SEMI-ANNUAL REPORT
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a construction tool, steel bars and
wooden boards.
November 30, 1993
SMITH BARNEY SHEARSON
ARIZONA
MUNICIPALS
FUND INC.
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for Smith Barney Shearson
Arizona Municipals Fund Inc. for the six months ended November 30, 1993.
In this report we will provide you with a review of the Fund's perfor-
mance, the market environment and portfolio activities during the past six
months.
THE MUNICIPAL MARKET AND THE ECONOMIC ENVIRONMENT
The municipal market saw an extraordinary amount of new securities being
issued during the past six months, and by the end of 1993, the tax-exempt
market had set a record for bond issuance of approximately $300 billion.
Municipalities, like individuals, took advantage of the low level of in-
terest rates and used it as an opportunity to refinance higher interest
rate debt. About 75% of these new issues will most likely be used to re-
tire the higher interest rate debt that was issued in the early 1980s. In-
vestors consequently have continued to face a high rate of bond calls dur-
ing the past six months, and we anticipate that this is something they
will have to contend with in 1994 as well. We expect that in 1994 the vol-
ume of new issuance will once again be in the more traditional range of
$150 to $175 billion. Although the supply of municipal securities was very
high during the six months since our annual report to you in May, demand
was equally high. Investors whose bonds were called or retired sought to
replace them with new issues, and the passage of a retroactive tax in-
crease in August buoyed demand for tax-exempt issues.
The market suffered from some weakness throughout this period, especially
when it appeared that the economy was growing at a stronger-than-expected
pace which could lead to increased inflation. Inflation could reduce the
value of investments with a fixed rate of return. Although the municipal
market ended 1993 on a down note, we are optimistic that it will regain
its strength in early 1994. We think this will likely begin in earnest
once the higher withholding rates go into effect, and again when people
begin preparing their 1993 income taxes. We don't anticipate a surge in
the inflation rate because the increase in economic growth and consumer
confidence will be offset by higher Federal tax rates and uncertainty over
the cost of health care reform.
During a recent trip to the Valley of the Sun to visit some of the munici-
pal projects in which the Fund has invested, we also had the opportunity
to visit some of our Financial Consultants and shareholders. We were im-
pressed with the amount of construction activity in Phoenix, Mesa, Tempe,
and Sun City. Arizona's economy has had several tough years, and it was
refreshing to see its economic renewal. The baseball expansion team Ari-
zona hopes to receive in 1995 or 1996 also should be a boost to the econ-
omy.
PORTFOLIO STRATEGY
As investment managers, our goal is to provide investors with tax-free
income and stability of principal through investments in securities exempt
from Federal and Arizona income taxes.* To help us achieve our goal, we
continue
Continued
*Income may be subject to Federal alternative minimum tax and state or
local taxes.
to invest the Fund's holdings in high quality investments. The additional
yield available from lower-rated securities is simply not sufficient to
justify their additional risk. At the end of its fiscal year, 93% of the
Fund was invested in issues rated BBB or higher (investment grade) by ei-
ther Standard & Poor's Corporation or Moody's Investor Services. We have
concentrated the Fund's investments in general obligation issues, hospital
issues which are secured by additional insurance, and utility issues. The
average maturity of the issues in the portfolio is 20.2 years. It is our
opinion that this diversified, high-quality approach to the long- term mu-
nicipal best serves the interest of the Fund's investors.
We would like to extend to you our sincere appreciation for your invest-
ment in the Fund. We will continue to strive to maintain your trust.
Sincerely,
Heath B. McLendon Lawrence T. McDermott
Chairman of the Board Vice President
and Investment Officer
January 17, 1994
PORTFOLIO HIGHLIGHTS NOVEMBER 30, 1993 (UNAUDITED)
DESCRIPTION OF PIE CHART IN SHAREHOLDER REPORT
INDUSTRY BREAKDOWN
Pie chart depicting the allocation of the Arizona Municipals Fund's in-
vestment securities held at November 30, 1993 by industry classification.
The pie is broken in pieces representing industries in the following per-
centages:
<TABLE>
<CAPTION>
INDUSTRY
PERCENTAGE
<S> <C>
Education 19.2%
Pollution Control 9.5%
Housing 8.3%
Utility Revenue 7.4%
Hospital 6.8%
General Obligation 33.0%
Other Net Assets and Liabilities and Short-Term Investments 5.1%
Industrial Control 4.0%
Transportation 6.7%
</TABLE>
AVERAGE MATURITY: 20.2 years
SUMMARY OF MUNICIPAL BONDS BY COMBINED RATINGS
<TABLE>
<CAPTION>
MOODY'S STANDARD & PERCENT
OF
OR POOR'S VALUE
<S> <C> <C>
AAA AAA 58%
AA AA 11
A A 18
BAA BBB 6
BA BB 2
NR NR 5
100%
</TABLE>
HISTORICAL PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE CAPITAL GAINS
DIVIDENDS TOTAL
DISTRIBUTED
PAID RETURN**
CLASS A CLASS B
YEAR
ENDED
MAY 31, BEGINNING ENDING BEGINNING ENDING CLASS A CLASS B CLASS A
CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
-- -- --
1988 $9.60 $9.22 -- -- $0.40 --
7.72% --
1989 9.22 9.66 -- -- 0.69 --
12.70 --
1990 9.66 9.49 0.05 -- 0.71 --
6.31 --
1991 9.49 9.63 -- -- 0.68 --
8.92 --
1992 9.63 9.84 0.06 -- 0.60 --
9.86 --
1993 9.84 10.40 $9.97 $10.40 0.08 0.08 0.57
0.29 12.92 8.31%
6/1/93*-
11/30/93 10.40 10.57 10.40 10.57 -- -- 0.29
0.26 4.41 4.17
TOTAL $0.19 $0.08
$3.94 $0.55
CUMULATIVE TOTAL RETURN - CLASS A SHARES (6/1/87 THROUGH 11/30/93)
72.93%
CUMULATIVE TOTAL RETURN - CLASS B SHARES (11/6/92 THROUGH 11/30/93)
12.83%
<FN>
* The Fund commenced operations on June 1, 1987 and on November 6,
1992 its existing shares were designated as Class A shares. On No-
vember 6, 1992, the Fund commenced offering Class B shares. It is
the Fund's policy to distribute dividends monthly and capital
gains, if any, annually.
