $10,000 $10,000
2/88 9,704 10,263 10,145
2/89 10,351 10,901 10,788
2/90 11,285 12,019 12,005
2/91 12,220 13,128 12,616
2/92 13,178 14,440 14,059
2/93 15,124 16,428 15,538
2/94 16,017 17,337 17,504
2/95 16,409 17,664 17,282
2/96 18,367 19,615 18,493
2/97 19,538 20,696 19,630
+ Hypothetical illustration of $10,000 invested in Class A shares on February
28, 1987, 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 February 28, 1997. 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 245 mutual funds
investing in California municipal bonds as of February 28, 1997. 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
<PAGE>
================================================================================
PORTFOLIO HIGHLIGHTS (UNAUDITED) FEBRUARY 28, 1997
================================================================================
INDUSTRY BREAKDOWN
Water & Sewer .................... 19.4%
Solid Waste ...................... 2.2%
Tax Allocation ................... 5.6%
Hospitals ........................ 9.1%
Transportation ................... 6.2%
Utilities ........................ 5.7%
Education ........................ 7.8%
Housing: Multi-Family ............ 5.7%
General Obligation ............... 7.7%
Housing: Single-Family ........... 3.1%
Pre-Refunded ..................... 4.3%
Pollution Control Revenue ........ 1.5%
Other ............................ 21.7%
SUMMARY OF INVESTMENTS BY COMBINED RATINGS
STANDARD & PERCENTAGE OF
MOODY'S AND/OR POOR'S TOTAL INVESTMENTS
================================================================================
Aaa AAA 60.7%
Aa AA 9.7
A A 16.0
Baa BBB 7.3
VMIG 1/P-1 A-1 0.1
NR NR 6.2
-----
100.0%
======
8
<PAGE>
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SCHEDULE OF INVESTMENTS FEBRUARY 28, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
EDUCATION -- 7.8%
California Educational Facilities Authority Revenue:
Southwestern University Project:
$2,635,000 A3* 6.600% due 11/1/14 $ 2,812,862
4,505,000 A3* 6.700% due 11/1/24 4,780,931
7,000,000 AAA Stanford University, Series M, 5.250% due 12/1/26 6,685,000
2,500,000 A* University of San Diego, 6.500% due 10/1/22 2,603,125
2,000,000 AAA California Public School District Finance
Authority, Lease Revenue, Series B, Palmdale School,
FSA-Insured, step bond to yield 6.200% due 10/1/23 1,612,500
California State Public Works Board, Lease Revenue:
1,000,000 A Series A, High Technology Facility, San Jose Facilities,
7.750% due 8/1/06 1,182,500
Series B, University Project:
3,085,000 A 5.400% due 9/1/13 3,038,725
3,245,000 A 5.450% due 9/1/14 3,196,325
2,425,000 A 5.500% due 9/1/15 2,385,594
1,575,000 AAA University Project, CONNIE LEE-Insured, 5.000%due 6/1/23 1,411,594
2,000,000 AAA Desert Sands, CA University School District COP,
FSA-Insured, 5.750% due 3/1/20 2,012,500
100,000 AAA Kern High School District, Series C, MBIA-Insured,
8.750% due 8/1/03 123,750
3,425,000 AAA Menifee Union School District COP, FSA-Insured,
5.750% due 9/1/25 3,450,687
2,300,000 AAA Rio Linda Unified School District, FSA-Insured,
5.250% due 8/1/17 2,199,375
San Diego Community College District, Lease
Revenue, MBIA-Insured:
1,250,000 AAA 6.125% due 12/1/16 1,315,625
3,460,000 AAA 5.250% due 12/1/21 3,295,650
Standard School District COP, (Capital
Improvement Project),
Series A:
320,000 A- 6.200% due 3/1/10 329,200
340,000 A- 6.250% due 3/1/11 347,225
2,195,000 AAA Turlock COP, Auxiliary Organization, California State
University-Stanislaus Foundation, MBIA-Insured,
5.875% due 6/1/22 2,233,413
4,500,000 Baa1* Ukiah Unified School District COP,(Measure A Capital Projects),
6.000% due 9/1/10 4,438,125
6,000,000 AAA University of California Revenue, (Multiple Purpose Projects),
Series C, AMBAC-Insured, 5.000% due 9/1/23 5,385,000
2,600,000 AAA Victor Valley Unified High School District,
MBIA-Insured, 5.750% due 11/1/17 2,629,250
2,500,000 Baa1* Yuba City Unified School District COP, (Andors Karperos
School Construction Project), 6.700% due 2/1/13 2,559,375
- --------------------------------------------------------------------------------------------
60,028,331
- --------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
ELECTRIC -- 0.8%
Sacramento Power Authority, Cogeneration Project Revenue:
$ 1,800,000 BBB- 6.500% due 7/1/07 $ 1,923,750
1,800,000 BBB- 6.500% due 7/1/08 1,917,000
2,200,000 BBB- 6.500% due 7/1/09 2,323,750
- --------------------------------------------------------------------------------------------
6,164,500
- --------------------------------------------------------------------------------------------
GENERAL OBLIGATION -- 7.7%
2,000,000 AAA Adelanto School District, Series B, FGIC-Insured,
zero coupon due 9/1/18 585,000
California State GO:
25,000,000 AAA FGIC-Insured, 5.375% due 6/1/26 24,156,250
Veterans Series:
455,000 A+ Series AL, 9.700% due 4/1/02 561,356
725,000 A+ Series AM, 9.000% due 10/1/02 883,594
Series AT:
4,000,000 A+ 9.700% due 2/1/01 4,755,000
1,000,000 A+ 9.500% due 2/1/10 1,400,000
2,000,000 A+ Series AU, 8.400% due 10/1/06 2,535,000
50,000,000 Aaa* Dawson Ridge, CA Metropolitan District No. 1,
(Escrowed to Maturity with U.S. Government
