<PAGE>
[GRAPHIC]
SMALL BOX ABOVE FUND NAME
SHOWING THE OPENING OF A
CANYON IN ARIZONA.
SEMI- SMITH BARNEY
ANNUAL ARIZONA
REPORT MUNICIPALS
FUND INC.
.......................................
NOVEMBER 30, 1994
[LOGO]
<PAGE>
Arizona Municipals Fund Inc.
DEAR SHAREHOLDER:
We are pleased to provide the semiannual report and portfolio
of investments for the six months ended November 30, 1994 for
Smith Barney Arizona Municipals Fund Inc. Since we last
reported to you six months ago, prices for Arizona tax-exempt bonds
continued to weaken as the Federal Reserve ("the Fed") raised interest
rates. As a result, the net asset value of the Fund's Class A and
Class B shares declined to $9.18 from $9.82 per share and resulted in
a negative total return for this fiscal period -- the first such
return in the Fund's history. Investors owning Class A shares received
income distributions of $0.27 per share and investors owning Class B
shares received income distributions of $0.24 per share. The total
return for this fiscal period was (3.87%) for Class A shares and
(4.13%) for Class B shares. Further information about the performance
of your investment during this and previous fiscal periods is
available from the "Financial Highlights" pages of this report.
ECONOMIC AND INTEREST RATE OVERVIEW
The Fed raised short-term interest rates six times in 1994 beginning in
February, which is a remarkable number of increases in less than one year. The
Fed's goal was to curb any creeping inflation before it actually appeared.
However, the rise in short-term interest rates also resulted in a rise in long-
term interest rates and consequently a decline in the asset value of many
long-term investments. As a result, most fixed income investments performed
poorly in 1994, especially in comparison to the strong performance they
experienced in 1993.
1994 was also a politically intriguing year. First, higher Federal income tax
rates that were retroactive to 1993 took effect. Second, Congress became
embroiled in controversial legislation on health care which, had it been
successful, could have led to higher taxes. Third, the NAFTA and GATT trade
agreements were successfully passed. Fourth, and perhaps most significant, the
Republicans achieved an overwhelming victory in both the House and Senate by
promising lower taxes and spending, and much less government. The many
Republican victories at the state level -- not only in the state legislatures
but also the governorships -- are even more significant as these 30 states will
have much power over the electoral process in 1996.
1
<PAGE>
For many investors this past year was the first glance into a new and more
challenging investment environment that tested their ability to maintain a
long-term investment focus. However, we now anticipate that interest rates will
soon stabilize as the results of the new Congress become more apparent and the
results of the Fed's interest rate policy become more positive. We expect that
the recent GATT and NAFTA trade pacts will also demonstrate that the U.S. is
still the world leader in both economic policy and financial markets.
In Arizona, 1994 saw the re-election of Governor Fife Symington for a second
term. Governor Symington has promised not only a 1995 tax cut but elimination of
all income taxes over the next five years. While Arizona's economy was very
strong in 1994 -- the state had a budget surplus in excess of $100 million -- it
remains to be seen if the state income tax can be eliminated. The budget surplus
may dwindle and calls for tax cuts may very well be slowed by the Supreme
Court's June 1994 ruling that the state's school funding program was unfair
because the more affluent school districts spent a larger share of their money
for education than did the poorer or more rural districts. The state has a year
to develop a financial plan to achieve an equitable education system.
PORTFOLIO SUMMARY
In response to the Fed's policy of higher short-term interest rates and
declining prices in the Arizona tax-exempt market, our investment strategy has
been to keep the Fund's average maturity at approximately 20 years, which
enables the Fund to maximize its tax-exempt income. At the end of this reporting
period, three-quarters of the Fund's assets were invested in municipal bonds
rated AAA/Aaa and AA/Aa by Standard & Poor's Corporation or Moody's Investor
Service, Inc. These high-quality investments provide the portfolio with greater
protection against credit risk and are also more liquid. The majority of the
Fund's holdings were in general obligation, education, and housing issues.
2
<PAGE>
We appreciate your confidence during the difficult investment environment of
1994, and join you in looking forward to a more benign 1995. Should you have any
questions about your investment in the Fund or how other Smith Barney mutual
funds may be useful in helping you reach your financial goals, please speak with
your Smith Barney Financial Consultant.
Sincerely,
Heath B. McLendon Lawrence T. McDermott
CHAIRMAN OF THE BOARD VICE PRESIDENT AND
INVESTMENT OFFICER
JANUARY 16, 1995
3
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) NOVEMBER 30, 1994
INDUSTRY BREAKDOWN
Pie chart depicting the allocation of the Arizona Municipals Fund Inc.
investment securities held at November 30, 1994 by Industry classification. The
pie is broken in pieces representing industries in the following percentages:
<TABLE>
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Housing 12.3%
Other 9.0%
Education 23.9%
Hospital 4.3%
Transportation 4.5%
Pollution Control 7.7%
Industrial Control 9.0%
Net Other Assets and Liabilities 0.8%
Utility 8.2%
General Obligations 20.3%
</TABLE>
SUMMARY OF MUNICIPAL BONDS BY COMBINED RATINGS.
