SEMI-ANNUAL REPORT
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Smith Barney
Muni Funds
Florida Portfolio
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September 30, 1997
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
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Florida Portfolio
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Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Muni Funds
- -- Florida Portfolio ("Portfolio") for the six months ended September 30, 1997.
For your convenience, we have summarized the period's prevailing economic and
market conditions below and outlined the various investment strategies employed
by the Portfolio during this time. A detailed summary of performance and current
holdings for the Portfolio can be found in the appropriate sections that follow.
Portfolio's Performance and
Investment Strategy
For the six-months ended September 30, 1997, the Florida Portfolio generated a
total return of 6.93% for Class A shares which compares favorably with its
Lipper Analytical Services, Inc. ("Lipper") peer group average of 6.18%. (Lipper
is a major fund-tracking organization.) Based on its net asset value (NAV) of
$13.69 as of September 30, 1997 and the current income distribution of $0.062
per Class A share, the Portfolio's annualized distribution rate is 5.43%. For an
individual in the federal income tax bracket of 36%, the Portfolio's tax-free
yield of 5.43% is equivalent to a taxable yield of 8.49%. (According to the
Internal Revenue Service, the 36% tax bracket constitutes nearly 10% of all U.S.
taxpayers.)
Your Portfolio continues to be a consistent performer among its Lipper peers.
The Portfolio ranked in the first quartile of Florida municipal bond funds in
the Lipper Survey for 1, 3 and 5-year periods ended September 30, 1997.* (The
inception date for the Portfolio is April 2, 1991.) In addition, your Fund was
ranked as the number 2 fund among 19 Florida municipal bond funds by Lipper for
the five-year period ended September 30, 1997.
During the reporting period, we maintained the Portfolio's high credit-quality,
good call protection and broad sector diversification. In our view, this
investment strategy should provide investors with a competitive stream of income
over the long term.
As of September 30, 1997, the Portfolio's average weighted maturity was just
over 22.67 years, and approximately 91.4% of the Portfolio's holdings were rated
investment grade. (Investment-grade bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc. or AAA, AA, A and BBB by Standard &
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* Lipper rankings show a fund's one, five and ten year annualized returns (at
NAV) as of a particular reporting period. Lipper also compares a fund's returns
to the average of its peer group. The rankings are subject to change every
month. Past performance is not a guarantee of future results. For the 1, 3, and
5-year period ended September 30, 1997, there were 63, 45 and 19 Florida
municipal bond funds, respectively, in the Lipper peer group category.
1
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Poor's Ratings Services, or have an equivalent rating by any nationally
recognized statistical rating organization, or determined by the manager to be
equivalent.) In addition, approximately 58% of the Portfolio had a triple-A
rating, the highest credit rating. The Portfolio's largest holdings are
concentrated in hospital bonds (13.5%), transportation bonds (11.9%) and
multi-family housing bonds (10.5%).
Market and Economic Overview
In recent weeks, the municipal bond market has rebounded from the downturn it
experienced in August 1997. In our opinion, this market downturn was caused in
large part by investor concerns that strength in the U.S. economy would
ultimately lead to higher interest rates and greater inflationary pressures.
Despite these concerns, the U.S. economy has continued to grow strongly with low
unemployment and an absence of higher inflationary pressures.
In our view, global competition and improved productivity has enabled the
economy to expand without the upward price pressures traditionally associated
with extended periods of economic growth. Many U.S. corporations continue to
face fierce competition from foreign companies. As a result, many U.S.
corporations have been unable to raise prices significantly. Moreover, the
widespread use of technology has enabled many companies to operate more
efficiently while using fewer workers. This in turn has enabled many companies
to continue operating profitably even though increasingly tight labor markets
have begun to exert upward pressure on wages.
In light of these developments, the Federal Reserve Board ("Fed") has refrained
from further tightening monetary policy after raising the federal-funds rate
slightly to 5.5% in March 1997. (The federal-funds rate is the interest rate
banks charge each other for overnight loans and is a closely watched indicator
of the direction of interest rates.) Since that time, interest rates have
generally declined. For example, yields on the bellwether 30-year U.S. Treasury
bond have fallen from a high of approximately 7.2% in April to roughly 6.4% as
of September 30, 1997. Many economists, including some Fed officials, have begun
to acknowledge that the U.S. economy may be able to support both strong growth
and low unemployment without a substantial increase in inflation. However, this
does not mean that the Fed has become complacent on the inflation front. In
testimony delivered to the House Budget Committee on October 8, 1997, Fed
Chairman Alan Greenspan again warned that strong economic growth and the
extremely tight labor market could lead to a resurgence in inflation.
Greenspan's warning roiled the financial markets with a sharp but relatively
modest increase in yields on bonds. However, in our view, the Fed's
determination to contain inflation should be beneficial for bond investors as it
will help ensure that the buying power of coupon income will be preserved.
2
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In addition, although nominal interest rates have declined, real
inflation-adjusted interest rates are quite high on an historical basis and
current real yields on municipal bonds (after subtracting the effects of
inflation) are very high by historical standards. In view of the current
favorable economic conditions and our expectations that inflation should remain
subdued, we believe that municipal bonds should continue to provide investors
with attractive real, after-tax rates of return in the months ahead.
Florida Economic Highlights
While we expect Florida's economy to grow moderately for the remainder of 1997,
we think the Sunshine State should continue to outperform the U.S. economy
primarily due to strong population growth. (During the next ten years, Florida's
total population is predicted to increase by roughly 2.5 million.) Florida
remains one of the fastest-growing states as its economy has broadened away from
its traditional narrow base of agriculture and seasonal tourism into a solid
service and trade economy, led by fast-growing businesses in insurance, banking
and export-related industries. And while Florida's successful and more
diversified economy has added pressure to build more infrastructure and
educational facilities, the State's debt and financial operations have remained
for the most part balanced.
Recently, Florida's general obligation debt was rated double-A by all three
major credit report and bond rating agencies. In our opinion, Florida should be
able to maintain its double-A credit rating over the near term because of its
favorable debt structure and solid fiscal management practices.
Municipal Bond Outlook
Some investors have expressed concerns that certain provisions of the recently
enacted Federal Taxpayer Relief Act of 1997 (which was passed as part of the
Balanced Budget Agreement) could erode many of the tax advantages that municipal
bonds now offer. However, we believe that the impact of this legislation will be
largely positive for the municipal bond market. The reduction of the long-term
capital gains tax rate and the introduction of the Roth IRA ostensibly make the
attractiveness of stocks and other investments more competitive than municipals.
Nevertheless, there are new elements in the tax code that may strengthen the
focus on after-tax returns -- an area where municipals, which provide a steady
source of tax-exempt income, continue to enjoy a distinct advantage. In
addition, the repeal of the alternative minimum tax for small business
corporations provides favorable tax treatment for many corporate municipal bond
investors. Lastly, the new tax act expands the issuance of education and housing
bonds, two key segments of the municipal bond market.
3
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We remain optimistic on the prospects for municipal bonds. The shrinking federal
budget deficit, resulting from strong economic growth and spending controls
enacted in 1990 and 1993, coupled with a relatively low annual rate inflation,
should help to keep interest rates from rising. We also expect continued Fed
vigilance against any signs of higher inflationary pressures, which is a
long-term positive for bonds.
On a more somber note, we were saddened by the loss of an outstanding physician
and Trustee of the Fund, Dr. Francis P. Martin. His knowledge and wisdom will be
missed.
Thank you for investing in the Smith Barney Muni Funds -- Florida Portfolio. We
look forward to helping you pursue your goals.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman Vice President
October 16, 1997
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Historical Performance -- Class A Shares
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Net Asset Value
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Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
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9/30/97 $13.16 $13.69 $0.37 $0.00 6.93%+
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3/31/97 13.24 13.16 0.73 0.05 5.44
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3/31/96 12.89 13.24 0.74 0.00 8.65
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3/31/95 12.82 12.89 0.76 0.00 6.77
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3/31/94 13.21 12.82 0.77 0.00 2.75
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3/31/93 12.32 13.21 0.80 0.01 14.21
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Inception* - 3/31/92 12.00 12.32 0.70 0.00 8.70+
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Total $4.87 $0.06
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Historical Performance -- Class B Shares
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Net Asset Value
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Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
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9/30/97 $13.14 $13.67 $0.33 $0.00 6.62%+
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3/31/97 13.23 13.14 0.68 0.05 4.91
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3/31/96 12.89 13.23 0.69 0.00 8.09
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Inception* - 3/31/95 11.91 12.89 0.29 0.00 10.77+
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Total $1.99 $0.05
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Historical Performance -- Class C Shares
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Net Asset Value
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Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
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9/30/97 $13.14 $13.67 $0.32 $0.00 6.52%+
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3/31/97 13.22 13.14 0.67 0.05 4.94
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3/31/96 12.89 13.22 0.68 0.00 7.96
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3/31/95 12.81 12.89 0.67 0.00 6.12
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3/31/94 13.20 12.81 0.68 0.00 2.05
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Inception* - 3/31/93 12.86 13.20 0.18 0.00 4.05+
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Total $3.20 $0.05
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It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
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Average Annual Total Return
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Without Sales Charge(1)
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Class A Class B Class C
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Six Months Ended 9/30/97+ 6.93% 6.62% 6.52%
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Year Ended 9/30/97 9.21 8.57 8.54
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Five Years Ended 9/30/97 7.49 N/A N/A
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Inception* through 9/30/97 8.19 7.78 5.70
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With Sales Charge(2)
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Class A Class B Class C
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Six Months Ended 9/30/97+ 2.64% 2.12% 5.52%
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Year Ended 9/30/97 4.87 4.07 7.54
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Five Years Ended 9/30/97 6.62 N/A N/A
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Inception* through 9/30/97 7.51 6.87 5.70
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Cumulative Total Return
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Without Sales Charge(1)
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Class A (Inception* through 9/30/97) 66.82%
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Class B (Inception* through 9/30/97) 24.03
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Class C (Inception* through 9/30/97) 30.03
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(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% and Class B shares reflect
the deduction of a 4.50% CDSC, which applies if shares are redeemed 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 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 2, 1991, November
16, 1994 and January 5, 1993, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
6
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Historical Performance (unaudited)
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Growth of $10,000 Invested in Class A Shares of
the Florida Portfolio vs.
Lehman Brothers Municipal Long Bond Index+
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April 1991 -- September 1997
[CHART OMITTED]
+ Hypothetical illustration of $10,000 invested in Class A shares at
inception on April 2, 1991, assuming deduction of the maximum 4.00% sales
charge at the time of investment and reinvestment of dividends (after
deduction of applicable sales charges through November 6, 1994, and
thereafter at net asset value) and capital gains, if any, at net asset
value through September 30, 1997. The Lehman Brothers Municipal Long Bond
Index (consisting of maturities of at least 22 years) is a sub-index of
the Lehman Brothers Municipal Bond Index, a broad based, total return
index comprised of investment grade, fixed rate municipal bonds selected
from issues larger than $50 million issued since January, 1991. The index
is unmanaged and is not subject to the same management and trading
expenses of a mutual fund. The performance of the Portfolio's other
classes may be greater or less than the Class A shares' performance
indicated on this chart, depending on whether greater or lesser sales
charges and fees were incurred by shareholders investing in the other
classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
7
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<TABLE>
<CAPTION>
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Schedule of Investments (unaudited) September 30, 1997
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FACE
AMOUNT RATING SECURITY VALUE
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<C> <C> <S> <C>
Education -- 3.1%
$2,500,000 AAA Orange County School Board, COP, Series A,
MBIA-Insured, 5.375% due 8/1/22 $ 2,490,625
Volusia County Educational Facilities Authority Revenue,
Embry Riddle Aeronautical University:
500,000 AAA CONNIE LEE-Insured, 6.500% due 10/15/15 541,250
2,875,000 Baa2* Series A, 6.125% due 10/15/16 3,007,969
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6,039,844
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Escrowed to Maturity(a) -- 6.4%
445,000 AAA Altamonte Springs Health Facilities Authority Hospital
Revenue, Adventist Health System, 13.000% due 10/1/01 528,437
860,000 AAA Bradford County Health Facilities Authority Revenue, (Santa
Fe Healthcare Facilities Project), 6.000% due 11/15/09 932,025
285,000 AAA Cape Coral Health Facilities Authority Hospital Revenue,
(Cape Coral Medical Center Project), 8.125% due 11/1/08 328,462
3,000,000 AAA Escambia County HFA, Multi-Family Housing Revenue,
Gensis Healthcare, FGIC-Insured, Principal Custodial
Receipts, zero coupon due 10/15/18 937,500
1,500,000 AAA Escambia County Water and Sewer District IV Revenue,
7.300% due 1/1/08 1,702,500
1,500,000 AAA Gainesville Utility System Revenue, 8.125% due 10/1/14(b) 1,935,000
355,000 AAA Jacksonville Health Facilities Authority Hospital Revenue,
(St. Vincents Medical Center Inc. Project),
9.125% due 1/1/03 402,925
200,000 AAA Lee County Justice Center Complex Inc., Improvement
Revenue, Series A, MBIA-Insured, 11.125% due 1/1/11 289,500
550,000 AAA Orange County Health Facility Authority Revenue,
Southern Adventist Hospital, 8.750% due 10/1/09 677,875
1,015,000 AAA Palm Beach County Health Facilities Authority Revenue
(John F. Kennedy Memorial Hospital Inc. Project),
Series C, 9.500% due 8/1/13 1,341,069
685,000 AAA Palm Beach County Solid Waste Authority Revenue,
MBIA-Insured, 10.000% due 12/1/04 836,556
2,000,000 AAA Port Everglades Authority Port Improvement,
7.125% due 11/1/16(b) 2,412,500
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12,324,349
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Finance -- 1.1%
485,000 AA+ Florida State Board of Education Capital Outlay,
Unrefunded Balance, Series A, 7.250% due 6/1/23(b) 527,438
500,000 AAA Gulf Breeze Local Government Revenue, FGIC-Insured,
7.750% due 12/1/15 548,750
1,000,000 AA St. Lucie County Special Assessment, South Hutchinson
Island, Asset Guaranteed, 6.200% due 11/1/25 1,050,000
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2,126,188
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</TABLE>
See Notes to Financial Statements.
8
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<TABLE>
<CAPTION>
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Schedule of Investments (unaudited)(continued) September 30, 1997
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FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<C> <C> <S> <C>
General Obligation -- 1.1%
$ 500,000 NR Brevard County Tourist Development Tax Revenue,
4th Century Marlins Spring, 6.875% due 3/1/13 $ 533,125
1,000,000 AA+ Florida State Broward County, 10.000% due 7/1/14(b) 1,547,500
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2,080,625
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Government Facilities -- 0.4%
750,000 AAA Florida State Department of Corrections, COP, Okeechobee
Correctional, AMBAC-Insured, 6.250% due 3/1/15 822,188
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Hospital -- 13.5%
Escambia County Health Facilities Authority Revenue:
2,500,000 NR Azalea Trace Inc. Project, 6.100% due 1/1/19 2,540,625
1,750,000 BBB+ Baptist Hospital & Manor Project, 6.750% due 10/1/14 1,894,375
Jacksonville Health Facilities Authority, Hospital Revenue:
National Benevolent Association, IDR, Cypress Hill
Village Program:
750,000 Baa1* 6.400% due 12/1/16 793,125
1,000,000 Baa1* Series A, 6.250% due 12/1/26 1,032,500
2,000,000 AA+ Series B, 5.250% due 8/15/27 1,930,000
2,000,000 AA+ St. Lukes Hospital Association Project
7.125% due 11/15/20 2,222,500
310,000 AAA University Medical Center Inc. Project, Connie-Lee Insured,
6.600% due 2/1/21 332,088
Lee County Hospital Board of Directors, Hospital Revenue,
MBIA-Insured:
1,000,000 AAA 9.326% due 4/1/20(c) 1,166,250
4,250,000 AAA Lee Memorial Health Systems, 5.000% due 4/1/20 4,042,812
2,000,000 AAA Regular Linked SAVRS & RIBS, 6.350% due 3/26/20(c) 2,135,000
Orange County Health Facilities Authority, Hospital Revenue
Bonds:
Adventist Health Systems, FSA-Insured:
1,500,000 AAA 6.740% due 11/15/07(c) 1,603,125
1,000,000 AAA Sunbelt Inc. Project, Series B, 6.750% due 11/15/21 1,096,250
2,000,000 AAA Regular Linked SAVRS & RIBS, MBIA-Insured,
6.416% due 10/29/21(c) 2,122,500
815,000 BB+ Pinellas County Health Facilities Authority, Sun Coast
Health System Revenue, Sun Coast Hospital Guaranteed,
Series A, 8.500% due 3/1/20 874,088
1,000,000 AAA South Broward Hospital District Revenue Bonds, Series
1991C, RIBS, AMBAC-Insured, 9.186% due 5/13/21(c) 1,192,500
1,000,000 AAA Tampa Revenue, Allegany Health Systems, St. Joseph's
Health, MBIA-Insured, 6.700% due 12/1/18 1,128,750
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26,106,488
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</TABLE>
See Notes to Financial Statements.
9
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<TABLE>
<CAPTION>
==========================================================================================================
Schedule of Investments (unaudited)(continued) September 30, 1997
==========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<C> <C> <S> <C>
Housing: Multi-Family -- 10.5%
$1,000,000 A+ Broward County HFA, Multi-Family Housing Revenue,
(Waterford Park Project), 7.200% mandatory
tender 5/1/02 $ 1,031,010
385,000 AAA Clearwater Multi-Family Housing Revenue, (Drew Gardens
Project), Series A, FHA-Insured, 6.500% due 10/1/25 403,769
2,355,000 AAA Dade County IDR, Susanna Wesley Health Center, Series A,
FHA-Insured, 6.625% due 7/1/30 2,552,231
Dade County HFA:
1,000,000 NR Golden Lakes Apartments, 6.050% due 11/1/29(d) 1,000,000
1,000,000 AAA Siesta Pointe Apartments, FSA-Insured,
5.750% due 9/1/29 1,001,250
Florida Housing Finance Agency, Multi-Family
Revenue Bonds:
1,085,000 AAA Antigue Club Apartments, Series A-1, AMBAC-Insured,
6.750% due 8/1/14(d) 1,167,731
1,000,000 AAA Indian Run Apartments, Series V, AMBAC-Insured,
6.200% due 12/1/36 1,040,000
1,500,000 AAA Mariner Club Apartments, Series K1,
6.375% due 9/1/36(d) 1,593,750
3,000,000 A Senior Lien, Series I-1, 6.625% due 7/1/28(d) 3,198,750
3,000,000 AAA Stoddert Arms Apartments, Series O, AMBAC-Insured,
6.300% due 9/1/36(d) 3,142,500
1,000,000 BBB+ The Vinyards Project, Series H, 6.500% due 11/1/25 1,036,250
1,000,000 AAA Turtle Creek Apartments, Series C-1, AMBAC-Insured,
6.200% due 5/1/36(d) 1,046,250
1,000,000 AAA Oceanside Housing Development Corp., Multi-Family
Mortgage Revenue, FHA-Insured, 6.875% due 2/1/20 1,057,500
1,095,000 AAA Southwest Housing Development Corp., Multi-Family
Housing Mortgage Revenue Refunding, FHA-Insured,
6.875% due 2/1/20 1,151,119
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20,422,110
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Housing: Single-Family -- 9.1%
Brevard County HFA, Single-Family Mortgage Revenue:
620,000 Aaa* GNMA-Collateralized, 6.600% due 9/1/16(d) 656,425
900,000 Aaa* GNMA/FNMA-Collateralized, 6.400% due 9/1/23(d) 951,750
Broward County HFA, Single-Family Mortgage Revenue:
800,000 Aa* Capital Appreciation, zero coupon due 4/1/14 148,000
GNMA/FNMA-Collateralized:
610,000 Aaa* 6.650% due 8/1/21(d) 653,462
1,000,000 Aaa* Series A, 6.200% due 4/1/3 1,045,000
Dade County HFA, Single-Family Mortgage Revenue,
GNMA/FNMA-Collateralized:
1,500,000 AAA 6.700% due 4/1/28(d) 1,605,000
355,000 Aaa* Series B, 7.250% due 9/1/23(d) 376,300
35,000 Aaa* Series E, 7.000% due 3/1/24 37,100
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Schedule of Investments (unaudited)(continued) September 30, 1997
==========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<C> <C> <S> <C>
Housing: Single-Family -- 9.1% (continued)
Duval County HFA, Single-Family Mortgage Revenue,
GNMA-Collateralized:
$ 105,000 AAA 8.000% due 6/1/00(d) $ 108,413
730,000 Aaa* 6.700% due 10/1/26(d) 784,750
350,000 AAA Series A, 8.500% due 9/1/19(d) 364,791
Escambia County HFA, Single-Family Mortgage Revenue:
215,000 Aaa* GNMA-Collateralized, Series A, 7.800% due 4/1/22(d) 228,438
2,000,000 Aaa* Multi-County Program, Series A,
GNMA/FNMA-Collateralized, 6.100% due 4/1/30 2,085,000
Florida Housing Finance Agency:
500,000 AA Homeowner Mortgage, Series 2, 6.350% due 7/1/28(d) 529,375
135,000 Aaa* Home Ownership Revenue, Series G1,
GNMA-Collateralized, 7.800% due 9/1/10(d) 143,438
210,000 A+ Residential Mortgage, Series 1, Capital Appreciation,
zero coupon due 11/1/12 45,938
1,265,000 AAA Single-Family Mortgage, Series B, GNMA/FNMA
Collateralized, 6.650% due 7/1/26(d) 1,320,344
440,000 Aaa* Hillsborough County HFA, Single-Family Mortgage Revenue,
Series A, GNMA-Collateralized, 7.700% due 4/1/23(d) 467,500
750,000 AAA Leon County HFA, Single-Family Mortgage Revenue, Multi-
County Program, Series B, GNMA/FHLMC-Collateralized,
7.300% due 1/1/28(d) 858,750
Orange County HFA, Single-Family Mortgage Revenue,
GNMA/FNMA Mortgage Backed Securities Program:
760,000 AAA 6.750% due 10/1/18(d) 817,000
1,500,000 AAA Series A, 6.300% due 4/1/28(d) 1,584,375
435,000 Aaa* Palm Beach HFA, Single-Family Mortgage Power Revenue
Bonds, Series A, GNMA-Collateralized,
7.875% due 4/1/23(d) 442,069
1,310,000 Aaa* Pinnellas County HFA, Single-Family Mortgage Revenue,
GNMA/FNMA Collateralized, 6.550% due 8/1/27(d) 1,390,238
1,000,000 Aaa* Virgin Islands HFA, Single-Family Mortgage Revenue,
Series A, GNMA-Collateralized, 6.500% due 3/1/25(d) 1,055,000
- ----------------------------------------------------------------------------------------------------------
17,698,456
- ----------------------------------------------------------------------------------------------------------
Industrial Development -- 6.3%
2,105,000 NR Homestead IDR, Community Rehabilitation Providers
Program, Series A, 7.950% due 11/1/18 2,189,200
1,500,000 BBB- Martin County IDA, Indiantown, (Cogeneration Project),
7.875% due 12/15/25(d) 1,728,750
500,000 NR Northern Palm Beach County Water Control District, Unit
Development No.31, Program 1, 6.750% due 11/1/07 530,625
Osceola County IDA Revenue, (Community Provider
Pooled Loan Program), Series A, FSA-Insured:
400,000 AAA 7.500% due 7/1/02 432,500
799,000 AAA 7.750% due 7/1/10 867,912
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Schedule of Investments (unaudited)(continued) September 30, 1997
==========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<C> <C> <S> <C>
Industrial Development -- 6.3% (continued)
Tampa Sports Authority Revenue, MBIA-Insured:
$5,000,000 AAA Sales Tax Revenue, (Stadium Project),
5.250% due 1/1/27 $ 4,875,000
Tampa Bay Arena Project:
500,000 AAA 6.050% due 10/1/20 554,375
1,000,000 AAA 6.100% due 10/1/26 1,121,250
- ----------------------------------------------------------------------------------------------------------
12,299,612
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Miscellaneous -- 8.4%
1,000,000 AAA Dade County Aviation Facilities Revenue, Series B,
MBIA-Insured, 6.600% due 10/1/22(d) 1,086,250
3,900,000 NR Dade County IDR, (Miami Cerebral Palsy Services Project),
8.000% due 6/1/22 4,124,250
5,000,000 AAA Dade County Special Obligation, Series B, AMBAC-Insured,
Capital Appreciation, zero coupon due 10/1/16 1,706,250
2,500,000 AAA Fort Meyers Improvement Revenue Refunding, Series A,
AMBAC-Insured, 5.000% due 12/1/22 2,393,750
500,000 BB+ Hillsborough County Aviation Authority, Special Purpose,
(Delta Airlines Project), 6.800% due 1/1/24 536,250
500,000 AAA Lakeland Capital Improvement Revenue Refunding,
MBIA-Insured, 5.000% due 10/1/17 482,500
1,200,000 AAA North Springs Improvement District, MBIA-Insured,
7.000% due 10/1/09 1,447,500
2,500,000 AAA Port Palm Beach District Revenue, Series A, MBIA-Insured,
Capital Appreciation, zero coupon due 9/1/21 637,500
1,200,000 Baa* Puerto Rico Housing Bank & Finance Agency,
7.500% due 12/1/06 1,404,000
1,745,000 BBB Tampa Capital Improvement Program, Series B,
8.375% due 10/1/18 1,809,512
500,000 NR Tampa Revenue (Florida Aquarium Inc. Project),
7.750% due 5/1/27 577,500
- ----------------------------------------------------------------------------------------------------------
16,205,262
- ----------------------------------------------------------------------------------------------------------
Nursing Home -- 2.9%
1,000,000 Aa3* Broward County Health Facilities Authority Revenue
Refunding, Broward County Nursing Home, LOC 91
Allied Irish Banks Ltd., 7.500% due 8/15/20 1,101,250
3,500,000 A- Palm Beach County Health Facilities Authority Revenue,
Retirement Community, 5.625% due 11/15/20 3,543,750
1,000,000 AA Volusia County Health Facilities Authority Revenue,
(John Knox Projects), Series A, Asset Guaranty,
6.000% due 6/1/17 1,050,000
- ----------------------------------------------------------------------------------------------------------
5,695,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Schedule of Investments (unaudited)(continued) September 30, 1997
==========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<C> <C> <S> <C>
Pollution Control -- 8.7%
$2,400,000 A Broward County Resource Recovery Revenue,
(Broward Waste Energy North Project),
7.950% due 12/1/08(b) $ 2,619,000
2,000,000 A+ Citrus County PCR, Florida Power Corp., (Crystal River
Project), 6.625% due 1/1/27 2,170,000
Escambia County PCR, (Champion International
Corp. Project):
500,000 BBB 6.950% due 11/1/07 551,250
3,500,000 BBB 6.900% due 8/1/22(d) 3,876,250
2,500,000 AA- Jacksonville Sewer & Solid Waste Disposal Facilities
Revenue, (Anheuser-Busch Project),
5.875% due 2/1/36(d) 2,556,250
705,000 AAA Lee County Solid Waste Revenue, MBIA-Insured,
7.000% due 10/1/11(d) 783,431
1,000,000 A+ Pinellas County PCR, Florida Power Corp., (Anclot &
Bartlow Plants Project), 7.200% due 12/1/14 1,098,750
1,390,000 Baa2* Putnam County Development Authority PCR, Georgia
Pacific Corp. 1984, 7.000% due 12/1/05 1,548,112
1,500,000 AA- St. Lucie County Solid Waste Disposal Revenue, (Florida
Power & Light Co. Project), 7.150% due 2/1/23(d) 1,625,625
- ----------------------------------------------------------------------------------------------------------
16,828,668
- ----------------------------------------------------------------------------------------------------------
Pre-Refunded(e) -- 3.5%
Alachua County Health Facilities Authority Revenue,
(Santa Fe Healthcare Facilities Project):
175,000 AAA Call 11/15/00 @102, 6.875% due 11/15/02 189,875
1,000,000 AAA Call 11/15/00 @102, 7.600% due 11/15/13 1,120,000
1,500,000 AAA Bay County Hospital Revenue, (Bay Medical Center Project),
(Call 10/1/04 @ 102), 8.000% due 10/1/12 1,841,250
1,000,000 AAA Broward County School Board COP, Series 90A,
MBIA-Insured, (Call 7/1/00 @ 102), 7.125% due 7/1/10 1,096,250
515,000 AAA Florida State Board of Education Capital Outlay Refunding,
Series A, (Call 6/1/00 @ 102), 7.250% due 6/1/23(b) 565,856
1,000,000 AAA Miami Sports & Exhibition Authority Special Obligation
Refunding, FGIC-Insured, (Call 4/1/00 @ 102),
7.200% due 10/1/20 1,092,500
835,000 AAA Pinellas County Health Facilities Authority, Sun Coast
Health System Revenue, Sun Coast Hospital
Guaranteed, Series A, (Call 3/1/00 @ 102),
8.500% due 3/1/20 935,200
- ----------------------------------------------------------------------------------------------------------
6,840,931
- ----------------------------------------------------------------------------------------------------------
Public Facilities -- 1.2%
1,000,000 Baa* Miami Beach Redevelopment Tax Increment Revenue, City
Center-Historic Convention, Series B, 6.350% due 12/1/22 1,047,500
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Schedule of Investments (unaudited)(continued) September 30, 1997
==========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<C> <C> <S> <C>
Public Facilities -- 1.2% (continued)
$1,185,000 A Puerto Rico Public Buildings Authority Revenue, Series L,
5.500% due 7/1/21 $ 1,204,256
- ----------------------------------------------------------------------------------------------------------
2,251,756
- ----------------------------------------------------------------------------------------------------------
Transportation -- 11.9%
1,250,000 Aa3* Dade County Aviation Facilities Revenue Bonds,
Series U, 6.750% due 10/1/06(d) 1,300,713
5,000,000 AAA Florida Ports Financing Community Revenue,
MBIA-Insured, 5.375% due 6/1/27(d) 4,931,250
Guam Airport Authority Revenue:
750,000 BBB Series A, 6.500% due 10/1/23 816,562
1,000,000 BBB Series B, 6.600% due 10/1/10(d) 1,091,250
1,000,000 AAA Hillsborough County Aviation Authority Revenue, Tampa
International Airport, Series A, FGIC-Insured,
6.000% due 10/1/23 1,056,250
1,500,000 Aa1* Ocean Highway and Port Authority, Nassau County,
Adjustable Demand Revenue Bonds, Series 1990,
LOC ABN AMRO Bank NV, 6.250% mandatory
tender 12/1/02(d) 1,623,750
2,000,000 A Puerto Rico Commonwealth Highway & Transportation
Authority Revenue, Series Y, 5.000% due 7/1/36 1,877,500
Sanford Airport Authority IDR, Central Florida
Terminals Inc. Project:
Series A:
1,000,000 NR 7.500% due 5/1/15(d) 1,050,000
2,000,000 NR 7.750% due 5/1/21(d) 2,107,500
645,000 NR Series C, 7.500% due 5/1/21(d) 669,188
Santa Rosa Bay Bridge Authority Revenue:
3,500,000 BBB- 6.250% due 7/1/28 3,622,500
5,000,000 BBB- Capital Appreciation, zero coupon due 7/1/17 1,537,500
1,355,000 AAA Volusia County Airport System Revenue, Daytona Beach
Regional Airport, MBIA-Insured, 7.000% due 10/1/21(d) 1,460,013
- ----------------------------------------------------------------------------------------------------------
23,143,976
- ----------------------------------------------------------------------------------------------------------
Utilities -- 7.4%
3,000,000 AAA Escambia County Utility System Authority Revenue Bonds,
FGIC-Insured, Series B, 6.250% due 1/1/15 3,405,000
1,350,000 BBB Guam Power Authority Revenue, Series A,
6.750% due 10/1/24 1,473,187
930,000 BBB+ Hillsborough County Utilities Revenue, Refunding &
Improvement, 7.000% due 8/1/14 1,004,400
1,265,000 AA Jacksonville Electric Authority Revenue Refunding,
St. John's River Power Park Services Refunding,
Issue 2-Series 5, 6.900% due 10/1/13 1,345,644
1,000,000 AAA Lakeland Electric & Water Revenue, Jr. Sub Lien,
FGIC-Insured, 6.000% due 10/1/14 1,107,500
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Schedule of Investments (unaudited)(continued) September 30, 1997
==========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================================
<C> <C> <S> <C>
Utilities -- 7.4% (continued)
$5,000,000 AAA Port St. Lucie Utility Revenue Refunding & Improvement,
Series A, MBIA-Insured, 5.125 % due 9/1/27 $ 4,793,750
4,400,000 AAA Tampa Utility Tax, Capital Appreciation, AMBAC-
Insured, zero coupon due 4/1/22 1,177,000
- ----------------------------------------------------------------------------------------------------------
14,306,481
- ----------------------------------------------------------------------------------------------------------
Water & Sewer -- 4.5%
4,500,000 AAA Dade County Water & Sewer Systems Revenue,
FGIC-Insured, 5.250% due 10/1/26 4,381,875
1,000,000 Aaa* Homestead Water & Wastewater Revenue Refunding,
AMBAC-Insured, 5.000% due 10/1/22 951,250
1,000,000 AAA Miramar Wastewater Improvement Authority,
FGIC-Insured, 6.750% due 10/1/16 1,123,750
2,000,000 AAA Seminole County Water & Sewer Refunding &
Improvement, MBIA-Insured, 6.000% due 10/1/12 2,225,000
- ----------------------------------------------------------------------------------------------------------
8,681,875
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $181,058,989**) $193,873,809
==========================================================================================================
</TABLE>
(a) Bonds are escrowed to maturity by U.S. Government securities and are
considered by the manager to be triple-A rated even if issuer has not
applied for new ratings.
(b) Securities segregated by Custodian for open purchase commitment.
(c) Residual interest bonds - coupon varies inversely with level of short-term
tax-exempt interest rates.
(d) Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(e) Bonds are escrowed by 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 16 and 17 for definitions of ratings and certain security
descriptions.
See Notes to Financial Statements.
15
<PAGE>
================================================================================
Bond Ratings
================================================================================
All ratings are by Standard & Poor's Rating Service ("Standard & Poor's") except
those identified by an asterisk (*) are rated by Moody's Investors Service Inc.
("Moody's"). The definitions of the applicable rating symbols are set forth
below:
Standard & Poor's-- Ratings from "AA" to "BB" may be modified by the addition of
a plus (+) or a minus (-) sign to show relative standings within the major
rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small
degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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 bonds 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 rating 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 as 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.
16
<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 (+) sign.
VMIG 1-- Moody's highest rating for issues having 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
================================================================================
AIG -- American International Guaranty
AMBAC -- American Municipal Bond Assurance Corporation
CGIC -- Capital Guaranty Insurance Company
CONNIE LEE -- College Construction Loan Insurance Association
COP -- Certificate of Participation
FLAIRS -- 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
FSA -- Financial Security Assurance
GEMICO -- General Electric Mortgage Insurance Company
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HFA -- Housing Finance Authority
IDA -- Industrial Development Agency
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
PCFA -- Pollution Control Financing Authority
PCR -- Pollution Control Revenue
RIBS -- Residual Interest Bonds
SAVRS -- Select Auction Variable Rate Securities
VRDD -- Variable Rate Demand Note
VRWE -- Variable Rate Wednesday Demand
17
<PAGE>
================================================================================
Statements of Assets and Liabilities (unaudited) September 30, 1997
================================================================================
ASSETS:
Investments, at value (Cost-- $181,058,989) $ 193,873,809
Cash 185,748
Interest receivable 3,701,759
Receivable for Fund shares sold 459,294
Receivable for securities sold 299,847
- --------------------------------------------------------------------------------
Total Assets 198,520,457
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 2,396,144
Management fees payable 66,049
Distribution fees payable 26,612
Accrued expenses 23,468
- --------------------------------------------------------------------------------
Total Liabilities 2,512,273
- --------------------------------------------------------------------------------
Total Net Assets $ 196,008,184
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 14,328
Capital paid in excess of par value 181,859,115
Overdistributed net investment income (45,042)
Accumulated net realized gain from security transactions 1,364,963
Net unrealized appreciation of investments 12,814,820
- --------------------------------------------------------------------------------
Total Net Assets $ 196,008,184
================================================================================
Shares Outstanding:
Class A 9,755,633
-----------------------------------------------------------------------------
Class B 4,026,652
-----------------------------------------------------------------------------
Class C 546,191
-----------------------------------------------------------------------------
Net Asset Value:
Class A (redemption price) $13.69
-----------------------------------------------------------------------------
Class B* $13.67
-----------------------------------------------------------------------------
Class C** $13.67
-----------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.17% of net asset value per share) $14.26
================================================================================
* 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 4).
** 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.
18
<PAGE>
================================================================================
Statement of Operations (unaudited)
================================================================================
For the Six Months Ended September 30, 1997
INVESTMENT INCOME:
Interest $ 5,937,484
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 4) 462,923
Distribution fees (Note 4) 297,946
Registration fees 44,890
Shareholder and system servicing fees 28,157
Audit and legal 22,440
Shareholder communications 11,264
Pricing service fees 10,821
Custody 6,029
Trustees' fees 2,106
Other 3,579
- --------------------------------------------------------------------------------
Total Expenses 890,155
- --------------------------------------------------------------------------------
Net Investment Income 5,047,329
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE 5):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 44,905,030
Cost of securities sold 43,275,046
- --------------------------------------------------------------------------------
Net Realized Gain 1,629,984
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 7,018,842
End of period 12,814,820
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 5,795,978
- --------------------------------------------------------------------------------
Net Gain on Investments 7,425,962
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $12,473,291
================================================================================
See Notes to Financial Statements.
19
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended September 30, 1997 (unaudited)
and the Year Ended March 31, 1997
<TABLE>
<CAPTION>
September 30 March 31
======================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,047,329 $ 9,255,548
Net realized gain 1,629,984 1,051,147
Increase (decrease) in net unrealized appreciation 5,795,978 (1,365,126)
- --------------------------------------------------------------------------------------
Increase in Net Assets From Operations 12,473,291 8,941,569
- --------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,086,643) (9,310,449)
Net realized gains -- (793,240)
- --------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (5,086,643) (10,103,689)
- --------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 15,982,632 35,124,664
Net asset value of shares issued in connection with
the transfer of the Smith Barney Muni Funds --
Florida Limited Term Portfolio's net assets (Note 8) -- 13,398,911
Net asset value of shares issued for reinvestment
of dividends 2,042,150 4,141,333
Cost of shares reacquired (15,117,626) (32,193,433)
- --------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 2,907,156 20,471,475
- --------------------------------------------------------------------------------------
Increase in Net Assets 10,293,804 19,309,355
NET ASSETS:
Beginning of period 185,714,380 166,405,025
- --------------------------------------------------------------------------------------
End of period* $ 196,008,184 $ 185,714,380
======================================================================================
* Includes overdistributed net investment income of: $ (45,042) $ (5,728)
======================================================================================
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Florida Portfolio ("Portfolio") is a separate investment portfolio of
the Smith Barney Muni Funds ("Fund"). The Fund, a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended, as a
non-diversified, open-end management investment company. The Fund consists of
this Portfolio and eight other separate investment portfolios: Georgia, Limited
Term, National, New York, Ohio, Pennsylvania, New York Money Market and
California Money Market Portfolios. The financial statements and financial
highlights for the other portfolios are presented in separate semi-annual
reports.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between the quoted bid and asked prices provided by an
independent pricing service that are based on transactions in municipal
obligations, quotations from municipal bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days are valued at cost plus accreted discount or
minus amortized premium, which approximates value; (d) 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 portfolio and each class; management fees and general fund expenses are
allocated on the basis of relative net assets; (g) dividends and distributions
to shareholders are recorded on the ex-dividend date; (h) each Portfolio intends
to comply with the applicable provisions of the Internal Revenue Code of 1986,
as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; (i) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At March 31, 1997,
reclassifications were made to the Portfolio's capital accounts to reflect
permanent book/tax differences and income and gains available for distributions
under income tax regulations. Net investment income, net realized gains and net
assets were not affected by this change; and (j) estimates and assumptions are
required to be made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.
21
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
2. PORTFOLIO CONCENTRATION
Since the Portfolio invests primarily in obligations of issuers within
Florida, it is subject to possible concentration risks associated with economic,
political, or legal developments or industrial or regional matters specifically
affecting Florida.
3. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Portfolio intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Portfolio.
Capital gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
4. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager to the Fund. The
Portfolio pays SBMFMa management fee calculated at the annual rate of 0.50% of
the average daily net assets. This fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor
of Fund shares. For the six months ended September 30, 1997, SB received sales
charges of approximately $135,000 on purchases of the Portfolios' Class A
shares.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B
shares, which applies if redemption occurs 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 have a
1.00% CDSC, which applies if redemption occurs within the first year of
purchase. For the six months ended September 30, 1997, CDSCs paid to SB for
Class Bshares were approximately $23,000.
Pursuant to a Distribution Plan, the Portfolio pays a service fee with
respect to Class A, B and C shares calculated at the annual rate of 0.15% of the
average daily net assets of each respective class. The Portfolio pays a
distribution fee with respect to Class B and C shares calculated at the annual
rates of 0.50% and 0.55% of the average daily net assets of each class,
respectively. For the six months ended September 30, 1997, total Distribution
Plan fees incurred were:
Class A Class B Class C
================================================================================
Distribution Plan Fees $98,091 $173,767 $26,088
================================================================================
All officers and two Trustees of the Fund are employees of SB.
22
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
5. INVESTMENTS
During the six months ended September 30, 1997, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
================================================================================
Purchases $49,586,434
- --------------------------------------------------------------------------------
Sales 44,905,030
================================================================================
At September 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $12,834,374
Gross unrealized depreciation (19,554)
- --------------------------------------------------------------------------------
Net unrealized appreciation $12,814,820
================================================================================
6. CAPITAL LOSS CARRYFORWARD
At March 31, 1997, the Florida Portfolio had for Federal income tax
purposes approximately $192,000 of loss carryforwards available to offset future
capital gains expiring on March 31, 2003. To the extent that these carryforward
losses are used to offset capital gains, it is possible that the gains so offset
will not be distributed.
7. SHARES OF BENEFICIAL INTEREST
At September 30, 1997, the Fund had an unlimited amount of shares of
beneficial interest authorized with a par value of $0.001 per share. The
Portfolios have the ability to issue multiple classes of shares. Each share of a
class represents an identical interest in its respective Portfolio and has the
same rights, except that each class bears certain expenses related to the
distribution of its shares.
At September 30, 1997, total paid-in capital amounted to the following for
each class:
Class A Class B Class C
================================================================================
Total Paid-in Capital $121,843,451 $52,706,286 $7,323,706
================================================================================
23
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1997 March 31, 1997*
--------------------- ---------------------
Shares Amount Shares Amount
=======================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 811,323 $ 10,964,914 1,224,389 $ 16,307,204
Net asset value of shares issued
in connection with the transfer
of Smith Barney Muni Funds --
Florida Limited Term Portfolio's
net assets (Note 8) -- -- 799,321 10,594,240
Shares issued on reinvestment 97,428 1,313,685 186,644 2,477,685
Shares redeemed (826,573) (11,151,548) (1,408,535) (18,699,877)
- ---------------------------------------------------------------------------------------
Net Increase 82,178 $ 1,127,051 801,819 $ 10,679,252
=======================================================================================
Class B
Shares sold 313,292 $ 4,227,243 887,861 $ 11,815,010
Shares issued on reinvestment 47,427 638,660 104,697 1,388,176
Shares redeemed (233,921) (3,152,141) (589,795) (7,836,748)
- ---------------------------------------------------------------------------------------
Net Increase 126,798 $ 1,713,762 402,763 $ 5,366,438
=======================================================================================
Class C
Shares sold 58,833 $ 790,475 151,091 $ 2,002,450
Net asset value of shares issued
in connection with the transfer
of Smith Barney Muni Funds --
Florida Limited Term Portfolio's
net assets (Note 8) -- -- 212,012 2,804,671
Shares issued on reinvestment 6,672 89,805 8,648 114,600
Shares redeemed (60,222) (813,937) (32,355) (429,369)
- ---------------------------------------------------------------------------------------
Net Increase 5,283 $ 66,343 339,396 $ 4,492,352
=======================================================================================
Class Y
Shares sold -- -- 374,812 $ 5,000,000
Shares issued on reinvestment -- -- 12,070 160,872
Shares redeemed -- -- (386,882) (5,227,439)
- ---------------------------------------------------------------------------------------
Net Decrease -- -- -- $ (66,567)
=======================================================================================
</TABLE>
* For Class Y shares, transactions are for the period from August 5, 1996
(inception date) to February 25, 1997.
