<PAGE>1
As filed with the Securities and Exchange Commission
on October 25, 1995
-------------------------------------------------------
Registration No. 33-62015
--------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 1 [ ] Post-Effective Amendment No.
Smith Barney New Jersey Municipals Fund Inc.
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (212) 723-9218
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip code)
Christina T. Sydor, Esq.
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
copies to:
Burton M. Leibert, Esq. John E. Baumgardner, Jr., Esq.
Willkie Farr & Gallagher Sullivan & Cromwell
One Citicorp Center 125 Broad Street
153 East 53rd Street New York, New York 10004
New York, New York 10022
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
- ------------------------------------------------------------------------------
<PAGE>2
Registrant has registered an indefinite amount of securities pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended; accordingly, no
fee is payable herewith. Registrant's Rule 24f-2 Notice for the fiscal period
ended March 31, 1995 was electronically filed with the Securities and Exchange
Commission on May 25, 1995.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
<PAGE>3
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross Reference Sheet
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>4
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
FORM N-14 CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933, as amended
Prospectus/Proxy
Part A Item No. and Caption Statement Caption
Item 1. Beginning of Cover Page; Cross Reference
Registration Sheet
Statement and
Outside Front Cover
Page of Prospectus
Item 2. Beginning and Table of Contents
Outside Back Cover
Page of Prospectus
Item 3. Fee Table, Synopsis Fee Table; Summary; Risk
Information, and Factors; Comparison of
Risk Factors Investment Objectives
and Policies
Item 4. Information About Summary; Reasons for the
the Transaction Reorganization; Information
About the Reorganization;
Information on Shareholders'
Rights; Exhibit A (Agreement
and Plan of Reorganization)
Item 5. Information About Cover Page; Summary;
the Registrant Information About the
Reorganization; Comparison of
Investment Objectives and
Policies; Information on
Shareholders' Rights;
Information About the
Acquiring Fund; Additional
Information About Smith Barney
New Jersey Municipals Fund
Inc. and Smith Barney Muni
Funds; Prospectus of Smith
Barney New Jersey Municipals
Fund Inc. dated May 29, 1995,
as supplemented by a
Prospectus Supplement dated
September 1, 1995.
<PAGE>5
Item 6. Information About Summary; Information About the
the Company Being Reorganization; Comparison of
Acquired Investment Objectives and
Policies; Information on
Shareholders' Rights;
Information About the Acquired
Fund; Additional Information
About Smith Barney New Jersey
Municipals Fund Inc. and Smith
Barney Muni Funds
Item 7. Voting Information Summary; Information About the
Reorganization; Information on
Shareholders' Rights; Voting
Information
Item 8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
Item 9. Additional Not Applicable
Information Required
for Reoffering By
Persons Deemed to be
Underwriters
Statement of Additional
Part B Item No. and Caption Information Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. Additional Cover Page; Statement of
Information About Additional Information of
the Registrant Smith Barney New Jersey
Municipals Fund Inc. dated May
29, 1995.
Item 13. Additional Not Applicable
Information About
the Company Being
Acquired
<PAGE>6
Item 14. Financial Statements Annual Report of Smith Barney
New Jersey Municipals Fund
Inc.; Annual Report of Smith
Barney Muni Funds -- New
Jersey Portfolio; Pro Forma
Financial Statements
Part C Item No. and Caption Other Information Caption
Item 15. Indemnification Incorporated by reference to
Part A caption "Information on
Shareholders' Rights --
Liability of
Directors/Trustees"
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
<PAGE>7
[Smith Barney Letterhead]
A SPECIAL NOTICE TO SHAREHOLDERS OF
SMITH BARNEY MUNI FUNDS -- NEW JERSEY PORTFOLIO
Your Vote is Important
Dear Shareholder:
The Board of Trustees of Smith Barney Muni Funds has recently reviewed and
unanimously endorsed a proposal for a reorganization of the New Jersey
Portfolio (the "New Jersey Portfolio") of Smith Barney Muni Funds which it
judges to be in the best interests of New Jersey Portfolio's shareholders.
UNDER THE TERMS OF THE PROPOSAL, SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
("NEW JERSEY FUND") WOULD ACQUIRE ALL OR SUBSTANTIALLY ALL OF THE ASSETS AND
LIABILITIES OF NEW JERSEY PORTFOLIO. After the transaction, New Jersey
Portfolio will be liquidated and you will become a shareholder of New Jersey
Fund, having received shares with an aggregate value equivalent to the
aggregate net asset value of your investment in New Jersey Portfolio at the
time of the transaction. No sales charge will be imposed in the transaction.
The transaction will, in the opinion of counsel, be free from federal income
taxes to you, New Jersey Portfolio and New Jersey Fund, and it is intended
that the combined fund will be managed by the same portfolio manager who
currently manages New Jersey Fund.
The Board of Trustees of Smith Barney Muni Funds has determined that it is
advantageous to combine New Jersey Portfolio with New Jersey Fund as part of
the consolidation and integration of the two separate and distinct groups of
mutual funds currently distributed by Smith Barney Inc. that resulted from the
acquisition by Travelers Group Inc. (formerly Primerica Corporation) of
certain assets of Lehman Brothers Inc. (formerly Shearson Lehman Brothers
Inc.), including its retail brokerage and domestic asset management business.
In particular, the combination of New Jersey Portfolio and New Jersey Fund is
expected to eliminate investor confusion associated with the offering by Smith
Barney Inc. of two similar New Jersey municipal bond funds that provide
differing yields and also should permit the funds' investment personnel to
concentrate their efforts on the management of one fund rather than having to
divide their attention between two funds with similar investment objectives.
<PAGE>8
SPECIAL MEETING OF SHAREHOLDERS: YOUR VOTE IS IMPORTANT
To consider this transaction, we have called a Special Meeting of Shareholders
to be held on November 14, 1995. WE STRONGLY INVITE YOUR PARTICIPATION BY
ASKING YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY PROMPTLY.
Detailed information about the proposed transaction is described in the
enclosed proxy statement. On behalf of the Board of Trustees, I thank you for
your participation as a shareholder and urge you to please exercise your right
to vote by completing, dating and signing the enclosed proxy card. A self-
addressed, postage-paid envelope has been enclosed for your convenience.
If you have any questions regarding the proposed transaction, please feel free
to call your Smith Barney Financial Consultant who will be pleased to assist
you.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED PROMPTLY.
Sincerely,
Heath B. McLendon
Chairman of the Board
October 25, 1995
<PAGE>9
SMITH BARNEY MUNI FUNDS -- NEW JERSEY PORTFOLIO
388 Greenwich Street
New York, New York 10013
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on November 14, 1995
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of the New Jersey Portfolio ("New Jersey Portfolio") of Smith
Barney Muni Funds will be held at 388 Greenwich Street, 26th Floor, New York,
New York on November 14, 1995, commencing at 4:00 p.m. for the following
purposes:
1. To approve or disapprove the Agreement and Plan of Reorganization
dated as of October 23, 1995 providing for (i) the acquisition of
all or substantially all of the assets of New Jersey Portfolio by
Smith Barney New Jersey Municipals Fund Inc. ("New Jersey Fund") in
exchange for shares of New Jersey Fund and the assumption by New
Jersey Fund of scheduled liabilities of New Jersey Portfolio, (ii)
the distribution of such shares of New Jersey Fund to shareholders
of New Jersey Portfolio in liquidation of New Jersey Portfolio and
(iii) the subsequent termination of New Jersey Portfolio.
2. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
The Board of Trustees of Smith Barney Muni Funds has fixed the close
of business on September 25, 1995 as the record date for the determination of
shareholders of New Jersey Portfolio entitled to notice of and to vote at the
Meeting and any adjournment or adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE
URGED TO SIGN AND RETURN WITHOUT DELAY THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXY CARDS ARE SET FORTH ON THE FOLLOWING PAGE. PROXIES MAY BE
REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY THE SUBSEQUENT EXECUTION AND
SUBMISSION OF A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION TO NEW
JERSEY PORTFOLIO AT ANY TIME BEFORE THE PROXY IS EXERCISED OR BY VOTING IN
PERSON AT THE MEETING.
<PAGE>10
By Order of the Board of Trustees
Christina T. Sydor, Esq.
Secretary
October 25, 1995
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.
<PAGE>11
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and avoid the time and expense involved in validating your
vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to the name shown in the registration
on the proxy card.
3. All Other Accounts: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the form of
registration. For example:
Registration Valid Signatures
Corporate Accounts
(1) ABC Corp. . . . . . . . . . . . . . ABC Corp.
(2) ABC Corp. . . . . . . . . . . . . . John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer . . . . . John Doe
(4) ABC Corp. Profit Sharing Plan . . . . John Doe, Trustee
Trust Accounts
(1) ABC Trust . . . . . . . . . . . . . Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 . . . . . . . . . . Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA John B. Smith
(2) John B. Smith . . . . . . . . . . . John B. Smith, Jr., Executor
<PAGE>12
PROSPECTUS/PROXY STATEMENT DATED OCTOBER 25, 1995
Acquisition Of The Assets Of
NEW JERSEY PORTFOLIO
a separate investment portfolio of
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
(800) 224-7523
By And In Exchange For Shares Of
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 224-7523
This Prospectus/Proxy Statement is being furnished to shareholders
of the New Jersey Portfolio (the "Acquired Fund") of Smith Barney Muni Funds
in connection with a proposed plan of reorganization to be submitted to
shareholders of the Acquired Fund for consideration at a Special Meeting of
Shareholders to be held on November 14, 1995 at 4:00 p.m. (the "Meeting"), at
the offices of Smith Barney Inc. ("Smith Barney") located at 388 Greenwich
Street, 26th Floor, New York, New York 10013, or any adjournment or
adjournments thereof.
The plan provides for all or substantially all of the assets of the
Acquired Fund to be acquired by Smith Barney New Jersey Municipals Fund Inc.
(the "Acquiring Fund") in exchange for shares of the Acquiring Fund and the
assumption by the Acquiring Fund of scheduled liabilities of the Acquired Fund
(hereinafter referred to as the "Reorganization"). (The Acquiring Fund and
the Acquired Fund are sometimes referred to hereinafter as the "Funds" and
individually as a "Fund.") Shares of the Acquiring Fund would be distributed
to shareholders of the Acquired Fund in liquidation of the Acquired Fund and
thereafter the Acquired Fund would be terminated. As a result of the proposed
Reorganization, each shareholder of the Acquired Fund will receive that number
of shares of the Acquiring Fund having an aggregate value equal to the
aggregate net asset value of such shareholder's shares of the Acquired Fund
immediately prior to the Reorganization. Holders of Class A shares of the
Acquired Fund will receive Class A shares of the Acquiring Fund, and no sales
charge will be imposed on the Class A shares of the Acquiring Fund received by
the Acquired Fund Class A shareholders. Holders of Class B or Class C shares
of the Acquired Fund will receive Class B or Class C shares, respectively, of
the Acquiring Fund. No contingent deferred sales charge ("CDSC") will be
imposed on Class B or Class C shares of the Acquiring Fund upon consummation
of the Reorganization. However, any CDSC which is
<PAGE>13
applicable to a shareholder's investment will continue to apply, and in
calculating the applicable CDSC payable upon the subsequent redemption of
Class B or Class C shares of the Acquiring Fund, the period during which an
Acquired Fund shareholder held Class B or Class C shares of the Acquired Fund
will be counted. This transaction is structured to be tax-free for federal
income tax purposes to shareholders and to both the Acquiring Fund and the
Acquired Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Acquiring Fund is an open-end, non-diversified management
investment company, whose investment objective is to provide New Jersey
investors with as high a level of dividend income exempt from federal income
tax and New Jersey personal income tax as is consistent with prudent
investment management and the preservation of capital. The Acquired Fund is a
separate investment portfolio of Smith Barney Muni Funds, an open-end, non-
diversified management investment company, whose investment objective is to
pay its shareholders as high a level of income exempt from federal income
taxes and from New Jersey personal income taxes as is consistent with prudent
investing.
Smith Barney Mutual Funds Management Inc., 388 Greenwich Street, New
York, New York 10013 (the "Manager"), serves as investment manager to both the
Acquiring Fund and the Acquired Fund. The Manager is a wholly owned
subsidiary of Smith Barney Holdings, Inc. which, in turn, is a wholly owned
subsidiary of Travelers Group Inc. It is proposed that, in connection with
the Reorganization, Lawrence T. McDermott, the portfolio manager who manages
the Acquiring Fund's portfolio, would manage the combined fund. Mr.
McDermott, a Managing Director of Smith Barney, has served as Vice President
and Investment Officer of the Acquiring Fund since it commenced operations on
April 22, 1988, and manages the day-to-day operations of the Acquiring Fund,
including making substantially all investment decisions.
The investment policies of the Acquiring Fund are generally similar
to those of the Acquired Fund. Certain differences in the investment policies
of the Acquiring Fund and the Acquired Fund, however, are described under
"Comparison of Investment Objectives and Policies" in this Prospectus/Proxy
Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective
<PAGE>14
investor should know before investing. Certain relevant documents listed
below, which have been filed with the Securities and Exchange Commission
("SEC"), are incorporated in whole or in part by reference. A Statement of
Additional Information dated October 25, 1995, relating to this Prospectus/
Proxy Statement and the Reorganization, has been filed with the SEC and is
incorporated by reference into this Prospectus/Proxy Statement. A copy of
such Statement of Additional Information is available upon request and without
charge by writing to the Acquired Fund at the address listed on the cover page
of this Prospectus/Proxy Statement or by contacting a Smith Barney Financial
Consultant.
1. The Prospectus of Smith Barney New Jersey Municipals Fund Inc. dated
May 29, 1995, as supplemented by a Prospectus Supplement dated
September 1, 1995 is incorporated in its entirety by reference and a
copy is included herein.
2. The Prospectus of Smith Barney Muni Funds -- New Jersey Portfolio
dated November 7, 1994 as supplemented by a Prospectus Supplement
dated July 26, 1995, is incorporated in its entirety by reference.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a
copy of the Agreement and Plan of Reorganization (the "Plan") for the proposed
transaction.
<PAGE>15
TABLE OF CONTENTS
PAGE
ADDITIONAL MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FEE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
REASONS FOR THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . 17
INFORMATION ABOUT THE REORGANIZATION . . . . . . . . . . . . . . . . . . 20
INFORMATION ABOUT THE ACQUIRING FUND . . . . . . . . . . . . . . . . . . 26
INFORMATION ABOUT THE ACQUIRED FUND . . . . . . . . . . . . . . . . . . . 37
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . 44
INFORMATION ON SHAREHOLDERS' RIGHTS . . . . . . . . . . . . . . . . . . . 54
ADDITIONAL INFORMATION ABOUT
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
AND SMITH BARNEY MUNI FUNDS . . . . . . . . . . . . . . . . . . . . . . . 57
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
FINANCIAL STATEMENTS AND EXPERTS . . . . . . . . . . . . . . . . . . . . 60
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
EXHIBIT A: AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . . . . A-1
<PAGE>16
ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated October 25, 1995
relating to this Prospectus/Proxy Statement and the Reorganization, will be
sent to all shareholders requesting a copy of such Statement of Additional
Information.
1. Statement of Additional Information of Smith Barney New Jersey
Municipals Fund Inc. dated May 29, 1995.
2. Annual Report of Smith Barney New Jersey Municipals Fund Inc. for the
fiscal year ended March 31, 1995.
3. Annual Report of Smith Barney Muni Funds -- New Jersey Portfolio for
the fiscal year ended March 31, 1995.
4. Pro Forma Financial Statements.
<PAGE>17
FEE TABLES
Following are tables showing current costs and expenses of the
Acquired Fund and the Acquiring Fund and the pro forma costs and expenses
expected to be incurred by the Acquiring Fund after giving effect to the
Reorganization, each based on the maximum sales charge or maximum CDSC that
may be incurred at the time of purchase or redemption.
CLASS A SHARES
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund Pro Forma***
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of
offering price) . . . . . . . . . . . . . . . . . . . . . 4.00% 4.00% 4.00%
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) . . . . . . . . . . . . . . . . . . . . None* None* None*
Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . . . 0.45% 0.55%**** 0.50%*****
12b-1 fees . . . . . . . . . . . . . . . . . . . . . . . . 0.15 0.15 0.15
Other expenses** . . . . . . . . . . . . . . . . . . . . . 0.09 0.18 0.13
Total Operating Expenses . . . . . . . . . . . . . . . . . . 0.69% 0.88% 0.78%
<FN>
* Purchases of Class A shares, which when combined with
current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be
made at net asset value with no sales charge, but will be
subject to a CDS C of 1.00% on redemptions made within 12
months.
** "Other expenses" for Class A shares of the Acquired Fund
and the Acquiring Fund are based on expenses for the
fiscal year ended March 31, 1995, and for the pro forma
financial figures are based on estimated expenses for the
fiscal year ended March 31, 1995.
*** The pro forma financial figures are intended to provide
shareholders with information about the continuing impact
of the Reorganization as if the Reorganization had taken
place as of April 1, 1994.
**** For investment advisory services, the Acquiring Fund pays
the Manager a fee at the following annual rates of average
daily net assets: 0.35% up to $500 million and 0.32% in
excess of $500 million. For administrative services
rendered, the Acquiring Fund pays the Manager a fee at the
following annual rates of average daily net assets: 0.20%
to $500 million and 0.18% in excess of $500 million.
***** Effective on November 17, 1995 (the anticipated date of
the Reorganization), the Manager has agreed to reduce the
Acquiring Fund's aggregate management fees to 0.50% of the
Acquiring Fund's average daily net assets.
</TABLE>
<PAGE>18
CLASS B SHARES
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund Pro Forma***
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price) . . . . . . . . . . . None None None
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower) . . . . . 4.50% 4.50% 4.50%
Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . 0.45% 0.55%**** 0.50%*****
12b-1 fees* . . . . . . . . . . . . . . . 0.65 0.65 0.65
Other expenses**. . . . . . . . . . . . . . . . 0.13 0.19 0.15
Total Operating Expenses . . . . . . . . . . . . . . . 1.23% 1.39% 1.30%
<FN>
* Upon conversion of Class B shares to Class A shares, such
shares will no longer be subject to a distribution fee.
** "Other expenses" for Class B shares of the Acquired Fund and
the Acquiring Fund are based on expenses for the fiscal
year ended March 31, 1995, and for the pro forma financial
figures are based on estimated expenses for the fiscal
year ended March 31, 1995.
*** The pro forma financial figures are intended to provide
shareholders with information about the continuing impact
of the Reorganization as if the Reorganization had taken
place as of April 1, 1994.
**** For investment advisory services, the Acquiring Fund pays
the Manager a fee at the following annual rates of average
daily net assets: 0.35% up to $500 million and 0.32% in
excess of $500 million. For administrative services
rendered, the Acquiring Fund pays the Manager a fee at the
following annual rates of average daily net assets: 0.20%
to $500 million and 0.18% in excess of $500 million.
***** Effective on November 17, 1995 (the anticipated date of
the Reorganization), the Manager has agreed to reduce the
Acquiring Fund's aggregate management fees to 0.50% of the
Acquiring Fund's average daily net assets.
</TABLE>
<PAGE>19
CLASS C SHARES
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund Pro Forma***
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price) . . . . . . . . . . . . None None None
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower) . . . . 1.00% 1.00% 1.00%
Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . 0.45% 0.55%**** 0.50%****
12b-1 fees* . . . . . . . . . . . . . . . . . . . . . 0.70 0.70 0.70
Other expenses** . . . . . . . . . . . . . . . . . . 0.12 0.19 0.15
Total Operating Expenses . . . . . . . . . . . . . . . . 1.27% 1.44% 1.35%
<FN>
* Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing distribution fee. As
a result, long-term shareholders of Class C shares may pay
more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of
Securities Dealers, Inc.
** "Other expenses" for Class C shares of the Acquired Fund
and the Acquiring Fund are based on expenses for the
fiscal year ended March 31, 1995, and for the pro forma
financial figures are based on estimated expenses for the
fiscal year ended March 31, 1995.
*** The pro forma financial figures are intended to provide
shareholders with information about the continuing impact
of the Reorganization as if the Reorganization had taken
place as of April 1, 1994.
**** For investment advisory services, the Acquiring Fund pays the Manager a
fee at the following annual rates of average daily net
assets: 0.35% up to $500 million and 0.32% in excess of
$500 million. For administrative services rendered, the
Acquiring Fund pays the Manager a fee at the following
annual rates of average daily net assets: 0.20% to $500
million and 0.18% in excess of $500 million.
***** Effective on November 17, 1995 (the anticipated date of the
Reorganization), the Manager has agreed to reduce the
Acquiring Fund's aggregate management fees to 0.50% of the
Acquiring Fund's average daily net assets.
</TABLE>
<PAGE>20
Examples
The following examples are intended to assist an investor in
understanding the various costs that an investor will bear directly or
indirectly. The examples assume payment of operating expenses at the levels
set forth in the tables above.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years*
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5.00% annual return
and (2) redemption at the end of each time period:
Class A
Acquired Fund . . . . . . . . . . . . . . . . . $47 $61 $77 $122
Acquiring Fund . . . . . . . . . . . . . . . . . 49 67 87 144
Pro Forma . . . . . . . . . . . . . . . . . . . 48 64 82 133
Class B
Acquired Fund . . . . . . . . . . . . . . . . . $58 $69 $78 $134
Acquiring Fund . . . . . . . . . . . . . . . . . 59 74 86 153
Pro Forma . . . . . . . . . . . . . . . . . . . 58 71 81 142
Class C
Acquired Fund . . . . . . . . . . . . . . . . . $23 $40 $70 $153
Acquiring Fund . . . . . . . . . . . . . . . . . 25 46 79 172
Pro Forma . . . . . . . . . . . . . . . . . . . 24 43 74 162
<FN>
* Ten-year figures assume conversion of Class B shares to
Class A shares at the end of the eighth year following the
date of purchase.
</TABLE>
<PAGE>21
An investor would pay the following expenses on the same investment, assuming
the same annual return and no redemption:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years*
<S> <C> <C> <C> <C>
Class A
Acquired Fund . . . . . . . . . . . . . . . $47 $61 $77 $122
Acquiring Fund . . . . . . . . . . . . . . . 49 67 87 144
Pro Forma . . . . . . . . . . . . . . . . . 48 64 82 133
Class B
Acquired Fund . . . . . . . . . . . . . . . $13 $39 $68 $134
Acquiring Fund . . . . . . . . . . . . . . . 14 44 76 153
Pro Forma . . . . . . . . . . . . . . . . . 13 41 70 142
Class C
Acquired Fund . . . . . . . . . . . . . . . $13 $40 $70 $153
Acquiring Fund . . . . . . . . . . . . . . . 15 46 79 172
Pro Forma . . . . . . . . . . . . . . . . . 14 43 74 162
<FN>
* Ten-year figures assume conversion of Class B shares to
Class A shares at the end of the eighth year following
the date of purchase.
</TABLE>
The examples also provide a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00%
annual return assumption. However, each Fund's actual return will vary and
may be greater or less than 5.00%. THESE EXAMPLES SHOULD NOT BE CONSIDERED
REPRESENTATIONS OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
<PAGE>22
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
ADDITIONAL INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT,
THE AGREEMENT AND PLAN OF REORGANIZATION, A COPY OF WHICH IS ATTACHED TO THIS
PROSPECTUS/PROXY STATEMENT AS EXHIBIT A, THE ACCOMPANYING PROSPECTUS OF THE
ACQUIRING FUND DATED MAY 29, 1995, AS SUPPLEMENTED BY A PROSPECTUS SUPPLEMENT
DATED SEPTEMBER 1, 1995, AND THE PROSPECTUS OF THE ACQUIRED FUND DATED
NOVEMBER 7, 1994 AS SUPPLEMENTED BY A PROSPECTUS SUPPLEMENT DATED JULY 26,
1995.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all
or substantially all of the assets of the Acquired Fund to the Acquiring Fund
in exchange for shares of the Acquiring Fund and the assumption by the
Acquiring Fund of scheduled liabilities of the Acquired Fund. The Plan also
calls for the distribution of shares of the Acquiring Fund to the Acquired
Fund's shareholders in liquidation of the Acquired Fund. (The foregoing
proposed transaction is referred to in this Prospectus/Proxy Statement as the
"Reorganization.") As a result of the Reorganization, each shareholder of the
Acquired Fund will become the owner of that number of full and fractional
shares of the Acquiring Fund having an aggregate value equal to the aggregate
net asset value of the shareholder's shares of the Acquired Fund as of the
close of business on the date that the Acquired Fund's assets are exchanged
for shares of the Acquiring Fund. (Shareholders of Class A, Class B or Class
C shares of the Acquired Fund will receive Class A, Class B or Class C shares,
respectively, of the Acquiring Fund.) See "Information About the
Reorganization -- Plan of Reorganization."
For the reasons set forth below under "Reasons for the
Reorganization," the Board of Trustees of Smith Barney Muni Funds, including
the Trustees of Smith Barney Muni Funds who are not "interested persons" (the
"Independent Trustees"), as that term is defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), has concluded that the Reorganization
would be in the best interests of the shareholders of the Acquired Fund and
that the interests of the Acquired Fund's existing shareholders will not be
diluted as a result of the transaction contemplated by the Reorganization and
therefore has submitted the Plan for approval by the Acquired Fund's
shareholders. The Board of Directors of the Acquiring Fund has reached
similar conclusions with respect to the Acquiring Fund and has also approved
the Reorganization in respect of the Acquiring Fund.
Approval of the Reorganization will require the affirmative vote of
a majority, as defined in the 1940 Act, of the outstanding shares of the
Acquired Fund, which is the lesser of: (i) 67% of the voting securities of
the Acquired Fund present at the Meeting, if the holders of more than 50% of
the outstanding voting securities of the Acquired Fund are
<PAGE>23
present or represented by proxy; or (ii) more than 50% of the outstanding
voting securities of the Acquired Fund. For purposes of voting with respect
to the Reorganization, the Class A, Class B and Class C shares of the Acquired
Fund will vote together as a single class. See "Voting Information."
TAX CONSEQUENCES. Prior to completion of the Reorganization, the
Funds will have received an opinion of counsel that, upon the Reorganization
and the transfer of the assets of the Acquired Fund, no gain or loss will be
recognized by the Acquired Fund or its shareholders for federal income tax
purposes. The holding period and aggregate tax basis of the Acquiring Fund
shares received by an Acquired Fund shareholder will be the same as the
holding period and aggregate tax basis of the shares of the Acquired Fund
previously held by such shareholder. In addition, the holding period and tax
basis of the assets of the Acquired Fund in the hands of the Acquiring Fund as
a result of the Reorganization will be the same as in the hands of the
Acquired Fund immediately prior to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. The Acquiring Fund and the
Acquired Fund have generally similar investment objectives, policies and
restrictions. The Acquiring Fund is an open-end, non-diversified management
investment company whose investment objective is to provide New Jersey
investors with as a high a level of dividend income exempt from federal income
tax and New Jersey personal income tax as is consistent with prudent
investment management and the preservation of capital. The Acquired Fund is a
portfolio of Smith Barney Muni Funds, an open-end, non-diversified management
investment company, whose investment objective is to pay its shareholders as
high a level of income exempt from federal income taxes and from New Jersey
personal income taxes as is consistent with prudent investing. For a
discussion of the differences between the investment policies of the Acquiring
Fund and the Acquired Fund, see "Comparison of Investment Objectives and
Policies."
PURCHASE AND REDEMPTION PROCEDURES. The purchase and redemption
procedures available to shareholders of the Acquiring Fund are virtually
identical to those of the Acquired Fund. Purchase of shares of the Acquiring
Fund and the Acquired Fund may be made through the Funds' distributor, Smith
Barney, a broker that clears securities transactions through Smith Barney on a
fully disclosed basis (an "Introducing Broker") or an investment dealer in the
selling group, at their respective public offering prices (net asset value
next determined plus any applicable sales charge). Class A shares of both the
Acquiring Fund and the Acquired Fund are sold subject to a maximum initial
sales charge of 4.00% of the public offering price. Class A shares of either
Fund may be purchased at a reduced sales charge or at net asset value,
determined by aggregating the dollar amount of a new purchase and the total
asset value of all Class A shares of Funds offered by Smith Barney held by
such person that are exchangeable with Class A shares of either Fund and
applying the (reduced) sales charge applicable to such aggregate. Purchases
<PAGE>24
of Class A shares of both Funds, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12 months. Class B and
Class C shares of both Funds are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A shares and are subject to a
CDSC payable upon certain redemptions. In addition, Class Y shares of both
Funds are sold without an initial sales charge or CDSC, and are available only
to investors meeting an initial investment minimum of $5,000,000. As of
September 25, 1995 (the "Record Date"), no Class Y shares of either Fund were
outstanding. Further, the Acquiring Fund is authorized to issue a fifth class
of shares, Class Z shares, exclusively for sale to tax-exempt employee benefit
and retirement plans of Smith Barney and to certain unit investment trusts
sponsored by Smith Barney or any of its affiliates. As of the date hereof,
the Acquiring Fund has not sold any Class Z shares. The Acquired Fund does
not offer Class Z shares.
Class A shares of both the Acquiring and the Acquired Fund may be
redeemed at their respective net asset values per share next determined
without charge, except as set forth in the preceding paragraph. Class B
shares of both Funds may be redeemed at their net asset value per share,
subject to a maximum CDSC of 4.50% of the lower of original cost or redemption
proceeds, declining by 0.50% the first year after purchase and by 1.00% each
year thereafter to zero. Class C shares of both Funds may be redeemed at
their net asset value per share, subject to a CDSC of 1.00% if such shares are
redeemed during the first 12 months following their purchase. Shares of both
Funds held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. All other shares may
be redeemed through a Smith Barney Financial Consultant, Introducing Broker or
dealer in the selling group or by forwarding a written request for redemption
to The Shareholder Services Group, Inc. ("TSSG" or the "transfer agent"), a
subsidiary of First Data Corporation. See "Redemption of Shares" in the
accompanying Prospectus of the Acquiring Fund.
EXCHANGE PRIVILEGES. The exchange privileges available to
shareholders of the Acquiring Fund are virtually identical to those available
to shareholders of the Acquired Fund. Shareholders of both the Acquired Fund
and the Acquiring Fund may exchange at net asset value all or a portion of
their shares for shares of the same class in certain other funds of the Smith
Barney Mutual Funds. Any exchange will be a taxable event for which a
shareholder may have to recognize a gain or a loss under federal income tax
provisions. No initial sales charge is imposed on the shares being acquired
in an exchange, and no CDSC is imposed on the shares being disposed of in the
exchange. A sales charge differential, however, may apply to exchanges of
Class A shares with other Smith Barney Mutual Funds. For purposes of
computing the CDSC that may be payable upon a disposition, the Class B and
Class C shares acquired in the exchange will be deemed to have been purchased
on the same date as the Class B and Class C shares that were
<PAGE>25
exchanged therefor. Class B shares of the Funds that are exchanged for Class
B shares of other Smith Barney Mutual Funds imposing a higher CDSC will be
subject to the higher applicable CDSC. See "Exchange Privilege" in the
accompanying Prospectus of the Acquiring Fund.
DIVIDENDS. The Acquiring Fund pays dividends from its net
investment income (that is, income other than its net realized long- and
short-term capital gains) on the last Friday of each calendar month to
shareholders of record as of the preceding Tuesday. Distributions of net
realized long- and short-term capital gains, if any, are declared and paid
annually after the end of the fiscal year in which they have been earned.
Similarly, dividends of substantially all of the Acquired Fund's net
investment income are declared and paid monthly and any realized capital gains
are declared and distributed annually. With respect to both Funds, unless a
shareholder otherwise instructs, dividends and capital gains distributions
will be reinvested automatically in additional shares of the same class at net
asset value, subject to no sales charge or CDSC. The distribution option
currently in effect for a shareholder of the Acquired Fund will remain in
effect after the Reorganization. After the Reorganization, however, the
former Acquired Fund shareholders may change their distribution option at any
time by contacting a Smith Barney Financial Consultant. See "Dividends and
Distributions" in the accompanying Prospectus of the Acquiring Fund.
SHAREHOLDER VOTING RIGHTS. The Acquiring Fund and Smith Barney Muni
Funds are both registered with the SEC as open-end, investment companies. The
Acquiring Fund is a Maryland corporation having a Board of Directors. The
Acquired Fund is a separate series of Smith Barney Muni Funds, a Massachusetts
business trust having a Board of Trustees. Shareholders of both Funds have
similar voting rights. Neither Fund holds a meeting of shareholders annually,
and there is normally no meeting of shareholders held for the purpose of
electing Directors/Trustees unless and until such time as less than two-thirds
of the Directors or a majority of the Trustees holding office, as the case may
be, have been elected by shareholders. At that time, the Directors/Trustees
in each Fund then in office will call a shareholders' meeting for the election
of Directors/Trustees.
In addition, under the laws of the Commonwealth of Massachusetts,
shareholders of the Acquired Fund do not have appraisal rights in connection
with a combination or acquisition of the assets of the Fund by another entity.
Shareholders of the Acquired Fund may, however, redeem their shares at net
asset value (subject to any applicable CDSC) prior to the date of the
Reorganization.
For purposes of voting with respect to the Reorganization, the Class
A, Class B and Class C shares of the Acquired Fund will vote together as a
single class. See "Information on Shareholders' Rights -- Voting Rights."
<PAGE>26
RISK FACTORS
Due to the similarities of investment objectives and policies of the
Acquiring Fund and the Acquired Fund, the investment risks are substantially
similar. Such risks are generally those typically associated with municipal
securities, primarily those of New Jersey issuers. The following is a summary
of certain risk factors associated with investing in shares of the Acquiring
Fund, certain of which are also applicable to the Acquired Fund. This summary
is qualified in its entirety by the accompanying Prospectus of the Acquiring
Fund. In addition, certain risks associated with various investment
strategies utilized by the Acquiring Fund, and where applicable, the Acquired
Fund, are described herein under "Comparison of Investment Objectives and
Policies."
The Funds are more susceptible to factors adversely affecting
issuers of New Jersey municipal securities than is a municipal bond fund that
does not emphasize these issuers. Economic, financial and other conditions
relating to the State of New Jersey have an obvious impact upon the state's
general obligation bonds and the bonds issued by the state's political
subdivisions, agencies and public authorities, including special obligation
bonds. New Jersey is a major recipient of federal assistance and, of all the
states, is among the highest in the amount of federal aid received. Hence, a
decrease in federal financial assistance may adversely affect New Jersey's
financial condition. While New Jersey's economic base has become more
diversified over time and thus its economy appears to be less vulnerable
during recessionary periods, a recurrence of high levels of unemployment could
adversely affect New Jersey's overall economy and its ability to meet its
financial obligations. New Jersey maintains a balanced budget, which
generally restricts total appropriation increases to only 5% annually to any
municipality or county or an index rate determined annually by the Director of
the Division of Local Government Services, whichever is less. The balanced
budget plan may adversely affect a municipality's or county's ability to repay
its obligations. Each municipality, county or other political subdivision
also will be subject to different economic, financial and other conditions,
which will affect its ability to pay the principal and interest on its bonds.
Similarly, special obligation or revenue bonds payable from revenues generated
by particular projects or other specific revenue sources also will be subject
to unique economic, financial and other conditions. If New Jersey or any of
its political subdivisions, agencies or public authorities is unable to meet
its financial obligations, the income derived by a Fund, the ability to
preserve or realize appreciation of a Fund's capital and a Fund's liquidity
could be adversely affected.
Each Fund is classified as a non-diversified investment company
under the 1940 Act, which means that the Fund is not limited by the 1940 Act
in the proportion of its assets that it may invest in the obligations of a
single issuer. A Fund's assumption of large positions in the obligations of a
small number of issuers may cause such Fund's share price
<PAGE>27
to fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
There are several risks in connection with the use of certain
portfolio strategies by the Acquiring Fund, and where applicable, by the
Acquired Fund. These portfolio strategies include purchasing when-issued
securities, municipal bond index futures contracts and put and call options
thereon as hedging devices, and municipal leases. See "Comparison of
Investment Objectives."
REASONS FOR THE REORGANIZATION
The Board of Trustees of Smith Barney Muni Funds has determined that
it is advantageous to combine the Acquired Fund with the Acquiring Fund. The
Funds have generally similar investment objectives and policies and have the
same investment adviser, distributor and transfer agent. In reaching this
conclusion, the Board considered a number of factors as described below.