<TABLE>
<CAPTION>
Percent
Standard & of
Moody's Poor's Value
<S> <C> <C> <C>
-------------------------------------------
AAA OR AAA 50.3%
-------------------------------------------
AA AA 24.6
-------------------------------------------
A A 5.9
-------------------------------------------
BAA BBB 11.8
-------------------------------------------
BA BB 1.4
-------------------------------------------
P-1 A-1 2.4
-------------------------------------------
NR NR 3.6
-------------------------------------------
100%
---------------
</TABLE>
AVERAGE MATURITY 19.84 years
4
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) NOVEMBER 30, 1994
-------------------------------------------------------------
<TABLE>
<S> <C>
KEY TO INSURANCE ABBREVIATIONS
AMBAC -- American Municipal Bond Assurance Corporation
BIGI -- Bond Investors Guaranty Assurance
CAPGTY -- Capital Guaranty
FGIC -- Federal Guaranty Insurance Corporation
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
</TABLE>
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
<C> <S> <C> <C> <C>
----------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES -- 96.5%
ARIZONA -- 93.7%
$ 60,000 Arizona State, Certificates
of Participation, (FSA
Insured),
6.625% 9/1/08 Aaa AAA $ 60,225
Arizona State, Certificates
of Participation
Series B:
520,000 (AMBAC Insured),
6.250% 9/1/10 Aaa AAA 488,800
1,200,000 (CAPGTY Insured),
5.000% 5/1/10 Aaa AAA 996,000
Arizona State, Municipal
Financing Project,
Certificates of
Participation,
Series 20, (MBIA Insured):
250,000 7.625% 8/1/06 Aaa AAA 273,750
50,000 (Escrowed to Maturity),
7.700% 8/1/10 Aaa AAA 54,562
265,000 Arizona State
Transportation Board,
Excise Tax Revenue,
Maricopa County,
(MBIA Insured),
7.000% 7/1/05 Aaa AAA 276,925
1,500,000 Arizona State
Transportation Board,
Highway Revenue, Series A,
6.000% 7/1/08 Aa AA 1,436,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) NOVEMBER 30, 1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ARIZONA -- (CONTINUED)
$1,855,000 Arizona State University,
(Revenue Refunding System),
6.000% 7/1/08 A1 AA $ 1,757,612
750,000 Arizona Student Loan
Revenue Acquisition
Authority, Series B,
6.600% 5/1/10 Aa NR 700,312
300,000 Avondale, Arizona,
Municipal Development
Corporation, Municipal
Facility Revenue, (MBIA
Insured),
6.625% 7/1/11 Aaa AAA 294,000
Casa Grande, Arizona,
Industrial Development
Authority,
Multifamily Housing Center:
245,000 (Center Park Apartments),
7.125% 12/1/10 NR AAA 245,919
250,000 (Quail Gardens Apartments),
7.125% 12/1/10 NR AAA 250,937
1,000,000 Chandler, Arizona, Water &
Sewer Revenue Refunding,
(FGIC Insured),
6.250% 7/1/13 Aaa AAA 935,000
450,000 Cochise County, Arizona,
Certificates of
Participation, (MBIA
Insured),
6.750% 8/1/03 Aaa AAA 460,688
750,000 Cochise County, Arizona,
Unified School District,
(FGIC Insured),
7.500% 7/1/10 Aaa AAA 806,250
1,000,000 Coconino County, Arizona,
Pollution Control
Corporation, Revenue
Refunding, Arizona Public
Service Company, Series A,
5.875% 8/15/28 Baa2 BBB 788,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) NOVEMBER 30, 1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ARIZONA -- (CONTINUED)
$1,630,000 Gila County, Arizona,
Industrial Development
Authority, Pollution
Control, ASARCO 87,
8.900% 7/1/06 Baa2 BBB $ 1,746,138
250,000 Gilbert, Arizona,
Improvement District
No. 011, (FGIC Insured),
7.600% 1/1/01 Aaa AAA 257,812
900,000 Glendale, Arizona,
Municipal Property
Corporation, (MBIA
Insured),
7.000% 7/1/09 Aaa AAA 928,125
1,000,000 Maricopa County, Arizona,
Alhambra Elementary School
District, Partially
Prerefunded 7/1/03,
(AMBAC Insured),
5.625% 7/1/23 Aaa AAA 867,500
1,000,000 Maricopa County, Arizona,
Hospital Revenue
Corporation, (Sun Health
Corporation),
8.125% 4/1/12 Baa BB+ 1,002,500
Maricopa County, Arizona,
Industrial Development
Authority, Hospital
Facilities Revenue:
400,000 (John C. Lincoln Hospital),
(FSA Insured),