** Figures assume reinvestment of all dividends and capital gain dis-
tributions at net asset value and do not reflect deduction of the
applicable sales charge.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN*** -- (UNAUDITED)
<TABLE>
<CAPTION>
WITHOUT SALES CHARGE WITH SALES CHARGE
WITHOUT WITHOUT
CLASS A: ACTUAL FEE WAIVER ACTUAL FEE
WAIVER
<S> <C> <C> <C> <C>
YEAR ENDED 11/30/93 11.94% 11.52% 6.90% 6.50%
FIVE YEARS ENDED 11/30/93 9.93 8.41 8.92 7.42
INCEPTION (6/1/87) THROUGH
(11/30/93) 8.80 6.85 8.03 6.09
</TABLE>
<TABLE>
<CAPTION>
WITHOUT SALES CHARGE WITH SALES CHARGE
WITHOUT WITHOUT
CLASS B: ACTUAL FEE WAIVER ACTUAL FEE
WAIVER
<S> <C> <C> <C> <C>
YEAR ENDED 11/30/93 11.39% 11.00% 6.89% 6.51%
INCEPTION (11/6/92) THROUGH
(11/30/93) 11.98 11.60 8.26 7.88
<FN>
*** All average annual total return figures shown reflect the reinvest-
ment of dividends and capital gains at net asset value. Average an-
nual total return figures assume the deduction of the maximum 4.5%
front-end sales charge for Class A and the maximum 4.5% contingent
deferred sales charge (CDSC) for Class B. The Fund waived fees
and/or reimbursed expenses from June 1, 1985 to November 30, 1993
for Class A shares and from November 6, 1992 to November 30, 1993
for Class B shares. A shareholder's actual return for a given class
for periods during which waivers and reimbursements were in effect
would be the higher of the two numbers shown.
NOTE: Class A shares are subject to a maximum 4.5% front-end sales
charge. Class B shares are subject to a maximum 4.5% contingent de-
ferred sales charge (CDSC). The Fund's average annual rates of re-
turn would have been lower had service fees been in effect prior to
November 6, 1992. Please consult the Notes to Financial Statements
for complete information on fees and expenses.
</TABLE>
DESCRIPTION OF MOUNTAIN CHART IN SHEARSON COVERS
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Ari-
zona Municipals Fund's Class A shares on June 1, 1987 (assuming deduction
of the maximum 4.5% sales charge at the time of investment) and the growth
of the original shares, through November 30, 1993. The line graph demon-
strates that since inception, the hypothetical investment of $10,000 would
have grown to $16,515 including the value of reinvested dividends and cap-
ital gains of approximately $6,000. The plot points used to draw the line
graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF
GROWTH OF VALUE OF INVESTMENT
WITH
INITIAL REINVESTED
DISTRIBUTIONS
DATE INVESTMENT DISTRIBUTIONS REINVESTED
<S> <C> <C> <C>
06/01/87 $9,550 $ 0 $9,550
06/87 9,550 0 9,550
09/87 9,152 160 9,312
12/87 9,281 333 9,614
03/88 9,202 486 9,688
06/88 9,301 663 9,964
09/88 9,361 849 10,210
12/88 9,411 1,033 10,444
03/89 9,331 1,225 10,556
06/89 9,729 1,473 11,202
09/89 9,550 1,654 11,204
12/89 9,610 1,938 11,548
03/90 9,441 2,112 11,553
06/90 9,510 2,355 11,865
09/90 9,331 2,524 11,855
12/90 9,600 2,817 12,417
03/91 9,510 3,018 12,528
06/91 9,490 3,219 12,709
09/91 9,699 3,511 13,210
12/91 9,779 3,837 13,616
03/92 9,679 4,023 13,702
06/92 9,888 4,334 14,222
09/92 10,028 4,612 14,640
12/92 9,998 4,926 14,924
03/93 10,286 5,298 15,584
06/93 10,475 5,617 16,092
09/93 10,684 5,952 16,636
11/93 10,515 6,000 16,515
+ Hypothetical illustration of $10,000 invested on June 1, 1987 assuming
deduction of the maximum 4.5% sales charge at the time of investment and
reinvestment of dividends and capital gains at net asset value through
November 30, 1993. The performance of the Fund's other class of shares
will be greater than or less than the line shown based on the difference
in loads and fees paid by shareholders investing in the different
classes of shares.
This period was one in which municipal bond prices fluctuated and the
results should not be considered as a representation of the dividend in-
come or capital gain or loss which may be realized from an investment in
the Fund today. No adjustment has been made for shareholder tax liabil-
ity on dividends or capital gains.
NOTE: All figures cited here and on the following pages represent past
performance and do not guarantee future results of Class A or Class B
shares. Investment return and principal value of an investment will
fluctuate so that an investor's shares may be worth more or less than
original cost.
</TABLE>
FOR A GLOSSARY OF TERMS, PLEASE TURN TO THE END OF THIS REPORT.