Among the factors considered by the Board of Trustees of Smith
Barney Muni Funds was the 1993 transaction pursuant to which Travelers Group
Inc. (formerly Primerica Corporation) acquired certain assets of Lehman
Brothers Inc. (formerly Shearson Lehman Brothers Inc.), including its retail
brokerage and domestic asset management business. As a result of this
transaction, Smith Barney became the sponsor of two separate and totally
distinct families of mutual funds, each with, among other things, differing
pricing structures, classes of shares, exchange privileges, sweep functions
and types of funds. The Board was advised that, with the completion of the
merger of back-office brokerage operations and the implementation of a uniform
pricing and class structure on November 7, 1994, significant consolidation of
the two mutual fund groups had been made feasible and desirable. The Board
was further informed that the next step in this process would be to eliminate
the duplication of funds within the consolidated Smith Barney fund complex.
The Board of Trustees of Smith Barney Muni Funds was presented with
information that indicated that investors have been and will continue to be
confused in the face of similar New Jersey municipal bond funds managed by the
same investment adviser (although the Acquired Fund and the Acquiring Fund
have different portfolio managers, i.e., the individual primarily responsible
for each Fund's day-to-day investment decisions). In particular, the Board
was presented with information to the effect that, with two different funds,
Smith Barney was confronted with operational and shareholder services issues,
including (i) dilution of the firm's money management and research expertise
due to the splitting of attention between the two highly similar funds; and
(ii) investor confusion associated with offering similar funds that provide
differing yields. The Board also considered that no sales charges would be
imposed in effecting the Reorganization and the advantages of eliminating
duplication inherent in marketing two funds with similar investment
objectives.
<PAGE>28
Information regarding operating expenses of the Acquired Fund and the
Acquiring Fund reflecting expenses for the fiscal year ended March 31, 1995, is
included under the caption "Fee Tables" in this Prospectus/Proxy Statement.
Based upon these levels of expenses, assuming the same level of assets of the
combined fund after the Reorganization as on March 31, 1995, it is estimated
that Class A, Class B, and Class C shareholders of the Acquired Fund should
experience a 0.09%, 0.07% and 0.08% increase, respectively, in total operating
expenses, resulting from an increase of 0.05% in management fees paid to the
Manager accompanied by an increase of 0.04%, 0.02% and 0.03%, respectively, in
certain other operating expenses.
At its June 7, 1995 meeting, the Board of Directors of the
Acquired Fund was presented by the Manager with more current information,
reflecting operating expenses as of April 30, 1995, which took into account
the effects of various changes in operating expenses applicable to the Funds,
such as changes in certain transfer agency expenses. The Board was shown pro
forma financial information which indicated that, assuming the same level of
assets for the combined fund after the Reorganization as on April 30, 1995, it
is estimated that Class A, Class B and Class C shareholders of the Acquired
Fund should experience a 0.02%, 0.03%, and 0.03% increase, respectively, in
total operating expenses, resulting from an increase of 0.05% in management
fees paid to the Manager accompanied by a decrease of 0.03%, 0.02% and 0.02%,
respectively, in certain other operating expenses. The pro forma
total operating expenses considered by the Board are identical to the
pro forma total operating expenses included under the caption "Fee
Tables" in this Prospectus/Proxy Statement. However, the Board also considered,
among other things, the impact of the increased operating expenses on the
Acquired Fund's shareholders, the nature and quality of services provided to
shareholders, including performance, the impact of economies of scale and
comparative fee structures. Further, the Board was presented with information
illustrating that the pro forma management fee to be paid by the combined fund
following the Reorganization would be lower than the average management fee
paid by New Jersey municipal funds included in a survey using data prepared by
Lipper Analytical Services, Inc. (the "Lipper New Jersey Muni Average") with
respect to front-end load shares (which are comparable to Class A shares of
the Funds) as of March 31, 1995 (without giving effect to management fee
waivers and expense reimbursements), and that while the pro forma total
operating expenses of the combined fund following the Reorganization would be
higher than the Lipper New Jersey Muni Average, the pro forma total operating
expenses of the combined fund following the Reorganization would actually be
lower than the Lipper New Jersey Muni Average before giving effect to fee
waivers and expense reimbursements. The pro forma management fees, the Board
was also informed, would be more in line with fees paid by comparable funds.
Further, the Board was shown pro forma financial information which indicated
that, assuming the same level of assets for the combined fund after the
Reorganization, the aggregate total management fees paid by the combined fund
to the Manager would be approximately $50,000 less than would otherwise be
paid annually to the Manager by the Acquiring Fund and the Acquired Fund had
the Reorganization and the proposed decrease in the Acquiring Fund's
management fee not taken place. The Board also considered, among other
things, the terms and conditions of the Reorganization and the comparative
investment performance of the Funds. In addition, the Board was advised that
the Reorganization would be effected as a tax-free reorganization.
The Board of Trustees of Smith Barney Muni Funds was informed that the
Reorganization was one of a number of proposed reorganizations involving Smith
Barney Muni Funds and other municipal bond funds within the Smith Barney
mutual fund complex. In connection with these reorganizations, it has been
proposed that the surviving fund's management fee be either increased or
decreased, as the case may be, to 0.50% of such Fund's average daily net
assets. The Board members were informed that the pro forma total operating
expenses for the combined fund would be consistent with the reorganizations
involving the other series of Smith Barney Muni Funds. Based in part on this
discussion of the ongoing consolidation of the Smith Barney mutual fund
complex, the Board of Trustees of Smith Barney Muni Funds approved, subject to
shareholder approval, a new investment management agreement for the Acquired
Fund. The new investment management agreement, which is otherwise
substantively identical to the Acquired Fund's current investment
<PAGE>29
management agreement, would provide for an increase in management fees from
0.45% to 0.50% of the Acquired Fund's average daily net assets. To save
unnecessary proxy expenses to the Acquired Fund, however, the Board of
Trustees has determined first to seek shareholder approval of the
Reorganization, as approval thereof would obviate the need for a second
solicitation of shareholder votes to approve the proposed investment
management agreement. Effective on November 17, 1995 (the anticipated date of
the Reorganization), the Board of Directors of the Acquiring Fund approved an
investment management fee of 0.50% of the Acquiring Fund's average daily net
assets, representing a decrease from the Acquiring Fund's current fee of
0.55%. No shareholder approval is necessary to effectuate this reduced
management fee.
In light of the foregoing, the Board of Trustees of Smith Barney
Muni Funds, including the Independent Trustees, has determined that it is in
the best interests of the Acquired Fund and its shareholders to combine with
the Acquiring Fund. The Board of Trustees has also determined that a
combination of the Acquired Fund and the Acquiring Fund would not result in a
dilution of the interests of the Acquired Fund's shareholders.
The Board of Directors of the Acquiring Fund has also determined
that it is advantageous to the Acquiring Fund to acquire the assets of the
Acquired Fund. The Board of Directors was presented with information that
indicated that investors will continue to be confused in the face of similar
New Jersey municipal bond funds managed by the same adviser. The Board also
was presented with information to the effect that, with two different funds,
Smith Barney experienced: (i) dilution of the firm's money management and
research expertise due to the splitting of attention between the two highly
similar funds; and (ii) client confusion associated with offering similar
funds that provide differing yields. In addition, among other factors, the
Board of Directors considered the proposed decrease in management fee rates as
well as pro forma financial information provided by the Manager which
indicated that the Reorganization should result in a decrease in the expense
ratio on shares of the Acquiring Fund. The Board of Directors also considered
the terms and conditions of the Reorganization and representations that the
Reorganization would be effected as a tax-free reorganization. Accordingly,
the Board of Directors, including a majority of the independent Directors, has
determined that the Reorganization is in the best interests of the Acquiring
Fund's shareholders and that the interests of the Acquiring Fund's
shareholders would not be diluted as a result of the Reorganization.
INFORMATION ABOUT THE REORGANIZATION
PLAN OF REORGANIZATION. The following summary of the Plan is
qualified in its entirety by reference to the Plan (Exhibit A hereto). The
Plan provides that the Acquiring Fund will acquire all or substantially all of
the assets of the Acquired Fund in exchange for shares of the Acquiring Fund
and the assumption by the Acquiring Fund of
<PAGE>30
scheduled liabilities of the Acquired Fund on November 17, 1995 or such later
date as may be agreed upon by the parties (the "Closing Date").
Prior to the Closing Date, the Acquired Fund will endeavor to
discharge all of its known liabilities and obligations. The Acquiring Fund
will not assume any liabilities or obligations other than those reflected on
an unaudited statement of assets and liabilities of the Acquired Fund prepared
as of the close of regular trading on the New York Stock Exchange, currently
4:00 p.m., New York City time, on the Closing Date. The number of full and
fractional Class A, Class B and Class C shares of the Acquiring Fund to be
issued to the Acquired Fund shareholders will be determined on the basis of
the Acquiring Fund's and the Acquired Fund's relative net asset value per
Class A, Class B and Class C shares, respectively. The net asset value per
share of each class will be determined by dividing assets, less liabilities,
by the total number of outstanding shares of the relevant class.
The Acquired Fund and the Acquiring Fund will utilize the procedures
set forth in the Prospectus of the Acquiring Fund to determine the value of
their respective portfolio securities and to determine the aggregate value of
each Fund's portfolio. The method of valuation employed will be consistent
with the requirements set forth in the Prospectus of the Acquiring Fund, Rule
22c-1 under the 1940 Act and the interpretation of such rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, the Acquired Fund will, and the
Acquiring Fund may, declare a dividend or dividends which, together with all
previous such dividends, will have the effect of distributing to their
respective shareholders all taxable income for the taxable period ending on or
prior to the Closing Date (computed without regard to any deduction for
dividends paid). In addition, the Acquired Fund's dividend will include its
net capital gains realized in the taxable year ending on or prior to the
Closing Date (after reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to shareholders of record
as of the close of business on the Closing Date the full and fractional shares
of the Acquiring Fund received by the Acquired Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the
names of the Acquired Fund's shareholders on the share records of the
Acquiring Fund's transfer agent. Each account will represent the respective
pro rata number of full and fractional shares of the Acquiring Fund due to
each of the Acquired Fund's shareholders. After such distribution and the
winding up of its affairs, the Acquired Fund will be terminated.
The consummation of the Reorganization is subject to the conditions
set forth in the Plan. Notwithstanding approval of the Acquired Fund's
shareholders, the Plan may be terminated at any time at or prior to the
Closing Date (i) by mutual agreement of Smith
<PAGE>31
Barney Muni Funds on behalf of the Acquired Fund, and the Acquiring Fund, (ii)
by Smith Barney Muni Funds on behalf of the Acquired Fund, in the event that
the Acquiring Fund shall, or the Acquiring Fund in the event that Smith Barney
Muni Funds shall, materially breach any representation, warranty or agreement
contained in the Plan to be performed at or prior to the Closing Date; or
(iii) by Smith Barney Muni Funds on behalf of the Acquired Fund, or by the
Acquiring Fund if a condition to the Plan expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably
appears that it will not or cannot be met.
Approval of the Plan will require the affirmative vote of a
majority, as defined in the 1940 Act, of the outstanding shares of the
Acquired Fund, which is the lesser of: (i) 67% of the voting securities of the
Acquired Fund present at the Meeting, if the holders of more than 50% of the
outstanding voting securities of the Acquired Fund are present or represented
by proxy; or (ii) more than 50% of the outstanding voting securities of the
Acquired Fund. If the Reorganization is not approved by shareholders of the
Acquired Fund, the Board of Trustees of Smith Barney Muni Funds will consider
courses of action available to it, including re-submitting the Reorganization
proposal to shareholders. Alternatively, the Board may choose to submit to
shareholders a proposal, already approved by Trustees, to adopt a new
investment management agreement that provides for an increase in the
management fee currently payable by the Acquired Fund to the Manager from
0.45% to 0.50% of the Acquired Fund's average daily net assets. The new
investment management agreement would otherwise be substantively identical to
the investment management agreement currently in effect between the Acquired
Fund and the Manager.
DESCRIPTION OF THE ACQUIRING FUND'S SHARES. Full and fractional
shares of common stock of the Acquiring Fund will be issued to the Acquired
Fund in accordance with the procedures detailed in the Plan and as described
in the Acquiring Fund's Prospectus. Generally, the Acquiring Fund does not
issue share certificates to shareholders unless a specific request is
submitted to the Acquiring Fund's transfer agent. See "Information on
Shareholders' Rights" and the Prospectus of the Acquiring Fund for additional
information with respect to the shares of the Acquiring Fund.
FEDERAL INCOME TAX CONSEQUENCES. The exchange of assets for shares
of the Acquiring Fund is intended to qualify for federal income tax purposes
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). As a condition to the closing of the
Reorganization, the Acquiring Fund and Smith Barney Muni Funds on behalf of
the Acquired Fund will receive an opinion from Willkie Farr & Gallagher,
counsel to the Acquiring Fund, to the effect that, on the basis of the
existing provisions of the Code, U.S. Treasury regulations issued thereunder,
current administrative rules, pronouncements and court decisions, for federal
income tax purposes, upon consummation of the Reorganization:
<PAGE>32
(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund's shares and the assumption by
the Acquiring Fund of scheduled liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C)
of the Code, and the Acquiring Fund and the Acquired Fund are each a
"party to a reorganization" within the meaning of Section 368(b) of the
Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for the
Acquiring Fund's shares and the assumption of scheduled liabilities of
the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon
the transfer of the Acquired Fund's assets to the Acquiring Fund in
exchange for the Acquiring Fund's shares and the assumption of scheduled
liabilities of the Acquired Fund or upon the distribution (whether actual
or constructive) of the Acquiring Fund's shares to the Acquired Fund's
shareholders;
(4) no gain or loss will be recognized by shareholders of the
Acquired Fund upon the exchange of their shares of the Acquired Fund for
shares of the Acquiring Fund;
(5) the aggregate tax basis for shares of the Acquiring Fund
received by each shareholder of the Acquired Fund pursuant to the
Reorganization will be the same as the aggregate tax basis of shares of
the Acquired Fund surrendered therefor, and the holding period of shares
of the Acquiring Fund to be received by each shareholder of the Acquired
Fund will include the period during which shares of the Acquired Fund
exchanged therefor were held by such shareholder (provided shares of the
Acquired Fund were held as capital assets on the date of the
Reorganization); and
(6) the tax basis to the Acquiring Fund of the Acquired Fund's
assets acquired by the Acquiring Fund will be the same as the tax basis
of such assets to the Acquired Fund immediately prior to the
Reorganization, and the holding period of the assets of the Acquired Fund
in the hands of the Acquiring Fund will include the period during which
those assets were held by the Acquired Fund.
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should also consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
<PAGE>33
CAPITALIZATION. The following table shows the capitalization of the
Acquiring Fund and the Acquired Fund as of September 25, 1995, and on a pro
forma basis as of that date, giving effect to the proposed acquisition of
assets at net asset value.
<TABLE>
<CAPTION>
Smith Barney
Smith Barney Muni New Jersey
Funds New Jersey Municipals Pro Forma for
Portfolio Fund Inc. Reorganization
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
(In thousands, except per share values)
Class A Shares
Net assets . . . . . . . . . . . . . . . . . $57,054 $105,579 $162,633
Net asset value per share . . . . . . . . . . $ 13.54 $ 12.88 $ 12.88
Shares outstanding . . . . . . . . . . . . . 4,215 8,198 12,629
Class B Shares
Net assets . . . . . . . . . . . . . . . . . $ 2,121 $ 58,657 $ 60,778
Net asset value per share . . . . . . . . . . $ 13.52 $ 12.87 $ 12.87
Shares outstanding . . . . . . . . . . . . . 157 4,556 4,721
Class C Shares
Net assets . . . . . . . . . . . . . . . . . $ 3,453 $ 326 $ 3,779
Net asset value per share . . . . . . . . . . $ 13.52 $ 12.87 $ 12.87
Shares outstanding . . . . . . . . . . . . . 255 25 293
Class Y Shares
Net assets . . . . . . . . . . . . . . . . . $0 $0 $0
Net asset value per share . . . . . . . . . . $0 $0 $0
Shares outstanding . . . . . . . . . . . . . 0 0 0
Class Z Shares
Net assets . . . . . . . . . . . . . . . . . N/A $0 $0
Net asset value per share . . . . . . . . . . N/A $0 $0
Shares outstanding . . . . . . . . . . . . . N/A 0 0
</TABLE>
As of the Record Date, there were 4,214,864 outstanding Class A
shares, 156,832 outstanding Class B shares, 255,362 outstanding Class C shares
and no outstanding Class Y shares of the Acquired Fund, and 8,198,416
outstanding Class A shares, 4,556,302 outstanding Class B shares, 25,350
outstanding Class
<PAGE>34
C shares and no outstanding Class Y shares or Class Z shares of the Acquiring
Fund. As of the Record Date, the officers and Trustees of Smith Barney Muni
Funds beneficially owned as a group less than 1% of the outstanding shares of
each class of the Acquired Fund. To the best knowledge of the Trustees of
Smith Barney Muni Funds, as of the Record Date, no shareholder or "group" (as
that term is used in Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")), except as set forth in the table below, owned beneficially
or of record more than 5% of the outstanding shares of a class of the Acquired
Fund. As of the Record Date, the officers and Directors of the Acquiring Fund
beneficially owned as a group less than 1% of the outstanding shares of each
class of the Acquiring Fund. Except as set forth in the table below, to the
best knowledge of the Directors of the Acquiring Fund, as of the Record Date,
no shareholder or "group" (as that term is used in Section 13(d) of the
Exchange Act) owned beneficially or of record more than 5% of the outstanding
shares of a class of the Acquiring Fund.
<TABLE>
<CAPTION>
Percentage of
Class Owned
of Record
or Beneficially
<S> <C> <C> <C>
Name and Fund Upon Consummation of the
Address and Class As of the Record Date Reorganization
Michael Donawick Acquired Fund 5.54% *
21 Whitmore Drive Class B
Toms River, NJ 08757
Carleton N. Rowe Acquired Fund 6.10 5.57%
Margaret T. Rowe Class C
206 Lenape Trail
Wenonah, NJ 08090
Theresa Stark Acquiring Fund 60.66 5.23
9 Brook Road Class C
P.O. Box 731
Tenafly, NJ 07670
Pascal John Ricatto & Acquiring Fund 12.31 *
Pamela Frederick Ricatto Class C
JTWROS
518 Morningside Road
Ridgewood, NJ 07450
<FN>
_________________
* Less than 1.00%
</TABLE>
<PAGE>35
INFORMATION ABOUT THE ACQUIRING FUND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF MARKET CONDITIONS AND
PORTFOLIO REVIEW (THROUGH MARCH 31, 1995).
Although municipal bond prices declined during the first half of the
Fund's fiscal year ended March 31, 1995, they rebounded quite sharply during
its second half. Despite this variable and oftentimes difficult investment
environment, the Fund provided investors in Class A shares with a total return
of 6.37% and Class B shares with a total return of 5.76% for the twelve months
ended March 31, 1995. Reflecting the improvement in the municipal market that
began in late 1994, Class C shares, a newly-available class of shares, earned
a total return of 8.01% for the period between December 13, 1994 and March 31,
1995.
Economic and Market Overview
Much can be said about the municipal bond and other fixed income
markets of the past twelve months ended March 31, 1995, but they certainly
cannot be described as dull. The Federal Reserve increased interest rates six
times in 1994 and once in 1995 in an attempt to slow the rate of economic
growth and prevent inflation from increasing. This process resulted in
declining bond prices and rising interest rates during the first half of the
Fund's fiscal year. During the second half of the year, the market produced a
powerful bond rally that began in December 1994 as investors came to the
conclusion that an elusive "soft landing" was indeed possible and inflation
posed no real threat. The Fund's net asset value rebounded as a result of
this rally, allowing it to post an increase for this fiscal year. Management
anticipates that slower economic growth (at least over the near term) will
contribute to a more stable interest rate environment in 1995 than investors
experienced in 1994. Management believes that this will be particularly true
of the tax-exempt market.
Prices for New Jersey tax-exempt securities rallied along with the
rest of the municipal sector as investors, who had experienced a very
difficult downturn in the market and perhaps even a significant erosion in the
value of their investments, became more comfortable with the economic scenario
that began unfolding in late 1994. In addition, Governor Whitman's tax
reductions and general approach to less government have been viewed favorably
by tax-exempt investors. As a result, demand from individual investors has
exceeded issuance and this, too, has led to higher prices for New Jersey tax-
exempt securities.
Portfolio Strategy
Management has continued to invest the Fund's assets in a portfolio
of high-quality New Jersey tax-exempt securities with an average maturity of
approximately 21 years. As of the end of the Fund's fiscal year ended March
31, 1995, 68% of the portfolio was invested in issues rated Aaa/AAA or Aa/AA
the two highest ratings in the investment grade category by Moody's
Investors Services and Standard & Poor's Corporation, respectively.
Management believes these securities offer shareholders the best value. The
majority of assets were invested in general obligation, hospital, education,
utility and pollution control bonds. These types of bonds provide the Fund
with competitive yields and a high degree of liquidity, which makes it easier
to navigate through turbulent market periods.
<PAGE>36
Outlook
While the fixed income market has had a meaningful rally since the
beginning of 1995, management thinks that it will be difficult to sustain for
the balance of the year. Although the market may encounter some periodic
volatility, management believes that it will be relatively stable for the
remainder of the year. Municipal bond issuance in New Jersey is almost 70%
lower to date in 1995 than it was in 1994, and this trend is expected to
continue for the balance of the year. This scarcity of supply should have a
steadying effect on the market over the months ahead.
Management's Update (through September 20, 1995).
Economic Overview
While the Orange County, California bankruptcy crisis remains a
lingering concern to investors, management believes that over the last six
months, tax reform has emerged as the major factor behind periodic weakness in
the tax-exempt market. The most publicized of several tax-reform proposals
currently circulating on Capitol Hill would reduce the value of tax-exempt
investments along with home mortgage interest and state and local tax
deductions. Management emphasizes that this and other plans are only
proposals, and real legislative action is still probably several years away.
Although the performance of tax-exempt investments has been
excellent so far in 1995 relative to last year's poor results, tax-reform
concerns, along with competition from a strong equity market, have caused
municipal bonds to underperform other fixed-income securities in recent
months. Municipal bonds are now quite cheap relative to Treasuries with long-
term single A issues providing over 90% of the yield available on long-term
Treasuries. At these levels, management believes that tax-exempt investors
are being compensated for any tax-reform plans that might be implemented in
the next two to three years.
During the last three to four months, interest rates have stayed
within a 25-basis point trading range, as the Federal Reserve Board's tight
monetary policy slowed economic growth. In July, the Fed began to reverse its
policy, and lowered the federal funds rate by one-quarter percentage point
from 6% to 5.75% in an effort to stimulate growth. Management expects that
the Fed will probably lower rates again some time in the fourth quarter.
Update on the State of New Jersey
New Jersey bond issuance has been subdued over the past several
months as the state develops new guidelines for bond sales. Governor Whitman
has followed through on her campaign promise to reduce income taxes by 30%
with the next installment of the reduction plan to be reflected in 1995 income
taxes. However, this reduction has been achieved at the expense of local
property taxes which have increased an average of 3% to 3.5% statewide. New
Jersey's success in lowering income taxes was also achieved by reducing
spending and the size of state government. The rating agencies have
recognized this accomplishment by reconfirming the state's excellent rating
(Aa1 from Moody's Investors Service and AA+ from Standard & Poor's
Corporation). Management continues to maintain a 20.9 year average maturity
in the Fund with a concentration of AAA rated issues (47.6%). Management
believes that this area represents the best value currently available in the
New Jersey municipal bond market.
<PAGE>37
<TABLE>
<CAPTION>
Smith Barney New Jersey Municipals Fund Inc.
<S> <C> <C> <C> <C> <C> <C>
Historical Performance Class A Shares (unaudited)
Year Ended Net Asset Value Capital Gains Dividends Paid Return of Total Return*
March 31 Beginning Ending Paid Capital
4/22/88-3/31/89 $11.40 $11.67 $0.01 $0.82 -- 9.84%
1990 $11.67 $11.92 $0.03 $0.82 -- 9.62%
1991 $11.92 $12.17 $0.05 $0.83 $0.01 9.89%
1992 $12.17 $12.44 $0.13 $0.77 $0.04 10.22%
1993 $12.44 $13.16 $0.14 $0.75 $0.01 13.49%
1994 $13.16 $12.55 $0.15 $0.70 -- 1.66%
1995 $12.55 $12.62 -- $0.70 -- 6.37%
Total $0.51 $ 5.39 $0.06
Cumulative Total Return - (4/22/88 through 3/31/95) 78.96%
<FN>
* Figures assume reinvestment of all dividends and capital
gains distributions at net asset value and do not assume
deduction of the front- end sales charge (maximum 4.00%).
</TABLE>
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS MONTHLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.
<PAGE>38
<TABLE>
<CAPTION>
Average Annual Total Return** Class A Shares
<S> <C> <C> <C> <C>
Without Sales Charge With Sales Charge***
With Without With Without
Fee Waiver Fee Waiver Fee Waiver Fee Waiver
and Expense and Expense and Expense and Expense
Reimbursement Reimbursement Reimbursement Reimbursement
Year Ended 3/31/95 N/A 6.37% N/A 2.11%
Five Years Ended
3/31/95 8.25% 8.09% 7.37% 7.21%
Inception 4/22/88
through 3/31/95 8.75% 8.46% 8.11% 7.82%
<FN>
** All average annual total return figures shown reflect
reinvestment of dividends and capital gains at net asset
value. The Acquiring Fund commenced operations on April
22, 1988. The Acquiring Fund's investment adviser,
sub-investment adviser and/or administrator waived
investment advisory and sub-investment advisory and
administration fees and/or reimbursed expenses from April
22, 1988 to March 31, 1994. A shareholder's actual return
for periods during which waivers and reimbursements were
in effect would be the higher of the two numbers shown.
*** Average annual total return figures shown assume the
deduction of the maximum 4.00% sales charge.
Note: On November 6, 1992, existing shares of the Fund were designated
Class A shares. Class A shares are subject to a maximum 4.00% front-end
sales charge and an annual service fee of 0.15% of the value of the
average daily net assets attributable to that class. The Acquiring Fund's
average annual rates of return would have been lower had service fees been
in effect prior to November 6, 1992.
</TABLE>
<PAGE>39
GROWTH OF $10,000 INVESTED IN CLASS A SHARES OF SMITH BARNEY NEW JERSEY
MUNICIPALS FUND INC. VS. LIPPER NEW JERSEY PEER GROUP AVERAGE AND LEHMAN
MUNICIPAL BOND INDEX*
April 22, 1988 - March 31, 1995
Description of Mountain Chart -- Class A
A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on April
22, 1988 in Class A shares of the Acquiring Fund as compared with the growth
of a $10,000 investment in the Lipper New Jersey Peer Group Average and the
Lehman Brothers Municipal Bond Index. The plot points used to draw the line
graphs were as follows:
<TABLE>
<CAPTION>
Growth of $10,000 Growth of $10,000 Investment
Growth of $10,000 Investment in the in the
Month Invested in Class A Lipper New Jersey Lehman Municipal
Ended Shares of the Fund Peer Group Average Bond Index
<S> <C> <C> <C>
04/22/88 $ 9,600 -- --
04/88 $ 9,651 $10,000 $10,000
05/88 $ 9,726 $10,002 $ 9,971
06/88 $ 9,916 $10,215 $10,117
09/88 $10,236 $10,531 $10,375
12/88 $10,530 $10,835 $10,568
03/89 $10,545 $10,895 $10,638
06/89 $11,160 $11,571 $11,268
09/89 $11,159 $11,501 $11,276
12/89 $11,506 $11,905 $11,709
03/90 $11,559 $11,926 $11,761
06/90 $11,861 $11,218 $12,036
09/90 $11,855 $12,167 $12,043
12/90 $12,429 $12,749 $12,563
03/91 $12,701 $13,042 $12,846
06/91 $12,943 $13,321 $13,121
09/91 $13,526 $13,873 $13,631
12/91 $13,949 $14,303 $14,089
03/92 $13,999 $14,331 $14,131
06/92 $14,577 $15,261 $14,667
09/92 $14,970 $14,914 $15,058
12/92 $15,264 $15,573 $15,332
03/93 $15,888 $16,169 $15,901
06/93 $16,452 $16,768 $16,421
09/33 $17,038 $17,349 $16,976
12/93 $17,246 $17,522 $17,214
03/94 $16,152 $16,463 $16,269
06/94 $16,299 $16,549 $16,540
09/94 $16,384 $16,644 $16,562
<PAGE>40
12/94 $16,039 $16,348 $16,324
03/95 $17,181 $17,406 $17,478
<FN>
* Illustration of $10,000 invested in Class A shares on
April 22, 1988 assuming deduction of the maximum 4.00%
sales charge at the time of investment and reinvestment of
dividends and capital gains at net asset value through
March 31, 1995.
Lipper New Jersey Municipal Fund Average - The Lipper New Jersey Peer Group
Average is composed of an average of the Fund's peer group of mutual funds
(50 as of March 31, 1995) investing in New Jersey tax-exempt bonds.
Lehman Municipal Bond Index - The Lehman Municipal Bond Index is an
unmanaged, broad-based index which includes about 8,000 tax-free bonds and
reflects approximately $300 billion of market capitalization.
Index information is available at month-end only; therefore the closest
month-end to inception date of the class has been used.
Note: All figures cited here and on the previous page represent past
performance of Class A shares and do not guarantee future results.
</TABLE>
<PAGE>41
<TABLE>
<CAPTION>
Smith Barney New Jersey Municipals Fund Inc.
Historical Performance Class B Shares (unaudited)
Year Ended Net Asset Value Capital Gains Dividends Return of
March 31 Beginning Ending Paid Paid Capital Total Return *
<S> <C> <C> <C> <C> <C> <C>
11/6/92-3/31/93 $12.75 $13.16 $0.14 $0.27 $0.01 6.60%
1994 $13.16 $12.55 $0.15 $0.63 -- 1.15%
1995 $12.55 $12.62 -- $0.62 -- 5.76%
Total $0.29 $1.52 $0.01
Cumulative Total Return (11/6/92 through 3/31/95) 14.04%
<FN>
* Figures assume reinvestment of all dividends and capital
gains distributions at net asset value and do not assume
deduction of the CDSC.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return** Class B Shares
Without Sales Charge With Sales Charge***
With Without With Without
Fee Waiver Fee Waiver Fee Waiver Fee Waiver
and Expense and Expense and Expense and Expense
Reimbursement Reimbursement Reimbursement Reimbursement
<S> <C> <C> <C> <C>
Year Ended 3/31/95 N/A 5.76% N/A 1.26%
Inception 11/6/92
through 3/31/95 5.63% 5.55% 4.47% 4.40%
<FN>
** All average annual total return figures shown reflect
reinvestment of dividends and capital gains distributions
at net asset value. The Fund's investment adviser,
sub-investment adviser and/or administrator waived fees
and/or reimbursed expenses from November 6, 1992 to March
31, 1994. A shareholder's actual return for periods
during which waivers and reimbursements were in effect
would be the higher of the two numbers shown.
*** Average annual total return figures assume the deduction
of the maximum applicable CDSC which is described in the
prospectus.
Note: The Fund began offering Class B shares on November 6, 1992. Class
B shares are subject to a maximum 4.50% CDSC and annual service and distribution
fees of 0.15% and 0.50%, respectively, of the value of the average daily
net assets attributable to that class.
</TABLE>
<PAGE>42
GROWTH OF $10,000 INVESTED IN CLASS B SHARES OF
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC. VS.
LIPPER NEW JERSEY PEER GROUP AVERAGE AND
LEHMAN MUNICIPAL BOND INDEX*
NOVEMBER 6, 1992 - MARCH 31, 1995
Description of Mountain Chart -- Class B
A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
November 6, 1992 in Class B shares of the Acquiring Fund as compared with the
growth of a $10,000 investment in the Lipper New Jersey Municipal Fund Average
and the Lehman Brothers Municipal Bond Index. The plot points used to draw
the line graphs were as follows:
<TABLE>
<CAPTION>
Growth of $10,000 Growth of $10,000 Investment
Growth of $10,000 Investment in the in the
Month Invested in Class B Lipper New Jersey Lehman Municipal
Ended Shares of the Fund Peer Group Average Bond Index
<S> <C> <C> <C>
10/31/92 - $10,000 $10,000
11/06/92 $10,000 - -
11/92 $10,140 $10,265 $10,179
12/92 $10,255 $10,398 $10,283
03/93 $10,660 $10,797 $10,664
06/93 $11,025 $11,197 $11,013
09/93 $11,404 $11,585 $11,385
12/93 $11,529 $11,700 $11,545
03/94 $10,782 $10,993 $10,911
06/94 $10,865 $11,051 $11,032
09/94 $10,907 $11,114 $11,108
12/94 $10,662 $10,916 $10,948
03/95 $11,404** $11,623 $11,722
03/95 $11,107***
<FN>
* Illustration of $10,000 invested in Class B shares on
November 6, 1992 assuming reinvestment of dividends and
capital gains distributions at net asset value through
March 31, 1995.
** Value does not assume deduction of applicable CDSC.
*** Value assumes deduction of applicable CDSC (assuming
redemption on March 31, 1995).
Lipper New Jersey Peer Group Average - The Lipper New Jersey Municipal Fund
Average is composed of an average of the Fund's peer group of mutual funds (50
as of March 31, 1995) investing in New Jersey municipal bonds.
Lehman Municipal Bond Index - The Lehman Brothers Municipal Bond Index is an
unmanaged, broad-based index which includes about 8,000 tax-free bonds and
reflects approximately $300 billion of market capitalization.
<PAGE>43
Index information is available at month-end only; therefore, the closest
month-end to inception date of the Fund has been used.
Note: All figures cited here and on the following pages represent past
performance of the Fund and do not guarantee future results.
</TABLE>
<PAGE>44
Smith Barney New Jersey Municipals Fund Inc.
<TABLE>
<CAPTION>
Historical Performance Class C Shares (unaudited)
Year Ended Net Asset Value Capital Dividends Total
March 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>
12/13/94-3/31/95 $11.86 $12.62 $0.00 $0.18 8.01%
Cumulative Total Return (12/13/94 through 3/31/95) 8.01%
<FN>
* Figures assume reinvestment of all dividends and capital
gains distributions at net asset value and do not assume
deduction of the CDSC.
</TABLE>
<TABLE>
<CAPTION>
Aggregate Total Return** -- Class C Shares
<S> <C> <C>
Without CDSC With CDSC
Actual Actual***
Inception 12/13/94 through 3/31/95 8.01% 7.01%
<FN>
** All aggregate total return figures shown reflect
reinvestment of dividends and capital gains distributions
at net asset value.
*** Aggregate total return figures assume the deduction of the
maximum applicable CDSC, which is described in the
Acquiring Fund's prospectus.
Note: The Fund began offering Class C shares on November 7,
1994 and commenced selling these shares on December
13, 1994. Class C shares are subject to a maximum
1.00% CDSC and annual service and distribution fees of
0.15% and 0.55%, respectively, of the value of the
average daily net assets attributable to that class.
</TABLE>
Performance information is not available for Class Y shares of the
Acquiring Fund because, as of the Record Date, no Class Y shares of the
Acquiring Fund had been sold.
<PAGE>45
INFORMATION ABOUT THE ACQUIRED FUND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF MARKET CONDITIONS AND
PORTFOLIO REVIEW (THROUGH MARCH 31, 1995).
Municipal bond prices posted extremely strong gains in the first
quarter of 1995, erasing most of the losses from last year's turbulent market.
The New Jersey Portfolio had a total return of 6.64% (Class A shares) for the
fiscal year. That was significantly above the 5.68% average total return for
all New Jersey municipal bond funds over the same period, as reported by
Lipper Analytical Services.
Longer-term performance of the Portfolio is also excellent relative
to its peers. The Portfolio's three-year cumulative total return (excluding
sales charge) of 23.73% (Class A shares) outperformed the average cumulative
total return of 22.61% for all New Jersey municipal bond funds in the Lipper
survey for the period ended March 31, 1995. It should be noted that this
strong performance over the last three years has been achieved with the need
for only minimal capital gains distributions, an important consideration for
investors interested in after-tax income.