Securities), zero coupon due 10/1/22(a) 9,000,000
1,400,000 AAA Eastside Unified High School District, Santa
Clara County,
Series B, FGIC-Insured, 5.000% due 9/1/18 1,293,250
1,750,000 AAA Escondito Unified School District, Series A,
FGIC-Insured, 5.125% due 9/1/15 1,673,437
1,000,000 Aa1* San Diego Public Safety Communication Project,
6.650% due 7/15/11 1,146,250
3,460,000 A+ Santa Barbara County COP, 5.700% due 3/1/11 3,425,400
Santa Margarita/Dana Point Authority Revenue GO,
Improvement Water Districts 3, 3A, 4 & 4A, Series B,
MBIA-Insured:
1,500,000 AAA 7.250% due 8/1/14 1,818,750
4,000,000 AAA 5.750% due 8/1/20 4,010,000
1,530,000 AAA Santa Rosa High School District, FGIC-Insured,
5.900% due 5/1/14 1,572,075
- --------------------------------------------------------------------------------------------
58,815,362
- --------------------------------------------------------------------------------------------
HOSPITALS -- 9.1%
1,500,000 A+ ABAG Finance Authority for Nonprofit Corps. COP,
Rehabilitation Mental Health Services Inc. Project,
California Mortgage Insured, 6.550% due 6/1/22 1,571,250
250,000 A+ California Health Facilities Authority Revenue,
Victory Valley Community Hospital, Series 84-A,
9.875% due 7/1/12 254,080
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
HOSPITALS -- 9.1% (CONTINUED)
California Health Facilities Financing Authority Revenue,
Industrial Development Health Facilities:
$ 220,000 Aa1* Community Provider Pooled Loan, Series A,
LOC-Swiss Bank, 7.350% due 6/1/20 $ 232,650
1,150,000 A+ Episcopal Homes, Series A, 7.700% due 7/1/18 1,213,250
Series A, AMBAC-Insured:
2,500,000 AAA 5.750% due 7/1/15 2,496,875
4,370,000 AAA 5.750% due 7/1/16 4,184,275
4,330,000 AAA 5.250% due 7/1/23 4,059,375
1,250,000 AA South Coast Medical Center, 7.250% due 7/1/15 1,342,188
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 4,656,094
1,100,000 A Solheim Lutheran Home, 6.500% due 11/1/17 1,153,625
St. Joseph's Health System:
4,825,000 AA 5.500% due 7/1/14 4,752,625
6,000,000 AA 6.625% due 7/1/21 6,435,000
Sutter Health Obligated Group, MBIA-Insured:
3,500,000 AAA 5.500% due 8/15/09 3,556,875
500,000 AAA 6.000% due 8/15/25 515,000
1,150,000 A+ Villaview Community, 7.000% due 9/1/09 1,247,750
1,405,000 A+ Contra Costa County COP, Merrithew Memorial Hospital,
6.500% due 11/1/06 1,573,600
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 2,238,500
2,435,000 AA 5.375% due 12/1/06 2,477,613
1,000,000 AA St. Agnes, 6.625% due 6/1/21 1,051,250
250,000 NR Glendale Hospital Revenue Refunding, Glendale
Memorial Hospital, 9.000% due 11/1/17 263,700
1,000,000 A+ Inglewood Insured Hospital Revenue Bonds, Daniel
Freeman Hospital Inc., 6.750% due 5/1/13 1,052,500
1,000,000 A2* Rancho Mirage COP, Eisenhower Memorial Hospital,
Joint Powers Financing Authority, 7.000% due 3/1/22 1,131,250
2,000,000 A Riverside County Asset Leasing Corp.,(Riverside County
Hospital Project), Series A, 6.375% due 6/1/09 2,110,000
2,750,000 A* San Joaquin County COP, (General Hospital
Project 1993), 6.250% due 9/1/13 2,822,187
875,000 AAA Santa Rosa Hospital Revenue, (Santa Rosa Hospital Memorial
Project), (Escrowed to Maturity with U.S. Government
Securities), 10.300% due 3/1/11 1,153,906
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
HOSPITALS -- 9.1% (CONTINUED)
$ 1,250,000 Baa* Sequoia Hospital District Revenue, 5.375% due 8/15/23 $ 1,207,812
10,055,000 A Torrance Hospital Revenue Bonds, Little County of Mary
Hospital, 6.875% due 7/1/15(a) 10,683,437
1,500,000 NR Valley Health System COP, 6.875% due 5/15/23 1,556,250
1,000,000 BBB- Woodland Hospital Revenue COP, Woodland Memorial
Hospital, 8.200% due 8/1/15 1,051,250
- --------------------------------------------------------------------------------------------
69,750,417
- --------------------------------------------------------------------------------------------
HOUSING: MULTI-FAMILY -- 5.7%
1,250,000 AAA ABAG County, Series 96A, FNMA-Collateralized,
5.700% due 11/1/06(b) 1,268,750
California HFA:
Home Mortgage Revenue:
200,000 Aa2* 8.600% due 8/1/19(b) 208,250
350,000 Aa2* Series B, Project 1983, zero coupon due 8/1/15 54,250
385,000 Aa2* Series C, 8.300% due 8/1/19(b) 398,475
Series E:
505,000 Aa2* 8.250% due 8/1/08(b) 520,781
430,000 Aa* 8.350% due 8/1/19(b) 444,513
5,225,000 Aa2* 6.375% due 8/1/27(b) 5,342,563
990,000 Aa2* Series F-1, 7.000% due 8/1/26(b) 1,027,125
Series A:
5,000 AAA 1985, MBIA-Insured, 8.750% due 8/1/10 5,150
1,630,000 A+ 6.625% due 2/1/24(b) 1,680,938
480,000 AAA Series C, MBIA-Insured, 7.000% due 8/1/23(b) 503,400
6,000,000 AAA California Statewide Community Development
Authority COP, St. Josephs Health System Group, Series E,
FNMA-Collateralized, 6.400% due 6/1/28(b) 6,120,000
1,705,000 NR Hayward Housing Authority Revenue, FNMA-Collateralized,
Family Revenue, Cypress Gardens, Series C,
9.375% due 12/1/18 1,841,400
125,000 AAA Martinez Home Mortgage, (Pre-Refunded -- Escrowed with
U.S. Government Securities to 8/1/02 Call @ 100),
10.750% due 2/1/16 190,625
6,000,000 AAA Pleasanton-Suisun City HFA, Home Mortgage, Series A,
MBIA-Insured, (Escrowed to Maturity with U.S.