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1993 (UNAUDITED)
KEY TO INSURANCE ABBREVIATIONS
AMBAC: American Municipal Bond Assurance Corporation
BIGI: Bond Investors Guaranty Insurance
FGIC: Federal Guaranty Insurance Corporation
FHA: Federal Housing Administration
FSA: Financial Security Assurance
MBIA: Municipal Bond Investors Assurance
<TABLE>
<CAPTION>
RATINGS
STANDARD
MARKET VALUE
FACE VALUE MOODY'S & POOR'S
(NOTE 1)
<S> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 94.9%
ARIZONA -- 89.7%
Arizona Health Facilities Author-
ity, Hospital Revenue Refunding,
(Phoenix Baptist Hospital), (MBIA
Insured):
$ 500,000 6.250% 9/1/11 Aaa AAA $
526,875
1,000,000 5.625% 12/1/15 Aaa AAA
1,008,750
60,000 Arizona State, Certificates of Aaa AAA
65,850
Participation,
(FSA Insured),
6.625% 9/1/08
520,000 Arizona State, Certificates of Aaa AAA
552,500
Participation Refunding, Series,
6.250% 9/1/10, (AMBAC Insured)
Arizona State, Municipal Financ-
ing Project, Certificates of Par-
ticipation, Series 20,
(MBIA Insured):
250,000 7.625% 8/1/06 Aaa AAA
286,250
50,000 7.700% 8/1/10 Aaa AAA
61,250
750,000 Arizona State, Power Authority, Aaa AAA
718,125
Power Resources, Reference,
(Hoover Uprating Project), (MBIA
Insured),
5.250% 10/1/17
500,000 Arizona State Transportation AAA AAA
572,500
Board, Highway Revenue, prere-
funded,
7.000% 7/1/09
500,000 Arizona State Transportation Aaa AAA
566,250
Board, Excise Tax Revenue, Mari-
copa County, Regional Area Road
Fund, (MBIA Insured),
7.000% 7/1/05
250,000 Arizona State University, (Reve- AAA AA
291,875
nue System),
prerefunded,
7.000% 7/1/15
1,250,000 Arizona Authority Student Loan NR NR
1,268,750
Revenue Acquisition, Series A,
7.125% 12/1/04
300,000 Avondale, Arizona, Municipal De- Aaa AAA
324,000
velopment Corp., Municipal Facil-
ity Revenue,
(MBIA Insured),
6.625% 7/1/11
Casa Grande, Arizona, Industrial
Development Authority, Multifam-
ily Housing Center:
250,000 (Center Park Apartments), NR AAA
260,938
7.125% 12/1/10
250,000 (Quail Gardens Apartments), NR AAA
260,938
7.125% 12/1/10
750,000 Central Arizona, Water Conserva- A1 AA-
761,250
tion District, Central Arizona
Project, (MBIA Insured),
Series A,
5.500% 11/1/10
500,000 Chandler, Arizona, General Obli- Aaa AAA
570,000
gation Bonds, (AMBAC Insured),
6.625% 7/1/06
1,000,000 Chandler, Arizona, Water & Sewer Aaa AAA
1,062,500
Revenue, Reference, (FGIC In-
sured),
6.250% 7/1/13
450,000 Cochise County, Arizona, Certifi- Aaa AAA
479,813
cates of Participation, (MBIA In-
sured),
6.750% 8/1/03
750,000 Cochise County, Arizona, Unified Aaa AAA
909,375
School District, (FGIC Insured),
7.500% 7/1/10
1,000,000 Coconino County, Arizona, Pollu- Baa2 BBB
983,750
tion Control Corp., Revenue, Ari-
zona Public Service Company, Se-
ries A,
5.875% 8/15/28
1,630,000 Gila County, Arizona, Industrial Baa2 AAA
1,872,463
Development Authority, Pollution
Control, Asarco 85,
8.900% 7/1/06
250,000 Gilbert, Arizona, Improvement Aaa AAA
258,125
District No. 011, (FGIC Insured),
7.600% 1/1/01
595,000 Glendale, Arizona, General Obli- Aaa AAA
610,619
gation Bonds, (FGIC Insured),
5.450% 7/1/06
900,000 Glendale, Arizona, Municipal Aaa AAA
996,750
Property Corporation, (MBIA In-
sured),
7.000% 7/1/09
1,000,000 Maricopa County, Arizona, Alham- AAA AAA
1,012,500
bra Elementary School District,
(AMBAC Insured),
5.625% 7/1/13
1,000,000 Maricopa County, Arizona, Hospi- A1 A
1,105,000
tal Revenue Corp., (Sun Health
Corp.),
8.125% 4/1/12
Maricopa County, Arizona, Indus-
trial Development Authority, Hos-
pital Facilities Revenue:
400,000 (John C. Lincoln Hospital), (FSA Aaa AAA
462,000
Insured),
7.500% 12/1/13
95,000 (Mercy Health System Revenue), Aaa AAA
107,350
Series A,
7.125% 7/1/07 (MBIA Insured)
Maricopa County, Arizona, Indus-
trial Development Authority,
Statewide Single Family Mortgage
Revenue, (GNMA Mortgage-Backed
Securities Program):
420,000 8.050% 9/1/23 Aaa NR
449,400
385,000 Series A, Aa NR
396,069
7.500% 8/1/12
1,000,000 Maricopa County, Arizona, Indus- NR AAA
997,500
trial Development, Series A, Mul-
tifamily Housing, Revenue, (FHA
Insured), Mortgage Loan,
5.900% 7/1/24
1,000,000 Maricopa County, Arizona, Pollu- Ba2 BB+
1,003,750
tion Control Corporation, Public
Service Company, Series A, (Palo
Verde Project),
6.375% 8/15/23
1,000,000 Maricopa County, Arizona, Union A1 A
1,223,750
School District #8, (Osborn Ele-
mentary),
7.500% 07/01/09
Maricopa County, Arizona, Union
School District #11, (Peoria),
(MBIA Insured):
1,000,000 6.400% 7/1/10 Aaa AAA
1,082,500
500,000 7.000% 7/1/10 Aaa AAA
565,000
650,000 Maricopa County, Arizona, Union Aaa AAA
728,000
School District #14, (Creighton
School Improvement Project), Se-
ries 1990C, (FGIC Insured),
6.500% 7/1/08
1,000,000 Maricopa County, Arizona, Union Aa AA-
1,093,750
School District #48, (Scottsdale
Improvement),
6.750% 7/1/10
100,000 Maricopa County, Arizona, Union Aaa AAA
109,750
School District #98, (Fountain
Hills), (FGIC Insured),
6.625% 7/1/10
1,000,000 Maricopa County, Arizona, Union Aaa AAA
1,128,750
School District #216, (FGIC In-
sured),
6.700% 7/1/11
1,000,000 Maricopa County, Arizona Stadium, Aaa AAA
997,500
District Revenue, Series A, (MBIA
Insured),
5.500% 7/1/13
1,000,000 Mohave County, Arizona, Indus- NR AAA
1,138,750
trial Development Authority,
(Citizens Utility Project), Se-
ries B,
7.050% 8/1/20
