<PAGE>
Smith Barney
Arizona
Municipal
Fund Inc.
- -------------------
SEMI-ANNUAL REPORT
- -------------------
November 30, 1999
[LOGO OF SMITH BARNEY]
NOT FDIC INSURED.NOT BANK GUARANTEED.MAY LOSE VALUE
<PAGE>
Smith Barney Arizona Municipals Fund Inc.
[PHOTO OF HEATH B. MCLENDON]
HEATH B. MCLENDON
Chairman
[PHOTO OF JOSEPH P. DEANE]
JOSEPH P. DEANE
Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Arizona
Municipals Fund Inc. ("Fund") for the period ended November 30, 1999. We hope
you find this report to be useful and informative. A detailed summary of the
Fund's performance as well as our investment strategy can be found in the
appropriate sections that follow.
Performance Update
For the six months ended November 30, 1999, the Class A shares of the Fund
posted a total return of a negative 3.26% without sales charges. In comparison,
the average return for Arizona tax-exempt funds was a negative 3.49% for the
same period according to Lipper Inc. (Lipper Inc. is a nationally recognized
organization that reports on mutual fund total return performance and calculates
fund rankings. Peer averages are based on universes of funds with similar
investment objectives. Peer group averages include reinvested dividends and
capital gains, if any, and exclude sales charges.) For performance information
on the Fund's other share classes, please refer to pages 5 and 6.
During the period covered by this report, the Fund distributed income dividends
totaling $0.24 and a capital gain distribution of $0.02 per Class A share.
(Please note that a portion of the income of this Fund may be subject to the
alternative maximum tax ("AMT").)
Market and Economic Overview
In our view, bond yields are high enough to adequately reflect the risk of
slightly higher inflation. Indeed, we think that bond yields may be near their
peak.
The period was marked by continued strong U.S. economic growth, historically low
inflation and low unemployment. Meanwhile, the Federal Reserve Board ("Fed")
reversed its three short-term interest rate movements, with 25-basis-
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Smith Barney Arizona Municipals Fund Inc. 1
<PAGE>
point (100 basis points are equal to one percent) increases implemented on June
30, August 24 and November 16, 1999, respectively. In our view, lackluster
performance in fixed-income markets has been a direct result of Fed monetary
policy actions. While presumably aimed at stock market exuberance, it is the
bond market that has taken the brunt of any correction due to fears of further
Fed interest rate increases. The current lack of inflationary evidence defies a
historically tight labor market and reinforces the influence of technology and
the power of global pricing constraints.
The latest rate hikes by the Fed resolve a major uncertainty that has been
weighing on the bond market. The policy statement that accompanied the move
indicated that the Fed is likely to keep monetary policy steady for now. In the
meantime, with the prospects of immediate Fed action not looming, investors can
focus on the bond market's fundamentals. And we think that its fundamentals are
positive.
In particular, new bond issuance should be light in the coming weeks, especially
from the U.S. Treasury, and inflation should probably remain calm, despite the
recent jump in oil prices. The recent upturn in yields is being fueled by
worries about the latest rise in oil prices and the growing expectation that the
Fed will tighten monetary policy again in 2000. We think that such a move would
not be detrimental to the bond market, particularly as the U.S. Treasury
continues to pay down debt and inflation remains tame.
Given the higher yields and tighter conditions that already prevail in many
sectors of the fixed-income market, the Fed's recent actions may be sufficient
to slow the economy without triggering higher inflation. The good news is that
the economy's so far "soft landing" is likely to be at a higher annual growth
rate than was previously thought possible due to the possible emergence of a New
Economy where technological advances can spur growth without inflationary
pressures.
Arizona Economic Highlights
Arizona's economy remains healthy and ranks among the nation's top five in terms
of fastest job growth. Employment and other key economic indicators are
consistent with continued, albeit slower growth. Arizona's unemployment rate is
among the lowest in the U.S. In addition, state and local taxes are 11% below
the national per-capita average, while property taxes are 10% below the national
average.
Arizona exports topped $5.7 billion for the first six months of 1999, down 0.4%
compared to the first six months of 1998. The average percentage change for all
states was a decrease of 1.62%. Despite the slight decline, the figures indicate
that the state's recovery from the slump caused primarily by the Asian crisis.
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2 1999 Semi-Annual Report to Shareholders
<PAGE>
Exports to Japan increased 68.8% compared to the previous year. Mexico remains
Arizona's leading trade partner. Arizona continues to rank third in the nation
in exports of semiconductor devices and integrated circuits, surpassed only by
California and Texas.
Arizona scores high marks in the New Economy, one marked by a shift to
innovation and technology as opposed to mass production manufacturing. High
technology companies continue to expand their presence in the state, which has
helped to further diversify Arizona's economy.
Investment Strategy
The Fund seeks to provide Arizona investors with the maximum amount of income
exempt from Federal and Arizona state income taxes as is consistent with the
preservation of capital. The Fund invests primarily in investment-grade
municipal securities.
Over the period covered by this report, the Fund continued to focus on
high-quality issues and remained broadly diversified across various sectors. As
of November 30, 1999, 90.0% of the Fund's holdings were rated investment grade.
In addition, 55.4% of the Fund's portfolio was invested in AAA-rated bonds, the
highest rating. At the end of the reporting period, the Fund's average weighted
maturity was roughly 19.8 years. As of November 30, 1999, the Fund's largest
holdings are concentrated in general obligation bonds (23.0%), hospital bonds
(17.1%) and multi-family housing bonds (15.0%).