7.500% 12/1/13 Aaa AAA 424,500
95,000 (Mercy Health System
Revenue), Series A,
Prerefunded 7/3/99,
(MBIA Insured),
7.125% 7/1/07 Aaa AAA 102,006
420,000 Maricopa County, Arizona,
Industrial Development
Authority, Statewide Single
Family Mortgage Revenue,
(GNMA Mortgage-Backed
Securities Program),
8.050% 9/1/23 Aaa NR 432,075
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) NOVEMBER 30, 1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ARIZONA -- (CONTINUED)
$ 285,000 Maricopa County, Arizona,
Industrial Development
Authority, Statewide Single
Family Mortgage Revenue,
Series A,
7.500% 8/1/12 Aa NR $ 279,300
1,000,000 Maricopa County, Arizona,
Industrial Development,
Series A, Multifamily
Housing Revenue, (FHA
Insured), Mortgage Loan,
5.900% 7/1/24 NR AAA 838,750
1,000,000 Maricopa County, Arizona,
Pollution Control
Corporation, Public Service
Company, Series A, (Palo
Verde Project),
6.375% 8/15/23 Ba2 BB 816,250
1,050,000 Maricopa County, Arizona,
School District #31, Series
A, (AMBAC Insured),
6.100% 7/1/11 Aaa AAA 980,437
1,000,000 Maricopa County, Arizona,
Union School District #8,
(Osborn Elementary),
7.500% 7/1/09 A1 A 1,071,250
Maricopa County, Arizona,
Union School District #11,
(Peoria), Partially
Prerefunded 7/1/01, (MBIA
Insured):
1,000,000 6.400% 7/1/10 Aaa AAA 981,250
500,000 7.000% 7/1/10 Aaa AAA 516,875
650,000 Maricopa County, Arizona,
Union School District #14,
(Creighton School
Improvement Project 1990),
Series C, (FGIC Insured),
6.500% 7/1/08 Aaa AAA 645,125
1,000,000 Maricopa County, Arizona,
Union School District #80,
(Chandler School), (FGIC
Insured), (Partially
Escrowed to Maturity),
5.800% 7/1/12 Aaa AAA 887,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) NOVEMBER 30, 1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ARIZONA -- (CONTINUED)
$ 100,000 Maricopa County, Arizona,
Union School District #98,
(Fountain Hills),
(FGIC Insured),
6.625% 7/1/10 Aaa AAA $ 100,000
1,000,000 Maricopa County, Arizona,
Union School District #216,
Partially Prerefunded
7/1/00, (FGIC Insured),
6.700% 7/1/11 Aaa AAA 1,050,000
1,000,000 Mohave County, Arizona,
Industrial Development
Authority, (Citizens
Utility Project), Series B,
7.050% 8/1/20 NR AA 1,003,750
2,500,000 Navajo County, Arizona,
Pollution Control
Corporation,
5.875% 8/15/28 Baa2 BBB 1,971,875
500,000 Navajo County, Arizona,
Union School District #32,
Series A, (Blue Ridge),
(CAPGTY Insured),
6.000% 7/1/09 Aaa AAA 462,500
505,000 Peoria, Arizona, Industrial
Development Authority,
(Sierra Winds Life Care
Project),
10.750% 11/1/17 NR NR 505,000
Phoenix, Arizona, Civic
Improvement Corporation,
Excise Tax Revenue, (New
City Hall Project):
1,750,000 5.500% 7/1/24 Aa AA+ 1,391,250
1,250,000 5.100% 7/1/28 A1 AA- 926,562
600,000 Phoenix, Arizona,
Industrial Development
Authority, (John C. Lincoln
Hospital & Health),
6.000% 12/1/10 NR BBB+ 504,000
35,000 Phoenix, Arizona,
Industrial Development
Authority, Home Mortgage
Revenue, (GNMA Project),
Series B,
7.700% 10/1/11 NR AAA 35,263
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) NOVEMBER 30, 1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ARIZONA -- (CONTINUED)
$ 650,000 Phoenix, Arizona,
Industrial Development
Authority, Mortgage
Revenue, (Chris Ridge
Village Project), (FHA
Insured),
6.750% 11/1/12 NR AAA $ 615,063
1,000,000 Phoenix, Arizona,
Industrial Development
Authority, Multifamily
Housing Revenue, (Woodstone
& Silver Springs),
6.250% 4/1/23 Aa AAA 888,750
1,555,000 Phoenix, Arizona,
Refunding, Series C,
6.000% 7/1/09 Aa AA+ 1,450,038
400,000 Phoenix, Arizona, Special
Assignment, Central Avenue
Improvement District,
7.000% 1/1/06 A A+ 412,500
1,000,000 Pima County, Arizona,
Industrial Development
Authority, Industrial
Revenue, Refunding, (FSA
Insured),
7.250% due 07/15/10 Aaa AAA 1,020,000
70,000 Pima County, Arizona,
Industrial Development
Authority, Health Care
Corporation Revenue,
(Carondelet State, St.