40,000 Mohave County, Arizona, Indus- Baa1 NR
45,050
trial Development Authority, Hos-
pital System Revenue, (Medical
Environments, Inc. Project),
8.800% 1/1/06
2,500,000 Navajo County, Arizona, Pollution Baa2 BBB
2,465,625
Control Corporation, Series A,
5.875% 8/15/28
580,000 Peoria, Arizona, Industrial De- NR NR
203,000
velopment Authority, (Sierra
Winds Life Care Project),
10.750% 1/1/18
1,250,000 Phoenix, Arizona, Civic Improve- Aa AA+
1,171,875
ment Corporation, Excise Tax Rev-
enue,
(New City Hall Project),
5.100% 7/1/28
2,000,000 Phoenix, Arizona, Civic Improve- A1 A
2,217,500
ment, Water & Sewer Authority,
System Lease Revenue,
6.125% 7/1/23
270,000 Phoenix, Arizona, Industrial De- NR AAA
282,488
velopment Authority, Home Mort-
gage Revenue,
(GNMA Program), Series B,
7.700% 10/1/11
650,000 Phoenix, Arizona, Industrial De- NR AAA
698,750
velopment Authority, Mortgage
Revenue, (Chris Ridge Village
Project), (FHA Insured),
6.750% 11/1/12
1,000,000 Phoenix, Arizona, Industrial De- NR NR
1,027,500
velopment Authority, Multifamily
Housing, Revenue, (Woodstate &
Silver Springs),
6.250% 4/1/23
1,555,000 Phoenix, Arizona, Refunding, Se- Aa AA+
1,667,738
ries C,
6.000% 7/1/09
400,000 Phoenix, Arizona, Special Assign- A A+
435,500
ment,
Central Avenue Improvement Dis-
trict,
7.000% 1/1/06
875,000 Pima County, Arizona, Industrial Aaa AAA
869,530
Development Authority, (Tuscon
Medical Center), Series A, (MBIA
Insured),
5.400% 4/1/09
70,000 Pima County, Arizona, Industrial Aaa AAA
80,588
Development Authority, Health
Care Corporation Revenue, (Caron-
delet State, St. Josephs and
Mary's), (MBIA Insured),
8.000% 7/1/13
Pima County, Arizona, Industrial
Development Authority, Multifam-
ily Revenue:
250,000 (Eastside Place Project), NR AAA
261,563
7.125% 12/1/10
490,000 (Rancho Mirage Project), NR NR
511,438
7.050% 4/1/22
975,000 Pima County, Arizona, Sewer Reve- Aaa AAA
1,027,405
nue Refunding, (AMBAC Insured),
6.200% 7/1/09
1,000,000 Pima County, Arizona, Unified Aaa AAA
1,138,750
School
District, Series E, (Tuscon
Project 1989),
(FGIC Insured),
6.750% 7/1/10
1,000,000 Pima County, Arizona, Unified Aaa AAA
1,218,750
School
District #1, Tucson Refunding,
(FGIC Insured),
7.500% 7/1/10
750,000 Pima County, Arizona, Union A NR
867,187
School
District #1, (Tucson), Series B,
prerefunded,
7.200% 7/1/10
730,000 Pinal County, Arizona, Industrial NR NR
779,275
Development Authority, Industrial
Development Revenue, (Casa Grande
Regional Medical Center),
9.000% 12/1/13
250,000 Prescott Valley, Arizona, Im- B BBB
271,563
provement District, Sewer Collec-
tion System,
7.900% 1/1/12
1,500,000 Salt River, Arizona, Agriculture Aa AA
1,402,500
Improvement and Power District,
Series D,
7.020% 1/1/12
500,000 Scottsdale, Arizona, Government Aa1 AA
521,250
Obligation Bonds, Series B,
6.000% 7/1/11
70,000 Scottsdale, Arizona, Industrial Aaa AAA
80,500
Development Authority, Hospital
Revenue, (Scottsdale Memorial
Hospital), Series A, (AMBAC In-
sured),
8.500% 9/1/17
500,000 Scottsdale, Arizona, Mountain NR A
503,125
Communication Facilities, Dis-
trict 3, Series A,
6.200% 7/1/17
250,000 Sierra Vista, Arizona, Industrial NR AAA
261,562
Development Authority, Multifam-
ily FNMA, (Steppes Apartment
Project),
7.125% 12/1/10
Tucson, Arizona, Apartment Au-
thority, Inc., (MBIA Insured):
500,000 5.400% 6/1/06 Aaa AAA
511,875
500,000 5.500% 6/1/07 Aaa AAA
511,250
Tucson, Arizona, General Obliga-
tion Bonds, (FGIC Insured):
1,500,000 6.100% 7/1/12 Aaa AAA
1,575,000
80,000 6.875% 7/1/14 A1 AA
82,700
1,250,000 Tucson, Arizona, Street and High- Aaa AAA
1,253,125
way User Refunding Revenue, (MBIA
Insured),
5.500% 7/1/12
1,000,000 Tucson, Arizona, (Water Revenue A1 A+
953,750
Project, 1984),
5.250% 7/1/18
1,275,000 Tucson, Arizona, Local Develop- Aaa AAA
1,359,468
ment Corporation, (FDIC Insured),
6.250% 7/1/12
500,000 Yuma County, Arizona, Elementary Aaa AAA
542,500
School District #1, Series B,
(FGIC Insured),
6.900% 7/1/01
500,000 Yuma, Arizona, Industrial Devel- NR AAA
522,500
opment Authority, Multifamily
Housing, (Alexandra Sands Apart-
ment Project), (FHA Insured),
7.700% 12/1/29
56,192,995
PUERTO RICO -- 5.0%
300,000 Commonwealth of Puerto Rico, Gen- Baa1 A
348,750
eral Obligation Bonds,
8.000% 7/1/08
1,250,000 Commonwealth of Puerto Rico, Gen- Aaa AAA
1,362,500
eral Obligation Bonds, Registered
Yield Curve Receipts, (AMBAC In-
sured),
8.900% 7/1/15
475,000 Commonwealth of Puerto Rico, Baa BBB
551,000
Urban Housing Revenue Bonds,
7.875% 10/1/04
540,000 Puerto Rico Municipal Finance Baa1 A-
625,050
Agency,
Series A,
8.250% 7/1/08
250,000 Puerto Rico, Public Building Au- Baa1 A
250,312
thority Guaranteed, Public Health
& Education Facility, Series M,
5.750% 7/1/15
3,137,612
VIRGIN ISLANDS -- 0.2%
Virgin Islands, Public Finance
Authority Revenue, Matching Fund
Loan Note, (Marine Midland),
Series A, Pre-Refunded:
110,000 7.300% 10/1/18 AAA AAA
129,113
15,000 7.300% 10/1/18 AAA AAA
18,168
147,281
TOTAL MUNICIPAL BONDS AND NOTES
59,477,888
(Cost $56,661,249)
SHORT-TERM INVESTMENT -- 3.8%
(Cost $2,400,000)
2,400,000 Commonwealth of Puerto Rico, Gov- VMIG1 A1+
2,400,000
ernment Development Bank,
2.250% due 12/1/15+
TOTAL INVESTMENTS (Cost $59,061,249*) 98.7%
61,877,888
OTHER ASSETS AND LIABILITIES (NET) 1.3
826,546
NET ASSETS 100.0%
$62,704,434
<FN>
* Aggregate cost for Federal tax purposes.