Our strategy going forward is three-fold. We are lengthening maturities in the
portfolio to take advantage of the inexpensive valuations of municipal bonds
relative to U.S. Treasuries. Also, we are focusing on investing in very high
grade issues, and we are investing in discount paper for the first time since
the fall of 1998, as this is where we believe we can obtain the best value.
Our goal in the Fund is to sell off some of our intermediate-term maturities
that were defensive and stretch out longer on the yield curve to lock in today's
higher rates. (The yield curve is the graphical depiction of the relationship
between the yield on bonds of the same credit quality but different maturities.)
Municipal Bond Market Outlook
The yield on the 30-year Treasury bond has stayed within a narrow 40 basis point
trading range since the beginning of June, currently trading just above 6%,
while select long-term municipal bonds are yielding approximately 95%-100% of
long-term U.S. Treasury bonds. Under typical market conditions, municipal bonds
yield roughly 85% of similar-maturity U.S. Treasury bonds.
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Smith Barney Arizona Municipals Fund Inc. 3
<PAGE>
We do not expect long-term rates to move appreciably higher. Municipal bond
yields have moved up relative to U.S. Treasury yields because institutional
demand has virtually disappeared. With long-term municipal yields close to 6%
and the yield curve steep, extending maturity may be a prudent strategy.
The municipal bond market is providing some intriguing opportunities as a result
of reticent dealers and year-end tax swapping. In our opinion, investors who
have been waiting on the sidelines out of fears related to Y2K should move some
cash into these sectors now. We have also observed an increased dominance of
retail investors in the municipal bond market.
In our judgement, a number of factors bode well for the municipal market. Yields
are at their highest levels since early 1999, new issue supply is likely to be
modest in the period ahead, and recent narrowing of spreads in the taxable
market has made alternatives less attractive. We remain optimistic about the
prospects for the municipal market as a whole.
In closing, thank you for your investment in the Smith Barney Arizona Municipals
Fund Inc. We look forward to helping you achieve your investment goals.
Sincerely,
/s/ Heath B. McLendon /s/ Joseph P. Deane
Heath B. McLendon Joseph P. Deane
Chairman Vice President and
Investment Officer
December 13, 1999
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4 1999 Semi-Annual Report to Shareholders
<PAGE>
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Historical Performance -- Class A Shares
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Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Capital Returns(1)
================================================================================
11/30/99 $10.31 $ 9.72 $0.24 $0.02 $0.00 (3.26)%+
- --------------------------------------------------------------------------------
5/31/99 10.54 10.31 0.49 0.13 0.00 3.79
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5/31/98 10.21 10.54 0.52 0.05 0.00 9.00
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5/31/97 9.95 10.21 0.53 0.00 0.00 8.06
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5/31/96 10.09 9.95 0.52 0.00 0.00 3.82
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5/31/95 9.82 10.09 0.54 0.06 0.00 9.38
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5/31/94 10.40 9.82 0.53 0.21 0.00 1.33
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5/31/93 9.84 10.40 0.57 0.08 0.02 12.92
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5/31/92 9.63 9.84 0.60 0.06 0.04 9.86
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5/31/91 9.49 9.63 0.68 0.00 0.00 8.92
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5/31/90 9.66 9.49 0.71 0.05 0.00 6.31
================================================================================
Total $5.93 $0.66 $0.06
================================================================================
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Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Capital Returns(1)
================================================================================
11/30/99 $10.30 $ 9.71 $0.21 $0.02 $0.00 (3.53)%+
- --------------------------------------------------------------------------------
5/31/99 10.54 10.30 0.44 0.13 0.00 3.15
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5/31/98 10.21 10.54 0.47 0.05 0.00 8.46
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5/31/97 9.95 10.21 0.48 0.00 0.00 7.53
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5/31/96 10.09 9.95 0.47 0.00 0.00 3.30
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5/31/95 9.82 10.09 0.49 0.06 0.00 8.78
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5/31/94 10.40 9.82 0.49 0.21 0.00 0.84
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Inception*-
5/31/93 9.97 10.40 0.29 0.08 0.01 8.31+
================================================================================
Total $3.34 $0.55 $0.01
================================================================================
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Smith Barney Arizona Municipals Fund Inc. 5
<PAGE>
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Historical Performance -- Class L Shares
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Net Asset Value
--------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Capital Returns(1)
================================================================================
11/30/99 $10.30 $ 9.71 $0.21 $0.02 $0.00 (3.55)%+
- --------------------------------------------------------------------------------
5/31/99 10.53 10.30 0.43 0.13 0.00 3.21
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5/31/98 10.21 10.53 0.47 0.05 0.00 8.30
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5/31/97 9.95 10.21 0.47 0.00 0.00 7.49
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5/31/96 10.09 9.95 0.47 0.00 0.00 3.26
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Inception*-5/31/95 9.28 10.09 0.23 0.06 0.00 12.10+
================================================================================
Total $2.28 $0.26 $0.00
================================================================================
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
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Average Annual Total Returns
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Without Sales Charges(1)
--------------------------
Class A Class B Class L
================================================================================
Six Months Ended 11/30/99+ (3.26)% (3.53)% (3.55)%
- --------------------------------------------------------------------------------
Year Ended 11/30/99 (2.77) (3.31) (3.35)
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Five Years Ended 11/30/99 6.92 6.35 N/A
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Ten Years Ended 11/30/99 6.50 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 11/30/99 6.71 5.13 6.07
================================================================================
With Sales Charges(2)
---------------------------
Class A Class B Class L
================================================================================
Six Months Ended 11/30/99+ (7.13)% (7.78)% (5.41)%
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Year Ended 11/30/99 (6.68) (7.48) (5.27)
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Five Years Ended 11/30/99 6.05 6.19 N/A
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Ten Years Ended 11/30/99 6.07 N/A N/A
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Inception* through 11/30/99 6.37 5.13 5.87
================================================================================
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6 1999 Semi-Annual Report to Shareholders
<PAGE>
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Cumulative Total Returns
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Without Sales Charges(1)
================================================================================
Class A (11/30/89 through 11/30/99) 87.63%
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Class B (Inception* through 11/30/99) 42.41
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Class L (Inception* through 11/30/99) 34.13
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividends and capital gains distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 4.00% and 1.00%,
respectively. Class B shares reflect the deduction of a 4.50% CDSC, which
applies if shares are redeemed within one year from purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00% per
year until no CDSC is incurred. Class L shares also reflect the deduction
of a 1.00% CDSC, which applies if shares are redeemed within one year from
purchase.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B and L shares are June 1, 1987, November 6,
1992 and December 8, 1994, respectively.