Joseph's and Mary's),
Partially Prerefunded
7/1/98, (MBIA Insured),
8.000% 7/1/13 Aaa AAA 75,600
Pima County, Arizona,
Industrial Development
Authority, Multifamily
Revenue:
250,000 (Eastside Place Project),
7.125% 12/1/10 NR AAA 251,875
490,000 (Rancho Mirage Project),
7.050% 4/1/22 NR AA 469,788
1,500,000 Pima County, Arizona,
Industrial Development
Authority, Single Family
Mortgage Revenue,
6.750% 11/1/27 NR AAA 1,368,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) NOVEMBER 30, 1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ARIZONA -- (CONTINUED)
$ 875,000 Pima County, Arizona,
Industrial Development
Authority, (Tucson Medical
Center), Series A, (MBIA
Insured),
5.400% 4/1/09 Aaa AAA $ 772,187
780,000 Pima County, Arizona,
School District #20, Series
A,
5.900% 7/1/09 Aaa AAA 717,600
975,000 Pima County, Arizona, Sewer
Revenue Refunding,
Prerefunded 7/1/02,
(AMBAC Insured),
6.200% 7/1/09 Aaa AAA 989,625
1,000,000 Pima County, Arizona,
Unified School District,
Series E, (Tucson Project
1989), (FGIC Insured),
6.750% 7/1/10 Aaa AAA 993,750
1,000,000 Pima County, Arizona,
Unified School District #1,
(Tucson), (FGIC Insured),
7.500% 7/1/10 Aaa AAA 1,065,000
715,000 Pinal County, Arizona,
Industrial Development
Authority, Industrial
Development Revenue, (Casa
Grande Regional Medical
Center),
9.000% 12/1/13 NR NR 738,238
250,000 Prescott Valley, Arizona,
Improvement District, Sewer
Collection System, Roadway
Repair,
7.900% 1/1/12 NR BBB 257,187
1,500,000 Salt River, Arizona,
Agriculture Improvement &
Power, (Electric System
Project), Series A,
6.000% 1/1/31 Aa AA 1,276,875
3,000,000 Salt River, Arizona, Linked
Stripes & Stars,
(Agriculture Project),
5.050% 1/1/12 Aa AA 2,460,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) NOVEMBER 30, 1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ARIZONA -- (CONTINUED)
$ 70,000 Scottsdale, Arizona,
Industrial Development
Authority, Hospital
Revenue, (Scottsdale
Memorial Hospital), Series
A, (AMBAC Insured),
8.500% 9/1/17 Aaa AAA $ 76,300
500,000 Scottsdale, Arizona,
Mountain Communication
Facilities, District 3,
Series A,
6.200% 7/1/17 NR AAA 443,750
250,000 Sierra Vista, Arizona,
Industrial Development
Authority, Multifamily
FNMA, (Steppes Apartment
Project),
7.125% 12/1/10 NR NR 251,875
Tempe, Arizona, Industrial
Development Authority,
(Friendship Village):
350,000 Refunding, Series A,
6.200% 12/1/03 NR NR 324,188
250,000 Series A,
6.250% 12/1/04 NR NR 229,375
1,000,000 Tempe, Arizona, Unified
High School District,
6.000% due 7/1/10 Aaa AAA 925,000
Tucson, Arizona, Airport
Authority, Inc., (MBIA
Insured):
500,000 5.400% 6/1/06 Aaa AAA 457,500
500,000 5.500% 6/1/07 Aaa AAA 456,250
1,000,000 Tucson, Arizona,
Certificates of
Participation,
6.375% 7/1/09 Baa1 AA 932,500
Tucson, Arizona, General
Obligation Bonds:
80,000 Partially Prerefunded
7/1/95,
(FGIC Insured),
6.875% 7/1/14 A AA- 79,500
1,000,000 Series 1984-G, (FGIC
Insured),
6.250% 7/1/18 Aaa AAA 928,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) NOVEMBER 30, 1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ARIZONA -- (CONTINUED)
$1,275,000 Tucson, Arizona, Local
Development Corporation,
(FGIC Insured),
6.250% 7/1/12 Aaa AAA $ 1,196,906
1,000,000 Tucson, Arizona, (Water
Revenue
Project 1984),
5.250% 7/1/18 A1 A+ 787,500
350,000 University of Arizona,
Certificates of
Participation,
6.000% 7/15/23 Aaa AAA 302,750
500,000 Yuma County, Arizona,
Industrial Development
Authority, Multifamily
Housing, (Alexandra Sands
Apartment Project), (FHA
Insured),
7.700% 12/1/29 NR AAA 503,750
----------------------------------------------------------------------------
54,272,293
----------------------------------------------------------------------------
PUERTO RICO -- 2.8%
300,000 Commonwealth of Puerto
Rico, General Obligation
Bonds, Partially
Prerefunded 7/1/98,
8.000% 7/1/08 Baa1 A 325,125
475,000 Commonwealth of Puerto
Rico, Urban Housing Revenue
Bonds,
7.875% 10/1/04 Baa BBB 511,813
540,000 Puerto Rico Municipal
Finance Agency, Series A,
8.250% 7/1/08 Baa1 A- 581,175
250,000 Puerto Rico Public Building
Authority Guaranteed,
Public Health & Education
Facility, Series M,
5.750% 7/1/15 Baa1 A- 210,625
----------------------------------------------------------------------------
1,628,738
----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) NOVEMBER 30, 1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
VIRGIN ISLANDS -- 0.0%
$ 15,000 Virgin Islands, Public
Finance Authority Revenue,
Series A, (Escrowed to
Maturity),
7.300% 10/1/18 Aaa AAA $ 15,975
----------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS AND NOTES
(Cost $60,761,078) 55,917,006
----------------------------------------------------------------------------
SHORT-TERM TAX-EXEMPT INVESTMENTS -- 2.7%
ARIZONA -- 2.4%
1,400,000 Coconino County, Arizona,
Pollution Control
Corporation, Revenue
Refunding, Arizona Public