Market and Economic Overview
Since management's last report to shareholders in November 1994, the
fixed-income markets, and municipal bonds in particular, have enjoyed a
powerful rally. Municipal bond yields have declined more than a full
percentage point, as evidenced by the drop in the average yield on The Bond
Buyer's weekly 25-Bond Revenue Index of 30-year municipal bonds from a high of
7.37% on November 17, 1994 to 6.29% on March 31, 1995. This was substantially
better than the performance of the benchmark 30-year Treasury bond, which
experienced a decline in yield of 70 basis points from 8.13% to 7.43% during
the same time frame.
The vastly improved bond markets reflect a growing consensus that
inflation will remain under control, and the Federal Reserve Board will be
successful in engineering a "soft landing" by slowing the economy down to a
more sustainable, non-inflationary rate of growth. The seven increases in the
federal funds rate (the rate banks charge each other for overnight loans),
orchestrated by the Federal Reserve Board since February 1994, appear to be
slowing the pace of economic growth. Recent economic reports show a slower
rate of increase in employment, producer prices and retail sales. Industrial
production and capacity utilization were also lower than expected signaling a
possible slowdown in the country's strong manufacturing sector. These
generally favorable economic fundamentals are more than offsetting concerns
about the substantial decline in the value of the dollar relative to the
Japanese yen and German mark on the foreign exchange markets.
<PAGE>46
Late in April, several tax-reform proposals which recommend a flat
federal income tax rate began to receive increased attention in the national
financial press and from municipal bond market participants. Adoption of a
flat tax would diminish the advantages of tax exemption for municipal bonds.
Although the various plans being circulated are only proposals, the publicity
surrounding them has recently caused some investors to back away from the
municipal bond market. In management's opinion, it is much too early in the
process to predict what changes in the tax laws, if any, will actually take
place, but tax reform will certainly be a major topic of political debate over
the next few years. Many observers believe that the more radical proposals
for changes in the way taxes are collected have little chance for enactment.
Absent these tax-reform concerns, municipals would probably continue
to be strong performers relative to Treasuries and other taxable investments
due to the low supply of new issues. Not only did last year's spike in
interest rates sharply reduce refinancing activity in the municipal market,
but voter pressure on states and municipalities to rein in spending and cut
taxes, or at least avoid tax increases, has also resulted in a roughly 30%
decline in new-money financing. In addition, the universe of existing
municipal bonds is shrinking. In 1995, an estimated $230 billion in older
high-coupon issues will mature or be called as they reach their first optional
call dates. With estimates of new-issue volume at less than $150 billion, the
net reduction in municipal debt outstanding could approach $100 billion this
year, contracting the market by about eight percent. Ordinarily, a reduction
in supply of this magnitude would be expected to provide a powerful boost for
municipal bond values as it did earlier this year. Uncertainties about
various tax proposals, however, will probably keep municipals from trading any
better than their normal relationship to taxable investment alternatives.
The New Jersey Economy
Economic conditions in New Jersey are slowly recovering, producing
increased state revenue collections. A proposed tax-cut plan will be closely
watched by the major rating agencies for offsetting reductions in
expenditures. New Jersey's general obligation debt carries as of March 31,
1995, an Aa1 rating from Moody's and an AA+ rating from Standard & Poor's with
a "stable" outlook.
Portfolio Strategy and Outlook
While management generally has a positive outlook for the fixed-
income markets, the size of the rally experienced so far would seem to leave
little room for disappointment, and any sign of a rebound in economic activity
is likely to result in a return to higher interest rates. Management also
believes that the unique supply and demand characteristics of the municipal
market and tax-reform uncertainties will tend to exaggerate price swings
relative to taxable investments.
<PAGE>47
In light of this viewpoint, management is maintaining a balanced
approach to structuring the interest-rate sensitivity of the Portfolio by
investing in a combination of both long and short effective maturities. Most
long-term municipal bonds are callable prior to their stated maturity date.
When a bond has a coupon higher than prevailing market yields, its maturity is
effectively shortened to the call date for trading purposes because of the
possibility that the issuer will exercise its option to replace the bond with
lower-cost debt. Management is retaining high-coupon bonds that trade well
above their face value for the defensiveness of their shorter effective
maturities and the above-market level of income they provide. However,
management is also focusing on eliminating bonds with shorter call dates when
they are trading near their face value. Such bonds have unfavorable
performance characteristics because they retain the downside risk of their
longer maturity if rates should rise, but their appreciation potential is
limited by the shorter call date if interest rates decline. Management is
replacing such issues with bonds that have similar stated maturities but
greater call protection.
Although this strategy sacrifices some of the current income being
generated by the Portfolio, it enhances long-term performance potential if
interest rates continue to decline without adding to downside risk if interest
rates rise. Management believes that positioning the Portfolio in this manner
is the best way to achieve the Fund's objective of the highest tax-free income
consistent with prudent investment risk.
Management's Update (as of September 13, 1995).
The fixed-income markets have been rallying in recent weeks in
response to economic reports pointing to slower growth and lower inflation.
This rally has pushed the yield on the benchmark 30-year Treasury bond to the
low end of the 6.5% to 7% range, where it has been trading over the last
several months. After significantly underperforming Treasuries during the
strong rally earlier in the year, long-term municipals have kept pace with 30-
year Treasuries as reflected in the movement in the yield of The Bond Buyer's
25 Revenue Bond Index to 6.16% from its recent peak of 6.44% reached in mid-
August. However, municipal bonds are still quite cheap relative to Treasuries
with long-term single A issues providing over 90% of the yield available on
long-term Treasuries. The primary reason for this historically high
taxable/tax-exempt yield ratio is investor concern over the potential impact
of various highly publicized "flat tax" proposals discussed in management's
March 31, 1995 report to shareholders. At these levels, management believes
that all but the most radical tax reform proposals have been more than fully
discounted, and that long-term municipals represent excellent value.
While inflation remains quite subdued, and management does not
expect it to accelerate meaningfully from current levels, in management's
opinion any sign of a rebound in economic activity is likely to result in a
move to higher interest rates over the near term.
<PAGE>48
Management intends to retain most of the Portfolio's more defensive high-
coupon issues for income purposes but will have a bias toward putting new cash
flows to work in non-callable and lower-coupon bonds in what it believes will
be a positive environment for fixed-income investments over the longer term.
The New Jersey Economy
Economic conditions in New Jersey continue to recover. There has
been no change in the state's ratings, which are Aa1 from Moody's and AA+
(with a stable outlook) from Standard & Poor's.
<PAGE>49
Smith Barney Muni Funds -- New Jersey Portfolio
<TABLE>
<CAPTION>
Historical Performance Class A Shares
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)
3/31/95 $13.23 $13.29 $0.78 $0.00 6.64%
3/31/94 13.71 13.23 0.80 0.00 2.17
3/31/93 12.90 13.71 0.82 0.06 13.55
3/31/92 12.52 12.90 0.85 0.08 10.73
Inception* - 3/31/91 12.00 12.52 0.33 0.00 7.12
Total $3.58 $0.14
</TABLE>
<TABLE>
<CAPTION>
Historical Performance Class B Shares
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)
Inception* - 3/31/95 $12.26 $13.28 $0.29 $0.00 10.86%
</TABLE>
<TABLE>
<CAPTION>
Historical Performance Class C Shares
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)
3/31/95 $13.22 $13.28 $0.69 $0.00 5.91%
3/31/94 13.71 13.22 0.71 0.00 1.40
Inception* - 3/31/93 13.36 13.71 0.19 0.00 4.04
Total $1.59 $0.00
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital
gains, if any, annually.
<PAGE>50
Smith Barney Muni Funds -- New Jersey Portfolio
<TABLE>
<CAPTION>
Average Annual Total Return
<S> <C> <C> <C>
Without Sales Charge(1)
Class A Class B Class C
Year Ended 3/31/95 6.64% N/A 5.91%
Inception* through 3/31/95 8.96 10.86 5.10
<CAPTION>
With Sales Charge(2)
Class A Class B Class C
Year Ended 3/31/95 2.38% N/A 4.91%
Inception* through 3/31/95 7.97 6.36 5.10
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total Return
<S> <C>
Without Sales Charge(1)
Class A (Inception* through 3/31/95) 46.74%
Class B (Inception* through 3/31/95) 10.86
Class C (Inception* through 3/31/95) 11.74
<FN>
(1) Assumes reinvestment of all dividends and capital gain distributions at
net asset value and does not reflect deduction of the applicable sales
charge with respect to Class A shares or the applicable CDSC with
respect to Class B and Class C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions at
net asset value. In addition, Class A shares reflect the deduction of
the maximum initial sales charge of 4.00%; Class B shares reflect the
deduction of a 4.50% CDSC, which applies if shares are redeemed less
than one year from initial purchase. This CDSC declines by 0.50% the
first year after purchase and by 1.00% per year thereafter until no CDSC
is incurred. Class C shares reflect the deduction of a 1.00% CDSC which
applies if shares are redeemed within the first year of purchase.
* Inception dates for Class A, Class B and Class C shares are October 11,
1990, November 16, 1994 and January 5, 1993, respectively.
</TABLE>
<PAGE>51
Growth of $10,000 Invested in
Class A Shares of New Jersey Portfolio vs.
Lehman Long Bond Index* Portfolio
(unaudited)
October 1990 - March 1995
Description of Mountain Chart - Class A
A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
October 11, 1990 in Class A shares of the Acquired Fund as compared with the
growth of a $10,000 investment in the Lehman Brothers Long Bond Index. The
plot points used to draw the line graphs were as follows:
<TABLE>
<CAPTION>
Growth of $10,000 Investment in Growth of $10,000 Investment in
Month Ended Class A Shares Lehman Long Bond Index
<S> <C> <C>
October 11, 1990 $ 9,600.00 $10,000.00
March 31, 1991 10,273.03 10,757.71
March 31, 1992 11,345.40 11,982.77
March 31, 1993 12,851.10 13,735.72
March 31, 1994 13,099.60 13,893.25
March 31, 1995 13,949.80 15,147.72
<FN>
* Hypothetical illustration of $10,000 invested in Class A shares at
inception on October 11, 1990, assuming deduction of the maximum 4.00%
sales charge at the time of investment and reinvestment of dividends
(after deduction of applicable sales charges, if any) and capital gains
(at net asset value) through March 31, 1995. The Index is unmanaged and
is not subject to the same management and trading expenses of a mutual
fund. The performance of the Portfolio's other classes may be greater or
less than the Class A shares' performance indicated on this chart,
depending on whether greater or lesser sales charges and fees were
incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
</TABLE>
Performance information is not available for Class Y shares of
Acquired Fund because, as of the Record Date, no Class Y shares of Acquired
Fund had been sold.
<PAGE>52
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion comparing investment objectives, policies
and restrictions of the Acquiring Fund and the Acquired Fund is based upon and
qualified in its entirety by the disclosure in the prospectuses of the
Acquiring Fund and the Acquired Fund with respect to the Funds' respective
investment objectives, policies and restrictions. For a full discussion of
these issues as they relate to the Acquiring Fund, refer to the Prospectus of
the Acquiring Fund, which accompanies this Prospectus/Proxy Statement, under
the caption "Investment Objective and Management Policies," and for a
discussion of these issues as they relate to the Acquired Fund, refer to the
Prospectus of the Acquired Fund under the caption "Investment Objectives and
Management Policies."
INVESTMENT OBJECTIVE. The Acquiring Fund and the Acquired Fund have
generally similar investment objectives. The Acquiring Fund seeks to provide
New Jersey investors with as high a level of dividend income exempt from
federal income tax and New Jersey personal income tax as is consistent with
prudent investment management and the preservation of capital. The Acquired
Fund seeks to provide as high a level of income exempt from federal income
taxes and from New Jersey personal income taxes as is consistent with prudent
investing. There can be no assurance that either Fund will be able to achieve
its investment objective. Both the Acquiring Fund's and the Acquired Fund's
investment objectives are considered fundamental policies which cannot be
changed without the affirmative vote of a majority, as defined in the 1940
Act, of the outstanding voting securities of the respective Fund, which is the
lesser of: (i) 67% of the voting securities of the Fund present at a meeting
of shareholders, if the holders of more than 50% of the outstanding voting
securities of such Fund are present or represented by proxy; or (ii) more than
50% of the outstanding voting securities of such Fund.
PRIMARY INVESTMENTS. The Acquiring Fund operates subject to an
investment policy providing that, under normal market conditions, it will
invest at least 80% of its net assets in municipal securities and at least 65%
of the aggregate principal amount of the Acquiring Fund's investments in New
Jersey municipal securities, which pay interest which is excluded from gross
income for federal income tax purposes and which is exempt under the New
Jersey Gross Income Tax Act. Municipal obligations are issued to raise money
for a variety of public projects, such as health facilities, housing,
airports, schools, highways and bridges. Whenever less than 80% of the
Acquired Fund's assets are invested in New Jersey municipal securities, the
Acquired Fund, in order to maintain its status as a "qualified investment
fund" under New Jersey law, will seek to invest in debt obligations which, in
the opinion of counsel to the issuers, are free from state or local taxation
under New Jersey or federal laws ("Tax-Exempt Obligations"). The Acquired
Fund's investments in New Jersey municipal securities and Tax-Exempt
Obligations will represent at least 80% of the aggregate principal amount of
all of its investments, excluding cash and cash items (including receivables).
Subject to these minimum investment intentions, the Acquiring Fund
<PAGE>53
also may acquire intermediate- and long-term debt obligations consisting of
municipal securities, the interest on which is at least exempt from federal
income taxation (not including the possible applicability of the alternative
minimum tax). When the Manager believes that market conditions warrant
adoption of a temporary defensive investment posture, the Acquiring Fund may
invest without limit in non-New Jersey municipal issuers and in temporary
investments as described below. The Acquired Fund operates subject to a
fundamental policy that under normal market conditions it will seek to invest
100% of its assets, and will invest not less than 80% of its assets, in
municipal obligations the interest on which is exempt from federal income
taxes (other than the alternative minimum tax) and not less than 65% of its
assets in municipal obligations the interest on which is also exempt from New
Jersey personal income taxes in the opinion of bond counsel to the issuers.
The Acquired Fund may invest up to 20% of its assets in taxable fixed income
securities, but only in obligations issued or guaranteed by the full faith and
credit of the United States ("U.S. government securities"), and may invest
more than 20% of its assets in U.S. government securities during periods when
in the Manager's opinion a temporary defensive posture is warranted, including
any period when the Acquired Fund's monies available for investment exceed New
Jersey's municipal obligations available for purchase that meet the Acquired
Fund's rating, maturity and other investment criteria.
The Acquiring Fund generally will invest at least 75% of its total
assets in investment grade debt obligations rated no lower than Baa, MIG 3 or
Prime-1 by Moody's Investors Services, Inc. ("Moody's") or BBB, SP-2 or A-1 by
Standard & Poor's Corporation ("S&P"), or in unrated obligations of comparable
quality. Unrated obligations will be considered to be of investment grade if
deemed by the Manager to be comparable in quality to instruments so rated, or
if other outstanding obligations of the issuers thereof are rated Baa or
better by Moody's or BBB or better by S&P. The balance of the Acquiring
Fund's assets may be invested in securities rated as low as C by Moody's or D
by S&P, or comparable unrated securities. (These securities are often
referred to as "junk bonds.") Securities in the fourth highest rating
category, though considered to be investment grade, have speculative
characteristics. Securities rated as low as D are extremely speculative and
are in actual default of interest and/or principal payments. Obligations
which are rated Baa by Moody's or BBB by S&P and those which are weighted
lower than investment grade are subject to greater market fluctuations and
more uncertainty as to payment of principal and interest, and therefore
generate higher yields, than obligations rated above Baa or BBB.
Municipal bonds purchased by the Acquired Fund must, at the time of
purchase, be investment grade municipal bonds and at least two-thirds of the
Acquired Fund's municipal bonds must be rated in the category of A or better.
Investment grade bonds are those rated Aaa, Aa, A or Baa by Moody's or AAA,
AA, A or BBB by S&P or have an equivalent rating by any nationally recognized
statistical rating organization; pre-refunded bonds escrowed by U.S. Treasury
obligations will be considered AAA rated even though the issuer does not
obtain a new rating. Up to one-third of the assets of the Acquired
<PAGE>54
Fund may be invested in municipal bonds rated Baa or BBB (this grade, while
regarded as having an adequate capacity to pay interest and repay principal,
is considered to be of medium quality and has speculative characteristics; in
addition, changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with higher grade bonds) or in unrated municipal bonds if,
based upon credit analysis by the Manager, it is believed that such securities
are at least of comparable quality to those securities in which the Acquired
Fund may invest. After the Acquired Fund purchases a municipal bond, the
issuer may cease to be rated or its rating may be reduced below the minimum
required for purchase. Such an event would not require the elimination of the
issue from the Acquired Fund's portfolio but the Manager will consider such an
event in determining whether the Acquired Fund should continue to hold the
security. The Acquired Fund's short-term municipal obligations will be
limited to high grade obligations (obligations that are secured by the full
faith and credit of the United States or rated MIG1 or MIG2, VMIG1 or VMIG2 or
Prime-1 or Aa or better by Moody's or SP-1+, SP-1, SP-2, or A-1 or AA or
better by S&P or have an equivalent rating by any nationally recognized
statistical rating organization or obligations determined by the Manager to be
equivalent). Among the types of short-term instruments in which the Acquired
Fund may invest are floating or variable rate term demand instruments, tax-
exempt commercial paper (generally having a maturity of less than nine
months), and other types of notes generally having maturities of less than
three years, such as Tax Anticipation Notes, Revenue Anticipation Notes, Tax
and Revenue Anticipation Notes and Bond Anticipation Notes. Demand
instruments usually have an indicated maturity of more than one year, but
contain a demand feature that enables the holder to redeem the investment on
no more than 30 days' notice; variable rate demand instruments provide for
automatic establishment of a new interest rate on set dates; floating rate
demand instruments provide for automatic adjustment of their interest rates
whenever some other specified interest rate changes (e.g., the prime rate).
The Acquired Fund may purchase participation interests ("Participations") in
variable rate tax-exempt securities (such as Industrial Development Bonds)
owned by banks. Participations are frequently backed by an irrevocable letter
of credit or guarantee of a bank that the Manager has determined meets the
prescribed quality standards for the Acquired Fund. Participations will be
purchased only if management believes interest income on such Participations
will be tax-exempt when distributed as dividends to shareholders.
Each Fund's average weighted maturity will vary from time to time
based on the judgment of the Manager. The Acquiring Fund intends to focus on
intermediate- and long-term obligations, that is, obligations with remaining
maturities at the time of purchase of between three and twenty years. The
average maturity of the Acquired Fund's bonds will typically range between
five and thirty years.
Because many issuers of New Jersey municipal securities may chose
not to have their obligations rated, it is possible that a large portion of
each Fund's portfolio may consist of unrated obligations. Unrated obligations
are not necessarily of lower quality than
<PAGE>55
rated obligations, but to the extent a Fund invests in unrated obligations,
the Fund will be more reliant on the Manager's judgment, analysis and
experience than would be the case if such Fund invested only in rated
obligations.
The Acquiring Fund may invest without limit in municipal leases,
which generally are participations in intermediate- and short-term debt
obligations issued by municipalities consisting of leases or installment
purchase contracts for property or equipment. Although lease obligations do
not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain non-appropriation clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. In addition
to the non-appropriation risk, these securities represent a relatively new
type of financing that has not yet developed the depth of marketability
associated with more conventional bonds. Although non-appropriation lease
obligations are often secured by the underlying property, disposition of the
property in the event of foreclosure might prove difficult. There is no
limitation on the percentage of the Acquiring Fund's assets that may be
invested in municipal lease obligations. The Acquired Fund does not have an
expressed position with respect to investing in municipal leases.
Each Fund may invest without limits in private activity bonds.
Sizable investments in such obligations could involve an increased risk to the
Funds should any of the related projects or facilities experience financial
difficulties. Interest income on certain types of private activity bonds
issued after August 7, 1986 to finance non-governmental activities is a
specific tax preference item for purposes of the federal individual and
corporate alternative minimum taxes. Individual and corporate shareholders
may be subject to a federal alternative minimum tax to the extent that a
Fund's dividends are derived from interest on those bonds. Dividends derived
from interest income on New Jersey municipal securities are a component of the
"current earnings" adjustment item for purposes of the federal corporate
alternative minimum tax.
Each of the Acquiring Fund and Smith Barney Muni Funds is classified
as a non-diversified investment company under the 1940 Act, which means that
each Fund is not limited by the 1940 Act in the proportion of its assets that
it may invest in the obligations of a single issuer. Each Fund intends to
conduct its operations, however, so as to qualify as a "regulated investment
company" for purposes of the Code, which will relieve the Fund of any
liability for federal income tax and New Jersey state franchise tax to the
extent its earnings are distributed to shareholders. To so qualify, among
other requirements, each Fund will limit its investments so that, at the close
of each quarter of the taxable year, (a) not more than 25% of the market value
of such Fund's total assets will be invested in the securities of a single
issuer and (b) with respect to 50% of the market value of its total
<PAGE>56
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer.
New Jersey Municipal Securities. The two principal classifications
of New Jersey municipal securities are "general obligation bonds" and "revenue
bonds." General obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source, but not from the general taxing
power. Sizeable investments in such obligations could involve an increased
risk to the Fund should any of such related facilities experience financial
difficulties. In addition, certain types of private activity bonds issued by
or on behalf of public authorities to obtain funds for privately operated
facilities are included in the term New Jersey municipal securities, provided
the interest paid thereon qualifies as excluded from gross income for federal
income tax purposes and as exempt from New Jersey state personal income tax.
Private activity bonds are in most cases revenue bonds and generally do not
carry the pledge of the credit of the issuing municipality.
In attempting to achieve its investment objective, the Funds may
employ, among others, the following portfolio strategies:
When-Issued Securities. New issues of New Jersey municipal
securities (and other tax-exempt obligations) frequently are offered on a
when-issued basis, which means that delivery and payment for such securities
normally take place within 45 days after the date of the commitment to
purchase. Each Fund will not accrue income with respect to a when-issued
security prior to its stated delivery date. When-issued securities may
decline or appreciate in value before their actual delivery to a Fund. Each
Fund will establish a segregated account with the Fund's custodian consisting
of cash, U.S. government securities or other high grade debt obligations in an
amount equal to the purchase price of the Fund's when-issued commitments. A
Fund generally will make commitments to purchase New Jersey municipal
securities (and other tax-exempt obligations) on a when-issued basis only with
the intention of actually acquiring the securities, but the Fund may sell such
securities before the delivery date if it is deemed advisable.
Temporary Investments. Under normal market conditions, the
Acquiring Fund may hold up to 20% of its total assets in cash or money market
instruments, including taxable money market instruments ("Temporary
Investments"). In addition, when the Manager believes that market conditions
warrant, including when acceptable New Jersey municipal securities are
unavailable, the Acquiring Fund may take a temporary defensive posture and
invest without limitation in Temporary Investments. Securities eligible for
short-term investment by the Acquiring Fund under such circumstances are tax-
exempt notes of municipal issuers having, at the time of purchase, a rating
within the three highest grades of
<PAGE>57
Moody's or S&P or, if not rated, having an issue of outstanding debt
securities rated within the three highest grades of Moody's or S&P, and
certain taxable short-term instruments having quality characteristics
comparable to those for tax-exempt investments. Since the commencement of its
operations, the Acquiring Fund has not found it necessary to invest in taxable
Temporary Investments and it is not expected that such action will be
necessary. Similarly, the Acquired Fund may invest up to 20% of its assets in
taxable fixed income securities, but only in U.S. government securities, and
may invest more than 20% of its assets in U.S. government securities during
periods when in the Manager's opinion a temporary defensive posture is
warranted, including any period when the Acquired Fund's monies available for
investments exceed New Jersey's municipal obligations available for purchase
that meet the Acquired Fund's rating, maturity and other investment criteria.
To the extent a Fund holds Temporary Investments, it may not achieve its
investment objective.
Financial Futures and Options Transactions. The Acquiring Fund may
enter into financial futures contracts and invest in options on financial
futures contracts that are traded on a domestic exchange or board of trade.
Such investments, if any, by the Acquiring Fund will be made solely for the
purpose of hedging against the changes in the value of its portfolio
securities due to anticipated changes in interest rates and market conditions
and where the transactions are economically appropriate to the reduction of
risks inherent in the management of the Acquiring Fund. The futures contracts
or options on futures contracts that may be entered into by the Acquiring Fund
will be restricted to those that are either based on a municipal securities
index or related to debt securities, the prices of which are anticipated by
the Manager to correlate with the prices of the New Jersey municipal
securities owned or to be purchased by the Acquiring Fund. Regulations of the
Commodity Futures Trading Commission applicable to the Acquiring Fund (and the
Acquired Fund) require that its transactions in financial futures contracts
and options on financial futures contracts be engaged in for bona fide hedging
purposes, or if the Fund enters into futures contracts for speculative
purposes, that the aggregate initial margin deposits and premiums paid by the
Fund will not exceed 5% of the market value of its assets. In addition, the
Acquiring Fund's ability to trade in financial futures contracts and options
on financial futures contracts may be limited to some extent by the
requirements of the Code, applicable to a regulated investment company, that
are described in the accompanying Prospectus of the Acquiring Fund under
"Dividends, Distributions and Taxes."
Although the Acquiring Fund intends to enter into financial futures
contracts and options on financial futures contracts that are traded on a
domestic exchange or board of trade only if an active market exists for those
instruments, no assurance can be given that an active market will exist for
them at any particular time. If closing a futures position in anticipation of
adverse price movements is not possible, the Acquiring Fund would be required
to make daily cash payments of variation margin. In those circumstances, an
increase in the value of the portion of the Acquiring Fund's investments being
hedged, if any, may offset partially or completely losses on the futures
contract. No assurance can be
<PAGE>58
given, however, that the price of the securities being hedged will correlate
with the price movements in a futures contract and, thus, provide an offset to
losses on the futures contract or option on the futures contract. In addition,
in light of the risk of an imperfect correlation between securities held by
the Acquiring Fund that are the subject of a hedging transaction and the
futures or options used as a hedging device, the hedge may not be fully
effective because, for example, losses on the securities held by the Acquiring
Fund may be in excess of gains on the futures contract or losses on the
futures contract may be in excess of gains on the securities held by the
Acquiring Fund that were the subject of the hedge. In an effort to compensate
for the imperfect correlation of movement in the price of the securities being
hedged and movements in the price of futures contracts, the Acquiring Fund may
enter into financial futures contracts or options on financial futures
contracts in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the futures contract
has been less or greater than that of the securities. This "over hedging" or
"under hedging" may adversely affect the Acquiring Fund's net investment
results if market movements are not as anticipated when the hedge is
established.
If the Acquiring Fund has hedged against the possibility of an
increase in interest rates adversely affecting the value of securities it
holds and rates decrease instead, the Acquiring Fund will lose part or all of
the benefit of the increased value of securities that it has hedged because it
will have offsetting losses in its futures or options position. In addition,
in those situations, if the Acquiring Fund has insufficient cash, it may have
to sell securities to meet daily variation margin requirements on the futures
contracts at a time when it may be disadvantageous to do so. These sales of
securities may, but will not necessarily, be at increased prices that reflect
the decline in interest rates.
The Acquired Fund may also invest in municipal bond index futures
contracts (currently traded on the Chicago Board of Trade) or in listed
contracts based on U.S. government securities as a hedging policy in pursuit
of its investment objective; provided that immediately thereafter not more
than 33-1/3% of its net assets would be hedged or the amount of margin deposit
on the Acquired Fund's net assets would not exceed 5% of the value of its
total assets. Since any income would be taxable, it is anticipated that such
investments would be made only in those circumstances when the Manager
anticipates the possibility of an extreme change in interest rates or in
market conditions but does not wish to liquidate the Acquired Fund's
securities.
Lower Rated Securities or "Junk Bonds." Although the Acquiring Fund
has not substantially done so in the past, the Acquiring Fund may invest up to
25% of its total assets in Securities that are rated as low as C by Moody's or
D by S&P, or comparable unrated securities. While the market values of low-
rated and comparable unrated securities tend to react less to fluctuations in
interest rate levels than the market values of higher-rated securities, the
market values of certain low-rated and comparable unrated municipal securities
also tend to be more sensitive than higher-rated securities to short-term
corporate and
<PAGE>59
industry developments and changes in economic conditions (including recession)
in specific regions or localities or among specific types of issuers. In
addition, lower-rated securities and comparable unrated securities generally
present a higher degree of credit risk. During an economic downturn or a
prolonged period of rising interest rates, the ability of issuers of lower-
rated and comparable unrated securities to service their payment obligations,
meet projected goals or obtain additional financing may be impaired. The risk
of loss due to default by such issuers is significantly greater because low-
rated and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. The Acquiring
Fund may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal or interest on its
portfolio holdings.
While the market for municipal securities is considered to be
generally adequate, the existence of limited markets for particular low-rated
and comparable unrated securities may diminish the Acquiring Fund's ability to
(a) obtain accurate market quotations for purposes of valuing such securities
and calculating its net asset value and (b) sell the securities at fair value
either to meet redemption requests or to respond to changes in the economy or
in the financial markets. The market for certain low-rated and comparable
unrated securities has not fully weathered a major economic recession. Any
such recession, however, would likely disrupt severely the market for such
securities and adversely affect the value of such securities. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
Fixed-income securities, including low-rated securities and
comparable unrated securities, frequently have call or buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as the Acquiring Fund. If an issuer exercises the rights during periods
of declining interest rates, the Acquiring Fund may have to replace the
security with a lower yielding security, thus resulting in a decreased return
to the Acquiring Fund.
The Acquired Fund may not purchase comparable lower rated
securities.
INVESTMENT RESTRICTIONS. Each Fund has adopted the following
investment restrictions for the protection of shareholders. These
restrictions may not be changed without the approval of the holders of a
majority, as defined in the 1940 Act, of the voting securities of the Fund.
1. The Acquiring Fund may not issue senior securities, as defined
in the 1940 Act and the rules and orders thereunder, except insofar as the
Acquiring Fund may be deemed to have issued senior securities by reason
of borrowing money or purchasing securities on a when-issued or delayed-
delivery basis, purchasing or selling futures contracts
<PAGE>60
and options on futures contracts and other similar instruments, and issuing
separate classes of shares. The Acquired Fund does not have a similar
investment restriction.
2. The Acquiring Fund may not invest more than 25% of its total
assets in securities of issuers in the same industry. For purposes of this
limitation, U.S. government securities and securities of state or municipal
governments and their political subdivisions are not considered to be issued
by members of any industry. Similarly, the Acquired Fund may not invest more
than 25% of its total assets taken at market value in any one industry, except
that municipal obligations and securities of the U.S. government, its agencies
and instrumentalities, and New Jersey municipal obligations are not considered
an industry for purposes of this limitation.
3. Neither Fund may borrow money, except that a Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests which might otherwise require the untimely
disposition of securities, in an amount not exceeding 10% of the value of the
respective Fund's total assets (including, in the case of the Acquiring Fund,
the amount borrowed) valued at market less liabilities (not including the
amount borrowed) at the time the borrowing is made. Whenever borrowings
exceed 5% of the value of a Fund's total assets, such Fund will not make any
additional investments. The Acquired Fund is further prohibited from
mortgaging or pledging its assets, except to secure borrowing permitted by the
previous sentence.
4. Neither Fund may make loans. For the Acquiring Fund, this
restriction does not apply to the purchase of the debt obligations in which
the Fund may invest consistent with its investment objective and policies,
repurchase agreements, and loans of its portfolio securities. For the
Acquired Fund, this restriction does not apply except to the extent the
purchase of bonds or other evidences of indebtedness, the entry into repurchase
agreements or deposits with banks, including the Acquired Fund's custodian,
may be considered loans.
5. The Acquiring Fund may not engage in the business of
underwriting securities issued by other persons, except to the extent that the
Acquiring Fund may technically be deemed to be an underwriter under the
Securities Act of 1933, as amended, in disposing of portfolio securities.
Similarly, the Acquired Fund may not underwrite the securities of other
issuers.
6. The Acquiring Fund may not purchase or sell real estate, real
estate mortgages, real estate investment trust ("REIT") securities,
commodities or commodity contracts, but this shall not prevent the Acquiring
Fund from investing in securities of issuers engaged in the real estate
business and securities which are secured by real estate or interests therein,
holding or selling real estate received in connection with securities it
holds, or trading in futures contracts and options on futures contracts. The
Acquired Fund may not
<PAGE>61
purchase or hold any real estate, except that it may invest in securities
secured by real estate or interests therein or issued by persons (other than
REITs) which deal in real estate or interests therein, and may not purchase or
sell commodities and commodity contracts, except that it may invest in or sell
municipal bond futures index contracts, provided immediately thereafter not
more than 33-1/3% of its net assets would be hedged or the amount of margin
deposits on the Acquired Fund's existing futures contracts would not exceed 5%
of the value of its total assets.
7. Neither Fund may purchase any securities on margin (except, in
the case of the Acquiring Fund, for such short-term credits as are necessary
for the clearance of purchases and sales of portfolio securities) or sell any
securities short (except, in the case of the Acquiring Fund, against the box).
For purposes of this restriction, the deposit or payment by the Acquiring
Fund of initial maintenance margin in connection with futures contracts and
related options and options on securities is not considered to be the purchase
of a security on margin. 8. The Acquired Fund will not invest more than
10% of its net assets in illiquid securities, including those that
are not readily marketable or for which there is no established market. The
Acquiring Fund may not purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be invested in securities that
are illiquid. This is not a fundamental investment restriction with respect
to the Acquiring Fund and may be changed by the Acquiring Fund's Board of
Directors at any time.
9. The Acquired Fund may not write or purchase put, call, straddle or
spread options. The Acquiring Fund may not engage in the purchase or sale of
put, call, straddle or spread options or in the writing of such options,
except that the Fund may purchase and sell options on interest rate futures
contracts. This is not a fundamental investment restriction with respect to
the Acquiring Fund and may be changed by the Acquiring Fund's Board of
Directors at any time.
Other Non-Fundamental Investment Restrictions
1. The Acquiring Fund may not invest more than 5% of the value of
its total assets in the securities of issuers having a record, including
predecessors, of less than three years of continuous operation, except U.S.
government securities. This is not a fundamental investment restriction with
respect to the Acquiring Fund and may be changed by the Acquiring Fund's Board
of Directors at any time. For purposes of this restriction, issuers include
predecessors, sponsors, controlling persons, general partners, guarantors and
originators of underlying assets. Similarly, as a matter of operating policy,
the Acquired Fund will not invest more than 5% of its assets in unseasoned
issuers, including their predecessors, which have been in operation for less
than three years.
<PAGE>62
2. The Acquiring Fund may not invest in companies for the purpose
of exercising control. This is not a fundamental investment restriction with
respect to the Acquiring Fund and may be changed by the Acquiring Fund's Board
of Directors at any time. The Acquired Fund does not have a similar
investment restriction.
3. The Acquiring Fund may not invest in securities of other
investment companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets. This is not a fundamental investment
restriction with respect to the Acquiring Fund and may be changed by the
Acquiring Fund's Board of Directors at any time. The Acquired Fund does not
have a similar investment restriction.
4. The Acquired Fund, as a matter of operating policy, will not
purchase oil, gas, or other mineral leases, rights or royalty contracts or
exploration or development programs, except that the Acquired Fund may invest
in the securities of issuers which operate, invest in, or sponsor such
programs. The Acquiring Fund may not purchase or sell oil and gas interests.
This is not a fundamental investment restriction with respect to the Acquiring
Fund and may be changed by the Acquiring Fund's Board of Directors at any
time.
INFORMATION ON SHAREHOLDERS' RIGHTS
General. The Acquiring Fund and Smith Barney Muni Funds are open-
end, management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The
Acquiring Fund is a Maryland corporation which was incorporated on November
12, 1987 and is governed by its Articles of Incorporation, By-Laws and Board
of Directors. The Acquired Fund is a series of Smith Barney Muni Funds, which
was organized on August 14, 1985 under the laws of Massachusetts and is a
business entity commonly known as a "Massachusetts business trust." Smith
Barney Muni Funds is governed by its Declaration of Trust, By-Laws and
Trustees. Each Fund is also governed by applicable state and federal law.
The Acquiring Fund has an authorized capital of 100,000,000 shares of common
stock with a par value of $.001 per share. The beneficial interest in the
Acquired Fund is divided into shares, all with a par value of $.001 per share.