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Smith Barney Arizona Municipals Fund Inc. 7
<PAGE>
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Historical Performance (unaudited)
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Growth of $10,000 Invested in Class A Shares of
Smith Barney Arizona Municipals Fund Inc. vs.
the Lehman Brothers Municipal Bond Index and
Lipper Arizona Municipal Fund Average+
- --------------------------------------------------------------------------------
November 1989 -- November 1999
Smith Barney Lehman Brothers Lipper Arizona
Arizona Municipals Municipal Bond Municipal Fund
Fund Inc. Index Average
------------------ --------------- --------------
Nov-89 9,604 10,000 10,000
May-90 9,800 10,273 10,222
May-91 10,674 11,309 11,094
May-92 11,726 12,419 12,208
May-93 13,241 13,905 13,739
May-94 13,417 14,249 13,959
May-95 14,675 15,547 15,216
May-96 15,235 16,258 15,754
May-97 16,463 17,604 16,980
May-98 17,945 19,256 18,462
May-99 18,626 20,157 19,132
Nov-99 18,020 19,942 18,464
+ Hypothetical illustration of $10,000 invested in Class A shares on November
30, 1989, assuming deduction of the maximum 4.00% sales charge at the time of
investment and reinvestment of dividends and capital gains, if any, at net
asset value through November 30, 1999. The Lehman Brothers Municipal Bond
Index is a broad based, total return index comprised of investment grade,
fixed rate municipal bonds selected from issues larger than $50 million
issued since January 1991. The Lipper Arizona Municipal Fund Average is
composed of the Fund's peer group of mutual funds (39 funds as of November
30, 1999). The index is unmanaged and is not subject to the same management
and trading expenses as a mutual fund. The performance of the Fund's other
classes may be greater or less than the Class A shares' performance indicated
on this chart, depending on whether greater or lesser sales charges and fees
were incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
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8 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Highlights (unaudited) November 30, 1999
- --------------------------------------------------------------------------------
Industry Breakdown
[CHART]
Housing: Multi-Family 15.0% Housing: Single-Family 3.0%
Industrial Development 4.9% Hospitals 17.1%
Life Care Systems 3.7% Escrowed to Maturity 1.4%
Miscellaneous 9.1% Pre-Refunded 1.2%
Pollution Control 4.4% General Obligations 23.0%
Transportation 4.3% Water and Sewer 9.4%
Utility 3.5%
Summary of Investments by Combined Ratings
Standard & Percentage of
Moody's and/or Poor's Total Investments
- --------------------------------------------------------------------------------
Aaa AAA 55.4%
Aa AA 20.1
A A 8.5
Baa BBB 6.0
B B 1.5
NR NR 8.5
------
100.0%
======
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Smith Barney Arizona Municipals Fund Inc. 9
<PAGE>
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Schedule of Investments (unaudited) November 30, 1999
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<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
==================================================================================================
<C> <C> <S> <C>
Escrowed to Maturity -- 1.4%
$ 250,000 AAA Arizona State Municipal Financing Program, COP,
Series 20, BIG-Insured, (Escrowed to maturity
with U.S. government securities), 7.625% due 8/1/06 $ 276,562
500,000 AAA Maricopa County IDA, Hospital Revenue, Series A,
Samaritan Health Services, MBIA-Insured,
7.000% due 12/1/16 576,250
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852,812
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General Obligation -- 23.0%
Maricopa County Elementary School District 68:
1,000,000 AAA Alhambra Refunding and Improvement Project,
AMBAC-Insured, (Partially Pre-Refunded -- Escrowed
with U.S. government securities to 7/1/03 Call @ 102),
5.625% due 7/1/13 1,010,000
635,000 AAA School District No. 80, Chandler Unified School District,
FGIC-Insured, (Un-Refunded Balance),
5.800% due 7/1/12 654,050
Maricopa County GO:
Elementary School District No. 8, Osborne Elementary
School District:
1,000,000 A1* 7.500% due 7/1/09 1,178,750
600,000 AAA FGIC-Insured, (Partially Pre-Refunded --
Escrowed with U.S. government securities to
7/1/06 Call @ 101), 5.875% due 7/1/14 618,000
650,000 AAA Elementary School District No. 14, (Creighton School
Improvement Project 1990), Series C, FGIC-Insured,
(Partially escrowed to maturity with U.S. government
securities), 6.500% due 7/1/08 715,812
1,000,000 AAA Elementary School District No. 40, (Glendale School
Improvement), AMBAC-Insured, 6.300% due 7/1/11 1,062,500
Unified School District No. 11, Peoria Unified School
District, MBIA-Insured, (Un-Refunded Balance):
635,000 AAA 6.400% due 7/1/10 656,431
500,000 AAA 7.000% due 7/1/10 521,250
Maricopa County Unified High School District No. 210, GO,
(Phoenix Project of 1995):
1,000,000 AA Series B, (Partially Pre-Refunded -- Escrowed with
U.S. government securities to 7/1/06 Call @ 101),
5.375% due 7/1/13 (b) 1,041,250
370,000 AAA Union High School District No. 216, FGIC-Insured,
(Un-Refunded Balance), 6.700% due 7/1/11 378,521
1,250,000 AA+ Phoenix Civic Improvement Corp., (New City Hall Project),
5.100% due 7/1/28 1,101,562
Phoenix GO:
1,100,000 AA+ 4.750% due 7/1/19 951,500
1,400,000 AA+ Refunding, Series A, 6.250% due 7/1/17 1,491,000
400,000 A Phoenix Special Assignment, Central Avenue Improvement
District, 7.000% due 1/1/06 402,884
</TABLE>
See Notes to Financial Statements.