Service Company, Series A,
3.600% 10/1/29+ P-1 A-1 1,400,000
PUERTO RICO -- 0.3%
200,000 Commonwealth of Puerto
Rico, Government
Development,
3.450% 12/1/15++ Aaa AAA 200,000
----------------------------------------------------------------------------
TOTAL SHORT-TERM TAX-EXEMPT INVESTMENTS
(Cost $1,600,000) 1,600,000
----------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $62,361,078*) 99.2% 57,517,006
OTHER ASSETS AND LIABILITIES (NET) 0.8% 435,151
----------------------------------------------------------------------------
NET ASSETS 100.0% $57,952,157
----------------------------------------------------------------------------
<FN>
* Aggregate cost for Federal tax purposes.
+ Variable rate demand notes are payable upon not more than one day's notice.
++ Variable rate demand notes are payable upon not more than seven business days'
notice.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$62,361,078) (Note 1)
See accompanying schedule $57,517,006
Cash 47,519
Interest receivable 1,501,303
Receivable for investment securities
sold 61,789
- --------------------------------------------------------------------------
TOTAL ASSETS 59,127,617
- --------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities
purchased $1,024,687
Dividends payable 38,310
Investment advisory fee payable (Note
2) 33,714
Administration fee payable (Note 2) 19,265
Distribution fee payable (Note 3) 7,648
Service fees payable (Note 3) 7,134
Custodian fees payable (Note 2) 4,100
Payable for Fund shares redeemed 3,090
Transfer agent fees payable (Note 2) 2,100
Accrued expenses and other payables 35,412
- --------------------------------------------------------------------------
TOTAL LIABILITIES 1,175,460
- --------------------------------------------------------------------------
NET ASSETS $57,952,157
- --------------------------------------------------------------------------
NET ASSETS consist of:
Distributions in excess of net
investment income $ (68,585)
Accumulated net realized gain on
investments sold 78,512
Unrealized depreciation of investments (4,844,072)
Par value 6,312
Paid-in capital in excess of par value 62,779,990
- --------------------------------------------------------------------------
TOTAL NET ASSETS $57,952,157
- --------------------------------------------------------------------------
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($39,277,543 DIVIDED BY 4,277,839 shares of common
stock outstanding) $9.18
- --------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE ($9.18 DIVIDED BY
0.960)
(based on a sales charge of 4.0% of the offering price
on November 30, 1994) $9.56
- --------------------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($18,674,614 DIVIDED BY 2,033,699 shares of common
stock outstanding) $9.18
- --------------------------------------------------------------------------
<FN>
+ Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 1,944,893
- ---------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $108,592
Administration fee (Note 2) 62,053
Distribution fee (Note 3) 48,898
Service fees (Note 3) 46,538
Legal and audit fees 31,491
Custodian fees (Note 2) 13,138
Transfer agent fees (Notes 2 and 4) 9,789
Directors' fees and expenses (Note 2) 8,999
Other 35,472
Fees waived by investment adviser and
administrator (Note 2) (57,887)
- ---------------------------------------------------------------------------------
TOTAL EXPENSES 307,083
- ---------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,637,810
- ---------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTES 1 AND 5):
Net realized loss on investments sold during the
period (337,846)
Net unrealized depreciation of investments
during the period (3,660,329)
- ---------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (3,998,175)
- ---------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,360,365)
- ---------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
11/30/94 ENDED
(UNAUDITED) 5/31/94
<S> <C> <C>
Net investment income $ 1,637,810 $ 3,098,625
Net realized gain/(loss) on investments sold during the
period (337,846) 1,016,134
Net unrealized depreciation of investments during the
period (3,660,329) (3,755,771)
- -------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
operations (2,360,365) 358,988
Distributions to shareholders from net investment
income:
Class A (1,178,193) (2,296,168)
Class B (487,476) (685,607)
Distributions in excess of net investment income:
Class A -- (31,362)
Class B -- (9,364)
Distribution to shareholders from net realized gain on
investments:
Class A -- (898,488)
Class B -- (321,560)
Net increase/(decrease) in net assets from Fund share
transactions (Note 6):
Class A (2,525,542) 3,081,032
Class B 645,356 12,457,664
- -------------------------------------------------------------------------------------
Net increase/(decrease) in net assets (5,906,220) 11,655,135