The number of authorized shares of the Acquired Fund that may be issued is
unlimited. The Trustees of Smith Barney Muni Funds have authorized the
issuance of twenty series of shares, each representing shares in one of twenty
separate portfolios, and may authorize the issuance of additional series of
shares in the future. In both the Acquiring Fund and the Acquired Fund, Class
A shares, Class B shares and Class C shares represent interests in the assets
of the Fund and have identical voting, dividend, liquidation and other rights
on the same terms and conditions except that expenses related to the
distribution of each class of shares are borne solely by each class and each
class of shares has exclusive voting rights with respect to provisions of each
Fund's Rule 12b-1 distribution
<PAGE>63
plan which pertains to a particular class. Notwithstanding the foregoing,
Class B shares of either Fund will convert automatically to Class A shares of
such Fund, based on relative net asset value, eight years after the date of
the original purchase of such shares. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain
portion of Class B shares that have been acquired through the reinvestment of
dividends and distributions will be converted to Class A shares of the
respective Fund at that time.
Directors/Trustees. The By-Laws of the Acquiring Fund provide that
Directors shall be elected by written ballot at any meeting of shareholders
held for that purpose, and the term of office of each director shall be from
the time of his election and qualification until his or her successor shall
have been elected and shall have qualified or until his death, resignation or
removal, or as otherwise provided by law. The Declaration of Trust of Smith
Barney Muni Funds provides that the term of office of each Trustee shall be
from the time of his or her election until the termination of the Trust or
until such Trustee sooner dies, resigns or is removed. Any Director of the
Acquiring Fund may be removed by the vote of at least a majority of the votes
entitled to be cast for the election of Directors. A Trustee of Smith Barney
Muni Funds may be removed with cause by written instrument, signed by at least
two-thirds of the remaining Trustees. Vacancies on the Boards of either the
Acquiring Fund or Smith Barney Muni Funds may be filled by the Directors or
Trustees, as the case may be, remaining in office. A meeting of shareholders
will be required for the purpose of electing additional Directors or Trustees
whenever fewer than two-thirds of the Directors or a majority of the Trustees
then in office were elected by shareholders.
Voting Rights. Neither the Acquiring Fund nor the Acquired Fund
holds a meeting of shareholders annually, and there normally is no meeting of
shareholders for the purpose of electing Directors/Trustees unless and until
such time as less than two-thirds of the Directors or a majority of the
Trustees holding office have been elected by shareholders. A meeting of
shareholders of the Acquired Fund or the Acquiring Fund, for any purpose, must
be called upon the written request of shareholders holding at least 25% of
such Fund's outstanding shares, except that a meeting of shareholders of the
Acquiring Fund for the purpose of removal of a Director must be called upon
the written request of shareholders holding at least 10% of the Acquiring
Fund's outstanding shares. On each matter submitted to a vote of the
shareholders of the Acquired Fund or the Acquiring Fund, each shareholder is
entitled to one vote for each whole share owned and a proportionate,
fractional vote for each fractional share outstanding in the shareholder's
name on the Fund's books. With respect to the shares of the Acquiring Fund, a
majority of the votes cast on an action at a shareholder meeting at which a
quorum is present shall decide any questions except when a different vote is
required or permitted by any provision of the 1940 Act or other applicable law
or as may otherwise be set forth in the Acquiring Fund's organizational
documents, or in cases where the vote is submitted to the holders of one or
more but not all classes, a majority of the votes cast of the particular class
affected by the matter shall decide such matter. With
<PAGE>64
respect to matters relating to Smith Barney Muni Funds requiring a majority
shareholder vote as described in the Declaration of Trust, a majority of
shares represented in person or by proxy and entitled to vote at a meeting of
shareholders at which a quorum is present shall decide such matter. In cases
where the vote is submitted to the holders of one or more but not all series
or classes, a majority of the outstanding shares of the particular series or
class affected by the matter shall decide such matter.
Liquidation or Dissolution. In the event of the liquidation or
termination of any of the portfolios of Smith Barney Muni Funds or the
liquidation or dissolution of the Acquiring Fund, the shareholders of the
respective Fund are entitled to receive, when, and as declared by the Trustees
or Directors, as the case may be, the excess of the assets over the
liabilities belonging to the liquidated or terminated portfolio of Smith
Barney Muni Funds or the liquidated or dissolved Acquiring Fund, as the case
may be. The assets so distributed to shareholders of Smith Barney Muni Funds
will be distributed among the shareholders in proportion to the number of
shares of the particular class held by them and recorded on the books of the
liquidated or terminated portfolio of Smith Barney Muni Funds. The assets so
distributed to shareholders of the Acquiring Fund will be distributed among
the shareholders in proportion to the number of shares of the particular class
held by them and recorded on the books of the Acquiring Fund.
Liability of Directors/Trustees. The Articles of Incorporation of
the Acquiring Fund provide that the Directors and officers shall not be liable
for monetary damages as a Director or officer, except to the extent such
exemption is not permitted by law. The Acquiring Fund's By-Laws further
provide that the Acquiring Fund shall indemnify each Director and officer to
the full extent permitted by Maryland General Corporation Law the Securities
Act of 1933, as amended, and the 1940 Act. Under the Declaration of Trust and
By-Laws of the Smith Barney Muni Funds, a Trustee will be personally liable
only for his or her own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee. The Declaration of Trust further provides that Trustees and officers
will be indemnified for the expenses of litigation against them unless it is
determined that the person did not act in good faith in the reasonable belief
that the person's actions were in or not opposed to the best interest of the
Smith Barney Muni Funds or the person's conduct is determined to constitute
willful misfeasance, bad faith, gross negligence or reckless disregard of the
person's duties.
Rights of Inspection. Maryland law permits any shareholder of the
Acquiring Fund or any agent of such shareholder to inspect and copy during the
Acquiring Fund's usual business hours the Acquiring Fund's By-Laws, minutes of
shareholder proceedings, annual statements of the Acquiring Fund's affairs and
voting trust agreements on file at its principal office. Shareholders of
Smith Barney Muni Funds have the same inspection rights as are permitted
shareholders of a Massachusetts corporation under Massachusetts corporate law.
<PAGE>65
Currently, each shareholder of a Massachusetts corporation is permitted to
inspect the records, accounts and books of a corporation for any legitimate
business purpose.
Shareholder Liability. Under Maryland law, the Acquiring Fund's
shareholders do not have personal liability for the Acquiring Fund's corporate
acts and obligations. Shares of the Acquiring Fund issued to the shareholders
of the Acquired Fund in the Reorganization will be fully paid and
nonassessable when issued, transferable without restrictions and will have no
preemptive rights. Under Massachusetts law, shareholders of the Acquired Fund
may, under certain circumstances, be held personally liable for the
obligations of the Acquired Fund. Smith Barney Muni Funds' Declaration of
Trust, however, disclaims shareholder liability for acts or obligations of the
Acquired Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Acquired
Fund. The Declaration of Trust also provides indemnification out of the
property of the Acquired Fund for all losses and expenses of any shareholder
held personally liable for the obligations of the Acquired Fund.
The foregoing is only a summary of certain characteristics of the
operations of the Acquiring Fund and the Acquired Fund. The foregoing is not
a complete description of the documents cited. Shareholders should refer to
the provisions of the corporate documents or trust documents and state laws
governing each Fund for a more thorough description.
ADDITIONAL INFORMATION ABOUT
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
AND
SMITH BARNEY MUNI FUNDS
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC. Information about the
Acquiring Fund is included in its current Prospectus dated May 29, 1995, as
supplemented by a Prospectus Supplement dated September 1, 1995 and in the
Statement of Additional Information dated May 29, 1995 that has been filed
with the SEC, both of which are incorporated herein by reference. A copy of
the Prospectus is attached hereto, and a copy of the Statement of Additional
Information is available upon request and without charge by writing to the
Acquiring Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling (800) 224-7523.
SMITH BARNEY MUNI FUNDS. Information about the Acquired Fund is
incorporated herein by reference from its current Prospectus dated November 7,
1994, as supplemented by a Prospectus Supplement dated July 26, 1995, and the
Statement of Additional Information of Smith Barney Muni Funds dated July 31,
1995. A copy of such Prospectus and Statement of Additional Information is
available upon request and without
<PAGE>66
charge by writing to the Acquired Fund at the address listed on the cover page
of this Prospectus/Proxy Statement or by calling (800) 224-7523.
Both the Acquiring Fund and Smith Barney Muni Funds are subject to
the informational requirements of the Exchange Act and in accordance therewith
file reports and other information including proxy material, reports and
charter documents with the SEC. These materials can be inspected and copies
obtained at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the New York Regional Office of
the SEC at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
of such material can also be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, SEC, Washington, D.C. 20549 at
prescribed rates.
OTHER BUSINESS
The Trustees of Smith Barney Muni Funds do not intend to present any
other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of
proxy will vote thereon in accordance with their judgment.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of Smith Barney Muni Funds to
be used at the Special Meeting of Shareholders of the Acquired Fund to be held
at 4:00 p.m. on November 14, 1995, at 388 Greenwich Street, New York, New York
10013, and at any adjournment or adjournments thereof. This Prospectus/Proxy
Statement, along with a Notice of the Meeting and a proxy card, is first being
mailed to shareholders of the Acquired Fund on or about October 26, 1995.
Only shareholders of record as of the close of business on the Record Date
will be entitled to notice of, and to vote at, the Meeting or any adjournment
thereof. The holders of one-third of the shares of the Acquired Fund
outstanding at the close of business on the Record Date present in person or
represented by proxy will constitute a quorum for the Meeting. For purposes
of determining a quorum for transacting business at the Meeting, abstentions
and broker "non-votes" (that is, proxies from brokers or nominees indicating
that such persons have not received instructions from the beneficial owner or
other persons entitled to vote shares on a particular matter with respect to
which the brokers or nominees do not have discretionary power) will be treated
as shares that are present but which have not been voted. For this reason,
abstentions and broker non-votes will have the effect of a "no" vote for
purposes of obtaining the requisite approval of the Plan. If the enclosed
form of proxy is properly executed and returned in time to be voted at the
Meeting, the proxies named therein will vote the shares represented by the
proxy in accordance with
<PAGE>67
the instructions marked thereon. Unmarked proxies will be voted FOR approval
of the proposed Reorganization and FOR approval of any other matters deemed
appropriate. A proxy may be revoked at any time on or before the Meeting by
written notice to the Secretary of the Acquired Fund, Christina T. Sydor,
Esq., 388 Greenwich Street, New York, New York 10013. Unless revoked, all
valid proxies will be voted in accordance with the specifications thereon or,
in the absence of such specifications, FOR approval of the Plan and the
Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of a
majority, as defined in the 1940 Act, of the outstanding shares of the
Acquired Fund, which is the lesser of: (i) 67% of the voting securities of
the Acquired Fund present at the Meeting, if the holders of more than 50% of
the outstanding voting securities of the Acquired Fund are present or
represented by proxy; or (ii) more than 50% of the outstanding voting
securities of the Acquired Fund. Shareholders of Class A, Class B and Class C
shares of the Acquired Fund will vote together as a single class.
Shareholders of the Acquired Fund are entitled to one vote for each share.
Fractional shares are entitled to proportional voting rights.
Proxy solicitations will be made primarily by mail, but proxy
solicitations also may be made by telephone, telegraph or personal interviews
conducted by officers and employees of Smith Barney and its affiliates and/or
by TSSG. In addition, Applied Mailing Systems, Inc., an affiliate of TSSG
("Applied Mailing"), or an agent of Applied Mailing, may call shareholders to
ask if they would be willing to have their votes recorded by telephone. The
latter telephone voting procedure is designed to authenticate the shareholder's
identity by asking the shareholder to provide his or her social security
number (in the case of an individual) or taxpayer identification number (in
the case of an entity). The shareholder's telephone vote will be recorded and
a confirmation will be sent to the shareholder to ensure that the vote has
been taken in accordance with the shareholder's instructions. Although a
shareholder's vote may be taken by telephone, each shareholder will receive a
copy of this Prospectus/Proxy Statement and may vote by mail using the
enclosed proxy card. The Acquired Fund has been advised by Massachusetts
counsel that this telephonic voting system complies with Massachusetts law.
The aggregate cost of solicitation of the shareholders of the Acquired Fund is
expected to be approximately $2,610. Expenses of the Reorganization,
including the costs of the proxy solicitation and the preparation of
enclosures to the Prospectus/Proxy Statement, reimbursement of expenses of
forwarding solicitation material to beneficial owners of shares of the
Acquired Fund and expenses incurred in connection with the preparation of this
Prospectus/Proxy Statement will be borne by the Acquiring Fund and the
Acquired Fund in proportion to their assets.
In the event that a quorum necessary for a shareholders meeting is
not present or sufficient votes to approve the Reorganization are not received
by November 14, 1995, the persons named as proxies may propose one or more
adjournments of the Meeting to
<PAGE>68
permit further solicitation of proxies. In determining whether to adjourn the
Meeting, the following factors may be considered: the percentage of votes
actually cast, the percentage of negative votes actually cast, the nature of
any further solicitation and the information to be provided to shareholders
with respect to the reasons for the solicitation. Any such adjournment will
require an affirmative vote by the holders of a majority of the shares present
in person or by proxy and entitled to vote at the Meeting. The persons named
as proxies will vote upon a decision to adjourn the Meeting.
The votes of the shareholders of the Acquiring Fund are not being
solicited by this Prospectus/Proxy Statement.
FINANCIAL STATEMENTS AND EXPERTS
The statement of assets and liabilities of the Acquired Fund,
including the schedule of investments, as of March 31, 1995, the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the
financial highlights for each of the years in the four-year period then ended,
and for the period October 11, 1990 (commencement of operations) to March 31,
1991, have been incorporated by reference into this Prospectus/Proxy Statement
in reliance upon the reports of KPMG Peat Marwick LLP, independent
accountants, given on the authority of such firm as experts in accounting and
auditing. The statement of assets and liabilities of the Acquiring Fund,
including the schedule of investments, as of March 31, 1995, the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended and the
financial highlights for each of the years in the six-year period then ended,
and for the period August 22, 1988 (commencement of operations) to March 31,
1989, have been incorporated by reference into this Prospectus/Proxy Statement
in reliance upon the report of Coopers & Lybrand L.L.P., independent
accountants, and upon the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the
Acquiring Fund will be passed upon by Willkie Farr & Gallagher, One Citicorp
Center, 153 East 53rd Street, New York, New York 10022. In rendering such
opinion, Willkie Farr & Gallagher may rely on an opinion of Venable, Baetjer
and Howard, LLP as to certain matters under Maryland law.
THE BOARD OF TRUSTEES OF THE SMITH BARNEY MUNI FUNDS, INCLUDING THE
INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN, AND ANY
UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR
OF APPROVAL OF THE PLAN.
<PAGE>69
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
as of this 23rd day of October, 1995, by and between Smith Barney New Jersey
Municipals Fund Inc., a Maryland corporation with its principal place of
business at 388 Greenwich Street, New York, New York 10013 (the "Acquiring
Fund"), and Smith Barney Muni Funds, a Massachusetts business trust, with its
principal place of business at 388 Greenwich Street, New York, New York 10013,
on behalf of its New Jersey Portfolio (the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all or
substantially all of the assets of the Acquired Fund in exchange for Class A,
Class B and Class C shares of common stock of the Acquiring Fund
(collectively, the "Acquiring Fund Shares" and each, an "Acquiring Fund
Share") and the assumption by the Acquiring Fund of scheduled liabilities of
the Acquired Fund and the distribution, after the Closing Date herein referred
to, of Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund and termination of the Acquired Fund, all
upon the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquiring Fund and Smith Barney Muni Funds are
registered investment companies of the management type and the Acquired Fund
owns securities that generally are assets of the character in which the
Acquiring Fund is permitted to invest;
WHEREAS, the Acquiring Fund is authorized to issue shares of common
stock and Smith Barney Muni Funds is authorized to issue shares of beneficial
interest in respect of its sub-trusts;
WHEREAS, the Board of Trustees of Smith Barney Muni Funds has
determined that the exchange of all or substantially all of the assets and
scheduled liabilities of the Acquired Fund for Acquiring Fund Shares and the
assumption of such liabilities by the Acquiring Fund is in the best interests
of the Acquired Fund's shareholders and that the interests of the existing
shareholders of the Acquired Fund would not be diluted as a result of this
transaction;
WHEREAS, the Board of Directors of the Acquiring Fund has determined
that the exchange of all or substantially all the assets and scheduled
liabilities of the Acquired Fund for Acquiring Fund Shares and the assumption
of such liabilities by the Acquiring Fund is in the best interests of the
Acquiring Fund's shareholders and that the interests of the
<PAGE>70
existing shareholders of the Acquiring Fund would not be diluted as a result
of this transaction.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties hereto covenant
and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND
SHARES AND ASSUMPTION OF SCHEDULED LIABILITIES OF THE ACQUIRED FUND AND
LIQUIDATION AND TERMINATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, Smith Barney
Muni Funds agrees on behalf of the Acquired Fund to transfer the Acquired
Fund's assets as set forth in paragraph 1.2 to the Acquiring Fund, and the
Acquiring Fund agrees in exchange therefor: (i) to deliver to the Acquired
Fund the number of Class A Acquiring Fund Shares, including fractional Class A
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class A shares, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Class A Acquiring Fund Share, computed in the manner and as of the time and
date set forth in paragraph 2.2; (ii) to deliver to the Acquired Fund the
number of Class B Acquiring Fund Shares, including fractional Class B
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class B shares, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Class B Acquiring Fund Share, computed in the manner and as of the time and
date set forth in paragraph 2.2; (iii) to deliver to the Acquired Fund the
number of Class C Acquiring Fund Shares, including fractional Class C
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class C shares, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Class C Acquiring Fund Share, computed in the manner and as of the time and
date set forth in paragraph 2.2; and (iv) to assume scheduled liabilities of
the Acquired Fund, as set forth in paragraph 1.3. Such transactions shall
take place at the closing provided for in paragraph 3.1 (the "Closing").
1.2. (a) The assets of the Acquired Fund to be acquired by the
Acquiring Fund shall consist of all or substantially all property, including,
without limitation, all cash, securities and dividends or interest receivables
which are owned by the Acquired Fund and any deferred or prepaid expenses
shown as an asset on the books of the Acquired Fund on the closing date
provided in paragraph 3.1 (the "Closing Date").
(b) The Acquired Fund has provided the Acquiring Fund with a
list of all of the Acquired Fund's assets as of the date of execution of this
Agreement. The
<PAGE>71
Acquired Fund reserves the right to sell any of these securities but will not,
without the prior approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest. The Acquiring Fund will, within a reasonable time prior
to the Closing Date, furnish the Acquired Fund with a statement of the
Acquiring Fund's investment objectives, policies and restrictions and a list
of the securities, if any, on the Acquired Fund's list referred to in the
first sentence of this paragraph which do not conform to the Acquiring Fund's
investment objectives, policies and restrictions. In the event that the
Acquired Fund holds any investments which the Acquiring Fund may not hold, the
Acquired Fund will dispose of such securities prior to the Closing Date. In
addition, if it is determined that the portfolios of the Acquired Fund and the
Acquiring Fund, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Acquired Fund, if requested by the Acquiring Fund, will
dispose of and/or reinvest a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of the Closing Date.
1.3. The Acquired Fund will endeavor to discharge all the Acquired
Fund's known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume all liabilities, expenses, costs, charges and
reserves reflected on an unaudited Statement of Assets and Liabilities of the
Acquired Fund prepared by Smith Barney Mutual Fund Management Inc. (the
"Manager"), as adviser of the Acquired Fund, as of the Valuation Date (as
defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Acquired Fund reflected in
that unaudited Statement of Assets and Liabilities and shall not assume any
other liabilities, whether absolute or contingent, not reflected thereon.
1.4. As provided in paragraph 3.3, as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to the Acquired Fund's shareholders of
record determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), the Acquiring Fund Shares it receives pursuant
to paragraph 1.1. Shareholders of Class A, Class B and Class C of the
Acquired Fund shall receive Class A, Class B and Class C shares, respectively,
of the Acquiring Fund. Such liquidation and distribution will be accomplished
by the transfer of the Acquiring Fund Shares then credited to the account of
the Acquired Fund on the books of the Acquiring Fund to open accounts on the
share records of the Acquiring Fund in the name of the Acquired Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Acquired Fund will simultaneously be cancelled on the books of the Acquired
Fund, although any outstanding share certificates representing interests in
the Acquired Fund will represent a number of Acquiring Fund Shares after the
Closing Date as determined in accordance with paragraph 1.1. The Acquiring
Fund shall not issue certificates representing the Acquiring Fund Shares in
connection with such exchange.
<PAGE>72
1.5. Ownership of Acquiring Fund Shares will be shown on the books
of the Acquiring Fund's transfer agent. Acquiring Fund Shares will be issued
in the manner described in the Acquiring Fund's current prospectus and
statement of additional information.
1.6. Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund Shares
on the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7. Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Acquired Fund up to and including the Closing
Date and such later dates on which the Acquired Fund is terminated.
1.8. The Acquired Fund shall, following the Closing Date and the
making of all distributions pursuant to paragraph 1.4, be terminated under the
laws of the Commonwealth of Massachusetts and in accordance with its governing
documents.
2. VALUATION
2.1. The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of regular trading on the New York Stock Exchange, Inc. (the "NYSE") on
the Closing Date (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures set forth in the Acquiring Fund's then
current prospectus or statement of additional information.
2.2. The net asset value of Acquiring Fund Shares shall be the net
asset value per share computed as of the close of regular trading on the NYSE
on the Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then current prospectus or statement of additional
information.
2.3. All computations of value shall be made by the Manager in
accordance with its regular practice as pricing agent for the Acquired Fund
and the Acquiring Fund, respectively.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be November 17, 1995, or such later
date as the parties may agree to in writing. All acts taking place at the
Closing shall be deemed to take place simultaneously as of the close of
business on the Closing Date unless otherwise provided. The Closing shall be
held as of 5:00 p.m. at the offices of Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, or at such other time and/or place as the
parties may agree.
<PAGE>73
3.2. In the event that on the Valuation Date (a) the NYSE or
another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereon shall be
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
shall be disrupted so that accurate appraisal of the value of the net assets
of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3. Smith Barney Muni Funds shall deliver on behalf of the
Acquired Fund at the Closing a list of the names and addresses of the Acquired
Fund's Shareholders and the number and percentage ownership of outstanding
shares owned by each such shareholder immediately prior to the Closing,
certified on behalf of the Acquired Fund by the Chairman of the Board or the
President of Smith Barney Muni Funds. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited to
the Acquired Fund's account on the Closing Date to the Secretary of Smith
Barney Muni Funds, or provide evidence satisfactory to Smith Barney Muni Funds
that such Acquiring Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1. Smith Barney Muni Funds and the Acquired Fund represent and
warrant to the Acquiring Fund as follows:
(a) The Acquired Fund is a portfolio of Smith Barney Muni Funds,
which is a business trust, duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) Smith Barney Muni Funds is a registered investment company
classified as a management company of the open-end type, and its registration
with the Securities and Exchange Commission (the "Commission") as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), is in full force and effect;
(c) Smith Barney Muni Funds is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of its
Declaration of Trust or By-laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which Smith Barney Muni Funds or the
Acquired Fund is a party or by which it is bound;
<PAGE>74
(d) Smith Barney Muni Funds has no material contracts or other
commitments (other than this Agreement) which will be terminated with
liability to the Acquired Fund prior to the Closing Date;
(e) No litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or to Smith
Barney Muni Fund's knowledge threatened against Smith Barney Muni Funds with
respect to the Acquired Fund or any of the Acquired Fund's properties or
assets (other than that previously disclosed to the other party to the
Agreement) which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business. Smith Barney
Muni Funds or the Acquired Fund know of no facts which might form the basis
for the institution of such proceedings and is not party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects the Acquired Fund's business or the
ability of Smith Barney Muni Funds on behalf of the Acquired Fund to
consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities of the Acquired Fund
for each of the four fiscal years ended March 31, 1995, and for the period
October 11, 1990 (commencement of operations) to March 31, 1991, have been
audited by KPMG Peat Marwick LLP, independent accountants, and are in
accordance with generally accepted accounting principles consistently applied,
and such statements (copies of which have been furnished to the Acquiring
Fund) fairly reflect the financial condition of the Acquired Fund as of such
dates, and there are no known contingent liabilities of the Acquired Fund as
of such dates not disclosed therein;
(g) The Acquired Fund will file its final federal and other tax
returns for the period ending on the Closing Date in accordance with the Code.
At the Closing Date, all federal and other tax returns and reports of the
Acquired Fund required by law then to have been filed prior to the Closing
Date shall have been filed, and all federal and other taxes shown as due on
such returns shall have been paid so far as due, or provision shall have been
made for the payment thereof and, to the best of the Acquired Fund's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to such returns;
(h) For the most recent fiscal year of its operation, the Acquired
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company;
(i) All issued and outstanding shares of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable. All of the issued and outstanding shares of the
Acquired Fund will, at the time of Closing, be held by the persons and in the
amounts set forth in the records of the transfer agent as
<PAGE>75
provided in paragraph 3.3. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any shares of
the Acquired Fund, nor is there outstanding any security convertible into any
shares of the Acquired Fund (other than Class B shares of the Acquired Fund
which, under certain circumstances, are convertible into Class A shares of the
Acquired Fund);
(j) At the Closing Date, the Acquired Fund will have good and
marketable title to its assets to be transferred to the Acquiring Fund
pursuant to paragraph 1.2 and full right, power and authority to sell, assign,
transfer and deliver such assets hereunder and, upon delivery and payment for
such assets, the Acquiring Fund will acquire good and marketable title
thereto, subject to no restrictions on the full transfer thereof, including
such restrictions as might arise under the Securities Act of 1933, as amended
(the "1933 Act"), other than as disclosed to the Acquiring Fund;
(k) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action on the part of the Smith Barney
Muni Funds' Board of Trustees, and subject to the approval of the Acquired
Fund's shareholders, this Agreement, assuming due authorization, execution and
delivery by the Acquiring Fund, will constitute a valid and binding obligation
of the Acquired Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(l) The information to be furnished by the Acquired Fund for use in
no-action letters, applications for exemptive orders, registration statements,
proxy materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto; and
(m) The proxy statement of the Acquired Fund (the "Proxy
Statement") to be included in the Registration Statement referred to in
paragraph 5.7 (other than information therein that relates to the Acquiring
Fund) will, on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not misleading.
4.2. The Acquiring Fund represents and warrants to the Smith Barney
Muni Funds and to the Acquired Fund as follows:
(a) The Acquiring Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland;
<PAGE>76
(b) The Acquiring Fund is a registered investment company
classified as a management company of the open-end type and its registration
with the Commission as an investment company under the 1940 Act is in full
force and effect;
(c) The current prospectus and statement of additional information
of the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not materially misleading;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets;
(e) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of its
Articles of Incorporation or By-laws or of any agreement, indenture,
instrument, contract, lease or other undertaking with respect to the Acquiring
Fund to which the Acquiring Fund is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or threatened
against the Acquiring Fund or any of the Acquiring Fund's properties or
assets. The Acquiring Fund knows of no facts which might form the basis for
the institution of such proceedings and the Acquiring Fund is not a party to
or subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects the Acquiring Fund's
business or ability to consummate the transactions contemplated herein;
(g) The Statement of Assets and Liabilities of the Acquiring Fund
for the six fiscal years ended March 31, 1995, and for the period August 22,
1988 (commencement of operations) to March 31, 1989, have been audited by
Coopers & Lybrand L.L.P., independent accountants, and are in accordance with
generally accepted accounting principles consistently applied, and such
statements (copies of which have been furnished to the Acquired Fund) fairly
reflect the financial condition of the Acquiring Fund as of such dates, and
there are no known contingent liabilities of the Acquiring Fund as of such
dates not disclosed therein;
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to have been filed by such
date shall have been filed, and all federal and other taxes shown as due on
said returns and reports shall have been paid so far as due, or provision
shall have been made for the payment thereof and, to the best of
<PAGE>77
the Acquiring Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(i) For the most recent fiscal year of its operation, the Acquiring
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company and the Acquiring Fund intends
to do so in the future;
(j) At the date hereof, all issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly issued
and outstanding, fully paid and non-assessable. The Acquiring Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any shares of the Acquiring Fund, nor is there outstanding any
security convertible into shares of the Acquiring Fund (other than Class B
shares of the Acquiring Fund which, under certain circumstances, are
convertible into Class A shares of the Acquiring Fund);
(k) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action, if any, on the part of the
Acquiring Fund's Board of Directors, and this Agreement, assuming due
authorization, execution and delivery by the Acquired Fund, constitutes a
valid and binding obligation of the Acquiring Fund, enforceable in accordance
with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable with no
personal liability attaching to the ownership thereof;
(m) The information to be furnished by the Acquiring Fund for use
in no-action letters, applications for exemptive orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto;
(n) The Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading; and
<PAGE>78
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state Blue Sky or securities laws as it may deem appropriate
in order to continue the Acquiring Fund's operations after the Closing Date.
5. COVENANTS OF THE ACQUIRED FUND, SMITH BARNEY MUNI FUNDS AND THE ACQUIRING
FUND
5.1. The Acquiring Fund and Smith Barney Muni Funds on behalf of
the Acquired Fund each will operate its business in the ordinary course
between the date hereof and the Closing Date. It is understood that such
ordinary course of business will include the declaration and payment of
customary dividends and distributions and any other dividends and
distributions deemed advisable, in each case payable either in cash or in
additional shares.
5.2. The Acquired Fund will call a meeting of its shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3. The Acquired Fund covenants that the Acquiring Fund Shares to
be issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this
Agreement.
5.4. The Acquired Fund will assist the Acquiring Fund in obtaining
such information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund's shares.
5.5. Subject to the provisions of this Agreement, the Acquiring
Fund and Smith Barney Muni Funds on behalf of the Acquired Fund, each will
take, or cause to be taken, all action, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.6. As promptly as practicable, but in any case within sixty days
after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in
such form as is reasonably satisfactory to the Acquiring Fund, a statement of
the earnings and profits of the Acquired Fund for federal income tax purposes
which will be carried over to the Acquiring Fund as a result of Section 381 of
the Code and which will be certified by the Chairman of the Board or President
and the Treasurer of Smith Barney Muni Funds.
5.7. The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus (the
"Prospectus") which will
<PAGE>79
include the Proxy Statement, referred to in paragraph 4.1(m), all to be
included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934 (the "1934 Act") and the 1940 Act in connection with the
meeting of the Acquired Fund's shareholders to consider approval of this
Agreement and the transactions contemplated herein.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SMITH BARNEY MUNI FUNDS IN RESPECT
OF THE ACQUIRED FUND
The obligations of Smith Barney Muni Funds on behalf of the Acquired
Fund to consummate the transactions provided for herein shall be subject, at
its election, to the performance by the Acquiring Fund of all of the
obligations to be performed by them hereunder on or before the Closing Date
and, in addition thereto, the following further conditions:
6.1. All representations and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
6.2. The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its Chairman of the Board, President or
Vice President and its Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to the Acquired Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquiring Fund made in
this Agreement are true and correct in all material respects at and as of the
Closing Date, except as they may be affected by the transactions contemplated
by this Agreement; and
6.3. The Acquired Fund shall have received on the Closing Date a
favorable opinion from Willkie Farr & Gallagher, counsel to the Acquiring
Fund, dated as of the Closing Date, in a form reasonably satisfactory to
Christina T. Sydor, Esq., Secretary of the Acquired Fund, covering the
following points:
That (a) the Acquiring Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland; (b) the Acquiring Fund
is an open-end management investment company registered under the 1940
Act; (c) this Agreement, the Reorganization provided for hereunder and
the execution of this Agreement have been duly authorized and approved by
all requisite action of the Acquiring Fund, and this Agreement has been
duly executed and delivered by the Acquiring Fund and, assuming due
authorization by Smith Barney Muni Funds on behalf of the Acquired Fund,
is a valid and binding obligation of the Acquiring Fund, enforceable in
accordance with its terms against the assets of the Acquiring Fund,
subject to
<PAGE>80
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles; and (d) the Acquiring Fund Shares to
be issued to the Acquired Fund for distribution to its shareholders pursuant
to this Agreement have been, to the extent of the number of Acquiring Fund
Shares of the particular class authorized to be issued by the Acquiring Fund
in its Articles of Incorporation and then unissued, duly authorized and,
subject to the receipt by the Acquiring Fund of consideration equal to the
respective net asset values thereof (but in no event less than the par value
thereof), such Acquiring Fund Shares, when issued in accordance with this
Agreement, will be validly issued and fully paid and non-assessable.
Such opinion may state that it is solely for the benefit of Smith
Barney Muni Funds, its Trustees and its officers. Such counsel may rely, as
to matters governed by the laws of the State of Maryland, on an opinion of
Maryland counsel.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by
Smith Barney Muni Funds and the Acquired Fund of all the obligations to be
performed by them hereunder on or before the Closing Date and, in addition
thereto, the following conditions:
7.1. All representations and warranties of Smith Barney Muni Funds
and the Acquired Fund contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing
Date with the same force and effect as if made on and as of the Closing Date;
7.2. Smith Barney Muni Funds on behalf of the Acquired Fund shall
have delivered to the Acquiring Fund a statement of the Acquired Fund's assets
and liabilities, together with a list of the Acquired Fund's portfolio
securities showing the tax basis of such securities by lot and the holding
periods of such securities, as of the Closing Date, certified by the Treasurer
or Assistant Treasurer of Smith Barney Muni Funds;
7.3. Smith Barney Muni Funds on behalf of the Acquired Fund shall
have delivered to the Acquiring Fund on the Closing Date a certificate
executed in its name by its Chairman of the Board, President or Vice President
and its Treasurer or Assistant Treasurer, in form and substance satisfactory
to the Acquiring Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Smith Barney Muni Funds and the Acquired
Fund made in this Agreement are true and correct in all material respects at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement; and
<PAGE>81
7.4. The Acquiring Fund shall have received on the Closing Date a
favorable opinion of Sullivan & Cromwell, counsel to the Acquired Fund, in a
form satisfactory to Christina T. Sydor, Esq., Secretary of the Acquiring
Fund, covering the following points:
That (a) the Acquired Fund is a series of Smith Barney Muni Funds, which
is a business trust duly organized and validly existing under the laws of
the Commonwealth of Massachusetts; (b) Smith Barney Muni Funds is an
open-end management investment company registered under the 1940 Act; and
(c) this Agreement, the Reorganization provided for hereunder and the
execution of this Agreement have been duly authorized and approved by all
requisite action of Smith Barney Muni Funds, and this Agreement has been
duly executed and delivered by Smith Barney Muni Funds and, assuming due
authorization, execution and delivery by the Acquiring Fund, is a valid
and binding obligation of Smith Barney Muni Funds with respect to the
Acquired Fund enforceable in accordance with its terms against the assets
of the Acquired Fund, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
Such opinion may state that it is solely for the benefit of the
Acquiring Fund, its Directors and its officers. Such counsel may rely, as to
matters governed by the laws of the Commonwealth of Massachusetts, on an
opinion of Massachusetts counsel.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND, SMITH
BARNEY MUNI FUNDS AND THE ACQUIRING FUND
If any of the conditions set forth below do not exist on or before
the Closing Date with respect to the Acquiring Fund, or Smith Barney Muni
Funds on behalf of the Acquired Fund, the other party to this Agreement shall,
at its option, not be required to consummate the transactions contemplated by
this Agreement:
8.1. This Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of Smith Barney
Muni Fund's Declaration of Trust and By-laws and certified copies of the votes
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund
nor Smith Barney Muni Funds on behalf of the Acquired Fund may waive the
conditions set forth in this paragraph 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or
<PAGE>82
obtain damages or other relief in connection with, this Agreement or the
transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders
and permits of federal, state and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no-action" positions of and exemptive orders from such federal and
state authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the assets or properties of the Acquiring Fund or the
Acquired Fund, provided that either party hereto may for itself waive any of
such conditions;
8.4. The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act;
8.5. The Acquired Fund shall have declared and paid a dividend or
dividends on the outstanding shares of the Acquired Fund which, together with
all previous such dividends, shall have the effect of distributing to the
shareholders of the Acquired Fund all of the investment company taxable income
of the Acquired Fund for all taxable years ending on or prior to the Closing
Date. The dividend declared and paid by the Acquired Fund shall also include
all of such fund's net capital gain realized in all taxable years ending on or
prior to the Closing Date (after reduction for any capital loss carryforward);
8.6. The parties shall have received a favorable opinion of Willkie
Farr & Gallagher, addressed to the Acquiring Fund and Smith Barney Muni Funds
in respect of the Acquired Fund and satisfactory to Christina T. Sydor, Esq.,
as Secretary of each of the Funds, substantially to the effect that for
federal income tax purposes:
(a) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of scheduled liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C)
of the Code, and the Acquiring Fund and the Acquired Fund are each a
"party to a reorganization" within the meaning of Section 368(b) of the
Code; (b) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of
scheduled liabilities of the Acquired Fund; (c) no gain or loss will be
recognized by the Acquired Fund upon the transfer of the Acquired Fund's
assets to the Acquiring Fund in exchange for Acquiring Fund Shares and
the assumption by the Acquiring Fund of scheduled liabilities of the
Acquired
<PAGE>83
Fund or upon the distribution (whether actual or constructive) of Acquiring
Fund Shares to Acquired Fund's shareholders; (d) no gain or loss will be
recognized by shareholders of the Acquired Fund upon the exchange of their
Acquired Fund shares for the Acquiring Fund Shares; (e) the aggregate tax
basis for Acquiring Fund Shares received by each of the Acquired Fund's
shareholders pursuant to the Reorganization will be the same as the aggregate
tax basis of the Acquired Fund shares held by such shareholder immediately
prior to the Reorganization, and the holding period of Acquiring Fund Shares
to be received by each Acquired Fund shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by such
shareholder (provided that the Acquired Fund shares were held as capital
assets on the date of the Reorganization); and (f) the tax basis to the
Acquiring Fund of the Acquired Fund's assets acquired by the Acquiring Fund
will be the same as the tax basis of such assets to the Acquired Fund
immediately prior to the Reorganization, and the holding period of the assets
of the Acquired Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor Smith Barney Muni Funds on behalf of the Acquired Fund may
waive the conditions set forth in this paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1. The Acquiring Fund represents and warrants to Smith Barney
Muni Funds on behalf of the Acquired Fund, and Smith Barney Muni Funds on
behalf of the Acquired Fund represents and warrants to the Acquiring Fund,
that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2. (a) Except as may be otherwise provided herein, Smith Barney
Inc., the distributor of the Acquiring Fund and the Acquired Fund, shall be
liable for the expenses incurred in connection with entering into and carrying
out the provisions of this Agreement, including the expenses of: (i) counsel
and independent accountants associated with the Reorganization; (ii) printing
and mailing the Prospectus/Proxy Statement and soliciting proxies in
connection with the meeting of shareholders of the Acquired Fund referred to
in paragraph 5.2 hereof; (iii) any special pricing fees associated with the
valuation of the Acquired Fund's or the Acquiring Fund's portfolio on the
Closing Date; (iv) expenses associated with preparing this Agreement and
preparing and filing the Registration Statement under the 1933 Act covering
the Acquiring Fund Shares to be issued in the Reorganization; (v) registration
or qualification fees and expenses of preparing and filing such forms, if any,
necessary under applicable state securities laws to qualify the Acquiring Fund
Shares to be issued in connection with the Reorganization. The Acquired Fund
shall be liable for: (x) all
<PAGE>84
fees and expenses related to the liquidation and termination of the Acquired
Fund; and (y) fees and expenses of the Acquired Fund's custodian and transfer
agent incurred in connection with the Reorganization. The Acquiring Fund
shall be liable for any fees and expenses of the Acquiring Fund's custodian
and transfer agent incurred in connection with the Reorganization.