24
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)(continued)
================================================================================
8. TRANSFER OF NET ASSETS
On January 17, 1997, the Portfolio acquired the assets and certain
liabilities of the Smith Barney Muni Funds -- Florida Limited Term Portfolio
("Florida Limited Term Portfolio") pursuant to an Agreement and Plan of
Reorganization dated November 12, 1996. Total shares issued by the Portfolio and
the total net assets of Florida Limited Term Portfolio and the Portfolio on the
date of transfer were:
Total Net
Assets of
Shares Florida Total Net
Issued by the Limited Term Assets of the
Acquired Portfolio Portfolio Portfolio Portfolio
================================================================================
Florida Limited Term Portfolio 1,011,333 $13,398,911 $180,720,912
================================================================================
The total net assets of the Florida Limited Term Portfolio before
acquisition included unrealized appreciation of $144,106 and a net realized loss
of $341,735. Total net assets of the Portfolio immediately after the transfer
were $194,119,823. The transaction was structured for tax purposes to qualify as
a tax-free reorganization under the Internal Revenue Code of 1986, as amended.
25
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares 1997(1) 1997 1996(2) 1995(3) 1994 1993
=====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 13.16 $ 13.24 $ 12.89 $ 12.82 $ 13.21 $ 12.32
- -----------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (4) 0.37 0.73 0.74 0.75 0.77 0.79
Net realized and unrealized
gain (loss) 0.53 (0.03) 0.35 0.08# (0.39) 0.91
- -----------------------------------------------------------------------------------------------------
Total Income From Operations 0.90 0.70 1.09 0.83 0.38 1.70
- -----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.37) (0.73) (0.74) (0.76) (0.77) (0.80)
Net realized gains -- (0.05) -- -- -- (0.01)
- -----------------------------------------------------------------------------------------------------
Total Distributions (0.37) (0.78) (0.74) (0.76) (0.77) (0.81)
- -----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 13.69 $ 13.16 $ 13.24 $ 12.89 $ 12.82 $ 13.21
- -----------------------------------------------------------------------------------------------------
Total Return 6.93%++ 5.44% 8.65% 6.77% 2.75% 14.21%
- -----------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $133,506 $127,348 $117,473 $107,724 $104,681 $102,202
- -----------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses (4)(5) 0.76%+ 0.85% 0.70% 0.61% 0.54% 0.46%
Net investment income 5.43+ 5.56 5.62 5.97 5.71 6.15
- -----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 62% 47% 43% 20% 26%
=====================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(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) On October 10, 1994 the former Class C shares were exchanged into Class A
Shares.
(4) The manager waived all or part of its fees for the year ended March 31,
1993. If such fees were not waived, the decrease in net investment income
and the expense ratio would have been $0.012 and 0.56%, respectively.
(5) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.85%.
# Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
26
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares 1997(1) 1997 1996(2) 1995(3)
====================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.14 $ 13.23 $ 12.89 $ 11.91
- ----------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.33 0.65 0.68 0.30
Net realized and unrealized gain (loss) 0.53 (0.01) 0.35 0.97#
- ----------------------------------------------------------------------------------------------------
Total Income From Operations 0.86 0.64 1.03 1.27
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.33) (0.68) (0.69) (0.29)
Net realized gains -- (0.05) -- --
- ----------------------------------------------------------------------------------------------------
Total Distributions (0.33) (0.73) (0.69) (0.29)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.67 $ 13.14 $ 13.23 $ 12.89
- ----------------------------------------------------------------------------------------------------
Total Return 6.62%++ 4.91% 8.09% 10.77%++
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 55,036 $ 51,261 $ 46,267 $ 1,990
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (4) 1.29%+ 1.35% 1.20% 1.20%+
Net investment income 4.90+ 4.93 5.00 5.57+
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 62% 47% 43%
====================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(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 16, 1994 (inception date) to March 31, 1995.
(4) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.35%.
# Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
27
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class C Shares 1997(1) 1997 1996(2) 1995(3) 1994 1993(4)
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 13.14 $ 13.22 $ 12.89 $ 12.81 $ 13.20 $ 12.86
- ---------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.33 0.65 0.66 0.67 0.68 0.19
Net realized and
unrealized gain (loss) 0.52 (0.01) 0.35 0.08# (0.39) 0.33
- ---------------------------------------------------------------------------------------------------------
Total Income From
Operations 0.85 0.64 1.01 0.75 0.29 0.52
- ---------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.32) (0.67) (0.68) (0.67) (0.68) (0.18)
Net realized gains -- (0.05) -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Total Distributions (0.32) (0.72) (0.68) (0.67) (0.68) (0.18)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 13.67 $ 13.14 $ 13.22 $ 12.89 $ 12.81 $ 13.20
- ---------------------------------------------------------------------------------------------------------
Total Return 6.52%++ 4.94% 7.96% 6.12% 2.05% 4.05%++
- ---------------------------------------------------------------------------------------------------------
Net Assets, End of
Period (000s) $ 7,466 $ 7,105 $ 2,665 $ 2,750 $ 2,487 $ 691
- ---------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses (5) 1.33%+ 1.40% 1.28% 1.25% 1.24% 1.24%+
Net investment income 4.86+ 4.84 5.04 5.40 4.95 5.21+
- ---------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 62% 47% 43% 20% 26%
=========================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(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) On November 7, 1994 the former Class B shares were renamed Class C Shares.
(4) For the period from January 5, 1993 (inception date) to March 31, 1993.
(5) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.40%.
# Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
28
<PAGE>
Smith Barney
Muni Funds
Trustees
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
C. Richard Youngdahl, Emeritus
Officers
Heath B. McLendon
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Peter M. Coffey
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- ------------
A Member of Travelers Group [LOGO]
Investment Manager
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 Muni Funds - Florida Portfolio. It is
not authorized for distribution to
prospective investors unless accompanied or
preceded by a current Prospectus for each
Portfolio, which contains information
concerning the Fund's investment policies
and expenses as well as other pertinent
information.
Smith Barney Muni Funds
388 Greenwich Street
New York, New York 10013
FD0787 11/97
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
Smith Barney
Muni Funds
Georgia Portfolio
Ohio Portfolio
Pennsylvania Portfolio
----------------------
September 30, 1997
[LOGO] Smith Barney Mutual Fund
Investing for your future.
Every day.
<PAGE>
- -----------------------------------------
Georgia, Ohio and Pennsylvania Portfolios
- -----------------------------------------
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Muni Funds
- -- Georgia, Ohio and Pennsylvania Portfolios ("Portfolios") for the six-months
ended September 30, 1997. For your convenience, we have summarized the period's
prevailing economic and market conditions below and outlined the various
investment strategies employed by each Portfolio during the period. A detailed
summary of performance and current holdings for the various Portfolios can be
found in the appropriate sections that follow.
Market and Economic Overview
In recent weeks, the municipal bond market has rebounded from the downturn it
experienced in August 1997. In our opinion, this market downturn was caused in
large part by investor concerns that strength in the U.S. economy would
ultimately lead to higher interest rates and greater inflationary pressures.
Despite these concerns, the U.S. economy has continued to grow strongly with low
unemployment and an absence of higher inflationary pressures.
In our view, global competition and improved productivity has enabled the
economy to expand without the upward price pressures traditionally associated
with extended periods of economic growth. Many U.S. corporations continue to
face fierce competition from foreign companies. As a result, many U.S.
corporations have been unable to raise prices significantly. Moreover, the
widespread use of technology has enabled many companies to operate more
efficiently while using fewer workers. This in turn has enabled many companies
to continue operating profitably even though increasingly tight labor markets
have begun to exert upward pressure on wages.
In light of these developments, the Federal Reserve Board ("Fed") has refrained
from further tightening monetary policy after raising the fed-funds rate
slightly to 5.5% in March 1997. (The fed-funds rate is the interest rate banks
charge each other for overnight loans and is a closely watched indicator of the
direction of interest rates.) Since that time, interest rates have generally
declined. For example, yields on the bellwether 30-year U.S. Treasury bond have
fallen from a high of approximately 7.2% in April to roughly 6.4% as of
September 30, 1997. Many economists, including some Fed officials, have begun to
acknowledge that the U.S. economy may be able to support both strong growth and
low unemployment without a substantial increase in inflation. However, this does
not mean that the Fed has become complacent on the inflation front. In testimony
delivered to the House Budget Committee on October 8, 1997, Fed Chairman Alan
Greenspan again warned that strong economic growth and the
1
<PAGE>
extremely tight labor market could lead to a resurgence in inflation.
Greenspan's warning roiled the financial markets with a sharp but relatively
modest increase in yields on bonds. In our view, the Fed's determination to
contain inflation should be beneficial for bond investors as it will help ensure
that the buying power of coupon income will be preserved.
In addition, although nominal interest rates have declined, real
inflation-adjusted interest rates are quite high on an historical basis and
current real yields on municipal bonds (after subtracting the effects of
inflation) are very high by historical standards. In view of the current
favorable economic conditions and our expectations that inflation should remain
subdued, we believe that municipal bonds will continue to provide investors with
attractive real, after-tax rates of return in the months ahead.
Georgia Portfolio's Performance and
Investment Strategy
For the six months ended September 30, 1997, the Georgia Portfolio generated a
total return of 9.19% for Class A shares and outperformed its Lipper Analytical
Services, Inc. ("Lipper")peer group average of 6.78%. (Lipper is a major
fund-tracking organization.) Since its inception, the Portfolio has continued to
deliver superior performance versus its Lipper peer group. The Portfolio was the
top-performing fund for the 1- and 3-year periods ended September 30, 1997 among
32 and 24 funds, respectively, in the Lipper survey.*
During the reporting period, we maintained the Portfolio's high credit-quality,
good call protection and broad sector diversification. In our view, this is a
prudent investment strategy and should provide investors with a competitive
stream of income over the long term.
As of September 30, 1997, the Portfolio's average weighted maturity was just
over 22.7 years, and approximately 92.4% of the Portfolio's holdings were rated
investment grade. (Investment-grade bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc. or AAA, AA, A and BBB by Standard and Poor's
Ratings Services, or have an equivalent rating by any nationally recognized
statistical rating organization, or determined by the manager to be equivalent.)
In addition, approximately 56.8% of the Portfolio's holdings had a triple-A
rating, the highest credit rating. The Portfolio's largest holdings are
concentrated in multi-family housing bonds (19.4%), water & sewer bonds (15.6%)
and hospital bonds (10.5%).
- ----------
*Lipper Analytical Services, Inc. rankings show a fund's one, five, and ten-year
annualized returns (at NAV) as of a particular reporting period. Lipper also
compares a fund's returns to the average of its peer group. The rankings are
subject to change every month. Past performance is not a guarantee of future
results.
2
<PAGE>
Georgia Economic Highlights
Georgia continues to enjoy an excellent credit rating and a robust economy,
thanks in large part to its positive economic trends, conservative financial
management and relatively low debt levels. Job growth in the Peachtree State
also remains strong, led primarily by the rapidly expanding service sector. The
State's unemployment rate of 4.3% is well below the national average of roughly
5.0%. Moreover, the low average cost of living and extensive transportation
infrastructure has enabled Georgia to become one of the fastest growing states
in the nation. For these reasons, we remain optimistic on the economic prospects
of Georgia. However, we believe that future economic growth can only be ensured
through the continued development of an educated and highly skilled work force
with the ability to change quickly to meet shifting economic demands.
Ohio Portfolio's Performance and Investment Strategy
For the six months ended September 30, 1997, the Ohio Portfolio's Class A shares
had a total return of 6.91% and outperformed its Lipper peer group average of
5.92%.
As of September 30, 1997, the Portfolio's average weighted maturity was just
over 20.2 years, and approximately 92.6% of the Portfolio's holdings were rated
investment grade. In addition, approximately 54.2% of the Portfolio's holdings
had a triple-A rating, the highest credit rating. The Portfolio's largest
holdings are concentrated in general obligation bonds (23.9%), housing bonds
(19.4%), hospital bonds (12.7%) and water & sewer bonds (10.7%).
- --------------------------------------------------------------------------------
Special Shareholder Notice
The Board of Trustees of Smith Barney Muni Funds approved a proposed
reorganization of the Ohio Portfolio into the National Portfolio. Under the
terms of the proposed reorganization, each Ohio Portfolio shareholder would
become a shareholder of the National Portfolio, receiving shares with a value
equal to the value of the shareholder's investment in the Ohio Portfolio. No
sales charge will be imposed in the proposed transaction. In addition, it is
anticipated that no gain or loss for federal income tax purposes would be
recognized by shareholders as a result of this proposed reorganization.
In connection with the proposed reorganization of the Ohio Portfolio,
shareholders of record September 22, 1997 have been mailed proxy materials in
anticipation of a shareholders meeting scheduled to take place November 21,
1997. If you have not already done so, we ask that you promptly take the time to
review and respond to the proxy materials.
- --------------------------------------------------------------------------------
3
<PAGE>
Pennsylvania Portfolio's Performance and Investment Strategy
For the six months ended September 30, 1997, the Pennsylvania Portfolio posted a
total return of 8.18% for Class A shares and outperformed its Lipper peer group
average of 6.25%. The Portfolio continues to be a consistent performer among its
Lipper peers, it was the number 2 ranked fund for the 1- and 3-year periods
ended September 30, 1997 among 62 and 50 funds, respectively, in the Lipper
survey.*
As of September 30, 1997, the Portfolio's average weighted maturity was just
over 22.3 years, and 100% of the Portfolio's holdings were rated investment
grade. In addition, approximately 39.2% of the Portfolio's holdings had a
triple-A rating, the highest credit rating. The Portfolio's largest holdings are
concentrated in hospital bonds (23.0%), industrial development bonds (13.4%) and
transportation bonds (9.6%).
Looking ahead, we plan to continue to emphasize high-quality issues that are
broadly diversified by sector in the Portfolio in order to provide investors
with an attractive level of income while helping to minimize its net asset value
volatility.
Pennsylvania Economic Highlights
Pennsylvania's economy has continued to grow steadily, although somewhat below
the national average. However, the state's general obligation debt rating was
recently upgraded to AA from AA- minus by Fitch Investors Services ("Fitch") and
to Aa3 from A1 by Moody's Investors Service ("Moody's"). (Fitch and Moody's are
two major credit reporting agencies.) Pennsylvania's fiscal health has been
improved by increased tax revenues and the use of more conservative budgeting
practices. As a result, the Keystone State has accumulated a significant budget
surplus for the first time in many years. We believe that these positive
developments are further evidence that Pennsylvania's economic recovery is well
underway.
National Outlook
Some investors have expressed concerns that certain provisions of the recently
enacted Federal Taxpayer Relief Act of 1997 (which was passed as part of the
Balanced Budget Agreement) could erode many of the tax advantages that municipal
bonds now offer. However, we believe that the impact of this legislation will be
largely positive for the municipal bond market. The reduction
- ----------
*Lipper Analytical Services, Inc. rankings show a fund's one, five, and ten-year
annualized returns (at NAV) as of a particular reporting period. Lipper also
compares a fund's returns to the average of its peer group. The rankings are
subject to change every month. Past performance is not a guarantee of future
results.
4
<PAGE>
of the long-term capital gains tax rate and the introduction of the Roth IRA
ostensibly make the attractiveness of stocks and other investments more com
pelling than municipals. Nevertheless, there are new elements in the tax code
that may strengthen the focus on after-tax returns -- an area where municipals,
which provide a steady source of tax-exempt income, continue to enjoy a distinct
advantage. In addition, the repeal of the alternative minimum tax for small
business corporations provides favorable tax treatment for many corporate
municipal bond investors. Lastly, the new tax act expands the issuance of
education and housing bonds, two key segments of the municipal bond market.
We remain optimistic on the prospects for municipal bonds. The shrinking federal
budget deficit, resulting from strong economic growth and spending controls
enacted in 1990 and 1993, coupled with a relatively low annual rate inflation,
should help to keep interest rates from rising. We also expect continued Fed
vigilance against any signs of higher inflationary pressures, which is a
long-term positive for bonds.
On a more somber note, we were saddened by the loss of an outstanding physician
and Trustee of the Portfolios, Dr. Francis P. Martin. His knowledge and wisdom
will be missed.
Thank you for investing in the Smith Barney Muni Funds -- Georgia, Ohio and
Pennsylvania Portfolios. We look forward to helping you pursue your financial
goals.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman Vice President
Georgia and Pennsylvania Portfolios
/s/ Lawrence T. McDermott
Lawrence T. McDermott
Vice President
Ohio Portfolio
October 16, 1997
5
<PAGE>
- --------------------------------------------------------------------------------
Georgia Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $12.48 $13.27 $0.35 $0.00 9.19%+
- ------------------------------------------------------------------------------------
3/31/97 12.50 12.48 0.67 0.08 5.95
- ------------------------------------------------------------------------------------
3/31/96 12.10 12.50 0.70 0.05 9.67
- ------------------------------------------------------------------------------------
Inception*- 3/31/95 12.00 12.10 0.62 0.00 6.29+
====================================================================================
Total $2.34 $0.13
====================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $12.47 $13.27 $0.31 $0.00 9.02%+
- ------------------------------------------------------------------------------------
3/31/97 12.50 12.47 0.61 0.08 5.33
- ------------------------------------------------------------------------------------
3/31/96 12.11 12.50 0.65 0.05 9.08
- ------------------------------------------------------------------------------------
Inception*- 3/31/95 12.27 12.11 0.49 0.00 2.88+
====================================================================================
Total $2.06 $0.13
====================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class C Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $12.46 $13.25 $0.31 $0.00 8.91%+
- ------------------------------------------------------------------------------------
3/31/97 12.49 12.46 0.60 0.08 5.28
- ------------------------------------------------------------------------------------
3/31/96 12.09 12.49 0.64 0.05 9.12
- ------------------------------------------------------------------------------------
Inception*- 3/31/95 12.06 12.09 0.56 0.00 5.11+
====================================================================================
Total $2.11 $0.13
====================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
6
<PAGE>
- --------------------------------------------------------------------------------
Georgia Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
-----------------------
Class A Class B Class C
================================================================================
Six Months Ended 9/30/97+ 9.19% 9.02% 8.91%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 11.82 11.27 11.13
- --------------------------------------------------------------------------------
Inception* through 9/30/97 8.94 8.00 8.22
================================================================================
With Sales Charge(2)
--------------------
Class A Class B Class C
================================================================================
Six Months Ended 9/30/97+ 4.83% 4.52% 7.91%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 7.38 6.77 10.13
- --------------------------------------------------------------------------------
Inception* through 9/30/97 7.68 7.48 8.22
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 9/30/97) 34.87%
- --------------------------------------------------------------------------------
Class B (Inception* through 9/30/97) 28.85
- --------------------------------------------------------------------------------
Class C (Inception* through 9/30/97) 31.51
================================================================================
(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 distribu tions, if
any, at net asset value. In addi tion, Class A shares reflect the
deduction of the maximum sales charge of 4.00% and Class B shares reflect
the de duction 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.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B and C shares are April 4, 1994, June 15,
1994 and April 14, 1994, respectively.
7
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of the
Georgia Portfolio vs. Lehman Brothers Municipal Long Bond Index +
- --------------------------------------------------------------------------------
April 1994 - September 1997
[GRAPHIC OMITTED]
[The following table was represented as a linegraph in the printed material.]
Date Georgia Index
---- ------- -----
4/4/94 9600 10000
9/94 9662 10147
3/95 10193 10903
9/95 10778 11405
3/96 11179 11733
9/96 11567 12192
3/97 11844 12424
9/97 12933 13462
+ Hypothetical illustration of $10,000 invested in Class A shares at
inception on April 4, 1994, 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 September 30, 1997. The Lehman
Brothers Municipal Long Bond Index (consisting of maturities of at least
22 years) is a sub-index of the Lehman Brothers Municipal Bond Index, a
broad based, total return index comprised of investment grade, fixed rate
municipal bonds selected from issues larger than $50 million issued since
January 1991. The index is unmanaged and is not subject to the same
management and trading expenses of a mutual fund. The performance of the
Portfolio'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.
8
<PAGE>
- --------------------------------------------------------------------------------
Ohio Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $12.23 $12.73 $0.34 $0.00 6.91%+
- ------------------------------------------------------------------------------------
3/31/97 12.20 12.23 0.67 0.02 6.06
- ------------------------------------------------------------------------------------
3/31/96 11.97 12.20 0.67 0.00 7.65
- ------------------------------------------------------------------------------------
Inception*- 3/31/95 12.00 11.97 0.48 0.00 4.04+
====================================================================================
Total $2.16 $0.02
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $12.20 $12.69 $0.31 $0.00 6.62%+
- ------------------------------------------------------------------------------------
3/31/97 12.18 12.20 0.62 0.02 5.52
- ------------------------------------------------------------------------------------
3/31/96 11.96 12.18 0.62 0.00 7.10
- ------------------------------------------------------------------------------------
Inception*- 3/31/95 12.02 11.96 0.43 0.00 3.31+
====================================================================================
Total $1.98 $0.02
====================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class C Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $12.21 $12.69 $0.31 $0.00 6.51%+
- ------------------------------------------------------------------------------------
3/31/97 12.19 12.21 0.61 0.02 5.48
- ------------------------------------------------------------------------------------
3/31/96 11.96 12.19 0.61 0.00 7.14
- ------------------------------------------------------------------------------------
Inception*- 3/31/95 12.02 11.96 0.43 0.00 3.28+
====================================================================================
Total $1.96 $0.02
====================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
9
<PAGE>
- --------------------------------------------------------------------------------
Ohio Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
-----------------------
Class A Class B Class C
================================================================================
Six Months Ended 9/30/97+ 6.91% 6.62% 6.51%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 9.33 8.80 8.66
- --------------------------------------------------------------------------------
Inception* through 9/30/97 7.51 6.86 6.82
================================================================================
With Sales Charge(2)
--------------------
Class A Class B Class C
================================================================================
Six Months Ended 9/30/97+ 2.63% 2.12% 5.51%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 4.98 4.30 7.66
- --------------------------------------------------------------------------------
Inception* through 9/30/97 6.19 6.34 6.82
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 9/30/97) 27.00%
- --------------------------------------------------------------------------------
Class B (Inception* through 9/30/97) 24.48
- --------------------------------------------------------------------------------
Class C (Inception* through 9/30/97) 24.31
================================================================================
(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 distribu tions, if
any, at net asset value. In addi tion, Class A shares reflect the
deduction of the maximum sales charge of 4.00% and Class B shares reflect
the de duction 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.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B and C shares are June 13, 1994, June 14,
1994 and June 14, 1994, respectively.
10
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of the
Ohio Portfolio vs. Lehman Brothers Municipal Long Bond Index +
- --------------------------------------------------------------------------------
June 1994 - September 1997
[GRAPHIC OMITTED]
[The following table was represented as a linegraph in the printed material.]
Date Ohio Index
---- ---- -----
6/13/94 9600 10000
9/94 9392 10108
3/95 9981 10860
9/95 10468 11360
3/96 10744 11687
9/96 11143 12144
3/97 11395 12375
9/97 12183 13410
+ Hypothetical illustration of $10,000 invested in Class A shares at
inception on June 13, 1994, 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 September 30, 1997. The Lehman
Brothers Municipal Long Bond Index (consisting of maturities of at least
22 years) is a sub-index of the Lehman Brothers Municipal Bond Index, a
broad based, total return index comprised of investment grade, fixed rate
municipal bonds selected from issues larger than $50 million issued since
January 1991. The index is unmanaged and is not subject to the same
management and trading expenses of a mutual fund. The performance of the
Portfolio'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.
11
<PAGE>
- --------------------------------------------------------------------------------
Pennsylvania Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $12.66 $13.34 $0.35 $0.00 8.18%+
- ------------------------------------------------------------------------------------
3/31/97 12.62 12.66 0.71 0.00 6.11
- ------------------------------------------------------------------------------------
3/31/96 12.40 12.62 0.72 0.05 8.08
- ------------------------------------------------------------------------------------
Inception*- 3/31/95 12.00 12.40 0.62 0.00 8.82+
====================================================================================
Total $2.40 $0.05
====================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $12.64 $13.32 $0.31 $0.00 7.93%+
- ------------------------------------------------------------------------------------
3/31/97 12.61 12.64 0.65 0.00 5.56
- ------------------------------------------------------------------------------------
3/31/96 12.39 12.61 0.66 0.05 7.61
- ------------------------------------------------------------------------------------
Inception*- 3/31/95 12.35 12.39 0.48 0.00 4.48+
====================================================================================
Total $2.10 $0.05
====================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class C Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------
Beginning End of Income Capital Gain Total
Period Ended of Period Period Dividends Distributions Returns(1)
====================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $12.64 $13.31 $0.31 $0.00 7.82%+
- ------------------------------------------------------------------------------------
3/31/97 12.61 12.64 0.65 0.00 5.51
- ------------------------------------------------------------------------------------
3/31/96 12.39 12.61 0.66 0.05 7.56
- ------------------------------------------------------------------------------------
Inception*- 3/31/95 12.00 12.39 0.56 0.00 8.14+
====================================================================================
Total $2.18 $0.05
====================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
12
<PAGE>
- --------------------------------------------------------------------------------
Pennsylvania Portfolio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
-----------------------
Class A Class B Class C
================================================================================
Six Months Ended 9/30/97+ 8.18% 7.93% 7.82%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 10.77 10.26 10.13
- --------------------------------------------------------------------------------
Inception* through 9/30/97 8.97 7.83 8.35
================================================================================
With Sales Charge(2)
--------------------
Class A Class B Class C
================================================================================
Six Months Ended 9/30/97+ 3.84% 3.43% 6.82%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 6.34 5.76 9.13
- --------------------------------------------------------------------------------
Inception* through 9/30/97 7.71 7.32 8.35
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 9/30/97) 35.01%
- --------------------------------------------------------------------------------
Class B (Inception* through 9/30/97) 28.09
- --------------------------------------------------------------------------------
Class C (Inception* through 9/30/97) 32.32
================================================================================
(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 distribu tions, if
any, at net asset value. In addi tion, Class A shares reflect the
deduction of the maximum sales charge of 4.00% and Class B shares reflect
the de duction 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.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B and C shares are April 4, 1994, June 20,
1994 and April 5, 1994, respectively.
13
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of the
Pennsylvania Portfolio vs. Lehman Brothers
Municipal Long Bond Index +
- --------------------------------------------------------------------------------
April 1994 - September 1997
[GRAPHIC OMITTED]
[The following table was represented as a linegraph in the printed material.]
Date Penn Index
---- ---- -----
4/4/94 9600 10000
9/94 9846 10147
3/95 10447 10903
9/95 10975 11405
3/96 11290 11733
9/96 11700 12192
3/97 11980 12424
9/97 12961 13462
+ Hypothetical illustration of $10,000 invested in Class A shares at
inception on April 4, 1994, 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 September 30, 1997. The Lehman
Brothers Municipal Long Bond Index (consisting of maturities of at least
22 years) is a sub-index of the Lehman Brothers Municipal Bond Index, a
broad based, total return index comprised of investment grade, fixed rate
municipal bonds selected from issues larger than $50 million issued since
January 1991. The index is unmanaged and is not subject to the same
management and trading expenses of a mutual fund. The performance of the
Portfolio'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.
14
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited) September 30, 1997
- --------------------------------------------------------------------------------
GEORGIA PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Escrowed to Maturity(a) -- 14.8%
$500,000 AAA Cartersville Development Authority Revenue
Refunding, Sewer Facilities, Anheuser Busch,
6.125% due 5/1/27(b) $ 528,750
280,000 AAA Cobb County Kennestone Hospital Authority Revenue,
MBIA-Insured, 10.250% due 2/1/02 312,200
1,875,000 AAA Colquitt County Development Authority Revenue,
Sub-Series C, zero coupon due 12/1/21 492,187
750,000 AAA Private Colleges & Universities Authority Revenue,
(Emory University Project), Series A,
5.125% due 11/1/27 728,438
485,000 AAA Puerto Rico Commonwealth Aqueduct &
Sewer Authority Revenue, 10.250% due 7/1/09(c) 684,456
25,000 AAA Richmond County Development Authority,
Sub-Series C, zero coupon due 12/1/21 6,562
175,000 AAA Richmond County Water and Sewer Revenue,
9.875% due 4/1/02 199,938
1,500,000 AAA Savannah EDA, zero coupon due 12/1/21 393,750
300,000 AAA Tri-City Hospital Authority Hospital Revenue,
FGIC-Insured, 10.250% due 7/1/06(c) 394,125
2,000,000 AAA Washington, Wilkes Payroll Development
Authority Revenue, zero coupon due 12/1/21 525,000
- --------------------------------------------------------------------------------
4,265,406
- --------------------------------------------------------------------------------
Hospital -- 10.5%
1,000,000 AAA Dalton Development Authority Revenue, Hamilton
Health Care Systems, MBIA-Insured,
5.250% due 8/15/26 985,000
1,000,000 AAA Gwinnett County Hospital Authority Revenue,
Anticipation Certificates, (Gwinnett Hospital
System Inc. Project), Series A, MBIA-Insured,
5.250% due 9/1/27 966,250
500,000 BBB Puerto Rico Industrial Tourist Educational,
Medical & Environmental Control Facility
Finance Authority, (Ryder Memorial Hospital
Project), Series A, 6.700% due 5/1/24 536,875
500,000 BBB+ Savannah Hospital Authority, Candler Hospital,
7.000% due 1/1/11(c) 531,875
- --------------------------------------------------------------------------------
3,020,000
- --------------------------------------------------------------------------------
Housing: Multi-Family -- 19.4%
500,000 AAA Acworth Housing Authority Revenue, (Wingate
Falls Apartments Project), 6.125% due
3/1/17(b) 522,500
See Notes to Financial Statements.
15
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited)(continued) September 30, 1997
- --------------------------------------------------------------------------------
GEORGIA PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Housing: Multi-Family -- 19.4% (continued)
$1,245,000 A Atlanta Urban Residential Finance Authority,
Multi-Family Housing Revenue, (Cascade Pines
Housing Project), 6.250% due 9/1/10(b) $1,299,469
250,000 A Cobb County Housing Authority Refunding,
(Signature Place Project), Series A, 6.875% 264,687
due 10/1/17
De Kalb County Housing Authority, Multi-Family
Housing Revenue, Series A:
1,000,000 NR Friendly Hills Apartments, FHA-Insured,
7.050% due 1/1/39(b) 1,105,000
300,000 AAA Valley Brook Apartments Project, Revenue
Refunding, MBIA-Insured, 7.750% due
1/1/26 320,625
1,000,000 A Fulton County Multi-Family Housing Authority
Revenue, (Concorde Place Apartment Project),
6.300% due 7/1/16(b) 1,037,500
1,000,000 AAA Lawrenceville Housing Authority, Multi-Family
Revenue, (Knollwood Park Apartments
Project), 6.250% due 12/1/29(b) 1,046,250
- --------------------------------------------------------------------------------
5,596,031
- --------------------------------------------------------------------------------
Housing: Single-Family -- 7.0%
180,000 AAA Fulton County Housing Authority, Single-Family
Mortgage Revenue, Series A, GNMA-Collateralized,
6.600% due 3/1/28(b) 191,025
350,000 AA+ Georgia State HFA, Single-Family Mortgage Revenue,
Series A, FHA-Insured, 6.600% due 12/1/23(b) 370,125
330,000 AA+ Georgia State Residential Finance Authority, Home
Ownership Mortgage, Series A, FHA-Insured,
7.250% due 12/1/21(b) 356,400
500,000 AAA Puerto Rico Housing Bank and Finance Agency,
Single-Family Mortgage, Afford Housing Mortgage,
Portfolio I, GNMA/FNMA-Collateralized,
6.250% due 4/1/29(b) 525,000
550,000 AAA Virgin Islands HFA, Single-Family Mortgage Revenue,
Series A, GNMA-Collateralized, 6.450% due
3/1/16(b) 578,188
- --------------------------------------------------------------------------------
2,020,738
- --------------------------------------------------------------------------------
Industrial Development -- 1.9%
500,000 A1* Savannah EDA, PCR, (Union Camp Corp. Project),
6.150% due 3/1/17 550,625
- --------------------------------------------------------------------------------
Miscellaneous -- 2.0%
500,000 BBB Puerto Rico Housing Bank and Finance Agency,
7.500% due 12/1/06(c) 585,000
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited)(continued) September 30, 1997
- --------------------------------------------------------------------------------
GEORGIA PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Pollution Control -- 7.3%
$ 400,000 AAA Burke County Development Authority PCR,
(Oglethorpe Power Co. Vogtle Project),
MBIA-Insured, 7.500% due 1/1/03 $ 444,000
500,000 A Monroe County Development Authority PCR,
(Oglethorpe Power Co. Scherer Project),
Series A, 6.800% due 1/1/12 585,000
1,000,000 NR Rockdale County Development Authority,
Solid Waste Disposal Revenue, (Visy Paper
Project), 7.500% due 1/1/26 1,085,000
- --------------------------------------------------------------------------------
2,114,000
- --------------------------------------------------------------------------------
Pre-Refunded(d) -- 1.9%
500,000 AAA Fulco Hospital Authority Revenue Anticipation
Certificates, Georgia Baptist Healthcare,
Series A, (Call 9/1/02 @ 102), 6.250% due
9/1/13 549,375
- --------------------------------------------------------------------------------
Public Facilities -- 5.0%
250,000 AAA Butts County COP, MBIA-Insured, 6.750% due
12/1/14 278,750
1,100,000 AAA Cobb-Marietta Counties Coliseum and Exhibit
Hall Authority Revenue, MBIA-Insured,
5.625% due 10/1/26 1,163,250
- --------------------------------------------------------------------------------
1,442,000
- --------------------------------------------------------------------------------
Short-Term (e) -- 0.4%
100,000 VMIG 1* Putnam County Development Authority PCR,
(Georgia Power Co. Project), 1st Series,
4.000% due 6/1/23 100,000
- --------------------------------------------------------------------------------
Transportation -- 5.9%
250,000 AAA Metro Atlanta Rapid Transit Authority Revenue
Refunding, Series P, AMBAC-Insured, 6.250%
due 7/1/20 282,500
1,500,000 A Puerto Rico Commonwealth Highway &
Transportation Authority Revenue, Series Y,
5.000% due 7/1/36 1,408,125
- --------------------------------------------------------------------------------
1,690,625
- --------------------------------------------------------------------------------
Utilities -- 8.3%
600,000 AAA Georgia Municipal Electric Authority Power
Revenue, Series EE, AMBAC-Insured, 7.250%
due 1/1/24(c) 763,500
500,000 A- Georgia Municipal Gas Authority Revenue,
(Southern Storage Gas Project), 6.300% due
7/1/09 541,250
1,000,000 AA Hogansville Combined Public utility System,
Asset Guaranty, 5.850% due 10/1/15 1,073,750
- --------------------------------------------------------------------------------
2,378,500
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited)(continued) September 30, 1997
- --------------------------------------------------------------------------------
GEORGIA PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Water & Sewer -- 15.6%
$1,010,000 AAA Atlanta Water & Sewer Revenue, FGIC-Insured,
5.250% due 1/1/27 $ 983,488
500,000 AAA Douglasville-Douglas County Water & Sewer
Authority Revenue, AMBAC-Insured, 5.625%
due 6/1/15 653,125
300,000 AAA Fulton County Water & Sewer Revenue,
FGIC-Insured, 6.375% due 1/1/14 343,125
500,000 AAA Milledgeville Water & Sewer Revenue,
FSA-Insured, 6.000% due 12/1/21 550,000
1,000,000 AA Peachtree City Water & Sewer Authority, Sewer
System Revenue, Series A, 5.375% due
3/1/22 1,005,000
1,000,000 AAA Rockdale County Water & Sewer Authority
Revenue, FSA-Insured, 5.000% due 7/1/22 956,250
- --------------------------------------------------------------------------------
4,490,988
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $26,784,378**) $28,803,288
================================================================================
See Notes to Financial Statements.
18
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited)(continued) September 30, 1997
- --------------------------------------------------------------------------------
OHIO PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Education -- 6.1%
$200,000 AAA Lakeview Local School District, AMBAC-Insured,
6.900% due 12/1/14 $ 229,000
100,000 AA Ohio State Higher Education Facilities Revenue,
(Case Western University Project),
6.000% due 10/1/22 103,250
100,000 AAA Strongsville City Schools, District Improvement,
AMBAC-Insured, 6.000% due 12/1/14 107,250
- --------------------------------------------------------------------------------
439,500
- --------------------------------------------------------------------------------
General Obligation -- 23.9%
150,000 A1* Avon Lake City School District GO, 6.250%
due 12/1/19 161,813
500,000 AAA Cleveland GO, AMBAC-Insured, 5.500% due 9/1/16(c) 510,625
250,000 AA Columbiana County GO, Asset Guaranty,
6.600% due 12/1/17 268,750
105,000 AAA Columbus Sewer Improvement #28 GO,
6.000% due 5/1/12 112,613
325,000 AAA Lucas County GO, AMBAC-Insured,
5.400% due 12/1/15 331,500
300,000 AAA Summit County Addiction & Mental Health
Facilities GO, AMBAC-Insured, 6.400% due
12/1/14 330,750
- --------------------------------------------------------------------------------
1,716,051
- --------------------------------------------------------------------------------
Hospital -- 12.7%
350,000 BBB- Green Springs Health Care Facilities Revenue,
(St. Francis Health Care Center Project),
Series A, 7.125% due 5/15/25 378,438
500,000 BBB Miami County Hospital Facilities, Refunding &
Improvement, Upper Valley Medical Center,
Series A, 6.375% due 5/15/26 530,625
- --------------------------------------------------------------------------------
909,063
- --------------------------------------------------------------------------------
Housing: Multi-Family -- 8.3%
250,000 Aaa* Cuyahoga County Multi-Family Housing Revenue,
Dalebridge Apartments, GNMA-Collateralized,
FHA Supported, 6.500% due 10/20/20(b) 264,062
300,000 Aaa* Kent Multi-Family Housing Revenue, Silver Meadows,
GNMA-Collateralized, FHA Supported,
7.150% due 12/20/26(b) 331,500
- --------------------------------------------------------------------------------
595,562
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
19
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited)(continued) September 30, 1997
- --------------------------------------------------------------------------------
OHIO PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Housing: Single-Family -- 11.1%
Ohio Housing Finance Agency Mortgage Revenue,
GNMA-Collateralized:
Residential Mortgage:
$250,000 AAA Series A-1, 6.100% due 9/1/14 $259,688
Series A-2:
215,000 AAA 6.125% due 9/1/24(b) 219,838
240,000 AAA 6.625% due 3/1/26(b) 254,400
65,000 AAA Single-Family Mortgage, Series A,
Long Option Period, 6.000% due 2/1/16 65,276
- --------------------------------------------------------------------------------
799,202
- --------------------------------------------------------------------------------
Industrial Development -- 2.2%
150,000 Aa3* Toledo-Lucas County Port Authority Revenue Refunding,
(Cargill Inc. Project), 5.900% due 12/1/15 155,812
- --------------------------------------------------------------------------------
Miscellaneous -- 5.5%
200,000 AAA Ohio State Building Authority Facilities,
Juvenile Correctional Projects, Series A,
AMBAC-Insured, 6.600% due 10/1/14 222,750
150,000 AAA Puerto Rico Public Buildings Authority Revenue,
Government Facilities, AMBAC-Insured,
Commonwealth Guaranteed, 6.250% due 7/1/15 171,938
- --------------------------------------------------------------------------------
394,688
- --------------------------------------------------------------------------------
Pollution Control -- 2.2%
150,000 AAA Ohio State Water Development Authority PCR,
MBIA-Insured, 5.700% due 12/1/11 157,313
- --------------------------------------------------------------------------------
Short Term (e) -- 7.0%
100,000 VMIG1* Ohio State Air Quality Development Authority Revenue,
Cincinnati Gas & Electric, Series B, 3.800% due
9/1/30 100,000
200,000 A-1+ Paulding County Solid Waste Disposal Revenue,
(Lafarge Corp. Project), 3.800% due 8/1/26(b) 200,000
200,000 VMIG1* Puerto Rico Commonwealth Government Development
Bank, Adjustable Rate, 3.700% due 12/1/15 200,000
- --------------------------------------------------------------------------------
500,000
- --------------------------------------------------------------------------------
Solid Waste -- 7.3%
500,000 NR Ohio State Solid Waste Revenue, Republic Engineered
Steels Inc., 9.000% due 6/1/21(b)(c) 528,125
- --------------------------------------------------------------------------------
Utilities -- 3.0%
195,000 AAA Cleveland Public Power System Revenue Improvement,
First Mortgage, Series B, MBIA-Insured,
7.000% due 11/15/17 216,206
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
20
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited)(continued) September 30, 1997
- --------------------------------------------------------------------------------
OHIO PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Water & Sewer -- 10.7%
$100,000 AAA Cleveland Water Works Revenue, First Mortgage,
Series F-92B, AMBAC-Insured, 6.250% due 1/1/16$ 106,624
400,000 A Ohio State Water Development Authority, Solid
Waste Disposal Revenue, (Broken Hill Project),
6.450% due 9/1/20(b) 429,000
200,000 A- Trumbull County Sewer Disposal Revenue, (General
Motors Corp. Project), 6.750% due 7/1/14(b) 232,750
- --------------------------------------------------------------------------------
768,374
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $6,696,403**) $7,179,896
================================================================================
See Notes to Financial Statements.
21
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited)(continued) September 30, 1997
- --------------------------------------------------------------------------------
PENNSYLVANIA PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Education -- 3.4%
$1,000,000 AAA Abington School District, GO Unlimited,
FGIC-Insured, 6.000% due 5/15/21 $1,053,750
1,050,000 AAA McKeesport Area School District, Series B,
FGIC-Insured, zero coupon due 10/1/20 303,188
- --------------------------------------------------------------------------------
1,356,938
- --------------------------------------------------------------------------------
Escrowed to Maturity(a) -- 4.2%
520,000 AAA Cambria County Hospital Development Authority,
Conemaugh Valley Memorial Hospital,
7.625% due 9/1/11 614,900
435,000 AAA Lewisburg Area School District Building,
AMBAC-Insured, 9.750% due 2/15/04(c) 531,244
290,000 AAA Southeastern Greene School District,
9.375% due 7/1/03 335,312
145,000 AAA York County GO, Refunding, AMBAC-Insured,
8.875% due 6/1/06 175,269
- --------------------------------------------------------------------------------
1,656,725
- --------------------------------------------------------------------------------
Finance -- 4.0%
500,000 A Pennsylvania State Finance Authority Revenue
Refunding, (Municipal Capital Input Project),
Societe Generale, 6.600% due 11/1/09 543,125
1,100,000 AAA Puerto Rico Public Buildings Authority Revenue,
Series B, AMBAC-Insured, 5.000% due 7/1/27 1,050,500
- --------------------------------------------------------------------------------
1,593,625
- --------------------------------------------------------------------------------
General Obligation -- 2.3%
1,255,000 AAA Hazleton Area School District GO, Series B,
FGIC-Insured, zero coupon due 3/1/25 283,944
2,000,000 AAA Westmoreland County GO, FGIC-Insured,
zero coupon due 12/1/18 637,500
- --------------------------------------------------------------------------------
921,444
- --------------------------------------------------------------------------------
Hospital -- 23.0%
500,000 AAA Allegheny Hospital Development Authority,
(General Hospital Project), Series A, MBIA-
Insured, 6.250% due 9/1/20 535,625
1,000,000 BBB Allentown Area Hospital Authority Revenue,
Sacred Heart Hospital, 6.750% due 11/15/14 1,067,500
1,000,000 BBB+ Hazelton Health Services Authority Revenue, St.
Joseph's Medical Center, 6.200% due 7/1/26 1,041,250
1,000,000 BBB Horizon Hospital System Authority Revenue,
Horizon Hospital Systems Inc., 6.350% due
5/15/26 1,038,750
See Notes to Financial Statements.
22
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited)(continued) September 30, 1997
- --------------------------------------------------------------------------------
PENNSYLVANIA PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Hospital -- 23.0% (continued)
$1,100,000 BBB- McKean County Hospital Authority Revenue,
(Bradford Hospital Project), 6.100% due
10/1/20 $1,119,250
1,000,000 AA Potter County Hospital Authority Revenue,
Asset Guaranty-Insured, 6.050% due 8/1/24 1,038,750
500,000 BBB Puerto Rico Industrial, Tourist, Educational,
Medical & Environmental Control Facilities,
(Ryder Memorial Hospital Project), Series A,
6.700% due 5/1/24 536,875
Scranton-Lackawanna Health & Welfare Authority
Revenue:
500,000 BBB-++ Allied Services Rehabilitation Hospitals,
(Project-A), 7.600% due 7/15/20 540,625
750,000 BBB- Moses Taylor Hospital Project, 6.250% due
7/1/20 764,062
500,000 AAA Wayne County Hospital & Health Facilities
Authority, County Guaranteed Hospital
Revenue,(Wayne Memorial Hospital Project),
MBIA-Insured, 6.250% due 7/1/14 530,625
1,000,000 AAA York County Hospital Authority Revenue, York
Hospital, AMBAC-Insured, 5.250% due 7/1/23 968,750
- --------------------------------------------------------------------------------
9,182,062
- --------------------------------------------------------------------------------
Housing: Multi-Family -- 4.3%
1,500,000 BBB+ Montgomery County Redevelopment Authority,
Multi-Family Housing Revenue, (KBF Associates
L.P. Project), Series A, 6.375% due 7/1/12 1,509,375
205,000 AAA Pittsburgh Urban Redevelopment Authority,
Mortgage Revenue, Series B, 6.950% due
10/1/10(b) 213,712
- --------------------------------------------------------------------------------
1,723,087
- --------------------------------------------------------------------------------
Housing: Single-Family -- 8.3%
Allegheny County, Residential Mortgage
Refunding, Single-Family Housing, GNMA-
Collateralized:
970,000 Aaa* 6.875% due 5/1/26(b) 1,046,387
1,775,000 Aaa* Zero coupon due 5/1/27(b) 199,687
1,000,000 AA+ Pennsylvania Housing Finance Agency, Single-
Family Housing, Series A, 5.800% due
10/1/29(b) 1,008,750
1,000,000 AAA Puerto Rico Single-Family Housing Mortgage
Revenue, GNMA/FNMA/FHLMC-Collateralized,
6.250% due 4/1/29(b) 1,050,000
- --------------------------------------------------------------------------------
3,304,824
- --------------------------------------------------------------------------------
Industrial Development -- 13.4%
1,000,000 BBB- Allegheny County IDA Refunding Environmental
Improvement, USX Corp., 6.700% due 12/1/20(c) 1,078,750
1,000,000 A- Bradford IDA Solid Waste, International Paper
Co., 6.600% due 3/1/19(b) 1,101,250
See Notes to Financial Statements.