+ Variable rate demand notes are payable upon not more than seven busi-
ness days' notice.
++ When-issued security (see Note 1).
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1993 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $59,061,249)
(Note 1)
See accompanying schedule
$61,877,888
Cash
7,091
Interest receivable
1,393,417
Receivable for Fund shares sold
467,727
TOTAL ASSETS
63,746,123
LIABILITIES:
Payable for investment securities pur-
chased $866,075
Investment advisory fee payable (Note 2) 50,626
Dividends payable 31,264
Administration fee payable (Note 2) 28,929
Custodian fees payable (Note 2) 7,500
Payable for Fund shares redeemed 6,399
Distribution fee payable (Note 3) 6,378
Service fees payable (Note 3) 6,037
Transfer agent fees payable (Notes 2 and
4) 1,700
Accrued expenses and other payables 36,781
TOTAL LIABILITIES
1,041,689
NET ASSETS
$62,704,434
NET ASSETS CONSIST OF:
Distributions in excess of net invest-
ment income earned to date $
(161,087)
Accumulated net realized gain on invest-
ments sold
1,212,564
Unrealized appreciation of investments
2,816,639
Par value
5,934
Paid-in capital in excess of par value
58,830,384
TOTAL NET ASSETS
$62,704,434
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per
share ($46,552,551 / 4,405,109 shares
of common stock outstanding)
$10.57
Maximum offering price per share ($10.57
/ 0.955) (based on a sales charge of
4.5% of the offering price on November
30, 1993)
$11.07
CLASS B SHARES:
NET ASSET VALUE and offering price per
share+ ($16,151,883 / 1,528,808 shares
of common stock outstanding)
$10.57
<FN>
+ Redemption price per share is equal to Net Asset Value less any applica-
ble contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1993 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest
$1,752,836
EXPENSES:
Investment advisory fee (Note 2) $101,800
Administration fee (Note 2) 58,171
Service fees (Note 3) 43,628
Shareholder reports expense 37,081
Distribution fee (Note 3) 30,510
Registration and filing fees 15,150
Custodian fees (Note 2) 14,569
Legal and audit fees 24,497
Transfer agent fees (Notes 2 and 4) 10,720
Directors' fees and expenses (Note 2) 7,616
Other (Note 8) 9,537
Fees waived by investment adviser and administrator
(Note 2) (80,416)
TOTAL EXPENSES
272,863
NET INVESTMENT INCOME
$1,479,973
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(NOTES 1 AND 5):
Net realized gain on investments sold during the
period
592,292
Net unrealized appreciation of investments during
the period
244,611
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
836,903
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$2,316,876
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
11/30/93 5/31/93
(UNAUDITED)
<S> <C> <C>
Net investment income $1,479,973
$2,458,475
Net realized gain on investments sold during
the period 592,292
1,101,821
Net unrealized appreciation on investments
during the period 244,611
1,663,297
Net increase in net assets resulting from op-
erations 2,316,876
5,223,593
Distributions to shareholders from net invest-
ment
income:
Class A (1,232,012)
(2,346,194)
Class B (292,198)
(112,281)
Distribution to shareholders from net realized
gain on
investments:
Class A --
(322,672)
Class B --
(14,295)
Distribution to shareholders from capital:
Class A --
(64,850)
Class B --
(3,104)
Net increase in net assets from:
Class A share transactions (Note 6) 1,784,875
3,056,850
Class B share transactions (Note 6) 7,923,651
8,027,003
Net increase in net assets 10,501,192
13,444,050
NET ASSETS:
Beginning of period 52,203,242
38,759,192
End of period (including distributions in ex-
cess of
net investment income earned to date of
$161,087
at November 30, 1993) $62,704,434
$52,203,242
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR YEAR
YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
ENDED ENDED ENDED
11/30/93++ 5/31/93 5/31/92 5/31/91
5/31/90 5/31/89(A) 5/31/88*(A)
(UNAUDITED)
<S> <C> <C> <C> <C>
<C> <C> <C>
Net asset value, begin-
ning of period $10.40 $ 9.84 $9.63 $9.49
$9.66 $9.22 $9.60
Income from investment
operations:
Net investment income++ 0.28 0.58 0.59 0.68
0.71 0.82 0.40
Net realized and unreal-
ized
gain/(loss) on invest-
ments 0.18 0.65 0.32 0.14
(0.12) 0.31 (0.19)
Total from investment op-
erations 0.46 1.23 0.91 0.82
0.59 1.13 0.21
Less distributions:
Dividends from net in-
vestment
income (0.29) (0.57) (0.60) (0.68)
(0.71) (0.69) (0.40)
Distributions from net
realized
capital gains -- (0.08) (0.06) --
(0.05) -- --
Distributions in excess
of net
investment income -- -- -- --
- -- -- (0.19)
Distributions from capi-
tal -- (0.02) (0.04) --
- -- -- --
Total distributions (0.29) (0.67) (0.70) (0.68)
(0.76) (0.69) (0.59)
Net asset value, end of
period $10.57 $10.40 $9.84 $9.63
$9.49 $9.66 $9.22
Total return+++ 4.41% 12.92% 9.86% 8.92%
6.31% 12.70% 7.72%
Ratios to average net as-
sets/
supplemental data:
Net assets, end of period
(in 000's) $46,553 $44,055 $38,759 $28,373
$18,167 $4,903 $1,626
Ratios of operating ex-
penses to average net as-
sets+ 0.83%** 0.77% 0.68% 0.14%
0.03% 0.34% 0.16%
Ratios of net investment
income to average net as-
sets 5.20%** 5.66% 6.02% 7.06%
7.34% 7.23% 3.95%
Portfolio turnover rate 16% 44% 44% 49%
86% 63% 53%
<FN>
* The Fund commenced operations on June 1, 1987. Any shares outstanding
prior to November 6, 1992 were designated as Class A shares.
** Annualized.
++ The per share amounts have been calculated using the monthly average
shares method, which more appropriately presents per share data for
this period since use of the undistributed method did not accord with
results of operations.
+ Annualized expense ratios before voluntary waiver of fees and/or reim-
bursement of expenses by affiliates for the six months ended November
30, 1993, and the years ended May 31, 1993, 1992, 1991, 1990, 1989 and
1988, were 1.11%, 1.10%, 0.90%, 1.13%, 2.13%, 6.20% and 2.58%, respec-
tively.