NET ASSETS:
Beginning of period 63,858,377 52,203,242
- -------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $68,585 and $40,726,
respectively) $57,952,157 $63,858,377
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
11/30/94 ENDED
(UNAUDITED) 5/31/94#
<S> <C> <C>
Net Asset Value, beginning of period $ 9.82 $ 10.40
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income+ 0.26 0.54
Net realized and unrealized gain/(loss) on
investments (0.63) (0.38)
- ----------------------------------------------------------------------------------
Total from investment operations (0.37) 0.16
Less distributions:
Distributions from net investment income (0.27) (0.52)
Distributions in excess of net investment income -- (0.01)
Distributions from net realized capital gains -- (0.21)
Distributions from capital -- --
- ----------------------------------------------------------------------------------
Total distributions (0.27) (0.74)
- ----------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.18 $ 9.82
- ----------------------------------------------------------------------------------
Total return++ (3.87)% 1.33%
- ----------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $39,278 $44,552
Ratio of operating expenses to average net assets+++ 0.83%** 0.83%
Ratio of net investment income to average net assets 5.44%** 5.24%
Portfolio turnover rate 9% 49%
- ----------------------------------------------------------------------------------
<FN>
* The Fund commenced operations on June 1, 1987. Any shares outstanding prior
to November 6, 1992 were designated as Class A shares.
** Annualized.
+ Net investment income before voluntary waiver of fees and/or reimbursement of
expenses by affiliates for the six months ended November 30, 1994 and the
years ended May 31, 1994, 1993, 1992, 1991, 1990, 1989, and 1988, were $0.25,
$0.52, $0.54, $0.57, $0.58, $0.51, $0.16 and $0.27, respectively.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Annualized expense ratios before voluntary waiver of fees and/or
reimbursement of expenses by affiliates for the six months ended November 30,
1994 and the years ended May 31, 1994, 1993, 1992, 1991, 1990, 1989, and 1988
were 1.01%, 1.05%, 1.10%, 0.90%, 1.13%, 2.13%, 6.20%, and 2.58%,
respectively.
(a) Not covered by Coopers & Lybrand's report.
# 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
5/31/93 5/31/92 5/31/91 5/31/90 5/31/89(A) 5/31/88*(A)
<S> <C> <C> <C> <C> <C>
$ 9.84 $ 9.63 $ 9.49 $ 9.66 $ 9.22 $ 9.60
- -------------------------------------------------------------
0.58 0.59 0.68 0.71 0.82 0.40
0.65 0.32 0.14 (0.12) 0.31 (0.19)
- -------------------------------------------------------------
1.23 0.91 0.82 0.59 1.13 0.21
(0.57) (0.60) (0.68) (0.71) (0.69) (0.40)
-- -- -- -- -- (0.19)
(0.08) (0.06) -- (0.05) -- --
(0.02) (0.04) -- -- -- --
- -------------------------------------------------------------
(0.67) (0.70) (0.68) (0.76) (0.69) (0.59)
- -------------------------------------------------------------
$ 10.40 $ 9.84 $ 9.63 $ 9.49 $ 9.66 $ 9.22
- -------------------------------------------------------------
12.92% 9.86% 8.92% 6.31% 12.70% 2.32%
- -------------------------------------------------------------
$44,055 $38,759 $28,373 $18,167 $4,903 $1,626
0.77% 0.68% 0.14% 0.03% 0.34% 0.16%
5.66% 6.02% 7.06% 7.34% 7.23% 3.95%
44% 44% 49% 86% 63% 53%
- -------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR PERIOD
11/30/94 ENDED ENDED
(UNAUDITED) 5/31/94# 5/31/93*
<S> <C> <C> <C>
Net Asset Value, beginning of period $ 9.82 $ 10.40 $ 9.97
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income+ 0.24 0.49 0.31
Net realized and unrealized gain/(loss) on
investments (0.64) (0.37) 0.50
- ---------------------------------------------------------------------------------
Total from investment operations (0.40) 0.12 0.81
Less distributions:
Distributions from net investment income (0.24) (0.48) (0.29)
Distributions in excess of net investment
income -- (0.01) --
Distributions from net realized capital
gains -- (0.21) (0.08)
Distributions from capital -- -- (0.01)
- ---------------------------------------------------------------------------------
Total distributions (0.24) (0.70) (0.38)
- ---------------------------------------------------------------------------------
Net Asset Value, end of period $ 9.18 $ 9.82 $10.40
- ---------------------------------------------------------------------------------
Total return++ (4.13)% 0.84% 8.31%
- ---------------------------------------------------------------------------------
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $18,675 $19,306 $8,149
Ratio of operating expenses to average net
assets+++ 1.34%** 1.35% 1.33%**
Ratio of net investment income to average
net assets 4.93%** 4.73% 5.10%**
Portfolio turnover rate 9% 49% 44%
- ---------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** Annualized.