23
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited)(continued) September 30, 1997
- --------------------------------------------------------------------------------
PENNSYLVANIA PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Industrial Development -- 13.4% (continued)
$1,000,000 A Delaware County, Industrial Development
Authority Revenue, Resource Recovery
Facility, Series A, 6.200% due 7/1/19 $1,055,000
1,000,000 A- Erie County IDA Environmental Improvement
Revenue, (International Paper Co. Project),
Series A, 7.625% due 11/1/18(b)(c) 1,161,250
1,000,000 AA Philadelphia Authority For Industrial
Development, Industrial & Commercial Revenue,
(Girard Estates Facility Leasing Project),
5.000% due 5/15/27 937,500
- --------------------------------------------------------------------------------
5,333,750
- --------------------------------------------------------------------------------
Life-Care -- 6.4%
Montgomery County IDA, Retirement Community
Revenue:
1,500,000 A- Series A, 5.875% due 11/15/22 1,526,250
1,000,000 A- Series B, 5.625% due 11/15/12 1,006,250
- --------------------------------------------------------------------------------
2,532,500
- --------------------------------------------------------------------------------
Miscellaneous -- 2.9%
1,000,000 BBB Puerto Rico Housing Bank & Finance Agency,
7.500% due 12/1/06 1,170,000
- --------------------------------------------------------------------------------
Pollution Control -- 4.0%
1,000,000 AAA Northhampton County IDA, Metropolitan Edison,
Series A, MBIA-Insured, 6.100% due 7/15/21 1,057,500
500,000 BBB- Pennsylvania Economic Development Financing
Authority, Resource Recovery Revenue, (Colver
Project), Series D, 7.150% due 12/1/18(b) 545,625
- --------------------------------------------------------------------------------
1,603,125
- --------------------------------------------------------------------------------
Pre-Refunded(d) -- 4.4%
920,000 AAA Philadelphia Hospital Revenue, (United Hospital
Inc. Project), (Call 7/1/05 @ 100), 10.875%
due 7/1/08(c) 1,197,150
500,000 AAA Scranton-Lackawanna Health & Welfare
Authority Revenue, (University of Scranton
Project), AMBAC-Insured, (Call 11/1/03 @ 100),
6.800% due 11/1/14(c) 564,375
- --------------------------------------------------------------------------------
1,761,525
- --------------------------------------------------------------------------------
Solid Waste -- 3.4%
250,000 BBB Lancaster County Solid Waste Management
Authority, Resource Recovery Systems Revenue
Landfill, 7.875% due 12/15/09 259,825
1,000,000 A New Morgan IDA Solid Waste Disposal, Browning
Ferris Industries Inc., 6.500% due 4/1/19(b) 1,076,250
- --------------------------------------------------------------------------------
1,336,075
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
24
<PAGE>
- --------------------------------------------------------------------------------
Schedules of Investments (unaudited)(continued) September 30, 1997
- --------------------------------------------------------------------------------
PENNSYLVANIA PORTFOLIO
FACE
AMOUNT RATING SECURITY VALUE
================================================================================
Transportation -- 9.6%
$1,200,000 AAA Allegheny County Airport Revenue, Pittsburgh
International Airport, Series B, MBIA-
Insured, 5.000% due 1/1/17 $ 1,153,500
1,500,000 A Puerto Rico Commonwealth Highway &
Transportation Authority, 5.000% due 7/1/36 1,408,126
1,200,000 BBB- Puerto Rico Ports Authority Revenue, American
Airlines, Series A, 6.250% due 6/1/26(b) 1,275,000
- --------------------------------------------------------------------------------
3,836,626
- --------------------------------------------------------------------------------
Utilities -- 1.1%
400,000 BBB Guam Power Authority Revenue, Series A,
6.750% due 10/1/24 436,500
- --------------------------------------------------------------------------------
Water & Sewer -- 5.3%
1,000,000 AAA Allegheny County Sanitation Authority, Sewer
Revenue, MBIA-Insured, 5.375% due 12/1/24 991,250
1,000,000 AAA Philadelphia Water & Wastewater Revenue,
MBIA-Insured, 6.250% due 8/1/12 1,121,250
- --------------------------------------------------------------------------------
2,112,500
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $37,673,017**) $39,861,306
================================================================================
a) Bond is escrowed to maturity with U.S. government securities and is
considered by the Manager to be triple-A rated even if the issuer has not
applied for new ratings.
(b) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) Security is segregated by Custodian for open purchase commitments.
(d) Pre-refunded bond escrowed with U.S. government securities and is
considered by the Manager to be triple-A rated even if the issuer has not
applied for new ratings.
(e) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
++ Fitch Investors Services, Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 26 and 27 for definitions of ratings and certain security
descriptions.
See Notes to Financial Statements.
25
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's"),
except those that are identified by an asterisk (*) are rated by Moody's
Investors Service, Inc. ("Moody's") or by (++) are rated by Fitch Investors
Services, Inc. ("Fitch"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings 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 -- Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issue only in a small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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 bonds in this category than in higher
rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties of
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 rating 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 as 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.
26
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (continued)
- --------------------------------------------------------------------------------
Fitch -- Ratings may be modified by the addition of a plus (+) sign or minus (-)
sign to show relative standings within the major ratings categories.
BBB -- Bonds which are rated "BBB" are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest or
dividends and repay principal is con sidered to be adequate. Adverse
changes in economic conditions and circumstances, however, are more
likely to have adverse impact on these securities and, therefore, impair
timely payment. The likelihood that the ratings of these bonds or
preferred will fall below investment grade is higher than for securities
with higher ratings.
NR -- Indicates that the bond is not rated by Standard & Poor's, Moody's or
Fitch.
- --------------------------------------------------------------------------------
Short-Term Security 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.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to the
advent of the VMIG 1 rating.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
VMIG 2 -- Moody's second highest rating for issues having a demand feature --
VRDO.
- --------------------------------------------------------------------------------
Security Descriptions
- --------------------------------------------------------------------------------
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity 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
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FLAIRS-- Floating Adjustable Interest Rate Securities
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Financial Security Assurance
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
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS-- Municipal Variable Rate Inverse Coupon Security
PCR -- Pollution Control Revenue
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax-Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
VA -- Veterans Administration
VRWE -- Variable Rate Wednesday Demand
27
<PAGE>
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (unaudited) September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Georgia Ohio Pennsylvania
Portfolio Portfolio Portfolio
============================================================================================
<S> <C> <C> <C>
ASSETS:
Investments, at value (Cost -- $26,784,378,
$6,696,403 and $37,673,017, respectively) $28,803,288 $7,179,896 $39,861,306
Cash 22,381 19,915 52,767
Interest receivable 465,641 118,464 704,281
Receivable from Fund shares sold 15,080 -- 64,875
Receivable from securities sold -- 5,000 --
Receivable from manager (Note 4) -- 19,352 --
- --------------------------------------------------------------------------------------------
Total Assets 29,306,390 7,342,627 40,683,229
- --------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 971,783 -- 1,143,737
Management fees payable 17,962 -- --
Distribution fees payable 3,428 1,241 5,770
Accrued expenses 29,892 16,104 27,340
- --------------------------------------------------------------------------------------------
Total Liabilities 1,023,065 17,345 1,176,847
- --------------------------------------------------------------------------------------------
Total Net Assets $28,283,325 $7,325,282 $39,506,382
============================================================================================
NET ASSETS:
Par value of shares of beneficial interest $2,132 $577 $2,964
Capital paid in excess of par value 26,207,833 6,781,128 36,988,514
Undistributed (overdistributed) net
investment income (14,028) 19,483 57,699
Accumulated net realized gain
on security transactions 68,478 40,601 268,916
Net unrealized appreciation of investments 2,018,910 483,493 2,188,289
- --------------------------------------------------------------------------------------------
Total Net Assets $28,283,325 $7,325,282 $39,506,382
============================================================================================
Shares Outstanding:
Class A 1,215,065 241,947 1,126,286
----------------------------------------------------------------------------------------
Class B 645,265 266,682 1,327,638
----------------------------------------------------------------------------------------
Class C 271,229 67,939 510,537
----------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $13.27 $12.73 $13.34
----------------------------------------------------------------------------------------
Class B* $13.27 $12.69 $13.32
----------------------------------------------------------------------------------------
Class C** $13.25 $12.69 $13.31
----------------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(Net asset value plus 4.17% of net asset value) $13.82 $13.26 $13.90
============================================================================================
</TABLE>
* 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 4).
** 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 Note 4).
See Notes to Financial Statements.
28
<PAGE>
================================================================================
Statements of Operations (unaudited)
================================================================================
For the Six Months Ended September 30, 1997
<TABLE>
<CAPTION>
Georgia Ohio Pennsylvania
Portfolio Portfolio Portfolio
=====================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $770,099 $229,866 $1,143,946
- -------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 4) 60,151 16,831 86,231
Distribution fees (Note 4) 49,410 16,851 87,138
Shareholder and system servicing fees 10,425 7,560 12,050
Audit and legal 8,000 7,600 7,000
Shareholder communications 5,250 3,500 11,000
Pricing service fees 3,100 1,950 3,300
Registration fees 2,500 2,250 3,500
Trustees' fees 1,350 1,350 1,850
Custody 1,200 300 1,400
Other 1,125 2,125 4,170
- -------------------------------------------------------------------------------------
Total Expenses 142,511 60,317 217,639
Less: Management fee waiver and
expense reimbursement (Note 4) (45,239) (22,547) (86,231)
- -------------------------------------------------------------------------------------
Net Expenses 97,272 37,770 131,408
- -------------------------------------------------------------------------------------
Net Investment Income 672,827 192,096 1,012,538
- -------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE 5):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 4,303,134 591,582 13,016,000
Cost of securities sold 4,233,789 572,462 12,737,413
- -------------------------------------------------------------------------------------
Net Realized Gain 69,345 19,120 278,587
- -------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments:
Beginning of period 437,671 209,409 539,401
End of period 2,018,910 483,493 2,188,289
- -------------------------------------------------------------------------------------
Increase in Net
Unrealized Appreciation 1,581,239 274,084 1,648,888
- -------------------------------------------------------------------------------------
Net Gain on Investments 1,650,584 293,204 1,927,475
- -------------------------------------------------------------------------------------
Increase in Net Assets From Operations $2,323,411 $485,300 $2,940,013
=====================================================================================
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended September 30, 1997 (unaudited)
and the Year Ended March 31, 1997
Georgia Portfolio September 30 March 31
================================================================================
OPERATIONS:
Net investment income $ 672,827 $ 1,111,529
Net realized gain 69,345 127,579
Increase (decrease)in net unrealized appreciation 1,581,239 (150,783)
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 2,323,411 1,088,325
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 3):
Net investment income (684,284) (1,099,230)
Net realized gains -- (122,390)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (684,284) (1,221,620)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 2,835,445 9,113,953
Net asset value of shares issued
for reinvestment of dividends 436,968 778,557
Cost of shares reacquired (1,698,080) (2,808,135)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 1,574,333 7,084,375
- --------------------------------------------------------------------------------
Increase in Net Assets 3,213,460 6,951,080
NET ASSETS:
Beginning of period 25,069,865 18,118,785
- --------------------------------------------------------------------------------
End of period* $28,283,325 $25,069,865
================================================================================
* Includes overdistributed net investment income of: $(14,028) $(2,571)
================================================================================
See Notes to Financial Statements.
30
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
For the Six Months Ended September 30, 1997 (unaudited)
and the Year Ended March 31, 1997
Ohio Portfolio September 30 March 31
================================================================================
OPERATIONS:
Net investment income $ 192,096 $ 433,476
Net realized gain 19,120 21,502
Increase in net unrealized appreciation 274,084 52,038
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations 485,300 507,016
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 3):
Net investment income (190,310) (445,978)
Net realized gains -- (15,321)
- -------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (190,310) (461,299)
- -------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares -- 1,261,552
Net asset value of shares issued
for reinvestment of dividends 126,854 325,281
Cost of shares reacquired (581,272) (3,041,733)
- -------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (454,418) (1,454,900)
- -------------------------------------------------------------------------------
Decrease in Net Assets (159,428) (1,409,183)
NET ASSETS:
Beginning of period 7,484,710 8,893,893
- -------------------------------------------------------------------------------
End of period* $7,325,282 $7,484,710
================================================================================
* Includes undistributed net investment income of: $19,483 $17,697
================================================================================
See Notes to Financial Statements.
31
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
For the Six Months Ended September 30, 1997 (unaudited)
and the Year Ended March 31, 1997
Pennsylvania Portfolio September 30 March 31
================================================================================
OPERATIONS:
Net investment income $ 1,012,538 $ 1,819,626
Net realized gain 278,587 6,960
Increase in net unrealized appreciation 1,648,888 88,962
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 2,940,013 1,915,548
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 3):
Net investment income (952,518) (1,826,062)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (952,518) (1,826,062)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 3,743,612 9,408,115
Net asset value of shares issued
for reinvestment of dividends 609,738 1,155,353
Cost of shares reacquired (3,276,266) (3,871,277)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 1,077,084 6,692,191
- --------------------------------------------------------------------------------
Increase in Net Assets 3,064,579 6,781,677
NET ASSETS:
Beginning of period 36,441,803 29,660,126
- --------------------------------------------------------------------------------
End of period* $39,506,382 $36,441,803
================================================================================
* Includes undistributed (overdistributed)
net investment income of: $57,699 $(2,321)
================================================================================
See Notes to Financial Statements.
32
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Georgia, Ohio and Pennsylvania Portfolios ("Portfolios") are separate
investment portfolios of the Smith Barney Muni Funds ("Fund"). The Fund, a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company and consists of
these Portfolios and six other separate investment portfolios: Florida, New
York, National, Limited Term, California Money Market and New York Money Market
portfolios. The financial statements and financial highlights for the other
portfolios are presented in separate semi-annual reports.
The significant accounting policies consistently followed by the Portfolios
are:(a) security transactions are accounted for on trade date;(b) securities are
valued at the mean between the bid and ask prices provided by an independent
pricing service that are based on transactions in municipal obligations,
quotations from municipal bond dealers, market transactions in comparable
securities and various relationships between securities; (c) securities maturing
within 60 days are valued at cost plus accreted discount or minus amortized
premium, which approximates value; (d) 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 original issue discount, is recorded on
an accrual basis; market discount is recognized upon the disposition of the
security; (f) dividends and distributions to shareholders are recorded on the
ex-dividend date; (g) direct expenses are charged to each Portfolio and each
class; management fees and general fund expenses are allocated on the basis of
relative net assets; (h) each Portfolio intends to comply with the applicable
provisions of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes;
(i) the character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. At March 31, 1997, reclassifications were made to the
Portfolios' capital accounts to reflect permanent book/tax differences and
income and gains available for distributions under income tax regulations.
Accordingly, a portion of overdistributed net investment income amounting to
$4,586 was reclassified to paid-in capital for the Pennsylvania Portfolio. Net
investment income, net realized gains and net assets were not affected by this
change; and (j) estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from operations when
financial statements are prepared. Changes in the economic environment,
33
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (audited)(continued)
- --------------------------------------------------------------------------------
financial markets and any other parameters used in determining these estimates
could cause actual results to differ.
2. PORTFOLIO CONCENTRATION
Since the Georgia, Ohio and Pennsylvania Portfolios invest primarily in
obligations of issuers within Georgia, Ohio and Pennsylvania, respectively, each
portfolio is subject to possible concentration risks associated with economic,
political, or legal developments or industrial or regional matters specifically
affecting the respective state in which it invests.
3. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
Each Portfolio intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Portfolio.
Capital gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
4. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager to the Portfolios. The
Portfolios pay SBMFM a management fee calculated at an annual rate of 0.45% of
their respective average daily net assets. This fee is calculated daily and paid
monthly.
SBMFM waived all of its management fees for the Ohio and Pennsylvania
Portfolios and waived a portion of its fee for the Georgia Portfolio for the six
months ended September 30, 1997. In addition, SBMFM has agreed to reimburse the
Ohio Portfolio for certain expenses totaling $5,716 for the six months ended
September 30, 1997.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. For the six months ended September 30, 1997, SB received sales
charges of approximately $52,000 on purchases of the Portfolios' 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 and declines by 0.50% the first year after purchase and by 1.00% per
year until no CDSC is incurred. Class C shares have a 1.00% CDSC if redemption
occurs within the first year of purchase.
34
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)(continued)
- --------------------------------------------------------------------------------
For the six months ended September 30, 1997, CDSCs paid to SB were
approximately:
Portfolio Class B
================================================================================
Georgia $ 7,000
- --------------------------------------------------------------------------------
Ohio 2,000
- --------------------------------------------------------------------------------
Pennsylvania 13,000
================================================================================
Pursuant to a Distribution Plan, the Portfolios pay a service fee with
respect to Class A, B and C shares calculated at an annual rate of 0.15% of the
average daily net assets of each respective class. The Portfolios also pay a
distribution fee with respect to Class B and C shares calculated at an annual
rate of 0.50% and 0.55% of the average daily net assets of each class,
respectively.
For the six months ended September 30, 1997, total Distribution Plan fees
incurred were:
Portfolio Class A Class B Class C
================================================================================
Georgia $11,499 $25,937 $11,974
- --------------------------------------------------------------------------------
Ohio 2,301 11,588 2,962
- --------------------------------------------------------------------------------
Pennsylvania 11,688 53,872 21,578
================================================================================
All officers and one Trustee of the Fund are employees of SB.
5. INVESTMENTS
During the six months ended September 30, 1997, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
Georgia Ohio Pennsylvania
Portfolio Portfolio Portfolio
================================================================================
Purchases $10,178,963 -- $16,484,928
- --------------------------------------------------------------------------------
Sales 4,303,134 $591,582 13,016,000
================================================================================
At September 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
Georgia Ohio Pennsylvania
Portfolio Portfolio Portfolio
================================================================================
Gross unrealized appreciation $2,021,124 $483,844 $2,193,415
Gross unrealized depreciation (2,214) (351) (5,126)
- --------------------------------------------------------------------------------
Net unrealized appreciation $2,018,910 $483,493 $2,188,289
================================================================================
35
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)(continued)
- --------------------------------------------------------------------------------
6. SHARES OF BENEFICIAL INTEREST
At September 30, 1997, the Fund had an unlimited amount of shares of
beneficial interest authorized with a par value of $0.001 per share. The
Portfolios have the ability to issue multiple classes of shares. Each share of a
class represents an identical interest in its respective Portfolio and has the
same rights, except that each class bears certain expenses specifically related
to the distribution of its shares.
At September 30, 1997, total paid-in capital amounted to the following for
each class and their respective Portfolio:
Portfolio Class A Class B Class C
================================================================================
Georgia $14,920,481 $ 7,959,526 $3,329,958
- --------------------------------------------------------------------------------
Ohio 2,795,043 3,182,383 804,279
- --------------------------------------------------------------------------------
Pennsylvania 13,959,592 16,667,640 6,364,246
================================================================================
Transactions in shares of each class were as follows:
Six Months Ended Year Ended
September 30, 1997 March 31, 1997
--------------------- ---------------------
Georgia Portfolio Shares Amount Shares Amount
================================================================================
Class A
Shares sold 112,977 $ 1,445,526 457,524 $ 5,795,183
Shares issued on reinvestment 19,403 251,331 33,287 419,038
Shares redeemed (79,200) (1,006,524) (108,171) (1,364,400)
- -------------------------------------------------------------------------------
Net Increase 53,180 $ 690,333 382,640 $ 4,849,821
===============================================================================
Class B
Shares sold 82,165 $ 1,058,224 202,325 $ 2,540,756
Shares issued on reinvestment 9,322 120,658 17,331 218,224
Shares redeemed (35,804) (459,643) (66,812) (843,932)
- -------------------------------------------------------------------------------
Net Increase 55,683 $ 719,239 152,844 $ 1,915,048
===============================================================================
Class C
Shares sold 25,733 $ 331,695 61,542 $ 778,014
Shares issued on reinvestment 5,027 64,979 11,251 141,295
Shares redeemed (18,069) (231,913) (47,652) (599,803)
- --------------------------------------------------------------------------------
Net Increase 12,691 $ 164,761 25,141 $ 319,506
================================================================================
36
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)(continued)
- --------------------------------------------------------------------------------
Six Months Ended Year Ended
September 30, 1997 March 31, 1997
--------------------- --------------------
Ohio Portfolio Shares Amount Shares Amount
================================================================================
Class A
Shares sold -- -- 62,239 $752,159
Shares issued on reinvestment 4,707 $58,911 12,822 157,361
Shares redeemed (12,640) (157,948) (125,573) (1,554,127)
- -------------------------------------------------------------------------------
Net Decrease (7,933) $(99,037) (50,512) $(644,607)
================================================================================
Class B
Shares sold -- -- 32,302 $398,997
Shares issued on reinvestment 4,392 $54,814 11,136 136,537
Shares redeemed (33,256) (417,677) (103,577) (1,269,532)
- -------------------------------------------------------------------------------
Net Decrease (28,864) $(362,863) (60,139) $(733,998)
================================================================================
Class C
Shares sold -- -- 9,045 $110,396
Shares issued on reinvestment 1,051 $13,129 2,560 31,383
Shares redeemed (448) (5,647) (17,667) (218,074)
- -------------------------------------------------------------------------------
Net Increase (Decrease) 603 $7,482 (6,062) $(76,295)
================================================================================
Pennsylvania Portfolio
================================================================================
Class A
Shares sold 63,238 $828,163 307,459 $3,903,533
Shares issued on reinvestment 22,748 297,354 42,485 539,870
Shares redeemed (156,251) (2,073,834) (91,821) (1,170,767)
- -------------------------------------------------------------------------------
Net Increase (Decrease) (70,265) $(948,317) 258,123 $3,272,636
================================================================================
Class B
Shares sold 134,024 $1,753,778 328,162 $4,153,859
Shares issued on reinvestment 17,476 228,150 35,686 452,643
Shares redeemed (54,674) (710,448) (174,300) (2,226,160)
- -------------------------------------------------------------------------------
Net Increase 96,826 $1,271,480 189,548 $2,380,342
================================================================================
Class C
Shares sold 88,767 $1,161,671 106,472 $1,350,723
Shares issued on reinvestment 6,452 84,234 12,840 162,840
Shares redeemed (38,123) (491,984) (37,197) (474,350)
- -------------------------------------------------------------------------------
Net Increase 57,096 $753,921 82,115 $1,039,213
===============================================================================
7. CAPITAL LOSS CARRYFORWARD
At March 31, 1997, the Pennsylvania Portfolio had, for Federal income tax
purposes, approximately $9,700 of loss carryforwards available to offset future
capital gains through March 31, 2005. To the extent that these carryforward
losses are used to offset capital gains, it is probable that the gains so offset
will not be distributed.
37
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares
--------------------------------------------
Georgia Portfolio 1997(1) 1997 1996 1995(2)
===================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.48 $12.50 $12.10 $12.00
- -----------------------------------------------------------------------------------
Income From Operations:
Net investment income (3) 0.34 0.69 0.70 0.62
Net realized and unrealized gain 0.80 0.04 0.45 0.10*
- -----------------------------------------------------------------------------------
Total Income From Operations 1.14 0.73 1.15 0.72
- -----------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.35) (0.67) (0.70) (0.62)
Net realized gains -- (0.08) (0.05) --
- -----------------------------------------------------------------------------------
Total Distributions (0.35) (0.75) (0.75) (0.62)
- -----------------------------------------------------------------------------------
Net Asset Value, End of Period $13.27 $12.48 $12.50 $12.10
- -----------------------------------------------------------------------------------
Total Return 9.19%++ 5.95% 9.67% 6.29%++
- -----------------------------------------------------------------------------------
Net Assets, End of Period (000s) $16,127 $14,495 $9,744 $8,520
- -----------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3)# 0.50%+ 0.48% 0.38% 0.28%+
Net investment income 5.26+ 5.49 5.57 5.43+
- -----------------------------------------------------------------------------------
Portfolio Turnover Rate 17% 81% 63% 34%
===================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) For the period from April 4, 1994 (inception date) to March 31, 1995.
(3) The Manager has waived all or part of its fees for the six months ended
September 30, 1997, the years ended March 31, 1997 and 1996 and the period
ended March 31, 1995. In addition, the Manager reimbursed expenses of
$56,755 and $42,317 for the year ended March 31, 1996 and the period ended
March 31,1995, respectively. If such fees were not waived and expenses not
reimbursed, the effect on net investment income and expense ratios would
have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
------------------------- -------------------------
1997(1) 1997 1996 1995 1997(1) 1997 1996 1995
------ ----- ----- ----- ------ ----- ----- -----
Class A $0.02 $0.04 $0.11 $0.12 0.84%+ 0.90% 1.23% 1.20%+
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
# As a result of voluntary expense limitations, expense ratios would not
exceed 0.80% for Class A shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
38
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares
-----------------------------------------------
Georgia Portfolio 1997(1) 1997 1996 1995(2)(3)
==========================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.47 $12.50 $12.11 $12.27
- ------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (4) 0.31 0.62 0.64 0.49
Net realized and unrealized gain (loss) 0.80 0.04 0.45 (0.16)*
- ------------------------------------------------------------------------------------------
Total Income From Operations 1.11 0.66 1.09 0.33
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.31) (0.61) (0.65) (0.49)
Net realized gains -- (0.08) (0.05) --
- ------------------------------------------------------------------------------------------
Total Distributions (0.31) (0.69) (0.70) (0.49)
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.27 $12.47 $12.50 $12.11
- ------------------------------------------------------------------------------------------
Total Return 9.02%++ 5.33% 9.08% 2.88%++
- ------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $8,561 $7,354 $5,461 $2,551
- ------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (4)# 1.02%+ 1.00% 0.92% 0.85%+
Net investment income 4.74+ 4.97 5.20 5.37+
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 17% 81% 63% 34%
==========================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) On November 7, 1994, the former Class E shares were renamed Class B
shares.
(3) For the period from June 15, 1994 (inception date) to March 31, 1995.
(4) The Manager has waived all or part of its fees for the six months ended
September 30, 1997, the years ended March 31, 1997 and 1996 and the period
ended March 31, 1995. In addition, the Manager reimbursed expenses of
$56,755 and $42,317 for the year ended March 31, 1996 and the period ended
March 31,1995, respectively. If such fees were not waived and expenses not
reimbursed, the effect on net investment income and expense ratios would
have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
------------------------- -------------------------
1997(1) 1997 1996 1995 1997(1) 1997 1996 1995
------ ----- ----- ----- ------ ----- ----- -----
Class B $0.02 $0.05 $0.10 $0.11 1.35%+ 1.42% 1.77% 1.82%+
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
# As a result of voluntary expense limitations, expense ratios would not
exceed 1.30% for Class B shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
39
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class C Shares
-----------------------------------------------
Georgia Portfolio 1997(1) 1997 1996 1995(2)(3)
==========================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.46 $12.49 $12.09 $12.06
- ------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (4) 0.31 0.62 0.63 0.55
Net realized and unrealized gain 0.79 0.03 0.46 0.04*
- ------------------------------------------------------------------------------------------
Total Income From Operations 1.10 0.65 1.09 0.59
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.31) (0.60) (0.64) (0.56)
Net realized gains -- (0.08) (0.05) --
- ------------------------------------------------------------------------------------------
Total Distributions (0.31) (0.68) (0.69) (0.56)
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.25 $12.46 $12.49 $12.09
- ------------------------------------------------------------------------------------------
Total Return 8.91%++ 5.28% 9.12% 5.11%++
- ------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $3,595 $3,221 $2,914 $1,295
- ------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (4)# 1.06%+ 1.04% 0.97% 0.90%+
Net investment income 4.70+ 4.93 5.18 5.22+
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 17% 81% 63% 34%
==========================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) On November 7, 1994, the former Class B shares were renamed Class C
shares.
(3) For the period from April 14, 1994 (inception date) to March 31, 1995.
(4) The Manager has waived all or part of its fees for the six months ended
September 30, 1997, the years ended March 31, 1997 and 1996 and the period
ended March 31, 1995. In addition, the Manager reimbursed expenses of
$56,755 and $42,317 for the year ended March 31, 1996 and the period ended
March 31, 1995, respectively. If such fees were not waived and expenses
not reimbursed, the effect on net investment income and expense ratios
would have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
------------------------- -------------------------
1997(1) 1997 1996 1995 1997(1) 1997 1996 1995
------ ----- ----- ----- ------ ----- ----- -----
Class C $0.02 $0.05 $0.10 $0.12 1.40%+ 1.46% 1.82% 1.85%+
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
# As a result of voluntary expense limitations, expense ratios would not
exceed 1.35% for Class C shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
40
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares
-----------------------------------------------
Ohio Portfolio 1997(1) 1997 1996 1995(2)
==========================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.23 $12.20 $11.97 $12.00
- ------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (3) 0.34 0.67 0.71 0.52
Net realized and unrealized gain (loss) 0.50 0.05 0.19 (0.07)*
- ------------------------------------------------------------------------------------------
Total Income From Operations 0.84 0.72 0.90 0.45
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.34) (0.67) (0.67) (0.48)
Net realized gains -- (0.02) (0.00)** --
- ------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.69) (0.67) (0.48)
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.73 $12.23 $12.20 $11.97
- ------------------------------------------------------------------------------------------
Total Return 6.91%++ 6.06% 7.65% 4.04%++
- ---------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $3,079 $3,056 $3,665 $2,766
- ------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3)# 0.70%+ 0.61% 0.30% 0.20%+
Net investment income 5.45+ 5.33 5.86 5.75+
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 0% 57% 42% 44%
==========================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) For the period from June 13, 1994 (inception date) to March 31, 1995.
(3) The Manager has waived all of its fees and reimbursed expenses of $5,716,
$13,636, $59,614 and $41,401 for the six months ended September 30, 1997,
the years ended March 31, 1997 and 1996 and the period ended March 31,
1995, respectively. If such fees were not waived and expenses not
reimbursed, the effect on net investment income and expense ratios would
have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
------------------------- -------------------------
1997(1) 1997 1996 1995 1997(1) 1997 1996 1995
------ ----- ----- ----- ------ ----- ----- -----
Class A $0.04 $0.09 $0.16 $0.21 1.30%+ 1.22% 1.58% 1.91%+
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
** Amount represents less than $0.01 per share.
# As a result of voluntary expense limitations, expense ratios would not
exceed 0.80% for Class A shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
41
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares
-----------------------------------------------
Ohio Portfolio 1997(1) 1997 1996 1995(2)(3)
==========================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.20 $12.18 $11.96 $12.02
- ------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (4) 0.31 0.60 0.63 0.47
Net realized and unrealized gain (loss) 0.49 0.06 0.21 (0.10)*
- ------------------------------------------------------------------------------------------
Total Income From Operations 0.80 0.66 0.84 0.37
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.31) (0.62) (0.62) (0.43)
Net realized gains -- (0.02) (0.00)** --
- ------------------------------------------------------------------------------------------
Total Distributions (0.31) (0.64) (0.62) (0.43)
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.69 $12.20 $12.18 $11.96
- ------------------------------------------------------------------------------------------
Total Return 6.62%++ 5.52% 7.10% 3.31%++
- ------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $3,384 $3,607 $4,334 $2,041
- ------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (4)# 1.22%+ 1.13% 0.83% 0.72%+
Net investment income 4.93+ 4.81 5.44 5.10+
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 0% 57% 42% 44%
==========================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) On November 7, 1994, the former Class E shares were renamed Class B
shares.
(3) For the period from June 14, 1994 (inception date) to March 31, 1995.
(4) The Manager has waived all of its fees and reimbursed expenses of $5,716,
$13,636, $59,614 and $41,401 for the six months ended September 30, 1997,
the years ended March 31, 1997 and 1996 and the period ended March 31,
1995, respectively. If such fees were not waived and expenses not
reimbursed, the effect on net investment income and expense ratios would
have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
------------------------- -------------------------
1997(1) 1997 1996 1995 1997(1) 1997 1996 1995
------ ----- ----- ----- ------ ----- ----- -----
Class B $0.04 $0.08 $0.11 $0.25 1.62%+ 1.74% 2.14% 2.43%+
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
** Amount represents less than $0.01 per share.
# As a result of voluntary expense limitations, expense ratios would not
exceed 1.30% for Class B shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
42
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class C Shares
-----------------------------------------------
Ohio Portfolio 1997(1) 1997 1996 1995(2)(3)
==========================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.21 $12.19 $11.96 $12.02
- ------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (4) 0.33 0.59 0.63 0.46
Net realized and unrealized gain (loss) 0.46 0.06 0.21 (0.09)*
- ------------------------------------------------------------------------------------------
Total Income From Operations 0.79 0.65 0.84 0.37
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.31) (0.61) (0.61) (0.43)
Net realized gains -- (0.02) (0.00)** --
- ------------------------------------------------------------------------------------------
Total Distributions (0.31) (0.63) (0.61) (0.43)
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.69 $12.21 $12.19 $11.96
- ------------------------------------------------------------------------------------------
Total Return 6.51%++ 5.48% 7.14% 3.28%++
- ------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $862 $822 $895 $582
- ------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (4)# 1.26%+ 1.17% 0.89% 0.77%+
Net investment income 4.89+ 4.77 5.37 5.09+
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 0% 57% 42% 44%
==========================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) On November 7, 1994, the former Class B shares were renamed Class C
shares.
(3) For the period from June 14, 1994 (inception date) to March 31, 1995.
(4) The Manager has waived all of its fees and reimbursed expenses of $5,716,
$13,636, $59,614 and $41,401 for the six months ended September 30, 1997,
the years ended March 31, 1997 and 1996, and the period ended March
31,1995, respectively. If such fees were not waived and expenses not
reimbursed, the effect on net investment income and expense ratios would
have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
------------------------- -------------------------
1997(1) 1997 1996 1995 1997(1) 1997 1996 1995
------ ----- ----- ----- ------ ----- ----- -----
Class C $0.04 $0.08 $0.16 $0.25 1.85%+ 1.78% 2.20% 2.48%+
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
** Amount represents less than $0.01 per share.
# As a result of voluntary expense limitations, expense ratios would not
exceed 1.35% for Class C shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
43
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares
-----------------------------------------------
Pennsylvania Portfolio 1997(1) 1997 1996(2) 1995(3)(4)
==========================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.66 $12.62 $12.40 $12.00
- ------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (5) 0.37 0.71 0.70 0.67
Net realized and unrealized gain 0.66 0.04 0.29 0.35*
- ------------------------------------------------------------------------------------------
Total Income From Operations 1.03 0.75 0.99 1.02
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.35) (0.71) (0.72) (0.62)
Net realized gains -- -- (0.05) --
- ------------------------------------------------------------------------------------------
Total Distributions (0.35) (0.71) (0.77) (0.62)
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.34 $12.66 $12.62 $12.40
- ------------------------------------------------------------------------------------------
Total Return 8.18%++ 6.11% 8.08% 8.82%++
- ------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $15,028 $15,152 $11,847 $7,974
- ------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (5)# 0.37%+ 0.37% 0.38% 0.29%+
Net investment income 5.60+ 5.66 5.57 5.76+
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 34% 122% 88% 38%
==========================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(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) On October 10, 1994, the former Class C shares were exchanged into Class A
shares.
(4) For the period from April 4, 1994 (inception date) to March 31, 1995.
(5) The Manager has waived all of its fees for the six months ended September
30, 1997, the years ended March 31, 1997 and 1996 and the period ended
March 31, 1995. In addition, the Manager reimbursed expenses of $23,433
and $32,063 for the year ended March 31, 1996 and the period ended March
31,1995, respectively. If such fees were not waived and expenses not
reimbursed, the effect on net investment income and expense ratios would
have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
------------------------- -------------------------
1997(1) 1997 1996 1995 1997(1) 1997 1996 1995
------ ----- ----- ----- ------ ----- ----- -----
Class A $0.03 $0.06 $0.07 $0.09 0.78%+ 0.82% 0.93% 1.03%+
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
# As a result of voluntary expense limitations, expense ratios would not
exceed 0.80% for Class A shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
44
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares
-----------------------------------------------
Pennsylvania Portfolio 1997(1) 1997 1996(2) 1995(3)(4)
==========================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.64 $12.61 $12.39 $12.35
Income From Operations:
Net investment income (5) 0.33 0.65 0.64 0.51
Net realized and unrealized gain 0.66 0.03 0.29 0.01*
- ------------------------------------------------------------------------------------------
Total Income From Operations 0.99 0.68 0.93 0.52
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.31) (0.65) (0.66) (0.48)
Net realized gains -- -- (0.05) --
- ------------------------------------------------------------------------------------------
Total Distributions (0.31) (0.65) (0.71) (0.48)
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.32 $12.64 $12.61 $12.39
- ------------------------------------------------------------------------------------------
Total Return 7.93%++ 5.56% 7.61% 4.48%++
- ------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $17,681 $15,559 $13,131 $4,850
- ------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (5)# 0.89%+ 0.88% 0.88% 0.82%+
Net investment income 5.08+ 5.15 5.07 5.31+
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 34% 122% 88% 38%
==========================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(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) On November 7, 1994, the former Class E shares were renamed Class B
shares.
(4) For the period from June 20, 1994 (inception date) to March 31, 1995.
(5) The Manager has waived all of its fees for the six months ended September
30, 1997, the years ended March 31, 1997 and 1996 and the period ended
March 31, 1995. In addition, the Manager reimbursed expenses of $23,433
and $32,063 for the year ended March 31, 1996 and the period ended March
31,1995, respectively. If such fees were not waived and expenses not
reimbursed, the effect on net investment income and expense ratios would
have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
------------------------- -------------------------
1997(1) 1997 1996 1995 1997(1) 1997 1996 1995
------ ----- ----- ----- ------ ----- ----- -----
Class B $0.03 $0.06 $0.07 $0.08 1.30%+ 1.33% 1.44% 1.58%+
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
# As a result of voluntary expense limitations, expense ratios would not
exceed 1.30% for Class B shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
45
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class C Shares
-----------------------------------------------
Pennsylvania Portfolio 1997(1) 1997 1996(2) 1995(3)(4)
==========================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.64 $12.61 $12.39 $12.00
- ------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (5) 0.32 0.64 0.64 0.59
Net realized and unrealized gain 0.66 0.04 0.29 0.36*
- ------------------------------------------------------------------------------------------
Total Income From Operations 0.98 0.68 0.93 0.95
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.31) (0.65) (0.66) (0.56)
Net realized gains -- -- (0.05) --
- ------------------------------------------------------------------------------------------
Total Distributions (0.31) (0.65) (0.71) (0.56)
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.31 $12.64 $12.61 $12.39
- ------------------------------------------------------------------------------------------
Total Return 7.82%++ 5.51% 7.56% 8.14%++
- ------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $6,797 $5,731 $4,682 $3,337
- ------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (5)# 0.94%+ 0.94% 0.94% 0.86%+
Net investment income 5.03+ 5.09 5.00 5.04+
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 34% 122% 88% 38%
==========================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(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) On November 7, 1994, the former Class B shares were renamed Class C
shares.
(4) For the period from April 5, 1994 (inception date) to March 31, 1995.
(5) The Manager has waived all of its fees for the six months ended September
30, 1997, the years ended March 31, 1997 and 1996 and the period ended
March 31, 1995. In addition, the Manager reimbursed expenses of $23,433
and $32,063 for the year ended March 31, 1996 and the period ended March
31,1995, respectively. If such fees were not waived and expenses not
reimbursed, the effect on net investment income and expense ratios would
have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
------------------------- -------------------------
1997(1) 1997 1996 1995 1997(1) 1997 1996 1995
------ ----- ----- ----- ------ ----- ----- -----
Class C $0.03 $0.06 $0.07 $0.09 1.35%+ 1.39% 1.49% 1.56%+
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
# As a result of voluntary expense limitations, expense ratios would not
exceed 1.35% for Class C shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
46
<PAGE>
(This page intentionally left blank.)
<PAGE>
(This page intentionally left blank.)
<PAGE>
Smith Barney
Muni Funds
Trustees
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
C. Richard Youngdahl, Emeritus
Officers
Heath B. McLendon
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Peter M. Coffey
Vice President
Lawrence T. McDermott
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
------------
A Member of TravelersGroup [Logo]
Investment Manager
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 Muni Funds -- Georgia, Ohio and Pennsylvania Portfolios. 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 Muni Funds
388 Greenwich Street
New York, New York 10013
FD0798 11/97
<PAGE>
================================================================================
SEMI - ANNUAL REPORT
================================================================================
[GRAPHIC]
Smith Barney
Muni Funds
National
Portfolio
----------------------------
September 30, 1997
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
==================
National Portfolio
==================
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Muni
Funds -- National Portfolio ("Portfolio") for the period ended September 30,
1997. In this report, we summarize the period's prevailing economic and market
conditions and outline our portfolio strategy. A detailed summary of the
Portfolio's performance can be found in the appropriate sections that follow.
Portfolio Performance Update
For the six months ended September 30, 1997, the Class A shares of the Portfolio
generated a total return of 7.16%. In comparison, general municipal bond funds
returned an average of 6.55% for the same period, according to Lipper Analytical
Services, Inc. ("Lipper"), an independent fund-tracking organization.
Performance information on the other share classes of the Portfolio appears on
page 5. Your Portfolio continues to be a consistent performer among its Lipper
peers. The Portfolio has ranked in the first quartile of general municipal bond
funds in the Lipper Survey for the 1, 3, 5, 7 and 10-year periods ended
September 30, 1997.*
Smith Barney Muni Funds -- National Portfolio
Average Annual Total Returns -- Without Sales Charges**
<TABLE>
<CAPTION>
Lipper Peer
Class A Shares Group Average
-------------- -------------
<S> <C> <C>
One-Year 9.79% 8.59%
Five-Year 7.51 6.62
Ten-Year 9.39 8.43
</TABLE>
** 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.
Based on its net asset value ("NAV") of $14.16 as of September 30, 1997 and the
current income distribution of $0.067 per Class A share, this equates to an
annualized distribution rate of 5.68%. For an individual in the federal income
tax bracket of 36%, the Portfolio's tax-free yield of 5.68% is equivalent to a
taxable yield of 8.88%. (According to the Internal Revenue Service, the 36%
income tax bracket constitutes nearly 10% of all U.S. taxpayers.)
- ----------------
* Lipper rankings show a fund's one, five and ten year annualized returns (at
NAV) as of a particular reporting period. Lipper also compares a fund's
returns to the average of its peer group. The rankings are subject to
change every month. Past performance is not a guarantee of future results.
For the 1, 3, 5, 7 and 10-year periods ended September 30, 1997, there were
232, 179, 110, 90 and 68 general municipal bond funds, respectively, in the
Lipper peer group category.
1
<PAGE>
Market and Economic Overview
In recent weeks, the municipal bond market has rebounded from the downturn it
experienced in August 1997. In our opinion, this market downturn was caused in
large part by investor concerns that strength in the U.S. economy would
ultimately lead to higher interest rates and greater inflationary pressures.
Despite these concerns, the U.S. economy has continued to grow strongly with low
unemployment and an absence of higher inflationary pressures.
In our view, global competition and improved productivity have enabled the
economy to expand without the upward price pressures traditionally associated
with extended periods of economic growth. Many U.S. corporations continue to
face fierce competition from foreign companies. As a result, many U.S.
corporations have been unable to raise prices significantly. Moreover, the
widespread use of technology has enabled many companies to operate more
efficiently while using fewer workers. This in turn has enabled many companies
to continue operating profitably even though increasingly tight labor markets
have begun to exert upward pressure on wages.
In light of these developments, the Federal Reserve Board ("Fed") has refrained
from further tightening monetary policy after raising the federal-funds rate
slightly to 5.5% in March 1997. (The federal-funds rate is the interest rate
banks charge each other for overnight loans and is a closely watched indicator
of the direction of interest rates.) Since that time, interest rates have
generally declined. For example, yields on the bellwether 30-year U.S. Treasury
bond have fallen from a high of approximately 7.2% in April to roughly 6.4% as
of September 30, 1997. Many economists, including some Fed officials, have begun
to acknowledge that the U.S. economy may be able to support both strong growth
and low unemployment without a substantial increase in inflation. However, this
does not mean that the Fed has become complacent on the inflation front. In
testimony delivered to the House Budget Committee on October 8, 1997, Fed
Chairman Alan Greenspan again warned that strong economic growth and the
extremely tight labor market could lead to a resurgence in inflation.