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10 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
==================================================================================================
<C> <C> <S> <C>
General Obligation -- 23.0% (continued)
$ 1,000,000 AAA Pima County GO, Unified School District No. 1, Tucson,
FGIC-Insured, 7.500% due 7/1/10 $ 1,187,500
500,000 AAA Pinal County Unified School District No. 43, GO, Apache
Junction, Series A, FGIC-Insured, 5.850% due 7/1/15 507,500
500,000 A Scottsdale Mountain Communication Facilities District, GO,
District No. 3, Series A, 6.200% due 7/1/17 504,375
285,000 AAA Tempe Union High School District No. 213, GO, FGIC-Insured,
(Un-Refunded Balance), 6.000% due 7/1/10 297,112
- --------------------------------------------------------------------------------------------------
14,279,997
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Hospitals -- 17.1%
1,500,000 A2* Arizona Health Facilities Authority, Hospital Systems
Revenue, Phoenix Childrens Hospital, Series A,
6.125% due 11/15/22 1,462,500
Maricopa County Hospital Revenue, Sun Health Corp.:
1,500,000 Baa1* 5.900% due 4/1/09 1,507,500
1,000,000 Baa1* 6.125% due 4/1/18 976,250
2,000,000 AA+ Maricopa County IDA, Hospital Revenue, Mayo Clinic,
5.250% due 11/15/37 1,752,500
3,000,000 AAA Mesa, AZ IDA, Discovery Health Systems, Series A,
MBIA-Insured, 5.625% due 1/1/29 2,853,750
1,000,000 AAA Mohave County IDA, Hospital Systems Revenue, Baptist
Hospital, MBIA-Insured, 5.700% due 9/1/15 1,006,250
1,070,000 AAA Phoenix IDA, Hospital Revenue, John C. Lincoln Hospital,
FSA-Insured, 5.400% due 12/1/10 1,090,062
- --------------------------------------------------------------------------------------------------
10,648,812
- --------------------------------------------------------------------------------------------------
Housing: Multi-Family -- 15.0%
Maricopa County IDA, Multi-Family Housing Revenue:
Metro Gardens-Mesa Ridge Project, Series A,
MBIA-Insured:
500,000 AAA 5.650% due 7/1/19 486,250
1,750,000 AAA 5.150% due 7/1/29 1,546,563
1,785,000 AAA Mortgage Loan, Series A, FHA-Insured,
5.900% due 7/1/24 1,789,463
2,125,000 NR Stanford Court Apartments, Series B,
6.250% due 7/1/18 2,000,156
Phoenix IDA:
650,000 AAA Mortgage Revenue, (Chris Ridge Village Project),
FHA-Insured, 6.750% due 11/1/12 676,813
Multi-Family Housing Revenue:
Ventana Palms Apartments Project, Series A,
MBIA-Insured:
150,000 Aaa* 6.100% due 10/1/19 150,563
950,000 Aaa* 6.150% due 10/1/29 950,000
1,000,000 AA Woodstone & Silver Springs, 6.250% due 4/1/23 1,021,250
</TABLE>
See Notes to Financial Statements.
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Smith Barney Arizona Municipals Fund Inc. 11
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
==================================================================================================
<C> <C> <S> <C>
Housing: Multi-Family -- 15.0% (continued)
$ 460,000 AA Pima County IDA, Multi-Family Housing Revenue,
Rancho Mirage Project, 7.050% due 4/1/22 (c) $ 472,650
235,000 AAA Sierra Vista IDA, Multi-Family Housing, (Mountain Steppes
Apartment Project), FNMA-Collateralized,
7.125% due 12/1/10 230,081
- --------------------------------------------------------------------------------------------------
9,323,789
- --------------------------------------------------------------------------------------------------
Housing: Single Family -- 3.0%
325,000 AAA Phoenix IDA, Single-Family Mortgage Revenue,
GNMA/FNMA/FHLMC-Collateralized,
6.300% due 12/1/12 (c) 333,531
Pima County IDA:
880,000 AAA Single-Family Mortgage Revenue, GNMA-Collateralized,
6.750% due 11/1/27 (c) 903,100
640,000 AAA Single-Family Mortgage Revenue, Series A, GNMA/FNMA/
FHLMC-Collateralized, 6.250% due 11/1/30 (c) 645,600
- --------------------------------------------------------------------------------------------------
1,882,231
- --------------------------------------------------------------------------------------------------
Industrial Development -- 4.9%
750,000 NR Navajo County IDA, IDR, (Stone Container Corp.