+ Net investment income before voluntary waiver of fees and/or reimbursement of
expenses by affiliates for the six months ended November 30, 1994, the year
ended May 31, 1994, and the period ended May 31, 1993, were $0.23, $0.47 and
$0.29, respectively.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Annualized expense ratios before voluntary waiver of fees and/or
reimbursement of expenses by affiliates for the six months ended November 30,
1994, the year ended May 31, 1994, and for the period ended May 31, 1993,
were 1.53%, 1.57% and 1.66%, respectively.
# Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method does not accord with results of
operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Arizona Municipals Fund Inc. (the "Fund"), formerly known as Smith
Barney Shearson Arizona Municipals Fund Inc., was incorporated 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 7, 1994, the Fund began offering Class C and Class Y
shares and continues to offer Class A and Class B shares. As of November 30,
1994, no Class C and Class Y shares have been sold. Class A shares are sold with
a front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge ("CDSC") upon redemption. Class B shares will
automatically convert to Class A shares eight years after the date of original
purchase. Class Y shares are available to investors making an initial investment
of at least $5 million. Class Y shares are not subject to an initial sales
charge, CDSC or any service or distribution fees. All classes of shares have
identical rights and privileges except with respect to the effect of the
respective sales charges, the distribution and/or service fees, if any, borne by
each class, expenses allocable exclusively 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 policies followed by the Fund in the preparation of its financial
statements.
PORTFOLIO VALUATION: Securities are valued by The Boston Company Advisors, Inc.
("Boston Advisors"), an indirect wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"), 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 general 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
available 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.
21
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Interest income is recorded on the accrual basis.
Realized 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. Securities purchased or
sold on a when-issued or delayed-delivery basis may be settled a month or more
after the trade date. Interest income is not accrued until settlement date.
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 Inc.
("Smith Barney") statement month. Distributions 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% nondeductible 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 offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gains. Income
distributions and capital gain distributions on a Fund level are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investment securities held by the
Fund, timing differences and differing characterization of distributions made by
the Fund as a whole.
FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a regulated
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 TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with a division of Mutual Management Corp., which has been
transferred effective November 7, 1994, to Smith Barney Mutual Funds
22
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Management Inc. ("SBMFM") (formerly known as Smith, Barney Advisers, Inc.).
Mutual Management Corp. and SBMFM are both wholly owned subsidiaries of Smith
Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The
Travelers Inc. Under the Advisory Agreement, the Fund pays a monthly fee at the
following annual rates: 0.35% of the value of the Fund's average daily net
assets up to $500 million and 0.32% of the value of the Fund's average daily net
assets in excess of $500 million.
The Fund has also entered into an administration agreement (the "Administration
Agreement") with SBMFM. Under the Administration Agreement, the Fund pays SBMFM
a monthly fee at the following annual rates: 0.20% of the value of the Fund's
average daily net assets up to $500 million and 0.18% of the value of the Fund's
average daily net assets in excess of $500 million.
The Fund and SBMFM have entered into a sub-administration agreement (the
"Sub-Administration Agreement") with Boston Advisors. Under the
Sub-Administration Agreement, SBMFM pays Boston Advisors a portion of its
administration fee at a rate agreed upon from time to time between SBMFM and
Boston Advisors.
From time to time, the investment adviser and administrator may voluntarily
waive a portion or all of the fees otherwise payable to the investment adviser
and administrator and reimburse expenses. For the six months ended November 30,
1994, SBMFM voluntarily waived fees of $21,050 and $36,837 for investment
advisory and administration fees, respectively.
For the six months ended November 30, 1994, Smith Barney received from investors
$118,282 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
0% of net asset value depending on the number of years since the date of
purchase. For the six months ended November 30, 1994, Smith Barney received from
shareholders $43,750 in CDSC on the redemption of Class B shares.
23
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
No officer, director or employee of Smith Barney or any of its affiliates
receives any compensation 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 or any of its 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 transfer agent.
3. DISTRIBUTION PLAN
Smith Barney 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 or
its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a services and
distribution plan (the "Plan"). Under this Plan, the Fund compensates Smith
Barney for servicing shareholder accounts for Class A, Class B and Class C
shareholders, and covers expenses incurred in distributing Class B and Class C
shares. Smith Barney is paid a service fee with respect to Class A, Class B and
Class C shares of the Fund at the annual rate of 0.15% of the value of the
average daily net assets of each respective class of shares. Smith Barney is
also paid a distribution fee with respect to Class B and Class C shares at the
annual rate of 0.50% and 0.55%, respectively, of the value of the average daily
net assets attributable to those shares. For the six months ended November 30,
1994, the Fund incurred $31,869 in service fees for Class A shares. During the
six months ended November 30, 1994, the Fund incurred $14,669 and $48,898 in
service fees and distribution 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
24
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
charged to that class' operations. In addition to the above servicing and
distribution fees, class specific operating expenses include transfer agent fees
of $5,612 and $4,177 for Class A and Class B shares, respectively.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, during the six months ended November 30, 1994, amounted
to $5,397,256 and $9,246,285, respectively.