Greenspan's warning roiled the financial markets with a sharp but relatively
modest increase in yields on bonds. In our view, the Fed's determination to
contain inflation should be beneficial for bond investors as it will help ensure
that the buying power of coupon income will be preserved.
In addition, although nominal interest rates have declined, real
inflation-adjusted interest rates are quite high on a historical basis and
current real yields on municipal bonds (after subtracting the effects of
inflation) are very
2
<PAGE>
high by historical standards. In view of the current favorable economic
conditions and our expectations that inflation should remain subdued, we believe
that municipal bonds will continue to provide investors with attractive real
after-tax rates of return in the months ahead.
Portfolio's Investment Strategy
The Portfolio seeks to provide investors with as high a level of current income
exempt from federal income taxes as is consistent with a prudent investment
approach. The Portfolio has a bias towards good quality, higher coupon bonds. We
tend to emphasize income rather than seeking total return through capital gains.
We think it is noteworthy that the Portfolio's excellent returns have been
accomplished with minimal capital gains distributions, because after-tax returns
are what matter most for most municipal bond investors. (Of course, the
Portfolio's past performance is no guarantee of future results.)
Given our expectations of lower interest rates, we have emphasized increasing
the call protection and extending the average weighted maturity of the
Portfolio. We believe that our investment strategy should provide shareholders
with a consistent stream of income over the long term. As a general rule, we pay
closer attention to the coupon, maturity, and call structures of the Portfolio's
holdings rather than the specific purpose for which these municipal bonds are
being issued.
As of September 30, 1997, the Portfolio's average weighted maturity was just
over 21.83 years, and approximately 97.7% of the Portfolio's holdings were rated
investment grade. (Investment-grade bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc. or AAA, AA, A and BBB by Standard & Poor's
Ratings Services, or have an equivalent rating by any nationally recognized
statistical rating organization, or determined by the manager to be equivalent.)
In addition, approximately 43.5% of the Portfolio had a triple-A rating, the
highest credit rating. The Portfolio's largest holdings are concentrated in
hospital bonds (15.6%), transportation bonds (11.6%) and public facilities
(10.2%).
Municipal Bond Outlook
Some investors have expressed concerns that certain provisions of the recently
enacted Federal Taxpayer Relief Act of 1997 (which was passed as part of the
Balanced Budget Agreement) could erode many of the tax advantages that municipal
bonds now offer. However, we believe that the impact of this legislation will be
largely positive for the municipal bond market. The reduction of the long-term
capital gains tax rate and the introduction of the Roth IRA ostensibly make the
attractiveness of stocks and
3
<PAGE>
other investments more competitive than municipals. Nevertheless, there are new
elements in the tax code that may strengthen the focus on after-tax returns --
an area where municipals, which provide a steady source of tax-exempt income,
continue to enjoy a distinct advantage. In addition, the repeal of the
alternative minimum tax for small business corporations provides favorable tax
treatment for many corporate municipal bond investors. Lastly, the new tax act
expands the issuance of education and housing bonds, two key segments of the
municipal bond market.
We remain optimistic on the prospects for municipal bonds. The shrinking federal
budget deficit, resulting from strong economic growth and spending controls
enacted in 1990 and 1993, coupled with relatively low inflation rate, should
help to keep interest rates from rising. We also expect continued Fed vigilance
against any signs of higher inflationary pressures, which is a long-term
positive for bonds.
On a more somber note, we were saddened by the loss of an outstanding physician
and Trustee of the Fund, Dr. Francis P. Martin. His knowledge and wisdom will be
missed.
In closing, we would like to thank you for investing in Smith Barney Muni
Funds -- National Portfolio. We look forward to continuing to help you pursue
your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman Vice President
October 16, 1997
4
<PAGE>
================================================================================
Historical Performance -- Class A Shares
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $13.60 $14.16 $0.40 $0.00 7.16%+
- --------------------------------------------------------------------------------
3/31/97 13.67 13.60 0.79 0.00 5.41
- --------------------------------------------------------------------------------
3/31/96 13.32 13.67 0.81 0.00 8.83
- --------------------------------------------------------------------------------
3/31/95 13.35 13.32 0.84 0.00 6.38
- --------------------------------------------------------------------------------
3/31/94 13.81 13.35 0.86 0.06 3.17
- --------------------------------------------------------------------------------
3/31/93 12.95 13.81 0.89 0.00 13.96
- --------------------------------------------------------------------------------
3/31/92 12.49 12.95 0.90 0.00 11.21
- --------------------------------------------------------------------------------
3/31/91 12.24 12.49 0.83 0.00 9.13
- --------------------------------------------------------------------------------
3/31/90 12.11 12.24 0.98 0.00 9.60
- --------------------------------------------------------------------------------
3/31/89 11.82 12.11 0.96 0.00 10.93
- --------------------------------------------------------------------------------
3/31/88 12.95 11.82 0.94 0.20 (0.92)
================================================================================
Total $9.20 $0.26
================================================================================
================================================================================
Historical Performance -- Class B Shares
================================================================================
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $13.61 $14.16 $0.36 $0.00 6.79%+
- --------------------------------------------------------------------------------
3/31/97 13.67 13.61 0.72 0.00 4.95
- --------------------------------------------------------------------------------
3/31/96 13.33 13.67 0.74 0.00 8.26
- --------------------------------------------------------------------------------
Inception*- 3/31/95 12.41 13.33 0.32 0.00 10.11+
================================================================================
Total $2.14 $0.00
================================================================================
================================================================================
Historical Performance -- Class C Shares
================================================================================
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
<S> <C> <C> <C> <C> <C>
9/30/97 $13.59 $14.13 $0.36 $0.00 6.69%+
- --------------------------------------------------------------------------------
3/31/97 13.65 13.59 0.71 0.00 4.90
- --------------------------------------------------------------------------------
3/31/96 13.32 13.65 0.74 0.00 8.13
- --------------------------------------------------------------------------------
3/31/95 13.33 13.32 0.74 0.00 5.80
- --------------------------------------------------------------------------------
3/31/94 13.80 13.33 0.77 0.06 2.40
- --------------------------------------------------------------------------------
Inception*- 3/31/93 13.47 13.80 0.20 0.00 3.98+
================================================================================
Total $3.52 $0.06
================================================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.
5
<PAGE>
================================================================================
Average Annual Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
---------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Six Months Ended 9/30/97+ 7.16% 6.79% 6.69%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 9.79 9.14 9.01
- --------------------------------------------------------------------------------
Five Years Ended 9/30/97 7.51 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/97 9.39 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 9/30/97 8.22 10.51 6.76
================================================================================
<CAPTION>
With Sales Charge(2)
---------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Six Months Ended 9/30/97+ 2.85% 2.29% 5.69%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 5.39 4.64 8.01
- --------------------------------------------------------------------------------
Five Years Ended 9/30/97 6.64 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/97 8.95 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 9/30/97 7.82 9.65 6.76
================================================================================
</TABLE>
================================================================================
Cumulative Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (9/30/87 through 9/30/97) 145.36%
- --------------------------------------------------------------------------------
Class B (Inception* through 9/30/97) 33.60
- --------------------------------------------------------------------------------
Class C (Inception* through 9/30/97) 36.33
================================================================================
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions 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 Class C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions at net
asset value. In addition, Class A shares reflect the deduction of the
maximum initial sales charge of 4.00% and 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 August 20, 1986, November
7, 1994 and January 5, 1993, 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 National Portfolio vs.
Lehman Brothers Municipal Long Bond Index+
- --------------------------------------------------------------------------------
September 1987 -- September 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Lehman Brothers
Municipal
Date National Portfolio Long Bond Index
---- -------------------- --------------------
<S> <C> <C>
9/87 $ 9,596 $10,000
3/88 $10,362 $10,841
3/89 $11,458 $11,984
3/90 $12,516 $13,314
3/91 $13,623 $14,573
3/92 $15,107 $16,231
3/93 $17,170 $18,608
3/94 $17,669 $18,820
3/95 $18,768 $20,451
3/96 $20,426 $22,330
3/97 $21,531 $23,737
9/97 $23,072 $25,721
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares on
September 30, 1987, assuming deduction of the maximum 4.00% sales charge at
the time of investment and reinvestment of dividends (after deduction of
applicable sales charges through November 6, 1994, and thereafter at net
asset value) and capital gains (at net asset value) through September 30,
1997. The Lehman Brothers Municipal Long Bond Index (consisting of
maturities of at least 22 years) is a sub-index of the Lehman Brothers
Municipal Bond Index, a broad based, total return index comprised of
investment grade, fixed rate municipal bonds selected from issues larger
than $50 million issued January 1991. The index is unmanaged and is not
subject to the same management and trading expenses as a mutual fund. The
performance of the Portfolio'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>
<TABLE>
<CAPTION>
=====================================================================================================
Schedule of Investments (unaudited) September 30, 1997
=====================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
=====================================================================================================
<S> <C> <C> <C>
Education -- 6.0%
$2,855,000 AAA Bastrop, TX ISD, PSFG, zero coupon due 2/15/19 $ 895,756
5,000,000 AAA Center Unified School District, CA Series C,
MBIA-Insured, zero coupon due 9/1/20 1,443,750
5,000,000 AAA Chicago, IL Board of Education Lease Certificates,
Series A, Refunding, MBIA-Insured,
6.000% due 1/1/20 5,487,500
5,000,000 AAA District of Columbia Association of American Medical
Colleges, Series A, AMBAC-Insured,
5.375% due 2/15/27 4,906,250
1,075,000 Aaa* Lago Vista, TX ISD, PSFG, zero coupon due 8/15/22 275,469
1,875,000 AAA McKeesport, PA Area School District,
MBIA-Insured, zero coupon due 10/1/23 454,688
2,000,000 Aa* Nebraska Higher Education Loan Program Inc.,
Sub-Series A-5A, 6.200% due 6/1/13(a) 2,097,500
1,500,000 Baa3* New Hampshire Higher Education & Health, Brewster
Academy, 6.750% due 6/1/25 1,588,125
1,500,000 A- New York State Dormitory Authority Revenue,
State University Educational Facilities,
Series B, 7.500% due 5/15/11 1,815,000
Texas State Higher Education Coordinating Board,
College Student Loan Revenue:
2,390,000 A* 7.450% due 10/1/06(a) 2,551,325
340,000 A* 7.700% due 10/1/25(a) 360,825
1,000,000 AAA University of Pittsburgh Capital Projects,
The Commonwealth System of Higher Education,
FGIC-Insured, 5.125% due 6/1/27 970,000
1,000,000 AAA Utah Student Loan Revenue, Series 1991F,
AMBAC-Insured, 7.450% due 11/1/08(a) 1,063,750
- -----------------------------------------------------------------------------------------------------
23,909,938
- -----------------------------------------------------------------------------------------------------
Escrowed to Maturity(b) -- 5.9%
835,000 AAA Boston, MA Water & Sewer Revenue, Series A,
10.875% due 1/1/09 1,157,519
1,095,000 AAA Douglas County, NE Hospital Authority No. 2,
Bergan Mercy, 9.500% due 7/1/10 1,433,081
1,695,000 AAA Fairmont, WV Virginia Water & Sewer Revenue,
AMBAC-Insured, 9.250% due 11/1/11 2,190,788
5,685,000 AAA Indiana Bond Bank, AMBAC-Insured, 9.750% due 8/1/09(c) 7,539,731
1,970,000 AAA Ohio State Water Development Authority Revenue,
Safe Water, Series 2, 9.375% due 12/1/10(c) 2,484,663
1,000,000 AAA Philadelphia Hospital & Higher Education Facility Authority,
Presbyterian Medical Center, 6.650% due 12/1/19 1,167,500
3,000,000 AAA Port Everglades, FL, 7.125% due 11/1/16 3,618,750
1,250,000 AAA Richland County, SC Hospital Revenue Bonds, Community
Provider Pooled Loan, FSA-Insured, 7.125% due 7/1/17 1,443,750
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
=====================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
=====================================================================================================
<S> <C> <C> <C>
Escrowed to Maturity(b) -- 5.9% (continued)
$4,000,000 AAA Richmond County, GA Development Authority,
Sub-Series C, zero coupon due 12/1/21 $ 1,050,000
895,000 AAA Weber County, UT Hospital Revenue, St. Benedict's
Hospital, 10.000% due 3/1/10 1,171,331
- -----------------------------------------------------------------------------------------------------
23,257,113
- -----------------------------------------------------------------------------------------------------
Finance -- 0.8%
3,000,000 A Pennsylvania Finance Authority, Beaver County Municipal
Capital Improvements Program, Societe Generale,
GIC-Insured, 6.600% due 11/1/09 3,258,750
- -----------------------------------------------------------------------------------------------------
General Obligation -- 1.1%
2,000,000 AAA Berks County, PA GO, MVRICS, FGIC-Insured,
8.580% due 11/10/20(d) 2,297,500
1,000,000 AAA Keller, TX GO, ISD, PSFG, 5.125% due 8/15/27 958,750
160,000 BBB+ New York City, NY GO, Series D, 7.500% due 2/1/16 178,400
1,000,000 AAA Providence, RI GO, Series A, FSA-Insured,
5.700% due 7/15/19 1,020,000
- -----------------------------------------------------------------------------------------------------
4,454,650
- -----------------------------------------------------------------------------------------------------
Hospitals -- 15.6%
2,000,000 AAA Bexar County, TX Health Facilities Development Corp.,
Baptist Health Systems, Series A, MBIA-Insured,
5.250% due 11/15/27 1,932,500
1,000,000 AAA Boston, MA Industrial Development Financing Authority,
Alzheimer's Center Project, FHA-Insured,
6.000% due 2/1/37 1,031,250
3,000,000 AA Charlotte-Mecklenberg Hospital Authority, NC Health Care
System Revenue, 5.125% due 1/15/22 2,883,750
1,000,000 AAA Clarke County, GA Hospital Authority Revenue COP,
(Athens Regional Medical Center Project),
MBIA-Insured, 5.000% due 1/1/27 940,000
1,000,000 BBB Colorado Health Facilities Authority Hospital
Revenue Bonds, Vail Valley Medical Center,
6.500% due 1/15/13 1,055,000
1,675,000 AAA Connecticut State Health & Educational Facilities Authority,
MBIA-Insured, 5.000% due 7/1/27 1,610,094
3,500,000 A+ Elkhart County, IN Hospital Authority Revenue,
Elkhart Hospital Insured, 7.000% due 7/1/12 3,788,750
2,000,000 A2* Harris County, TX Health Facilities Development Corp.,
(Memorial Hospital Systems Project),
(Partially Pre-Refunded -- Escrowed with
U.S. government securities to 6/1/02 Call @ 102),
7.125% due 6/1/15 2,247,500
</TABLE>
See Notes to Financial Statements.
9
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Schedule of Investments (unaudited) (continued) September 30, 1997
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AMOUNT RATING SECURITY VALUE
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<S> <C> <C> <C>
Hospitals -- 15.6% (continued)
Illinois Health Facilities Authority Hospital Revenue:
$ 937,000 AAA Community Provider Pooled Loan Program,
FSA-Insured, 7.350% due 8/15/10 $ 1,048,269
3,500,000 A- Mercy Hospital and Medical Center, 7.000% due 1/1/07 3,762,500
1,000,000 AAA Methodist Health System, Series B, AMBAC-Insured,
IBS Variable Rate, 9.588% due 5/1/21(d) 1,185,000
4,000,000 AAA Rush-Presbyterian St. Luke's Medical Center,
INFLOS, MBIA-Insured, Variable Rate, 9.645% due
10/1/24(d) 4,775,000
900,000 BBB+ Klamath Falls, OR Inter-Community Hospital Merle West,
7.100% due 9/1/24 984,375
5,000,000 BBB Louisiana Public Facilities Authority Revenue,
(General Health Systems Project), 6.800% due 11/1/16 5,406,250
1,000,000 AAA Massachusetts State Health and Education Facilities
Authority Revenue, St. Elizabeth Hospital, LEVRRS,
FSA-Insured, 9.570% due 8/15/21(d) 1,173,750
5,000,000 AAA Metro Government, TN Health & Education,
AMBAC-Insured, 6.000% due 12/1/19 5,481,250
1,000,000 AAA Michigan State Hospital Financing Authority Revenue,
Detroit Medical Group, AMBAC-Insured,
5.250% due 8/15/27 965,000
4,835,000 AA Missouri State Health & Educational Facilities Authority,
BJC Health Systems, 6.750% due 5/15/13 5,693,213
450,000 BBB+ New York State Medical Care Facilities Financing Agency,
Long Term Health Care, Medical Health Services,
Series 91B, 7.400% due 2/15/18 499,500
1,000,000 Aaa* Reynoldsburg, OH Health Care Facilities Revenue,
(Wesley Ridge Project), GNMA-Collateralized,
6.150% due 10/20/38 1,035,000
1,350,000 Aaa* Rhode Island State Health & Education Building Corp.
Revenue, Lifespan Obligation Group, MBIA-Insured,
5.250% due 5/15/26 1,317,938
3,000,000 AAA University of Illinois, Health Services Facilities, Series A,
AMBAC-Insured, 5.875% due 10/1/26 3,105,000
2,500,000 AAA Utah County, UT Hospital Revenue, MBIA-Insured,
5.250% due 8/15/26 2,400,000
2,375,000 AA- Vermont Educational & Health Building Finance Agency,
H. Porter, FHA-Insured, 7.100% due 2/1/31 2,547,188
1,500,000 A Washington Health Care Facilities Authority Refunding
1990, Our Lady of Lourdes Health Center, Pasco,
LOC Banque Paribas, 7.875% due 12/1/09(c) 1,618,125
1,300,000 AAA Washington State Health, Sisters of Providence,
FGIC-Insured, 6.375% due 10/1/09 1,482,000
</TABLE>
See Notes to Financial Statements.
10
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<S> <C> <C> <C>
Hospitals -- 15.6% (continued)
$2,000,000 AAA Wisconsin State Health & Educational Facilities Authority
Revenue, Aurora Health Care Inc., MBIA-Insured,
5.250% due 8/15/27 $ 1,917,500
- -----------------------------------------------------------------------------------------------------
61,885,702
- -----------------------------------------------------------------------------------------------------
Housing: Multi-Family -- 6.7%
1,500,000 AAA Florida Housing Financing Agency, Glen Oaks Apartment
Project, FNMA-Collateralized, 5.900% due 2/1/30 2,045,000
1,500,000 A+ Illinois Housing Development Authority Refunding,
Multi-Family Housing, Series 91A, 8.125% due 7/1/10 1,605,000
1,500,000 AA- Indiana State HFA, Multi-Family Housing Mortgage
Revenue, Hunters Run, FHA-Insured, 7.250% due 5/1/18(a) 1,614,375
5,000,000 Aa2* Iowa Finance Authority, Prestwick Apartments,
FHA-Insured, 7.500% due 12/1/36(a) 6,281,250
1,000,000 A King County, WA Housing Authority Revenue, Series A,
6.800% due 3/1/26 1,056,250
Massachusetts State HFA, Multi-Family Residential
Housing, Series A, FHA-Insured:
1,995,000 A+ 8.800% due 8/1/21(a) 2,061,114
2,000,000 A+ 7.800% due 8/1/22(a) 2,107,500
1,955,000 AAA Mohave County, AZ Industrial Development Agency,
Multi-Family Housing, Copper Ridge Apartments,
FHA-Insured, 7.375% due 4/1/32(a) 2,130,950
1,250,000 AAA Nevada Housing Division, Multi-Unit Housing, Saratoga
Palms, FNMA-Collateralized, 6.350% due 10/1/28(a) 1,310,938
500,000 A1* Portland, OR Multi-Family Housing, 6.250% due 5/1/12(a) 521,250
1,000,000 BBB+ Roanoke, VA Redevelopment and Housing Authority,
Multi-Family Housing Revenue Refunding,
United Dominion-Laurel Ridge, 6.625% due 5/1/23(a) 1,045,000
1,000,000 AAA Rogers County, OK Housing Finance Authority,
Multi-Family Revenue, FNMA-Collateralized, Series A,
FHA-Insured, 7.750% due 8/1/23 1,112,500
2,347,000 AAA Seattle Housing Authority, WA Low Income Housing
Revenue, GNMA-Collateralized, 7.400% due 11/20/36 2,657,978
1,000,000 AA Texas State Housing, 6.450% due 12/1/20(a) 1,063,750
- -----------------------------------------------------------------------------------------------------
26,612,855
- -----------------------------------------------------------------------------------------------------
Housing: Single-Family -- 8.5%
185,000 AAA Alaska State Housing Finance Corp., Home Mortgage,
Single-Family Revenue, GNMA/FHLMC-Collateralized,
8.750% due 12/1/16 190,408
620,000 AAA Arkansas Housing Development, Single-Family Mortgage
Revenue, Series A, GNMA-Collateralized,
7.400% due 9/1/23(a) 658,750
</TABLE>
See Notes to Financial Statements.
11
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Schedule of Investments (unaudited) (continued) September 30, 1997
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AMOUNT RATING SECURITY VALUE
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<S> <C> <C> <C>
Housing: Single-Family -- 8.5% (continued)
$ 560,000 Aaa* Aurora Kane & Dupage, IL Single-Family Mortgage
Revenue, Series A, GNMA/FHLMC-Collateralized,
7.950% due 10/1/25(a) $ 638,400
1,325,000 Aa2* Colorado HFA, Single-Family Housing Revenue,
Series B1, 7.900% due 12/1/25(a) 1,490,625
980,000 Aa2* Colorado HFA, Single-Family Program Refunding,
Senior Bonds, 1994 Series D-1, 8.000% due 12/1/24 1,097,600
4,450,000 AAA Cowley & Shawnee Counties, KS Mortgage Revenue,
Series B, AMBAC-Insured, GNMA-Collateralized,
zero coupon due 6/1/22(a) 661,938
770,000 AAA District of Columbia HFA, Collateralized Revenue,
Single-Family, Series 90A, GNMA/FHLMC/FNMA-
Collateralized, 8.100% due 12/1/23(a) 819,088
590,000 AAA Fort Worth, TX Housing Finance Corp., Single-Family
Mortgage Revenue, Series A, GNMA-Collateralized,
zero coupon due 6/1/21 89,238
1,145,000 AA Idaho Housing Agency, Single-Family Mortgage,
Series C-2, 7.900% due 1/1/22(a) 1,203,681
790,000 Aa2* Illinois Housing Development Authority, Residential
Mortgage Revenue, Series 89A, 7.400% due 2/1/20(a) 819,625
640,000 A1* Labette County, KS Single-Family Mortgage Revenue
Refunding, Series A, 8.400% due 12/1/11 688,800
1,840,000 Aa* Maryland State Community Development Administration,
Single-Family Mortgage Revenue, FHA-Insured,
7.450% due 4/1/32(a) 1,941,200
Missouri State Housing Development Community
Mortgage Revenue:
645,000 AAA GNMA-Collateralized, Series A, zero coupon due 7/1/23 99,975
1,000,000 AAA GNMA/FNMA-Collateralized, Series C,
7.450% due 9/1/27(a) 1,134,788
2,330,043 AAA Montgomery County, TX Housing Finance Corp.,
Single-Family Mortgage Revenue, MBIA-Insured,
zero coupon due 9/1/15 326,206
Nebraska Investments Finance Authority:
500,000 AAA GNMA-Collateralized, RIBS Variable Rate,
9.751% due 9/15/23(a)(c) 548,125
400,000 AAA Single-Family Mortgage Revenue,
GNMA Mortgage Backed Securities Program,
1990 Series 3, RIBS Variable Rate,
11.226% due 9/10/30(a)(d) 455,000
1,689,189 AA Nevada Housing Development Single-Family Mortgage
Revenue, Series 1983 B, FHA-Insured,
zero coupon due 4/1/15 287,162
</TABLE>
See Notes to Financial Statements.
12
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<S> <C> <C> <C>
Housing: Single-Family -- 8.5% (continued)
$1,725,000 Aa* New Hampshire State HFA, Single-Family Residential
Mortgage, 7.250% due 7/1/15(a) $ 1,830,656
485,000 Aa2* Oregon State Housing & Community Services Department,
Mortgage Revenue, Single-Family Mortgage Program,
Series D, 6.500% due 7/1/24(a) 514,706
195,000 BBB- Panhandle, TX Regional Housing Finance Corp.,
Single-Family Mortgage Revenue, 10.375% due 3/1/09 199,856
1,000,000 AA+ Pennsylvania HFA, Single-Family Mortgage Revenue,
Series 39B, 6.875% due 10/1/24(a) 1,080,000
1,750,000 AAA Pima County, AZ Single-Family Mortgage Revenue,
Series A, GNMA/FNMA/FHLMC-Collateralized,
step bond to yield 6.245% due 11/1/29 1,863,138
680,000 AAA Prince Georges County, MD Housing Authority,
Single-Family Mortgage Revenue Refunding, Series A,
GNMA-Collateralized, 8.000% due 1/1/17 752,250
3,300,000 AAA Reno County, KS Single-Family Mortgage Revenue,
Series A, AMBAC-Insured, zero coupon due 12/1/14 486,750
Rhode Island Housing & Mortgage Financing Corp.:
1,500,000 AA+ Home Ownership Opportunity Bonds, Series 8,
INFLOS Variable Rate, 10.225% due 4/1/24(a)(d) 1,650,000
1,400,000 AA+ Home Ownership, Series 88-ID, 7.875% due 10/1/21(a) 1,464,750
South Dakota Housing Development Authority, Home
Ownership Mortgage Board:
1,995,000 AAA Series C, 7.300% due 5/1/24(a) 2,104,725
1,500,000 AAA Series F, 5.800% due 5/1/28(a) 1,513,125
602,324 A1* St. Bernard Parish, LA Home Mortgage Authority,
Single-Family Mortgage Revenue Refunding, Series A,
8.000% due 3/25/12 650,511
850,000 AA Tennessee Housing Development Authority, Home
Ownership Bonds, Series H, 7.825% due 7/1/15(a) 879,750
325,000 AAA Travis County, TX Housing Finance Corp.,
Single-Family Mortgage Revenue, Series B,
GNMA/FNMA-Collateralized, 7.100% due 10/1/27(a) 353,031
Utah HFA, Single-Family Mortgage Revenue, FHA-Insured:
795,000 AA 7.300% due 7/1/16 844,688
455,000 AA 9.000% due 1/1/19(a)(c) 494,244
3,000,000 AA+ Virginia State Housing Development Authority,
Commonwealth Mortgage, Series A, 7.150% due 1/1/33 3,206,250
665,000 AA Wyoming Community Development Authority,
FHA-Insured, 8.125% due 6/1/21(a) 702,406
- -----------------------------------------------------------------------------------------------------
33,741,445
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
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<S> <C> <C> <C>
Industrial Development -- 4.8%
$1,000,000 Baa3* Delaware County, PA Authority Revenue,
(Elwyn Inc. Project), 8.350% due 6/1/15 $ 1,122,500
2,500,000 BBB+ Greenville County, SC Industrial Revenue, (Lockheed
Aeromod Center Inc. Project), 7.100% due 11/1/11(a) 2,712,500
850,000 AA Hempstead, NY IDA & IDR Bonds, (1990 Nassau District
Energy Corp. Project), LOC Toronto Dominion, 7.750% due
9/15/15(a) 861,926
2,650,000 A+ Iowa Finance Authority, (Governor Square Project),
7.250% due 4/1/02 2,792,438
New York City, NY IDA:
2,000,000 NR Industrial Revenue, (Visy Paper Inc. Project),
7.950% due 1/1/28(a) 2,282,500
1,500,000 Baa2* Special Facilities Revenue, (American Airlines Project),
7.750% due 7/1/19(a) 1,578,750
3,000,000 AA Oklahoma City, OK Industrial & Culture Facilities,
6.750% due 9/15/17(a) 3,093,750
1,000,000 A Rensselaer County, NY IDA Albany International
Corp.-Insured, 7.550% due 6/1/07(a) 1,168,750
1,000,000 A3* Tucson, AZ Airport Authority Inc., Special Facilities Revenue
Bonds, Lockheed Aeromod Center Inc., Series 1990,
8.700% due 9/1/19(a) 1,128,750
2,000,000 A West Chicago, IL IDR, (Leggett & Platt Inc. Project),
6.900% due 9/1/24(a) 2,205,000
- -----------------------------------------------------------------------------------------------------
18,946,864
- -----------------------------------------------------------------------------------------------------
Life Care -- 1.9%
2,000,000 Aa* Hamilton County, OH Mortgage Revenue, Judson Care
Center, Series A, FHA-Insured, 6.500% due 8/1/26 2,132,500
2,500,000 BBB Illinois Development Finance Authority Health Facilities,
Community Living, 7.125% due 3/1/10 2,653,121
1,000,000 BBB+ Indianapolis, IN Industrial EDR, 7.625% due 10/1/22 1,088,750
1,400,000 AAA Massachusetts State Industrial Finance Agency Revenue,
Briscoe House Assisted Living, FHA-Insured,
7.125% due 2/1/36(a) 1,552,250
- -----------------------------------------------------------------------------------------------------
7,426,621
- -----------------------------------------------------------------------------------------------------
Miscellaneous -- 4.8%
4,000,000 BBB- Clarksville, TN Natural Gas Acquisition Corp.,
Series A, 7.500% due 11/1/04 4,240,000
2,000,000 A Illinois Development Finance Authority Revenue Refunding,
City of East St. Louis, 7.250% due 11/15/09 2,217,500
2,000,000 AAA Illinois State Sales Tax Revenue, Series P,
6.500% due 6/15/13 2,297,500
1,500,000 A Indiana Bond Bank Guaranty State Revolving Fund,
Series B, 6.875% due 2/1/12 1,678,125
</TABLE>
See Notes to Financial Statements.
14
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<S> <C> <C> <C>
Miscellaneous -- 4.8% (continued)
$3,500,000 AA+ Michigan Municipal Bond Authority Revenue,
5.125% due 10/1/20 $ 3,399,375
400,000 A2* Oregon State Bond Bank, Economic Development
Department, Series 1, 6.700% due 1/1/15 437,500
1,330,000 NR Seward, AK (Sealife Center Project), 7.650% due 10/1/16 1,391,513
3,000,000 AAA Southeast Wisconsin Professional Baseball Park
District, Sales Tax Revenue, MBIA-Insured,
zero coupon due 12/15/28 543,750
2,500,000 A- Summit County, CO Sports Facilities Refunding
Revenue, (Keystone Resorts Management Inc.
Project), Ralston Purina Co. Guaranteed,
7.750% due 9/1/06 2,937,500
- -----------------------------------------------------------------------------------------------------
19,142,763
- -----------------------------------------------------------------------------------------------------
Pollution Control -- 7.8%
1,500,000 BBB+ Brazos River Authority, TX Utility Electric,
8.250% due 1/1/19(a) 1,591,875
5,000,000 Aa3* Brazos River, TX Navigation District PCR, (BASF Corp.
Project), 6.750% due 2/1/10 5,875,000
Lancaster, PA Solid Waste Resource Recovery:
1,000,000 BBB 7.875% due 12/15/09 1,039,300
1,500,000 BBB Series A, 8.500% due 12/15/10(a) 1,565,310
2,000,000 AAA Matagorda County, TX Navigational District No. 2, PCR,
Houston Power & Light, Series D, FGIC-Insured,
7.600% due 10/1/19(a)(c) 2,160,000
1,500,000 AAA Monroe County, MI PCR, (Detroit Edison Co. Project),
7.650% due 9/1/20(a) 1,650,000
2,000,000 AA Mount Vernon, IN PCR, Southern Indiana Gas,
7.250% due 3/1/14 2,180,000
935,000 NR New Jersey EDA Revenue, (Atlantic City Sewer Project),
7.250% due 12/1/11(a) 1,028,500
1,500,000 AAA Ohio State Water Development Authority, Pollution Control
Facilities Revenue, Cleveland Electric, FGIC-Insured,
8.000% due 10/1/99(a) 1,605,000
1,850,000 A1* Richland, SC Solid Waste Facility, (Union Camp Project),
7.125% due 9/1/21(a) 2,018,813
3,000,000 NR Rockdale County, GA Solid Waste Authority Revenue,
7.500% due 1/1/26 3,255,000
1,945,000 BBB Saint Charles Parish, LA PCR, Union Carbide,
7.350% due 11/1/22(a) 2,149,225
1,130,000 A Southwestern Illinois Development Authority, Solid Waste
Disposal Revenue, (Laclede Steel Co. Project),
8.500% due 8/1/20(a) 1,251,475
</TABLE>
See Notes to Financial Statements.
15
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<S> <C> <C> <C>
Pollution Control -- 7.8% (continued)
$3,200,000 BBB Sweetwater County, WY Solid Waste Disposal Revenue,
(FMC Corp. Project), 7.000% due 6/1/24(a) $ 3,504,000
- -----------------------------------------------------------------------------------------------------
30,873,498
- -----------------------------------------------------------------------------------------------------
Pre-Refunded(e) -- 3.2%
2,680,000 Baa3* Arapahoe, CO Capital Improvement Highway Revenue,
(Call 8/31/05 @ 103), 6.950% due 8/31/20 3,145,650
1,500,000 AAA Chattanooga-Hamilton County, TN Hospital Authority
Revenue, FSA-Insured, (Call 2/25/00 @ 104), 9.875% due
5/25/21(d) 1,807,500
2,000,000 AAA Fairfax County, VA IDA , Series A, (Call 8/28/01 @
104), 9.627% due 8/29/23(d) 2,437,500
500,000 AAA Illinois Health Facility Authority Revenue, United
Medical Center, (Call 7/1/03 @ 100), 8.375% due 7/1/12 599,375
1,095,000 AAA New York City, NY GO, Series D, (Call 2/1/02 @
101.5), 7.500% due 2/1/16 1,246,931
1,170,000 AAA New York State Medical Care Facilities Financing Agency,
Long Term Health Care, Medical Health Services,
Series 91B, (Call 2/15/02 @ 102), 7.400% due 2/15/18 1,330,875
North Carolina Eastern Municipal Power Agency, Power
System Revenue Refunding:
1,000,000 AAA Call 1/1/22 @ 100, 4.500% due 1/1/24 903,750
1,310,000 AAA Call 1/1/22 @ 100, 6.000% due 1/1/26 1,454,100
- -----------------------------------------------------------------------------------------------------
12,925,681
- -----------------------------------------------------------------------------------------------------
Public Facilities -- 10.2%
7,990,000 AAA Anaheim, CA Public Financing Authority,
FSA-Insured, zero coupon due 9/1/21 2,127,338
1,000,000 AAA Atlanta & Fulton County, GA Recreational Authority
Revenue, MBIA-Insured, 5.375% due 12/1/26 995,000
2,500,000 A- Dekalb County, IN Redevelopment (Mini-Mill Local Public
Improvement Project), 6.500% due 1/15/14 2,684,375
3,750,000 AA- George L. Smith II Georgia, World Congress Center
Authority Revenue Bonds, (Domed Stadium Project), Series
1990, LOC Industrial Bank of Japan, 7.875% due 7/1/20(a) 4,110,938
Indianapolis, IN Local Public Improvement Bond Bank:
3,685,000 A+ Series 1992D, 6.750% due 2/1/14 4,325,265
3,000,000 AA Series B, 6.000% due 1/10/13 3,330,000
3,600,000 AA- La Cross, WI Resource Recovery Revenue,
(Northern State Power Project),
6.000% due 11/1/21(a) 3,879,000
5,000,000 AAA Metropolitan Pier & Exposition Authority, IL
Dedicated State Tax Revenue, Series A, MBIA-Insured, zero
coupon due 6/15/22 1,281,250
</TABLE>
See Notes to Financial Statements.
16
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AMOUNT RATING SECURITY VALUE
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<S> <C> <C> <C>
Public Facilities -- 10.2% (continued)
$1,095,000 BBB- Portland, TX Community Center Sales Tax Gross Revenue,
7.000% due 2/15/25 $ 1,138,800
2,000,000 BBB+ Triborough Bridge & Tunnel Authority, NY (Convention
Center Project), Series E, 7.250% due 1/1/10 2,360,000
3,960,000 A Tulsa, OK Public Facilities Authority, Lease Payment
Revenue Refunding, Assembly Center,
6.600% due 7/1/14 4,544,100
6,840,000 AAA Washington State Public Power Supply Systems,
Nuclear Project No. 1, Series B, AMBAC-Insured,
5.125% due 7/1/17 6,583,500
3,285,000 AAA Washington State Public Power Supply Systems,
Nuclear Project No. 3, Series A, FSA-Insured,
5.250% due 7/1/17 3,215,194
- -----------------------------------------------------------------------------------------------------
40,574,760
- -----------------------------------------------------------------------------------------------------
Short-Term(f) -- 0.4%
400,000 A-1+ Dade County, FL IDA, (FL Power & Light Co. Project),
4.000% due 4/1/20 400,000
200,000 A-1+ Hillborough County, FL PCR, Tampa Electric Co.,
4.000% due 5/15/18 200,000
300,000 A-1+ Jacksonville, FL PCR, (FL Power & Light Co. Project),
4.000% due 5/1/29 300,000
500,000 A-1+ Port Authority of New York & New Jersey,
Special Obligation Revenue, 4.100% due 4/1/24 500,000
300,000 A-1+ Puerto Rico Government Development Bank,
3.700% due 12/1/15 300,000
- -----------------------------------------------------------------------------------------------------
1,700,000
- -----------------------------------------------------------------------------------------------------
Tax Allocation -- 0.6%
1,000,000 AAA La Quinta, CA Redevelopment Agency, MBIA-Insured,
7.300% due 9/1/12 1,238,750
1,000,000 BBB- Providence, RI Special Obligation, Tax Increment,
Series D, 6.650% due 6/1/16 1,063,750
- -----------------------------------------------------------------------------------------------------
2,302,500
- -----------------------------------------------------------------------------------------------------
Transportation -- 11.6%
3,000,000 Baa2* Alliance Airport Authority Inc., TX Special Facilities Revenue,
(American Airlines Inc. Project), 7.500% due 12/1/29(a) 3,266,250
2,000,000 Baa2* Chicago, IL O'Hare International Airport, Special Facility
Revenue, International Terminal, Series 1985A,
(American Airlines Inc. Project), 7.875% due 11/1/25(a) 2,185,000
City and County of Denver, CO Airport Systems Revenue:
3,500,000 Baa1* Series 1992B, 7.250% due 11/15/07(a) 3,850,000
1,000,000 Baa1* Series A, FGIC-Insured, 8.500% due 11/15/23(a) 1,126,250
</TABLE>
See Notes to Financial Statements.
17
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FACE
AMOUNT RATING SECURITY VALUE
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<S> <C> <C> <C>
Transportation -- 11.6% (continued)
$2,010,000 NR Connecticut Development Authority, Airport Facilities
Revenue, 6.625% due 12/1/14(a) $ 2,120,550
4,250,000 AAA E-470 Public Highway Authority, Series A,
MBIA-Insured, 5.000% due 9/1/26 3,995,000
1,955,000 BBB- Foothill/Eastern Corridor Agency, California Toll
Road Revenue, Series A, 5.000% due 1/1/35 1,776,606
4,000,000 AA Harris County, TX Toll Road Revenue, 5.000% due 8/15/21 3,785,000
3,000,000 AAA Massachusetts State Port Authority Revenue,
Bosfuel Project, MBIA-Insured, 5.750% due 7/1/39 3,033,750
Massachusetts State Turnpike Authority, Highway Systems
Revenue, MBIA-Insured:
5,250,000 Aaa* Series A, 5.000% due 1/1/37 4,902,188
2,470,000 Aaa* Series C, zero coupon due 1/1/21 707,038
New Hampshire State Turnpike Systems Revenue
Refunding, FGIC-Insured:
2,500,000 AAA 6.750% due 11/1/11 2,850,000
1,000,000 AAA RIBS, Series C, 9.632% due 11/1/17(d) 1,292,500
Puerto Rico Commonwealth Highway & Transportation
Authority, Highway Revenue, Series Y:
3,000,000 A 5.000% due 7/1/36 2,816,250
1,000,000 A 5.500% due 7/1/36 1,008,750
Regional Transit Authority, Illinois:
2,000,000 AAA Series A, AMBAC-Insured, 6.400% due 6/1/12 2,275,000
1,045,000 AAA Series C, FGIC-Insured, 7.750% due 6/1/20 1,387,234
3,240,000 AAA Rhode Island Port Authority & Economic Development,
Shepard Building, AMBAC-Insured,
6.750% due 6/1/25 3,576,150
- -----------------------------------------------------------------------------------------------------
45,953,516
- -----------------------------------------------------------------------------------------------------
Utilities -- 5.8%
3,000,000 AAA Brownsville, TX Utility System Revenue Priority
Refunding, MBIA-Insured, 6.250% due 9/1/14 3,390,000
10,000,000 AAA Chelan County, WA Public Utility District No. 1,
Capital Appreciation, Series A, MBIA-Insured,
zero coupon due 6/1/24 2,287,500
3,880,000 AAA Clark County, NV IDR, (Nevada Power Co. Project),
FGIC-Insured, 7.800% due 6/1/20(a) 4,263,150
Georgia Municipal Electric Authority Power Revenue:
1,500,000 AAA Series EE, AMBAC-Insured, 7.250% due 1/1/24 1,908,750
2,500,000 A Series X, 6.500% due 1/1/12 2,828,125
5,000,000 AAA Municipal Electric Authority, GA, Series A,
(Project One), AMBAC-Insured, 5.000% due 1/1/26 4,731,250
1,000,000 A+ New York State Energy Research & Development,
(Con Edison Project A), 7.125% due 12/1/29(a) 1,147,500
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
=====================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
=====================================================================================================
<S> <C> <C> <C>
Utilities -- 5.8% (continued)
$1,000,000 Baa1* North Carolina Eastern Municipal Power Agency System
Revenue, Series B, 6.000% due 1/1/22 $ 1,042,500
1,235,000 AAA Piedmont, SC Municipal Power Agency, Electric
Revenue Refunding, FGIC-Insured, 6.750% due 1/1/20 1,465,019
- -----------------------------------------------------------------------------------------------------
23,063,794
- -----------------------------------------------------------------------------------------------------
Water & Sewer -- 4.3%
2,400,000 A Dauphin County, PA IDA, General Water Works Corp.,
6.900% due 6/1/24(a) 2,856,000
2,500,000 AAA Detroit, MI Water Supply Systems, Series A,
MBIA-Insured, 5.000% due 7/1/27 2,337,500
2,000,000 A Idaho State Water Resources Board, Water Revenue,
Resource Development, Borse Water Corp.,
7.250% due 12/1/21(a) 2,152,500
2,000,000 AAA Jefferson County, AL Sewer Revenue,
Series D, FGIC-Insured, 5.750% due 2/1/27 2,062,500
3,400,000 Aa1* Port of Umatilla, OR Water Project Revenue,
Series 1994, LOC ABN AMRO Bank,
6.650% due 8/1/22(a) 3,638,000
1,000,000 AA Texas State Water Development Authority,
Series D, 5.000% due 8/1/19 958,750
2,550,000 A- Trumbull County, OH Sewer Disposal Revenue,
(General Motors Corp. Project), 6.750% due 7/1/14(a) 2,967,563
- -----------------------------------------------------------------------------------------------------
16,972,813
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost-- $364,820,897**) $397,003,263
=====================================================================================================
</TABLE>
(a) Income from this issue is considered a preference item for purpose of
calculating the alternative minimum tax.
(b) Bonds are escrowed to maturity with U.S. government securities and are
considered by the Manager to be triple-A rated even if the issuer has not
applied for new ratings.
(c) Security segregated by Custodian for open purchase commitment.
(d) Residual interest bond-coupon varies inversely with level of short-term
tax-exempt interest rates.
(e) Bonds are escrowed with U.S. government securities and are considered by
the Manager to be triple-A rated even if the issuer has not applied for new
ratings.
(f) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 20 and 21 for definitions of ratings and certain security
descriptions.
See Notes to Financial Statements.
19
<PAGE>
================================================================================
Bond Ratings
================================================================================
All ratings are by Standard & Poor's Ratings Service ("Standard & Poors"),
except those identified by an asterisk (*) are rated by Moody's Investors
Service Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Rating from "AA" to "BBB" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differs from the highest rated issue only in a
small degree.
A -- Bonds rated "A" have 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 -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
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 bonds in this category than in
higher rated categories.
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.