Government Securities), zero coupon due 10/1/16 1,732,500
1,750,000 AAA Riverside County Brandon Apartments, FNMA-Collateralized,
5.625% due 7/1/09(c) 1,747,812
5,000,000 Aaa* San Francisco City & County Redevelopment Agency,
Multi-Family Revenue, (South Beach Project),
5.700% due 3/1/29 4,893,750
1,500,000 Aa3* San Jose Multi-Family Timberwood Apartments, Series
A, LOC -- Wells Fargo Bank, 7.500% due 2/1/20 1,513,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
HOUSING: MULTI-FAMILY -- 5.7% (CONTINUED)
$8,130,000 AAA Santa Clara County, Multi-Family Housing Revenue,
(Meadows Project), Series A, GNMA-Collateralized,
5.875% due 5/20/26 $ 8,201,137
1,320,000 AAA Santa Rosa Mortgage Revenue, (Village Square
Apartments Project), Series A, FHA-Insured,
6.875% due 9/1/27 1,400,850
20,000 BBB+ Sonoma County Home Mortgage Multiple Lenders,
FHA-Insured, 9.125% due 6/1/15 21,000
1,700,000 AAA 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 1,844,500
2,755,000 AAA Victorville Multi-Family Housing Revenue,
Wimbledon Apartments, Series A, GNMA-
Collateralized,
6.300% due 4/20/31 2,792,881
- --------------------------------------------------------------------------------------------
43,753,775
- --------------------------------------------------------------------------------------------
HOUSING: SINGLE-FAMILY -- 3.1%
California HFA Revenue Bonds, Home Mortgage:
10,000 Aa2* 10.250% due 2/1/14 10,109
310,000 Aa2* Capital Appreciation, Series 1984-B, zero coupon due 8/1/16 35,805
8,000,000 AAA Single-Family Mortgage, Issue A-2, FHA-Insured,
6.350% due 8/1/15(a)(b) 8,280,000
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(c) 339,188
10,000 NR Fresno County Housing Finance Revenue, Private Mortgage,
12.500% due 9/15/12 10,117
Los Angeles Home Mortgage Revenue Bonds,
GNMA-Collateralized:
1,245,000 Aaa* Second Mortgage Project, 8.100% due 5/1/17 1,338,375
635,000 AAA Single-Family Mortgage Revenue, Mortgage Backed
Securities Program, Issue A, 7.550% due 12/1/23(b) 660,400
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(b) 4,197,812
Riverside County Housing Authority Revenue Bonds:
1,765,000 Baa* Series A, 7.900% due 10/1/18 1,780,444
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(b) 3,399,450
1,000,000 AAA 7.800% due 5/1/21(b) 1,273,750
5,000 BBB+ Single-Family Revenue Bonds, 10.500% due 9/1/14 5,338
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
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FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
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(b) $ 1,912,500
110,000 AAA San Francisco City & County Single-Family Mortgage Revenue,
GNMA/FNMA-Collateralized, 7.450% due 1/1/24(b) 114,950
195,000 AAA Southern California HFA, Single-Family Mortgage Revenue,
GNMA/FNMA-Collateralized, Series B, 7.750% due 3/1/24(b) 205,725
- --------------------------------------------------------------------------------------------
23,563,963
- --------------------------------------------------------------------------------------------
INDUSTRIAL DEVELOPMENT -- 0.1%
1,000,000 Aa3* Los Angeles, IDA, IDR, (Altshule Properties
Project), 7.200% due 10/1/11(b) 1,036,250
- --------------------------------------------------------------------------------------------
MISCELLANEOUS -- 20.8%
500,000 Baa1* ABAG Finance Authority Nonprofit Corps. COP, Daiwa Bank
Peninsula Family, YMCA, Series A, 6.800% due 10/1/11 516,250
2,500,000 NR Alhambra, Arcadia, Azush Counties, Independent Cities,
Risk Management Authority COP, 7.250% due 3/1/07 2,541,725
2,000,000 AAA Anaheim COP, MBIA-Insured, 6.200% due 7/16/23(c) 2,087,500
Anaheim County Public Lease Revenue, Series A, FSA-Insured:
4,750,000 AAA 5.000% due 9/1/27 4,298,750
7,500,000 AAA 5.000% due 3/1/37 6,665,625
1,025,000 Baa* Azusa COP, (Capital Improvements Refinancing Project),
6.625% due 8/1/13 1,058,313
Brisbane Redevelopment Agency, Brisbane Community
Redevelopment Bonds:
200,000 AA 9.400% due 5/1/05 204,412
220,000 AA 9.400% due 5/1/06 224,853
California Public Capital Improvements Finance Authority
Revenue, (Pooled Project):
750,000 Baa* Series A, 8.500% due 3/1/18 782,175
575,000 AAA Series B, MBIA-Insured, 8.100% due 3/1/18 602,497
2,500,000 Baa* California Special Districts Finance Authority COP, Series A,
8.500% due 7/1/18 2,631,250
31,405,000 AAA California State Public Works Board, Lease Revenue,
Department of Corrections State Prison, Series A,
AMBAC-Insured, 5.250% due 1/1/21 29,716,981
900,000 VMIG1* California State RANS, Series C-5, 3.300% due 6/30/97(d) 900,000
150,000 A- Concord Santa Cruz South Gate COP, Series A,
7.625% due 6/1/11 150,534
Dublin COP, (Civic Center Project), AMBAC-Insured:
1,305,000 AAA 5.600% due 2/1/06 1,322,944
1,380,000 AAA 5.625% due 2/1/07 1,395,525
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
14
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
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FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
MISCELLANEOUS -- 20.8% (CONTINUED)
$ 3,525,000 AAA Hayward COP, (Civic Center Project), MBIA-Insured,
5.250% due 8/1/26 $ 3,295,875
21,600,000 AAA Los Angeles Convention & Exhibition Center Authority
Lease Revenue, Series A, MBIA-Insured,
5.125% due 8/15/21 19,818,000
Los Angeles County COP, INFLOS:
2,000,000 BBB Special Linked SAVRS & RIBS, 6.566% due 6/1/15(c) 2,032,500
1,000,000 Baa1* Structured Yield Curve Note, 6.600% due 11/1/11(c) 1,046,250
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 2,686,687
1,500,000 AAA Orange County Community Facility District 86-1,
FSA-Insured, 7.125% due 8/15/17 1,599,375
1,300,000 Baa* Orange County Public Facility, COP, Solid Waste Revenue,
7.875% due 12/1/07 1,368,250
Sacramento Area Flood Control Agency, FGIC-Insured:
2,750,000 AAA 5.375% due 10/1/20 2,667,500
2,525,000 AAA 5.375% due 10/1/25 2,424,000
4,700,000 AAA Sacramento County COP, Public Facilities Project,
MBIA-Insured, 5.250% due 12/1/16 4,500,250
San Bernadino COP, (Capital Facilities Project), Series B,
(Escrowed to Maturity with U.S. Government Securities):
2,000,000 AAA 6.875% due 8/1/24 2,370,000
1,000,000 AAA MBIA-Insured, 6.363% due 11/18/19(d) 1,043,750
6,500,000 AAA Northern County Region, AMBAC-Insured,
5.250% due 11/15/19 6,240,000
San Francisco Building Authority Lease Revenue,
AMBAC-Insured:
4,000,000 AAA 5.250% due 12/1/16 3,850,000
4,000,000 AAA 5.250% due 12/1/21 3,815,000
135,000 A* San Francisco Downtown Parking, Corporate Parking
Revenue Bonds, 6.250% due 4/1/04 144,619
5,325,000 A+ San Jose Finance Authority Revenue, Central Service Yard,
Series D, 5.250% due 10/15/23 4,825,781
15,325,000 AAA San Jose Redevelopment Agency, (Merged Area
Redevelopment Project), MBIA-Insured,
5.000% due 8/1/20 14,022,375
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 1,179,863
5,995,000 AAA San Ramone COP, (Central Park Project), FSA-Insured,
5.000% due 8/1/24 5,447,956
SEE NOTES TO FINANCIAL STATEMENTS.