At November 30, 1994, aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost amounted to $409,689, and
the aggregate unrealized depreciation for all securities in which there was an
excess of tax cost over value amounted to $5,253,761.
6. COMMON STOCK
At November 30, 1994, 500 million shares of $.001 par value common stock divided
into four classes (Class A, Class B, Class C and Class Y) were authorized.
Changes in common stock outstanding were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
11/30/94 5/31/94
CLASS A SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Sold 260,055 $ 2,531,402 714,159 $ 7,417,542
Issued as reinvestment of dividends 70,661 681,591 194,047 2,027,833
Redeemed (591,124) (5,738,535) (606,934) (6,364,343)
- -------------------------------------------------------------------------------------
Net increase/(decrease) (260,408) $(2,525,542) 301,272 $ 3,081,032
- -------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
11/30/94 5/31/94
CLASS B SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Sold 190,697 $ 1,844,984 1,228,851 $12,898,167
Issued as reinvestment of dividends 28,324 272,974 60,003 625,441
Redeemed (152,218) (1,472,602) (105,729) (1,065,944)
- -------------------------------------------------------------------------------------
Net increase 66,803 $ 645,356 1,183,125 $12,457,664
- -------------------------------------------------------------------------------------
</TABLE>
As of November 30, 1994, no Class C or Class Y shares had been sold.
25
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of Arizona
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 Bank of America (formerly Continental Bank N.A.) under an
Amended and Restated Line of Credit Agreement (the "Agreement") dated April 30,
1992 and renewed effective May 31, 1994, primarily for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. Under this Agreement 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 0.375% on an annualized basis. Under the terms of the
Agreement, as amended, the Fund and the other affiliated entities are charged an
aggregate commitment fee of $100,000 which is allocated equally among each of
the participants. The Agreement requires, among other provisions, each
participating fund to maintain a ratio of net assets (not including funds
borrowed pursuant to the Agreement) to aggregate amount of indebtedness pursuant
to the Agreement of no less than 5 to 1. At November 30, 1994, the Fund had no
outstanding borrowings under this Agreement. During the six months ended
November 30, 1994, the Fund had an average outstanding daily balance of $13,661
with interest rates ranging from 5.125% to 6.125%. Interest expense totalled
$548 for the six months ended November 30, 1994.
26
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ---------------------------------------------------------------------------
PARTICIPANTS
DISTRIBUTOR
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Smith Barney Mutual Funds
Management Inc.
388 Greenwich Street
New York, New York 10013
ADMINISTRATOR
Smith Barney Mutual Funds
Management Inc.
388 Greenwich Street
New York, New York 10013
SUB-ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
COUNSEL
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
27
<PAGE>
Smith Barney
Arizona Municipals Fund Inc.
- ---------------------------------------------------------------------------
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 appreciates in
price, there is a capital gain; if it depreciates, there is a capital loss. A
capital gain or loss is "realized" upon the sale of a security; if net capital
gains exceed net capital losses, there may be a capital 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 percentage of either the original purchase price or the
redemption proceeds. Most CDSCs decline over time, and some will not be charged
if shares are redeemed 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 shareholders. A
fund's distribution rate is usually expressed as an annualized percent of the
fund's offering price.
DIVIDEND This is income generated by securities in a portfolio and distributed
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 multiplied 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 payments of all portfolio expenses for the
most recent 30-day period. Mutual funds are required to use this figure when
stating yield.
TOTAL RETURN Total return measures a fund's performance, taking into account 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 developed by the
SEC. The SEC AVERAGE ANNUAL TOTAL RETURN calculation includes the effects of all
fees and sales charges and assumes the reinvestment of all dividends and capital
gains.
28
<PAGE>
ARIZONA
MUNICIPALS
FUND INC.
TRUSTEES
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
Cornelius C. Rose, Jr.
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
Stephen J. Treadway
PRESIDENT
Lawrence T. McDermott
VICE PRESIDENT AND
INVESTMENT OFFICER
Lewis E. Daidone
SENIOR VICE PRESIDENT
AND TREASURER
Christina T. Sydor
SECRETARY
[LOGO]
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF
SMITH BARNEY ARIZONA MUNICIPALS FUND INC. IT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE
PROSPECTUS FOR THE FUND, WHICH CONTAINS INFORMATION CONCERNING THE FUND'S
INVESTMENT POLICIES AND EXPENSES AS WELL AS OTHER PERTINENT INFORMATION.
SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
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Fund 115, 208, 477, 462
FD0300 A5