20
<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
Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
EDR -- Economic Development Revenue
ETM -- Escrowed To Maturity
FGIC -- Financial Guaranty Insurance
Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FLAIRS -- Floating Adjustable Interest Rate
Securities
FNMA -- Federal National Mortgage
Association
FRTC -- Floating Rate Trust Certificates
FSA -- Financial Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage
Association
GO -- General Obligation Bonds
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
LEVRRS -- Leveraged Reverse Rate Securities
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors
Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse
Coupon Security
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guaranty
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt
Securities
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation
Notes
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
21
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) September 30, 1997
================================================================================
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $364,820,897) $397,003,263
Interest receivable 6,396,386
Receivable for securities sold 2,186,429
Receivable for Fund shares sold 19,754
- --------------------------------------------------------------------------------
Total Assets 405,605,832
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 20,297,868
Management fees payable 151,388
Distribution fees payable 23,378
Payable to bank 10,656
Payable for Fund shares purchased 9,940
Accrued expenses 99,012
- --------------------------------------------------------------------------------
Total Liabilities 20,592,242
- --------------------------------------------------------------------------------
Total Net Assets $385,013,590
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 27,190
Capital paid in excess of par value 348,370,453
Undistributed net investment income 746,797
Accumulated net realized gain on security transactions 3,686,784
Net unrealized appreciation of investments 32,182,366
================================================================================
Total Net Assets $385,013,590
================================================================================
Shares Outstanding:
Class A 25,110,881
------------------------------------------------------------------------------
Class B 1,017,180
------------------------------------------------------------------------------
Class C 1,061,444
------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $14.16
------------------------------------------------------------------------------
Class B* $14.16
------------------------------------------------------------------------------
Class C** $14.13
------------------------------------------------------------------------------
Class A Maximium Public Offering Price Per Share
(net asset value plus 4.17% of net asset value per share) $14.75
================================================================================
</TABLE>
* 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 3).
** 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.
22
<PAGE>
================================================================================
Statement of Operations (unaudited)
================================================================================
For the Six Months Ended September 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 12,373,506
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 3) 864,084
Distribution fees (Note 3) 362,947
Registration fees 50,137
Shareholder and system servicing fees 49,678
Shareholder communications 19,554
Pricing service fees 14,038
Custody 9,601
Audit and legal 8,524
Trustees' fees 3,510
Other 5,013
- --------------------------------------------------------------------------------
Total Expenses 1,387,086
- --------------------------------------------------------------------------------
Net Investment Income 10,986,420
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE 4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 121,851,311
Cost of securities sold 116,537,575
- --------------------------------------------------------------------------------
Net Realized Gain 5,313,736
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 22,114,400
End of period 32,182,366
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 10,067,966
- --------------------------------------------------------------------------------
Net Gain on Investments 15,381,702
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 26,368,122
================================================================================
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended September 30, 1997 (unaudited)
and the Year Ended March 31, 1997
<TABLE>
<CAPTION>
September 30 March 31
===============================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 10,986,420 $ 23,279,790
Net realized gain 5,313,736 2,704,354
Increase (decrease) in net unrealized appreciation 10,067,966 (5,092,442)
- -----------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 26,368,122 20,891,702
- -----------------------------------------------------------------------------------------------
DISTRIBUTION TO
SHAREHOLDERS FROM (NOTE 2):
Net investment income (10,942,760) (22,691,231)
- -----------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (10,942,760) (22,691,231)
- -----------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 29,909,344 82,239,990
Net asset value of shares issued
for reinvestment of dividends 5,600,108 11,696,083
Cost of shares reacquired (44,907,743) (119,738,880)
- -----------------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (9,398,291) (25,802,807)
- -----------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 6,027,071 (27,602,336)
NET ASSETS:
Beginning of period 378,986,519 406,588,855
- -----------------------------------------------------------------------------------------------
End of period* $ 385,013,590 $ 378,986,519
===============================================================================================
* Includes undistributed net investment income of: $ 746,797 $ 703,137
===============================================================================================
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The National Portfolio ("Portfolio") is a separate investment portfolio of
the Smith Barney Muni Funds ("Fund"). The Fund, a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company and consists of this Portfolio and eight
other separate investment portfolios: Florida, Georgia, Limited Term, New York,
Ohio, Pennsylvania, California Money Market and New York Money Market
Portfolios. The financial statements and financial highlights for the other
portfolios are presented in separate semi-annual reports.
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 bid and ask prices provided by an independent
pricing service which are based on transactions in municipal obligations,
quotations from municipal bond dealers, market transactions in comparable
securities and various relationships between securities; (c) securities maturing
within 60 days are valued at cost plus accreted discount or minus amortized
premium, if any, 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) dividends and distributions to
shareholders are recorded on the ex-dividend date; (g) direct expenses are
charged to each Portfolio and each class; management fees and general fund
expenses are allocated on the basis of relative net assets by class; (h) 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; (i) the Portfolio intends to comply with the applicable provisions
of the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes; and (j)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
2. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Portfolio intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Portfolio.
25
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
3. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager to the Fund. The
Portfolio pays SBMFM a management fee calculated at the annual rate of 0.45% of
the average daily net assets. This fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. For the six months ended September 30, 1997, SB received sales
charges of approximately $116,000 on purchases of the Portfolio's Class A
shares.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B
shares, which applies if redemption occurs 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 have a
1.00% CDSC, which applies if redemption occurs within the first year of
purchase. For the six months ended September 30, 1997, CDSCs paid to SB were
approximately $11,000 for Class B shares.
Pursuant to a Distribution Plan, the Portfolio pays a service fee with
respect to Class A, B and C shares calculated at the annual rate of 0.15% of the
average daily net assets of each respective class. In addition, the Portfolio
pays a distribution fee with respect to Class B and C shares calculated at the
annual rates of 0.50% and 0.55% of the average daily net assets of each class,
respectively. For the six months ended September 30, 1997, total Distribution
Plan fees incurred were:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $266,666 $44,304 $51,977
================================================================================
</TABLE>
All officers and one Trustee of the Fund are employees of SB.
26
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
4. INVESTMENTS
During the six months ended September 30, 1997, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
<TABLE>
<CAPTION>
================================================================================
<S> <C>
Purchases $131,250,981
- --------------------------------------------------------------------------------
Sales 121,851,311
================================================================================
</TABLE>
At September 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
================================================================================
<S> <C>
Gross unrealized appreciation $32,315,744
Gross unrealized depreciation (133,378)
- --------------------------------------------------------------------------------
Net unrealized appreciation $32,182,366
================================================================================
</TABLE>
5. CAPITAL LOSS CARRYFORWARD
At March 31, 1997, the Portfolio had, for Federal income tax purposes,
approximately $1,485,000 of loss carryforwards available to offset future
capital gains. To the extent that these carryforward losses are used to offset
capital gains, it is probable that the gains so offset will not be distributed.
The amount and year of the expiration for each carryforward loss is indicated
below:
<TABLE>
<CAPTION>
3/31/03 3/31/04
================================================================================
<S> <C> <C>
Carryforward Amounts $1,445,000 $40,000
================================================================================
</TABLE>
6. SHARES OF BENEFICIAL INTEREST
At September 30, 1997, the Fund had an unlimited amount of shares of
beneficial interest authorized with a par value of $0.001 per share. The
Portfolio has the ability to issue multiple classes of shares. Each share of a
class represents an identical interest in the Portfolio and has the same rights,
except that each class bears certain expenses specifically related to the
distribution of its shares.
At September 30, 1997, total paid-in capital amounted to the following for
each class:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Total Paid-in Capital $319,965,040 $13,366,774 $15,065,829
================================================================================
</TABLE>
27
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1997 March 31, 1997
--------------------------- ---------------------------
Shares Amount Shares Amount
================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 2,041,784 $ 28,267,895 5,705,109 $ 77,871,073
Shares issued on reinvestment 368,292 5,133,261 785,527 10,732,902
Shares redeemed (3,134,745) (43,497,937) (8,337,357) (113,957,473)
- ------------------------------------------------------------------------------------------------
Net Decrease (724,669) $ (10,096,781) (1,846,721) $ (25,353,498)
================================================================================================
Class B
Shares sold 93,406 $ 1,302,000 139,353 $ 1,871,437
Shares issued on reinvestment 16,429 229,102 29,337 427,323
Shares redeemed (25,054) (350,057) (84,709) (1,158,601)
- ------------------------------------------------------------------------------------------------
Net Increase 84,781 $ 1,181,045 83,981 $ 1,140,159
================================================================================================
Class C
Shares sold 24,333 $ 339,449 179,662 $ 2,497,480
Shares issued on reinvestment 17,094 237,745 42,703 535,858
Shares redeemed (76,862) (1,059,749) (338,272) (4,622,806)
- ------------------------------------------------------------------------------------------------
Net Decrease (35,435) $ (482,555) (115,907) $ (1,589,468)
================================================================================================
</TABLE>
28
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares 1997(1) 1997 1996 1995(2) 1994 1993
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $13.60 $13.67 $13.32 $13.35 $13.81 $12.95
- -------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.41 0.81 0.81 0.82 0.85 0.88
Net realized and
unrealized gain (loss) 0.55 (0.09) 0.35 (0.01) (0.39) 0.87
- -------------------------------------------------------------------------------------------------------
Total Income From
Operations 0.96 0.72 1.16 0.81 0.46 1.75
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.40) (0.79) (0.81) (0.84) (0.86) (0.89)
Net realized gains -- -- -- -- (0.06) --
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.40) (0.79) (0.81) (0.84) (0.92) (0.89)
- -------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $14.16 $13.60 $13.67 $13.32 $13.35 $13.81
- -------------------------------------------------------------------------------------------------------
Total Return 7.16%++ 5.41% 8.83% 6.38% 3.17% 13.96%
- -------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $356 $351 $378 $401 $413 $383
- -------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 0.67%+ 0.70% 0.70% 0.60% 0.52% 0.53%
Net investment income 5.78+ 5.92 5.88 6.30 6.05 6.58
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 33% 31% 27% 54% 42% 53%
=======================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) On October 10, 1994, the former Class C shares were exchanged into Class A
shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
29
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares 1997(1) 1997 1996 1995(2)
=====================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.61 $13.67 $13.33 $12.41
- -----------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.36 0.74 0.73 0.33
Net realized and unrealized gain (loss) 0.55 (0.08) 0.35 0.91
- -----------------------------------------------------------------------------------------------------
Total Income From Operations 0.91 0.66 1.08 1.24
- -----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.36) (0.72) (0.74) (0.32)
- -----------------------------------------------------------------------------------------------------
Total Distributions (0.36) (0.72) (0.74) (0.32)
- -----------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.16 $13.61 $13.67 $13.33
- -----------------------------------------------------------------------------------------------------
Total Return 6.79%++ 4.95% 8.26% 10.11%++
- -----------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $14,406 $12,691 $11,605 $6,905
- -----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.35%+ 1.20% 1.19% 1.19%+
Net investment income 5.10+ 5.42 5.37 5.75+
- -----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 33% 31% 27% 54%
=====================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) For the period from November 7, 1994 (inception date) to March 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
30
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class C Shares 1997(1) 1997 1996 1995(2) 1994 1993(3)
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $13.59 $13.65 $13.32 $13.33 $13.80 $13.47
- --------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.35 0.73 0.73 0.74 0.76 0.22
Net realized and
unrealized gain (loss) 0.55 (0.08) 0.34 (0.01) (0.40) 0.31
- --------------------------------------------------------------------------------------------------------------------------
Total Income From
Operations 0.90 0.65 1.07 0.73 0.36 0.53
- --------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.36) (0.71) (0.74) (0.74) (0.77) (0.20)
Net realized gains -- -- -- -- (0.06) --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.36) (0.71) (0.74) (0.74) (0.83) (0.20)
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $14.13 $13.59 $13.65 $13.32 $13.33 $13.80
- --------------------------------------------------------------------------------------------------------------------------
Total Return 6.69%++ 4.90% 8.13% 5.80% 2.40% 3.98%++
- --------------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $14,998 $14,901 $16,563 $18,599 $18,185 $5,738
- --------------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 1.48%+ 1.27% 1.27% 1.23% 1.22% 1.20%+
Net investment income 4.97+ 5.35 5.31 5.69 5.29 5.68+
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 33% 31% 27% 54% 42% 53%
==========================================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) On November 7, 1994, the former Class B shares were renamed Class C shares.
(3) For the period from January 5, 1993 (inception date) to March 31, 1993.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
31
<PAGE>
[This page intentionally left blank]
<PAGE>
SMITH BARNEY SMITH BARNEY
MUNI FUNDS ---------------------------------
A Member of TravelersGroup [LOGO]
Trustees Investment Manager
Joseph H. Fleiss Smith Barney Mutual Funds
Donald R. Foley Management Inc.
Paul Hardin
Heath B. McLendon, Chairman Distributor
Roderick C. Rasmussen Smith Barney Inc.
John P. Toolan
Custodian
C. Richard Youngdahl, Emeritus PNC Bank, N.A.
Officers Shareholder
Heath B. McLendon Servicing Agent
Chief Executive Officer First Data Investor Services Group, Inc.
P.O. Box 9134
Lewis E. Daidone Boston, MA 02205-9134
Senior Vice President
and Treasurer
Peter M. Coffey
Vice President
Thomas M. Reynolds
Controller This report is submitted for the general
information of the shareholders of Smith
Christina T. Sydor Barney Muni Funds - National Portfolio.
Secretary It is not authorized for distribution to
prospective investors unless accompanied
or preceded by a current Prospectus for
the Portfolio, which contains
information concerning the Portfolio's
investment policies and expenses as well
as other pertinent information.
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
FD0806 11/97
================================================================================
SEMI - ANNUAL REPORT
================================================================================
[GRAPHIC]
Smith Barney
Muni Funds
Limited Term
Portfolio
----------------------------
September 30, 1997
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
======================
Limited Term Portfolio
======================
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Muni Funds
- -- Limited Term Portfolio ("Portfolio") for the period ended September 30, 1997.
In this report, we summarize the period's prevailing economic and market
conditions and outline our portfolio strategy. A detailed summary of the
Portfolio's performance can be found in the appropriate sections that follow.
Performance Update
For the six months ended September 30, 1997, Class A shares of the Portfolio had
a total return of 5.22%. In comparison, its Lipper Analytical Services, Inc.
("Lipper") peer group average had a total return of 5.06% for the same period.
(Lipper is an independent fund-tracking organization.) The performance figures
for Class C shares can be found in the sections immediately following this
letter.
We are very pleased to report that your Portfolio has received a five-star
rating overall from Morningstar, Inc.* as of September 30, 1997. During the six
months covered by the report, the Portfolio distributed income dividends
totaling $0.168 per Class A share. Based on its net asset value ("NAV") of $6.71
as of September 30, 1997 for Class A shares and the current income dividend of
$0.028 per Class A share, this equates to an annualized distribution rate of
5.01%. For an individual in the Federal tax bracket of 36%, the Fund's tax free
yield of 5.01% is equivalent to a taxable yield of 7.83%. (This figure assumes
an investor is in the 36% federal tax bracket, which according to the Internal
Revenue Service constitutes nearly 10% of all U.S. taxpayers.)
Market and Economic Overview
The municipal bond market experienced a strong rally in September after a
downturn in August. The downturn was primarily fueled by renewed investor
concerns of higher inflationary pressures and signs of growing strength in the
U.S. economy. Despite the recent increase in volatility in the financial
markets, the U.S. economy has continued to grow strongly with low unemployment
and a noticeable absence of any signs of higher inflation.
- ----------
*Morningstar proprietary ratings reflect historical risk-adjusted performance
through 9/30/97. The ratings are subject to change every month. Past performance
is not a guarantee of future results. Morningstar ratings are calculated from
the Fund's 3- and 5-year returns (with fee adjustments) in excess of 90-day
T-bill returns. The 1-year rating is calculated using the same methodology, but
is not a component of the overall rating. The Fund received 5 stars for the 1-
and 5-year periods. It was rated among 1,373 and 668 municipal bond funds for
the 1- and 5-year periods, respectively. Ten percent of the funds in a rating
category receive five stars.
1
<PAGE>
At its March 1997 meeting, the Federal Reserve Board ("Fed") raised the
federal-funds rate by 25 basis points, or 0.25% as a result of unexpected
strength in the U.S. economy. (The federal-funds rate is the interest rate banks
charge each other for overnight loans and is a closely watched indicator of the
direction of interest rates.) Nevertheless, since that time, the Fed has
remained on the sidelines, leaving interest rates unchanged at their May, July,
August and September meetings. Yet in testimony delivered to the House Budget
Committee on October 8, 1997, Fed Chairman Alan Greenspan again warned that
strong economic growth could lead to a resurgence in inflation.
So far in 1997, tax-exempt bonds experienced the second largest new issue volume
ever. In our opinion, the continuing high demand for municipal bonds is a
definite sign of strength in the bond market. We believe this high demand for
tax-exempt bonds was well received by many investment professionals and should
continue to support today's bond prices.
Investment Strategy
The Portfolio is an intermediate-term municipal bond fund that seeks to provide
investors with as high a level of current income exempt from federal taxes as is
consistent with a prudent investment approach. The Fund normally invests in
investment-grade municipal securities with remaining maturities of no greater
than 20 years, and normally maintains a dollar-weighted average maturity of
between 3 and 10 years. We believe the combination of intermediate term
securities and the portfolio's high-quality orientation should help to reduce
credit risk and NAV price volatility, while still maintaining a competitive
dividend yield for shareholders.
As of September 30, 1997, the Fund's average weighted maturity was 8.5 years,
and approximately 93% of the Fund's holdings were rated investment grade.
(Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's Investors
Service, Inc. or AAA, AA, A and BBB by Standard & Poor's Rating Services, or
have an equivalent rating by any nationally recognized statistical rating
organization, or determined by the manager to be equivalent.) The Fund's largest
holdings were concentrated in hospital bonds (16.3%), transportation bonds
(11.2%), education bonds (11.1%) and housing bonds (10.9%).
Municipal Bond Market Outlook
Some investors have expressed concerns that certain provisions of the recently
enacted Federal Taxpayer Relief Act of 1997 (which was part of the Balanced
Budget Agreement) could erode many of the tax advantages that municipal bonds
currently offer investors. However, we believe this tax legislation is largely
positive for the municipal bond market because the reduction in the
2
<PAGE>
long-term capital gains tax rate could benefit investors who receive capital
gain dividends from municipal bond funds. In addition, the withdrawal of the
alternative minimum tax for small business corporations provides favorable tax
treatment for many corporate municipal bond investors. Moreover, the new tax
legislature expands the issuance of education and housing bonds, two key
segments of the municipal bond market.
Going forward, we believe that the municipal bond market should remain strong
over the next few months. In our opinion, the Federal Reserve should continue to
remain on the sidelines and not raise interest rates unless greater inflationary
pressures appear. We believe that a moderate U.S. economy with low inflation
will continue to be favorable for intermediate-term municipal bonds.
In the coming months, we expect less bond issuance by municipalities, which
should be positive for municipal bonds. Given our expectations for a strong
municipal bond market and the lofty valuations of the stock market, we believe
it may be appropriate for some investors to consider reallocating their
portfolios and increasing their exposure to bonds.
On a more somber note, we were saddened by the loss of an outstanding physician
and Trustee of the Fund, Dr. Francis P. Martin. His knowledge and wisdom will be
missed.
In closing, thank you for investing in the Smith Barney Muni Funds - Limited
Term Portfolio. We look forward to continuing to help you pursue your financial
goals.
Sincerely,
/s/ Heath B. McLendon /s/ Lawrence T. McDermott
Heath B. McLendon Lawrence T. McDermott
Chairman Vice President
October 28, 1997
3
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Historical Performance -- Class A Shares
==========================================================================================================
Net Asset Value
----------------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
==========================================================================================================
<S> <C> <C> <C> <C>
9/30/97 $6.54 $6.71 $0.17 5.22%+
- ----------------------------------------------------------------------------------------------------------
3/31/97 6.61 6.54 0.35 4.30
- ----------------------------------------------------------------------------------------------------------
3/31/96 6.54 6.61 0.36 6.65
- ----------------------------------------------------------------------------------------------------------
3/31/95 6.55 6.54 0.37 5.69
- ----------------------------------------------------------------------------------------------------------
3/31/94 6.68 6.55 0.37 3.65
- ----------------------------------------------------------------------------------------------------------
3/31/93 6.45 6.68 0.39 9.82
- ----------------------------------------------------------------------------------------------------------
3/31/92 6.38 6.45 0.42 7.99
- ----------------------------------------------------------------------------------------------------------
3/31/91 6.28 6.38 0.40 8.23
- ----------------------------------------------------------------------------------------------------------
3/31/90 6.20 6.28 0.46 9.07
- ----------------------------------------------------------------------------------------------------------
Inception* - 3/31/89 6.25 6.20 0.13 1.09+
==========================================================================================================
Total $3.42
==========================================================================================================
<CAPTION>
==========================================================================================================
Historical Performance -- Class C Shares
==========================================================================================================
Net Asset Value
----------------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
==========================================================================================================
<S> <C> <C> <C> <C>
9/30/97 $6.54 $6.70 $0.16 4.95%+
- ----------------------------------------------------------------------------------------------------------
3/31/97 6.61 6.54 0.34 4.10
- ----------------------------------------------------------------------------------------------------------
3/31/96 6.54 6.61 0.34 6.45
- ----------------------------------------------------------------------------------------------------------
3/31/95 6.54 6.54 0.35 5.51
- ----------------------------------------------------------------------------------------------------------
3/31/94 6.68 6.54 0.35 3.15
- ----------------------------------------------------------------------------------------------------------
Inception* - 3/31/93 6.62 6.68 0.09 2.28+
==========================================================================================================
Total $1.63
==========================================================================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.
4
<PAGE>
================================================================================
Average Annual Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
----------------------------
Class A Class C
================================================================================
<S> <C> <C>
Six Months Ended 9/30/97+ 5.22% 4.95%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 7.37 7.15
- --------------------------------------------------------------------------------
Five Years Ended 9/30/97 5.95 N/A
- --------------------------------------------------------------------------------
Inception* through 9/30/97 6.97 5.60
================================================================================
<CAPTION>
Without Sales Charge(2)
----------------------------
Class A Class C
================================================================================
<S> <C> <C>
Six Months Ended 9/30/97+ 3.17% 3.95%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 5.29 6.15
- --------------------------------------------------------------------------------
Five Years Ended 9/30/97 5.54 N/A
- --------------------------------------------------------------------------------
Inception* through 9/30/97 6.72 5.60
================================================================================
</TABLE>
================================================================================
Cumulative Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (Inception* through 9/30/97) 81.45%
- --------------------------------------------------------------------------------
Class C (Inception* through 9/30/97) 29.46
================================================================================
</TABLE>
(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 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 2.00% and Class C shares reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within one
year from initial purchases.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A and C shares are November 28, 1988 and January
5, 1993, respectively.
5
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A Shares of
the Limited Term Portfolio vs.
Lehman Brothers Municipal 5-Year Bond Index and
Lehman Brothers Municipal Long Bond Index+
- --------------------------------------------------------------------------------
November 1988 -- September 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Limited Term Lehman Brothers Municipal Lehman Brothers Municipal
Date Portfolio 5-Year Bond Index Long Bond Index
---- --------- ----------------- ---------------
<S> <C> <C> <C>
11/28/88 $ 9,796 $10,000 $10,000
3/89 $ 9,900 $10,024 $10,100
3/90 $10,720 $10,994 $11,200
3/91 $11,653 $12,022 $12,071
3/92 $12,568 $13,046 $13,440
3/93 $13,786 $14,395 $15,402
3/94 $14,273 $14,821 $15,574
3/95 $15,076 $15,667 $16,980
3/96 $16,078 $16,808 $18,457
3/97 $16,769 $17,511 $19,620
9/30/97 $17,645 $18,322 $21,260
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares at
inception on November 28, 1988, assuming deduction of the maximum 2.00%
sales charge at the time of investment and reinvestment of dividends (after
deduction of applicable sales charge through November 6, 1994, afterwards
at net asset value) and capital gains, if any, at net asset value through
September 30, 1997. The Lehman Brothers Municipal 5-Year Bond Index
(consisting of 4-6 year maturities) and the Lehman Brothers Municipal Long
Bond Index (consisting of maturities of at least 22 years) are sub-indices
of the Lehman Brothers Municipal Bond Index, a broad based, total return
index comprised of investment grade, fixed rate municipal bonds selected
from issues larger than $50 million issued since January 1991. The
sub-indices are unmanaged and are not subject to the same management and
trading expenses of a mutual fund. The performance of the Portfolio'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.
6
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Education -- 11.1%
$ 2,825,000 A* Arizona Education Loan Marketing Corp., Education Loan
Revenue Bonds, 7.000% due 3/1/02(a)(b) $ 3,054,531
2,180,000 A* Arkansas State Student Loan Authority Revenue,
Sub-Series A-2, (Partially Pre-Refunded--Escrowed with
U.S. government securities to 12/1/97 Call @ 100),
6.125% due 12/1/00(a)(c) 2,248,125
940,000 Aa* Brazos, TX Higher Education Authority, Series C-1,
6.000% due 11/1/99(a) 967,025
Colorado Student Obligation Board Authority,
Student Loan Revenue:
240,000 A* Series A, 6.625% due 6/1/99 246,900
1,350,000 A* Series A-1, 6.600% due 9/1/98 1,372,410
1,150,000 AA Fairfield County, SC School District, COP,
5.500% due 3/1/07 1,200,312
1,000,000 A+ Illinois Student Assistance Commission, Student Loan
Revenue, Series H, 6.100% due 3/1/01(a) 1,041,250
350,000 Aa1* Iowa Student Loan Liquidity Corp., Student Loan Revenue,
Series A, 6.000% due 3/1/98 352,412
1,000,000 Aaa* Kentucky Higher Education Student Loan Corp.,
Insured Student Loan Revenue, Series 91B,
6.500% due 12/1/00(a) 1,052,500
1,000,000 AAA Lanse Creuse, MI Public Schools, AMBAC-Insured,
5.250% due 5/1/17 983,750
210,000 AAA Louisiana Public Facilities Authority Revenue, Supplemental
Student Loan C, AMBAC-Insured, 8.125% due 12/1/99 223,125
4,655,000 AAA McKeesport, PA Area School District, MBIA-Insured,
zero coupon due 10/1/17 1,576,881
1,200,000 A* Montana State Higher Education Student Assistance
Corp., Student Loan Revenue, Series 92B,
7.050% due 6/1/04(a) 1,288,500
North Texas Higher Education Authority Inc.,
Student Loan Revenue:
1,475,000 AAA AMBAC-Insured, 7.000% due 4/1/01(a) 1,550,594
2,400,000 A* Series D, 6.300% due 4/1/09(a) 2,481,000
2,000,000 AAA Pennsylvania State Higher Education Assistance Agency,
Student Loan Revenue Refunding, Series A,
FGIC-Insured, 6.800% due 12/1/00 2,135,000
1,500,000 A* Rhode Island Student Loan Authority Revenue Refunding,
Series 92B, 6.750% due 12/1/01(a) 1,612,500
1,500,000 AAA Schuylkill, PA Redevelopment Authority Revenue,
Commonwealth Lease Revenue Bonds, Series A,
FGIC-Insured, 6.850% due 6/1/03 1,648,125
2,540,000 A South Dakota Student Loan Assistance Corp., Student Loan
Revenue, 7.350% due 8/1/98(a) 2,596,896
630,000 A* Texas State Higher Education Coordinating Board, College
Student Loan Revenue, 6.800% due 4/1/98(a) 636,382
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Education -- 11.1% (continued)
Utah State School District Co-Op Revenue Financing Pool,
LOC Swiss Bank:
$ 875,000 AA+ 8.300% mandatory tender 2/15/98 $ 887,932
945,000 AA+ 8.300% mandatory tender 2/15/00 1,022,962
2,195,000 AA+ 8.375% due 2/15/10 2,265,723
- -----------------------------------------------------------------------------------------------------------
32,444,835
- -----------------------------------------------------------------------------------------------------------
Escrowed to Maturity(c) -- 5.0%
1,390,000 AAA Boston, MA Water & Sewer Community Revenue,
10.650% due 1/1/99 1,457,762
740,000 Baa3* Delaware County, PA Development Authority Revenue,
(Elwyn Inc. Project), 7.750% due 6/1/00 805,675
60,000 AAA Enid, OK Hospital Authority Revenue, St. Mary's Hospital
Crossover Refunding, 8.000% due 7/1/98 60,826
1,135,000 AAA Erie County, OH Hospital Improvement, Sandusky
Memorial Hospital, 8.750% due 1/1/06(b) 1,335,044
1,050,000 AAA Illinois Educational Facilities Authority Revenue, Chicago
Osteopathic Medical, Series A, 8.750% due 7/1/05 1,263,937
965,000 AAA Kalamazoo, MI Hospital Finance Authority,
6.750% due 4/1/03 1,037,375
445,000 NR Lehigh County, PA IDA, Industrial & Commercial
Development Revenue, (Strawbridge Project),
7.200% due 12/15/01 485,050
New Haven, CT GO, Series B:
275,000 Baa1* 5.700% due 12/1/97 275,894
1,135,000 Baa1* 9.000% due 12/1/01 1,342,138
1,175,000 NR New Jersey State Educational Facilities Authority Revenue,
Fairleigh Dickinson University, Series C,
7.750% due 7/1/01 1,267,531
320,000 A Ouachita Parish, LA Hospital Services District #1,
Hospital Revenue Bonds, Glenwood Regional
Medical Center, Series 1991, 7.250% due 7/1/00 344,400
1,870,000 AAA Owensboro, KY Electric, Light & Power,
10.500% due 1/1/04(b) 2,239,325
220,000 Aa* Philadelphia, PA Hospitals and Higher Education Facilities
Authority Revenue, St. Agnes Medical Center Project,
FHA-Insured, 6.750% due 8/15/01 229,625
455,000 AAA San Francisco, CA Airport Improvement Corp.,
Lease Revenue, United Airlines, 7.875% due 7/1/99 474,906
755,000 NR Sullivan County, TN Health & Educational Facilities, Holston
Valley Community Hospital, 7.000% due 9/1/99 796,525
880,000 NR Tom Green County, TX Hospital Authority,
7.875% due 2/1/06 992,200
- -----------------------------------------------------------------------------------------------------------
14,408,213
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Finance -- 1.2%
$ 1,000,000 A+ New York State Local Government Assistance Corp.,
6.600% due 4/1/98 $ 1,013,580
400,000 A-1+ Puerto Rico Commonwealth Government
Development Bank, 3.700% due 12/1/15(d) 400,000
2,000,000 AAA Texas State Public Finance Authority Building Revenue,
Series B, AMBAC-Insured, 6.200% due 2/1/05 2,205,000
- -----------------------------------------------------------------------------------------------------------
3,618,580
- -----------------------------------------------------------------------------------------------------------
General Obligation -- 7.3%
1,000,000 AAA Arizona COP Refunding GO, FSA-Insured,
6.500% due 3/1/08 1,093,750
2,000,000 AAA Chicago, IL Board of Education GO, Chicago
School Reform, AMBAC-Insured,
5.800% due 12/1/13 2,092,500
1,570,000 BBB Government of Guam GO, Series A, 5.750% due 8/15/99 1,603,362
Harris County, TX Refunding Toll Road Authority
GO Unlimited, MBIA-Insured:
1,000,000 AAA Zero coupon due 8/15/11 493,750
1,000,000 AAA Zero coupon due 8/15/12 466,250
1,250,000 AAA Zero coupon due 8/15/13 550,000
500,000 AA+ Kings County, WA GO Unlimited Tax Obligation,
9.000% due 12/1/98 528,125
500,000 A3* Meridian, CO Metropolitan District, GO, Refunding Bonds,
7.000% due 12/1/97 501,805
New Haven, CT GO, Series B:
350,000 Baa1* 5.700% due 12/1/97 350,808
865,000 Baa1* 9.000% due 12/1/01 959,069
New York City, NY GO:
2,500,000 BBB+ Series A, 6.250% due 8/1/08 2,718,750
2,500,000 BBB+ Series B, 5.250% due 8/1/16 2,412,500
1,040,000 BBB+ Series D, 7.200% due 2/1/00 1,106,300
970,000 BBB+ Series F, 8.100% due 11/15/99 1,046,388
2,000,000 BBB+ Series H, 5.900% due 8/1/09 2,117,500
Texas State Veterans Housing Assistance:
2,755,000 AA Fund IID GO, 5.650% due 12/1/14(a) 2,834,206
395,000 AA GO, FHA-Insured, 6.050% due 12/1/12(a) 402,900
- -----------------------------------------------------------------------------------------------------------
21,277,963
- -----------------------------------------------------------------------------------------------------------
Hospitals -- 16.3%
515,000 A+ ABAG Finance Authority Nonprofit Corps, CA Insured COP,
(Rehabilitation Mental Health Services Inc. Project),
6.100% due 6/1/02 550,406
600,000 A- Bexar County, TX Health Facilities Development
Corp., Health Facilities Revenue Refunding,
Independence Hill Project, LOC Banque
Paribas, 7.500% mandatory tender 12/1/98 622,500
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Hospitals -- 16.3% (continued)
$ 1,000,000 AAA Calcasieu Parish Louisiana Memorial Hospital Services
District Revenue, Lake Charles Memorial Hospital,
Series A, CONNIE LEE-Insured, 7.500% due 12/1/05 $ 1,171,250
3,500,000 BBB Colorado Health Facilities Authority Hospital Revenue
Bonds, Series 1993, Rocky Mountain Adventist
Health Guaranteed, 6.250% due 2/1/04 3,714,375
1,200,000 AAA Connecticut State Health & Educational Facilities
Authority Revenue, Veterans Memorial Medical
Center, Series A, MBIA-Insured, 6.250% due 7/1/06 1,344,000
1,000,000 AAA Cuyahoga County, OH Hospital Revenue Refunding &
Improvement, University Hospitals, Series A,
MBIA-Insured, 6.000% due 1/15/06 1,095,000
5,500,000 AAA District of Columbia Hospital Revenue, Medlantic
Healthcare Group, Series A, MBIA-Insured,
5.375% due 8/15/15 5,451,875
2,135,000 A2* Harris County, TX Health Facilities Development
Corp., Memorial Health System Guaranteed,
7.125% due 6/1/05 2,415,219
1,000,000 BBB- Illinois Health Facilities Authority Revenue Refunding,
Trinity Medical Center, 6.500% due 7/1/00 1,043,750
975,000 Ba3* Langhorne Manor Higher Education & Health
Authority, Bucks County, PA Lower Bucks Hospital,
6.375% due 7/1/99 983,531
3,000,000 AAA Lee County, FL Hospital Board of Directors, Hospital
Revenue, Lee Memorial Health System, MBIA-Insured,
5.000% due 4/1/17 2,880,000
2,200,000 BBB Maplewood, MN Healthcare Facilities Revenue,
(Health East Project), 5.950% due 11/15/06 2,268,750
Massachusetts Health & Education Facilities
Authority Revenue, Series A:
515,000 Ba1* Massachusetts Eye & Ear Infirmary,
7.000% due 7/1/98 520,871
2,000,000 AAA Partners Healthcare System, MBIA-Insured,
5.250% due 7/1/15 1,970,000
New Jersey Healthcare Facilities Financing Authority
Revenue:
1,000,000 Baa1* Elizabeth General Medical Center, Series C,
7.100% due 7/1/99 1,045,000
1,030,000 BBB+ Pascack Valley Hospital, Series 91,
6.500% due 7/1/01 1,091,800
New York State Dormitory Authority Revenue:
3,000,000 A- Mental Health Services Facilities, Series B,
5.750% due 8/15/12 3,101,250
2,000,000 AAA United Health Services, AMBAC/FSA-Insured,
5.500% due 8/1/17 2,012,500
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Hospitals -- 16.3% (continued)
$ 2,000,000 AAA Norfolk, VA IDA Revenue, Bon Secours Health,
MBIA-Insured, 5.250% due 8/15/17 $ 1,975,000
2,170,000 A+ Palm Beach County, FL Health Facilities Authority
Revenue, Good Samaritan Health System Guaranteed,
6.150% due 10/1/06 2,338,175
390,000 A3* Philadelphia, PA Hospitals and Higher Education
Facilities Authority Revenue, Albert Einstein
Medical Center, 6.500% due 10/1/97 390,010
1,750,000 A Riverside, CA Asset Leasing Corp., Leasehold Revenue
Bonds, 1993 Series A, Riverside Hospital Project,
6.000% due 6/1/04 1,857,188
4,690,000 AA Royal Oak, MI Hospital Financing Authority Revenue,
William Beaumont Hospital, Series K,
zero coupon due 11/15/08 2,714,338
Scranton-Lackawanna, PA Health & Welfare
Authority Revenue:
3,000,000 BBB-++ Allied Services Rehabilitation Hospitals,
7.125% due 7/15/05 3,281,250
1,000,000 BBB- Moses Taylor Hospital Project,
6.050% due 7/1/10 1,022,500
687,000 BBB-++ Valley Health System, CA COP Refunding Project,
6.250% due 5/15/99 696,446
- -----------------------------------------------------------------------------------------------------------
47,556,984
- -----------------------------------------------------------------------------------------------------------
Housing -- 10.9%
3,000,000 A- Aurora, IL Multi-Family Revenue Refunding
Housing, (Fox Village Unit 18D Project),
LOC Banque Paribas, 7.750% due 9/1/98 3,084,540
1,500,000 AAA California Housing Finance Agency Revenue,
Home Mortgage, Series I, MBIA-Insured,
5.650% due 8/1/17(a) 1,524,375
2,500,000 Aa2* California State Department of Veterans
Affairs, Home Purchase Revenue, Series A,
7.500% due 8/1/98(a) 2,576,550
2,885,000 A+ City of Burnsville, MN Multi-Family Housing Revenue
Refunding Bonds, (The Atrium Project), Policy of
Indemnity Commercial Union Insurance Co. PLC,
Reinsured by Trygg-Hansa Ins. Co. of Sweden
7.200% mandatory tender 5/1/02 2,974,724
2,250,000 AAA DeKalb County, GA HFA, Multi-Family Housing Revenue,
(Chimney Trace Project), FNMA-Collateralized,
5.625% mandatory tender 5/1/05 2,373,750
765,000 AAA Fairfax County, VA Redevelopment & Housing Authority,
Multi-Family Refunding, Kingsley 91A, FHA-Insured,
6.500% due 11/1/01 805,163
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Housing -- 10.9% (continued)
$ 1,480,000 AAA Harrisonburg, VA Redevelopment & Housing Authority,
Multi-Family Housing Revenue, (Greens of Salem
Run Project), FSA-Insured, 6.000% due 4/1/12(a) $ 1,542,900
60,000 Aaa* Louisiana Housing Finance Agency Mortgage Revenue,
GNMA-Collateralized, Single-Family Mortgage
Revenue, 7.600% due 11/1/97(a) 59,850
1,800,000 AA- Louisiana Public Facilities Authority Revenue, Multi-Family
Housing, Oakleigh Apartments, Series A,
5.950% mandatory tender 3/15/05 1,903,500
690,000 AA Maine State Housing Authority, Series A-3, FHA-Insured,
6.900% due 11/15/98 705,421
613,737 AAA Monroe-West Monroe, LA Public Trust Financing Authority,
FHLMC-Collateralized, 8.500% due 5/20/02 645,957
1,000,000 Aaa* Nevada Housing Single-Family Mortgage, Series E,
FHA-Insured, 5.350% due 10/1/27(a) 1,010,000
2,500,000 A+ New York City, NY Housing Authority, Multi-Family Revenue
Refunding, Series A, 5.650% due 7/1/10 2,578,125
465,000 Ba2* Odessa, TX Housing Development Corp. #2, Multi-Family
Revenue Refunding, Chaparral Village, Series A,
6.375% due 12/1/03 481,856
1,625,000 AAA Onterie Center Housing Finance Corp., IL Mortgage
Revenue Refunding (Onterie Center Project),
Series A, MBIA-Insured, 6.500% due 7/1/02 1,728,594
2,500,000 AA+ Rhode Island Housing & Mortgage Finance Corp.,
Home Ownership Opportunity, Series C,
5.650% due 10/1/20(a) 2,609,375
165,000 AAA St. Louis County, MO Single-Family Mortgage Revenue,
MBIA-Insured, 6.125% due 4/1/03 170,156
1,000,000 AAA Texas State Department of Housing & Community Affairs,
GNMA/FNMA-Collateralized Home Mortgage
Revenue Bonds, Series B-2, RIBS Variable Rate,
7.800% due 6/18/23(a)(e) 1,110,000
90,000 AA Texas State Housing Agency Mortgage Revenue
Single-Family, 1987D, 7.750% due 7/1/99(a) 92,363
3,245,000 AA+ Virginia State Housing Development Authority,
Multi-Family Housing, Series E, 5.600% due 11/1/17(a) 3,269,337
410,000 AA Wyoming Community Development Authority,
Single-Family Mortgage, Series 1988C,
7.800% due 6/1/99(a) 419,738
- -----------------------------------------------------------------------------------------------------------
31,666,274
- -----------------------------------------------------------------------------------------------------------
Industrial Development -- 8.5%
1,500,000 A Bel Air, MD Revenue Refunding, (May Department
Stores Co. Project), 6.375% due 10/1/99 1,565,625
1,000,000 A Belmont County, OH IDR Refunding, (May Department
Stores Co. Project), Series 91, 6.500% due 1/1/00 1,050,000
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Industrial Development -- 8.5% (continued)
$ 2,000,000 AA+ Clarion County, PA IDA Energy Development Revenue,
(Piney Creek Project), LOC Swiss Bank,
7.250% mandatory tender 12/1/00(a) $ 2,160,000
3,000,000 Ba1* Griffin-Spalding County, GA Development Authority
Revenue Refunding, (Borden Inc. Project,)
Borden Inc. Guaranteed, 7.200% due 6/1/00 3,161,250
2,000,000 A+ Iowa Finance Authority, (Governors Square Project),
Policy of Indemnity Commercial Union Assurance
Co. PLC, Reinsured by Trygg-Hansa Insurance
Co. of Sweden, 7.250% mandatory tender 4/1/02 2,107,500
3,000,000 A+ Marion, IA Commercial Development Revenue, (Collins
Road Project), Policy of Indemnity Aetna Casualty &
Surety Co. PLC, Reinsured by Trygg-Hansa Insurance
Co. of Sweden, 7.250% mandatory tender 7/1/02 3,142,500
3,500,000 BBB+ Metropolitan Government Nashville & Davidson County,
TN IDB Revenue Refunding & Improvement, Osco
Treatment Inc. Guaranteed, 6.000% due 5/1/03(a) 3,622,500
1,000,000 NR Minneapolis, MN Commercial Development Revenue,
(Holiday Inn Metrodome Project), 6.000% due 12/1/01 1,003,750
1,835,000 Aa3* New Jersey EDA, Growth Bonds, LOC Banque Nationale
de Paris, 6.200% due 12/1/02(a) 1,935,925
New York City, NY IDA:
650,000 Aa1* IDR Oakdale Knitting Mills Inc., CompositeOffering
XXX 1990, Series G, LOC ABN AMRO Bank NV,
7.700% mandatory tender 11/1/00(a) 652,093
1,365,000 Aa1* Keystone Electric, LOC ABN AMRO Bank NV,
7.500% due 3/1/98(a) 1,397,241
455,000 Aa1* SuperFlex, Ltd. Project, Composite Offering XVIII
1989, Series A, LOC ABN AMRO Bank NV,
7.750% optional tender 11/1/99(a) 456,465
2,350,000 AAA Sioux City, IA IDR, (Terra Centre Project),
6.800% due 5/1/07 2,520,375
- -----------------------------------------------------------------------------------------------------------
24,775,224
- -----------------------------------------------------------------------------------------------------------
Life Care -- 1.2%
1,355,000 BBB Illinois Development Finance Authority, Health
Facilities Revenue, Community Living Options,
6.375% due 3/1/00 1,393,956
1,045,000 BBB+ New York State Medical Care Facilities Finance Agency
Revenue, Mental Health Services Facilities,
Series B, 7.100% due 2/15/99 1,086,800
1,000,000 AAA Rio Grande Valley, TX Health Facilities, (Valley Baptist
Medical Center Project), Short RITES, MBIA-Insured,
coupon varies weekly till 8/1/02 then converts to
6.250%, 8.110% due 8/1/06(e) 1,117,500
- -----------------------------------------------------------------------------------------------------------
3,598,256
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Miscellaneous -- 7.4%
$ 2,595,000 BBB- Clarksville, TN Natural Gas Acquisition Corp., Gas
Revenue, Series A, 6.500% due 11/1/00 $ 2,685,825
300,000 AAA Dallas-Fort Worth, TX Regional Airport Revenue, Series A,
FGIC-Insured, 5.875% optional tender 5/1/98(a) 303,444
2,500,000 AAA Greater Detroit, MI Resource Recovery Authority,
AMBAC-Insured, 6.250% due 12/13/06 2,803,125
2,750,000 A2* Hoffman Estate, IL Tax Increment Junior Lien, Hoffman
Estate Development, Series 91, 6.500% due 5/15/01 2,918,437
2,700,000 A Illinois Development Finance Authority Revenue, Debt
Restructure-East St. Louis, 6.875% due 11/15/05 2,916,000
575,000 Aa3* New Jersey EDA Revenue, LOC Banque Nationale de Paris,
Series A, 6.250% due 12/1/01(a) 593,688
3,390,000 A New York State Job Development Authority, Special
Purpose, Series A, 5.250% due 3/1/10 3,402,713
2,950,000 BBB+ New York State Urban Development Corporation
Revenue, Correctional Capital Facilities, Series 6,
5.500% due 1/1/13 3,012,688
1,240,000 AA- Ohio State Building Authority, Correctional Facilities,
Series A, 5.250% due 10/1/09 1,303,550
1,100,000 AAA Southeast Wisconsin Professional Baseball District League
COP, MBIA-Insured, zero coupon due 12/15/16 390,500
1,000,000 AA Tuscon, AZ COP, Asset Guaranty, 6.000% due 7/1/04 1,070,000
- -----------------------------------------------------------------------------------------------------------
21,399,970
- -----------------------------------------------------------------------------------------------------------
Pollution Control -- 5.5%
1,200,000 AAA Burke County, GA Development Authority PCR,
Refunding,Ogelthorpe Power Co., MBIA-Insured,
7.500% due 1/1/03 1,332,000
435,000 BB Camden County, NJ PCFA, Solid Waste Resource Recovery
Revenue, Series D, 6.350% due 12/1/97 435,426
Detroit, MI Economic Development Corp., Facilities
Recovery Revenue, FSA-Insured:
3,000,000 AAA Series A, 7.000% due 5/1/01 3,228,750
1,000,000 AAA Series 91A, 6.600% due 5/1/02(a) 1,090,000
1,630,000 BBB Gila County, AZ IDA Revenue, Pollution Control,
8.900% due 7/1/06 1,687,050
1,075,000 BBB- Hudson County, NJ Improvement Authority,
5.750% due 1/1/98 1,075,903
1,500,000 A- Illinois Development Financing Authority, Solid Waste
Disposal Revenue Bonds (Waste Management
Inc. Project), Series 1990, 7.125% due 1/1/01(a) 1,612,500
1,000,000 Baa2* Massachusetts State IDB Finance Agency, PCR, (Eastern
Edison Co. Project), 5.875% due 8/1/08 1,008,750
1,500,000 AAA Montgomery, AL IDB, PCR, (General Electric Co. Project),
7.000% mandatory tender 9/15/00(a) 1,623,750
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Pollution Control -- 5.5% (continued)
$ 1,700,000 A-1+ New York State Energy Research & Development
Authority, PCR, NY Electric & Gas, Series B,
3.750% due 2/1/29(d) $ 1,700,000
1,050,000 Baa* Onondaga County, NY Resource Recovery Agency Project
Revenue Bonds, Series 1992, 6.625% due 5/1/00(a) 1,090,688
- -----------------------------------------------------------------------------------------------------------
15,884,817
- -----------------------------------------------------------------------------------------------------------
Pre-Refunded(f) -- 0.9%
1,525,000 AAA Alachua County, FL Health Facilities Authority Revenue,
Santa Fe Healthcare Facilities Project,
(Call 11/15/00 @102), 6.875% due 11/15/02 1,654,625
Austin, TX Water, Sewer & Electric Refunding Revenue:
120,000 A Call 5/15/99 @ 100, 14.000% due 11/15/01 137,550
80,000 A* Call 5/15/98 @ 100, 14.000% due 11/15/01(e) 95,100
495,000 AAA Gila County, AZ IDA PCR, (Call 2/15/01 @ 101),
11.250% due 4/1/01 599,569
- -----------------------------------------------------------------------------------------------------------
2,486,844
- -----------------------------------------------------------------------------------------------------------
Public Facilities -- 2.8%
40,000 A- Concord Santa Cruz Southgate, CA COP, ABAG Finance
Corp., 7.100% due 6/1/99 40,100
4,000,000 Aa* Mt. Stearling, KY Lease Revenue, Kentucky League
Cities 1993A, Transamerica Life Guaranteed,
5.625% due 3/1/03(b) 4,155,000
1,050,000 BBB Tampa, FL Capital Improvement Program Revenue,
Series 88B, 7.400% due 10/1/97 1,050,015
3,000,000 AAA Washington State Public Power Supply System,
Revenue Refunding, Series B, Nuclear Project No. 1,
AMBAC-Insured, 5.125% due 7/1/17 2,887,500
- -----------------------------------------------------------------------------------------------------------
8,132,615
- -----------------------------------------------------------------------------------------------------------
Solid Waste -- 1.1%
3,000,000 A Northeast Maryland Waste Disposal Authority, Solid Waste
Revenue, Montgomery County, 6.200% due 7/1/10(a) 3,138,750
- -----------------------------------------------------------------------------------------------------------
Transportation -- 11.2%
1,500,000 AAA Allegheny County, PA Airport Revenue, Greater Pittsburgh
International Airport, Series A, MBIA-Insured,
5.250% due 1/1/16(a) 1,470,000
1,000,000 AAA Clark County, NV Airport Improvement Revenue,
BIG-Insured, 7.900% due 7/1/00(a) 1,047,420
Denver, CO City & County Airport Revenue:
1,510,000 AAA Series B, MBIA-Insured, 6.250% due 11/15/06(a) 1,674,212
1,590,000 Baa1* Series 1992B, 7.000% due 11/15/01(a) 1,713,225
1,000,000 Baa1* Series 1992B, 7.000% due 11/15/02(a) 1,090,000
1,000,000 Baa1* Series 1994A, 7.200% due 11/15/02(a) 1,098,750
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Transportation -- 11.2% (continued)
E-470 Public Highway Authority, CO Senior Revenue Bonds,
MBIA-Insured:
$ 5,000,000 AAA Zero coupon due 9/1/16 $ 1,793,750
5,000,000 AAA Zero coupon due 9/1/17 1,700,000
2,445,000 AAA Hawaii Airport System Revenue, Second Series of 91,
MBIA-Insured, 6.100% due 7/1/99(a) 2,527,519
1,250,000 A Indiana Transportation Finance Authority, Airport
Facilities Lease Revenue, Series A, United Air,
6.125% due 11/1/02 1,343,750
1,000,000 AAA Massachusetts Port Authority Revenue, Series A,
FGIC-Insured, 7.200% due 7/1/03(a) 1,091,250
Massachusetts State Turnpike Authority,
MBIA-Insured:
9,000,000 Aaa* Metropolitan Highway System Revenue, Series C,
zero coupon due 1/1/16 3,453,750
2,850,000 Aaa* Western Turnpike Revenue, Series A,
5.500% due 1/1/17 2,871,375
3,000,000 Aa1* Ocean Highway and Port Authority, Nassau County,
FL Adjustable Demand Revenue Bonds, Series 1990,
LOC ABN AMRO Bank, NV, 6.250% due 12/1/02(a) 3,247,500
1,600,000 A-1+ Port Authority NY & NJ, Special Obligation Revenue,
Versatile Structure Obligation, Series 4,
4.100% due 4/1/24(d) 1,600,000
750,000 AA Port of Houston Authority, Harris County, TX Port
Improvement Unlimited Tax Obligation,
8.500% due 11/1/98(a) 785,048
2,250,000 A Rhode Island State Turnpike & Bridge Authority
Revenue, 5.350% due 12/1/17 2,190,938
1,985,000 AA- Simi Valley, CA Community Development Agency COP,
Simi Valley Business Center, 6.050% mandatory tender
10/1/99 2,044,550
- -----------------------------------------------------------------------------------------------------------
32,743,037
- -----------------------------------------------------------------------------------------------------------
Utilities -- 6.9%
5,030,000 A Austin, TX Water, Sewer & Electric Refunding Revenue,
14.000% due 11/15/01(b) 6,262,350
Chelan County, WA Public Utility District #1:
1,500,000 AA Chelan Hydro Consolidated System Revenue Bonds,
7.000% mandatory tender 7/1/01(a) 1,627,500
22,485,000 AAA Columbia River Rock Capital Appreciation,
MBIA-Insured, zero coupon due 6/1/13 9,837,187
600,000 A- Georgia Muni Gas Authority Revenue, (Southern Storage
Gas Project), 6.300% due 7/1/09 649,500
770,000 Baa1* Philadelphia, PA Gas Works Revenue Bonds, 13th Series,
7.400% due 6/15/00 821,013
1,000,000 BB Sam Rayburn, TX Municipal Power Supply System Revenue
Refunding, Series A, 6.200% due 10/1/01 1,017,500
- -----------------------------------------------------------------------------------------------------------
20,215,050
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) September 30, 1997
===========================================================================================================
FACE
AMOUNT RATING SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Water & Sewer -- 2.7%
$ 3,500,000 AAA Detroit, MI Water Supply System, FGIC-Insured,
6.500% due 7/1/15 $ 4,025,000
1,075,000 BBB+ Galveston, TX Sewer System Revenue Refunding,
(Partially Pre-Refunded--Escrowed with U.S.