15
</TABLE>
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
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FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
MISCELLANEOUS -- 20.8% (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 $ 3,176,875
7,180,000 AAA Santa Maria Redevelopment Agency, Town Center Package,
FSA-Insured, 5.000 due 6/1/16 6,668,425
2,335,000 AA- Simi Valley Community Development Agency COP,
Simi Valley Business Center, 6.050% due 10/1/18,
Mandatory Put 10/1/99 2,410,887
Sonoma County COP, Detention Facilities
Improvement Project:
4,200,000 A+ 5.000% due 11/15/13 3,811,500
3,000,000 A+ 5.000% due 11/15/17 2,666,250
2,000,000 AAA South Orange County Public Finance Authority, Special
Tax Revenue, Series A, MBIA-Insured, 7.000% due 9/1/10 2,357,500
- --------------------------------------------------------------------------------------------
160,568,802
- --------------------------------------------------------------------------------------------
PRE-REFUNDED(E) -- 4.3%
1,450,000 AAA California Health Facilities Finance Authority, St. Elizabeth
Hospital, (Call 11/15/02 @ 102), 6.200% due 11/15/09 1,598,625
1,500,000 AAA California Lease Finance Authority COP, Nevada County,
(Call 10/1/98 @ 101), 7.600% due 10/1/19 1,576,110
California Public Works Board, Lease Revenue:
2,000,000 Aaa* California State University Project, Series A,
(Call 10/1/02 @ 102), 6.700% due 10/1/17 2,262,500
1,000,000 AAA Department of Corrections, State Prison, Series A,
(Call 9/1/00 @ 102), 7.000% due 9/1/09 1,108,750
1,245,000 AAA Concord Redevelopment Agency Tax Allocation Bonds,
Series 3, MBIA-Insured, (Call 7/1/98 @ 102), 8.000% due
7/1/18 1,338,375
750,000 AAA El Camino Hospital District COP, Series A,
(Call 9/1/97 @ 102), 8.500% due 9/1/17 779,010
550,000 AAA Grossmont Hospital Revenue, Series A, MBIA-Insured,
(Call 11/15/97 @ 102), 8.000% due 11/15/17 577,720
450,000 AAA Los Angeles Convention & Exhibition Center Authority
Lease Revenue, (Call 12/1/05 @ 100), 9.000% due 12/1/20 587,250
500,000 AAA Los Angeles County Transportation Community,
Sales Tax Revenue, Series A, (Call 7/1/98 @ 102),
8.000% due 7/1/18 537,500
Los Angeles Department of Water & Power:
1,000,000 AAA Electric Plantation Revenue, (Call 5/1/98 @ 102),
7.900% due 5/1/28 1,065,000
1,550,000 AAA Water Works Revenue, (Call 2/15/99 @ 102),
7.200% due 2/15/19 1,672,063
1,950,000 AAA Los Angeles Department of Water & Power Electric Plant
Revenue, (Call 1/15/01 @ 102), 7.100% due 1/15/31 2,157,187
SEE NOTES TO FINANCIAL STATEMENTS.
16
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
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FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
PRE-REFUNDED(E)--4.3% (CONTINUED)
$1,200,000 AAA Los Angeles Waste Water System Revenue,
(Call 11/1/97 @ 102), 8.125% due 11/1/17 $ 1,259,424
465,000 NR Local Government Finance Joint Powers Authority
Revenue, Anaheim Redevelopment Agency, Series A, (Call
9/1/98 @ 102), 8.200% due 9/1/15 503,944
500,000 AAA Oceanside COP, AMBAC-Insured, (Call 8/1/02 @ 102),
7.300% due 8/1/21 578,125
1,000,000 AAA Orange County Community Facility District 87-3,
Special Tax, Series A, (Call 8/15/00 @ 102), 7.800% due
8/15/15 1,131,250
1,000,000 AAA Orange County Rancho Santa Margarita, (Call 8/15/00 @ 102),
7.800% due 8/15/13 1,077,500
2,040,000 AAA Oxnard Public Facilities Corp., COP, Wastewater
Treatment Plant Project, AMBAC-Insured, (Call 9/1/99 @
100), 7.500% due 9/1/06 2,210,850
2,000,000 AAA Rancho Water District Financing Authority Revenue
Bonds, AMBAC-Insured, (Call 9/11/01 @ 102), 6.287% due
8/17/21(d) 2,190,000
2,500,000 AAA Riverside County Asset Leasing Corp., Leasehold Revenue,
(Riverside County Hospital Project), Series A,
(Call 6/1/99 @ 102), 7.400% due 6/1/14 2,728,125
1,000,000 AAA San Bernardino County COP, (West Valley Detention
Center Project), (Call 11/1/98 @ 102), 7.700% due 11/1/18 1,082,500
1,000,000 AAA San Buenaventura COP, AMBAC-Insured, (Call 10/1/00 @ 102),
7.500% due 10/1/20 1,127,500
2,000,000 AAA San Diego Redevelopment Agency, (Marina Redevelopment
Project), (Call 12/1/97 @ 101.50), 8.750% due 12/1/08 2,105,740
1,300,000 AAA Yolo County Flood Control & Water Conservation District, COP,
FGIC-Insured, (Call 7/15/03 @ 100), 7.125% due 7/15/15 1,490,125
- --------------------------------------------------------------------------------------------
32,745,173
- --------------------------------------------------------------------------------------------
POLLUTION CONTROL REVENUE -- 1.5%
California Financing Authority, PCR:
Pacific Gas & Electric:
800,000 A Series A, 8.200% due 12/1/18(b) 823,080
2,500,000 A Series B, 6.350% due 6/1/09 2,631,250
San Diego Gas & Electric, Series A:
1,500,000 A+ 6.800% due 6/1/15(b) 1,702,500
5,000,000 A 5.900% due 6/1/14 5,256,250
200,000 VMIG 1*California State Financing Authority, PCR,
(Shell Oil Project A), 3.350% due 10/1/07(d) 200,000
500,000 A1* California PCR, Waste Management, Series A,
7.150% due 2/1/11(b) 542,500
- --------------------------------------------------------------------------------------------
11,155,580
- --------------------------------------------------------------------------------------------
SOLID WASTE -- 2.2%
2,770,000 AAA Fresno County Finance Authority, Solid Waste
Revenue Bonds, American Avenue Landfill,
MBIA-Insured, 5.750% due 5/15/14 2,811,550
SEE NOTES TO FINANCIAL STATEMENTS.