++ Net investment income before voluntary waiver of fees and/or reim-
bursement of expenses by affiliates for the six months ended November
30, 1993, and the years ended May 31, 1993, 1992, 1991, 1990, 1989 and
1988, were $0.26, $0.54, $0.57, $0.58, $0.51, $0.16 and $0.27,
respectively.
+++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charges.
(a) Not covered by Coopers & Lybrand's report.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD
ENDED ENDED
11/30/93++
5/31/93*
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period $10.40
$9.97
Income from investment operations:
Net investment income++ 0.25
0.31
Net realized and unrealized gain on investments 0.18
0.50
Total from investment operations 0.43
0.81
Less distributions:
Dividends from net investment income (0.26)
(0.29)
Distributions from net realized capital gains --
(0.08)
Distributions from capital --
(0.01)
Total distributions (0.26)
(0.38)
Net asset value, end of period $10.57
$10.40
Total return+++ 4.17%
8.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $16,152
$8,149
Ratio of operating expenses to average net assets+ 1.35%**
1.33%
Ratio of net investment income to
average net assets 4.68%**
5.10%
Portfolio turnover rate 16%
44%
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** Annualized.
++ The per share amounts have been calculated using the monthly average
shares method, which more appropriately presents per share data for
this period since use of the undistributed method did not accord with
results of operations.
+ Annualized expense ratios before voluntary waiver of fees and/or reim-
bursement of expenses by affiliates for the six months ended November
30, 1993, and the period ended May 31, 1993, were 1.62% and 1.66%, re-
spectively.
++ Net investment income before voluntary waiver of fees and/or reim-
bursement of expenses by affiliates for the six months ended November
30, 1993, and the period ended May 31, 1993, were $0.23 and $0.29, re-
spectively.
+++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Arizona Municipals Fund Inc. (the "Fund") was incor-
porated under the laws of the State of Maryland on May 4, 1987. The Fund
is a diversified, open-end management investment company registered with
the Securities and Exchange Commission under the Investment Company Act of
1940, as amended (the "1940 Act"). As of November 6, 1992, the Fund of-
fered two classes of shares to the general public: Class A shares and
Class B shares. Class A shares are sold with a front-end sales charge.
Class B shares may be subject to a contingent deferred sales charge
("CDSC"). Both classes of shares have identical rights and privileges ex-
cept with respect to the effect of the respective sales charges, the dis-
tribution and/or service fees borne by each class, expenses allocable ex-
clusively to each class, voting rights on matters affecting a single
class, the exchange privilege of each class and the conversion feature of
Class B shares. The following is a summary of significant accounting poli-
cies followed by the Fund in the preparation of its financial statements.
Portfolio valuation: Securities are valued by The Boston Company Advi-
sors, Inc. ("Boston Advisors") after consultation with an independent
pricing service (the "Service") approved by the Fund's Board of Directors.
Valuations furnished by the Service are based upon a computerized matrix
system and/or appraisals based in each case upon such factors as yields or
prices of municipal bonds of comparable quality, type or issue, coupon
rate, maturity and rating, indications as to value from dealers, and gen-
eral market conditions and quotations from recognized municipal securities
dealers. The Fund's officers, under the general supervision of its Board
of Directors, regularly review procedures used and valuations provided by
the Service. Securities for which market quotations are readily available
are valued at market value, which is the last reported sale price or, if
no sales are reported on that day, at the mean between the latest avail-
able bid and asked prices. Securities having 60 days or less remaining to
maturity at the time of purchase are valued at their amortized cost, which
approximates market value.
Securities transactions and investment income: Securities transactions
are recorded as of the trade date. Interest income is recorded on the ac-
crual basis. Securities purchased or sold on a when-issued or delayed-
delivery basis may be settled a month or more after the trade date. Real-
ized gains and losses from securities sold are recorded on the identified
cost basis. Investment income and realized and unrealized gains and losses
are allocated based upon relative net assets of each class.
Dividends and distributions to shareholders: It is the policy of the Fund
to declare dividends from net investment income determined on a class
level, daily, and to pay such dividends on the last business day of the
Smith Barney Shearson Inc. ("Smith Barney Shearson") statement month. Dis-
tributions from net realized capital gains determined on a Fund basis are
declared and paid annually, after the end of the fiscal year in which
earned. In addition, in order to avoid the application of a 4% nondeduct-
ible excise tax on certain undistributed amounts of ordinary income and
capital gains, the Fund may make an additional distribution shortly before
December 31st of each year of undistributed ordinary income or capital
gains and expects to make any other distributions as are necessary to
avoid this tax. To the extent that net realized capital gains can be off-
set by capital loss carryovers, it is the policy of the Fund not to dis-
tribute such gains. Income distributions and capital gain distributions
are determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. The differences are prima-
rily due to differing treatments of income and gains on various investment
securities held by the Fund, timing differences and differing character-
ization of distributions made by the Fund as a whole.
Federal income taxes: It is the policy of the Fund to qualify as a regu-
lated investment company, which distributes exempt-interest dividends, by
complying with the requirements of the Internal Revenue Code applicable to
regulated investment companies and by making all required distributions to
its shareholders. Therefore, no Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
Up to the close of business on July 30, 1993, the Fund had entered into an
investment advisory agreement (the "Advisory Agreement") with Shearson Le-
hman Brothers Inc. ("Shearson Lehman Brothers") on behalf of Shearson Leh-
man Advisors, a member of the Asset Management Group of Shearson Lehman
Brothers. Under the Advisory Agreement, the Fund paid a monthly fee at the
following annual rates: .35% of the value of the Fund's average daily net
assets up to $500 million and .32% of the value of the Fund's average
daily net assets in excess of $500 million.
As of the close of business on July 30, 1993, The Travelers Inc. (which at
the time was known as Primerica Corporation ("Travelers") and Smith Bar-
ney, Harris Upham & Co. Incorporated completed the acquisition of substan-
tially all of the domestic retail brokerage and asset management busi-
nesses of Shearson Lehman Brothers and Smith Barney, Harris Upham & Co.
Incorporated was renamed Smith Barney Shearson.
As of the close of business on July 30, 1993, Greenwich Street Advisors, a
division of Mutual Management Corp., which is controlled by Smith Barney
Shearson Holdings Inc. ("Holdings"), succeeded Shearson Lehman Advisors as
the Fund's investment adviser. Holdings is a wholly owned subsidiary of
Travelers. The new investment advisory agreement with Greenwich Street Ad-
visors (the "Advisory Agreement") contains terms and conditions substan-
tially similar to the investment advisory agreement with the predecessor
investment adviser and provides for payment of fees at the same rates as
were paid to such predecessor investment adviser.