government securities to 5/1/98 Call @ 100),
Series B, 7.800% due 5/1/99(f) 1,113,969
1,500,000 NR New Jersey EDA Water Facilities Revenue, Series 1991,
(New Jersey American Water Co. Inc. Project),
Private Placement, 7.400% due 11/1/01(a) 1,608,750
250,000 AA Regional Waste Systems Inc., Maine Solid Waste
Recovery System, 7.550% due 7/1/98(a)(b) 256,385
950,000 A Texas Water Resource Finance Authority Revenue,
Series 89, 7.400% due 8/15/00 989,188
- -----------------------------------------------------------------------------------------------------------
7,993,292
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost-- $281,047,652**) $291,340,704
===========================================================================================================
</TABLE>
(a) Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Securities segregated by Custodian for open market purchase commitment.
(c) Bonds are escrowed to maturity 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.
(d) Variable rate obligation payable at par on demand at any time on no more
than seven days notice. (e)Residual interest bonds-coupon varies inversely
with level of short-term tax-exempt interest rates.
(f) 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.
++ Fitch Investor Services, Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 18 and 19 for definition of ratings and certain security
descriptions.
See Notes to Financial Statements.
17
<PAGE>
================================================================================
Bond Ratings
================================================================================
All ratings are by Standard & Poor's Ratings Services ("Standard &Poor's"),
except those which are identified by an asterisk (*) are rated by Moody's
Investors Service Inc. ("Moody's") and those identified by a double dagger (++)
are rated by Fitch Investors Services, Inc. ("Fitch"). The definitions of the
applicable rating symbols are set forth below:
Standard & Poor's -- Ratings from "AA" to "B" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standings within the major rating
categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issue only in
a small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
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 bonds in this
category than in higher rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default
than other speculative issues. However, they face 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.
Ba -- Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and therefore not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
18
<PAGE>
================================================================================
Bond Ratings (continued)
================================================================================
Fitch -- Ratings may be modified by the addition of a plus (+) or minus
(-) sign to show relative standings within the major ratings categories.
BBB -- Bonds which are rated "BBB" are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay
interest or dividends and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these securities and, therefore, impair timely payment. The
likelihood that the ratings of these bonds or preferred will fall
below investment grade is higher than for securities with higher
ratings.
NR -- Indicates that the bond is not rated by Standard & Poor's,
Moody's or Fitch.
================================================================================
Short-Term Securities Ratings
================================================================================
SP-1 -- Standard & Poor's highest rate 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.
MIG 1 -- Moody's highest rating for short-term municipal obligations.
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 Governments
AIG -- American International Guaranty
AMBAC -- American Municipal Bond Assurance
Corporation
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CONNIE
LEE -- College Construction Loan Insurance
Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
FLAIRS -- 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
FSA -- Financial Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage
Association
GO -- General Obligation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
ISD -- Independent School District
INFLOS -- Inverse Floaters
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
Corporation
MVRICS -- Municipal Variable Rate Inverse
Coupon Security
PCFA -- Pollution Control Financing Authority
PCR -- Pollution Control Revenue
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt
Securities
VA -- Veterans Administration
VRDD -- Variable Rate Demand Note
VRWE -- Variable Rate Wednesday Demand
19
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) September 30, 1997
================================================================================
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost-- $281,047,652) $ 291,340,704
Cash 90,362
Interest receivable 4,718,476
Receivable for securities sold 2,194,167
Receivable for Fund shares sold 89,958
- -------------------------------------------------------------------------------
Total Assets 298,433,667
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 16,182,522
Management fees payable 135,850
Distribution fees payable 16,908
Accrued expenses 44,447
- -------------------------------------------------------------------------------
Total Liabilities 16,379,727
- -------------------------------------------------------------------------------
Total Net Assets $ 282,053,940
===============================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 42,033
Capital paid in excess of par value 275,995,397
Undistributed net investment income 198,328
Accumulated net realized loss from security transactions (4,474,870)
Net unrealized appreciation of investments 10,293,052
- -------------------------------------------------------------------------------
Total Net Assets $ 282,053,940
===============================================================================
Shares Outstanding:
Class A 37,526,839
---------------------------------------------------------------------------
Class C 4,506,326
---------------------------------------------------------------------------
Net Asset Value:
Class A (redemption price) $6.71
---------------------------------------------------------------------------
Class C* $6.70
---------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 2.04% of net asset value per share) $6.85
===============================================================================
</TABLE>
* 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.
20
<PAGE>
================================================================================
Statement of Operations (unaudited)
================================================================================
For the Six Months Ended September 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 8,356,386
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 3) 706,227
Distribution fees (Note 3) 241,279
Registration fees 45,124
Shareholder and system servicing fees 35,971
Shareholder communications 15,943
Pricing service fees 15,542
Audit and legal 7,847
Custody 7,062
Trustees' fees 3,510
Other 3,611
- --------------------------------------------------------------------------------
Total Expenses 1,082,116
- --------------------------------------------------------------------------------
Net Investment Income 7,274,270
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 76,169,504
Cost of securities sold 75,189,899
- --------------------------------------------------------------------------------
Net Realized Gain 979,605
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 4,355,048
End of period 10,293,052
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 5,938,004
- --------------------------------------------------------------------------------
Net Gain on Investments 6,917,609
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $14,191,879
================================================================================
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended September 30, 1997 (unaudited)
and the Year Ended March 31, 1997
<TABLE>
<CAPTION>
September 30 March 31
=======================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 7,274,270 $ 15,362,339
Net realized gain 979,605 641,120
Increase (decrease) in net unrealized appreciation 5,938,004 (3,386,164)
- ---------------------------------------------------------------------------------------
Increase in Net Assets From Operations 14,191,879 12,617,295
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 2):
Net investment income (7,071,652) (15,693,903)
- ---------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (7,071,652) (15,693,903)
- ---------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 17,568,776 37,182,237
Net asset value of shares issued
for reinvestment of dividends 3,982,067 8,825,123
Cost of shares reacquired (34,636,773) (62,195,860)
- ---------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (13,085,930) (16,188,500)
- ---------------------------------------------------------------------------------------
Decrease in Net Assets (5,965,703) (19,265,108)
NET ASSETS:
Beginning of period 288,019,643 307,284,751
- ---------------------------------------------------------------------------------------
End of period* $ 282,053,940 $ 288,019,643
=======================================================================================
* Includes undistributed (overdistributed)
net investment income of: $ 198,328 $ (4,290)
=======================================================================================
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Limited Term Portfolio ("Portfolio") is a separate investment portfolio
of the Smith Barney Muni Funds ("Fund"). The Fund, a Massachusetts business
trust, is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company and consists of this Portfolio and eight
other separate investment portfolios: Florida, Georgia, New York, Ohio,
Pennsylvania, National, California Money Market and New York Money Market
Portfolios. The financial statements and financial highlights for the other
portfolios are presented in separate semi-annual reports.
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 provided by an
independent pricing service that are based on transactions in municipal
obligations, quotations from municipal bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days are valued at cost plus accreted discount or
minus amortized premium, which approximates value; (d) 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) dividends and distributions
to shareholders are recorded on the ex-dividend date; (g) direct expenses are
charged to each Portfolio and each class; management fees and general fund
expenses are allocated on the basis of relative net assets by class; (h) the
Portfolio intends to comply with the applicable provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment companies
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes; (i) the character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
March 31, 1997, reclassifications were made to the Portfolio's capital accounts
to reflect permanent book/tax differences and income gains available for
distributions under income tax regulations. Accordingly, a portion of
overdistributed net investment income amounting to $144,065 was reclassified to
paid-in capital. Net investment income, net realized gains and net assets were
not affected by this change; and (j) estimates and assumptions are required to
be made regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
23
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)(continued)
================================================================================
2. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Portfolio intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Portfolio.
Capital gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
3. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager to the Fund. The
Portfolio pays SBMFM a management fee calculated at the annual rate of 0.50% of
its average daily net assets. This fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. For the six months ended September 30, 1997, SB received sales
charges of approximately $152,000 on purchases of the Portfolio's Class A
shares.
There is a contingent deferred sales charge ("CDSC") of 1.00% on Class C
shares of the Portfolio if redemption occurs less than one year from initial
purchase. In addition, Class A shares 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 six months ended September 30, 1997,
CDSCs paid to SB were approximately:
<TABLE>
<CAPTION>
Class A Class C
================================================================================
<S> <C> <C>
CDSCs $16,000 $2,000
================================================================================
</TABLE>
Pursuant to a Distribution Plan, the Portfolio pays a service fee with
respect to Class A and C shares calculated at the annual rate of 0.15% of the
average daily net assets of each class. In addition, the Portfolio pays a
distribution fee with respect to Class C shares calculated at the annual rate of
0.20% of the average daily net assets.
24
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)(continued)
================================================================================
For the six months ended September 30, 1997, total Distribution Plan fees
incurred were:
<TABLE>
<CAPTION>
Class A Class C
================================================================================
<S> <C> <C>
Distribution Plan Fees $189,810 $51,469
================================================================================
</TABLE>
All officers and one Trustee of the Fund are employees of SB.
4. INVESTMENTS
During the six months ended September 30, 1997, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $76,498,613
- --------------------------------------------------------------------------------
Sales 76,169,504
================================================================================
</TABLE>
At September 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
===============================================================================
<S> <C>
Gross unrealized appreciation $10,689,966
Gross unrealized depreciation (396,914)
- -------------------------------------------------------------------------------
Net unrealized appreciation $10,293,052
===============================================================================
</TABLE>
5. CAPITAL LOSS CARRYFORWARD
At March 31, 1997, the Portfolio had, for Federal income tax purposes,
approximately $5,452,000 of capital loss carryforwards available to offset
future capital gains. To the extent that these carryforward losses are used to
offset capital gains, it is possible that the gains so offset will not be
distributed. The amount and expiration of the carryforwards are indicated below.
Expiration occurs on March 31, of the year indicated:
<TABLE>
<CAPTION>
2001 2002 2003 2004
================================================================================
<S> <C> <C> <C> <C>
Carryforward Amounts $289,000 $577,000 $2,846,000 $1,740,000
================================================================================
</TABLE>
25
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)(continued)
================================================================================
6. SHARES OF BENEFICIAL INTEREST
At September 30, 1997, the Fund had an unlimited amount of shares of
beneficial interest authorized with a par value of $0.001 per share. The
Portfolio has the ability to issue multiple classes of shares. Each share of a
class represents an identical interest in the Portfolio and has the same rights,
except that each class bears certain expenses specifically related to the
distribution of its shares.
At September 30, 1997, total paid-in capital amounted to the following for
each class:
<TABLE>
<CAPTION>
Class A Class C
================================================================================
<S> <C> <C>
Total Paid-in Capital $245,595,248 $30,442,182
================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1997 March 31, 1997*
---------------------- ----------------------
Shares Amount Shares Amount
============================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 2,196,594 $ 14,644,863 4,671,567 $ 30,834,509
Shares issued on reinvestment 525,926 3,494,057 1,188,611 7,824,406
Shares redeemed (4,879,627) (32,386,926) (8,251,679) (54,442,310)
- --------------------------------------------------------------------------------------------
Net Decrease (2,157,107) $(14,248,006) (2,391,501) $(15,783,395)
============================================================================================
Class C
Shares sold 439,356 $ 2,923,913 962,621 $ 6,347,728
Shares issued on reinvestment 73,528 488,010 152,105 1,000,717
Shares redeemed (338,234) (2,249,847) (1,144,387) (7,542,039)
- --------------------------------------------------------------------------------------------
Net Increase (Decrease) 174,650 $ 1,162,076 (29,661) $ (193,594)
============================================================================================
Class Y
Shares sold -- -- -- $ --
Shares issued on reinvestment -- -- -- --
Shares redeemed -- -- (32,264) (211,511)
- --------------------------------------------------------------------------------------------
Net Decrease -- -- (32,264) $ (211,511)
============================================================================================
</TABLE>
26
<PAGE>
================================================================================
Financial Highlights
================================================================================
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD:
<TABLE>
<CAPTION>
Class A Shares 1997(1) 1997 1996 1995(2) 1994 1993
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $6.54 $6.61 $6.54 $6.55 $6.68 $6.45
- ----------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.17 0.34 0.36 0.36 0.37 0.39
Net realized and
unrealized gain (loss) 0.17 (0.06) 0.07 -- (0.13) 0.23
- ----------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.34 0.28 0.43 0.36 0.24 0.62
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.17) (0.35) (0.36) (0.37) (0.37) (0.39)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.17) (0.35) (0.36) (0.37) (0.37) (0.39)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $6.71 $6.54 $6.61 $6.54 $6.55 $6.68
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return 5.22%++ 4.30% 6.65% 5.69% 3.65% 9.82%
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $251,842 $259,695 $278,247 $244,818 $281,771 $242,491
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 0.74%+ 0.75% 0.75% 0.61% 0.53% 0.55%
Net investment income 5.18+ 5.16 5.43 5.61 5.53 5.90
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27% 46% 26% 22% 25% 25%
==================================================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) On October 10, 1994, the former Class C shares were exchanged into Class A
shares.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
27
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD:
<TABLE>
<CAPTION>
Class C Shares 1997(1) 1997 1996 1995(2) 1994 1993(3)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $6.54 $6.61 $6.54 $6.54 $6.68 $6.62
- ----------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.16 0.33 0.35 0.35 0.35 0.10
Net realized and
unrealized gain (loss) 0.16 (0.06) 0.06 -- (0.14) 0.05
- ----------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.32 0.27 0.41 0.35 0.21 0.15
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.16) (0.34) (0.34) (0.35) (0.35) (0.09)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.16) (0.34) (0.34) (0.35) (0.35) (0.09)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $6.70 $6.54 $6.61 $6.54 $6.54 $6.68
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return 4.95%++ 4.10% 6.45% 5.51% 3.15% 2.28%++
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $30,212 $28,325 $28,824 $26,622 $26,869 $5,738
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 0.99%+ 0.97% 0.96% 0.89% 0.88% 0.88%+
Net investment income 4.93+ 4.94 5.22 5.34 5.10 5.35+
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27% 46% 26% 22% 25% 25%
==================================================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) On November 7, 1994, the former Class B shares were renamed Class C shares.
(3) For the period from January 5, 1993 (inception date) to March 31, 1993.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
28
<PAGE>
Smith Barney SMITH BARNEY
Muni Funds ------------
A Member of TravelersGroup[LOGO]
Trustees Investment Manager
Joseph H. Fleiss Smith Barney Mutual Funds
Donald R. Foley Management Inc.
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen Distributor
John P. Toolan Smith Barney Inc.
C. Richard Youngdahl, Emeritus
Custodian
PNC Bank, N.A.
Officers
Heath B. McLendon
Chief Executive Officer Shareholder
Servicing Agent
Lewis E. Daidone First Data Investor Services Group, Inc.
Senior Vice President P.O. Box 9134
and Treasurer
Lawrence T. McDermott Boston, MA 02205-9134
Vice President
Thomas M. Reynolds
Controller
This report is submitted for the general
Christina T. Sydor information of the shareholders of Smith
Secretary Barney Muni Funds - Limited Term
Portfolio. It is not authorized for
distribution to prospective investors unless
accompanied by a current Prospectus for
the Portfolio, which contains information
concerning the Portfolio's investment
policies and expenses as well as other
pertinent information.
Smith Barney Muni Funds
388 Greenwich Street
New York, New York 10013
FD0804 11/97
<PAGE>
================================================================================
SEMI-ANNUAL REPORT
================================================================================
[GRAPHIC]
Smith Barney
Muni Funds
New York Money
Market and
New York Portfolios
--------------------------
September 30, 1997
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
=============================================
New York Money Market and New York Portfolios
=============================================
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the Smith Barney
Muni Funds - New York Money Market and New York Portfolios for the period ended
September 30, 1997. For your convenience, we have summarized the period's
prevailing economic and market conditions below and outlined each Portfolio's
investment strategy during this time. A detailed summary of performance can be
found in the appropriate sections that follow.
New York Portfolio's Performance and Investment Strategy
The New York Portfolio ("Portfolio") seeks to pay its shareholders as high a
level of monthly income exempt from Federal income taxes and from New York State
and City personal income taxes as is consistent with prudent investing.
For the six months ended September 30, 1997, the Class A shares of the Portfolio
generated a total return of 7.23%. In comparison, the Portfolio's Lipper
Analytical Services, Inc. ("Lipper") New York municipal bond fund peer group
average had a total return of 6.53% for the same time period. (Lipper is an
independent fund-tracking organization.) The performance figures for the
Portfolio's other share classes can be found on page 6. Your Fund continues to
be a consistent performer among its Lipper peers. The Portfolio has ranked in
the first quartile of New York municipal funds in the Lipper survey for the 1,
3, 5, 7 and 10-year periods ended September 30, 1997.* In addition, your Fund
was ranked as the number 2 fund among 27 New York funds by Lipper for the
ten-year period ended September 30, 1997 and has provided relatively high
after-tax total returns without any capital gains distributions during this
period.
As of September 30, 1997, the Portfolio's average weighted maturity was just
over 23.16 years, and approximately 93.2% of the Portfolio's holdings were rated
investment grade (Investment-grade bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc. or AAA, AA, A and BBB by Standard
- ------------
* Lipper rankings show a fund's one, five and ten year annualized returns (at
NAV) as of a particular reporting period. Lipper also compares a fund's
returns to the average of its peer group. The rankings are subject to
change every month. Past performance is not a guarantee of future results.
For the 1, 3, 5, 7 and 10-year period ended September 30, 1997, there were
92, 69, 44, 35 and 27 New York municipal bond funds, respectively, in the
Lipper peer group category.
1
<PAGE>
& Poor's Ratings Services, or have an equivalent rating by any nationally
recognized statistical rating organization, or determined by the manager to be
an equivalent rating). In addition, approximately 40.4% of the Portfolio had a
AAA rating, the highest credit rating. The Portfolio's largest holdings are
concentrated in hospital bonds (21.7%), transportation bonds (13.7%) and
education bonds (13.0%).
Based on its net asset value ("NAV") of $13.73 at September 30, 1997 for Class A
shares and the current monthly dividend of $0.062 per Class A share, this
equates to an annualized distribution rate of 5.42%. For a New York resident in
the combined federal and state income tax bracket of 43.22% (assuming a federal
income tax bracket of 36.0%, which represents approximately 10.0% of all U.S.
federal taxpayers), the Portfolio's tax-free yield of 5.42% is equivalent to a
taxable yield of 9.55%.
Market and Economic Overview
In recent weeks, the municipal bond market has rebounded from the downturn it
experienced in August 1997. In our opinion, this market downturn was caused in
large part by investor concerns that strength in the U.S. economy would
ultimately lead to higher interest rates and greater inflationary pressures.
Despite these concerns, the U.S. economy has continued to grow strongly with low
unemployment and an absence of higher inflationary pressures.
In our view, global competition and improved productivity has enabled the
economy to expand without the upward price pressures traditionally associated
with extended periods of economic growth. Many U.S. corporations continue to
face fierce competition from foreign companies. As a result, many U.S.
corporations have been unable to raise prices significantly. Moreover, the
widespread use of technology has enabled many companies to operate more
efficiently while using fewer workers. This in turn has enabled many companies
to continue operating profitably even though increasingly tight labor markets
have begun to exert upward pressure on wages.
In light of these developments, the Federal Reserve Board ("Fed") has refrained
from further tightening monetary policy after raising the federal-funds rate
slightly to 5.5% in March 1997. (The federal-funds rate is the interest rate
banks charge each other for overnight loans and is a closely watched indicator
of the direction of interest rates.) Since that time, interest rates have
generally declined. For example, yields on the bellwether 30-year U.S. Treasury
bond have fallen from a high of approximately 7.2% in April to roughly 6.4% as
of September 30, 1997. Many economists, including some Fed officials, have begun
to acknowledge that the U.S. economy may be able to support both strong growth
and low unemployment without a substantial increase in inflation. However, this
does not mean that the Fed
2
<PAGE>
has become complacent on the inflation front. In testimony delivered to the
House Budget Committee on October 8, 1997, Fed Chairman Alan Greenspan again
warned that strong economic growth and the extremely tight labor market could
lead to a resurgence in inflation. Greenspan's warning roiled the financial
markets with a sharp but relatively modest increase in yields on bonds. In our
view, the Fed's determination to contain inflation should be beneficial for bond
investors as it will help ensure that the buying power of coupon income will be
preserved.
In addition, although nominal interest rates have declined, real
inflation-adjusted interest rates are quite high on a historical basis and
current real yields on municipal bonds (after subtracting the effects of
inflation) are very high by historical standards. In view of the current
favorable economic conditions and our expectations that inflation will remain
subdued, we believe that municipal bonds will continue to provide investors with
attractive after-tax rates of return in the months ahead.
New York Economic Highlights
Since his election in 1995, Governor George Pataki's objectives have been to
lower taxes, create a more efficient government and develop a regulatory
environment that promotes economic growth. In our view, Governor Pataki has made
significant progress on all three fronts and New York's economy has responded
favorably to these initiatives.
Over the last two years, more than $5.6 billion in tax relief has been provided
to New Yorkers, with another $6.1 billion scheduled to be returned to taxpayers
in 1997 through 1998. In addition, the personal income tax rate in New York has
been reduced by 20% overall. The size of New York State government has been
reduced primarily through attrition and retirement incentives. With respect to
creating a more favorable environment for business, the "temporary" business tax
surcharge is scheduled to be eliminated which will save New York businesses
roughly $900 million per year. Moreover, proposed business tax cuts in the
1997-1998 budget will reduce business taxes an additional $50 million.
Yet despite these encouraging developments, we remain somewhat cautious about
New York's future economic prospects because of its aging infrastructure and the
Empire State's still relatively high business costs versus other areas of the
United States.
Outlook
Some investors have expressed concerns that certain provisions of the recently
enacted Federal Taxpayer Relief Act of 1997 (which was passed as part of the
Balanced Budget Agreement) could erode many of the tax advantages that
3
<PAGE>
municipal bonds now offer. However, we believe that the impact of this
legislation will be largely positive for the municipal bond market. The
reduction of the long-term capital gains tax rate and the introduction of the
Roth IRA ostensibly make the attractiveness of stocks and other investments more
competitive than municipals. Nevertheless, there are new elements in the tax
code that may strengthen the focus on after-tax returns -- an area where
municipals, which provide a steady source of tax-exempt income, continue to
enjoy a distinct advantage. In addition, the repeal of the alternative minimum
tax for small business corporations provides favorable tax treatment for many
corporate municipal bond investors. Lastly, the new tax act expands the issuance
of education and housing bonds, two key segments of the municipal bond market.
We remain optimistic on the prospects for municipal bonds. The shrinking federal
budget deficit, resulting from strong economic growth and spending controls
enacted in 1990 and 1993, coupled with relatively low inflation rate, should
help to keep interest rates from rising. We also expect continued Fed vigilance
against any signs of higher inflationary pressures, which is a long-term
positive for bonds.
New York Money Market Portfolio
The New York Money Market Portfolio ("Portfolio") seeks to provide investors
with income exempt from federal income tax (other than the alternative minimum
tax) and New York State and City personal income taxes by investing in a
portfolio of high quality, short-term New York municipal obligations selected
for liquidity and stability of principal.
As of September 30, 1997, the Portfolio's 7-day current yield was 3.23%. The
Portfolio's 7-day effective yield -- which reflects compounding --was 3.28%.
The Portfolio invests only in short-term securities that carry minimal credit
risk. All of the Portfolio's holdings are rated within the top two short-term
credit rating categories or are of comparable quality. During the reporting
period, the Portfolio's average weighted maturity was approximately 54 days.
While the Portfolio seeks to maintain a stable net asset value of $1.00 per
share, there can be no assurance this goal will be achieved. The U.S. government
neither insures nor guarantees an investment in the New York Money Market
Portfolio.
4
<PAGE>
On a more somber note, we were saddened by the loss of an outstanding physician
and Trustee of the Fund, Dr. Francis P. Martin. His knowledge and wisdom will be
missed.
In closing, thank you for investing in the Smith Barney Muni Funds - New York
Money Market Portfolio and New York Portfolio. We look forward to continuing to
help you pursue your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman Vice President
New York Portfolio
/s/ Joseph Benevento
Joseph Benevento
Vice President
New York Money Market Portfolio
October 16, 1997
5
<PAGE>
================================================================================
New York Portfolio
================================================================================
================================================================================
Historical Performance -- Class A Shares
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
================================================================================
<S> <C> <C> <C> <C>
9/30/97 $13.16 $13.73 $0.37 7.23%+
- --------------------------------------------------------------------------------
3/31/97 13.19 13.16 0.74 5.48
- --------------------------------------------------------------------------------
3/31/96 12.83 13.19 0.74 8.71
- --------------------------------------------------------------------------------
3/31/95 12.83 12.83 0.77 6.32
- --------------------------------------------------------------------------------
3/31/94 13.25 12.83 0.79 2.66
- --------------------------------------------------------------------------------
3/31/93 12.33 13.25 0.81 14.48
- --------------------------------------------------------------------------------
3/31/92 11.80 12.33 0.81 11.98
- --------------------------------------------------------------------------------
3/31/91 11.67 11.80 0.85 8.74
- --------------------------------------------------------------------------------
3/31/90 11.48 11.67 0.87 9.28
- --------------------------------------------------------------------------------
3/31/89 11.25 11.48 0.86 10.03
- --------------------------------------------------------------------------------
3/31/88 12.46 11.25 0.85 (2.63)
================================================================================
Total $8.46
================================================================================
================================================================================
Historical Performance -- Class B Shares
================================================================================
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
================================================================================
<S> <C> <C> <C> <C>
9/30/97 $13.15 $13.72 $0.34 6.98%+
- --------------------------------------------------------------------------------
3/31/97 13.18 13.15 0.67 4.96
- --------------------------------------------------------------------------------
3/31/96 12.84 13.18 0.68 8.05
- --------------------------------------------------------------------------------
Inception* - 3/31/95 11.96 12.84 0.29 9.92+
================================================================================
Total $1.98
================================================================================
================================================================================
Historical Performance -- Class C Shares
================================================================================
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
================================================================================
9/30/97 $13.14 $13.70 $0.34 6.88%+
- --------------------------------------------------------------------------------
3/31/97 13.17 13.14 0.67 4.91
- --------------------------------------------------------------------------------
3/31/96 12.83 13.17 0.68 8.07
- --------------------------------------------------------------------------------
3/31/95 12.82 12.83 0.68 5.66
- --------------------------------------------------------------------------------
3/31/94 13.24 12.82 0.70 1.96
- --------------------------------------------------------------------------------
Inception* - 3/31/93 12.84 13.24 0.12 4.04+
================================================================================
Total $3.19
================================================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.
6
<PAGE>
================================================================================
New York Portfolio
================================================================================
================================================================================
Average Annual Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
---------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Six Months Ended 9/30/97+ 7.23% 6.98% 6.88%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 9.51 8.98 8.86
- --------------------------------------------------------------------------------
Five Years Ended 9/30/97 7.44 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/97 9.55 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 9/30/97 7.64 10.44 6.69
================================================================================
<CAPTION>
With Sales Charge(2)
---------------------------------------
Class A Class B Class C
================================================================================
Six Months Ended 9/30/97+ 2.93% 2.48% 5.88%
- --------------------------------------------------------------------------------
Year Ended 9/30/97 5.15 4.48 7.87
- --------------------------------------------------------------------------------
Five Years Ended 9/30/97 6.58 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/97 9.10 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 9/30/97 7.23 9.58 6.69
================================================================================
</TABLE>
================================================================================
Cumulative Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (9/30/87 through 9/30/97) 148.95%
- --------------------------------------------------------------------------------
Class B (Inception* through 9/30/97) 33.36
- --------------------------------------------------------------------------------
Class C (Inception* through 3/30/97) 35.81
================================================================================
</TABLE>
(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% and 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 January 16, 1987, November
11, 1994 and January 8, 1993, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
7
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A Shares of
the New York Portfolio vs.
Lehman Brothers Municipal Long Bond Index+
- --------------------------------------------------------------------------------
September 1987 -- September 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Lehman Brothers
Municipal
Date New York Portfolio Long Bond Index
---- -------------------- --------------------
<S> <C> <C>
9/30/87 $ 9,548 $10,000
3/88 $10,556 $10,806
3/89 $11,580 $11,585
3/90 $12,618 $12,807
3/91 $13,681 $13,987
3/92 $15,277 $15,385
3/93 $17,445 $17,311
3/94 $17,867 $17,712
3/95 $18,969 $19,030
3/96 $20,622 $20,625
3/97 $21,752 $21,748
9/30/97 $23,326 $23,566
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares on
September 30, 1987, assuming deduction of the maximum 4.00% sales charge at
the time of investment and reinvestment of dividends (after deduction of
applicable sales charges through November 6, 1994 and thereafter at net
asset value) and capital gains, if any, at net asset value through
September 30, 1997. The Lehman Brothers Municipal Long Bond Index
(consisting of maturities of at least 22 years) is a sub-index of the
Lehman Brothers Municipal Bond Index, a broad based, total return index
comprised of investment grade, fixed rate municipal bonds selected from
issues larger than $50 million issued since January 1991. The index is
unmanaged and is not subject to the same management and trading expenses of
a mutual fund. The performance of the Portfolio'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.
8
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) September 30, 1997
======================================================================================================
NEW YORK MONEY MARKET PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Albany IDA IDR:
540 Broadway Project:
$ 1,335,000 P-1* Series B-2 4.000% due 12/1/97(a)(c) $ 1,335,000
1,325,000 P-1* Series B-3 4.250% due 12/1/97(a)(c) 1,325,000
1,205,000 P-1* PBS Development Co. Project
3.900% due 12/1/97(a)(c) 1,205,000
3,600,000 NR++ Chautaugua County IDA Red Wing Project 3.800%(b) 3,600,000
5,000,000 A-1 Columbia County New IDA IRA (Rural Manufacturing
Co. Inc. Project) Series A 3.950%(a)(b) 5,000,000
7,000,000 NR+ East Islip UFSD TAN 4.250% due 6/26/98 7,016,315
10,500,000 NR+ East Meadow UFSD TAN 4.250% due 6/29/98 10,530,773
10,000,000 NR+ Eastern Suffolk BOCES RAN 4.500% due 6/24/98 10,035,290
Erie County IDA:
Colad Group:
2,160,000 A-1 Series A 3.950%(a)(b) 2,160,000
2,229,000 A-1 Series B 3.950%(a)(b) 2,229,000
3,995,000 VMIG 1* Rosina Food Products, Inc. 3.950%(a)(b) 3,995,000
10,000,000 MIG 1* Erie County RAN Series B 4.250% due 11/19/97 10,008,413
8,500,000 MIG 1* Erie County Series A 4.500% due 6/25/98 8,541,899
2,560,000 A-1 Fulton County IDR (Fiber Conversion Inc. Project)
3.950%(a)(b) 2,560,000
Jefferson County IDA IDR:
1,770,000 A-1 The Climax Manufacturing Co. Project 3.950%(a)(b) 1,770,000
2,300,000 A-1 Fisher Guage 3.950%(a)(b) 2,300,000
2,150,000 NR+ Lancaster Village BAN 4.250% due 6/25/98 2,155,741
3,500,000 A-1 Lewis County IDA IDR (The Climax Manufacturing Co.
Project) 3.950%(a)(b) 3,500,000
8,000,000 NR+ Longwood CSD TAN 4.250% due 6/30/98 8,019,546
2,500,000 NR+ Monroe County BOCES RAN Series 1997
4.250% due 6/19/98 2,504,809
5,015,000 P-1* Monroe County IDA (Granite Building) 3.850%(b) 5,015,000
Municipal Assistance Corp. Series F Bond:
16,425,000 VMIG 1* PART Series G 4.150%(b) 16,425,000
TECP AMBAC-Insured:
10,000,000 A-1+ 3.550% due 10/7/97 10,000,000
4,300,000 A-1+ 3.800% due 12/10/97 4,300,000
Nassau County:
22,000,000 SP-1+ BAN Series C 4.250% due 3/17/98 22,049,639
9,000,000 NR+ RAN BOCES Lot 1 4.250% due 6/30/98 9,016,126
5,800,000 NR+ RAN BOCES Lot 2 4.250% due 1/28/98 5,806,414
13,750,000 SP-1+ RAN Series B 4.500% due 4/10/98 13,795,391
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK MONEY MARKET PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
New York City GO:
$12,300,000 A-1+ Sub-Series B-8 4.000%(b) $ 12,300,000
12,500,000 A-1+ Sub-Series B-10 4.000%(b) 12,500,000
10,600,000 A-1+ Sub-Series D FGIC-Insured 4.050%(b) 10,600,000
5,200,000 A-1+ Sub-Series D FGIC-Insured 4.100%(b) 5,200,000
16,600,000 A-1+ Sub-Series E-5 4.100%(b) 16,600,000
New York City GO TECP FSA-Insured Series H-3:
10,900,000 A-1+ 3.750% due 10/6/97 10,900,000
15,200,000 A-1+ 3.700% due 11/13/97 15,200,000
3,800,000 A-1+ New York City GO TECP MBIA-Insured
3.650% due 11/12/97 3,800,000
New York City HDC Mortgage Revenue Multi-Family
Housing:
400 West 59th Street:
7,000,000 A-1 Series A-1 4.100%(a)(b) 7,000,000
10,000,000 A-1 Series A-2 4.100%(a)(b) 10,000,000
3,400,000 A-1 York Avenue Project 4.050%(a)(b) 3,400,000
38,700,000 A-1+ New York City Health & Hospital Series A 4.000%(b) 38,700,000
New York City IDA:
12,000,000 A-1 Air Express International Corp Project 3.950%(a)(b) 12,000,000
1,300,000 A-1 Columbia Grammar School Project 3.950%(b) 1,300,000
New York City IDR:
3,250,000 VMIG 1* Series 87-A 4.050%(a)(b) 3,250,000
1,000,000 VMIG 1* Series 89-0 4.050%(a)(b) 1,000,000
1,670,000 VMIG 1* Series 89-G 4.050%(a)(b) 1,670,000
14,200,000 A-1+ New York City Municipal Water & Sewer Tax-Exempt Eagle 14,200,000
PART SAK 2 MBIA-Insured 4.180%(b)
New York City Municipal Water Finance Authority TECP:
15,000,000 A-1+ Series 3 3.600% due 11/10/97 15,000,000
9,400,000 A-1+ Series 4 3.750% due 10/16/97 9,400,000
9,300,000 A-1+ Series 4 3.800% due 11/6/97 9,300,000
38,000,000 A-1 New York State BANS TECP 3.650% due 10/1/97 38,000,000
New York State Dormitory Authority Revenue:
8,625,000 A-1+ Colgate University PART FGIC-Insured 4.100%(b) 8,625,000
6,100,000 A-1 Memorial Sloan Kettering TECP 3.650% due 10/8/97 6,100,000
2,000,000 A-1+ PART FGIC-Insured 4.150%(b) 2,000,000
New York State Energy Research & Development
Authority Gas Facilities:
14,300,000 A-1+ Brooklyn Union Gas MBIA-Insured 3.950%(b) 14,300,000
11,250,000 P-1* Central Hudson Gas & Electric 3.850%(b) 11,250,000
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK MONEY MARKET PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Long Island Lighting Co. Series A:
$18,000,000 A-1+ 3.600% due 3/1/98(c) $ 18,000,000
10,500,000 VMIG 1* 4.100%(a)(b) 10,500,000
Rochester Gas & Electric:
1,000,000 P-1* 3.350%(b) 1,000,000
18,795,000 NR++ 3.600% due 11/15/97(c) 18,795,000
25,200,000 A-1 MBIA-Insured 3.950%(b) 25,200,000
New York State Energy Research & Development
Authority Niagara Mohawk:
14,200,000 A-1 PART FGIC-Insured 4.180%(b) 14,200,000
9,500,000 A-1+ PART FGIC-Insured 4.180%(b) 9,500,000
500,000 A-1+ Series 88 4.000%(a)(b) 500,000
New York State Environmental Facilities Corp.