17
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
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FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
SOLID WASTE -- 2.2% (CONTINUED)
Inland Empire Solid Waste Authority Revenue,
FSA-Insured:
$ 5,000,000 AAA 6.250% due 8/1/11 (b) $ 5,312,500
2,500,000 AAA 6.000% due 8/1/16 (b) 2,550,000
500,000 BBB+ Kings County Waste Management Authority, Solid
Waste Revenue, 7.200% due 10/1/14 (b) 538,125
1,000,000 Baa* Nevada County COP, West Nevada, Solid Waste
Revenue, 7.500% due 6/1/21 1,057,500
4,135,000 Baa1* South Napa Waste Management Authority,
(Solid Waste Transfer Facilities Project),
6.500% due 2/15/14 4,217,700
- --------------------------------------------------------------------------------------------
16,487,375
- --------------------------------------------------------------------------------------------
TAX ALLOCATION -- 5.6%
2,000,000 AAA Anaheim Public Finance Authority, Tax Allocation,
MBIA-Insured, 6.450% due 12/28/18(c) 2,150,000
1,000,000 Baa* Azusa Redevelopment Agency, Tax Allocation,
Series A, 6.750% due 8/1/23 1,041,250
295,000 AAA Brea Public Finance Authority, Tax Allocation,
MBIA-Insured, 7.000% due 8/1/15 323,762
30,000 AAA Concord Redevelopment Agency, Tax Allocation,
Series 3, MBIA-Insured, 8.000% due 7/1/18 31,988
6,000,000 AAA Corona Redevelopment Agency, Tax Allocation,
Redevelopment Project Area A, Series A,
FGIC-Insured, 5.500% due 9/1/24 5,910,000
1,000,000 AAA El Centro Redevelopment, Tax Allocation,
MBIA-Insured, 6.375% due 11/1/17 1,073,750
4,160,000 AAA Fontana Public Finance Authority, Tax Allocation,
MBIA-Insured, Series A, 5.000% due 9/1/20 3,806,400
3,275,000 BBB+ Garden Grove Community Development Agency,
Tax Allocation, (Garden Grove Community Project),
5.700% due 10/1/08 3,287,281
2,000,000 Baa* Hawthorne Community Redevelopment, Tax Allocation,
(Project Area 2), 6.625% due 9/1/14 2,082,500
5,700,000 AAA Indian Wells Redevelopment Agency, Tax Allocation,
MBIA-Insured, 5.375% due 12/1/22 5,479,125
Rancho Cucamonga Redevelopment, Tax Allocation, (Rancho
Redevelopment Project), MBIA-Insured:
2,445,000 AAA 5.250% due 9/1/16 2,368,594
5,000,000 AAA 5.250% due 9/1/26 4,706,250
1,000,000 A San Francisco City & County Redevelopment Finance
Authority, Tax Allocation, (Redevelopment Project),
Series C, 5.400% due 8/1/21 913,750
7,900,000 AAA Signal Hill Redevelopment Agency, Tax Allocation, (Signal
Hill Redevelopment) Project 1-B, MBIA-Insured,
5.250% due 10/1/23 7,455,625
SEE NOTES TO FINANCIAL STATEMENTS.
18
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<TABLE>
<CAPTION>
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
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FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
TAX ALLOCATION -- 5.6% (CONTINUED)
$ 2,000,000 AAA Vista Community Development, Tax Allocation,
MBIA-Insured, 5.250% due 9/1/15 $ 1,930,000
- --------------------------------------------------------------------------------------------
42,560,275
- --------------------------------------------------------------------------------------------
Transportation -- 6.2%
2,000,000 A1* Port of Oakland Special Facilities Revenue, Series A,
6.750% due 1/1/12(b) 2,102,500
400,000 A1* Sacramento Regional Transportation District COP,
Series A, 6.400% due 3/1/03 430,500
3,000,000 AAA San Francisco Airport Community International Airport
Revenue, FGIC-Insured, 6.500% due 5/1/19(b) 3,210,000
180,000 AAA San Francisco Airport Improvement Corp., Lease Revenue,
8.000% due 7/1/13 213,075
San Joaquin Hills Transcorridor Agency, Toll Road
Revenue, Sr. Lien:
5,000,000 NR Zero coupon due 1/1/14(a) 1,825,000
60,000,000 NR Zero coupon due 1/1/16(a) 19,125,000
17,500,000 NR Zero coupon due 1/1/17(a) 5,250,000
25,000,000 NR Zero coupon due 1/1/18(a) 7,062,500
20,000,000 NR Zero coupon due 1/1/19(a) 5,300,000
San Jose Airport Revenue Bonds, FGIC-Insured:
200,000 AAA 5.400% due 3/1/04(b) 207,000
1,500,000 AAA 5.500% due 3/1/07(b) 1,539,375
1,250,000 A* Santa Barbara COP, (Harbor Reference Project),
6.750% due 10/1/27 1,314,063
- --------------------------------------------------------------------------------------------
47,579,013
- --------------------------------------------------------------------------------------------
UTILITIES-- 5.7%
Fresno Joint Powers Financing Authority, Local Agency
Revenue, Series A:
2,000,000 BBB 6.000% due 9/2/01 2,022,500
1,000,000 BBB 6.200% due 9/2/03 1,015,000
1,500,000 BBB 6.550% due 9/2/12 1,550,625
2,500,000 NR Los Angeles Department of Water & Power,
5.250% due 11/15/26 2,303,125
1,110,000 A* Northern California Power Agency Public Power,
(Geothermal Project No. 3), Series A, 5.000% due 7/1/09 1,058,663
965,000 Baa* Pleasanton Joint Powers Financing Authority, Series A,
6.150% due 9/2/12 980,681
2,000,000 AAA Redding Electric System Revenue COP,
MBIA-Insured, 6.226% due 7/8/22(c) 2,190,000
2,670,000 AAA Redding Joint Powers Finance Authority, Electric
System Revenue, Series D, MBIA-Insured,
5.250% due 6/1/15 2,589,900
2,000,000 BBB+ Redding Joint Powers Finance Authority, Solid Waste &
Corporate Yard, Series A, 5.500% due 1/1/13 1,872,500
SEE NOTES TO FINANCIAL STATEMENTS.