(b) Consistent with the provisions of paragraph 1.3, the Acquired
Fund, prior to the Closing, shall pay for or include in the unaudited
Statement of Assets and Liabilities prepared pursuant to paragraph 1.3 all of
its known and reasonably estimated expenses associated with the transactions
contemplated by this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The parties hereto agree that no party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2. The representations, warranties and covenants contained in
this Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
11. TERMINATION
11.1. This Agreement may be terminated at any time prior to the
Closing Date by: (i) the mutual agreement of Smith Barney Muni Funds on
behalf of the Acquired Fund and the Acquiring Fund; (ii) Smith Barney Muni
Funds on behalf of the Acquired Fund in the event that the Acquiring Fund
shall, or the Acquiring Fund in the event that Smith Barney Muni Funds or the
Acquired Fund shall, materially breach any representation, warranty or
agreement contained herein to be performed at or prior to the Closing Date; or
(iii) Smith Barney Muni Funds on behalf of the Acquired Fund, or by the
Acquiring Fund, if a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably
appears that it will not or cannot be met.
11.2. In the event of any such termination, there shall be no
liability for damages on the part of either Smith Barney Muni Funds on behalf
of the Acquired Fund or the Acquiring Fund or their respective Trustees,
Directors or officers to the other party, but each shall bear the expenses
incurred by it incidental to the preparation and carrying out of this
Agreement as provided in paragraph 9.
<PAGE>85
12. AMENDMENTS; WAIVERS
12.1. This Agreement may be amended, modified or supplemented in
such manner as may be mutually agreed upon in writing by the authorized
officers of Smith Barney Muni Funds and the Acquiring Fund; provided, however,
that following the meeting of the Acquired Fund shareholders called by the
Acquired Fund pursuant to paragraph 5.2 of this Agreement, no such amendment
may have the effect of changing the provisions for determining the number of
Acquiring Fund Shares to be issued to the Acquired Fund's shareholders under
this Agreement to the detriment of such shareholders without their further
approval.
12.2. At any time prior to the Closing Date either party hereto
may by written instrument signed by it (i) waive any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the covenants or conditions made for its benefit
contained herein.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
hand delivery, prepaid telegraph, telecopy or certified mail addressed to
Smith Barney Muni Funds, 388 Greenwich Street, 22nd Floor, New York, New York
10013, Attention: Jessica Bibliowicz; or to Smith Barney New Jersey
Municipals Fund Inc., 388 Greenwich Street, 22nd Floor, New York, New York
10013, Attention: Heath B. McLendon.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1. The article and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14.4. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer
<PAGE>86
upon or give any person, firm, corporation or other entity, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
14.5. It is expressly agreed that the obligations of Smith
Barney Muni Funds in respect of the Acquired Fund shall not be binding upon
any Trustees, shareholders, nominees, officers, agents or employees
personally, but bind only the trust property of Smith Barney Muni Funds as
provided in the Declaration of Trust of Smith Barney Muni Funds. The
execution and delivery of this Agreement have been authorized by the Trustees
of Smith Barney Muni Funds and this Agreement has been executed by authorized
officers of Smith Barney Muni Funds, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such
officers shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of Smith Barney Muni Funds as provided in Smith Barney Muni Funds'
Declaration of Trust.
<PAGE>87
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its Chairman of the Board, President or Vice
President and attested by its Secretary or Assistant Secretary.
Attest: SMITH BARNEY MUNI FUNDS
on behalf of NEW JERSEY PORTFOLIO
/s/ Christina T. Sydor By: /s/ Jessica Bibliowicz
Name: Christina T. Sydor Name: Jessica Bibliowicz
Title: Secretary Title: President
Attest: SMITH BARNEY NEW JERSEY MUNICIPALS
FUND INC.
/s/ Christina T. Sydor By: /s/ Heath B. McLendon
Name: Christina T. Sydor Name: Heath B. McLendon
Title: Secretary Title: Chairman of the Board
<PAGE>88
PROSPECTUS
OF
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
DATED MAY 29, 1995, AS SUPPLEMENTED BY
A PROSPECTUS SUPPLEMENT DATED SEPTEMBER 1, 1995
<PAGE>89
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
(the "Fund")
Supplement to Prospectus
dated May 29, 1995
The following table replaces the table found in the Fund's Prospectus
under "The Fund's Expenses:"
THE FUND'S EXPENSES The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a shareholder
of the Fund, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption and, unless otherwise noted,
the Fund's operating expenses for its most recent fiscal year.
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of offering
price) 4.00% None None None
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) None* 4.50% 1.00% None
Annual Fund Operating Fund Expenses
(as a percentage of average net assets)
Management fees 0.55% 0.55% 0.55% 0.55%
12b-1 fees** 0.15 0.65 0.70 None
Other expenses*** 0.18 0.19 0.19 0.18
Total Fund Operating Expenses 0.88% 1.39% 1.44% 0.73%
<FN>
* Purchase of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge, equal or exceed $500,000 in
the aggregate, will be made at net asset value with no sales charge, but
will be subject to a CDSC of 1.00% on redemptions made within 12 months.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
*** For Class Y shares, "Other expenses" have been estimated based on
expenses incurred by Class A shares because no Class Y shares had been
purchased as of March 31, 1995.
</TABLE>
<PAGE>90
On July 19, 1995, the Board of Directors of the Fund approved a reduction
in the investment advisory fee paid by the Fund to Smith Barney Mutual Funds
Management Inc. ("SBMFM"). Accordingly, effective November 17, 1995, the
Fund's investment advisory fee will be decreased from 0.35% to 0.30% of the
average daily net assets of the Fund.
On June 12, 1995, SBMFM assumed responsibility for all administrative
functions for the Fund, including the functions previously performed by The
Boston Company Advisors, Inc. ("Boston Advisors"). As of that date, Boston
Advisors ceased to serve as sub-administrator to the Fund. Also, as of June
12, 1995, PNC Bank, National Association ("PNC") assumed responsibility as the
custodian of the Fund. As of that date, Boston Safe Deposit and Trust
Company, an affiliate of Boston Advisors, ceased to serve as the Fund's
custodian. PNC is located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania.
Effective July 15, 1995, employees of members of the National Association
of Securities Dealers, Inc. may purchase Class A shares of the Fund at net
asset value.
Supplement dated September 1, 1995
<PAGE>91
SMITH BARNEY
New Jersey Municipals Fund Inc.
MAY 29, 1995
PROSPECTUS BEGINS ON PAGE ONE
[LOGO OF SMITH BARNEY MUTUAL FUNDS APPEAR HERE]
P R O S P E C T U S
<PAGE>92
SMITH BARNEY
New Jersey Municipals Fund Inc.
PROSPECTUS MAY 29, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney New Jersey Municipals Fund Inc. (the "Fund") is a non-
diversified municipal fund that seeks to provide New Jersey investors with as
high a level of dividend income exempt from Federal income taxes and New Jersey
state personal income tax as is consistent with prudent investment management
and the preservation of capital.
This Prospectus concisely sets forth certain information about the Fund,
including sales charges, distribution and service fees and expenses, that
investors will find helpful in making an investment decision. Investors are
encouraged to read this Prospectus carefully and retain it for future refer-
ence. Additional information about the Fund is contained in a Statement of
Additional Information dated May 29, 1995, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing a Smith Barney Financial Consultant. The Statement of Additional Informa-
tion has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>93
SMITH BARNEY
New Jersey Municipals Fund Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 12
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 16
- -------------------------------------------------
NEW JERSEY MUNICIPAL SECURITIES 24
- -------------------------------------------------
VALUATION OF SHARES 26
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 26
- -------------------------------------------------
PURCHASE OF SHARES 30
- -------------------------------------------------
EXCHANGE PRIVILEGE 37
- -------------------------------------------------
REDEMPTION OF SHARES 42
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 43
- -------------------------------------------------
PERFORMANCE 44
- -------------------------------------------------
MANAGEMENT OF THE FUND 45
- -------------------------------------------------
DISTRIBUTOR 47
- -------------------------------------------------
ADDITIONAL INFORMATION 48
- -------------------------------------------------
</TABLE>
No person has been authorized to give any information or to
make any representations in connection with this offering other
than those contained in this Prospectus and, if given or made,
such other information or representations must not be relied upon
as having been authorized by the Fund or the Distributor. This
Prospectus does not constitute an offer by the Fund or the
Distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person
to whom it is unlawful to make such an offer or solicitation in
such jurisdiction.
2
<PAGE>94
SMITH BARNEY
New Jersey Municipals Fund Inc.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, non-diversified, management
investment company that seeks to provide New Jersey investors with as high a
level of dividend income exempt from Federal income taxes and New Jersey state
personal income tax as is consistent with prudent investment management and the
preservation of capital. Its investments consist primarily of intermediate- and
long-term investment-grade municipal securities issued by or on behalf of the
State of New Jersey or any of its instrumentalities, and its political subdivi-
sions, agencies and public authorities and certain other municipal issuers such
as the Commonwealth of Puerto Rico, the Virgin Islands and Guam ("New Jersey
Municipal Securities") that pay interest which is excluded from gross income
for Federal income tax purposes and exempt from New Jersey state personal
income taxes. Intermediate- and long-term municipal securities have remaining
maturities at the time of purchase of between three and thirty years. See "In-
vestment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.00% and are subject to an annual service fee of 0.15%
of the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which
when combined with current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no initial sales charge, but will be subject to a contingent
deferred sales charge ("CDSC") of 1.00% on redemptions made within 12 months of
purchase. See "Prospectus Summary--Reduced or No Initial Sales Charge."
3
<PAGE>95
SMITH BARNEY
New Jersey Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds, declining by 0.50% the first year
after purchase and by 1.00% each year thereafter to zero. This CDSC may be
waived for certain redemptions. Class B shares are subject to an annual service
fee of 0.15% and an annual distribution fee of 0.50% of the average daily net
assets of this Class. The Class B shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and dis-
tributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.15% and an annual
distribution fee of 0.55% of the average daily net assets of the Class C
shares, and investors pay a CDSC of 1.00% if they redeem Class C shares within
12 months of purchase. This CDSC may be waived for certain redemptions. The
Class C shares' distribution fee may cause that Class to have higher expenses
and pay lower dividends than Class A shares. Purchases of Class C shares, which
when combined with current holdings of Class C shares of the Fund, equal or
exceed $500,000 in the aggregate, should be made in Class A shares at net asset
value with no sales charge, and will be subject to a CDSC of 1.00% on redemp-
tions made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. Class Y shares are not subject to
any service or distribution fees.
In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
4
<PAGE>96
SMITH BARNEY
New Jersey Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject
to lower ongoing expenses over the term of the investment. As an alternative,
Class B and Class C shares are sold without any initial sales charge so the
entire purchase price is immediately invested in the Fund. Any investment
return on these additional invested amounts may partially or wholly offset the
higher annual expenses of these Classes. Because the Fund's future return
cannot be predicted, however, there can be no assurance that this would be
the case.
Finally, investors should consider the effect of the CDSC period and any con-
version rights of the Classes in context of their own investment time frame.
For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to any initial sales charge, CDSC or service or distribu-
tion fees. The maximum purchase amount for Class A shares is $4,999,999, Class
B shares is $249,999 and Class C shares is $499,999. There is no maximum pur-
chase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Fund. In addition, Class A share pur-
chases, which when combined with current holdings of Class A shares offered
with a sales charge equal or exceed $500,000 in the aggregate, will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment may be met by adding the purchase to the net asset value of all
Class A shares offered with a sales charge held in funds sponsored by Smith
Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Other Class A
share purchases may also be eligible for a reduced initial sales charge. See
"Purchase of Shares." Because the ongoing expenses of Class A shares may be
lower than those for Class B and Class C shares, purchasers eligible to pur-
chase Class A shares at net asset value or at a reduced sales charge should
consider doing so.
5
<PAGE>97
SMITH BARNEY
New Jersey Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith Barney, a broker that clears securities transactions through Smith Barney
on a fully disclosed basis (an "Introducing Broker") or an investment dealer in
the selling group. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000. Investors in
Class Y shares may open an account for an initial investment of $5,000,000.
Subsequent investments of at least $50 may be made for all Classes. The minimum
initial investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes through the Systematic
Investment Plan described below is $50. There is no minimum investment require-
ment in Class A for unitholders who invest distributions from a unit investment
trust ("UIT") sponsored by Smith Barney. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares in an amount of at least $50. See "Pur-
chase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and "Re-
demption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM"),
serves as the Fund's investment adviser. SBMFM provides investment advisory and
management services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings
6
<PAGE>98
SMITH BARNEY
New Jersey Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
Inc. ("Holdings"). Holdings is a wholly owned subsidiary of the Travelers Group
Inc. ("Travelers"), a diversified financial services holding company engaged,
through its subsidiaries, principally in four business segments: Investment
Services, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services.
SBMFM also serves as the Fund's administrator and The Boston Company Advi-
sors, Inc. ("Boston Advisors") serves as the Fund's sub-administrator. Boston
Advisors is a wholly owned subsidiary of The Boston Company, Inc. ("TBC"),
which in turn is a wholly owned subsidiary of Mellon Bank Corporation
("Mellon"). See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differen-
tial. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are paid on
the last Friday of each calendar month to shareholders of record as of the
prior Tuesday. Distributions of net realized long- and short-term capital
gains, if any, are declared and paid annually after the end of the fiscal year
in which they were earned. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution rein-
vestments will become eligible for conversion to Class A shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the Fund
will achieve its investment objective. Assets of the Fund also may be invested
in the municipal securities of non-New Jersey municipal issuers ("Other Munici-
pal Securities" and, together with New Jersey Municipal
7
<PAGE>99
SMITH BARNEY
New Jersey Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
Securities, "Municipal Securities"). Dividends paid by the Fund that are
derived from interest attributable to New Jersey Municipal Securities will be
excluded from gross income for Federal income tax purposes and exempt from New
Jersey state personal income taxes (but not from New Jersey state franchise tax
or New Jersey state corporate income tax), provided, however, the Fund is a
qualified investment fund under New Jersey law. Dividends derived from interest
on Other Municipal Securities will be exempt from Federal income taxes, but may
be subject to New Jersey state personal income taxes. Dividends derived from
certain Municipal Securities (including New Jersey Municipal Securities), how-
ever, may be a specific tax preference item for Federal alternative minimum tax
purposes. The Fund may invest without limit in securities subject to the Fed-
eral alternative minimum tax. See "Investment Objective and Management Poli-
cies" and "Dividends, Distributions and Taxes."
The Fund is more susceptible to factors adversely affecting issuers of New
Jersey Municipal Securities than is a municipal bond fund that does not empha-
size these issuers. See "New Jersey Municipal Securities" in the Prospectus and
"Special Considerations Relating to New Jersey Municipal Securities" in the
Statement of Additional Information for further details about the risks of
investing in New Jersey obligations.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), which means that
the Fund is not limited by the 1940 Act in the proportion of its assets that it
may invest in the obligations of a single issuer. The Fund's assumption of
large positions in the obligations of a small number of issuers may cause the
Fund's share price to fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial conditions or in the market's
assessment of the issuers.
The Fund generally will invest at least 75% of its assets in securities rated
investment grade, and may invest the remainder of its assets in securities
rated as low as C by Moody's Investors Service, Inc. ("Moody's") or D by Stan-
dard & Poor's Corporation ("S&P"), or in unrated obligations, of comparable
quality. Securities in the fourth highest rating category, though considered to
be investment grade, have speculative characteristics. Securities rated as low
as D are extremely speculative and are in actual default of interest and/or
principal payments.
8
<PAGE>100
SMITH BARNEY
New Jersey Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
There are several risks in connection with the use of when-issued securities,
municipal bond index and interest rate futures contracts and put and call
options thereon as hedging devices, and municipal leases. See "Investment
Objective and Management Policies--Certain Portfolio Strategies."
THE FUND'S EXPENSES The following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and, unless otherwise noted the Fund's operating
expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.00% None None None
Maximum CDSC (as a percentage of original cost
or redemption proceeds, whichever is lower) None* 4.50% 1.00% None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.50% 0.50% 0.50% 0.50%
12b-1 fees** 0.15 0.65 0.70 None
Other expenses*** 0.23 0.24 0.24 0.23
- -------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.88% 1.39% 1.44% 0.73%
- -------------------------------------------------------------------------------
<FN>
* Purchase of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge, equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but will
be subject to a CDSC of 1.00% on redemptions made within 12 months.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a con-
version feature and, therefore, are subject to an ongoing distribution fee.
As a result, long-term shareholders of Class C shares may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
*** For Class Y shares, "Other expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares had been purchased as
of March 31, 1995.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors
may actually pay lower or no charges depending on the amount purchased and, in
the case of Class B, Class C and certain Class A shares, the length of time the
shares are held. See "Purchase of Shares" and "Redemption of Shares."
9
<PAGE>101
SMITH BARNEY
New Jersey Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
Smith Barney receives an annual 12b-1 service fee of 0.15% of the value of
average daily net assets of Class A shares. Smith Barney also receives, with
respect to Class B shares, an annual 12b-1 fee of 0.65% of the value of average
daily net assets of that Class, consisting of a 0.50% distribution and a 0.15%
service fee, and with respect to Class C shares, Smith Barney receives an
annual 12b-1 fee of 0.70% of the value of average daily net assets of the
Class, consisting of a 0.55% distribution fee and a 0.15% service fee. "Other
expenses" in the above table include fees for shareholder services, custodial
fees, legal and accounting fees, printing costs and registration fees.
10
<PAGE>102
SMITH BARNEY
New Jersey Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
The following example is intended to assist an investor in understanding the
various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS*
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A $49 $67 $87 $144
Class B 59 74 86 151
Class C 37 58 91 185
Class Y 7 23 41 91
- ------------------------------------------------------------------------------
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A 49 67 87 144
Class B 14 44 76 151
Class C 27 58 91 185
Class Y 7 23 41 91
- ------------------------------------------------------------------------------
<FN>
* Ten-year figures assume conversion of Class B shares to Class A shares at the
end of the eighth year following the date of purchase.
</TABLE>
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
11
<PAGE>103
SMITH BARNEY
New Jersey Municipals Fund Inc.
FINANCIAL HIGHLIGHTS
Except where otherwise noted, the following information has been audited by
Coopers & Lybrand, independent accountants, whose report thereon appears in the
Fund's Annual Report dated March 31, 1995. This information should be read in
conjunction with the financial statements and related notes that also appear in
the Fund's Annual Report, which is incorporated by reference into the Statement
of Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
3/31/95 3/31/94 3/31/93 3/31/92
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 12.55 $ 13.16 $ 12.44 $ 12.17
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income*** 0.70 0.70 0.75 0.77
Net realized and unrealized
gain/(loss) on investments 0.07 (0.46) 0.87 0.44
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.77 0.24 1.62 1.21
- --------------------------------------------------------------------------------
DISTRIBUTIONS:
Distributions from net investment
income (0.70) (0.69) (0.75) (0.77)
Distributions in excess of net
investment income -- (0.01) -- --
Distributions from net realized
gains (0.00)** (0.15) (0.14) (0.13)
Distributions from capital -- (0.00)** (0.01) (0.04)
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.70) (0.85) (0.90) (0.94)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 12.62 $ 12.55 $ 13.16 $ 12.44
- --------------------------------------------------------------------------------
TOTAL RETURN+++ 6.37% 1.66% 13.49% 10.22%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's) $106,919 $119,913 $115,694 $92,797
Ratio of operating expenses to
average net assets+ 0.88++ 0.83% 0.74% 0.67%++
Ratio of net investment income to
average net assets 5.61% 5.17% 5.76% 6.18%
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 32% 32% 58% 98%
- --------------------------------------------------------------------------------
<FN>
** Amount represents less than $0.01 per Class A share.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser, sub-investment adviser and administrator
for the years ended March 31, 1994, 1993, 1992, 1991, 1990 and 1989 would
have been $.69, $.73, $.75, $.78, $.77 and $.74, respectively.
+ Expense ratios before partial waiver of fees by investment adviser and sub-
investment adviser and/or administrator for the years ended March 31, 1994,
1993, 1992, 1991, and 1990 and before the partial waiver of fees and reim-
bursement of expenses by investment adviser and sub-investment adviser
and/or administrator for the period ended March 31, 1989 were 0.88%, 0.90%,
0.83%, 0.90%, 1.08% and 1.23%, respectively.
++ The operating expense ratio excludes interest expense. The operating
expense ratio, including interest expense, was 0.89% and 0.68% for the
years ended March 31, 1995 and 1992, respectively.
+++ Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
</TABLE>
12
<PAGE>104
SMITH BARNEY
New Jersey Municipals Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
3/31/91 3/31/90 3/31/89*
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 11.92 $ 11.67 $ 11.40
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income*** 0.82 0.83 0.82
Net realized and unrealized gain on investments 0.32 0.27 0.28
- ------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.14 1.10 1.10
- ------------------------------------------------------------------------------
DISTRIBUTIONS:
Distributions from net investment income (0.83) (0.82) (0.82)
Distributions in excess of net investment income -- -- --
Distributions from net realized gains (0.05) (0.03) (0.01)
Distributions from capital (0.01) -- --
- ------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.89) (0.85) (0.83)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 12.17 $ 11.92 $ 11.67
- ------------------------------------------------------------------------------
TOTAL RETURN++ 9.89% 9.62% 9.84%
- ------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $65,378 $38,728 $29,265
Ratio of operating expenses to average net
assets+ 0.57% 0.55% 0.52%**
Ratio of net investment income to average net
assets 6.74% 6.89% 7.23%**
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 44% 42% 25%
- ------------------------------------------------------------------------------
<FN>
* The Fund commenced operations on April 22, 1988. Those shares in existence
prior to November 6, 1992 were designated as Class A shares.
** Annualized.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser, sub-investment adviser and/or administrator
for the years ended March 31, 1994, 1993, 1992, 1991, 1990, and 1989 would
have been $.69, $.73, $.75, $.78, $.77, and $.74, respectively.
+ Expense ratios before partial waiver of fees by investment adviser and sub-
investment adviser and administrator for the years ended March 31, 1994,
1993, 1992, 1991, and 1990 and before the partial waiver of fees and reim-
bursement of expenses by investment adviser and sub-investment adviser and
administrator for the period ended March 31, 1989 were 0.88%, 0.90%, 0.83%,
0.90%, 1.08% and 1.23%, respectively.
++ Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
</TABLE>
13
<PAGE>105
SMITH BARNEY
New Jersey Municipals Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
3/31/95 3/31/94 3/31/93*
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.55 $ 13.16 $ 12.75
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income*** 0.63 0.64 0.28
Net realized and unrealized gain/(loss) on
investments 0.06 (0.47) 0.55
- ------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.69 0.17 0.83
- ------------------------------------------------------------------------------
DISTRIBUTIONS:
Distributions from net investment income (0.62) (0.62) (0.27)
Distributions in excess of net investment
income -- (0.01) --
Distributions from net realized gains (0.00)+++ (0.15) (0.14)
Distributions from capital -- (0.00)+++ (0.01)
- ------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.62) (0.78) (0.42)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.62 $ 12.55 $ 13.16
- ------------------------------------------------------------------------------
TOTAL RETURN++ 5.76% 1.15% 6.60%
- ------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) 55,334 $48,375 $16,293
Ratio of operating expenses to average net
assets+ 1.39# 1.36% 1.33%**
Ratio of net investment income to average
net assets 5.09% 4.64% 5.17%**
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 32% 32% 58%
- ------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** Annualized.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser, sub-investment adviser and/or administrator
for the years ended March 31, 1994 and 1993 would have been $.63 and $.27,
respectively.
+ Annualized expense ratio before partial waivers of fees by investment
adviser and sub-investment adviser and administrator for the years ended
March 31, 1994 and 1993 were 1.41% and 1.49%, respectively.
++ Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
+++ Amount represents less than $0.01 per Class B share.
# The operating expense ratio excludes interest expense. The operating
expense ratio, including interest expense, was 1.40% for the year ended
March 31, 1995.
</TABLE>
14
<PAGE>106
SMITH BARNEY
New Jersey Municipals Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
PERIOD FROM
11/07/94 TO
3/31/95*
- -------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.86
- -------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income*** 0.20
Net realized and unrealized gain/(loss) on investments 0.74
- -------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.94
- -------------------------------------------------------------------
DISTRIBUTIONS:
Distributions from net investment income (0.18)
Distributions from net realized gains (0.00)#
- -------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.18)
- -------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.62
- -------------------------------------------------------------------
TOTAL RETURN++ 8.01%
- -------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 248
Ratio of operating expenses to average net assets+ 1.44%**
Ratio of net investment income to average net assets 5.05%**
- -------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 32%
- -------------------------------------------------------------------
<FN>
* The Fund commenced selling Class C shares on December 13, 1994.
** Annualized.
+ The operating expense ratio excludes interest expense. The operating ratio
including interest expense was 1.45%.
++ Total return represents aggregate total return for the period and does not
reflect any applicable sales charge.
# Amount represents less than $0.01 per Class C share.
</TABLE>
As of March 31, 1995, the Fund had not sold any Class Y shares and,
accordingly, no comparable financial information is available at this time for
that Class.
15
<PAGE>107
SMITH BARNEY
New Jersey Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is to provide New Jersey investors with
as high a level of income exempt from Federal and New Jersey personal income
taxes as is consistent with prudent investment management and the preservation
of capital. This investment objective may not be changed without the approval
of the holders of a majority of the Fund's outstanding shares. There can be no
assurance that the Fund's investment objective will be achieved.
The Fund operates subject to an investment policy providing that, under nor-
mal market conditions, the Fund will invest at least 80% of its net assets in
Municipal Securities and at least 65% of the aggregate principal amount of the
Fund's investments in New Jersey Municipal Securities. Whenever less than 80%
of the Fund's assets are invested in New Jersey Municipal Securities, the Fund,
in order to maintain its status as a "qualified investment fund" under New Jer-
sey law, will seek to invest in debt obligations which, in the opinion of coun-
sel to the issuers, are free from state or local taxation under New Jersey or
Federal laws ("Tax-Exempt Obligations"). The Fund's investments in New Jersey
Municipal Securities and Tax-Exempt Obligations will represent at least 80% of
the aggregate principal amount of all of its investments, excluding cash and
cash items (including receivables). Subject to these minimum investment inten-
tions, the Fund also may acquire intermediate- and long-term debt obligations
consisting of Other Municipal Securities, the interest on which is at least
exempt from Federal income taxation (not including the possible applicability
of the alternative minimum tax). When SBMFM believes that market conditions
warrant adoption of a temporary defensive investment posture, the Fund may
invest without limit in Other Municipal Securities and in "Temporary Invest-
ments" as described below.
The Fund generally will invest at least 75% of its total assets in invest-
ment- grade debt obligations rated no lower than Baa, MIG 3 or Prime-1 by
Moody's or BBB, SP-2 or A-1 by S&P, or in unrated obligations of comparable
quality. Unrated securities will be considered to be of investment grade if
deemed by SBMFM to be comparable in quality to instruments so rated, or if
other outstanding obligations of the issuers of the unrated securities are
rated Baa or better by Moody's or BBB or better by S&P. The balance of the
Fund's assets may be invested in securities rated as low as C by Moody's or D
by S&P, or comparable unrated securities. (These securities are sometimes
referred to as "junk bonds.") Securities in the fourth highest rating category,
though considered to be investment grade, have speculative characteristics.
Securities rated as low as D are extremely speculative and are in actual
default of interest and/or principal
16
<PAGE>108
SMITH BARNEY
New Jersey Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
payments. A description of the rating systems of Moody's and S&P is contained
in the Statement of Additional Information.
The Fund's average weighted maturity will vary from time to time based on the
judgment of SBMFM. The Fund intends to focus on intermediate- and long-term
obligations, that is, obligations with remaining maturities at the time of pur-
chase of between three and thirty years. Obligations which are rated Baa by
Moody's or BBB by S&P and those which are rated lower than investment grade are
subject to greater market fluctuation and more uncertainty as to payment of
principal and interest, and therefore generate higher yields, than obligations
rated above Baa or BBB.
The value of debt securities varies inversely to changes in the direction of
interest rates. When interest rates rise, the value of debt securities gener-
ally falls, and when interest rates fall, the value of debt securities gener-
ally rises.
Low and Unrated Securities. While the market values of lower-rated and compa-
rable unrated securities tend to react less to fluctuations in interest rate
levels than the market values of higher-rated securities, the market values of
certain lower-rated and comparable unrated municipal securities also tend to be
more sensitive than higher-rated securities to short-term corporate and indus-
try developments and changes in economic conditions (including recession) in
specific regions or localities or among specific types of issuers. In addition,
lower-rated securities and comparable unrated securities generally present a
higher degree of credit risk. During an economic downturn or a prolonged period
of rising interest rates, the ability of issuers of lower-rated and comparable
unrated securities to service their payment obligations, meet projected goals
or obtain additional financing may be impaired. The risk of loss due to default
by such issuers is significantly greater because lower-rated and comparable
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. The Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings.
While the market for municipal bonds is considered to be generally adequate,
the existence of limited markets for particular lower-rated and comparable
unrated securities may diminish the Fund's ability to (a) obtain accurate mar-
ket quotations for purposes of valuing such securities and calculating its net
asset value and (b) sell the securities at fair value either to meet redemption
requests
17
<PAGE>109
SMITH BARNEY
New Jersey Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
or to respond to changes in the economy or in the financial markets. A severe
economic recession would likely disrupt the market for such securities and
adversely affect the ability of the issuers of such securities to repay princi-
pal and pay interest thereon.
Fixed-income securities, including lower-rated securities and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as the
Fund. If an issuer exercises these rights during periods of declining interest
rates, the Fund may have to replace the security with a lower yielding securi-
ty, thus resulting in a decreased return to the Fund.
Because many issuers of New Jersey Municipal Securities may choose not to
have their obligations rated, it is possible that a large portion of the Fund's
portfolio may consist of unrated obligations. Unrated obligations are not nec-
essarily of lower quality than rated obligations, but to the extent the Fund
invests in unrated obligations, the Fund will be more reliant on SBMFM's judg-
ment, analysis and experience than would be the case if the Fund invested only
in rated obligations.
Municipal Lease Obligations. The Fund may invest without limit in participa-
tions in municipal lease obligations or installment purchase contract obliga-
tions, (collectively, "municipal lease obligations") of state and local govern-
ments or authorities to finance the acquisition of equipment or facilities. The
interest on such obligations is, in the opinion of counsel to the issuers,
excluded from gross income for Federal and New Jersey State personal income tax
purposes provided that the liability for payments of principal and interest is
solely that of a New Jersey governmental entity. Although lease obligations do
not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is ordinarily backed
by the municipality's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no obliga-
tion to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. Although "non-appropriation" lease obligations are
often secured by the underlying property, disposition of the property in the
event of
18
<PAGE>110
SMITH BARNEY
New Jersey Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
foreclosure might prove difficult. There is no limitation on the percentage of
the Fund's assets that may be invested in municipal lease obligations. In eval-
uating municipal lease obligations, SBMFM will consider such factors as it
deems appropriate, which may include: (a) whether the lease can be canceled;
(b) the ability of the lease obligee to direct the sale of the underlying
assets; (c) the general creditworthiness of the lease obligor; (d) the likeli-
hood that the municipality will discontinue appropriating funding for the
leased property in the event such property is no longer considered essential by
the municipality; (e) the legal recourse of the lease obligee in the event of
such a failure to appropriate funding; (f) whether the security is backed by a
credit enhancement such as insurance; and (g) any limitations which are imposed
on the lease obligor's ability to utilize substitute property or services
rather than those covered by the lease obligation.
Private Activity Bonds. The Fund may invest without limit in private activity
bonds. Interest income on certain types of private activity bonds issued after
August 7, 1986 to finance non-governmental activities is a specific tax prefer-
ence item for purposes of the Federal individual and corporate alternative min-
imum taxes. Individual and corporate shareholders may be subject to a Federal
alternative minimum tax to the extent the Fund's dividends are derived from
interest on those bonds. Dividends derived from interest income on Municipal
Securities are a component of the "current earnings" adjustment items for pur-
poses of the Federal corporate alternative minimum tax.
The Fund is classified as a non-diversified investment company under the 1940
Act, which means that the Fund is not limited by the 1940 Act in the proportion
of its assets that it may invest in the obligations of a single issuer. The
Fund intends to conduct its operations so as to qualify as a "regulated invest-
ment company" for purposes of the Internal Revenue Code of 1986, as amended
(the "Code"), which will relieve the Fund of any liability for Federal income
tax to the extent its earnings are distributed to shareholders. The Fund must
qualify as a regulated investment company to be a qualified investment fund
under New Jersey law. To so qualify, among other requirements, the Fund will
limit its investments so that, at the close of each quarter of the taxable
year, (a) not more than 25% of the market value of the Fund's total assets will
be invested in the securities of a single issuer and (b) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer and the
Fund will not own more than 10% of the outstanding voting securities of a sin-
gle
19
<PAGE>111
SMITH BARNEY
New Jersey Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
issuer. The Fund's assumption of large positions in the obligations of a small
number of issuers may cause the Fund's share price to fluctuate to a greater
extent than that of a diversified company as a result of changes in the finan-
cial condition or in the market's assessment of the issuers.