Tax-Exempt Eagle:
6,000,000 A-1+ General Electric TECP 3.650% due 10/8/97(a) 6,000,000
18,000,000 A-1+ PART FSA-Insured 4.180%(b) 18,000,000
16,300,000 A-1+ New York State Enviromental Quality Series
Tax-Exempt Eagle PART 3.500% due 1/1/98(c) 16,300,000
4,000,000 AAA New York State Housing Corp. Series A (Pre-Refunded--
Escrowed with U.S. government securities to
11/1/97 Call @ 102) 8.625% due 11/1/06 4,096,370
New York State Housing Finance Authority:
11,000,000 VMIG 1* 250 West 50th Street 4.000%(a)(b) 11,000,000
10,900,000 VMIG 1* Liberty View Apartments 3.750%(b) 10,900,000
Normandie Court:
20,000,000 VMIG 1* Project 1 4.000%(b) 20,000,000
4,400,000 VMIG 1* Project 2 4.050%(b) 4,400,000
New York State Local Government Assistance Corp.:
3,200,000 A-1+ Series 93 A 3.950%(b) 3,200,000
25,800,000 A-1+ Series 95 B 3.900%(b) 25,800,000
15,800,000 A-1+ Series 95 C 3.900%(b) 15,800,000
4,000,000 A-1+ Series E 4.050%(b) 4,000,000
New York State Medical Care Facility Finance Agency:
3,700,000 VMIG 1* Lenox Hill Hospital 4.000%(b) 3,700,000
12,125,000 A-1+ St. Lukes PART FHA-Insured 4.150%(b) 12,125,000
New York State Mortgage Agency Revenue PART:
13,500,000 VMIG 1* Series 38 4.200%(a)(b) 13,500,000
3,520,000 VMIG 1* Series 40A 4.200%(a)(b) 3,520,000
14,685,000 VMIG 1* Series KK 4.200%(a)(b) 14,685,000
5,000,000 A-1+ New York State Power Authority General
Purpose PART 4.200%(b) 5,000,000
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK MONEY MARKET PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
New York State Thruway PART Series 1997:
$ 6,000,000 A-1+ 4.100%(b) $ 6,000,000
10,000,000 A-1+ 4.200%(b) 10,000,000
12,342,000 VMIG 1* New York Sate Urban Development Corp.
Correctional Facilities PART 4.200%(b) 12,342,000
1,800,000 A-1 Newburgh IDA Civic Facility Revenue
(Saint Mary's College) 4.050%(b) 1,800,000
2,140,000 NR+ Niagara County GO BAN 4.250% due 7/17/98 2,145,692
3,500,000 P-1* Niagara County IDA IDR (General Abrasive Tribacher)
4.100%(a)(b) 3,500,000
15,000,000 NR+ Onadaga County BAN 4.125% due 6/19/98 15,033,572
Onadaga County IDA:
Southern Container:
4,500,000 A-1 Series A 4.150%(a)(b) 4,500,000
1,725,000 A-1 Series B 4.150%(a)(b) 1,725,000
3,125,000 A-1 Syracuse Research Corp. 3.950%(b) 3,125,000
5,000,000 NR+ Oswego BAN 4.500% due 10/8/97 5,000,535
5,000,000 NR+ Plainedge UFSD TAN 4.250% due 6/30/98 5,009,947
Port Authority NY/NJ:
5,990,000 A-1+ JFK International Airport PART MBIA-Insured
4.200%(b) 5,990,000
TECP Series 3:
3,085,000 A-1+ 3.600% due 10/7/97(a) 3,085,000
30,100,000 A-1+ 3.600% due 12/15/97(a) 30,100,000
Versatile Structure:
1,000,000 A-1+ Series 2 3.800%(b) 1,000,000
600,000 A-1+ Series 3 3.500%(b) 600,000
1,400,000 A-1+ Series 4 3.900%(a)(b) 1,400,000
1,500,000 VMIG 1* Puerto Rico GDB 3.700%(b) 1,500,000
6,000,000 AAA Puerto Rico Industrial Medical PCR (Abbott Laboratory)
Series 1983 3.750% due 3/1/98(c) 6,000,000
7,158,000 NR+ Rensselaer County BAN Series B 4.250% due 6/25/98 7,177,112
1,210,000 A-2 Rensselaer County IDA IDR (Millers Supermarket Inc.
Project) 3.900% due 3/1/98(a)(c) 1,210,000
9,347,000 NR+ Rochester BAN Series 2 4.500% due 10/30/97 9,352,011
2,690,000 NR++ Rochester GO PART AMBAC-Insured 4.200%(b) 2,690,000
1,000,000 P-1* Rotterdam IDA IDR Rotterdam Park 3.850%(b) 1,000,000
1,900,000 P-1* Schenectady County IDA IDR Refunding (Scotia
Industrial Park Project) Series 94A 3.850%(b) 1,900,000
5,000,000 NR+ Sullivan County GO BAN 4.500% due 7/17/98 5,019,003
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK MONEY MARKET PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
$40,500,000 A-1+ Triborough Bridge & Tunnel Authority Revenue
Certificates General Purpose Series C
Special Obligation FGIC-Insured 4.050%(b) $ 40,500,000
2,650,000 A-1+ United Nations Development Corp. PART 4.300%(b) 2,650,000
12,000,000 NR+ West Islip UFSD TAN 4.250% due 6/30/98 12,030,962
6,450,000 NR+ Westchester County TAN 3.490% due 12/11/97 6,446,065
4,924,000 NR+ Wilson CSD BAN 4.250% due 4/16/98 4,934,294
- ------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $974,281,919**) $ 974,281,919
======================================================================================================
</TABLE>
(a) Income from this issue is considered a preference item for the purposes of
calculating the alternative minimum tax.
(b) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
(c) Variable rate obligation payable at par on demand on the date indicated.
++ Security has not been rated by either Moody's Investors Service or Standard
& Poor's Ratings Services. However, the Board of Trustees has determined
the security to be considered a first tier quality issue due to enhancement
features such as insurance or irrevocable letters of credit.
+ Security has not been rated by either Moody's Investors Service or Standard
& Poor's Ratings Services. However, the Board of Trustees has determined
that the security presents minimal credit risk.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 24, 25 and 26 for definitions of ratings and certain security
descriptions.
See Notes to Financial Statements.
13
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Education -- 13.0%
$ 1,000,000 AAA New York City IDA, Civil Facility Revenue, (Riverdale
Center School Inc. Project), MBIA-Insured,
5.250% due 6/1/17 $ 990,000
New York State Dormitory Authority Revenue Bonds:
4,625,000 AAA Barnard College, AMBAC-Insured, 5.250% due 7/1/26 4,544,063
1,000,000 AAA Center Development of Disabilities, Series A,
AMBAC-Insured, 5.000% due 7/1/17 961,250
City University:
3,000,000 AAA Series 2, MBIA-Insured, 6.875% due 7/1/14 3,420,000
5,625,000 Baa1* Series A, 5.625% due 7/1/16 5,807,813
7,000,000 Baa1* Series B, 6.000% due 7/1/14 7,525,000
Series C:
2,500,000 Baa1* 7.500% due 7/1/10(a) 3,034,375
2,000,000 BBB 8.200% due 7/1/14 2,094,020
Cornell University, Series A:
2,000,000 AA 7.375% due 7/1/20 2,190,000
1,000,000 AA 7.375% due 7/1/30 1,095,000
1,230,000 AAA Crouse Community Center, FHA-Insured,
7.500% due 8/1/29 1,328,400
200,000 BBB Department of Health, State of New York Issue,
7.250% due 7/1/02 216,750
Genessee Valley, FHA-Insured:
1,000,000 AA Series A, 6.900% due 2/1/32 1,071,250
685,000 AA Series B, 6.850% due 8/1/16 747,506
2,235,000 AAA Jewish Geriatric Center, FHA-Insured,
7.150% due 8/1/14 2,545,106
7,620,000 AAA Library Facilities Service Contract, CAPMAC-Insured,
5.250% due 7/1/19 7,458,075
2,000,000 AAA Long Island Medical Center, Series A, FHA-Insured,
7.750% due 8/15/27 2,065,760
2,700,000 AA Manhattan College, Asset Guaranteed-Insured,
6.500% due 7/1/19 2,872,125
New York Medical College:
1,140,000 AAA 7.250% due 10/1/03 1,176,651
220,000 AA Asset Guaranteed-Insured, 6.700% due 7/1/01 238,425
1,600,000 AA Niagara Frontier Home, FHA-Insured,
6.200% due 2/1/15 1,730,000
3,020,000 AAA Rochester Institute of Technology,
MBIA-Insured, 5.250% due 7/1/22 2,970,925
State University Educational Facility:
Series A:
9,000,000 A++ 6.375% due 5/15/14 9,585,000
12,110,000 A++ 5.875% due 5/15/17 12,912,288
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Education -- 13.0% (continued)
Series B:
$ 1,000,000 A++ 7.500% due 5/15/11 $ 1,210,000
5,000,000 AAA FGIC-Insured, 5.250% due 5/15/19 5,043,750
2,450,000 AAA St. Vincent's Hospital & Medical Center, FHA-Insured,
7.400% due 8/1/30 2,685,813
7,370,000 A+ University of Rochester, Series A, 6.500% due 7/1/19 7,959,600
285,000 BBB Upstate Community College, Series B,
7.100% due 7/1/01 311,363
- ------------------------------------------------------------------------------------------------------
95,790,308
- ------------------------------------------------------------------------------------------------------
Escrowed To Maturity (b) -- 1.2%
1,495,000 AAA Commonwealth of Puerto Rico, Aqueduct & Sewer
Authority Revenue Bonds, 10.250% due 7/1/09 2,109,819
New York City GO, AMBAC-Insured, Series I:
3,150,000 AAA 7.250% due 8/15/14 3,370,500
945,000 AAA 7.250% due 8/15/15 1,005,244
2,180,000 AAA New York State Power Authority Revenue & General
Purpose, 9.500% due 1/1/01 2,327,150
- ------------------------------------------------------------------------------------------------------
8,812,713
- ------------------------------------------------------------------------------------------------------
Finance -- 1.9%
6,450,000 A New York State Local Government Assistance Corp.,
1993 Series C, 5.500% due 4/1/17 6,570,938
7,500,000 AAA Puerto Rico Public Building Authority Revenue,
Guaranteed Government Facilities, Series B,
AMBAC-Insured, 5.000% due 7/1/27 7,162,500
- ------------------------------------------------------------------------------------------------------
13,733,438
- ------------------------------------------------------------------------------------------------------
General Obligation -- 6.7%
1,000,000 A Commonwealth of Puerto Rico GO, 8.000% due 7/1/08 1,046,090
Green Island GO:
100,000 Baa* 9.375% due 11/1/01 115,375
125,000 Baa* 9.375% due 11/1/02 147,031
New York City GO:
11,000,000 A-++ Series B, 5.250% due 8/1/20 10,463,750
5,255,000 A-++ Series H, 7.000% due 2/1/21 5,734,519
New York City Refunding Bonds GO:
4,000,000 AAA MBIA-Insured, 6.950% due 8/15/12 4,555,000
5,000,000 A-++ Series C, 6.660% due 8/1/09 5,237,500
10,000,000 A-++ Series H, 6.125% due 8/1/25 10,425,000
1,850,000 AAA Series I, AMBAC-Insured, 7.250% due 8/15/14 1,970,250
New York State GO:
1,000,000 A++ 12.000% due 11/15/03(a) 1,395,000
2,750,000 A++ 9.875% due 11/15/05(a) 3,702,188
3,195,000 Aa2* Orange County GO, 5.125% due 9/1/23 3,107,138
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
General Obligation -- 6.7% (continued)
$ 1,830,000 AAA Yonkers GO, Series B, FGIC-Insured,
5.000% due 9/1/17 $ 1,768,238
- ------------------------------------------------------------------------------------------------------
49,667,079
- ------------------------------------------------------------------------------------------------------
Hospitals -- 21.7%
680,000 B1* Monroe County IDA Revenue, Civic Facilities, Genesee
Hospital, Series A, 6.500% due 11/1/99 694,450
New York State Dormitory Authority Revenue:
15,000,000 A++ Department of Health, 5.500% due 7/1/25 14,831,250
5,350,000 Aa3* Lutheran Center at Poughkeepsie, LOC Key Bank,
6.050% due 7/1/26 5,557,313
7,000,000 A++ Mental Health Services Facilities, Series B,
5.625% due 2/15/21 7,061,250
5,850,000 AAA St. Joseph's Hospital, MBIA-Insured,
5.250% due 7/1/18 5,762,250
3,000,000 AA St. Luke's Home, Residential Health, FHA-Insured,
6.375% due 8/1/35 3,217,500
United Health Services Inc.:
4,250,000 AAA AMBAC/FHA-Insured Mortgage, 5.375% due 8/1/27 4,154,375
990,000 AAA FHA-Insured Morgage, Partially Pre-Refunded
(Call 2/1/00 @ 102), 7.350% due 8/1/29(d) 1,064,250
New York State Medical Care Facilities Finance Agency
Revenue:
2,080,000 BBB+ 8.875% due 8/15/07 2,129,400
550,000 BBB+ 7.700% due 2/15/18 567,716
Hospital & Nursing Home, FHA-Insured:
Series A:
105,000 AA 6.100% due 2/15/02 110,513
4,100,000 AA 7.450% due 8/15/31 4,556,125
11,805,000 AAA St. Vincents Medical Center,
6.200% due 2/15/21 12,528,056
990,000 AA Series B, 7.000% due 8/15/32 1,091,475
Series C:
1,950,000 AAA 6.400% due 8/15/14 2,125,500
2,500,000 AA 6.650% due 8/15/32 2,681,250
135,000 AAA MBIA-Insured, Partially Pre-Refunded (Call 2/15/00
@ 102), 7.750% due 2/15/20(b)(d) 146,981
12,505,000 AAA Millard Fillmore Hospital, AMBAC/FHA-Insured,
5.375% due 2/1/32 12,317,425
515,000 AAA Partially Pre-Refunded (Call 2/15/00 @ 102),
7.750% due 2/15/20(b)(d) 558,131
Series A:
Beth Israel Medical Center, MBIA-Insured:
3,000,000 AAA 7.500% due 11/1/10 3,322,500
6,000,000 AAA 5.125% due 11/1/16 5,857,500
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Hospitals -- 21.7% (continued)
$ 4,000,000 BBB+ Brookdale Hospital Medical Center,
6.800% due 8/15/12 $ 4,345,000
2,500,000 BB Central Suffolk Hospital Mortgage Project,
6.125% due 11/1/16 2,503,125
1,000,000 Aa2* Health Center Projects, Second Mortgage Health
Care Program, 6.375% due 11/15/19 1,085,000
6,800,000 AA Methodist Hospital, FHA-Insured,
6.700% due 8/15/23 7,310,000
4,000,000 AA Mortgage Project, FHA-Insured,
6.375% due 8/15/24 4,305,000
4,700,000 BBB+ New York Downtown Hospital, 6.800% due 2/15/20 5,093,625
New York Hospital, AMBAC/FHA-Insured:
8,500,000 AAA 6.800% due 8/15/24 9,562,500
7,600,000 AAA 6.500% due 8/15/29 8,388,500
2,500,000 AAA 6.900% due 8/15/34 2,828,125
5,000,000 BBB+ Secured Hospital Revenue Bonds 1991,
7.400% due 8/15/21 5,456,250
Series B:
3,500,000 AA FHA-Insured, Mortgage Project,
6.100% due 2/15/15 3,710,000
1,860,000 AAA Long Term Health Care, FSA-Insured,
6.450% due 11/1/14 2,015,775
Series F, Mental Health Services Facilities
Improvement:
4,720,000 BBB+ 6.500% due 8/15/12 5,020,900
4,615,000 BBB+ 6.500% due 2/15/19 4,863,056
2,755,000 NR Newark-Wayne Community Hospital Inc., Hospital
Revenue Refunding & Improvement,
Series A, 7.600% due 9/1/15 2,799,769
715,000 A Valley Health Development Corp., New York
Mortgage Revenue Bonds, Mortgage
Loan, FHA-Insured, 11.300% due 2/1/23 865,150
- ------------------------------------------------------------------------------------------------------
160,486,985
- ------------------------------------------------------------------------------------------------------
Housing: Multi-Family -- 6.0%
6,470,000 BBB Commonwealth of Puerto Rico, Urban Renewal &
Housing Corp. Revenue Bonds, 7.875% due 10/1/04 6,987,600
1,785,000 NR Lincoln Towers Housing Corp., 11.250% due 1/1/15 1,859,149
New York City Housing Development Corp.,
Multi-Family Housing:
1,576,046 NR Cadman Project, 6.500% due 11/15/18 1,648,938
1,000,441 NR Heywood Towers Project, 6.500% due 10/15/17 1,045,462
1,270,780 NR Kelly Project, 6.500% due 2/15/18 1,327,966
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Housing: Multi-Family -- 6.0% (continued)
$ 1,493,906 AAA Pass Through Certificates, AMBAC-Insured,
6.500% due 12/20/01 $ 1,569,259
1,630,546 NR Riverside Project, 6.500% due 11/15/18 1,713,508
Series A, FHA-Insured:
4,000,000 AAA 6.600% due 4/1/30 4,205,000
5,000,000 AAA Multi-Unit Mortgage Refunding,
7.350% due 6/1/19 5,325,000
New York State Housing Finance Agency Revenue,
Multi-Family Housing:
FHA-Insured:
2,000,000 Aa2* Secured Mortgage, Series A,
6.200% due 8/15/15(c) 2,112,500
1,500,000 AAA Series C, 6.500% due 8/15/24 1,591,875
3,450,000 AAA Housing Project, Series A, FSA-Insured,
6.125% due 11/1/20 3,609,563
Second Mortgage Program, SONYMA-Insured:
Series A:
500,000 Aa2* 7.000% due 8/15/12(c) 538,750
500,000 Aa2* 7.050% due 8/15/24(c) 534,375
6,870,000 Aa2* Series B, 6.250% due 8/15/29(c) 7,161,975
1,750,000 Aa2* Series C, 6.600% due 8/15/27 1,872,500
1,000,000 A1* Rensselaer Housing Authority, Multi-Family Mortgage
Revenue, Rensselaer Elderly Apartments,
Series A, 7.750% due 1/1/11 1,077,500
- ------------------------------------------------------------------------------------------------------
44,180,920
- ------------------------------------------------------------------------------------------------------
Housing: Single-Family -- 4.2%
New York State Mortgage Agency Revenue:
320,000 Aaa* 8th Series E, Pool-Insured, 8.100% due 10/1/17 329,517
1,345,000 Aaa* 9th Series A, Pool-Insured, 7.300% due 4/1/17(c) 1,366,238
1,000,000 Aaa* Series 41-A, 6.450% due 10/1/14 1,073,750
Homeowner Mortgage:
2,625,000 Aa2* Series 37-A, 6.375% due 10/1/14 2,812,031
4,000,000 Aa2* Series 42, FHA-Insured, 6.650% due 4/1/26(c) 4,270,000
9,925,000 Aa2* Series 46, 6.650% due 10/1/25(c) 10,619,750
4,400,000 Aa2* Series 65, 5.850% due 10/1/28(c) 4,455,000
5,000,000 Aa2* Series 67, 5.800% due 10/1/28(c) 5,043,750
805,000 Aa2* Series SS, FHA-Insured, 7.950% due 10/1/22(c) 860,344
- ------------------------------------------------------------------------------------------------------
30,830,380
- ------------------------------------------------------------------------------------------------------
Industrial Development -- 7.3%
2,250,000 A- Essex County IDA Revenue, Solid Waste, (International
Paper Co. Project), Series A, 6.150% due 4/1/21(c) 2,351,250
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Industrial Development -- 7.3% (continued)
$ 1,000,000 AA Hempstead Town IDA, Resource Recovery Revenue Bonds,
Nassau District Energy Corp., 7.750% due 9/15/15(c) $ 1,014,030
500,000 AA- Monroe County IDA, Revenue Public Improvement,
Canal Ponds Park, Series A, 7.000% due 6/15/13 553,750
New York City IDA:
Civil Facility Revenue, (The Lighthouse Project):
1,000,000 AA 6.375% due 7/1/10 1,061,250
2,250,000 AA 6.500% due 7/1/22 2,390,625
940,000 Aa1* Prime Laboratories Inc., Series C, 7.700%
Mandatory Put 11/1/00 943,027
Special Facilities Revenue:
1,450,000 Baa2* 1990 American Airlines Inc. Project,
8.000% due 7/1/20(c) 1,529,750
1,000,000 BB+ United Airlines Inc. Project, 5.650% due 10/1/32(c) 993,750
9,000,000 NR Visy Paper Inc. Project, 7.950% due 1/1/28(c) 10,271,250
7,000,000 AAA Onondaga County IDA Sewer Facilities Revenue, (Bristol-
Meyers Squibb Co. Project), 5.750% due 3/1/24(c) 7,411,250
Port Authority of New York & New Jersey:
8,000,000 Baa3* Delta Airlines, Series 1R, 6.950% due 6/1/08 8,710,000
12,000,000 NR KIAC Project, 5th Installment, Special Project,
6.750% due 10/1/19(c) 12,930,000
1,410,000 A Rensselaer County IDA, Albany International Corp.,
7.550% due 6/1/07(c) 1,647,938
2,390,000 B* Warren & Washington Counties IDA, Resource Recovery
Revenue Bonds, Series A, 7.900% due 12/15/07(a) 2,479,625
- ------------------------------------------------------------------------------------------------------
54,287,495
- ------------------------------------------------------------------------------------------------------
Life Care Systems -- 3.2%
New York State Dormitory Authority, Revenue Bonds:
7,000,000 A++ Department of Health, Veterans Home,
5.500% due 7/1/21 6,956,250
FHA-Insured:
3,815,000 AA Hebrew Nursing Home, 6.125% due 2/1/37 3,981,906
1,315,000 AAA Heritage House Nursing Center, 7.000% due 8/1/31 1,433,350
2,450,000 AA- Iroquois Nursing Home, 7.050% due 2/1/31 2,655,188
1,500,000 AAA Menorah Campus Nursing Home, 6.100% due 2/1/37 1,554,375
3,350,000 AA Wesley Garden Nursing Home, 6.125% due 8/1/35 3,509,125
2,160,000 A Oneida Health Care Corp. Mortgage Revenue, Series A,
FHA-Insured, 7.200% due 8/1/31 2,303,100
1,250,000 AAA Syracuse GO, IDA, James Square Association,
FHA-Insured, 7.000% due 8/1/25(a) 1,343,750
- ------------------------------------------------------------------------------------------------------
23,737,044
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Miscellaneous -- 3.4%
$10,250,000 AAA Battery Park City Authority Revenue, Series A,
AMBAC-Insured, 5.500% due 11/1/26 $ 10,288,438
New York State Municipal Bond Bank Agency, Series A,
Special Revenue Program:
1,000,000 BBB+ City of Buffalo, 6.875% due 3/15/06 1,080,000
1,500,000 A+ City of Rochester, 6.750% due 3/15/11 1,616,250
New York State Urban Development Corp., Sub Lien:
10,000,000 A 5.500% due 7/1/22 9,962,500
1,990,000 AAA 5.500% due 7/1/26 1,997,463
- ------------------------------------------------------------------------------------------------------
24,944,651
- ------------------------------------------------------------------------------------------------------
Pollution Control Revenue -- 3.8%
4,500,000 AAA Dutchess County Resource Recovery Agency Revenue
Bonds, Solid Waste Management, Series A,
FGIC-Insured, 7.500% due 1/1/09 4,865,625
New York State Energy, Research & Development Authority:
MBIA-Insured, Central Hudson Gas & Electric:
1,100,000 AAA Series B, 7.375% due 10/1/14 1,196,250
1,000,000 A++ Series C, 8.375% due 12/1/28(c) 1,065,000
2,660,000 AAA Rochester Gas & Electric, FSA-Insured,
8.375% due 12/1/28(c) 2,846,200
New York State Environmental Facilities Corp.:
3,085,000 Baa1* Huntington Project, 7.375% due 10/1/99 3,216,113
PCR, State Water Revolving Fund, Series A:
8,250,000 A 7.250% due 6/15/10(a) 9,188,438
1,950,000 A 7.500% due 6/15/12 2,140,125
1,500,000 AAA Special Obligation Revenue, Riverbank State Park,
AMBAC-Insured, 5.125% due 4/1/22 1,462,500
1,710,000 Baa1* Puerto Rico Industrial, Medical & Environmental Pollution
Control Facilities Finance Authority, Revenue Bonds,
Series A, American Airlines, 6.450% due 12/1/25 1,836,113
- ------------------------------------------------------------------------------------------------------
27,816,364
- ------------------------------------------------------------------------------------------------------
Pre-Refunded (d) -- 3.7%
495,000 AAA Babylon IDA, Resource Recovery Revenue, Ogden
Martin System, Series B, (Call 7/1/98 @ 103),
8.500% due 1/1/19 526,309
35,000 AAA Battery Park City Authority, FHA-Insured, (Call 6/1/05 @ 100),
8.625% due 6/1/23 43,750
500,000 AAA Municipal Assistance Corp., New York City, Series 64,
(Call 7/1/99 @ 102), 7.625% due 7/1/08 539,375
245,000 AAA New York City GO, Series H, (Call 2/1/02 @ 101.5),
7.000% due 2/1/21 273,174
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Pre-Refunded (d) -- 3.7% (continued)
$ 3,270,000 AAA New York City Municipal Water Finance Authority,
Water & Sewer System Revenue, Series A, FSA-Insured,
(Call 6/15/01 @ 101), 7.000% due 6/15/15 $ 3,572,474
New York State Dormitory Authority Revenue Bonds:
3,000,000 AAA Cooper Union, FSA-Insured, (Call 7/1/01 @ 102),
7.200% due 7/1/20 3,363,750
5,000,000 AAA Department of Education, State of New York Issue,
(Call 7/1/01 @ 102), 7.750% due 7/1/21(a) 5,687,500
800,000 AAA Ideal Senior Living Center, FHA-Insured,
(Call 2/1/99 @ 102), 7.625% due 8/1/28 852,000
New York State Medical Care Facilities Finance Agency
Revenue:
1,320,000 AAA Call 2/15/00 @ 102, 7.750% due 2/15/20 1,453,650
5,000,000 AAA Hospital & Nursing Home, Series D, FHA-Insured,
(Call 2/15/03 @ 102), 6.450% due 2/15/32 5,568,750
830,000 AAA MBIA-Insured, (Call 2/15/00 @ 102),
7.750% due 2/15/20 914,037
1,700,000 AAA St. Lukes Hospital, Series B, FHA-Insured,
(Call 2/15/00 @ 102), 7.450% due 2/15/29 1,861,500
1,000,000 AAA Orangetown Housing Authority, Housing Facility Revenue,
Senior Housing Center, 1990 Series, (Call 4/1/00 @ 102),
7.600% due 4/1/30 1,115,000
1,490,000 AAA United Nations Development Corp. Revenue Bonds,
Senior Lien, Series A, (Call 7/1/03 @ 102),
6.000% due 7/1/07 1,635,275
- ------------------------------------------------------------------------------------------------------
27,406,544
- ------------------------------------------------------------------------------------------------------
Public Facilities -- 1.8%
1,000,000 A Albany Parking Authority, New York Revenue Refunding,
(Green & Hudson St. Garage Project), LOC Key Bank,
7.150% due 9/15/16 1,066,250
915,000 BBB New York State COP, (Hanson Redevelopment Project),
8.375% due 5/1/08 1,088,850
New York State Urban Development Corp. Revenue
Refunding:
6,395,000 AAA Correctional Capital Facilities, Series 6,
AMBAC-Insured, 5.375% due 1/1/25 6,339,044
3,000,000 Baa1* State Facilities, 5.700% due 4/1/20 3,075,000
1,500,000 Baa1* Triborough Bridge & Tunnel Authority, (Convention Center
Project), Series E, 7.250% due 1/1/10 1,770,000
- ------------------------------------------------------------------------------------------------------
13,339,144
- ------------------------------------------------------------------------------------------------------
Transportation -- 13.7%
2,500,000 AAA Albany County Airport Authority Revenue, FSA-Insured,
5.500% due 12/15/19(c) 2,500,000
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Transportation -- 13.7% (continued)
Metropolitan Transportation Authority:
Commuter Facilities Revenue:
$ 2,500,000 AAA Series B, AMBAC-Insured, 5.125% due 7/1/24 $ 2,403,124
6,450,000 AAA Series D, MBIA-Insured, 5.125% due 7/1/22 6,232,312
11,685,000 AAA Dedicated Tax Fund, Series A, MBIA-Insured,
5.250% due 4/1/26 11,349,055
Transit Facilities Revenue:
10,000,000 AAA Series A, MBIA-Insured, 5.625% due 7/1/25 10,150,000
5,000,000 AAA Series B-2, MBIA-Insured, 5.000% due 7/1/20 4,743,750
5,440,000 BBB Service Contract, Series N, 7.125% due 7/1/09 5,997,600
2,250,000 AAA Monroe County Airport Authority, Airport Revenue,
Greater Rochester International, MBIA-Insured,
7.250% due 1/1/19(c) 2,424,374
4,230,000 AAA New York State Highway Authority, Emergency Services,
Construction and Reconstruction, Series A,
FSA-Insured, 6.600% due 3/1/01 4,552,537
3,500,000 Baa1* New York State Thruway Authority, Service Contract
Revenue, Local Bridge & Tunnel Authority,
5.000% due 4/1/17 3,294,374
1,000,000 AAA Niagara Falls Bridge Authority, Toll Revenue, Series B,
FGIC-Insured, 5.250% due 10/1/15 1,020,000
Puerto Rico Commonwealth Highway & Transportation
Authority Revenue Refunding:
10,000,000 A 5.000% due 7/1/36 9,387,500
17,000,000 A Series Y, 5.500% due 7/1/36 17,148,750
Triborough Bridge & Tunnel Authority:
20,000,000 AA++ General Purpose, Series B, 5.200% due 1/1/27 19,300,000
500,000 Aa* Series L, 8.125% due 1/1/12(a) 514,770
- ------------------------------------------------------------------------------------------------------
101,018,146
- ------------------------------------------------------------------------------------------------------
Utilities -- 4.0%
New York State Energy, Research & Development Authority,
Facilities Revenue Bonds:
Brooklyn Union Gas Co. Project:
3,000,000 A Regular Linked SAVRS and RIBS,
7.050% due 7/15/26(c)(e) 3,318,750
1,500,000 A Regular RIBS, Series B, 6.952% due 7/1/26(c)(e) 1,882,500
Consolidated Edison Co. Project, Series A:
2,250,000 A+ 7.125% due 3/15/22(c) 2,303,032
5,750,000 A+ 7.125% due 12/1/29(a)(c) 6,598,124
1,500,000 Baa2* Corning National Gas Corp., Series A,
8.250% due 12/1/18(c) 1,606,874
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Schedules of Investments (unaudited) (continued) September 30, 1997
======================================================================================================
NEW YORK PORTFOLIO
FACE
AMOUNT RATING DESCRIPTION VALUE
======================================================================================================
<S> <C> <C> <C>
Utilities -- 4.0% (continued)
Long Island Lighting Co. Project:
Series A:
$ 4,900,000 BB+ 7.150% due 12/1/20(c) $ 5,304,250
1,000,000 BB+ 7.150% due 2/1/22(c) 1,082,500
3,000,000 BB+ Series B, 7.150% due 2/1/22(c) 3,247,500
1,000,000 BB+ Series D, 6.900% due 8/1/22(c) 1,073,750
3,100,000 VMIG 1* PCR, Commercial Paper, New York Electric & Gas,
Series B, 4.200% due 2/1/29(f) 3,100,000
- ------------------------------------------------------------------------------------------------------
29,517,280
- ------------------------------------------------------------------------------------------------------
Water & Sewer -- 4.4%
1,000,000 AAA Buffalo Municipal Water Finance Authority, Water
Systems Revenue, FGIC-Insured, 6.100% due 7/1/26 1,062,500
2,150,000 AAA Monroe County Water Authority Revenue,
AMBAC-Insured, 7.000% due 8/1/19 2,418,750
New York City Municipal Water Finance Authority,
Water & Sewer System Revenue:
10,000,000 A- Series A, 5.125% due 6/15/21 9,562,500
20,050,000 AAA Series B, FGIC-Insured, 5.125% due 6/15/30 19,248,000
- ------------------------------------------------------------------------------------------------------
32,291,750
- ------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $691,774,991**) $ 737,860,241
======================================================================================================
</TABLE>
(a) Security segregated by Custodian for open purchase agreements.
(b) Bond is escrowed to maturity by U.S. government securities and is
considered by the Manager to be triple-A rated even if isssuer has not
applied for new ratings.
(c) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(d) Bond is escrowed by U.S. government securities and is considered by the
Manager to be triple-A rated even if isssuer has not applied for new
ratings.
(e) Residual interest bond -- coupon varies inversely with level of short-term
tax-exempt interest rates.
(f) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
++ Fitch Investor Services, Inc
** Aggregate cost for Federal income tax purposes is substanially the same.
See pages 24, 25 and 26 for definitions of ratings and certain security
descriptions.
See Notes to Financial Statements.
23
<PAGE>
================================================================================
Bond Ratings
================================================================================
All ratings are by Standard & Poor's Ratings Services ("Standard &Poor's"),
except those which are identified by an asterisk (*) are rated by Moody's
Investors Service Inc. ("Moody's") and those identified by a double dagger (++)
are rated by Fitch Investor Services, Inc. ("Fitch"). The definitions of the
applicable rating symbols are set forth below:
Standard & Poor's -- Ratings 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 -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issue only in a
small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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 bonds in this category than in
higher rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing
uncertainties of 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 "B", 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 as 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.
B -- Bonds that are rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
24
<PAGE>
================================================================================
Bond Ratings (continued)
================================================================================
Fitch -- Ratings from "AA" to "A" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standings within the major rating
categories.
AA -- Bonds which are rated "AA" are considered to be investment grade and
of very high credit quality. The obligor's ability to pay interest
and/or dividends and repay principal is very strong, although not as
strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally
rated "F-1+".
A -- Bonds which are rated "A" are considered to be investment grade and
of high credit quality. The obligor's ability to pay interest and/or
dividends and repay principal is considered to be strong, but may be
vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
NR -- Indicates the bond is not rated by Standard & Poor's, Moody's or
Fitch.
================================================================================
Short-Term Security 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. P-1 -- Moody's
highest rating for commercial paper and for VRDO prior to the advent
of the VMIG 1 rating.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
MIG1 -- Moody's highest rating for short-term municipal obligations.
MIG 2 -- Moody's second highest rating for short-term municipal obligations.
================================================================================
Security Descriptions
================================================================================
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
BOCES -- Board of Cooperative Education Services
CGIC -- Capital Guaranty Insurance Company
COP -- Certificate of Participation
CSD -- Central School District
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 -- Financial Security Assurance
GDB -- Government Development Bank
25
<PAGE>
================================================================================
Security Descriptions (continued)
================================================================================
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
IRB -- Industrial Revenue Bonds
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PART -- Partnership Structure
PCFA -- Pollution Control Financing Authority
PCR -- Pollution Control Revenue
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
SAVRS -- Select Auction Variable Rate Securities
SONYMA -- State of New York Mortgage Association
SWAP -- SWAP Structure
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bond Structure
TRAN -- Tax and Revenue Anticipation Notes
UFSD -- Union Free School District
VRDD -- Variable Rate Demand Note
VRWE -- Variable Rate Wednesday Demand
26
<PAGE>
================================================================================
Statements of Assets and Liabilities (unaudited) September 30, 1997
================================================================================
<TABLE>
<CAPTION>
New York Money New York
Market Portfolio Portfolio
================================================================================
<S> <C> <C>
ASSETS:
Investments, at value (Cost $974,281,919 and
$691,774,991, respectively) $ 974,281,919 $ 737,860,241
Cash 24,964 18,506
Interest receivable 7,172,921 11,171,327
Receivable for securities sold 14,030,170 17,833,000
Receivable for Fund shares sold -- 1,709,645
Other receivables -- 355,864
- --------------------------------------------------------------------------------
Total Assets 995,509,974 768,948,583
- --------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 1,378,502 --
Management fees payable 420,136 350,133
Distribution fees payable 34,238 85,834
Deferred compensation 12,500 10,600
Payable for securities purchased -- 20,026,727
Accrued expenses 88,042 97,232
- --------------------------------------------------------------------------------
Total Liabilities 1,933,418 20,570,526
- --------------------------------------------------------------------------------
Total Net Assets $ 993,576,556 $ 748,378,057
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 993,800 $ 54,503
Capital paid in excess of par value 992,806,407 701,125,572
Overdistributed net investment income -- (40,260)
Accumulated net realized gain (loss)
from security transactions (223,651) 1,152,992
Net unrealized appreciation of investments -- 46,085,250
- --------------------------------------------------------------------------------
Total Net Assets $ 993,576,556 $ 748,378,057
================================================================================
Shares Outstanding:
Class A 993,800,207 39,593,749
- --------------------------------------------------------------------------------
Class B -- 14,129,729
- --------------------------------------------------------------------------------
Class C -- 779,291
- --------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $1.00 $13.73
- --------------------------------------------------------------------------------
Class B * -- $13.72
- --------------------------------------------------------------------------------
Class C ** -- $13.70
- --------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.17% of net asset value per share) -- $14.30
================================================================================
</TABLE>
* 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 4).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSCif shares
are redeemed within the first year of purchase (See Note 4).
See Notes to Financial Statements.
27
<PAGE>
================================================================================
Statements of Operations (unaudited)
================================================================================
For the Six Months Ended September 30, 1997
<TABLE>
<CAPTION>
New York Money New York
Market Portfolio Portfolio
=====================================================================================
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 18,100,938 $ 22,736,615
- -------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 4) 2,433,508 1,851,753
Distribution fees (Note 4) 486,702 1,059,552
Shareholder and system servicing fees 174,389 143,928
Registration fees 26,488 25,980
Audit and legal 15,387 15,198
Custody 15,038 17,221
Shareholder communications 13,250 27,766
Trustees' fees 3,500 2,837
Pricing service fees -- 15,574
Other 7,887 6,273
- -------------------------------------------------------------------------------------
Total Expenses 3,176,149 3,166,082
- -------------------------------------------------------------------------------------
Net Investment Income 14,924,789 19,570,533
- -------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE 5):
Realized Gain From Security Transactions
(excluding short-term securities*):
Proceeds from sales 38,822,604 242,516,077
Cost of securities sold 38,786,604 234,879,015
- -------------------------------------------------------------------------------------
Net Realized Gain 36,000 7,637,062
- -------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period -- 22,219,651
End of period -- 46,085,250
- -------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation -- 23,865,599
- -------------------------------------------------------------------------------------
Net Gain on Investments 36,000 31,502,661
- -------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 14,960,789 $ 51,073,194
=====================================================================================
</TABLE>
* Represents net realized gains from the sale of short-term securities for
the New York Money Market Portfolio.
See Notes to Financial Statements.
28
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended September 30, 1997 (unaudited)
and the Year Ended March 31, 1997
<TABLE>
<CAPTION>
New York Money Market Portfolio September 30 March 31
===============================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 14,924,789 $ 25,602,712
Net realized gain 36,000 37,788
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations 14,960,789 25,640,500
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 3):
Net investment income (14,924,789) (25,602,712)
- -------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (14,924,789) (25,602,712)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 1,929,781,829 3,558,756,790
Net asset value of shares issued
for reinvestment of dividends 14,163,057 25,115,287
Cost of shares reacquired (1,887,519,075) (3,529,287,358)
- -------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 56,425,811 54,584,719
- --------------------------------------------------------------------------------
Increase in Net Assets 56,461,811 54,622,507
NET ASSETS:
Beginning of period 937,114,745 882,492,238
- -------------------------------------------------------------------------------
End of period $ 993,576,556 $ 937,114,745
===============================================================================
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
================================================================================
Statements of Changes in Net Assets (continued)
================================================================================
For the Six Months Ended September 30, 1997 (unaudited)
and the Year Ended March 31, 1997
<TABLE>
<CAPTION>
New York Portfolio September 30 March 31
===============================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 19,570,533 $ 40,107,817
Net realized gain (loss) 7,637,062 (673,031)
Increase (decrease) in net unrealized appreciation 23,865,599 (922,316)
- -----------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 51,073,194 38,512,470
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 3):
Net investment income (19,846,121) (40,014,974)
- -----------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (19,846,121) (40,014,974)
- -----------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 37,160,282 62,049,446
Net asset value of shares issued
for reinvestment of dividends 11,996,013 25,048,123
Cost of shares reacquired (57,802,888) (107,681,450)
- -----------------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (8,646,593) (20,583,881)
- -----------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 22,580,480 (22,086,385)
NET ASSETS:
Beginning of period 725,797,577 747,883,962
- -----------------------------------------------------------------------------------------------
End of period* $ 748,378,057 $ 725,797,577
===============================================================================================
* Includes undistributed (overdistributed)
net investment income of: $ (40,260) $ 235,328
===============================================================================================
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The New York Money Market and New York Portfolios ("Portfolios") are
separate investment portfolios of the Smith Barney Muni Funds ("Fund"). The
Fund, a Massachusetts business trust, is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company and
consists of these Portfolios and seven other separate investment portfolios:
Florida, Georgia, Ohio, Pennsylvania, Limited Term, National and California
Money Market Portfolios. The financial statements and financial highlights for
the other portfolios are presented in separate semi-annual reports.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between the quoted bid and ask prices provided by an
independent pricing service that are based on transactions in municipal
obligations, quotations from municipal bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days are valued at cost plus accreted discount or
minus amortized premium, which approximates value; (d) 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 an accrual basis; market discount is
recognized upon the disposition of the security; (f) dividends and distributions
to shareholders are recorded on the ex-dividend date; (g) direct expenses are
charged to each portfolio and each class; management fees and general fund
expenses are allocated on the basis of relative net assets; (h) the Portfolios
intend to comply with the applicable provisions of the Internal Revenue Code of
1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; (i) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At March 31, 1997,
reclassifications were made to the New York Portfolio's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by this change; and (j) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
31
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
2. PORTFOLIO CONCENTRATION
Since each Portfolio invests primarily in obligations of issuers within New
York, it is subject to possible concentration risks associated with economic,
political, or legal developments or industrial or regional matters specifically
affecting New York.
3. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The New York Money Market Portfolio declares and records a dividend of
substantially all of its net investment income on each business day. Such
dividends are paid or reinvested monthly in Portfolio shares on the payable
date. Furthermore, each Portfolio 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 Portfolio.
Capital gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
4. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager to the Fund. The New
York Money Market and the New York Portfolios pay SBMFM a management fee
calculated at the annual rate of 0.50% of its average daily net assets. These
fees are calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. For the six months ended September 30, 1997, SB received sales
charges of approximately $242,000 on sales of the New York Portfolio's Class A
shares.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B
shares of the New York Portfolio, which applies if redemption occurs less than
one year from initial purchase. This CDSC declines by 0.50% the first year after
purchase and thereafter by 1.00% per year until no CDSC is incurred. Class C
shares have a 1.00% CDSC, which applies if redemption occurs within the first
year of purchase. For the six months ended September 30, 1997, CDSCs paid to SB
were approximately $98,000 for Class B shares.
32
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Pursuant to a Distribution Plan, the New York Money Market Portfolio pays a
distribution fee calculated at the annual rate of 0.10% of the average daily net
assets of its Class A shares. The New York Portfolio pays a service fee with
respect to Class A, B and C shares calculated at the annual rate of 0.15% of the
average daily net assets of each respective class. In addition, the New York
Portfolio pays a distribution fee with respect to Class B and C shares
calculated at the annual rates of 0.50% and 0.55% of the average daily net
assets of each class, respectively. For the six months ended September 30, 1997,
total Distribution Plan fees incurred were:
<TABLE>
<CAPTION>
Portfolio Class A Class B Class C
================================================================================
<S> <C> <C> <C>
New York Money Market $486,702 -- --
- --------------------------------------------------------------------------------
New York 405,085 $618,686 $35,781
================================================================================
</TABLE>
All officers and one Trustee of the Fund are employees of SB.
5. INVESTMENTS
During the six months ended September 30, 1997, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
<TABLE>
<CAPTION>
New York Money New York
Market Portfolio Portfolio
================================================================================
<S> <C> <C>
Purchases -- $232,806,873
- --------------------------------------------------------------------------------
Sales -- 242,516,077
================================================================================
</TABLE>
At September 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
New York Money New York
Market Portfolio Portfolio
================================================================================
<S> <C> <C>
Gross unrealized appreciation -- $46,201,086
Gross unrealized depreciation -- (115,836)
- --------------------------------------------------------------------------------
Net unrealized appreciation -- $46,085,250
================================================================================
</TABLE>
33
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
6. CAPITAL LOSS CARRYFORWARD
At March 31, 1997 the New York Money Market and New York Portfolios had,
for Federal income tax purposes, $261,635 and $6,385,987, respectively, of loss
carryforwards available to offset future capital gains. To the extent that these
carryforward losses are used to offset capital gains, it is probable that the
gains so offset will not be distributed. The amount and expiration of the
carryforwards are indicated below. Expiration occurs on March 31 of the year
indicated:
<TABLE>
<CAPTION>
Portfolio 2000 2001 2002 2003 2005
================================================================================
<S> <C> <C> <C> <C> <C>
New York Money Market $261,635 -- -- -- --
- --------------------------------------------------------------------------------
New York -- $713,974 $4,701,454 $365,887 $604,672
================================================================================
</TABLE>
7. SHARES OF BENEFICIAL INTEREST
At September 30, 1997, the Fund had an unlimited amount of shares of
beneficial interest authorized with a par value of $0.001 per share. The
Portfolios have the ability to issue multiple classes of shares. Each share of a
class represents an identical interest in its respective Portfolio and has the
same rights, except that each class bears certain expenses specifically related
to the distribution of its shares.