The Fund has also entered into an administration agreement (the "Adminis-
tration Agreement") dated May 21, 1993, with Boston Advisors, an indirect
wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Under the
Administration Agreement, the Fund pays a monthly fee at the following an-
nual rates: .20% of the value of the Fund's average daily net assets up to
$500 million and .18% of the value of the Fund's average daily net assets
in excess of $500 million. Prior to the close of business on May 21, 1993,
Boston Advisors served as sub-investment adviser and administrator to the
Fund.
From time to time, Smith Barney Shearson and Boston Advisors may voluntar-
ily waive a portion or all of their respective fees otherwise payable to
them and reimburse expenses. For the six months ended November 30, 1993,
Smith Barney Shearson and Boston Advisors voluntarily waived $51,174 and
$29,242, respectively.
Smith Barney Shearson acts as exclusive distributor of the Fund's shares.
For the six months ended November 30, 1993, Smith Barney Shearson received
from investors $117,890 representing commissions (sales charges) on sales
of Class A shares.
A CDSC is generally payable by a shareholder in connection with the
redemption of Class B shares within five years after the date of purchase.
In circumstances in which the CDSC is imposed, the amount of the charge
ranges between 4.5% and 1% of net asset value depending on the number of
years since the date of purchase. For the six months ended November 30,
1993, Smith Barney Shearson received from shareholders $4,618 in CDSC on
the redemption of Class B shares.
No officer, director or employee of Smith Barney Shearson, Boston Advisors
or of any parent or subsidiary of those corporations receives any compen-
sation from the Fund for serving as a Director or officer of the Fund. The
Fund pays each Director who is not an officer, director, or employee of
Smith Barney Shearson or Boston Advisors or any of their affiliates $1,000
per annum plus $100 per meeting attended and reimburses each such Director
for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of Mellon, serves as the Fund's custodian. The Shareholder Services Group,
Inc., a subsidiary of First Data Corporation, serves as the Fund's trans-
fer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Fund's shares pursuant to
a distribution agreement with the Fund, and sells shares of the Fund
through Smith Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, as amended, the Fund has
adopted a Services and Distribution Plan (the "Plan"). Under this Plan,
the Fund compensates Smith Barney Shearson for servicing shareholder ac-
counts for both Class A and Class B shareholders, and covers expenses in-
curred in distributing Class B shares. Smith Barney Shearson is paid an
annual service fee with respect to Class A and Class B shares of the Fund
at the rate of .15% of the value of the average daily net assets of each
respective class of shares. Smith Barney Shearson is also paid an annual
distribution fee with respect to Class B shares at the rate of .50% of the
value of the average daily net assets attributable to those shares. For
the six months ended November 30, 1993, the Fund incurred $34,475 in ser-
vice fees for Class A shares. During the six months ended November 30,
1993, the Fund incurred $9,153 and $30,510 in service fees and distribu-
tion fees, respectively, for Class B shares.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any
class of shares are prorated among the classes based upon the relative net
assets of each class. Operating expenses directly attributable to a class
of shares are charged to that class' operations. In addition to the above
servicing and distribution fees, class specific operating expenses include
transfer agent fees of $7,582 and $3,138 for Class A and Class B shares,
respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investment securities, ex-
cluding short-term investments, during the six months ended November 30,
1993, amounted to $14,988,652 and $8,946,588, respectively.
At November 30, 1993, aggregate gross unrealized appreciation for all se-
curities in which there was an excess of value over tax cost amounted to
$3,428,319, and aggregate unrealized depreciation for all securities in
which there was an excess of tax cost over value amounted to $611,680.
6. COMMON STOCK
At November 30, 1993, 500 million shares of $.001 par value common stock
divided into two classes, (Class A and Class B), were authorized. Changes
in common stock outstanding were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1993 MAY 31, 1993
CLASS A SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 368,130 $ 3,917,468 683,261 $
6,953,280
Issued as reinvestment of
dividends 73,179 776,765 175,026
1,775,062
Redeemed (273,175) (2,909,358) (558,906)
(5,671,492)
Net increase 168,134 $ 1,784,875 299,381 $
3,056,850
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
NOVEMBER 30, 1993 MAY 31, 1993*
CLASS B SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 749,866 $ 7,975,587 779,596 $
7,983,536
Issued as reinvestment of
dividends 15,578 165,507 6,873
70,770
Redeemed (20,407) (217,443) (2,698)
(27,303)
Net increase 745,037 $ 7,923,651 783,771 $
8,027,003
<FN>
* The Fund commenced selling Class B shares on November 6, 1992. Any
shares outstanding prior to November 6, 1992 were designated as Class A
shares.
</TABLE>
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of Ari-
zona and its political subdivisions, agencies and public authorities to
obtain funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issuers of Arizona municipal securities than
is a municipal bond fund that is not concentrated in these issuers to the
same extent.
8. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line
of credit provided by Continental Bank N.A. under an Amended and Restated
Line of Credit Agreement (the "Agreement") dated April 30, 1992, primarily
for temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of securi-
ties. The Fund may borrow up to the lesser of $25 million or 10% of its
net assets. Interest is payable either at the bank's Money Market Rate or
the London Interbank Offered Rate (LIBOR) plus .375% on an annualized
basis. The Fund and the other affiliated entities are charged an aggregate
commitment fee of $125,000 which is allocated equally among each of the
participants. The Agreement requires, among other provisions, each partic-
ipating fund to maintain a ratio of net assets (not including funds bor-
rowed pursuant to the Agreement) to aggregate amount of indebtedness pur-
suant to the Agreement of no less than 5 to 1. At November 30, 1993, the
Fund had no outstanding borrowings under this Agreement. During the six
months ended November 30, 1993, the Fund had an average outstanding daily
balance of $44,809 with interest rates ranging from 3.375% to 3.687%. In-
terest expense totalled $784 for the six months ended November 30, 1993,
which is disclosed in other expenses in the Statement of Operations.
GLOSSARY OF COMMONLY USED MUTUAL FUND TERMS
CAPITAL GAIN (OR LOSS): This is the increase (or decrease) in the market
value (price) of a security in your portfolio. If a stock or bond appreci-
ates in price, there is a capital gain; if it depreciates there is a capi-
tal loss. A capital gain or loss is "realized" upon the sale of a secu-
rity; if net capital gains exceed net capital losses, there may be a capi-
tal gain distribution to shareholders.