The Fund may invest without limit in debt obligations that are repayable out
of revenue streams generated from economically related projects or facilities.
Revenue securities may also include private activity bonds which may be issued
by or on behalf of public authorities to finance various privately operated
facilities and are not payable from the unrestricted revenues of the issuer.
Sizeable investments in such obligations could involve an increased risk to the
Fund should any of the related projects or facilities experience financial dif-
ficulties. The Fund also may invest up to 15% of its total assets in securities
with contractual or other restrictions on resale and other instruments which
are not readily marketable. Notwithstanding the foregoing, the Fund will not
invest more than 10% of its assets in securities (excluding those subject to
Rule 144A under the Securities Act of 1933, as amended) that are restricted.
The Fund does not expect to invest more than 5% of its assets in repurchase
agreements. In addition, the Fund may invest up to 5% of its assets in the
securities of issuers which have been in continuous operation for less than
three years. The Fund also is authorized to borrow in an amount of up to 10% of
its total assets (including the amount borrowed) valued at market less liabili-
ties (not including the amount borrowed) in order to meet anticipated redemp-
tions and to pledge its assets to the same extent in connection with the
borrowings.
Further information about the Fund's investment policies, including a list of
those restrictions on the Fund's investment activities that cannot be changed
without shareholder approval, appears in the Statement of Additional Informa-
tion.
CERTAIN PORTFOLIO STRATEGIES
In attempting to achieve its investment objective, the Fund may employ, among
others, the following strategies:
When-Issued Securities. New issues of Municipal Securities frequently are
offered on a when-issued basis, which means that delivery and payment for the
securities normally take place 15 to 45 days after the date of the commitment
to purchase. The payment obligation and interest rate that will be received on
when-issued securities are fixed at the time that the buyer enters into the
20
<PAGE>112
SMITH BARNEY
New Jersey Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
commitment. As a result, the yields obtained on the securities may be higher or
lower than the yields available in the market on the dates when the instruments
are actually delivered to the buyers. In addition, during the period before
delivery and payment, there is no accrual of interest and there may be fluctua-
tions in the price of the securities so that there may be an unrealized loss at
the time of delivery. The Fund will establish a segregated account with the
Fund's custodian consisting of cash, obligations issued or guaranteed by the
United States government, its agencies or instrumentalities ("U.S. government
securities") or other high grade debt obligations in an amount equal to the
purchase price of the Fund's when-issued securities. Placing securities rather
than cash in the segregated account may have a leveraging effect on the Fund's
net assets. The Fund generally will make commitments to purchase Municipal
Securities and other tax-exempt obligations on a when-issued basis with the
intention of actually acquiring the securities, but the Fund may sell the secu-
rities before the delivery date if it is deemed advisable.
Temporary Investments. Under normal market conditions, the Fund may hold up
to 20% of its total assets in cash or money market instruments, including tax-
able money market instruments ("Temporary Investments"). In addition, when
SBMFM believes that market conditions warrant, including when acceptable New
Jersey Municipal Securities are unavailable, the Fund may take a temporary
defensive posture and invest without limitation in Temporary Investments. To
the extent the Fund holds Temporary Investments, it will not achieve its
investment objective. Tax-exempt securities eligible for short-term investment
by the Fund under such circumstances are municipal notes rated at the time of
purchase within the three highest grades by Moody's or S&P or, if not rated,
issued by issuers with outstanding debt securities rated within the three high-
est grades by Moody's or S&P. Any Temporary Investments made for defensive pur-
poses will be made in conformity with the requirements of a qualified invest-
ment fund under New Jersey law. Since the commencement of its operations, the
Fund has not found it necessary to invest in taxable Temporary Investments.
Financial Futures and Options Transactions. To hedge against a decline in the
value of Municipal Securities it owns or an increase in the price of Municipal
Securities it proposes to purchase, the Fund may enter into financial futures
contracts and invest in options on financial futures contracts that are traded
on a domestic exchange or board of trade. The futures contracts or options on
futures contracts that may be entered into by the Fund will be restricted to
21
<PAGE>113
SMITH BARNEY
New Jersey Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
those that are either based on an index of Municipal Securities or relate to
debt securities the prices of which are anticipated by SBMFM to correlate with
the prices of the Municipal Securities owned or to be purchased by the Fund.
In entering into a financial futures contract, the Fund will be required to
deposit with the broker through which it undertakes the transaction an amount
of cash or cash equivalents equal to approximately 5% of the contract amount.
This amount, which is known as "initial margin," is subject to change by the
exchange or board of trade on which the contract is traded, and members of the
exchange or board of trade may charge a higher amount. Initial margin is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. In accordance with a process known
as "marking-to-market," subsequent payments, known as "variation margin," to
and from the broker will be made daily as the price of the index or securities
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable. At any time prior to the expira-
tion of a futures contract, the Fund may elect to close the position by taking
an opposite position, which will operate to terminate the Fund's existing posi-
tion in the contract.
A financial futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of a specified property at
a specified price, date, time and place. Unlike the direct investment in a
futures contract, an option on a financial futures contract gives the purchaser
the right, in return for the premium paid, to assume a position in the finan-
cial futures contract at a specified exercise price at any time prior to the
expiration date of the option. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will
be accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option on the futures contract. The poten-
tial loss related to the purchase of an option on financial futures contracts
is limited to the premium paid for the option (plus transaction costs). The
value of the option may change daily and that change would be reflected in the
net asset value of the Fund.
Regulations of the Commodity Futures Trading Commission applicable to the
Fund require that its transactions in financial futures contracts and options
22
<PAGE>114
SMITH BARNEY
New Jersey Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
on financial futures contracts be engaged in for bona fide hedging purposes, or
if the Fund enters into futures contracts for speculative purposes, that the
aggregate initial margin deposits and premiums paid by the Fund will not exceed
5% of the market value of its assets. In addition, the Fund will, with respect
to its purchases of financial futures contracts, establish a segregated account
consisting of cash or cash equivalents in an amount equal to the total market
value of the futures contracts, less the amount of initial margin on deposit
for the contracts. The Fund's ability to trade in financial futures contracts
and options on financial futures contracts may be limited to some extent by the
requirements of the Code applicable to a regulated investment company, in addi-
tion to the requirements of a qualified investment fund under New Jersey law,
that are described below under "Dividends, Distributions and Taxes."
Although the Fund intends to enter into financial futures contracts and
options on financial futures contracts that are traded on a domestic exchange
or board of trade only if an active market exists for those instruments, no
assurance can be given that an active market will exist for them at any partic-
ular time. If closing a futures position in anticipation of adverse price move-
ments is not possible, the Fund would be required to make daily cash payments
of variation margin. In those circumstances, an increase in the value of the
portion of the Fund's investments being hedged, if any, may offset partially or
completely losses on the futures contract. No assurance can be given, however,
that the price of the securities being hedged will correlate with the price
movements in a futures contract and, thus, provide an offset to losses on the
futures contract or option on the futures contract. In addition, in light of
the risk of an imperfect correlation between securities held by the Fund that
are the subject of a hedging transaction and the futures or options used as a
hedging device, the hedge may not be fully effective because, for example,
losses on the securities held by the Fund may be in excess of gains on the
futures contract or losses on the futures contract may be in excess of gains on
the securities held by the Fund that were the subject of the hedge. In an
effort to compensate for the imperfect correlation of movement in the price of
the securities being hedged and movements in the price of futures contracts,
the Fund may enter into financial futures contracts or options on financial
futures contracts in a greater of lesser dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the futures con-
tract has been less or greater than that of the securities. This "over hedging"
or "under hedging" may adversely affect the Fund's net investment results if
market movements are not as anticipated when the hedge is established.
23
<PAGE>115
SMITH BARNEY
New Jersey Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
If the Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of securities it holds and rates decrease
instead, the Fund will lose part or all of the benefit of the increased value
of securities that it has hedged because it will have offsetting losses in its
futures or options position. In addition, in those situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation mar-
gin requirements on the futures contracts at a time when it may be disadvanta-
geous to do so. These sales of securities may, but will not necessarily, be at
increased prices that reflect the decline in interest rates.
NEW JERSEY MUNICIPAL SECURITIES
As used in this Prospectus, the term "New Jersey Municipal Securities" gener-
ally refers to intermediate- and long-term debt obligations issued by the State
of New Jersey and its political subdivisions, agencies and public authorities
(together with certain other governmental issuers such as the Commonwealth of
Puerto Rico, the Virgin Islands and Guam) to obtain funds for various public
purposes. The interest on such obligations is, in the opinion of bond counsel
to the issuers, excluded from gross income for Federal income tax purposes and
exempt under the New Jersey Gross Income Tax Act. For that reason, interest on
these obligations is generally fixed at a lower rate than it would be if it
were subject to such taxes. Interest income on certain New Jersey Municipal
Securities is a specific tax preference item for purposes of the Federal indi-
vidual and corporate alternative minimum taxes. See "Dividends, Distributions
and Taxes."
CLASSIFICATIONS
The two principal classifications of New Jersey Municipal Securities are
"general obligation bonds" and "revenue bonds." General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue bonds are payable from the reve-
nues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source, but not from the general taxing power. In addition, certain types of
"private activity bonds" issued by or on behalf of public authorities to obtain
funds for privately operated facilities are included in the term New Jersey
Municipal Securities, so long as the interest paid on the bonds qualifies as
excluded from gross income for Federal income tax purposes and exempt under the
New Jersey
24
<PAGE>116
SMITH BARNEY
New Jersey Municipals Fund Inc.
NEW JERSEY MUNICIPAL SECURITIES (CONTINUED)
Gross Income Tax Act. Private activity bonds are in most cases revenue bonds
and generally do not carry the pledge of the full faith, credit and taxing
power of the issuing entity.
SPECIAL CONSIDERATIONS
Economic, financial and other conditions relating to the State of New Jersey
have an obvious impact upon the state's general obligation bonds. These condi-
tions, to varying degrees, also will affect the bonds issued by the state's
political subdivisions, agencies and public authorities, including special
obligation bonds. In general, the State of New Jersey has a diversified eco-
nomic base consisting of, among others, commerce, construction and service
industries, selective commercial, agriculture, insurance, tourism, petroleum
refining and manufacturing, although New Jersey's manufacturing industry has
shown a downward trend in the last few years. New Jersey is a major recipient
of Federal assistance and, of all the states, is among the highest in the
amount of Federal aid received. Hence, a decrease in Federal financial assis-
tance may adversely affect New Jersey's financial condition. While New Jersey's
economic base has become more diversified over time and thus its economy
appears to be less vulnerable during recessionary periods, a recurrence of high
levels of unemployment could adversely affect New Jersey's overall economy and
its ability to meet its financial obligations.
New Jersey maintains a balanced budget, which generally restricts total
appropriation increases to only 5% annually to any municipality or county or an
index rate determined annually by the Director of the Division of Local Govern-
ment Services, whichever is less. New Jersey law provides for those situations
where the index percentage rate exceeds 5%. As a result, the balanced budget
plan may adversely affect a municipality's or county's ability to repay its
obligations. Of course, each municipality, county or other political subdivi-
sion will be subject to different economic, financial and other conditions,
which will affect its ability to pay the principal and interest on its bonds.
Similarly, special obligation or revenue bonds payable from revenues generated
by particular projects or other specific revenue sources also will be subject
to unique economic, financial and other conditions. If New Jersey or any of its
political subdivisions, agencies or public authorities is unable to meet its
financial obligations, the income derived by the Fund, the ability to preserve
or realize appreciation of the Fund's capital and the Fund's liquidity could be
adversely affected.
25
<PAGE>117
SMITH BARNEY
New Jersey Municipals Fund Inc.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE, on each day that the NYSE is open, by dividing the value
of the Fund's net assets attributable to each Class by the total number of
shares of that Class outstanding.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Directors. Short-
term investments that mature in 60 days or less are valued at amortized cost
whenever the Board of Directors determines that amortized cost is fair value.
Further information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund pays dividends from its net investment income (that is, income other
than net realized long- and short-term capital gains) on the last Friday of
each calendar month to shareholders of record as of the preceding Tuesday. Dis-
tributions of net realized long- and short-term capital gains, if any, are
declared and paid annually after the end of the fiscal year in which they have
been earned.
If a shareholder does not otherwise instruct, dividends or capital gains dis-
tributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In addition, in
order to avoid the application of a 4.00% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gains, the Fund may make a
distribution shortly before December 31 in each year of any undistributed ordi-
nary income or capital gains and expects to make any other distributions as are
necessary to avoid the application of this tax.
If, for any full fiscal year, the Fund's total distributions exceed net
investment income and net realized capital gains, the excess distributions gen-
erally will be treated as a tax-free return of capital (up to the amount of the
shareholder's tax basis in his or her shares). The amount treated as a tax-free
return of capital will reduce a shareholder's adjusted basis in his or her
shares. Pursuant to the requirements of the 1940 Act and other applicable laws,
a notice will
26
<PAGE>118
SMITH BARNEY
New Jersey Municipals Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
accompany any distribution paid from sources other than net investment income.
In the event the Fund distributes amounts in excess of its net investment
income and net realized capital gains, such distributions may have the effect
of decreasing the Fund's total assets, which may increase the Fund's expense
ratio.
The per share dividends on Class B shares and Class C shares may be lower
than the per share dividends on Class A and Class Y shares principally as a
result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the serv-
ice fee applicable to Class A shares. Distributions of capital gains, if any,
will be in the same amount for Class A, B, C and Y shares.
TAXES
The Fund has qualified and intends to continue to qualify each year as a reg-
ulated investment company under the Code, and will designate and pay exempt-
interest dividends derived from interest earned on qualifying tax-exempt obli-
gations. Such exempt-interest dividends may be excluded by shareholders from
their gross income for Federal income tax purposes although (a) all or a por-
tion of such exempt-interest dividends will be a specific preference item for
purposes of the Federal individual and corporate alternative minimum taxes to
the extent that they are derived from certain types of private activity bonds
issued after August 7, 1986 and (b) all exempt-interest dividends will be a
component of the "current earnings" adjustment item for purposes of the Federal
corporate alternative minimum tax. In addition, corporate shareholders may
incur a greater Federal "environmental" tax liability through the receipt of
Fund dividends and distributions. With the exception of gains derived from
investments in financial options, futures, forward contracts or similar finan-
cial instruments, distributions paid by the Fund, provided it is a qualified
investment fund under New Jersey law, attributable to interest on or gains from
New Jersey Municipal Securities and Tax-Exempt Obligations also will be exempt
from the New Jersey personal income tax (but not the New Jersey Corporation
Business Tax).
Dividends paid from taxable net investment income, if any, and distributions
of net realized short- and long-term capital gains from taxable securities are
taxable to shareholders at ordinary income rates, regardless of how long share-
holders have held their Fund shares and whether such dividends or distributions
are
27
<PAGE>119
SMITH BARNEY
New Jersey Municipals Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
received in cash or reinvested in additional shares. Distributions of net real-
ized long-term capital gains are taxable to shareholders as long-term capital
gains, regardless of how long they have held their Fund shares and whether such
distributions are received in cash or reinvested in Fund shares. Furthermore,
as a general rule, a shareholder's gain or loss on a sale or redemption of his
or her shares will be a long-term capital gain or loss if the shareholder has
held the shares for more than one year and will be a short-term capital gain or
loss if the shareholder has held the shares for one year or less. Gains result-
ing from the redemption or sales of shares of the Fund, provided it is a quali-
fied investment fund under New Jersey law, would be exempt from the New Jersey
personal income tax. The Fund's dividends and distributions will not qualify
for the dividends-received deduction for corporations. Any dividends or distri-
butions paid by the Fund attributable to investments other than New Jersey
Municipal Securities or Tax-Exempt Obligations will be subject to theNew Jersey
personal income tax.
Statements as to the tax status of each shareholder's dividends and distribu-
tions are mailed annually. Each shareholder will also receive, if appropriate,
various written notices after the close of the Fund's prior taxable year as to
the Federal income tax status of his or her dividends and distributions which
were received from the Fund during the Fund's prior taxable year. These state-
ments may set forth the dollar amount of income excluded or exempt from Federal
income or New Jersey state personal income taxes and the dollar amount, if any,
subject to such taxes. Moreover, these statements will designate the amount of
exempt-interest dividends that is a specific preference item for purposes of
the Federal individual and corporate alternative minimum taxes. Shareholders
should consult their tax advisors with specific reference to their own tax sit-
uations.
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without an
initial sales charge but are subject to a CDSC payable upon certain redemp-
tions. Class Y shares are sold without an initial sales charge or a CDSC and
are available only to investors investing a minimum of $5,000,000. See "Pro-
spectus
28
<PAGE>120
SMITH BARNEY
New Jersey Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
Summary--Alternative Purchase Arrangements" for a discussion of factors to con-
sider in selecting which Class of shares to purchase.
Purchases of Fund shares must by made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the selling
group. When purchasing shares of the Fund, investors must specify whether the
purchase is for Class A, Class B, Class C or Class Y shares. No maintenance fee
will be charged by the Fund in connection with a brokerage account through
which an investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account in the
Fund by making an initial investment of at least $1,000. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000. Sub-
sequent investments of at least $50 may be made for all Classes. For the Fund's
Systematic Investment Plan, the minimum initial investment requirement for
Class A, Class B and Class C shares and the subsequent investment requirement
for all Classes is $50. There are no minimum investment requirements for Class
A shares for employees of Travelers and its subsidiaries, including Smith Bar-
ney, unitholders who invest distributions from a UIT sponsored by Smith Barney,
and Directors of the Fund and their spouses and children. The Fund reserves the
right to waive or change minimums, to decline any order to purchase its shares
and to suspend the offering of shares from time to time. Shares purchased will
be held in the shareholder's account by the Fund's transfer agent, The Share-
holder Services Group, Inc., a subsidiary of First Data Corporation ("TSSG").
Share certificates are issued only upon a shareholder's written request to
TSSG.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset val-
ue, are priced according to the net asset value determined on that day. Orders
received by dealers or Introducing Brokers prior to the close of regular trad-
ing on the NYSE on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day, provided the order is
received by the Fund or Smith Barney prior to Smith Barney's close of business
(the "trade date"). Effective June 7, 1995, payment for Fund shares is due on
the third business day (the "settlement date") after the trade date.
29
<PAGE>121
SMITH BARNEY
New Jersey Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG is authorized through preau-
thorized transfers of $50 or more to charge the shareholder's account with a
bank or other financial institution on a monthly or quarterly basis as indi-
cated by the shareholder to provide for systematic additions to the sharehold-
er's Fund account. A shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Smith Barney or TSSG. The Sys-
tematic Investment Plan also authorizes Smith Barney to apply cash held in the
shareholder's Smith Barney brokerage account or redeem the shareholder's shares
of a Smith Barney money market fund to make additions to the account. Addi-
tional information is available from the Fund or a Smith Barney Financial Con-
sultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
as follows:
<TABLE>
<CAPTION>
DEALERS
SALES CHARGE AS % SALES CHARGE AS % REALLOWANCE AS
AMOUNT OF INVESTMENT OF TRANSACTION OF AMOUNT INVESTED % OF OFFERING PRICE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 25,000 4.00% 4.17% 3.60%
$ 25,000 - 49,999 3.50 3.63 3.15
50,000 - 99,999 3.00 3.09 2.70
100,000 - 249,999 2.50 2.56 2.25
250,000 - 499,999 1.50 1.52 1.35
500,000 and over* * * *
- ---------------------------------------------------------------------------------
<FN>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months
of purchase. The CDSC on Class A shares is payable to Smith Barney which
compensates Smith Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The CDSC is waived in the same
circumstances in which the CDSC applicable to Class B and Class C shares is
waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
</TABLE>
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act
of 1933, as amended.
30
<PAGE>122
SMITH BARNEY
New Jersey Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Fund made at one time by "any person," which includes an
individual, including his or her spouse and children, or a trustee or other
fiduciary of a single trust estate or single fiduciary account. The reduced
sales charge minimums may also be met by aggregating the purchase with the net
asset value of all Class A shares held in funds sponsored by Smith Barney that
are offered with a sales charge listed under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to Directors
of the Fund and employees of Travelers and its subsidiaries, or to the spouses
and children of such persons (including the surviving spouse of a deceased
Director or employee, and retired Directors or employees); (b) offers of Class
A shares to any other investment company in connection with the combination of
such company with the Fund by merger, acquisition of assets or otherwise; (c)
purchases of Class A shares by any client of a newly employed Smith Barney
Financial Consultant (for a period up to 90 days from the commencement of the
Financial Consultant's employment with Smith Barney), on the condition the pur-
chase of Class A shares is made with the proceeds of the redemption of shares
of a mutual fund which (i) was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial Consultant and (iii) was
subject to a sales charge; (d) shareholders who have redeemed Class A shares in
the Fund (or Class A shares of another fund of the Smith Barney Mutual Funds
that are offered with a sales charge equal to or greater than the maximum sales
charge of the Fund) and who wish to reinvest their redemption proceeds in the
Fund, provided the reinvestment is made within 60 calendar days of the redemp-
tion; (e) accounts managed by registered investment advisory subsidiaries of
Travelers; and (f) investments of distributions from a UIT sponsored by Smith
Barney. In order to obtain such discounts, the purchaser must provide suffi-
cient information at the time of purchase to permit verification that the pur-
chase would qualify for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class
31
<PAGE>123
SMITH BARNEY
New Jersey Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
A shares of the Fund and of funds sponsored by Smith Barney which are offered
with a sales charge listed under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or discon-
tinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares" and will be based upon
the aggregate sales of Class A shares of Smith Barney Mutual Funds offered with
a sales charge to, and share holdings of, all members of the group. To be eli-
gible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employee or partnership-sanctioned plan meet-
ing certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions. Smith
Barney may also offer a reduced sales charge or net asset value purchase for
aggregating related fiduciary accounts under such conditions that Smith Barney
will realize economies of sales efforts and sales related expenses. An individ-
ual who is a member of a qualified group may also purchase Class A shares of
the Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Fund shares at a discount and (c) satisfies uniform crite-
ria which enable Smith Barney to realize economies of scale in its costs of
distributing shares. A qualified group must have more than 10 members, must be
available to arrange for group meetings between representatives of the Fund and
the members, and must agree to include sales and other materials related to the
Fund in its publications and mailings to members at no cost to Smith Barney. In
order to obtain such reduced sales charge or to purchase at net asset value,
the purchaser
32
<PAGE>124
SMITH BARNEY
New Jersey Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
must provide sufficient information at the time of purchase to permit verifica-
tion that the purchase qualifies for the reduced sales charge. Approval of
group purchase reduced sales charge plans is subject to the discretion of Smith
Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes (i) all
Class A shares of the Fund and other funds of the Smith Barney Mutual Funds
offered with a sales charge acquired during the term of the Letter plus (ii)
the value of all Class A shares previously purchased and still owned. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If the goal is not achieved within
the period, the investor must pay the difference between the sales charges
applicable to the purchases made and the charges previously paid, or an appro-
priate number of escrowed shares will be redeemed.The term of the Letter will
commence upon the date the Letter is signed, or at the option of the investor,
up to 90 days before such date. Please contact a Smith Barney Financial Consul-
tant or TSSG to obtain a Letter of Intent application.
Class Y Shares. A Letter of Intent may also be used as a way for investors to
meet the minimum investment requirement for Class Y shares. Such investors must
make an initial minimum purchase of $1,000,000 in Class Y shares of the Fund
and agree to purchase a total of $5,000,000 of Class Y shares of the Fund
within six months from the date of the Letter. If a total investment of
$5,000,000 is not made within the six month period, all Class Y shares pur-
chased to date will be transferred to Class A shares, where they will be sub-
ject to all fees (including a service fee of 0.25%) and expenses applicable to
the Fund's Class A shares, which may include a CDSC of 1.00%. Please contact a
Smith Barney Financial Consultant or TSSG for further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on cer-
33
<PAGE>125
SMITH BARNEY
New Jersey Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
tain redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares which when combined with Class A shares
offered with a sales charge currently held by an investor equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
original cost of the shares being redeemed or their net asset value at the time
of redemption. CDSC Shares that are redeemed will not be subject to a CDSC to
the extent that the value of such shares represents: (a) capital appreciation
of Fund assets; (b) reinvestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class C shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC is imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- --------------------------------
<S> <C>
First 4.50%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
- --------------------------------
</TABLE>
Class B shares will convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fees. There will also be converted at that time such pro-
portion of Class B Dividend Shares owned by the shareholders as the total num-
ber of his or her Class B shares converting at the time bears to the total num-
ber of outstanding Class B shares (other than Class B Dividend Shares) owned by
the
34
<PAGE>126
SMITH BARNEY
New Jersey Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
shareholder. Shareholders who held Class B shares of Smith Barney Shearson
Short-Term World Income Fund (the "Short-Term World Income Fund") on July 15,
1994 and who subsequently exchange those shares for Class B shares of the Fund
will be offered the opportunity to exchange all such Class B shares for Class A
shares of the Fund four years after the date on which those shares were deemed
to have been purchased. Holders of such Class B shares will be notified of the
pending exchange in writing approximately 30 days before the fourth anniversary
of the purchase date and, unless the exchange has been rejected in writing, the
exchange will occur on or about the fourth anniversary date. See "Prospectus
Summary--Alternative Purchase Arrangements--Class B Shares Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation
or dividend and capital gain distribution reinvestments in such other funds.
For Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption.
The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that auto-
35
<PAGE>127
SMITH BARNEY
New Jersey Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
matic cash withdrawals in amounts equal to or less than 2.00% per month of the
value of the shareholder's shares will be permitted for withdrawal plans that
were established prior to November 7, 1994); (c) redemptions of shares within
12 months following the death or disability of the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares in connection with a combination of
the Fund with any investment company by merger, acquisition of assets or other-
wise. In addition, a shareholder who has redeemed shares from other funds of
the Smith Barney Mutual Funds may, under certain circumstances, reinvest all or
part of the redemption proceeds within 60 days and receive pro rata credit for
any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by TSSG in the case
of all other shareholders) of the shareholder's status or holdings, as the case
may be.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
funds of the Smith Barney Mutual Funds, to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of Class A, Class B and
Class C shares are subject to minimum investment requirements and all shares
are subject to other requirements of the fund into which exchanges are made,
and a sales charge differential may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
36
<PAGE>128
SMITH BARNEY
New Jersey Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Income and Growth Portfolio
Smith Barney Funds, Inc.--Utilities Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
*Smith Barney Funds, Inc.--Income Return Account Portfolio
Smith Barney Funds, Inc.--Monthly Payment Government Portfolio
+++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
*Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
*Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
37
<PAGE>129
SMITH BARNEY
New Jersey Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds--California Portfolio
*Smith Barney Muni Funds--Florida Limited Term Portfolio
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New Jersey Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Ohio Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc.--Emerging Markets Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Smith Barney World Funds, Inc.--International Balanced Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Smith Barney Precious Metals and Minerals Fund Inc.
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government Portfolio
***Smith Barney Money Funds, Inc.--Retirement Portfolio
38
<PAGE>130
SMITH BARNEY
New Jersey Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
++Smith Barney Municipal Money Market Fund, Inc.
++Smith Barney Muni Funds--California Money Market Portfolio
++Smith Barney Muni Funds--New York Money Market Portfolio
[FN]
- ---------
* Available for exchange with Class A, Class C and Class Y shares of the Fund.
** Available for exchange with Class A, Class B and Class Y shares of the Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund.
Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold without a
sales charge or with a maximum sales charge of less than the maximum charged by
other Smith Barney Mutual Funds will be subject to the appropriate "sales
charge differential" upon the exchange of such shares for Class A shares of a
fund sold with a higher sales charge. The "sales charge differential" is lim-
ited to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For pur-
poses of the exchange privilege, shares obtained through automatic reinvestment
of dividends and capital gains distributions are treated as having paid the
same sales charges applicable to the shares on which the dividends or distribu-
tions were paid; however, if no sales charge was imposed upon the initial pur-
chase of the shares, any shares obtained through automatic reinvestment will be
subject to a sales charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder (unless such share-
holder was a Class B shareholder of the Short-Term World Income Fund on July
15, 1994) wishes to exchange all or a portion of his or her shares in any of
the funds imposing a higher CDSC than that imposed by the Fund, the exchanged
Class B shares will be subject to the higher applicable CDSC. Upon an exchange,
the new Class B shares will be deemed to have been purchased on the same date
as the Class B shares of the Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be deemed to
have been purchased on the same date as the Class C shares of the Fund that
have been exchanged.
39
<PAGE>131
SMITH BARNEY
New Jersey Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
Class Y Exchanges. Class Y shareholders of the Fund who wish to exchange all
or a portion of their Class Y shares for Class Y shares in any of the funds
identified above may do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. SBMFM may deter-
mine that a pattern of frequent exchanges is excessive and contrary to the best
interests of the Fund's other shareholders. In this event, SBMFM will notify
Smith Barney and Smith Barney may, at its discretion, decide to limit addi-
tional purchases and/or exchanges by a shareholder. Upon such a determination,
Smith Barney will provide notice in writing or by telephone to the shareholder
at least 15 days prior to suspending the exchange privilege and during the 15
day period the shareholder will be required to (a) redeem his or her shares of
the Fund or (b) remain invested in the Fund or exchange into any of the funds
of the Smith Barney Mutual Funds ordinarily available, which position the
shareholder would be expected to maintain for a significant period of time. All
relevant factors will be considered in determining what constitutes an abusive
pattern of exchanges.
Exchanges will be processed at the net asset value next determined, plus any
applicable sales charge differential. Redemption procedures discussed below are
also applicable for exchanging shares, and exchanges will be made upon receipt
of all supporting documents in proper form. If the account registration of the
shares of the fund being acquired is identical to the registration of the
shares of the fund exchanged, no signature guarantee is required. A capital
gain or loss for tax purposes will be realized upon the exchange, depending
upon the cost or other basis of shares redeemed. Before exchanging shares,
investors should read the current prospectus describing the shares to be
acquired. The Fund reserves the right to modify or discontinue exchange privi-
leges upon 60 days' prior notice to shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
40
<PAGE>132
SMITH BARNEY
New Jersey Municipals Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until the Fund's transfer agent
receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. Effective June
7, 1995, redemption proceeds will be remitted on or before the third day fol-
lowing receipt of proper tender, except on any days on which the NYSE is closed
or as permitted under the 1940 Act in extraordinary circumstances. Generally,
if the redemption proceeds are remitted to a Smith Barney brokerage account,
these funds will not be invested for the shareholder's benefit without specific
instruction and Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by check, other than
a certified or official bank check, will be remitted upon clearance of the
check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
Smith Barney New Jersey Municipals Fund Inc.
Class A, B, C or Y (please specify)
c/o The Shareholders Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to TSSG together with the redemption request. Any
signature appearing on a redemption request, share certificate or stock power
must
41
<PAGE>133
SMITH BARNEY
New Jersey Municipals Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
be guaranteed by an eligible guarantor institution such as a domestic bank,
savings and loan institution, domestic credit union, member bank of the Federal
Reserve System or member firm of a national securities exchange. TSSG may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A redemption request will not
be deemed properly received until TSSG receives all required documents in
proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 many elect to
receive cash payments of at least $50 monthly or quarterly. The withdrawal plan
will be carried over on exchanges between funds or Classes of the Fund. Any
applicable CDSC will not be waived on amounts withdrawn by a shareholder that
exceed 1.00% per month of the value of the shareholder's shares subject to the
CDSC at the time the withdrawal plan commences. (With respect to withdrawal
plans in effect prior to November 7, 1994, any applicable CDSC will be waived
on amounts withdrawn that do not exceed 2.00% per month of the shareholder's
shares subject to the CDSC.) For further information regarding the automatic
cash withdrawal plan, shareholders should contact a Smith Barney Financial Con-
sultant.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The Fund, how-
ever, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
42
<PAGE>134
SMITH BARNEY
New Jersey Municipals Fund Inc.
PERFORMANCE
YIELD
From time to time, the Fund may advertises the 30-day "yield" and "equivalent
taxable yield" of each Class of shares. The yield refers to the income gener-
ated by an investment in those shares of the Fund over the 30-day period iden-
tified in the advertisement and is computed by dividing the net investment
income per share earned by the Class during the period by the maximum public
offering price per share on the last day of the period. This income is
"annualized" by assuming that the amount of income is generated each month over
a one-year period and is compounded semi-annually. The annualized income is
then shown as a percentage of the net asset value.
The equivalent taxable yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to the Fund's tax-exempt yield
for each Class. It is calculated by increasing the yield shown for the Class to
the extent necessary to reflect the payment of taxes at specified tax rates.
Thus, the equivalent taxable yield always will exceed the Fund's yield. For
more information on equivalent taxable yields, please refer to the table under
"Dividends, Distributions and Taxes."
TOTAL RETURN
From time to time the Fund may include its total return, average annual total
return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum sales
charge, if any, from the initial amount invested and reinvestment of all income
dividends and capital gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the invest-
ment at the end of the period so calculated by the initial amount invested and
subtracting 100%. The standard average annual total return, as prescribed by
the SEC, is derived from this total return, which provides the ending redeem-
able value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and then dividing by the net
43
<PAGE>135
SMITH BARNEY
New Jersey Municipals Fund Inc.
PERFORMANCE (CONTINUED)
asset value or the maximum public offering price (including sales charge) on
the last day of the period for which current dividend return is presented. The
current dividend return for each Class may vary from time to time depending on
market conditions, the composition of the Fund's investment portfolio and oper-
ating expenses. These factors and possible differences in the methods used in
calculating current dividend return should be considered when comparing a
Class' current return to yields published for other investment companies and
other investment vehicles. The Fund may also include comparative performance
information in advertising or marketing its shares. Such performance informa-
tion may include data from Lipper Analytical Services, Inc. or similar indepen-
dent services that monitor the performance of mutual funds, or other industry
publications. The Fund will include performance data for Class A, Class B,
Class C and Class Y shares in any advertisement or information including per-
formance data of the Fund.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agreements
between the Fund and the companies that furnish services to the Fund, including
agreements with the Fund's distributor, investment adviser, administrator, sub-
administrator, custodian and transfer agent. The day-to-day operations of the
Fund are delegated to the Fund's investment adviser, administrator and sub-
administrator. The Statement of Additional Information contains general back-
ground information regarding each Director and executive officer of the Fund.
INVESTMENT ADVISER -- SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser pursuant to a transfer of the advisory agreement,
effective November 7, 1994, from its affiliate, Mutual Management Corp. (Mutual
Management Corp. and SBMFM are both wholly owned subsidiaries of Holdings.)
Investment advisory services continue to be provided to the Fund by the same
portfolio managers who had provided services under the agreement with Mutual
Management Corp. SBMFM (through predecessor entities) has been in the invest-
ment counseling business since 1934 and is a registered
44
<PAGE>136
SMITH BARNEY
New Jersey Municipals Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
investment adviser. SBMFM renders investment advice to investment companies
that had aggregate assets under management as of April 28, 1995 in excess of
$58.36 billion.
Subject to the supervision and direction of the Fund's Board of Directors,
SBMFM manages the Fund's portfolio in accordance with the Fund's investment
objective and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities and employs professional portfolio managers and
securities analysts who provide research services to the Fund. For investment
advisory services rendered, the Fund pays SBMFM an investment advisory fee at
the following annual rates: 0.35% of average daily net assets up to $500 mil-
lion; and 0.32% of average daily net assets in excess of $500 million. For the
fiscal year ended March 31, 1995, Mutual Management Corp. and SBMFM were paid
investment advisory fees equal to 0.35% of the value of the average daily net
assets of the Fund.
PORTFOLIO MANAGEMENT
Lawrence T. McDermott, an Investment Officer of SBMFM, has served as Vice
President and Investment Officer of the Fund since it commenced operations, and
manages the day-to-day operations of the Fund, including making all investment
decisions.
Management's discussion and analysis, and additional performance information
regarding the Fund during the fiscal year ended March 31, 1995, are included in
the Annual Report dated March 31, 1995. A copy of the Annual Report may be
obtained upon request and without charge from a Smith Barney Financial Consul-
tant or by writing or calling the Fund at the address or telephone number
listed on page one of this Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees all aspects of the
Fund's administration. For administration services rendered, the Fund pays
SBMFM a fee at the following annual rates of average daily net assets: 0.20% to
$500 million; and 0.18% in excess of $500 million.