At September 30, 1997, total paid-in capital amounted to the following for
each class and their respective Portfolio:
<TABLE>
<CAPTION>
Portfolio Class A Class B Class C
================================================================================
<S> <C> <C> <C>
New York Money Market $993,800,207 -- --
- --------------------------------------------------------------------------------
New York 496,726,474 $194,034,294 $10,419,307
================================================================================
</TABLE>
34
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
September 30, 1997 March 31, 1997
New York --------------------------------- ---------------------------------
Money Market Portfolio Shares Amount Shares Amount
========================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 1,929,781,829 $ 1,929,781,829 3,558,756,790 $ 3,558,756,790
Shares issued on reinvestment 14,163,057 14,163,057 25,115,287 25,115,287
Shares redeemed (1,887,519,075) (1,887,519,075) (3,529,287,358) (3,529,287,358)
- --------------------------------------------------------------------------------------------------------
Net Increase 56,425,811 $ 56,425,811 54,584,719 $ 54,584,719
========================================================================================================
New York Portfolio
========================================================================================================
Class A
Shares sold 1,994,801 $ 27,160,134 2,751,378 $ 36,566,344
Shares issued on reinvestment 663,011 8,962,666 1,438,119 19,033,592
Shares redeemed (3,390,596) (45,971,683) (6,161,975) (81,524,659)
========================================================================================================
Net Decrease (732,784) $ (9,848,883) (1,972,478) $ (25,924,723)
========================================================================================================
Class B
Shares sold 649,305 $ 8,781,724 1,729,769 $ 22,891,545
Shares issued on reinvestment 211,686 2,860,298 428,975 5,674,888
Shares redeemed (788,803) (10,642,217) (1,843,688) (24,383,430)
========================================================================================================
Net Increase 72,188 $ 999,805 315,056 $ 4,183,003
========================================================================================================
Class C
Shares sold 90,532 $ 1,218,424 195,814 $ 2,591,557
Shares issued on reinvestment 12,818 173,049 25,705 339,643
Shares redeemed (89,419) (1,188,988) (134,481) (1,773,361)
========================================================================================================
Net Increase 13,931 $ 202,485 87,038 $ 1,157,839
========================================================================================================
</TABLE>
35
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of beneficial interest outstanding throughout each period:
<TABLE>
<CAPTION>
New York Money Market Portfolio
------------------------------------------------------------------------------
Class A Shares 1997(1) 1997 1996 1995 1994 1993(2)
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------
Net investment income(3) 0.015 0.028 0.038 0.025 0.018 0.010
Dividends from
net investment income (0.015) (0.028) (0.038) (0.025) (0.018) (0.010)
- --------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------
Total Return 1.55%++ 2.85% 3.17% 2.49% 1.77% 1.01%++
- --------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $994 $937 $882 $708 $82 $60
- --------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses(3) 0.66%+ 0.67% 0.67% 0.68% 0.60% 0.56%+
Net investment income 3.05+ 2.80 3.11 2.94 1.73 1.84+
==============================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) For the period from September 17, 1992 (inception date) to March 31, 1993.
(3) The manager has waived all or part of its fees for the year ended March 31,
1994 and the period ended March 31, 1993. If such fees were not waived, the
per share decrease on net investment income would have been $0.001 and
$0.001, respectively, and the expense ratios would have been 0.67% and
0.69% (annualized), respectively.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
36
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
New York Portfolio
--------------------------------------------------------------------------
Class A Shares 1997(1) 1997 1996 1995(2) 1994 1993
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $13.16 $13.19 $12.83 $12.83 $13.25 $12.33
- --------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.37 0.74 0.75 0.76 0.78 0.81
Net realized and
unrealized gain (loss) 0.57 (0.03) 0.35 0.01* (0.41) 0.92
- --------------------------------------------------------------------------------------------------------
Total Income
From Operations 0.94 0.71 1.10 0.77 0.37 1.73
- --------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.37) (0.74) (0.74) (0.77) (0.79) (0.81)
- --------------------------------------------------------------------------------------------------------
Total Distributions (0.37) (0.74) (0.74) (0.77) (0.79) (0.81)
- --------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $13.73 $13.16 $13.19 $12.83 $12.83 $13.25
- --------------------------------------------------------------------------------------------------------
Total Return 7.23%++ 5.48% 8.71% 6.32% 2.66% 14.48%
- --------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $544 $531 $558 $83 $70 $62
- --------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses(3) 0.71%+ 0.75% 0.72% 0.63% 0.55% 0.55%
Net investment income 5.43+ 5.58 5.84 6.00 5.79 6.32
- --------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 32% 53% 36% 30% 20% 22%
========================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) On October 10, 1994, the former Class C shares were exchanged into Class A
shares.
(3) As a result of voluntary expense limitations, the expense ratio will not
exceed 0.80% for Class A shares.
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
37
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
<TABLE>
<CAPTION>
New York Portfolio
-----------------------------------------------------------
Class B Shares 1997(1) 1997 1996 1995(2)
=========================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.15 $13.18 $12.84 $11.96
- ---------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.33 0.67 0.67 0.31
Net realized and unrealized gain (loss) 0.58 (0.03) 0.35 0.86*
- ---------------------------------------------------------------------------------------------------------
Total Income From Operations 0.91 0.64 1.02 1.17
- ---------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.34) (0.67) (0.68) (0.29)
- ---------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.67) (0.68) (0.29)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.72 $13.15 $13.18 $12.84
- ---------------------------------------------------------------------------------------------------------
Total Return 6.98%++ 4.96% 8.05% 9.92%++
- ---------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $193,895 $184,916 $181,144 $3,813
- ---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 1.23%+ 1.27% 1.25% 1.27%+
Net investment income 4.90+ 5.06 5.45 5.76+
- ---------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 32% 53% 36% 30%
=========================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) For the period from November 11, 1994 (inception date) to March 31, 1995.
(3) As a result of voluntary expense limitations, the expense ratio will not
exceed 1.30% for Class B shares.
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
38
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
New York Portfolio
-----------------------------------------------------------------------------------
Class C Shares 1997(1) 1997 1996 1995(2) 1994 1993(3)
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $13.14 $13.17 $12.83 $12.82 $13.24 $12.84
- ---------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.33 0.66 0.66 0.68 0.68 0.15
Net realized and
unrealized gain (loss) 0.57 (0.02) 0.36 0.01* (0.40) 0.37
- ---------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.90 0.64 1.02 0.69 0.28 0.52
- ---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.34) (0.67) (0.68) (0.68) (0.70) (0.12)
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.67) (0.68) (0.68) (0.70) (0.12)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $13.70 $13.14 $13.17 $12.83 $12.82 $13.24
- ---------------------------------------------------------------------------------------------------------------------
Total Return 6.88%++ 4.91% 8.07% 5.66% 1.96% 4.04%++
- ---------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $10,680 $10,055 $8,931 $5,896 $5,461 $1,368
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses(4) 1.28%+ 1.32% 1.28% 1.28% 1.23% 1.23%+
Net investment income 4.86+ 5.01 5.02 5.38 4.98 5.37+
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 32% 53% 36% 30% 20% 22%
=====================================================================================================================
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) On November 7, 1994, the former Class B shares were renamed Class C shares.
(3) For the period from January 8, 1993 (inception date) to March 31, 1993.
(4) As a result of voluntary expense limitations, the expense ratio will not
exceed 1.35% for Class C shares.
* Includes the per share effect of shareholder sale and redemption activity
during the period, most of which occurred at a net asset value less than
the net asset value at the beginning of the period.
++ Total return is not annualized, as the result may not be representative of
the total return for the year.
+ Annualized.
39
<PAGE>
[This page intentionally left blank]
<PAGE>
SMITH BARNEY
SMITH BARNEY ---------------------------------
MUNI FUNDS A Member of TravelersGroup [LOGO]
Trustees Investment Manager
Joseph H. Fleiss Smith Barney Mutual Funds
Donald R. Foley Management Inc.
Paul Hardin
Heath B. McLendon, Chairman Distributor
Roderick C. Rasmussen Smith Barney Inc.
John P. Toolan
Custodian
C. Richard Youngdahl, Emeritus PNC Bank, N.A.
Officers Shareholder
Heath B. McLendon Servicing Agent
Chief Executive Officer First Data Investor Services Group, Inc.
P.O. Box 9134
Lewis E. Daidone Boston, MA 02205-9134
Senior Vice President
and Treasurer
Peter M. Coffey
Vice President
Joseph Benevento
Vice President This report is submitted for the general
information of the shareholders of Smith
Irving P. David Barney Muni Funds--New York Money Market
Controller and New York Portfolios. It is not
authorized for distribution to
Thomas M. Reynolds prospective investors unless accompanied
Controller or preceded by a current Prospectus for
the Portfolios, which contains
Christina T. Sydor information concerning the Portfolios'
Secretary investment policies and expenses as well
as other pertinent information.
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
FD0807 11/97
[FRONT COVER]
S E M I - A N N U A L R E P O R T
Smith Barney
Muni Funds
California Money
Market Portfolio
- -------------------
September 30, 1997
[SMITH BARNEY LOGO]
Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
California Money Market Portfolio
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the Smith Barney
Muni Funds - California Money Market Portfolio ("Portfolio") for the period
ended September 30, 1997. In this report, we summarize the period's prevailing
economic and market conditions and outline our portfolio strategy. A detailed
summary of the Portfolio's performance can be found in the appropriate sections
that follow.
Performance Update
As of September 30, 1997, the Portfolio's 7-day current yield was 3.20%. The
Portfolio's 7-day effective yield--which reflects compounding--was 3.25%. This
means that investors in the combined federal and state income tax bracket of
45.3% would have to earn 5.94% to match the tax-free income provided by the
Fund. (This figure assumes an investor is in the 36% federal tax bracket, which
according to the Internal Revenue Service constitutes nearly 10% of all U.S.
taxpayers.)
Please note that while the Portfolio seeks to maintain a stable net asset value
of $1.00 per share, there can be no assurance this goal will be achieved. The
U.S. government neither insures nor guarantees an investment in the Fund.
Market Overview and Outlook
The performance of the U.S. economy has been stellar. Gross Domestic Product
("GDP"), a key economic indicator that measures the total output of goods and
services in the U.S., has expanded at an annual rate of 4.1% for the first half
of 1997. The recently released third quarter 1997 GDP growth of 3.5% suggests
that the U.S. economy has continued its vigorous expansion. According to the
most recently released economic data, this economic growth has not come at the
expense of higher inflation. Consumer prices in August 1997 rose by only 0.2%.
Although producer prices did show a sizable increase in September 1997, so far
in 1997 there has been an overall decline. Moreover, the majority of the
increase in producer prices were one-time adjustments concentrated in a handful
of sectors.
What is of concern on the inflation front has been tightness in the labor
markets. In recent Congressional testimony, Federal Reserve Board Chairman Alan
Greenspan expressed concern that the U.S. economy may be on an "unsustainable
track." With the current unemployment rate at 4.9%, the available labor pool is
strained and further employment growth could push
1
<PAGE>
wage pressures higher. Many fixed income investors viewed Greenspan's testimony
as sobering notice that additional rate increases by the Federal Reserve Board
("Fed") may take place in the coming months. The last rate increase took place
in March 1997, when the Fed increased the federal-funds rate 25 basis points
(0.25%). (The federal-funds rate is the interest rate banks charge each other
for overnight loans and is an indicator of the direction of interest rates.)
We remain optimistic on the prospects for municipal bonds. The shrinking federal
budget deficit, resulting from economic growth and spending controls enacted in
1990 and 1993, should help to contain interest rates.
California Economic Highlights
The outlook for California continues to improve. 1996 marked the year that all
of the jobs lost in California during the recession of the 1990s were regained.
The Golden State has seen eight months of record high employment levels. In
addition, California's overall population has grown by about 7.1% since 1990.
California is expected to become the first state to produce more than $1
trillion in Gross State Product, an annual level of economic output surpassed by
only a handful of major industrialized nations. The rating for California issues
was revised upward by Fitch Investors Service Inc., a major credit and
bond-rating agency, as a result of California's steady employment growth and
solid revenue growth spurred by personal income tax collections. We remain
bullish on California's economic prospects because of its broadly diversified
employment base and overall return to financial stability.
Portfolio's Investment Strategy
The Portfolio seeks to provide investors with income exempt from federal income
tax by investing in a portfolio of high quality, short-term municipal
obligations selected for liquidity and stability of principal. During the
reporting period, we have seen a steep yield curve in the California money
market. As a result, we have extended the Fund's weighted average maturity to
the 65-day range. Over the coming months, we will continue to closely monitor
economic data and assess the impact of inflation and how it relates to
tax-exempt money markets. If doing so is deemed to be prudent, we will look to
shorten the Fund's weighted average maturity slightly.
2
<PAGE>
On a more somber note, we were saddened by the loss of an outstanding physician
and Trustee of the Fund, Dr. Francis P. Martin. His knowledge and wisdom will
be missed.
In closing, thank you for investing in the Smith Barney Muni Funds - California
Money Market Portfolio. We look forward to continuing to help you pursue your
financial goals.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
/s/ Joseph Benevento]
Joseph Benevento
Vice President
October 20, 1997
3
<PAGE>
Schedule of Investments (unaudited) September 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 13,000,000 A-1+ ABAG Finance Authority for Nonprofit Corporations
Series 1996 3.65% (b) $13,000,000
Alameda Contra Costa California Schools Financing
Authority Project:
5,800,000 A-1+ Series A 3.90% (b) 5,800,000
9,455,000 A-1+ Series B 3.90% (b) 9,455,000
20,000,000 A-1+ Series C 3.90% (b) 20,000,000
8,410,000 A-1+ Series E 3.90% (b) 8,410,000
Alameda County:
10,000,000 SP-1+ 1997 TRAN 4.50% due 7/22/98 10,046,442
18,300,000 SP-1+ Board of Education 1997 TRAN 4.25% due 7/1/98 18,360,556
4,000,000 A-1+ Anaheim Housing Authority Multi-Family Housing
Revenue (Park Vista Apartments-A) 4.00% (a)(b) 4,000,000
California Alternative Energy:
4,800,000 VMIG 1* Hydroelectric Rock Creek Limited Series 86
3.85% (a)(b) 4,800,000
Source Finance Authority, Cogeneration Revenue
Refunding Arroyo Energy:
25,330,000 A-1+ Series A 3.95% (a)(b) 25,330,000
7,400,000 A-1+ Series B 3.95% (a)(b) 7,400,000
5,500,000 SP-1+ California Community College Finance Authority TRAN
Series-97 FSA-Insured 4.50% due 6/30/98 5,527,606
California Health Facility Financing Authority
Revenue:
8,215,000 A-1+ Catholic Healthcare Series B MBIA-Insured 3.90% (b) 8,215,000
3,750,000 A-1+ Childrens Hospital 1991 MBIA-Insured 3.85% (b) 3,750,000
California Housing Finance Agency Revenue PART:
12,120,000 VMIG 1* Series PA-40A 4.15% (a)(b) 12,120,000
12,320,000 VMIG 1* Series PA-58 3.95% (b) 12,320,000
3,540,000 VMIG 1* Series PA-112-A MBIA-Insured 4.15% (a)(b) 3,540,000
10,210,000 A-1+ Series PT-76 MBIA-Insured 3.95% (b) 10,210,000
California Housing Finance Authority:
4,035,000 NR[dbldag] Multi-Unit Rent Housing TOB Series-92A
MBIA-Insured 3.70% due 2/1/98 (c) 4,035,000
2,395,000 NR[dbldag] Series 1989F TOB FHA-Insured 3.70% due 2/1/98 (c) 2,395,000
14,500,000 SP-1+ Single Family Mortgage Series B
3.70% due 4/1/98 (a)(c) 14,500,000
California Pollution Control Financial Authority:
Pacific Gas & Electric:
5,900,000 A-1+ Series A 4.10% (a)(b) 5,900,000
4,000,000 A-1+ Series B 4.00% (a)(b) 4,000,000
21,000,000 A-1+ Series B 4.10% (a)(b) 21,000,000
5,200,000 A-1+ Series C 4.00% (b) 5,200,000
14,800,000 A-1+ Series D TECP 3.55% due 10/1/97 14,800,000
1,000,000 A-1+ Series G 4.10% (b) 1,000,000
7,000,000 P-1* Sierra Pacific Project Series-93 3.95% (b) 7,000,000
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Schedule of Investments (unaudited) (continued) September 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- -------------- ------------ ------------------------------------------------------- -------------
<S> <C> <C> <C>
Solid Waste Disposal Revenue:
Colmac Energy Project:
$ 17,900,000 A-1+ Series-90A 4.00% (a)(b) $17,900,000
1,760,000 A-1+ Series-90C 4.00% (a)(b) 1,760,000
Shell Martinez Refining:
4,100,000 A-1+ Series A 4.05% (a)(b) 4,100,000
5,000,000 A-1+ Series B 4.00% (a)(b) 5,000,000
1,000,000 A-1+ Series B 4.05% (a)(b) 1,000,000
8,675,000 P-1* Sierra Pacific Project 4.05% (a)(b) 8,675,000
Southdown Inc. Project:
1,100,000 A-1+ Series B 3.60% (b) 1,100,000
4,900,000 A-1+ Series-83 3.60% (b) 4,900,000
8,750,000 A-1+ Southern California Edison Series-85D TECP
3.70% due 12/8/97 8,750,000
Resource Recovery:
4,250,000 VMIG 1* Sangier Project Series-90A 4.00% (a)(b) 4,250,000
500,000 P-1* Ultrapower Rocklin Project Series A 4.05% (b) 500,000
20,000,000 VMIG 1* California Public Capital Improvement Financing
Authority Series C 3.80% due 12/15/97 (c) 20,000,000
California School Cash Reserve Program Authority:
40,000,000 SP-1+ Pool Series A 4.75% due 7/2/98 40,255,080
14,000,000 SP-1+ Pool Series B 4.50% due 12/19/97 14,026,317
California State GO:
9,385,000 A-1+ PART MBIA-Insured 4.10% (b) 9,385,000
TECP Notes:
8,300,000 A-1 3.55% due 10/6/97 8,300,000
10,000,000 A-1 3.45% due 10/7/97 10,000,000
10,000,000 A-1 3.45% due 10/9/97 10,000,000
10,000,000 A-1 3.45% due 10/10/97 10,000,000
10,000,000 A-1 3.45% due 10/14/97 10,000,000
46,000,000 SP-1+ California State RAN 1997 4.50% due 6/30/98 46,223,242
6,255,000 A-1+ California State Series-95 PART FSA-Insured 4.15% (b) 6,255,000
California Statewide Community Development Authority:
Apartment Development Revenue:
13,000,000 A-1+ Subseries A-4 4.00% (b) 13,000,000
6,400,000 A-1+ Subseries A-5 3.50% (b) 6,400,000
3,900,000 A-1+ Subseries A-6 4.00% (b) 3,900,000
7,000,000 A-1+ Subseries A-7 4.05% (a)(b) 7,000,000
Corporation Revenue:
2,145,000 A-1+ Amern Zettler 4.00% (a)(b) 2,145,000
2,440,000 A-1+ Charles & Loralie Harris 4.00% (a)(b) 2,440,000
3,000,000 NR[dbldag] Supreme Truck 4.15% (a)(b) 3,000,000
49,800,000 A-1+ Memorial Health Services 3.85% (b) 49,800,000
15,000,000 A-1+ Multi-Family Revenue (Canyon Creek Apartments)
4.05% (b) 15,000,000
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
Schedule of Investments (unaudited) (continued) September 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- -------------- --------- ------------------------------------------------------------- -------------
<S> <C> <C> <C>
Revenue Partnership:
$ 27,500,000 A-1+ Kaiser Permanente 3.85% (b) $27,500,000
5,400,000 VMIG 1* Northern California Retired Officers 4.00% (b) 5,400,000
2,000,000 A-1+ Saint Joseph Health System Group 3.85% (b) 2,000,000
Chula Vista IDR (San Diego Gas & Electric Co.):
26,500,000 A-1 Series B 4.15% (a)(b) 26,500,000
5,000,000 A-1+ Series C TECP 3.65% due 10/9/97 (a) 5,000,000
Clipper California PART:
20,730,000 VMIG 1* Tax-Exempt MBIA-Insured 4.08% (b) 20,730,000
6,890,000 VMIG 1* Trust Class A Series 96-6B MBIA-Insured 4.18% (a)(b) 6,890,000
9,900,000 VMIG 1* Trust GNMA-Collateralized Series 96-7A 4.08% (a)(b) 9,900,000
2,100,000 A-1+ Concord Multi-Family Mortgage Revenue (Crossroads
Apartments) Series-88B 3.95% (b) 2,100,000
5,000,000 SP-1+ Conejo Valley California USD 97 TRANS
4.25% due 7/2/98 5,015,883
28,000,000 SP-1+ Contra Costa County California Board of Education
4.25% due 7/1/98 28,098,445
2,600,000 A-1+ Corona California Multi-Family Housing Revenue
4.25% (b) 2,600,000
Eagle Tax-Exempt Trust Muni Trust Receipts:
8,200,000 A-1+ California Dept. of Water PART 4.00% (b) 8,200,000
11,300,000 A-1+ California Housing Finance Authority
PART MBIA-Insured 3.65% due 11/1/97 (c) 11,300,000
East Bay California Municipal Utility District TECP:
16,150,000 A-1+ 3.55% due 10/6/97 16,150,000
2,500,000 A-1+ 3.60% due 11/10/97 2,500,000
3,000,000 A-1+ 3.55% due 12/9/97 3,000,000
2,000,000 A-1+ Fairfield IDA (R. Dakin & Company Project) 3.50% (b) 2,000,000
8,750,000 SP-1+ Fremont California TRAN 4.25% due 6/30/98 8,771,739
Irvine California Improvement Bond:
5,390,000 A-1+ District 89-10 3.85% (b) 5,390,000
6,600,000 A-1+ District 94-13 3.95% (b) 6,600,000
17,900,000 VMIG 1* Irvine California Public Facility & Infrastructure Authority
Lease Revenue (Capital Improvement Series-85)
3.90% (b) 17,900,000
Irvine Ranch Water District:
1,100,000 A-1+ Conservation Series B 3.90% (b) 1,100,000
2,900,000 A-1+ Improvement District 182 Series A 3.90% (b) 2,900,000
1,400,000 A-1+ Series A 3.65% (b) 1,400,000
700,000 A-1+ Series A 3.90% (b) 700,000
7,000,000 A-1+ Series B 3.85% (b) 7,000,000
1,200,000 A-1+ Series B 3.90% (b) 1,200,000
8,000,000 A-1+ Lodi IDA (Dart Container) 4.68% (b) 8,000,000
8,400,000 A-1+ Long Beach California Health Facility Revenue (Memorial
Health Services) Series 1991 3.30% (b) 8,400,000
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
Schedule of Investments (unaudited) (continued) September 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- -------------- -------- ---------------------------------------------------------- -------------
<S> <C> <C> <C>
$ 10,000,000 SP-1+ Los Angeles California Community College TRAN
4.50% due 7/2/98 $10,043,283
2,000,000 A-1+ Los Angeles California Department of Airports Revenue
PART FGIC-Insured 4.15% (a)(b) 2,000,000
2,500,000 AAA Los Angeles California Wastewater:
System Bonds (Pre-Refunded--Escrowed with U.S.
government securities to 11/1/97 Call @ 102)
8.13% due 11/1/17 (d) 2,559,522
TECP:
10,000,000 A-1+ 3.55% due 10/14/97 10,000,000
7,500,000 A-1+ 3.55% due 11/7/97 7,500,000
6,000,000 A-1+ 3.55% due 12/10/97 6,000,000
Los Angeles City:
1,060,000 SP-1+ TRAN 4.50% due 6/30/98 1,065,539
10,000,000 SP-1+ USD TRAN 97-98 4.50% due 7/1/98 10,050,412
Los Angeles County California:
2,000,000 A-1+ Capital Assistance Program Lease Corp.
TECP 3.70% due 12/10/97 2,000,000
Metropolitan Transportation Authority:
9,425,000 A-1+ PART MBIA-Insured 3.80% due 12/3/97 (c) 9,425,000
10,000,000 A-1+ Sales Tax Revenue MBIA-Insured 3.90% (b) 10,000,000
Series A TECP:
5,711,000 A-1 3.55% due 10/8/97 5,711,000
3,000,000 A-1+ 3.50% due 11/7/97 3,000,000
8,750,000 A-1+ Sanitation District Finance Authority Revenue PART
4.10% (b) 8,750,000
TRAN:
49,000,000 SP-1+ Series A 4.50% due 6/30/98 49,244,144
4,000,000 A-1+ Series 96 PART MBIA-Insured 4.15% (b) 4,000,000
Los Angeles County Housing Authority Multi-Family
Housing Revenue:
13,100,000 A-1 Diamond Apartments Project Series A 3.35% (a)(b) 13,100,000
1,700,000 A-1+ Park Sierra Project 78 4.00% (b) 1,700,000
Los Angeles Department of Water & Power
Electric Plant Revenue:
8,765,000 A-1+ PART FGIC-Insured 4.10% 8,765,000
4,075,000 A-1+ PART FGIC-Insured 4.05% 4,075,000
4,005,000 A-1+ PART MBIA-Insured 4.05% 4,005,000
5,000,000 A-1+ TECP 3.60% due 10/10/97 5,000,000
7,000,000 SP-1+ Marysville California Joint Union Free School District
TRAN 4.25% due 10/31/97 7,002,658
14,620,000 A-1+ Metropolitan Water District Of Southern
California Waterworks Revenue PART
MBIA-Insured 3.40% (b) 14,620,000
Modesto California Irrigation District Finance Authority:
10,000,000 A-1+ Cooperative Capital Improvement Project TECP
3.60% due 10/9/97 10,000,000
14,000,000 A-1+ PART MBIA-Insured 4.10% (b) 14,000,000
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Schedule of Investments (unaudited) (continued) September 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- ------------- ------------ ------------------------------------------------------ -------------
<S> <C> <C> <C>
Modesto Multi-Family Housing Revenue:
$ 4,975,000 A-1+ Live Oak Apartments Series-94 4.00% (a)(b) $ 4,975,000
5,800,000 VMIG 1* Shadowbrook Series-A 4.00% (b) 5,800,000
3,000,000 SP-1+ Mooreland California Elementary School District TRAN
4.25% due 6/30/98 3,009,258
4,250,000 SP-1+ Moorpark California USD TRAN
4.25% due 6/30/98 4,263,402
2,500,000 MIG 1* Moreno Valley USD TRAN 4.50% due 6/30/98 2,510,726
18,500,000 SP-1+ Mountain Diablo California Union Free School District
4.50% due 10/16/97 18,505,268
13,500,000 A-1+ Mountain View Multi-Family Housing Revenue
(Villa Mariposa Project) FGIC-Insured 3.85% (b) 13,500,000
7,000,000 A-1+ MSR Public Power Agency San Juan Project Series E
MBIA-Insured 3.90% (b) 7,000,000
1,500,000 SP-1+ Oakland California TRAN 4.50% due 6/30/98 1,508,172
1,300,000 A-1+ Oakland Revenue (Childrens Hospital Medical Center)
Series 1994B 4.00% (b) 1,300,000
Orange County Apartment Development Revenue:
2,700,000 A-1 The Lakes Project Series A 3.95% (b) 2,700,000
1,700,000 A-1+ Wood Canyon Villas 4.00% (a)(b) 1,700,000
Orange County California Sanitation District:
10,000,000 A-1+ Partnership AMBAC-Insured 3.85% (b) 10,000,000
1,000,000 A-1+ Series C FGIC-Insured 4.25% (b) 1,000,000
18,470,000 VMIG 1* Palo Alto California USD 4.05% (b) 18,470,000
15,720,000 VMIG 1* Pasadena California Certificates Participation Notes
Rose Bowl Improvement Project 4.05% (b) 15,720,000
1,600,000 SP-1+ Petaluma California CSD TRAN 4.25% due 6/30/98 1,605,045
2,000,000 SP-1+ Petaluma California UHSD TRAN 4.25% due 6/30/98 2,006,456
7,860,000 A-1+ Pleasanton Multi-Family Mortgage Revenue
(Valley Plaza) 3.95% (b) 7,860,000
3,000,000 A-1+ Puerto Rico GDB 3.70% (b) 3,000,000
27,630,000 NR[dbldag] Puerto Rico Independent Medical Abbot Labs
3.75% due 3/1/98 (c) 27,631,098
1,100,000 VMIG 1* Rancho Mirage California Redevelopment Agency
4.00% (a)(b) 1,100,000
Regents of University of California Series A TECP:
6,000,000 A-1+ 3.50% due 11/7/97 6,000,000
13,000,000 A-1+ 3.70% due 12/10/97 13,000,000
10,000,000 A-1+ 3.55% due 12/11/97 10,000,000
10,000,000 SP-1+ Riverside County California TRAN Series A
4.50% due 6/30/98 10,039,297
Riverside County Housing Authority Multi-Family
Housing Revenue:
9,500,000 VMIG 1* Amanda Park Apartments 4.00% (a)(b) 9,500,000
3,740,000 A-1+ Woodcreek Village 3.95% (b) 3,740,000
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Schedule of Investments (unaudited) (continued) September 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- ------------- ------------ ----------------------------------------------------- -------------
<S> <C> <C> <C>
$ 7,840,000 A-1+ Sacramento California City Financing Authority Lease
Revenue PART Series SAK-18 AMBAC-Insured
4.00% (b) $ 7,840,000
Sacramento California Municipal Utility District:
14,640,000 A-1+ Electric Revenue PART
AMBAC-Insured 4.00% (b) 14,640,000
10,279,000 A-1+ Series 1 TECP 3.60% due 10/7/97 10,279,000
20,000,000 SP-1+ Sacramento County California School District TAN
Series-96 4.00% due 12/10/97 20,019,615
9,400,000 A-1+ Sacramento MUD Revenue FSA-Insured 4.05% 9,400,000
2,275,000 SP-1+ Salinas California USD TRAN 4.50% due 10/2/97 2,275,031
San Diego California:
Gas & Electric:
Series A TECP:
4,000,000 A-1 3.60% due 10/2/97 4,000,000
6,400,000 A-1 3.70% due 10/8/97 6,400,000
2,000,000 A-1 Series B 3.45% due 10/9/97 2,000,000
4,108,000 A-1+ Housing Authority Multi-Family Housing Revenue
Refunding (Carmen Del Mar Apartments-A)
4.00% (b) 4,108,000
4,400,000 A-1+ Multi-Family Housing Revenue Flores-A-RMK
4.00% (b) 4,400,000
3,000,000 A-1+ Sewer Revenue PART AMBAC-Insured 4.10% (b) 3,000,000
3,000,000 NR[dbldag] San Dimas California Redevelopment Agency
(San Dimas Community Center) 3.50% (b) 3,000,000
San Francisco California Airport Commision:
International Airport Revenue Series FGIC-Insured:
9,775,000 A-1+ PART 4.10% (b) 9,775,000
28,005,000 A-1+ PART 4.15% (b) 28,005,000
3,020,000 A-1+ Series A TECP 3.75% due 1/12/98 3,020,000
San Francisco (City & County of):
16,800,000 A-1+ Multi-Family Housing Revenue City Heights
Apartments Project 4.05% (b) 16,800,000
8,500,000 A-1+ Redevelopment Agency Multi-Family Housing
(Fillmore Center) 92A-1 3.90% (b) 8,500,000
San Jose Multi-Family Housing Revenue:
3,300,000 A-1+ Fairway Glen FGIC-Insured 3.85% (b) 3,300,000
3,000,000 VMIG 1* Multi-Family Housing Revenue Bonds (Almaden Lake)
4.10% (a)(b) 3,000,000
6,690,000 A-1+ San Jose-Santa Clara California Water Financing
Authority Sewer Revenue PART FGIC-Insured
4.10% (b) 6,690,000
3,000,000 SP-1+ San Lorenzo California USD 4.25% due 6/30/98 3,009,687
1,300,000 VMIG 1* Santa Ana Industrial Development Authority Newport
Electronics Project 3.80% (b) 1,300,000
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Schedule of Investments (unaudited) (continued) September 30, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- ------------- -------- -------------------------------------------------- -------------------
<S> <C> <C> <C>
$ 8,315,000 A-1+ Santa Cruz Co. Public Financing Authority Revenue
PART MBIA-Insured 4.10% (b) $ 8,315,000
4,705,000 A-1+ Southern California Public Power Authority
Project Revenue Series 19 PART
AMBAC-Insured 4.00% (b) 4,705,000
8,500,000 SP-1+ Sutter County California Office of Education TRAN
4.50% due 10/22/97 8,503,345
4,850,000 SP-1+ Vacaville California Unified School District
4.25% due 6/30/98 4,862,046
10,000,000 SP-1+ Ventura County California TRAN 4.50% due 7/1/98 10,043,093
- ------------- -------- -------------------------------------------------- -------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $1,503,675,407**) $1,503,675,407
- ------------- -------- -------------------------------------------------- -------------------
</TABLE>
(a) Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
(c) Variable rate obligation payable at par on demand on the date indicated.
(d) Pre-Refunded bonds escrowed by U.S. government securities and bonds
escrowed to maturity by U.S. government securities are considered by
manager to be triple-A rated even if issuer has not applied for new
ratings.
[dbldag] Security has not been rated by either Moody's Investors Services or
Standard & Poor's. However, the Board of Directors has determined this
security to be considered a first tier quality issue due to enhancement
features; such as insurance and/or irrevocable letters of credit.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 11 for definition of ratings and certain security descriptions.
See Notes to Financial Statements.
10
<PAGE>
Bond Ratings
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
- --------------------------------------------------------------------------------
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.
A-2 -- Standard & Poor's second highest commercial paper and 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.
MIG 1 -- Moody's highest rate for short-term municipal obligations.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
- --------------------------------------------------------------------------------
Security Descriptions
ABAG -- Association of Bay Area
Governments
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 -- College Construction Loan
LEE Insurance Association
COP -- Certificate of Participation
CSD -- Central School District
EDA -- Economic Development Authority
ETM -- Escrowed To Maturity
FGIC -- Financial Guaranty Insurance
Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage
Corporation
FLAIRS -- Floating Adjustable Interest
Rate Securities
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
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors
Assurance Corporation
MUD -- Municipal Utilities District
MVRICS -- Municipal Variable Rate
Inverse Coupon Security
PART -- Partnership Structure
PCR -- Pollution Control Revenue
RAN -- Revenue Anticipation Notes
RAW -- Revenue Anticipation Warrants
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt
Securities
SWAP -- Swap Structure
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bond Structure
TRAN -- Tax and Revenue Anticipation
Notes
UFSD -- Unified Free School District
UHSD -- Unified High School District
USD -- Unified School District
VA -- Veterans Administration
VRWE -- Variable Rate Wednesday Demand
11
<PAGE>
Statement of Assets and Liabilities (unaudited) September 30, 1997
ASSETS:
Investments, at amortized cost $1,503,675,407
Cash 115,375
Interest receivable 10,948,822
- ----------------------------------------------------------- --------------
Total Assets 1,514,739,604
- ----------------------------------------------------------- --------------
LIABILITIES:
Payable for securities purchased 11,400,000
Dividends payable 2,059,626
Management fees payable 617,250
Distribution fees payable 53,307
Deferred compensation payable 22,000
Accrued expenses 128,810
- ----------------------------------------------------------- --------------
Total Liabilities 14,280,993
- ----------------------------------------------------------- --------------
Total Net Assets $1,500,458,611
- ----------------------------------------------------------- --------------
NET ASSETS:
Par value of shares of beneficial interest $ 1,500,759
Capital paid in excess of par value 1,499,164,782
Accumulated net realized loss from security transactions (206,930)
- ----------------------------------------------------------- --------------
Total Net Assets $1,500,458,611
- ----------------------------------------------------------- --------------
Shares Outstanding:
Class A 1,500,161,544
- ----------------------------------------------------------- --------------
Class Y 597,178
- ----------------------------------------------------------- --------------
Net Asset Value, per class $ 1.00
- ----------------------------------------------------------- --------------
See Notes to Financial Statements.
12
<PAGE>
Statement of Operations (unaudited)
For the Six Months Ended September 30, 1997
INVESTMENT INCOME:
Interest $26,529,030
- ----------------------------------------------------------- -----------
EXPENSES:
Management fees (Note 4) 3,632,267
Distribution fees (Note 4) 724,959
Shareholder and system servicing fees 191,941
Custody 20,947
Shareholder communications 19,456
Registration fees 17,508
Audit and legal 14,191
Trustees' fees 4,750
Other 9,194
- ----------------------------------------------------------- -----------
Total Expenses 4,635,213
- ----------------------------------------------------------- -----------
Net Investment Income 21,893,817
- ----------------------------------------------------------- -----------
Net Realized Loss From Security Transactions (20,365)
- ----------------------------------------------------------- -----------
Increase in Net Assets From Operations $21,873,452
- ----------------------------------------------------------- -----------
See Notes to Financial Statements.
13
<PAGE>
Statements of Changes in Net Assets
For the Six Months Ended September 30, 1997 (unaudited) and the Year Ended March
31, 1997
September 30 March 31
------------------ -------------------
OPERATIONS:
Net investment income $ 21,893,817 $ 36,945,970
Net realized gain (loss) (20,365) 94,245
- --------------------------------------- ---------------- ----------------
Increase in Net Assets From Operations 21,873,452 37,040,215
- --------------------------------------- ---------------- ----------------
DISTRIBUTION TO SHAREHOLDERS
FROM (NOTE 3):
Net investment income (21,893,817) (36,945,970)
- --------------------------------------- ---------------- ----------------
Decrease in Net Assets From
Distributions to Shareholders (21,893,817) (36,945,970)
- --------------------------------------- ---------------- ----------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 3,314,959,417 5,459,002,289
Net asset value of shares issued
for reinvestment of dividends 20,854,505 36,681,668
Cost of shares reacquired (3,242,887,232) (5,434,040,102)
- --------------------------------------- ---------------- ----------------
Increase in Net Assets From
Fund Share Transactions 92,926,690 61,643,855
- --------------------------------------- ---------------- ----------------
Increase in Net Assets 92,906,325 61,738,100
NET ASSETS:
Beginning of period 1,407,552,286 1,345,814,186
- --------------------------------------- ---------------- ----------------
End of period $ 1,500,458,611 $ 1,407,552,286
- --------------------------------------- ---------------- ----------------
See Notes to Financial Statements.
14
<PAGE>
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The California Money Market Portfolio ("Portfolio") is a separate
investment portfolio of the Smith Barney Muni Funds ("Fund"). The Fund, a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company and consists of
this Portfolio and eight other separate investment portfolios: Florida, Georgia,
New York, National, Ohio, Pennsylvania, Limited Term and New York Money Market
Portfolios. The financial statements and financial highlights for the other
portfolios are presented in separate semi-annual reports.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) the Portfolio
uses the amortized cost method for valuing investments; accordingly, the cost of
securities plus accreted discount, or minus amortized premium, approximates
value; (c) gains or losses on the sale of securities are calculated by using the
specific identification method; (d) 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; (e)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (f) direct expenses are charged to each portfolio and each class;
management fees and general fund expenses are allocated on the basis of relative
net assets; (g) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At March 31, 1997, reclassifications
were made to the Portfolio's capital accounts to reflect permanent book/tax
differences and income and gains available for distributions under income tax
regulations. Accordingly, a portion of accumulated net realized loss amounting
to $93,181 was reclassified to paid-in capital. Net investment income, net
realized gains and net assets were not affected by this change; (h) the
Portfolio intends to comply with the applicable provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment companies
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes; and (i) 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.
15
<PAGE>
Notes to Financial Statements (unaudited) (continued)
2. PORTFOLIO CONCENTRATION
Since the Portfolio invests primarily in obligations of issuers within
California, it is subject to possible concentration risks associated with
economic, political, or legal developments or industrial or regional matters
specifically affecting California.
3. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Portfolio declares and records a dividend of substantially all its net
investment income on each business day. Such dividends are paid or reinvested
monthly in fund shares on the payable date. Furthermore, the Portfolio intends
to satisfy conditions that will enable interest from municipal securities, which
is exempt from regular Federal income tax and from designated state income
taxes, to retain such tax-exempt status when distributed to the shareholders of
the Portfolio.
Capital gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
4. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager to the Fund. The
Portfolio pays SBMFM a management fee calculated at an annual rate of 0.50% on
the first $2.5 billion of average daily net assets; 0.475% on the next $2.5
billion; and 0.45% on the average daily net assets in excess of $5 billion.
This fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. Pursuant to a Distribution Plan, the Portfolio pays a distribution
fee with respect to Class A shares calculated at the annual rate of 0.10% of the
average daily net assets of that class.
All officers and one Trustee of the Fund are employees of SB.
5. CAPITAL LOSS CARRYFORWARDS
At March 31, 1997, the Portfolio had, for Federal income tax purposes,
$186,565 of unused loss carryforwards available to offset future capital gains.
To the extent that these carryforward losses are used to offset capital gains,
it is possible that the gains so offset will not be distributed. The amount and
expiration of the carryforwards are indicated below. Expiration occurs on March
31 of the year indicated:
1999 2000 2001 2002 2003 2004
------- ------ ------- ---- ------ -------
Carryforward Amounts $54,568 $8,714 $82,684 $800 $1,435 $38,364
- -------------------- ------- ------ ------- ---- ------ -------
16
<PAGE>
Notes to Financial Statements (unaudited) (continued)
6. SHARES OF BENEFICIAL INTEREST
At September 30, 1997, the Fund had an unlimited amount of shares of
beneficial interest authorized with a par value of $0.001 per share.
Transactions in shares of the Portfolio were as follows:
Six Months Ended Year Ended
September 30, 1997 March 31, 1997*
- -------------------------------------------------------------------------
Class A
Shares sold 3,291,716,817 5,431,750,939
Shares issued on reinvestment 20,807,346 36,658,302
Shares redeemed (3,212,789,689) (5,414,170,348)
- ------------------------------- -------------- --------------
Net Increase 99,734,474 54,238,893
- ------------------------------- -------------- --------------
Class Y
Shares sold 23,242,600 27,251,350
Shares issued on reinvestment 47,159 23,366
Shares redeemed (30,097,543) (19,869,754)
- ------------------------------- -------------- --------------
Net Increase (Decrease) (6,807,784) 7,404,962
- ------------------------------- -------------- --------------
* For Class Y shares, transactions are for the period from July 19, 1996
(inception date) to March 31, 1997.
At September 30, 1997, total paid-in capital amounted to the following for
each class:
Class A Class Y
- ------------------------------------------------------
Total Paid-in Capital $1,500,068,363 $597,178
- ----------------------- -------------- --------
17
<PAGE>
Financial Highlights
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares 1997(1) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------
Net investment income (2) 0.015 0.028 0.032 0.026 0.018 0.021
Dividends from
net investment income (0.015) (0.028) (0.032) (0.026) (0.018) (0.021)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------
Total Return 1.52% [dbldag] 2.79% 3.22% 2.66% 1.84% 2.05%
- ---------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $1,500 $1,400 $1,346 $953 $190 $160
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (2) 0.64% + 0.67% 0.64% 0.61% 0.64% 0.67%
Net investment income 3.01 + 2.75 3.15 3.02 1.82 2.05
- ---------------------------------------------------------------------------------------------------------------
Class Y Shares 1997(1) 1997(3)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------
Net investment income 0.016 0.020
Dividends from
net investment income (0.016) (0.020)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------
Total Return[dbldag] 1.57% 2.04%
- ---------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $0.5 $8
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets+:
Expenses 0.54% 0.56%
Net investment income 3.01 2.77
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended September 30, 1997 (unaudited).
(2) The manager waived all or part of its fees for the years ended March 31,
1996 and March 31, 1995. If such fees were not waived, the effect on net
investment income and expense ratios would have been as follows:
Per Share Decreases Expense Ratios
to Net Investment Without Fee
Income Waivers
-------------------- ----------------
1996 1995 1996 1995
------ ------ ---- ----
Class A $0.000* $0.002 0.65% 0.63%
(3) For the period July 19, 1996 (inception date) to March 31, 1997.
* Amount represents less than $0.001 per share.
[dbldag] Total return is not annualized, as the result may not be
representative of the total return for the year.
+ Annualized.
18
<PAGE>
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<PAGE>
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<PAGE>
[BACK COVER]
SMITH BARNEY
A Member of Travelers Group
Smith Barney
Muni Funds
Trustees
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
C. Richard Youngdahl, Emeritus
Officers
Heath B. McLendon
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Joseph Benevento
Vice President
Irving P. David
Controller
Christina T. Sydor
Secretary
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney, Inc.
Custodian
PNC Bank, N.A.
Shareholder
Servicing Agent
First Data Investors 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 Muni Funds - California Money Market Portfolio. It is not
authorized for distribution to prospective investors unless accompanied or
preceded by a current Prospectus for the Portfolio, which contains information
concerning the Portfolios investment policies and expenses as well as other
pertinent information.
Smith Barney Muni Funds
388 Greenwich Street
New York, New York 10013
FD0805 11/97