Project), 7.400% due 4/1/26 (c) 763,125
Pima County IDA, Industrial Revenue Refunding:
715,000 AAA FSA-Insured, 7.250% due 7/15/10 772,200
1,000,000 B Tucson Electric Power Co. Project, Series B,
6.000% due 9/1/29 902,500
Tempe IDA, IDR, Friendship Village Refunding, Series A:
350,000 NR 6.200% due 12/1/03 350,431
250,000 NR 6.250% due 12/1/04 250,190
- --------------------------------------------------------------------------------------------------
3,038,446
- --------------------------------------------------------------------------------------------------
Life Care Systems -- 3.7%
1,000,000 NR Flagstaff IDA, Living Community Revenue, (Northern
Community Project), 6.200% due 9/1/28 930,000
1,355,000 AAA Phoenix IDA, Christian Care, Series A, FHA/MBIA-Insured,
6.000% due 7/1/20 1,366,856
- --------------------------------------------------------------------------------------------------
2,296,856
- --------------------------------------------------------------------------------------------------
Miscellaneous -- 9.1%
520,000 AAA Arizona State COP, Series B, AMBAC-Insured,
6.250% due 9/1/10 552,500
750,000 Aa* Arizona Student Loan Revenue Acquisition Authority,
Series B, 6.600% due 5/1/10 (c) 780,938
500,000 AAA Casa Grande Excise Tax Revenue, FGIC-Insured,
6.200% due 4/1/15 518,125
1,000,000 AA+ Phoenix, AZ Civic Improvement Corp., Excise Tax Revenue,
Sr. Lien, (Municipal Courthouse Project), Series A,
5.250% due 7/1/24 912,500
</TABLE>
See Notes to Financial Statements.
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12 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
==================================================================================================
<C> <C> <S> <C>
Miscellaneous -- 9.1% (continued)
Sierra Vista Municipal Property Corp., AMBAC-Insured:
$ 355,000 AAA 6.000% due 1/1/11 $ 373,194
500,000 AAA 6.150% due 1/1/15 520,000
1,000,000 AA Tucson COP, 6.375% due 7/1/09 1,043,750
890,000 AAA Tucson Local Development Finance Corp., Lease Revenue,
FGIC-Insured, (Un-Refunded Balance), 6.250% due 7/1/12 937,838
- --------------------------------------------------------------------------------------------------
5,638,845
- --------------------------------------------------------------------------------------------------
Pollution Control -- 4.4%
Coconino County Pollution Control Corp. Revenue Refunding:
1,000,000 A- Arizona Public Service Co., Series A, 5.875% due 8/15/28 946,250
1,000,000 BBB- Nevada Power Co. Project, 6.375% due 10/1/36 (c) 976,250
850,000 A- Navajo County PCR, Arizona Public Service Co., Series A,
5.875% due 8/15/28 809,625
- --------------------------------------------------------------------------------------------------
2,732,125
- --------------------------------------------------------------------------------------------------
Pre-Refunded -- 1.2%
715,000 AAA Tempe Union High School District No. 213, GO,
FGIC-Insured, (Pre-Refunded -- Escrowed with state
and local government securities to 7/1/04 Call @ 101),
6.000% due 7/1/10 762,369
- --------------------------------------------------------------------------------------------------
Transportation -- 4.3%
3,000,000 AAA Phoenix Civic Improvement Corp., (Airport Revenue), Sr. Lien,
FSA-Insured, Series A, 5.000% due 7/1/25 2,643,750
- --------------------------------------------------------------------------------------------------
Utility -- 3.5%
1,000,000 AA+ Mohave County IDA, IDR, (Citizens Utility Project),
Series B, 7.050% due 8/1/20 1,024,130
250,000 BBB- Prescott Valley Improvement District, Special Assessment,
Sewer Collection System, Roadway Repair,
7.900% due 1/1/12 274,062
1,000,000 AA- Yavapai County IDA, IDR, (Citizens Utilities Co. Project),
5.450% due 6/1/33 (c) 887,500
- --------------------------------------------------------------------------------------------------
2,185,692
- --------------------------------------------------------------------------------------------------
Water & Sewer -- 9.4%
1,000,000 AAA Chandler Water & Sewer Revenue Refunding, FGIC-Insured,
6.250% due 7/1/13 1,046,250
1,000,000 NR Gilbert Water Reserve Municipal Property Corp., Water &
Wastewater Systems Revenue, Sub. Lien, Connection
Development Fee, 6.875% due 4/1/16 1,013,750
1,000,000 AAA Maricopa County IDA, Water System Revenue,
Chaparral Water Co. Improvement , Series A,
AMBAC-Insured, 5.400% due 12/1/22 (c) 928,750
1,000,000 Aaa* Pima County Metropolitan Domestic Water Improvement
District, FGIC-Insured, 4.875% due 1/1/19 878,750
1,700,000 AAA Prescott Valley Water District Revenue, MBIA-Insured,
4.875% due 1/1/19 1,493,875
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Arizona Municipals Fund Inc. 13
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) November 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
==================================================================================================
<C> <C> <S> <C>
Water & Sewer -- 9.4% (continued)
Sedona Wastewater Municipal Property Corp. Excise
Tax Revenue, Capital Appreciation, MBIA-Insured:
$ 1,000,000 AAA Zero coupon due 7/1/23 $ 247,500
1,000,000 AAA Zero coupon due 7/1/24 233,750
- --------------------------------------------------------------------------------------------------
5,842,625
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $63,135,952**) $62,128,349
==================================================================================================
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service, except that those
which are identified by an asterisk (*) are rated by Moody's Investors
Service, Inc.
(b) Pre-Refunded bonds escrowed with U.S. government securities and bonds
escrowed to maturity with U.S. government securities are considered by the
investment adviser to be triple-A rated even if issuer has not applied for
new ratings.