45
<PAGE>137
SMITH BARNEY
New Jersey Municipals Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's sub-administrator. Boston Advisors provides investment
management, investment advisory and/or administrative services to investment
companies which had aggregate assets under management as of April 29, 1995, in
excess of $13.157 billion.
Boston Advisors calculates the net asset value of the Fund's shares and gen-
erally assists SBMFM in all aspects of the Fund's administration and operation.
Under a sub-administration agreement dated July 20, 1994, Boston Advisors is
paid a portion of the fee paid by the Fund to SBMFM at a rate agreed upon from
time to time between Boston Advisors and SBMFM. Prior to July 20, 1994, Boston
Advisors served as the Fund's administrator. For the fiscal year ended March
31, 1994, the Fund paid administration fees to Boston Advisors in an amount
equal to 0.18% of the value of the average daily net assets of the Fund and
Boston Advisors waived administration fees payable to it in an amount equal to
0.02% of the value of the average daily net assets of the Fund.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), 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 average daily net assets of the respective Class. 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 average
daily net assets attributable to those Classes. Class B shares which automati-
cally convert to Class A shares eight years after the date of original purchase
will no longer be subject to a distribution fee. The fees are used by Smith
Barney to pay its Financial Consultants for servicing shareholder accounts and,
in the case of Class B and Class C shares, to cover expenses primarily intended
to result in the sale of those shares. These expenses include: advertising
expenses; the cost of printing and mailing prospectuses to potential investors;
payments to
46
<PAGE>138
SMITH BARNEY
New Jersey Municipals Fund Inc.
DISTRIDUTOR (CONTINUED)
and expenses of Smith Barney Financial Consultants and other persons who pro-
vide support services in connection with the distribution of shares; interest
and/or carrying charges; and indirect and overhead costs of Smith Barney asso-
ciated with the sale of Fund shares, including lease, utility, communications
and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Fund's Board of Direc-
tors will evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on November
12, 1987, and is registered with the SEC as a non-diversified, open-end manage-
ment investment company. The Fund offers shares of common stock currently clas-
sified into four Classes--A, B, C and Y. Each Class of shares has a par value
of $.001 per share and represents identical interest in the Fund's investment
portfolio. As a result, the Classes have the same rights, privileges and pref-
erences, except with respect to: (a) the designation of each Class; (b) the
effect of the respective sales charges, if any, for each Class; (c) the distri-
bution and/or service fees, if any, borne by each Class; (d) the expenses allo-
cable exclusively to each Class; (e) voting rights on matters exclusively
affecting a single Class; (f) the exchange privilege of each Class; and (g) the
conversion feature of the Class B shares. The Board of Directors does not
anticipate that there will be any conflicts among the interests of the holders
of the different Classes. The Directors, on an ongoing basis, will consider
whether any such conflict exists and, if so, will take appropriate action.
47
<PAGE>139
SMITH BARNEY
New Jersey Municipals Fund Inc.
ADDITIONAL INFORMATION (CONTINUED)
The Fund does not hold annual shareholder meetings. There normally will be no
meetings of shareholders for the purpose of electing Directors unless and until
such time as less than a majority of the Directors holding office have been
elected by shareholders. The Directors will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Fund's outstanding
shares, and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full share owned and a
proportionate, fractional vote for any fractional share held of that Class.
Generally, shares of the Fund will be voted on a Fund-wide basis on all matters
except matters affecting only the interests of one Class.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon located at One Boston Place, Boston, Massachusetts 02108, serves as cus-
todian of the Fund's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves as
the Fund's transfer agent.
The Fund sends to each of its shareholders a semi-annual report and an
audited annual report, which include listings of investment securities held by
the Fund at the end of each reporting period. In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to consolidate the mailing of its
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. Shareholders who do not want this consol-
idation to apply to their account should contact their Smith Barney Financial
Consultant or TSSG.
48
<PAGE>140
[LOGO OF SMITH BARNEY A MEMBER OF TRAVELERS GROUP APPEAR HERE]
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
388 Greenwich Street New York, New York 10013
FD0231 E5
<PAGE>141
STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 25, 1995
Acquisition Of The Assets Of
NEW JERSEY PORTFOLIO
a separate investment portfolio of
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
(800) 224-7523
By And In Exchange For Shares Of
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 224-7523
This Statement of Additional Information, relating specifically to
the proposed transfer of all or substantially all of the assets of the New
Jersey Portfolio (the "Acquired Fund") of Smith Barney Muni Funds to Smith
Barney New Jersey Municipals Funds Inc. (the "Acquiring Fund") in exchange for
shares of the Acquiring Fund and the assumption by the Acquiring Fund of
scheduled liabilities of the Acquired Fund, consists of this cover page and
the following described documents, each of which accompanies this Statement of
Additional Information and is incorporated herein by reference.
1. Statement of Additional Information of Smith Barney New Jersey
Municipals Fund Inc. dated May 29, 1995.
2. Annual Report of Smith Barney New Jersey Municipals Fund Inc. for
the fiscal year ended March 31, 1995.
3. Annual Report of Smith Barney Muni Funds -- New Jersey Portfolio for
the fiscal year ended March 31, 1995.
4. Pro Forma Financial Statements.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement, dated October 25, 1995, relating to the above-
referenced matter may be obtained without charge by calling or writing either
the Acquiring Fund or the Acquired Fund at the telephone numbers or addresses
set forth above or by contacting any Smith Barney Financial Consultant or by
calling toll-free (800) 224-7523. This Statement of
<PAGE>142
Additional Information should be read in conjunction with the Prospectus/Proxy
Statement dated October 25, 1995.
The date of this Statement of Additional Information is October 25,
1995.
<PAGE>143
STATEMENT OF ADDITIONAL INFORMATION
OF
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
DATED MAY 29, 1995.
<PAGE>144
Smith Barney
New Jersey Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information May 29, 1995
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney New Jersey
Municipals Fund Inc. (the "Fund"), dated May 29, 1995, as amended or
supplemented from time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund's Prospectus may be obtained from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or
telephone number set forth above. This Statement of Additional Information,
although not in itself a prospectus, is incorporated by reference into the
Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference the same section headings are used in both the
Prospectus and the Statement of Additional Information, except where shown
below:
<TABLE>
<CAPTION>
<S> <C>
Management of the Fund................................................................... 1
Investment Objective and Management Policies............................................. 5
Municipal Bonds (See in the Prospectus "New Jersey Municipal Securities")..... 9
Purchase of Shares......................................................................... 15
Redemption of Shares...................................................................... 16
Distributor................................................................................. 17
Valuation of Shares......................................................................... 18
Exchange Privilege.......................................................................... 18
Performance Data (See in the Prospectus "Performance").................................... 19
Taxes (See in the Prospectus "Dividends, Distributions and Taxes").......... 22
Additional Information...................................................................... 25
Financial Statements........................................................................ 25
Appendix.................................................................................... A1
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the
organizations that provide services to the Fund.
<TABLE>
<CAPTION>
<S> <C>
Name Service
Smith Barney Inc.
("Smith Barney")................................... Distributor
Smith Barney Mutual Funds Management Inc.
("SBMFM").......................................... Investment Adviser and Administrator
The Boston Company Advisors, Inc.
("Boston Advisors")................................ Sub-Administrator
Boston Safe Deposit and Trust Company
("Boston Safe").................................... Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation............. Transfer Agent
</TABLE>
These organizations and the functions they perform for the Fund are discussed
in the Prospectus and in this Statement of Additional Information.
<PAGE>145
Directors and Executive Officers of the Fund
The names of the Directors and executive officers of the Fund, together with
information as to their principal business occupations during the past five
years, are shown below. Each Director who is an "interested person" of the
Fund, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), is indicated by an asterisk.
Herbert Barg, Director (Age 73). Private Investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Director (Age 72). Retired; formerly Senior
Consultant to Dean Witter Reynolds Inc. His address is 19 Circle End Drive,
Ramsey, New Jersey 17466.
Martin Brody, Director (Age 73). Vice Chairman of the Board of
Restaurant Associates Industries Corp.; a Director of Jaclyn, Inc. His
address is HMK Associates, Three ADP Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Director (Age 57). Professor, Graduate School of
Business Administration, Harvard University; a Director of Peer Review
Analysis, Inc. His address is Graduate School of Business Administration,
Harvard University, Boston, Massachusetts 02163.
Burt N. Dorsett, Director (Age 69). Managing Partner of Dorsett McCabe
Management, Inc., an investment counseling firm; Director of Research
Corporation Technologies, Inc., a
non-profit patent-clearing and licensing firm. His address is 201 East 62nd
Street, New York, New York 10021.
Elliot S. Jaffe, Director (Age 68). Chairman of the Board and President
of The Dress Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York
10901.
Stephen E. Kaufman, Director (Age 63). Attorney. His address is 277 Park
Avenue, New York, New York 10172.
Joseph J. McCann, Director (Age 64). Financial Consultant; formerly Vice
President of Ryan Homes, Inc., Pittsburgh, Pennsylvania. His address is 200
Oak Park Place, Pittsburgh,
Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer (Age
62). Managing Director of Smith Barney, Chairman of the Board of Smith Barney
Strategy Advisers Inc. and President of SBMFM; prior to July 1993, Senior
Executive Vice President of Shearson Lehman Brothers Inc. ("Shearson Lehman
Brothers"), Vice Chairman of Asset Management Division of Shearson Lehman
Brothers; a Director of PanAgora Asset Management, Inc. and PanAgora Asset
Management Limited. His address is 388 Greenwich Street, New York, New York
10013.
Cornelius C. Rose, Jr., Director (Age 61). President, Cornelius C. Rose
Associates, Inc., financial consultants, and Chairman and Director of
Performance Learning Systems, an educational consultant. His address is P.O.
Box 355, Fair Oaks, Enfield, New Hampshire 03748.
James J. Crisona, Director emeritus (Age 87). Attorney; formerly Justice
of the Supreme Court of the State of New York. His address is 118 East 60th
Street, New York, New York 10022.
Jessica M. Bibliowicz, President (Age 35). Executive Vice President of
Smith Barney; prior to 1994, Director of Sales and Marketing for Prudential
Mutual Funds; prior to 1990, First Vice President,
<PAGE>146
Asset Management Division of Shearson Lehman Brothers. Ms. Bibliowicz also
serves as President of 25 other mutual funds of the Smith Barney Mutual Funds.
Her address is 388 Greenwich Street, New York, New York 10013.
Lawrence T. McDermott, Vice President and Investment Officer (Age 46).
Investment Officer of SBMFM; prior to July 1993, Managing Director of Shearson
Lehman Advisors, the predecessor to SBMFM. Mr. McDermott also serves as
Investment Officer of 10 other mutual funds of the Smith Barney Mutual Funds.
His address is 388 Greenwich Street, New York, New York 10013.
Karen L. Mahoney-Malcomson, Investment Officer (Age 38). Investment
Officer of SBMFM; prior to July 1993, Vice President of Shearson Lehman
Advisors. Ms. Mahoney- Malcomson also serves as Investment Officer of 7 other
mutual funds of the Smith Barney Mutual Funds. Her address is 388 Greenwich
Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 37). Managing
Director of Smith Barney; Director and Senior Vice President of SBMFM. Mr.
Daidone also serves as Senior
Vice President and Treasurer of other mutual funds of the Smith Barney Mutual
Funds. His address is 388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary (Age 44). Managing Director of Smith
Barney; General Counsel and Secretary of SBMFM. Ms. Sydor also serves as
Secretary of other mutual funds of the
Smith Barney Mutual Funds. Her address is 388 Greenwich Street, New York, New
York 10013.
No Director, officer or employee of Smith Barney or of any parent or
subsidiary receives any compensation from the Fund for serving as an officer
or Director of the Fund. The Fund pays each Director who is not an officer,
director or employee of Smith Barney or any of its affiliates a fee of
$1,000 per annum plus $100 per meeting attended and each Director emeritus
who is not an officer, director or employee of Smith Barney or any of its
affiliates a fee of $500 per annum plus $50 per meeting attended. The
Fund reimburses all Directors for travel and out-ofpocket expenses. For the
fiscal year ended March 31, 1995, such fees and expenses totaled $16,692.
For the fiscal year ended March 31, 1995, the Directors of the Fund were
paid the following compensation:
<TABLE>
<CAPTION>
<S> <C> <C>
Aggregate Compensation
Aggregate Compensation from the Smith Barney
Director* from the Fund+ Mutual Funds***
Herbert Barg (13)................ $1,600 $ 77,850
Alfred J. Bianchetti(8).......... 1,600 38,850
Martin Brody (15)............... 1,250 111,675
Dwight B. Crane (18)........... 1,600 125,975
Burt N. Dorsett (12)............. 700 34,300
Robert Frankel (7) ............ 1,250 75,850
Paul Hardin (12) .............. 1,250 68,600
Elliot S. Jaffe (12)............... 700 33,300
Stephen E. Kaufman (10)....... 1,600 83,600
Joseph J. McCann (18).......... 1,600 51,100
Heath B. McLendon (29)....... -- --
Cornelius C. Rose (12).......... 700 33,300
James J. Crisona**(10).......... 1,425 67,350
<FN>
* Number of directorships/trusteeships held with other mutual funds in the Smith Barney Mutual Funds.
** Director Emeritus. A Director emeritus may attend meetings of the Fund's
Board of Directors but has no voting rights at such meetings.
*** Aggregate Compensation from the Smith Barney Mutual Funds is for calendar
year ended December 31, 1994.
As of January 1, 1995, Messrs. Frankel and Hardin resigned from the Fund's
Board of Directors.
</TABLE>
The information presented in this table for Aggregate Compensation reflects
the compensation paid to Messrs. Frankel and Hardin and the number of funds
within the Smith Barney Mutual Funds for which they served as directors as of
the date of this Statement of Additional Information for the fiscal year ended
March 31, 1995.
<PAGE>147
Investment Adviser and Administrator-SBMFM
SBMFM serves as investment adviser to the Fund pursuant to a transfer of
the investment advisory agreement effective November 7, 1994, from its
affiliate, Mutual Management Corp. Mutual Management Corp. and SBMFM are both
wholly owned subsidiaries of Smith Barney Holdings Inc. ("Holdings"). Holdings
is a wholly owned subsidiary of Travelers Group Inc. ("Travelers"). The
advisory agreement is dated July 30, 1993 (the "Advisory Agreement") and was
first approved by the Board of Directors, including a majority of those
Directors who are not "interested persons" of the Fund or Smith Barney, on
April 7, 1993. The services provided by SBMFM under the Advisory Agreement are
described in the Prospectus under "Management of the Fund." SBMFM pays the
salary of any officer or employee who is employed by both it and the Fund.
As compensation for investment advisory services, the Fund pays SBMFM a
fee computed daily and paid monthly at the following annual rates of the
Fund's average daily net assets: 0.35% up to $500 million; and 0.32% in excess
of $500 million. For the 1993, 1994 and 1995 fiscal years, the investment
advisory fees paid to SBMFM and its predecessors amounted to, $378,146,
$559,176, and $579,652, respectively. Shearson Lehman Advisors, Mutual
Management Corp. and/or SBMFM voluntarily waived investment advisory fees for
the fiscal years ended March 31, 1993 and 1994 in the amounts of $110,602 and
$49,482, respectively.
SBMFM also serves as administrator to the Fund pursuant to a written
agreement dated April 20, 1994 (the "Administration Agreement"), which was
most recently approved by the Fund's Board of Directors, including a majority
of Directors who are not "interested persons" of the Fund or SBMFM, on July
20, 1994. The services provided by SBMFM under the Administration Agreement
are described in the Prospectus under "Management of the Fund." SBMFM pays
the salary of any officer and employee who is employed by both it and the Fund
and bears all expenses in connection with the
performance of its services.
As compensation for administrative services rendered to the Fund, SBMFM
receives a fee paid at the following annual rates: 0.20% of average daily net
assets up to $500 million; and 0.18% of average daily net assets in excess of
$500 million. For the fiscal year ended March 31, 1995, administrative fees
paid to SBMFM equaled $331,230.
Sub-Administrator - Boston Advisors
Boston Advisors currently serves as subadministrator to the Fund under a
written agreement (the "SubAdministration Agreement") dated April 20, 1994,
which was most recently approved by the Fund's Board of Directors, including a
majority of Directors who are not "interested persons" of the Fund or Boston
Advisors on April 20, 1994. Under the Sub-Administration Agreement, Boston
Advisors is paid a portion of the administration fee paid by the Fund to SBMFM
at a rate agreed upon from time to time between Boston Advisors and SBMFM.
Boston Advisors is a wholly owned subsidiary of The Boston Company, Inc.
("TBC"), a financial services holding company, which is in turn a wholly owned
subsidiary of Mellon Bank Corporation ("Mellon").
Prior to April 20, 1994, Boston Advisors served as the Fund's
sub-investment advisor and/or administrator. For the fiscal years ended March
31, 1992, 1993 and 1994, such fees amounted to $162,580, $216,083 and
$319,529, respectively. Boston Advisors voluntarily waived
sub-investment advisory and/or administration fees for the fiscal years ended
March 31, 1993 and 1994 in the amounts of $63,201 and $28,275, respectively.
Certain of the services provided to the Fund by Boston Advisors pursuant
to the Sub-Administration Agreement are described in the Prospectus under
"Management of the Fund." In addition to those services, Boston Advisors pays
the salaries of all officers and employees who are
<PAGE>148
employed by both it and the Fund, maintains office facilities for the Fund,
furnishes the Fund with statistical and research data, clerical help and
accounting, data processing, bookkeeping, internal auditing and legal services
and certain other services required by the Fund, prepares reports to the
Fund's shareholders, and prepares tax returns, reports to and filings with the
Securities and Exchange Commission (the "SEC") and state Blue Sky authorities.
Boston Advisors bears all expenses in connection with the performance of its
services.
The Fund bears expenses incurred in its operations, including: taxes,
interest, brokerage fees and commissions, if any; fees of Directors who are
not officers, directors, shareholders or employees of Smith Barney, SBMFM or
Boston Advisors; SEC fees and state Blue Sky qualification fees; charges of
custodian; transfer and dividend disbursing agent's fees; certain insurance
premiums; outside auditing and legal expenses; costs of any independent
pricing service; costs of maintaining corporate existence; costs attributable
to investors services (including allocated telephone and personnel expenses);
costs of preparation and printing of prospectuses for regulatory purposes and
for distribution to existing shareholders; costs of shareholders' reports and
shareholder meetings and meetings of the officers or Board of Directors of the
Fund.
SBMFM and Boston Advisors have agreed that if in any fiscal year the
aggregate expenses of the Fund (including fees payable pursuant to the
Advisory Agreement, SubAdministration and Administration Agreement but
excluding interest, taxes and brokerage fees paid pursuant to the
Fund's services and distribution plan, and, with the prior written consent of
the necessary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, SBMFM and
Boston Advisors will, to the extent required by state law, reduce their
management fees by the amount of such excess expenses, such amount to be
allocated between them in the proportion that their respective fees bear to
the aggregate of such fees paid by the Fund. Such fee reductions, if any, will
be reconciled on a monthly basis. For the fiscal year ended March 31, 1995
no such fee reduction was required.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the Fund. The
Directors who are not "interested persons" of the Fund ("Independent
Directors") have selected Stroock & Stroock & Lavan as their legal counsel.
KPMG Peat Marwick LLP ("Peat Marwick"), independent accountants, 345 Park
Avenue, New York, New York 10154, serve as auditors of the Fund and will
render an opinion on the Fund's financial statements annually beginning with
the fiscal year ending March 31, 1996. Prior to Peat Marwick's appointment,
Coopers and Lybrand L.L.P., served as auditors of the Fund and rendered an
opinion on the Fund's financial statements for the fiscal year ended March 31,
1995.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the policies
it employs to achieve that objective. The following discussion supplements the
description of the Fund's investment policies in the Prospectus. For purposes
of this Statement of Additional Information, obligations of non-New Jersey
municipal issuers, the interest on which is at least exempt from Federal
income taxation ("Other Municipal Securities"), and obligations of the State
of New Jersey and its political subdivisions, agencies and public authorities
(together with certain municipal issuers such as the Commonwealth of Puerto
Rico, the Virgin Islands and Guam) that pay interest which is excluded from
gross income for Federal income tax purposes and exempt from New Jersey
personal income taxes ("New Jersey Municipal Securities'')
are collectively referred to as "Municipal Bonds."
<PAGE>149
As noted in the Prospectus, the Fund is classified as a non-diversified
investment company under the 1940 Act, which means that the Fund is not
limited by the 1940 Act in the proportion of its assets that may be invested
in the obligations of a single issuer. The identification of the issuer of
Municipal Bonds generally depends upon the terms and conditions of the
security. When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from those of the
government creating the issuing entity and the security is backed only by the
assets and revenues of such entity, such entity would be deemed to be the sole
issuer. Similarly, in the case of a private activity bond, if that bond is
backed only by the assets and revenues of the non-governmental user, then such
non-governmental user is deemed to be the sole issuer. If in either case,
however, the creating government or some other entity guarantees a security,
such a guarantee would be considered a separate security and would be treated
as an issue of such government or other entity.
Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Corporation ("S&P") represent the opinions of those
agencies as to the quality of the Municipal Bonds and short-term investments
which they rate. It should be emphasized, however, that such ratings are
relative and subjective, are not absolute standards of quality and do not
evaluate the market risk of securities. These ratings will be used by the
Fund as initial criteria for the selection of portfolio securities, but the
Fund also will rely upon the independent advice of SBMFM to evaluate potential
investments. Among the factors that will be considered are the long-term
ability of the issuer to pay principal and interest and general economic
trends. To the extent the Fund invests in lower-rated and comparable unrated
securities, the Fund's achievement of its investment objective may be more
dependent on SBMFM's credit analysis of such securities than would be the case
for a portfolio consisting entirely of higher-rated securities.
Subsequent to its purchase by the Fund, an issue of Municipal Bonds may
cease to be rated or its rating may be reduced below the rating given at the
time the securities were acquired by the Fund. Neither event will require the
sale of such Municipal Bonds by the Fund, but SBMFM will consider such event
in its determination of whether the Fund should continue to hold the Municipal
Bonds. In addition, to the extent the ratings change as a result of changes in
such organizations or their rating systems or due to a corporate restructuring
of Moody's or S&P, the Fund will attempt to use comparable ratings as
standards for its investments in accordance with its investment objective and
policies. The Appendix contains information concerning the ratings of Moody's
and S&P and their significance.
Temporary Investments
The Fund may invest in short-term investments ("Temporary Investments")
consisting of (a) the following tax-exempt securities: notes of municipal
issuers having, at the time of purchase, a rating within the three highest
grades of Moody's or S&P or, if not rated, having an issue of outstanding
Municipal Bonds rated within the three highest grades by Moody's or S&P; and
(b) the following taxable securities: obligations of the United States
government, its agencies or instrumentalities ("U.S. government securities"),
repurchase agreements, other debt securities rated within the three highest
grades by Moody's and S&P, commercial paper rated in the highest grade by
either of such rating services, and certificates of deposit of domestic banks
with assets of $1 billion or more. The Fund intends to purchase tax-exempt
Temporary Investments pending the investment of the proceeds of the sale of
portfolio securities or shares of the Fund's common stock, or in order to have
highly liquid securities available to meet anticipated redemptions. At no time
will more than 20% of the Fund's total assets be invested in Temporary
Investments unless the Fund has adopted a defensive investment policy;
provided, however, that the Fund will seek, to the extent that it makes
Temporary Investments for defensive purposes, to make such investments in
conformity with the requirements of a qualified investment fund under New
Jersey law.
<PAGE>150
Repurchase Agreements. As a defensive position only, the Fund may enter
into repurchase agreements with banks which are the issuers of instruments
acceptable for purchase by the Fund and with certain dealers on the Federal
Reserve Bank of New York's list of reporting dealers. A repurchase agreement
is a contract under which the buyer of a security simultaneously commits to
resell the security to the seller at an agreed-upon price on an agreed-upon
date. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period (usually
not more than seven days) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. Under each repurchase
agreement, the selling institution will be required to maintain the value of
the securities subject to the repurchase agreement at not less than their
repurchase price. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays
or restrictions upon the Fund's ability to dispose of the underlying
securities, the risk of a possible decline in the value of the underlying
securities during the period in which the Fund seeks to assert its rights to
them, the risk of incurring expenses associated with asserting those rights
and the risk of losing all or part of the income from the agreement. To
evaluate potential risks, SBMFM or Boston Advisors, acting under the
supervision of the Fund's Board of Directors, reviews on an ongoing basis the
value of the collateral and the creditworthiness of those banks and dealers
with which the Fund enters into repurchase agreements.
Investment Restrictions
The Fund has adopted the following investment restrictions for the
protection of shareholders. Restrictions 1 through 7 below cannot be changed
without the approval of the holders of a majority of the outstanding shares of
the Fund, defined as the lesser of (a) 67% of the Fund's shares present at a
meeting, if the holders of more than 50% of the outstanding shares are present
in person or by proxy, or (b) more than 50% of the Fund's outstanding shares.
The remaining restrictions may be changed by the Board of Directors at any
time. The Fund may not:
1. Issue senior securities as defined in the 1940 Act and any rules and
orders thereunder, except insofar as the Fund may be deemed to have
issued senior securities by reason of: (a) borrowing money or purchasing
securities on a when-issued or delayed-delivery basis; (b) purchasing or
selling futures contracts and options on futures contracts and other
similar instruments; and (c) issuing separate classes of shares.
2. Invest more than 25% of its total assets in securities, the issuers of
which are in the same industry. For purposes of this limitation, U.S.
government securities and securities of state or municipal governments
and their political subdivisions are not considered to be issued by
members of any industry.
3. Borrow money, except that the Fund may borrow from banks for temporary
or emergency (not leveraging) purposes, including the meeting of
redemption requests which might otherwise require the untimely
disposition of securities, in an amount not exceeding 10% of the value of
the Fund's total assets (including the amount borrowed) valued at market
less liabilities (not including the amount borrowed) at the time the
borrowing is made. Whenever borrowings exceed 5% of the value of the
Fund's total assets, the Fund will not make additional investments.
4. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its
investment objective and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities.
<PAGE>151
5. Engage in the business of underwriting securities issued by other
persons, except to the extent that the Fund may technically be deemed to
be an underwriter under the Securities Act of 1933, as amended, in
disposing of portfolio securities.
6. Purchase or sell real estate, real estate mortgages, real estate
investment trust securities, commodities or commodity contracts, but this
shall not prevent the Fund from: (a) investing in securities of issuers
engaged in the real estate business and securities which are secured by
real estate or interests therein; (b) holding or selling real estate
received in connection with securities it holds; or (c) trading in
futures contracts and options on futures contracts.
7. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the box). For
purposes of this restriction, the deposit or payment by the Fund of
initial or maintenance margin in connection with futures contracts and
related options and options on securities is not considered to be the
purchase of a security on margin.
8. Purchase or otherwise acquire any security if, as a result, more than
15% of its net assets would be invested in securities that are illiquid.
9. Purchase or sell oil and gas interests.
10. Invest more than 5% of the value of its total assets in the
securities of issuers having a record, including predecessors, of less
than three years of continuous operation, except U.S. government
securities. (For purposes of this restriction issuers include
predecessors, sponsors, controlling persons, general partners, guarantors
and originators of underlying assets.)
11. Invest in companies for the purpose of exercising control.
12. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of
assets and except to the extent permitted by Section 12 of the 1940 Act
(currently, up to 5% of the total assets of the Fund and no more than 3%
of the total outstanding voting stock of any one investment company).
13. Engage in the purchase or sale of put, call, straddle or spread
options or in the writing of such options, except that the Fund may
engage in transactions involving municipal bond index and interest rate
futures contracts and options thereon after approval of these investment
strategies by the Board of Directors and notice thereof to the Fund's
shareholders.
Certain restrictions listed above permit the Fund to engage in investment
practices that the Fund does not currently pursue. The Fund has no present
intention of altering its current investment practices as otherwise described
in the Prospectus and this Statement of Additional Information and any future
change in those practices would require Board of Directors approval and
appropriate disclosure to investors.
If a percentage restriction is complied with at the time of an
investment, a later increase or decrease in the percentage of assets resulting
from a change in the values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such restriction. In order to
permit the sale of the Fund's shares in certain states, the Fund may make
commitments more restrictive than the restrictions described above. Should the
Fund determine that any such commitment is no longer in the best interests of
the Fund and its shareholders, it will revoke the commitment by terminating
sales of its shares in the state involved.
<PAGE>152
Portfolio Transactions
Newly issued securities normally are purchased directly from the issuer
or from an underwriter acting as principal. Other purchases and sales usually
are placed with those dealers from which it appears that the best price or
execution will be obtained; those dealers may be acting as either agents or
principals. The purchase price paid by the Fund to underwriters of newly
issued securities usually includes a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
are executed at a price between the bid and asked prices. The Fund has paid
no brokerage commissions since its commencement of operations.
Allocation of transactions, including their frequency, to various dealers
is determined by SBMFM in its best judgment and in the manner deemed fair and
reasonable to shareholders. The primary considerations are the availability of
the desired security and prompt execution of orders in an effective manner at
the most favorable prices. Subject to these considerations, dealers which
provide supplemental investment research and statistical or other services to
SBMFM may receive orders for portfolio transactions by the Fund. Information
so received enables SBMFM to supplement its own research and analysis with the
views and information of other securities firms. Such information may be
useful to SBMFM in serving both the Fund and its other clients, and,
conversely, supplemental information obtained by the placement of business of
other clients may be useful to SBMFM in carrying out its
obligations to the Fund.
The Fund will not purchase Municipal Bonds during the existence of any
underwriting or selling group relating thereto of which SBMFM is a member,
except to the extent permitted by the SEC. Under certain circumstances, the
Fund may be at a disadvantage because of this limitation in comparison with
other investment companies which have a similar investment objective but which
are not subject to such limitation. The Fund also may execute portfolio
transactions through Smith Barney and its affiliates in accordance with rules
promulgated by the SEC.
While investment decisions for the Fund are made independently from those
of the other accounts managed by SBMFM, investments of the type that the Fund
may make also may be made by such other accounts. When the Fund and one or
more other accounts managed by SBMFM are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for
sales will be allocated in a manner believed by SBMFM to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received
by the Fund or the size of the position obtained or disposed of by the Fund.
Portfolio Turnover
The Fund's portfolio turnover rate (the lesser of purchases or sales of
portfolio securities during the year excluding purchases or sales of
short-term securities divided by the monthly average value of portfolio
securities) generally is not expected to exceed 100%, but the portfolio
turnover rate will not be a limiting factor whenever the Fund deems it
desirable to sell or purchase securities. Securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another security of comparable quality
may be purchased at approximately the same time in order to take advantage of
what the Fund believes to be a temporary disparity in the normal yield
relationship between the two securities. These yield disparities may occur for
reasons not directly related to the investment quality of particular issues or
the general movement of interest rates, such as changes in the overall demand
for supply of various types of tax-exempt securities. For each of the fiscal
years ended March 31, 1994 and 1995, the Fund's portfolio turnover rate was
32%
<PAGE>153
MUNICIPAL BONDS
General Information
Municipal Bonds generally are understood to include debt obligations
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities, refunding of outstanding obligations,
payment of general operating expenses and extensions of loans to public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance privately operated facilities are
included within the term Municipal Bonds if the interest paid thereon
qualifies as excludable from gross income (but not necessarily from
alternative minimum taxable income) for Federal income tax purposes in the
opinion of bond counsel to the issuer.
The yields on Municipal Bonds are dependent upon a variety of factors,
including general economic and monetary conditions, general money market
factors, the financial condition of the issuer, the general conditions of the
Municipal Bond market, the size of a particular offering, the maturity of the
obligation offered and the rating of the issue. Municipal Bonds are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any that may be enacted by Congress or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of the obligations or upon the ability of municipalities to
levy taxes. The possibility also exists that as a result of litigation or
other conditions, the power or ability of any one or more issuers to pay, when
due, principal of and interest on its, or their, Municipal Bonds may be
materially and adversely affected.
When-Issued Securities
The Fund may purchase Municipal Bonds on a "when-issued" basis (i.e., for
delivery beyond the normal settlement date at a stated price and yield). The
payment obligation and the interest rate that will be received on the
Municipal Bonds purchased on a when-issued basis are each fixed at the time
the buyer enters into the commitment. Although the Fund will purchase
Municipal Bonds on a when-issued basis only with the intention of actually
acquiring the securities, the Fund may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strategy.
Municipal Bonds are subject to changes in value based upon the public's
perception of the creditworthiness of the issuers and changes, real or
anticipated, in the level of interest rates. In general, Municipal Bonds tend
to appreciate when interest rates decline and depreciate when interest rates
rise. Purchasing Municipal Bonds on a when-issued basis, therefore, can
involve the risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the transaction
itself. To account for this risk, a segregated account of the Fund consisting
of cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose
of determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the market or fair value
of such securities declines, additional cash or securities will be placed in
the account daily so that the value of the account will equal the amount of
such commitments by the Fund. Placing securities rather than cash in the
segregated account may have a leveraging effect on the Fund's net assets. That
is, to the extent the Fund remains substantially fully invested in securities
at the same time it has committed to purchase securities on a whenissued
basis, there will be greater fluctuations in its net assets than if it had set
aside cash to satisfy its purchase commitments. Upon the settlement date of
the whenissued securities, the Fund will meet its obligations from then-
available cash flow, sale of securities held in the segregated account, sale
of other securities or, although it normally would not expect to do so, from
the sale of the when-issued securities themselves (which may have a value
greater or less than the Fund's payment obligations). Sales of securities to
meet such obligations may involve the realization of capital gains, which may
not be exempt from New Jersey personal income taxes, and from Federal income
taxes.
<PAGE>154
When the Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
the Fund's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Special Considerations Relating to New Jersey Municipal Securities
Some of the significant financial considerations relating to the
investments of the Fund are summarized below. The following information
constitutes only a brief summary, does not purport to be a complete
description and is largely based on information drawn from official statements
relating to securities offerings of New Jersey municipal obligations available
as of the date of this Statement of Additional Information. The accuracy and
completeness of the information contained in such offering statements has not
been independently verified.
The 1995 Fiscal Year budget for the State of New Jersey (the "State")
became law on June 30, 1994.
Reflecting the downturn, the rate of unemployment in the State rose from
a low of 3.6% during the first quarter of 1989 to a recessionary peak of 9.3%
during 1992. Since then, the unemployment rate fell to 6.7% during the fourth
quarter of 1993. The jobless rate averaged 7.1% during the first nine months
of 1994, but this estimate is not comparable to those prior to January because
of major changes in the federal survey from which these statistics are
obtained.
In the first nine months of 1994, relative to the same period a year ago,
job growth took place in services (3.5%) and construction (5.7%), more
moderate growth took place in trade (1.9%), transportation and utilities
(1.2%) and finance/insurance/real estate (1.4%), while manufacturing and
government declined by 1.5% and 0.1%, respectively. The net result was a 1.6%
increase in average employment during the first nine months of 1994 compared
to the first nine months of 1993.
Economic recovery is likely to be slow and uneven in New Jersey. Some
sectors, like commercial and industrial construction, will undoubtedly lag
because of continued excess capacity. Also, employers in rebounding sectors
can be expected to remain cautious about hiring until they become convinced
that improved business will be sustained. Other firms will continue to merge
or downsize to increase profitability. As a result, job gains will probably
come grudgingly and unemployment will recede at a correspondingly slow pace.
Pursuant to the State Constitution, no money may be drawn
from the State Treasury except for appropriations made by law. In addition,
all monies for the support of State purposes must be provided for in one
general appropriation law covering one and the same fiscal year.
In addition to the Constitutional provisions, the New Jersey statutes
contain provisions concerning the budget and appropriation system. Under
these provisions, each unit of the State requests an appropriation from the
Director of the Division of Budget and Accounting, who reviews the budget
requests and forwards them with his or her recommendations to the Governor.
The Governor then transmits his or her recommended expenditures and sources of
anticipated revenue to the legislature, which reviews the Governor's Budget
Message and submits an appropriations bill to the Governor for his or her
signature by July 1 of each year. At the time of signing the bill, the
Governor may revise appropriations or anticipated revenues. That action can
be reversed by a two-thirds vote of each House. No supplemental appropriation
may be enacted after adoption of the act, except where there are sufficient
revenues on hand or anticipated, as certified by the Governor, to meet the
appropriation. Finally, the Governor may, during the course of the year,
prevent the expenditure of various appropriations when revenues are below
those anticipated or when he or she determines that such expenditure is not in
the best interest of the State.