19
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<TABLE>
<CAPTION>
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
============================================================================================
FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
UTILITIES--5.7% (CONTINUED)
Sacramento Municipal Utility District Electric Revenue:
Series D:
$ 4,000,000 AAA FGIC-Insured, 5.250% due 11/15/12 $ 3,935,000
4,500,000 AAA MBIA-Insured, 5.250% due 11/15/20 4,230,000
3,000,000 A* Series E, 5.700% due 5/15/12 2,928,750
5,425,000 AAA Series I, MBIA-Insured, 5.750% due 1/1/15 5,513,156
Southern California Public Power Authority,
Power Project Revenue, AMBAC-Insured:
5,000,000 AAA Mead Adelanto, Series A,
5.000% due 7/1/17 4,631,250
1,500,000 AAA Palo Verde, Series C, 5.750% due 7/1/17 1,599,375
3,000,000 Aa* Southern Transmission Project, 5.500% due 7/1/20 2,891,250
1,960,000 BBB- Trinity County Public Utility District, COP, Electric
District Facilities, 6.750% due 4/1/23(b) 2,001,650
- --------------------------------------------------------------------------------------------
43,313,425
- --------------------------------------------------------------------------------------------
WATER & SEWER -- 19.4%
Banning COP, Banning Wastewater Facilities Corp.:
115,000 AAA Pre-Refunded -- Escrowed with U.S. Government Securities
to 11/1/97 Call @ 101.50, 11.500% due 11/1/03 122,584
125,000 AAA Pre-Refunded -- Escrowed with U.S. Government Securities
to 11/1/97 Call @ 101.75, 11.500% due 11/1/04 133,550
140,000 AAA Pre-Refunded -- Escrowed with U.S. Government Securities
to 11/1/97 Call @ 102, 11.600% due 11/1/05 150,007
155,000 AAA Pre-Refunded -- Escrowed with U.S. Government Securities
to 11/1/97 Call @ 102.25, 11.650% due 11/1/06 166,509
175,000 AAA Pre-Refunded -- Escrowed with U.S. Government Securities
to 11/1/97 Call @ 102.50, 11.700% due 11/1/07 188,477
195,000 AAA Pre-Refunded -- Escrowed with U.S. Government Securities
to 11/1/97 Call @ 102.75, 11.750% due 11/1/08 210,557
220,000 AAA Pre-Refunded -- Escrowed with U.S. Government Securities
to 11/1/97 Call @ 103, 11.750% due 11/1/09 238,088
1,200,000 A1* Bakersfield COP, (Waste Water Treatment Plant 3 Projects),
8.000% due 1/1/10 1,254,456
East Bay Municipal Utility District, FGIC-Insured:
9,300,000 AAA Waste & Water Revenue, 5.000% due 6/1/26 8,428,125
8,400,000 AAA Water Revenue, 5.000% due 6/1/26 7,612,500
Eastern Municipal Water District COP, Water & Sewer Revenue,
Series A, FGIC-Insured:
1,000,000 AAA 6.750% due 7/1/12 1,155,000
1,000,000 AAA 5.375% due 7/1/13 985,000
3,000,000 AAA Escondido COP, (WasteWater Project), AMBAC-Insured,
5.700% due 9/1/26 2,973,750
18,150,000 AAA Fresno County, Sewer Revenue, Series A, MBIA-Insured,
5.000% due 9/1/23 16,516,500
SEE NOTES TO FINANCIAL STATEMENTS.
20
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<TABLE>
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SCHEDULE OF INVESTMENTS (CONTINUED) FEBRUARY 28, 1997
============================================================================================
FACE
AMOUNT RATING SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
WATER & SEWER -- 19.4% (CONTINUED)
Irvine Ranch Water District Joint Powers Agency,
Local Pool Revenue:
AIG-Insured:
$ 9,000,000 A+ 7.800% due 2/15/08(a) $ 9,288,090
1,750,000 A+ 7.875% due 2/15/23(a) 1,806,403
9,500,000 A+ FNMA-Insured, Issue II, 8.250% due 8/15/23(a) 10,010,625
1,500,000 AA Kings River Water Conservation District, Pine Flat
Power Revenue, Series D, 5.500% due 1/1/20 1,466,250
200,000 AA Los Angeles COP, 6.600% due 11/1/99 210,500
2,000,000 AA Los Angeles County Finance Authority Revenue,
(Sanitation Districts Capital Projects), Series A,
5.250% due 10/1/19 1,927,500
Los Angeles Waste Water System Revenue:
2,430,000 AAA Series A, MBIA-Insured, 5.700% due 6/1/09 2,518,088
2,125,000 AAA Series D, FGIC-Insured, 5.200% due 11/1/21 1,968,281
15,250,000 AA Metro Water District Southern California, Series C,
5.000% due 7/1/27 13,896,563
Mojave Water Agency, Improvement District, Morongo Basin:
1,500,000 AAA 6.600% due 9/1/13 1,687,500
5,510,000 AAA 6.600% due 9/1/22 6,198,750
3,250,000 AAA Moulton-Niguel Water District COP, AMBAC-Insured,
5.300% due 9/1/23 3,067,187
4,560,000 AAA Pittsburg Public Finance Authority, Waste Water Revenue,
Series A, FGIC-Insured, 5.375% due 6/1/22 4,383,300
2,855,000 AAA Pomona Public Financing Authority, Series Q, MBIA-Insured,
5.750% due 12/1/15 2,887,119
28,875,000 AAA San Diego PFA Sewer Revenue, FGIC-Insured,
5.000% due 5/15/20 26,601,094
San Diego Public Facilities Finance Authority,
Sewer Revenue, Series B, FGIC-Insured:
3,900,000 AAA 5.250% due 5/15/22 3,709,875
3,450,000 AAA 5.250% due 5/15/27 3,247,313
15,000,000 Aa* San Francisco Public Utility, Community Water Revenue,
5.000% due 11/1/26 13,687,500
- --------------------------------------------------------------------------------------------
148,697,041
- --------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost-- $727,059,924**) $766,219,282
============================================================================================
(a) Security segregated by Custodian for open purchase commitments.