(c) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 15 and 16 for definitions of ratings and certain security
descriptions.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited)
- --------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"B" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differs from the highest rated issue only in a
small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
B -- Bonds rated "B" have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal payments.
Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal.
The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB-" rating.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3
may be applied to each generic rating from "Aa" to "Baa," where 1 is the highest
and 3 the lowest ranking within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large in Aaa securities or
fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Fitch IBCA, Inc. ("Fitch") -- Ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standings within the major rating
categories.
A -- Bonds which are rated "A" are considered to be investment grade and
of high credit quality. The obligor's ability to pay interest and/or
dividends and repay principal is considered to be strong, but may be
more vulnerable to adverse changes in economic conditions and
circumstances than securities with higher ratings.
- --------------------------------------------------------------------------------
Smith Barney Arizona Municipals Fund Inc. 15
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited) (continued)
- --------------------------------------------------------------------------------
BBB -- Bonds which are rated "BBB" are considered to be investment grade and
of satisfactory credit quality. The obligor's ability to pay interest
or dividends and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these securities and,
therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for
securities with higher ratings.
NR -- Indicates that the bond is not rated by Standard & Poor's, Moody's or
Fitch.
- --------------------------------------------------------------------------------
Short-Term Security Ratings (unaudited)
- --------------------------------------------------------------------------------
SP-1 -- Standard & Poor's highest rating indicating very strong capacity to
pay principal and interest; those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong; those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to the
advent of the VMIG 1 rating.
- --------------------------------------------------------------------------------
Security Descriptions (unaudited)
- --------------------------------------------------------------------------------
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance
CHFCLI -- California Health Facility Construction Loan Insurance
CONNIE
LEE -- College Construction Loan Insurance Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FLAIRS -- Floating Adjustable Interest Rate Securities
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Financial Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters Company
ISD -- Independent School District
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PCR -- Pollution Control Revenue
PSF -- Permanent School Fund
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax-Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
- --------------------------------------------------------------------------------
16 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) November 30, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $63,135,952) $ 62,128,349
Interest receivable 1,277,074
Receivable for Fund shares sold 7,642
Receivable for securities sold 10,000
- --------------------------------------------------------------------------------
Total Assets 63,423,065
- --------------------------------------------------------------------------------
LIABILITIES:
Payable to bank 2,239,165
Payable for Fund shares reacquired 1,111,263
Investment advisory fees payable 16,897
Administration fees payable 11,265
Distribution fees payable 4,054
Accrued expenses 25,002
- --------------------------------------------------------------------------------
Total Liabilities 3,407,646
- --------------------------------------------------------------------------------
Total Net Assets $ 60,015,419
================================================================================
NET ASSETS:
Par value of capital shares $ 6,177
Capital paid in excess of par value 61,514,118
Overdistributed net investment income (32,047)
Accumulated net realized loss from security transactions (465,226)
Net unrealized depreciation of investments (1,007,603)
- --------------------------------------------------------------------------------
Total Net Assets $ 60,015,419
================================================================================
Shares Outstanding:
Class A 4,257,237
------------------------------------------------------------------------------
Class B 1,794,664
------------------------------------------------------------------------------
Class L 125,212
------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 9.72
------------------------------------------------------------------------------
Class B * $ 9.71
------------------------------------------------------------------------------
Class L ** $ 9.71
------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.17% of net asset value
per share) $ 10.13
- --------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value
per share) $ 9.81
================================================================================
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed within one year from purchase (See Note 4).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Arizona Municipals Fund Inc. 17
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended November 30, 1999
INVESTMENT INCOME:
Interest $ 1,888,145
- --------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 4) 99,620
Investment advisory fees (Note 4) 97,968
Administration fees (Note 4) 65,312
Shareholder and system servicing fees 16,341
Registration fees 12,776
Audit and legal 12,320
Directors' fees 6,506
Pricing service fees 4,838
Shareholder communications 2,123
Custody 1,487
Other 2,753
- --------------------------------------------------------------------------------
Total Expenses 322,044
- --------------------------------------------------------------------------------
Net Investment Income 1,566,101
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (NOTE 5):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 9,203,598
Cost of securities sold 9,668,806
- --------------------------------------------------------------------------------
Net Realized Loss (465,208)
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of period 2,322,871
End of period (1,007,603)
- --------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (3,330,474)
- --------------------------------------------------------------------------------
Net Loss on Investments (3,795,682)
- --------------------------------------------------------------------------------
Decrease in Net Assets From Operations $(2,229,581)
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
18 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended November 30, 1999 (unaudited)
and the Year Ended May 31, 1999
November 30 May 31
================================================================================
OPERATIONS:
Net investment income $ 1,566,101 $ 3,062,176
Net realized gain (loss) (465,208) 541,999
Increase in net unrealized depreciation (3,330,474) (1,166,957)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (2,229,581) 2,437,218
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,481,982) (3,111,183)
Net realized gains (104,325) (875,676)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,586,307) (3,986,859)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 4,133,996 9,529,906
Net asset value of shares issued for
reinvestment of dividends 860,607 2,340,052
Cost of shares reacquired (8,160,204) (10,102,134)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions (3,165,601) 1,767,824
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (6,981,489) 218,183
NET ASSETS:
Beginning of period 66,996,908 66,778,725
- --------------------------------------------------------------------------------
End of period * $ 60,015,419 $ 66,996,908
================================================================================
* Includes overdistributed net investment income of:$ (32,047) $ (116,166)
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Arizona Municipals Fund Inc. 19
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Smith Barney Arizona Municipals Fund Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities are valued
at the mean between the quoted bid and ask prices provided by an independent
pricing service; (c) securities maturing within 60 days are valued at cost plus
accreted discount or minus amortized premium, which approximates value; (d)
gains or losses on the sale of securities are calculated by using the specific
identification method; (e) interest income, adjusted for amortization of premium
and accretion of original issue discount, is recorded on an accrual basis;
market discount is recognized upon the disposition of the security; (f)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (g) direct expenses are charged to each class; management fees and general
fund expenses are allocated on the basis of relative net assets; (h) the Fund
intends to comply with the applicable provisions of the Internal Revenue Code of
1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; (i) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At May 31, 1999,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change; and (j) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. Fund Concentration
Since the Fund invests primarily in obligations of issuers within Arizona, it is
subject to possible concentration risks associated with economic, political or
legal developments or industrial or regional matters specifically affecting
Arizona.