CDSC (CONTINGENT DEFERRED SALES CHARGE):
One kind of back-end load, a CDSC is imposed if shares are redeemed during
the first few years of ownership. The CDSC may be expressed as a percent-
age of either the original purchase price or the redemption proceeds. Most
CDSCs decline over time, and some will not be charged if shares are re-
deemed after a certain period of time.
DISTRIBUTION RATE: This is the rate at which a mutual fund pays out (or
distributes) interest, dividends and realized capital gains to sharehold-
ers. A fund's distribution rate is usually expressed as an annualized per-
cent of the fund's offering price.
DIVIDEND: This is income generated by securities in a portfolio and dis-
tributed after expenses to shareholders.
FRONT-END SALES CHARGE: This is the sales charge applied to an investment
at the time of initial purchase.
NET ASSET VALUE (NAV): Net asset value is the total market value of all
securities held by a fund, minus any liabilities, divided by the number of
shares outstanding. It is the value of a single share of a mutual fund on
a given day. The total value of your investment would be the NAV multi-
plied by the number of shares you own.
SEC YIELD: This standardized calculation of a mutual fund's yield is
based on a formula developed by the Securities and Exchange Commission
(SEC) to allow funds to be compared on an equal basis. It is an annualized
yield based on the portfolio's potential earnings from dividends, interest
and yield to maturity of its holdings, and it reflects the accrual of all
portfolio expenses for the most recent 30-day period.
TOTAL RETURN: Total return measures a fund's performance, taking into ac-
count the combination of dividends paid and the gain or loss in the value
of the securities held in the portfolio. It may be expressed on an average
annual basis or cumulative basis (total change over a given period). In
addition, total return may be expressed with or without the effects of
sales charges or the reinvestment of dividends and capital gains.
Whenever a fund reports any type of performance, it must also report the
average annual total return according to the standardized calculation de-
veloped by the SEC. The SEC average annual total return calculation in-
cludes the effects of all fees and sales charges and assumes the reinvest-
ment of all dividends and capital gains.
DIRECTORS
Herbert Barg
Alfred J. Bianchetti
Robert E. Borgeson
Martin Brody
Dwight B. Crane
James J. Crisona
Robert A. Frankel
Peter H. Gallary
Dr. Paul Hardin
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
Lawrence T. McDermott
Vice President and
Investment Officer
Vincent Nave
Treasurer
Francis J. McNamara, III
Secretary
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
THE SMITH BARNEY
SHEARSON
APPROACH TO
MUTUAL FUND
INVESTING
1. PERSONAL SERVICE The Smith Barney Shearson Financial Consultant (FC) is
highly trained and deeply committed to client service. Your FC works with
you to establish a relationship based on one-to-one communication and the
highest standards of quality.
2. ANALYZING YOUR NEEDS Defining your needs and establishing specific
goals is the first step toward any successful investment program. The
Smith Barney Shearson Strategic Asset Allocator -- a sophisticated finan-
cial planning tool -- can help you and your Financial Consultant evaluate
your resources and objectives. This groundwork then becomes the basis for
a strategy designed specifically for you. Your FC can use the Strategic
Asset Allocator on a periodic basis to ensure that your investment strat-
egy is keeping pace with your changing needs and goals.
3. A UNIQUE MUTUAL FUND INVESTMENT PROGRAM Your Smith Barney Shearson
Financial Consultant offers a number of mutual fund assessment tools
that are unmatched in the financial services industry. Smith Barney
Shearson FCs have access to a proprietary mutual fund research database
that provides information at their fingertips on more than 2,100 funds.
In addition, working with another proprietary system known as the Mutual
Fund Evaluation Service, your FC can help guide you through the
complex mutual fund maze.
4. LOOKING AHEAD Selecting a mutual fund should not be a one-event process
that ends with the purchase of shares. You can count on the expertise of
your Financial Consultant as he or she continues to monitor and evaluate
your funds, to suggest new strategies and to listen. That, in our opinion,
is how to use mutual funds to help achieve your financial goals.
INVESTOR BENEFITS
MONTHLY DISTRIBUTIONS It's your fund's
policy to distribute dividend income monthly.
AUTOMATIC REINVESTMENT You may reinvest your dividends and/or capital
gains automatically in additional shares of your fund at the current net
asset value.
UNLIMITED EXCHANGES If your investment goals change, you may exchange into
another Smith Barney Shearson mutual fund with the same sales charge
structure without incurring a sales charge.*
SYSTEMATIC INVESTMENT PLAN This program allows you to invest equal dollar
amounts automatically on a regular basis, monthly or quarterly.
AUTOMATIC CASH WITHDRAWAL PLAN With this plan, you may withdraw money on a
regular basis while maintaining your investment.
MUTUAL FUND EVALUATION SERVICE Through your Financial Consultant, you may
obtain a free personalized analysis of how your fund has performed for
you, taking into account the effect of every transaction. The analysis is
based upon month-end data from CDA Investment Technologies, Inc., a widely
recognized mutual fund information service. An evaluation also gives you
other important facts and figures about your investment.
For more information about these benefits, or if you have any other ques-
tions, please call your Financial Consultant or write:
MUTUAL FUND POLICY GROUP
SMITH BARNEY SHEARSON
388 GREENWICH STREET 37TH FLOOR
NEW YORK, NY 10013
* After written notification, exchange privilege may be modified or termi-
nated at any time.
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE
SHAREHOLDERS OF SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC. IT IS
NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS ACCOMPA-
NIED OR PRECEDED BY AN EFFECTIVE PROSPECTUS FOR THE FUND, WHICH CONTAINS
INFORMATION CONCERNING THE FUND'S INVESTMENT POLICIES AND APPLICABLE
SALES CHARGES, FEES AND EXPENSES, AS WELL AS OTHER PERTINENT INFORMATION.
PERFORMANCE CITED IS THROUGH
NOVEMBER 30, 1993. PLEASE
CONSULT SMITH BARNEY SHEARSON
MUTUAL FUNDS QUARTERLY
PERFORMANCE UPDATE FOR FIGURES THROUGH THE MOST RECENT
CALENDAR YEAR.
SMITH BARNEY SHEARSON
ARIZONA
MUNICIPALS
FUND INC.
Two World Trade Center
New York, New York 10048
Fund 115, 208
FD0300 A4