(b) Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) Residual interest bonds -- coupon varies inversely with level of short-term
tax-exempt interest.
(d) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
(e) Bonds are escrowed with U.S. Government securities and are considered by
the Manager to be triple-A rated even if issuer has not applied for new
ratings.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 22 and 23 for definition of ratings and certain security
descriptions.
SEE NOTES TO FINANCIAL STATEMENTS.
21
</TABLE>
<PAGE>
================================================================================
BOND RATINGS
================================================================================
All ratings are by Standard & Poor's Rating Services ("Standard & Poor's")
except those identified by an asterisk (*) are rated by Moody's Investors
Services Inc. ("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.
22
<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
23
<PAGE>
===============================================================================
STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1997
===============================================================================
ASSETS:
Investments, at value (Cost-- $727,059,924) $766,219,282
Receivable for securities sold 10,531,627
Interest receivable 10,409,363
Receivable for Fund shares sold 1,520,425
Cash 71,185
Other assets 10,169
- -------------------------------------------------------------------------------
TOTAL ASSETS 788,762,051
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 17,990,565
Dividend payable 1,472,254
Investment advisory fees payable 177,369
Administration fees payable 128,588
Payable for Fund shares purchased 98,258
Distribution fees payable 48,627
Accrued expenses 134,124
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 20,049,785
- -------------------------------------------------------------------------------
TOTAL NET ASSETS $768,712,266
- -------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 47,292
Capital paid in excess of par value 728,163,691
Overdistributed net investment income (157,059)
Accumulated net realized gain
from security transactions and futures contracts 1,498,984
Net unrealized appreciation of investments 39,159,358
- -------------------------------------------------------------------------------
TOTAL NET ASSETS $768,712,266
- -------------------------------------------------------------------------------
SHARES OUTSTANDING:
Class A 35,598,916
----------------------------------------------------------------------------
Class B 10,666,497
----------------------------------------------------------------------------
Class C 1,027,068
----------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $16.26
----------------------------------------------------------------------------
Class B * $16.25
----------------------------------------------------------------------------
Class C ** $16.24
----------------------------------------------------------------------------
CLASS A MAXIMUM PUBLIC OFFERING PRICE PER SHARE
(net asset value plus 4.17% of net asset value per share) $16.94
- -------------------------------------------------------------------------------
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed within 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.
24
<PAGE>
===============================================================================
STATEMENT OF OPERATIONS FOR THE YEAR ENDED FEBRUARY 28, 1997
===============================================================================
INVESTMENT INCOME:
Interest $44,709,615
- -------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3) 2,240,458
Distribution fees (Note 3) 1,997,843
Administration fees (Note 3) 1,444,276
Shareholder and system servicing fees 165,949
Registration fees 119,479
Shareholder communications 88,870
Audit and legal 66,487
Pricing service fees 41,042
Directors' fees 35,401
Custody 31,909
Other 13,556
- -------------------------------------------------------------------------------
TOTAL EXPENSES 6,245,270
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 38,464,345
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS (NOTES 4 AND 5):
Realized Gain From:
Security transactions (excluding short-term securities) 8,488,719
Futures contracts 5,185,281
- -------------------------------------------------------------------------------
NET REALIZED GAIN 13,674,000
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 46,126,568
End of year 39,159,358
- -------------------------------------------------------------------------------
DECREASE IN NET UNREALIZED APPRECIATION (6,967,210)
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS AND FUTURES CONTRACTS 6,706,790
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $45,171,135
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
25
<PAGE>
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS
===============================================================================
FOR THE YEARS ENDED FEBRUARY 28, 1997
AND FEBRUARY 29, 1996
1997 1996
- -------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 38,464,345 $ 30,479,419
Net realized gain 13,674,000 7,626,812
Increase (decrease) in net unrealized
appreciation (6,967,210) 25,439,325
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 45,171,135 63,545,556
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (38,621,404) (30,014,089)
Net realized gains (9,156,095) (1,031,485)
- -------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (47,777,499) (31,045,574)
- -------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 105,614,153 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 8) -- 161,660,791
Net asset value of shares issued for
reinvestment of dividends 27,141,633 17,890,834
Cost of shares reacquired (107,613,987) (81,711,126)
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 25,141,799 183,283,022
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS 22,535,435 215,783,004
NET ASSETS:
Beginning of year 746,176,831 530,393,827
- -------------------------------------------------------------------------------
END OF YEAR* $768,712,266 $746,176,831
- -------------------------------------------------------------------------------
*Includes overdistributed net investment income of: $(157,059) --
- -------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
================================================================================
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
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 premium 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 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; (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. 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.
27
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
3. 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
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 year ended February 28, 1997, SB received sales charges of
approximately $677,000 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. In certain cases, Class A shares also have a 1.00% CDSC, which applies
if redemption occurs within the first year of purchase. This CDSC only applies
to those purchases of Class A shares, which when combined with current holdings
of Class A shares, equal or exceed $500,000 in the aggregate. These purchases do
not incur an initial sales charge. For the year ended February 28, 1997, CDSCs
paid to SB were:
CLASS A CLASS B CLASS C
================================================================================
CDSCs $2,000 $241,000 $5,000
================================================================================
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.
28
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
For the year ended February 28, 1997, total Distribution Plan fees incurred
were:
CLASS A CLASS B CLASS C
================================================================================
Distribution Plan Fees $857,927 $1,046,863 $93,053
================================================================================
All officers and one Director of the Fund are employees of SB.
4. INVESTMENTS
During the year ended February 28, 1997, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $500,241,853
- --------------------------------------------------------------------------------
Sales 443,659,306
================================================================================
At February 28, 1997, the aggregate gross unrealized appreciation and
depreciation of investments were as follows:
================================================================================
Gross unrealized appreciation $ 40,124,256 *
Gross unrealized depreciation (964,898)*
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 39,159,358 *
================================================================================
*Substantially the same for Federal income tax purposes.