- --------------------------------------------------------------------------------
20 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
3. Exempt-Interest Dividends and Other Distributions
The Fund intends to satisfy conditions that will enable interest from municipal
securities, which is exempt from regular Federal income tax and from designated
state income taxes, to retain such tax-exempt status when distributed to the
shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
4. Investment Advisory Agreement, Administration Agreement and Affiliated
Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in
turn, is a subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Fund. The Fund pays SSBC an investment advisory fee calculated at
an annual rate of 0.30% of average daily net assets. This fee is calculated
daily and paid monthly.
SSBC also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets up to $500
million and 0.18% of the average daily net assets in excess of $500 million.
This fee is calculated daily and paid monthly.
Smith Barney Private Trust Company, another subsidiary of Citigroup, acts as the
Fund's shareholder servicing agent.
CFBDS, Inc. acts as the Fund's distributor. Salomon Smith Barney Inc. ("SSB"),
another subsidiary of SSBH, as well as certain other broker-dealers, continues
to sell Fund shares to the public as a member of the selling group.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B shares,
which applies if redemption occurs within one year from initial purchase. This
CDSC declines by 0.50% the first year after purchase and thereafter by 1.00% per
year until no CDSC is incurred. Class L shares also have a 1.00% CDSC, which
applies if redemption occurs within the first year of purchase.
- --------------------------------------------------------------------------------
Smith Barney Arizona Municipals Fund Inc. 21
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
For the six months ended November 30, 1999, CFBDS and SSB received sales charges
of $36,000 and $2,000 on sales of the Fund's Class A and Class L shares,
respectively. In addition, CDSCs paid to CFBDS for Class B and L shares were
approximately $12,000 and $2,000, respectively.
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to its
Class A, B and L shares calculated at an annual rate of 0.15% of the average
daily net assets for each class. In addition, the Fund pays a distribution fee
with respect to its Class B and L shares calculated at an annual rate of 0.50%
and 0.55%, respectively, of the average daily net assets for each class. For the
six months ended November 30, 1999, total Distribution Plan fees were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $33,914 $60,065 $5,641
================================================================================
All officers and one Director of the Fund are employees of SSB.
5. Investments
During the six months ended November 30, 1999, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $9,330,140
- --------------------------------------------------------------------------------
Sales 9,203,598
================================================================================
At November 30, 1999, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 1,197,312
Gross unrealized depreciation (2,204,915)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(1,007,603)
================================================================================
6. Capital Shares
At November 30, 1999, the Fund had 500 million shares of capital stock
authorized with a par value of $0.001 per share. The Fund has the ability to
issue multiple classes of shares. Each share of a class represents an identical
interest and has the same rights, except that each class bears certain direct
expenses, specifically related to the distribution of its shares.
- --------------------------------------------------------------------------------
22 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
At November 30, 1999, total paid-in capital amounted to the following for each
class:
Class A Class B Class L
================================================================================
Total Paid-in Capital $41,560,897 $18,655,796 $1,303,602
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1999 May 31, 1999
----------------------- -----------------------
Shares Amount Shares Amount
=========================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 280,502 $ 2,797,897 565,684 $ 5,979,130
Shares issued on reinvestment 62,169 615,971 159,517 1,675,545
Shares reacquired (574,431) (5,681,305) (617,474) (6,479,448)
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) (231,760) $(2,267,437) 107,727 $ 1,175,227
=========================================================================================
Class B
Shares sold 100,690 $ 1,000,315 255,767 $ 2,691,766
Shares issued on reinvestment 22,328 221,014 58,850 617,705
Shares reacquired (178,753) (1,778,599) (335,973) (3,529,430)
- -----------------------------------------------------------------------------------------
Net Decrease (55,735) $ (557,270) (21,356) $ (219,959)
=========================================================================================
Class L*
Shares sold 33,306 $ 335,784 81,638 $ 859,010
Shares issued on reinvestment 2,382 23,622 4,462 46,802
Shares reacquired (70,820) (700,300) (8,855) (93,256)
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) (35,132) $ (340,894) 77,245 $ 812,556
=========================================================================================
</TABLE>
* On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
Smith Barney Arizona Municipals Fund Inc. 23
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended May 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 1999(1)(2) 1999(2) 1998 1997 1996 1995
=====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.31 $ 10.54 $ 10.21 $ 9.95 $ 10.09 $ 9.82
- -----------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income(3) 0.26 0.49 0.50 0.53 0.53 0.54
Net realized and
unrealized gain (loss) (0.59) (0.10) 0.40 0.26 (0.15) 0.33
- -----------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.33) 0.39 0.90 0.79 0.38 0.87
- -----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.24) (0.49) (0.52) (0.53) (0.52) (0.54)
Net realized gains (0.02) (0.13) (0.05) -- -- (0.06)
- -----------------------------------------------------------------------------------------------------
Total Distributions (0.26) (0.62) (0.57) (0.53) (0.52) (0.60)
- -----------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 9.72 $ 10.31 $ 10.54 $ 10.21 $ 9.95 $ 10.09