5. FUTURES CONTRACTS
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contract. 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
29
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
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 February 28, 1997, the Fund had no open futures contracts.
6. CAPITAL SHARES
At February 28, 1997, 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 February 28, 1997, total paid-in capital amounted to the following for
each class:
CLASS A CLASS B CLASS C
================================================================================
Total Paid-in Capital $539,595,573 $172,031,125 $16,584,285
================================================================================
Transactions in shares of each class were as follows:
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
================================================================================
CLASS A
Shares sold 3,949,726 $63,826,420 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 8) -- -- 9,484,273 154,421,573
Shares issued on reinvestment 1,294,680 20,922,197 879,885 13,984,197
Shares redeemed (5,338,776) (86,219,159) (3,775,198) (60,397,322)
- --------------------------------------------------------------------------------
Net Increase (Decrease) (94,370) $(1,470,542) 9,603,476 $156,226,612
================================================================================
CLASS B
Shares sold 2,129,481 $34,296,606 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 8) -- -- 56,465 918,920
Shares issued on reinvestment 355,573 5,749,381 240,003 3,813,151
Shares redeemed (1,198,383) (19,306,526) (1,221,047) (19,453,093)
- --------------------------------------------------------------------------------
Net Increase 1,286,671 $20,739,461 1,073,837 $17,155,634
================================================================================
30
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
================================================================================
CLASS C
Shares sold 464,736 $ 7,491,127 333,004 $ 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 8) -- -- 388,346 6,320,298
Shares issued on reinvestment 29,081 470,055 5,792 93,486
Shares redeemed (129,633) (2,088,302) (113,763) (1,860,711)
- --------------------------------------------------------------------------------
Net Increase 364,184 $ 5,872,880 613,379 $ 9,900,776
================================================================================
7. 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.
8. TRANSFER OF NET ASSETS
On December 15, 1995, the Fund acquired the net assets and certain
liabilities of the Smith Barney Muni 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.
31
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CLASS A SHARES(1) 1997 1996(2) 1995 1994(2) 1993
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $16.31 $15.40 $16.15 $16.70 $15.78
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.85 0.85 0.89 0.86 0.97
Net realized and unrealized gain (loss) 0.15 0.93 (0.56) 0.08 1.25
- ---------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.00 1.78 0.33 0.94 2.22
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.85) (0.84) (0.89) (0.84) (0.97)
Net realized gains (0.20) (0.03) (0.19) (0.65) (0.29)
Capital -- -- -- -- (0.04)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.05) (0.87) (1.08) (1.49) (1.30)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $16.26 $16.31 $15.40 $16.15 $16.70
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 6.37% 11.93% 2.46% 5.92% 14.76%
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000s) $578,687 $582,324 $401,743 $425,181 $423,504
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.71% 0.76% 0.80% 0.80% 0.70%
Net investment income 5.29 5.26 5.76 5.20 6.04
- ---------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 60% 44% 59% 76% 72%
===========================================================================================================================
</TABLE>
(1) 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.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
32
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS (CONTINUED)
================================================================================
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CLASS B SHARES(1) 1997 1996(2) 1995 1994(2) 1993(3)
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $16.32 $15.40 $16.15 $16.70 $15.84
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.76 0.75 0.81 0.77 0.29
Net realized and unrealized gain (loss) 0.14 0.96 (0.57) 0.09 1.15
- ---------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.90 1.71 0.24 0.86 1.44
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.77) (0.76) (0.80) (0.76) (0.28)
Net realized gains (0.20) (0.03) (0.19) (0.65) (0.29)
Capital -- -- -- -- (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.97) (0.79) (0.99) (1.41) (0.58)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $16.25 $16.32 $15.40 $16.15 $16.70
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 5.73% 11.39% 1.89% 5.40% 9.27%++
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $173,347 $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 4.75 4.71 5.25 4.67 5.44+
- ---------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 60% 44% 59% 76% 72%
===========================================================================================================================
</TABLE>
(1) 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.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(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.
33
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS (CONTINUED)
================================================================================
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
CLASS C SHARES(1) 1997 1996(2) 1995(3)
================================================================================
NET ASSET VALUE, BEGINNING OF YEAR $16.31 $15.40 $14.19
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.75 0.78 0.24
Net realized and unrealized gain 0.15 0.92 1.39*
- --------------------------------------------------------------------------------
Total Income From Operations 0.90 1.70 1.63
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.77) (0.76) (0.23)
Net realized gains (0.20) (0.03) (0.19)
- --------------------------------------------------------------------------------
Total Distributions (0.97) (0.79) (0.42)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $16.24 $16.31 $15.40
- --------------------------------------------------------------------------------
TOTAL RETURN 5.68% 11.30% 11.72%++
- --------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $16,678 $10,809 $762
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.29% 1.39% 1.37%+
Net investment income 4.69 4.44 5.19+
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 60% 44% 59%
================================================================================
(1) 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.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from November 14, 1994 (inception date) to February 28,
1995.
* The amount shown may not agree with the change in aggregate gains and
losses of portfolio securities due to the timing of sales and the
redemptions of Fund shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
34
<PAGE>
================================================================================
INDEPENDENT AUDITORS' REPORT
================================================================================
THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
SMITH BARNEY CALIFORNIA MUNICIPALS FUND INC.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Smith Barney California Municipals
Fund Inc. as of February 28, 1997, the related statement of operations for the
year then ended and the statements of changes in net assets and financial
highlights for each of the years in the two-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the years in the three-year period ended February 28,
1995 were audited by other auditors whose report thereon, dated April 10, 1995,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1997, by correspondence with the custodian. As to securities
purchased and sold but not received or delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Smith Barney California Municipals Fund Inc. as of February 28, 1997, the
results of its operations for the year then ended and the changes in its net
assets and financial highlights for each of the years in the two-year period
then ended, in conformity with generally accepted accounting principles.
/S/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
New York, New York
April 18, 1997
35
<PAGE>
================================================================================
TAX INFORMATION (UNAUDITED)
================================================================================
For Federal tax purposes the Fund hereby designates for the fiscal year
ended February 28, 1997:
o long term capital gain distributions paid of $7,855,418
o 99.49% of the dividends paid by the Fund from net investment income as
tax-exempt for regular Federal income tax purposes.
36
<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
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
FD2209 4/97