- -----------------------------------------------------------------------------------------------------
Total Return (3.26)%++ 3.79% 9.00% 8.06% 3.82% 9.38%
- -----------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $ 41,366 $ 46,279 $ 46,183 $ 37,304 $ 41,917 $ 43,222
- -----------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses(3) 0.84%+ 0.88% 0.85% 0.88% 0.82% 0.82%
Net investment income 5.03+ 4.64 4.87 5.17 5.20 5.37
- -----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 14% 41% 42% 27% 22% 21%
=====================================================================================================
</TABLE>
(1) For the six months ended November 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) The investment adviser waived all or part of its fees for each of the two
years ended May 31, 1996. If such fees were not waived, the per share effect
on net investment income and the expense ratios would have been as follows:
Per Share Decreases Expense Ratios
to Net Investment Income Without Fee Waiver
------------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
$0.02 $0.04 0.99% 1.01%
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
24 1999 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended May 31, except where noted:
<TABLE>
<CAPTION>
Class B Shares 1999(1)(2) 1999(2) 1998 1997 1996 1995
=================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.30 $ 10.54 $ 10.21 $ 9.95 $ 10.09 $ 9.82
- -------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income(3) 0.23 0.43 0.45 0.48 0.48 0.49
Net realized and
unrealized gain (loss) (0.59) (0.10) 0.40 0.26 (0.15) 0.33
- -------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.36) 0.33 0.85 0.74 0.33 0.82
- -------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.21) (0.44) (0.47) (0.48) (0.47) (0.49)
Net realized gains (0.02) (0.13) (0.05) -- -- (0.06)
- -------------------------------------------------------------------------------------------------
Total Distributions (0.23) (0.57) (0.52) (0.48) (0.47) (0.55)
- -------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 9.71 $ 10.30 $ 10.54 $ 10.21 $ 9.95 $ 10.09
- -------------------------------------------------------------------------------------------------
Total Return (3.53)%++ 3.15% 8.46% 7.53% 3.30% 8.78%
- -------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $ 17,433 $ 19,066 $ 9,721 $ 19,886 $ 22,369 $ 22,838
- -------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses(3) 1.35%+ 1.42% 1.38% 1.39% 1.33% 1.33%
Net investment income 4.52+ 4.11 4.35 4.66 4.69 4.85
- -------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 14% 41% 42% 27% 22% 21%
=================================================================================================
</TABLE>
(1) For the six months ended November 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) The investment adviser waived all or part of its fees for each of the two
years ended May 31, 1996. If such fees were not waived, the per share effect
on net investment income and the expense ratios would have been as follows:
Per Share Decreases Expense Ratios
to Net Investment Income Without Fee Waiver
------------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
$0.02 $0.03 1.50% 1.52%
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Arizona Municipals Fund Inc. 25
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended May 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 1999(1)(2) 1999(2)(3) 1998 1997 1996 1995(4)
===================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.30 $ 10.53 $ 10.21 $ 9.95 $ 10.09 $ 9.28
- ---------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income(5) 0.22 0.42 0.45 0.47 0.48 0.24
Net realized and
unrealized gain (loss) (0.58) (0.09) 0.39 0.26 (0.15) 0.86
- ---------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations (0.36) 0.33 0.84 0.73 0.33 1.10
- ---------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.21) (0.43) (0.47) (0.47) (0.47) (0.23)
Net realized gains (0.02) (0.13) (0.05) -- -- (0.06)
- ---------------------------------------------------------------------------------------------------
Total Distributions (0.23) (0.56) (0.52) (0.47) (0.47) (0.29)
- ---------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 9.71 $ 10.30 $ 10.53 $ 10.21 $ 9.95 $ 10.09
- ---------------------------------------------------------------------------------------------------
Total Return (3.55)%++ 3.21 8.30% 7.49% 3.26% 12.10%++
- ---------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $ 1,216 $ 1,652 $ 875 $ 822 $ 554 $ 386
- ---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(5) 1.53%+ 1.44% 1.42% 1.42% 1.39% 1.38%+
Net investment income 4.32+ 4.09 4.30 4.63 4.63 4.81+
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 14% 41% 42% 27% 22% 21%
===================================================================================================
</TABLE>
(1) For the six months ended November 30, 1999 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
(4) For the period from December 8, 1994 (inception date) to May 31, 1995.
(5) The investment adviser waived all or part of its fees for the year ended May
31, 1996, and the period ended May 31, 1995. If such fees were not waived,
the per share effect on net investment income and the expense ratios would
have been as follows:
Per Share Decreases Expense Ratios
to Net Investment Income Without Fee Waiver
------------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
$0.02 $0.01 1.56% 1.56%+
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
26 1999 Semi-Annual Report to Shareholders
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<PAGE>
[LOGO OF SALOMON SMITH BARNEY]
Directors
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, Chairman
Cornelius C. Rose, Jr.
James J. Crisona, Emeritus
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
Joseph P. Deane
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser and Administrator
SSB Citi Fund Management LLC
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Shareholder Servicing Agent
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
Sub-Shareholder Servicing Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
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 a current Prospectus
for the Fund, which contains information concerning the Fund's investment
policies and expenses as well as other pertinent information.
Salomon Smith Barney is a service mark of Salomon Smith Barney, Inc.
Smith Barney Arizona Municipals Fund Inc.
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
FD0820 1/00