<PAGE>155
One of the major reasons for cautious optimism is found in the
construction industry. Total construction contracts awarded in New Jersey
have turned around, rising by 8.6% in 1993 compared with 1992. By far, the
largest boost came from residential construction awards which increased by
37.7% in 1993 compared with 1992. In addition, non- residential building
construction awards have turned around, posting a 6.9% gain.
Nonbuilding construction awards increased approximately 4% in the first
eight months of 1994 compared with the same period in 1993.
Finally, even in the labor market there are signs of recovery. Thanks to
a reduced layoff rate and the reappearance of job opportunities in some parts
of the economy, unemployment in the State has been receding since July 1992,
when it peaked at 9.6% according to U.S. Bureau of Labor Statistics estimates
based on the federal government's monthly household survey. The same survey
showed joblessness dropped to an average of 6.7% in the fourth quarter of
1993. The unemployment rate registered an average of 7.8% in the first
quarter of 1994, but this rate cannot be compared with prior data due to the
changes in the U.S. Department of Labor procedures for determining the
unemployment rate that went into effect in January 1994.
State Aid to Local Governments was the largest portion of Fiscal Year
1995 appropriations. In fiscal year 1995, $5,782.2 million of the State's
appropriations consisted of funds which are distributed to municipalities,
counties and school districts. The largest State Aid appropriation, in the
amount of $3,900.1 million, is provided for local elementary and secondary
education programs. Of this amount $2,431.6 million is provided as foundation
aid to school districts by formula based upon the number of students and the
ability of a school district to raise taxes from its own base. In addition,
the State provided $582.5 million for special education programs for children
with disabilities. A $293.0 million program is also funded for pupils at risk
of educational failure, including basic skills improvement. The State
appropriated $474.8 million on behalf of school districts as the employer
share of the teachers' pension and benefits programs, $263.8 million to pay
for the cost of pupil transportation and $57.4 million for transition aid,
which guaranteed school districts a 6.5% increase over the aid received in
Fiscal Year 1991 and is being phased out over six years.
Appropriations to the State Department of Community Affairs total $635.1
million in State Aid monies for Fiscal Year 1995. The principal programs
funded were the Supplemental Municipal Property Tax Act ($314.1 million); the
Municipal Revitalization Program ($165.0 million); municipal aid to urban
communities to maintain and upgrade municipal services ($40.7 million); and
the Safe and Clean Neighborhoods Program ($58.9 million). Appropriations to
the State Department of the Treasury total $321.3 million in State Aid monies
for Fiscal Year 1995. The principal programs funded by these appropriations
were payments under the Business Personal Property Tax Replacement Programs
($158.7 million); the cost of senior citizens, disabled and veterans property
tax deductions and exemptions ($41.7 million); aid to densely populated
municipalities ($25.0 million); Municipal Purposes Tax Assistance ($30.0
million) and payments to municipalities for services to state owned property
($34.9 million).
Other appropriations of State Aid in Fiscal 1995 include: welfare
programs ($499.1 million); aid to county colleges ($123.6 million); and aid to
county mental hospitals ($79.4 million).
The second largest portion of appropriations in fiscal 1995 is applied to
Direct State Services: the operation of State government's 17 departments,
the Executive Office, several commissions, the State Legislature and the
Judiciary. In Fiscal Year 1995, appropriations for Direct State Services
aggregate $5,203.1 million. Some of the major appropriations for Direct State
Services during Fiscal Year 1995 are detailed below.
$595.3 million is appropriated for programs administered by the State
Department of Human Services. The State Department of Labor is appropriated
$49.3 million for the administration of
<PAGE>156
programs for workers' compensation, unemployment and disability insurance,
manpower development, and health safety inspection.
$27.7 million is appropriated for administration of the Medicaid and
pharmaceutical assistance to the aged and disabled programs; $14.9 million for
administration of the various income maintenance programs, including Aid to
Families with Dependent Children (AFDC); $69.3 million for the Division of
Youth and Family Services, which protects the children of the State from abuse
and neglect and $15.0 million for juvenile community programs which serves
juveniles who have violated the laws of the State and have been committed to
the Juvenile Services Division.
The State Department of Health is appropriated $32.3 million for the
prevention and treatment of diseases, alcohol and drug abuse programs,
regulation of health care facilities, and the uncompensated care program.
$689.3 million is appropriated to the State Department of Higher
Education for the support of nine State colleges, Rutgers University, the New
Jersey Institute of Technology, and the University of Medicine and Dentistry
of New Jersey.
$932.5 million is appropriated to the State Department of Law and Public
Safety and the Department of Corrections.
$92.3 million is appropriated to the State Department of Transportation
for the various programs it administers, such as the maintenance and
improvement of the State highway system and subsidies for railroads and bus
companies.
$176.6 million is appropriated to the State Department of Environmental
Protection for the protection of air, land, water, forest, wildlife, and
shellfish resources and for the provision of outdoor recreational facilities.
The primary method for State financing of capital projects is through the
sale of the general obligation bonds of the State. These bonds are backed by
the full faith and credit of the State. State tax revenues and certain other
fees pledged to meet the principal and interest payments and if provided,
redemption premium payments required to pay the debt fully. No general
obligation debt can be issued by the State without prior voter approval,
except that no voter approval is required for any law authorizing the creation
of a debt for the purpose of refinancing all or a portion of outstanding debt
of the State, so long as such law requires that the refinancing provide a debt
service savings.
Litigation. At any given time, there are various numbers of claims and
cases pending against New Jersey, New Jersey agencies and employees, seeking
recovery of monetary damages that are primarily paid out of the fund created
pursuant to the Tort Claims Act, N.J.S.A. 59:1-1 et seq. (the "Tort Claims
Act"). At any given time there are various contract and other claims against
New Jersey and New Jersey agencies, including environmental claims arising
from the alleged disposal of hazardous waste, seeking recovery of monetary
damages or other relief which would require the expenditure of funds. In
addition, at any given time there are various number of claims and cases
pending against the University of Medicine and Dentistry of New Jersey and its
employees, seeking recovery of monetary damages that are primarily paid out of
the Self-Insurance Reserve Fund created pursuant to the Tort Claims Act, and
various numbers of contract and other claims against the University of
Medicine and Dentistry, seeking recovery of monetary damages or other relief
which would require the expenditure of funds. New Jersey is unable to estimate
its exposure for these claims.
As of August, 1994, the following cases were presently pending or
threatened in which New Jersey has the potential for either a significant loss
of revenue or significant unanticipated expenditures: Abbot v. Burke,
challenging the constitutionality of the Quality Education Act of 1990, which
was found
<PAGE>157
to be unconstitutional by the Trial Court and was recently affirmed by the New
Jersey Supreme Court and requires that a funding formula be adopted by
September, 1996 which will achieve by the 1997-98 school year the mandated
parity in spending and will address the special educational needs of children
in poor and urban school districts; County of Essex v. Waldman, et al and
similar cases involving eleven other counties, challenging the methods by
which the New Jersey Department of Human Services shares with county
governments and maintenance recoveries and costs for residents in New Jersey
psychiatric hospitals and residential facilities for the developmentally
disabled, all of which are on appeal in New Jersey Courts. County of Essex v.
Commissioner of Human Services, et al. and similar cases involving ten other
counties, in which the Appellate Division ruled that all counties were
entitled to 100% of Social Security benefits and other maintenance recoveries
received by New Jersey and were entitled to credits for payments made to New
Jersey for the maintenance of Medicare and Medicaid-eligible county residents
of certain New Jersey facilities, which is on petition for review by the New
Jersey Supreme Court; New Jersey Association of Health Care Facilities, Inc.,
et al. v. Gibbs, et al., a class action on behalf of all New Jersey long-term
care facilities providing services to Medicaid patients, seeking a declaration
that the New Jersey Department of Human Services has violated Federal law in
the setting and paying of 1990 long-term care facility Medicaid payment rates,
where the Third Circuit affirmed the District Court's denial of plaintiff's
motion for preliminary injunction, and the parties are currently negotiating
the form of an order to dismiss the action with prejudice; Exxon v. Hunt and
related cases, where taxpayers sought refund of taxes paid to the Spill
Compensation Fund and the New Jersey Supreme Court, on remand from the U.S.
Supreme Court, ruled that plaintiffs would receive refunds only in the event
the New Jersey Legislature refused to reimburse the Spill Compensation Fund
for expenditures for preempted purposes and, after exhaustion of appeals and
other legal avenues, a motion by the State for dismissal of all such claims is
pending before the Tax Court; Fair Automobile Insurance Reform Act ("FAIR
Act'') litigation challenging various portions of FAIR Act, including surtax
and assessment provisions, is still pending; County of Passaic v. State of New
Jersey alleging tort and contractual claims against New Jersey and the New
Jersey Department of Environmental Protection in connection with a resource
recovery facility plaintiffs had planned to build in Passaic County, seeking
approximately $30 million in damages; Pelletier, et al., v. Waldman, et al., a
challenge by State Medicaid-eligible children to the adequacy of Medicaid
reimbursement for services rendered by doctors and dentists, is currently in
mediation; Barnett Memorial Hospital v. Commission of Health, an appeal by
several hospitals of the Commissioner's calculation of the hospital assessment
required by the Health Care Cost Reduction Act of 1991, was decided against
the Commission and successful claimants were refunded the amount of their
overpayment in April, 1994, which amount totaled $4,636,576; New Jersey
Hospital Association, et al. v. Leonard Fishman, seeking the same relief as in
Barnett; Robert E. Brennan v. Richard Barry, et al., a suit filed against two
members of the New Jersey Bureau of Securities alleging causes of action for
defamation, injury to reputation, abuse of process and improper disclosure,
based on the Bureau's investigation of certain publicly-traded securities to
which the state has filed a motion to dismiss and/or for summary judgment;
Camden Co. v. Waldman, et al., now consolidated with similar suits filed by
Middlesex, Monmouth and Atlantic Counties, seeking reimbursement of federal
funds received by New Jersey for disproportionate share hospital payments made
to county psychiatric facilities from July 1, 1998 through July 1, 1991 has
been transferred to the Appellate Division; Interfaith Community Organization
v. Fox, et al., a suit filed by a coalition of churches and church leaders in
Hudson County against the Governor, the Commissioners of the Department of
Environmental Protection and Energy and the Department of Health, concerning
chromium contamination in Liberty State Park in Jersey City; American Trucking
Associations, Inc. and Tri-State Motor Transit v. State of New Jersey,
challenging the constitutionality of annual hazardous and solid waste
licensure fees collected by the Department of Environmental Protection,
seeking a permanent injunction enjoining future collection of fees and refund
of all renewal fees, fines and penalties collected; and Waste Management of
Pennsylvania, et al. v. Shinn, et al., an action filed in federal district
court seeking declaratory and injunctive relief and compensatory damages from
Department of Environmental Protection Commissioner Shinn and Acting
Commissioner Fox, alleging violations of the Commerce Clause and the Contracts
Clause of the United States Constitution based on emergency redirection orders
and a draft permit.
<PAGE>158
In addition to litigation against New Jersey, at any given time there are
various numbers of claims and cases pending or threatened against the
political subdivisions of New Jersey, including but not limited to New Jersey
authorities, counties, municipalities and school districts, which have
potential for either a significant loss of revenue or significant
unanticipated expenditures.
Ratings. In July 1991, S&P downgraded its rating of New Jersey General
Obligations Bonds from AAA to AA+. Subsequently on June 4, 1992, S&P moved
New Jersey's General Obligation Bonds from Credit Watch and affirmed its AA+
ratings of New Jersey's general obligation and various lease and
appropriation backed debt, but its ratings outlook was revised to negative for
the longer term horizon (beyond four months) for resolution of two items cited
in the Credit Watch listing: (a) the Federal Health Care Facilities
Administration ruling concerning retroactive Medicaid hospital reimbursements
and (b) New Jersey's uncompensated health care funding system, which is
pending review by the United States Supreme Court. Citing a developing
pattern of reliance on non-recurring measures to achieve budgetary balance,
four years of financial operations marked by revenue shortfalls and operating
deficits, and the likelihood that financial pressures will persist, on August
24, 1992 Moody's lowered its rating of New Jersey General Obligation Bonds
from Ass to Aa1. There is no assurance that the ratings of New Jersey General
Obligation Bonds will continue for any given period of time or that they will
not be revised downward or withdrawn entirely. Any such downward revision or
withdrawal could have an adverse effect on the market prices of the New
Jersey' general obligation bonds.
The various political subdivisions of New Jersey are rated independently
from S&P and/or Moody's. These ratings are based upon information supplied to
the rating agency by the political subdivision. There is no assurance that
such ratings will continue for any given period of time or that they will not
be revised downward or withdrawn entirely. Any such downward revision or
withdrawal could have an adverse effect on the market prices of bonds issued
by the political subdivision.
PURCHASE OF SHARES
Volume Discounts
The schedule of sales charges on Class A shares described in the
Prospectus applies to purchases made by any "purchaser," which is defined to
include the following: (a) an individual; (b) an individual's spouse and his
or her children purchasing shares for his or her own account; (c) a trustee or
other fiduciary purchasing shares for a single trust estate or single
fiduciary account; (d) a pension, profit-sharing or other employee benefit
plan qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and qualified employee benefit plans of employers who
are "affiliated persons" of each other within the meaning of the 1940 Act; (e)
taxexempt organizations enumerated in Section 501(c)(3) or (13) of the Code;
and (f) a trustee or other professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the Investment Advisers Act
of 1940, as amended) purchasing shares of the Fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to combine purchase orders
to take advantage of volume discounts should contact a Smith Barney Financial
Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in Class A
shares of the Fund and in Class A shares of other funds of the Smith Barney
Mutual Funds that are offered with a sales charge, including the purchase
being made, of any purchaser is $25,000 or more. The reduced sales charge is
subject to confirmation of the shareholder's holdings through a check of
appropriate records. The Fund reserves the right to terminate or amend the
combined right of accumulation at any time after written notice to
shareholders. For further information regarding the right of accumulation,
shareholders should contact a Smith Barney Financial Consultant.
<PAGE>159
Determination of Public Offering Price
The Fund offers its shares to the public on a continuous basis. The
public offering price for a Class A and Class Y share of the Fund is equal to
the net asset value per share at the time of purchase, plus for Class A shares
an initial sales charge based on the aggregate amount of the investment. The
public offering price for a Class B and Class C share (and Class A share
purchases, including applicable rights of accumulation, equaling or exceeding
$500,000), is equal to the net asset value per share at the time of purchase
and no sales charge is imposed at the time of purchase. A contingent deferred
sales charge ("CDSC"), however, is imposed on certain redemptions of Class B
and Class C shares, and Class A shares when purchased in amounts exceeding
$500,000. The method of computation of the public offering price is shown in
the Fund's financial statements, incorporated by reference in their entirety
into this Statement of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed
(a) for any period during which the New York Stock Exchange, Inc. ("NYSE'') is
closed (other than for customary weekend and holiday closings), (b) when
trading in markets the Fund normally utilizes is restricted, or an emergency
exists, as determined by the SEC, so that disposal of the Fund's investments
or determination of net asset value is not reasonably practicable or (c) for
such other periods as the SEC by order may permit for protection of the Fund's
shareholders.
Distribution in Kind
If the Board of Directors of the Fund determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make a redemption payment wholly in cash, the Fund may pay, in accordance with
SEC rules, any portion of a redemption in excess of the lesser of $250,000 or
1% of the Fund's net assets by a distribution in kind of portfolio securities
in lieu of cash. Securities issued as a distribution in kind may incur
brokerage commissions when shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan'') is available
to shareholders who own shares with a value of at least $10,000 and who wish
to receive specific amounts of cash monthly or quarterly. Withdrawals of at
least $50 may be made under the Withdrawal Plan by redeeming as many shares of
the Fund as may be necessary to cover the stipulated withdrawal payment. Any
applicable CDSC will not be waived on amounts withdrawn by shareholders that
exceed 1.00% per month of the value of a shareholder's shares at the time the
Withdrawal Plan commences. (With respect to Withdrawal Plans in effect prior
to November 7, 1994, any applicable CDSC will be waived on amounts withdrawn
that do not exceed 2.00% per month of the value of a shareholder's shares at
the time the Withdrawal Plan commences.) To the extent withdrawals exceed
dividends, distributions and appreciation of a shareholder's investment in the
Fund, there will be a reduction in the value of the shareholder's investment,
and continued withdrawal payments will reduce the shareholder's investment and
may ultimately exhaust it. Withdrawal payments should not be considered as
income from investment in the Fund. Furthermore, as it generally would not be
advantageous to a shareholder to make additional investments in the Fund at
the same time he or she is participating in the Withdrawal Plan, purchases by
such shareholders in amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates with
TSSG as agent for Withdrawal Plan members. All dividends and distributions on
shares in the Withdrawal Plan are reinvested automatically at net asset
<PAGE>160
value in additional shares of the Fund. Effective November 7, 1994, Withdrawal
Plans should be set up with a Smith Barney Financial Consultant.
A shareholder who purchases shares directly through TSSG may continue to
do so and applications for participation in the Withdrawal Plan must be
received by TSSG no later than the eighth day of the month to be eligible for
participation beginning with that month's withdrawal. For additional
information, shareholders should contact a Smith Barney Financial Consultant.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best efforts basis
pursuant to a written agreement dated July 30, 1993 (the "Distribution
Agreement'') which was most recently approved by the Fund's Board of Directors
on July 20, 1994. For the fiscal years ended March 31, 1993, 1994 and 1995,
Shearson Lehman Brothers, the Fund's distributor prior to Smith Barney and/or
Smith Barney received, $749,550, $586,302 and $199,930, respectively, in sales
charges from the sale of the Fund's Class A shares, and did not reallow any
portion thereof to dealers. For the period from November 6, 1993 through March
31, 1994, and the fiscal year ended March 31, 1995, Shearson Lehman Brothers
and its successor, Smith Barney, received $49,338, and $178,656, respectively,
representing CDSC on redemptions of the Fund's Class B shares.
For the fiscal year ended March 31, 1995, Smith Barney incurred
distribution expenses totaling approximately $610,000, consisting of
approximately $11,000 for advertising, $9,000 for printing and mailing of
prospectuses, $262,000 for support services, $279,000 to Smith Barney
Financial Consultants, and $49,000, respectively in accruals for interest on
the excess of Smith Barney expenses incurred in distributing the Fund's shares
over the sum of the distribution fees and CDSC received by Smith Barney from
the Fund.
When payment is made by the investor before settlement date, unless
otherwise noted by the investor, the funds will be held as a free credit
balance in the investor's brokerage account and Smith Barney may benefit from
the temporary use of the funds. The investor may designate another use for the
funds prior to settlement date, such as an investment in a money market fund
(other than Smith Barney Exchange Reserve Fund) of the Smith Barney Mutual
Funds. If the investor instructs Smith Barney to invest the funds in a Smith
Barney money market fund, the amount of the investment will be included as
part of the average daily net assets of both the Fund and the money market
fund, and affiliates of Smith Barney that serve the funds in an investment
advisory or administrative capacity will benefit from the fact that by
receiving fees from both such investment companies for managing these assets,
computed on the basis of their average daily net assets. The Fund's Board of
Directors has been advised of the benefits to Smith Barney resulting from
these settlement procedures and will take such benefits into consideration
when reviewing the Advisory, Administration and Distribution Agreements for
continuance.
Distribution Arrangements
To compensate Smith Barney for the services it provides and for the
expense it bears under the Distribution Agreement, the Fund has adopted a
services and distribution plan (the "Plan'') pursuant to Rule 12b-1 under the
1940 Act. Under the Plan, the Fund pays Smith Barney a service fee, accrued
daily and paid monthly, calculated at the annual rate of 0.15% of the value of
the Fund's average daily net assets attributable to the Class A, Class B and
Class C shares. In addition, the Fund pays Smith Barney a distribution fee
primarily intended to compensate Smith Barney for its initial expense of
paying Financial Consultants a commission upon sales of the respective shares.
The Class B distribution fee is calculated at the annual rate of 0.50% of the
value of the Fund's average net assets attributable to the shares of the
Class. The Class C distribution fee is calculated at the annual rate of 0.55%
of the value of the Fund's average net assets attributable to the shares of
the Class.
<PAGE>161
For the fiscal years ended March 31, 1995, the Fund's Class A, Class B
and Class C shares paid $170,371, $77,993 and $58 respectively, in service
fees. For the same period the Fund's Class B and Class C shares paid and
$259,976 and $214 in distribution fees.
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the Fund's Board of Directors,
including a majority of the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan or in the Distribution Agreement (the "Independent Directors''). The
Plan may not be amended to increase the amount of the service and distribution
fees without shareholder approval, and all material amendments of the Plan
also must be approved by the Directors and the Independent Directors in the
manner described above. The Plan may be terminated with respect to a Class at
any time, without penalty, by vote of a majority of the Independent Directors
or by a vote of a majority of the outstanding voting securities of the Class
(as defined in the 1940 Act). Pursuant to the Plan, Smith Barney will provide
the Board of Directors with periodic reports of amounts expended under the
Plan and the purpose for which such expenditures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on
the preceding Friday or subsequent Monday when one of these holidays falls on
a Saturday or Sunday, respectively. Because of the differences in distribution
fees and Class- specific expenses, the per share net asset value of each Class
may differ. The following is a description of the procedures used by the Fund
in valuing its assets.
The valuation of the Fund's assets is made by Boston Advisors after
consultation with an independent pricing service (the "Service'') approved by
the Board of Directors. When, in the judgment of the Service, quoted bid
prices for investments are readily available and are representative of the bid
side of the market, these investments are valued at the mean between the
quoted bid and asked prices. Investments for which, in the judgment of the
Service, there is no readily obtainable market quotation (which may constitute
a majority of the portfolio securities) are carried at fair value as
determined by the Service. For the most part, such investments are liquid and
may be readily sold. The Service may employ electronic data processing
techniques and/or a matrix system to determine valuations. The procedures of
the Service are reviewed periodically by the officers of the Fund under the
general supervision and responsibility of the Board of Directors, which may
replace any such Service at any time if it determines it to be in the best
interests of the Fund to do so.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund in the Smith Barney
Mutual Funds may exchange all or part of their shares for shares of the same
Class of other funds in the Smith Barney Mutual Funds, to the extent such
shares are offered for sale in the shareholder's state of residence, as listed
in the Prospectus, on the basis of relative net asset value per share at the
time of exchange as follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds, and the sales
charge differential, if any, will be applied. Class A shares of any fund
may be exchanged without a sales charge for shares of the funds that are
offered without a sales charge. Class A shares of any fund purchased
without a sales charge may be exchanged for shares sold with a sales
charge, and the appropriate sales charge differential will be applied.
<PAGE>162
B. Class A shares of any fund acquired by a previous exchange of shares
purchased with a sales charge may be exchanged for Class A shares of any
of the other funds, and the sales charge differential, if any, will be
applied.
C. Class B shares of any fund may be exchanged without a sales charge.
Class B shares of the Fund exchanged for Class B shares of another fund
will be subject to the higher applicable CDSC of the two funds and, for
purposes of calculating CDSC rates and conversion periods, will be deemed
to have been held since the date the shares being exchanged were deemed
to be purchased.
Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney High Income Fund and the account
number in order to accomplish an exchange of shares of Smith Barney High
Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
Class in a fund with different investment objectives when they believe that a
shift between funds is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the fund shares being
acquired may legally be sold. Prior to any exchange, the shareholder should
obtain and review a copy of the current prospectus of each fund into which an
exchange is being considered. Prospectuses may be obtained from a Smith Barney
Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-current net
asset value and subject to any applicable CDSC, the proceeds are immediately
invested, at a price as described above, in shares of the fund being acquired.
Smith Barney reserves the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time after written notice to
shareholders.
PERFORMANCE DATA
From time to time, the Fund may quote yield or total return of a Class in
advertisements or in reports and other communications to shareholders. The
Fund may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include the
following industry and financial publications: Barron's, Business Week, CDA
Investment Technologies, Inc., Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money Morningstar Mutual Fund Values, The New York
Times, USA Today and The Wall Street Journal. To the extent any advertisement
or sales literature of the Fund describes the expenses or performance of any
Class, it will also disclose such information for the other Classes.
Yield
A Class' 30-day yield figure described below is calculated according to a
formula prescribed by the SEC. The formula can be expressed as follows:
YIELD =2 [(a-b+1)6-1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.
<PAGE>163
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by the Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
The Fund's equivalent taxable 30-day yield for a Class of shares is
computed by dividing that portion of the Class' 30-day yield which is
tax-exempt by one minus a stated income tax rate and adding the product to
that portion, if any, of the Class' yield that is not tax-exempt.
The yields on municipal securities are dependent upon a variety of
factors, including general economic and monetary conditions, conditions of the
municipal securities market, size of a particular offering, maturity of the
obligation offered and rating of the issue. Investors should recognize that in
periods of declining interest rates the Fund's yield for each Class of shares
will tend to be somewhat higher than prevailing market rates, and in periods
of rising interest rates the Fund's yield for each Class of shares will tend
to be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the Fund from the continuous sale of its shares will likely be
invested in portfolio instruments producing lower yields than the balance of
the Fund's portfolio, thereby reducing the current yield of the Fund. In
periods of rising interest rates, the opposite can be expected to occur.
The Fund's yield for Class A and Class B shares for the 30- day period
ended March 31, 1995 was 4.89% and 5.19%, respectively. The equivalent
taxable yield for Class A and Class B shares for that same period, was 7.59%
and 8.06%, respectively, assuming the payment of Federal income taxes at a
rate of 31% and New Jersey taxes at a rate of 6.65%.
Average Annual Total Return
"Average annual total return" figures described below are computed
according to a formula prescribed by the SEC. The formula can be expressed as
follows:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5- or
10-year period at the end of the 1-, 5or 10-year
period (or fractional portion thereof), assuming
reinvestment of all
dividends and distributions.
The following total return figures assume that the maximum 4.00% sales
charge has been deducted from the investment at the time of purchase and have
been restated to show the change in the maximum sales charge. The average
annual total return for Class A shares was as follows for the period
indicated:
2.11% for the one-year period beginning April 1, 1994 through March 31,
1995.
7.37% per annum during the five-year period beginning on April 1, 1990
through March 31, 1995.
8.11% per annum during the period from the Fund's commencement of
operations on April 22, 1988 through March 31, 1995.
<PAGE>164
These total return figures assume that the maximum 4.00% sales charge
assessed by the Fund has been deducted from the investment at the time of
purchase. Had the investment advisory, sub-investment advisory and/or
administration fees not been partially waived (and assuming that the maximum
4.00% sales charge had not been deducted), the Class A's average annual total
return would have been 6.37%, 8.09% and 8.46%, respectively, for those same
periods.
The average annual total return for Class B shares was as follows for the
periods indicated:
1.26% for the one-year period from April 1, 1994 through March 31, 1995.
4.47% per annum for the period from November 6, 1992 through March 31,
1995.
These average annual total return figures assume that the applicable
maximum CDSC has been deducted from the investment. Had the investment
advisory and subinvestment advisory and/or administration fees not been
partially waived and the CDSC had not been deducted, the average annual total
return on the Fund's Class B shares would have been 5.76% and 5.55%,
respectively, for those same periods.
Aggregate Total Return
Aggregate total return figures described below represent the cumulative
change in the value of an investment in the Class for the specified period and
are computed by the following formula:
ERV-P
P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of the 1-, 5- or 10-year
period at the end of the 1-, 5- or 10- year
period (or fractional portion thereof), assuming
reinvestment of all dividends and distributions.
The aggregate total return for Class A shares was as follows for the
periods indicated (reflecting the partial waiver of the investment advisory
and sub-investment advisory and/or administration fees):
2.11% for the one-year period beginning April 1, 1994 through March 31,
1995.
41.71% for the five-year period from April 1, 1990 through March 31,
1995; and
68.73% for the period from the Fund's commencement of operations on April
22, 1988 through March 31, 1995.
These aggregate total return figures assume that the maximum 4.00% sales
charge assessed by the Fund has been deducted from the investment at the time
of purchase. If the maximum sales charge had not been deducted at the time of
purchase, the Fund's aggregate total return reflecting the partial waiver of
the investment advisory and subinvestment advisory and/or administration fees
for those same periods would have been 6.37%, 47.62% and 75.75%, respectively.
The Fund's aggregate total return for Class B shares was as follows for
the periods indicated:
1.26% for the one-year period from April 1, 1994 through March 31, 1995.
10.92% for the period beginning on November 6, 1992 through March 31,
1995.
<PAGE>165
These figures assume that the applicable maximum 4.50% CDSC has been
deducted from the investment at the time of purchase. If the investment
advisory and subinvestment advisory and/or administration fees had not been
partially waived and the maximum CDSC had not been deducted at the time of
purchase the Fund's aggregate total returns for the same period would have
been 5.76% and 13.89%.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future
performance. Each Class' net investment income changes in response to
fluctuation in interest rates and the expenses of the Fund. Performance will
vary from time to time depending upon market conditions, the composition of
the Fund's portfolio and its operating expenses and the expenses exclusively
attributable to the Class. Consequently, any given performance quotation
should not be considered representative of the Class' performance for any
specified period in the future. In addition, because the performance will
vary, it may not provide a basis for comparing an investment in the Class with
certain bank deposits or other investments that pay a fixed yield for a stated
period of time. Investors comparing a Class' performance with that of other
mutual funds should give consideration to the quality and maturity of the
respective investment companies' portfolio securities.
TAXES
The following is a summary of selected Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended as
a substitute for individual tax advice and investors are urged to consult
their own tax advisors as to the tax consequences of an investment in the
Fund.
As described above and in the Prospectus, the Fund is designed to provide
investors with current income which is excluded from gross income for Federal
income tax purposes and exempt from New Jersey personal income taxes. The Fund
is not intended to constitute a balanced investment program and is not
designed for investors seeking capital gains or maximum tax-exempt income
irrespective of fluctuations in principal. Investment in the Fund would not be
suitable for tax-exempt institutions, qualified retirement plans, H.R. 10
plans and individual retirement accounts since such investors would not gain
any additional tax benefit from the receipt of tax-exempt income.
The Fund has qualified and intends to continue to qualify each succeeding
year as a "regulated investment company'' under the Code. Provided the Fund
(a) qualifies as a regulated investment company and (b) distributes at least
90% of the sum of its taxable net investment income and net realized
short-term capital gains, and 90% of its tax-exempt interest income (reduced
by certain expenses), the Fund will not be liable for Federal income taxes to
the extent its taxable net investment income and net realized long-term and
short-term capital gains, if any, are distributed to its shareholders.
Although the Fund expects to be relieved of substantially all Federal and
state income or franchise taxes, depending upon the extent of its activities
in states and localities in which its offices are maintained, in which its
agents or independent contractors are located or in which it is otherwise
deemed to be conducting business, that portion of the Fund's income which is
treated as earned in any such state or locality could be subject to state and
local tax. Any such taxes paid by the Fund would reduce the amount of income
and gains available for distribution to shareholders. All net investment
income and net capital gains earned by the Fund will be reinvested
automatically in additional shares of the same Class of the Fund at net asset
value, unless the shareholder elects to receive dividends and distributions in
cash.
Because the Fund will distribute exempt-interest dividends, interest on
indebtedness incurred by a shareholder to purchase or carry Fund shares is not
deductible for Federal income and New Jersey personal income tax purposes. If
a shareholder receives an exempt-interest dividend with respect to any share
and if the share is held by the shareholder for six months or less, then, for
Federal income tax purposes, any loss on the sale or exchange of such share
may, to the extent of the exempt-interest dividend, be disallowed. In
addition, the Code may require a shareholder, if he or she receives
<PAGE>166
exempt-interest dividends, to treat as Federal taxable income, a portion of
certain otherwise non- taxable social security and railroad retirement benefit
payments. Furthermore, that portion of any dividend paid by the Fund which
represents income derived from private activity bonds held by the Fund may not
retain its Federal tax-exempt status in the hands of a shareholder who is a
"substantial user'' of a facility financed by such bonds, or a "related
person'' thereof. Moreover, as noted in the Fund's Prospectus, (a) some or all
of the Fund's dividends and distributions may be a specific tax preference
item, or a component of an adjustment item, for purposes of the Federal
individual and corporate alternative minimum taxes, and (b) the receipt of
Fund dividends and distributions may affect a corporate shareholder's Federal
"environmental'' tax liability. In addition, the receipt of Fund dividends and
distributions may affect a foreign corporate shareholder's Federal "branch
profits'' tax liability and a Subchapter S corporation shareholder's Federal
"excess net passive income'' tax liability. Shareholders should consult their
own tax advisors to determine whether they are (a) "substantial users'' with
respect to a facility or related to such users within the meaning of the Code
and (b) subject to a Federal alternative minimum tax, the Federal
environmental tax, the Federal "branch profits'' tax and the Federal "excess
net passive income" tax.
As described above and in the Prospectus, the Fund may invest in
municipal bond index and interest rate futures contracts and options on these
futures contracts. The Fund anticipates that these investment activities would
not prevent the Fund from qualifying as a regulated investment company. As a
general rule, these investment activities would increase or decrease the
amount of longterm and short- term capital gains or losses realized by the
Fund and, accordingly, would affect the amount of capital gains distributed to
the Fund's shareholders.
For Federal income tax purposes, gain or loss on municipal bond index and
interest rate futures contracts and options on these futures contracts
(collectively referred to as "section 1256 contracts'') is taxed pursuant to a
special "mark-to-market'' system, these instruments are treated as if sold at
the Fund's fiscal year end for their fair market value. As a result, the Fund
will be recognizing gains or losses before they are actually realized. Gain or
loss on section 1256 contracts generally is treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss, and, accordingly, the
mark-to-market system will generally affect the amount of capital gains or
losses taxable to the Fund and the amount of distributions to a shareholder.
Moreover, if the Fund invests in both section 1256 contracts and offsetting
positions in those contracts, which together constitute a straddle, then the
Fund may be required to defer receiving the benefit of certain recognized
losses. The Fund expects that its activities with respect to section 1256
contracts and offsetting positions in those contracts will not cause it to be
treated as recognizing a materially greater amount of capital gains than
actually realized and will permit it to use substantially all of the losses of
the Fund for the fiscal years in which the losses actually occur.
While the Fund does not expect to realize a significant amount of net
long-term capital gains, any such gains will be distributed annually as
described in the Prospectus. Such distributions ("capital gain dividends''),
if any, may be taxable to shareholders as longterm capital gains, regardless
of how long they have held Fund shares, and will be designated as capital gain
dividends in a written notice mailed by the Fund to shareholders after the
close of the Fund's prior taxable year. If a shareholder receives a capital
gain dividend with respect to any share and if such share has been held by the
shareholder for six months or less, then any loss (to the extent not
disallowed pursuant to the other six month rule described above) on the sale
or exchange of such share will be treated as a long- term capital loss to the
extent of the capital gain dividend.
When a shareholder incurs a sales charge when acquiring shares of the
Fund, disposes of those shares within 90 days and acquires shares in a mutual
fund for which the otherwise applicable sales charge is reduced by reason of a
reinvestment right (that is, exchange privilege), the original sales charge
increases the shareholder's tax basis in the original shares only to the
extent the otherwise applicable sales charge for the second acquisition is not
reduced. The portion of the original sales charge that does not increase the
shareholder's tax basis in the original shares would be treated as incurred
with respect to the
<PAGE>167
second acquisition and, as a general rule, would increase the shareholder's
tax basis in the newly acquired shares. Furthermore, the same rule also
applies to a disposition of the newly acquired or redeemed shares made within
90 days of the second acquisition. This provision prevents a shareholder from
immediately deducting the sales charge or CDSC by shifting his or her
investment in a family of mutual funds.
Each shareholder will receive after the close of the calendar year an
annual statement as to the Federal income tax and New Jersey personal income
tax status of his or her dividends and distributions from the Fund for the
prior calendar year. These statements also will designate the amount of
exempt-interest dividends that is a preference item for purposes of the
Federal individual and corporate alternative minimum taxes. Each shareholder
also will receive, if appropriate, various written notices after the close of
the Fund's prior taxable year as to the Federal income tax status of his or
her dividends and distributions which were received from the Fund during the
Fund's prior taxable year. Shareholders should consult their tax advisors as
to any other state and local taxes that may apply to these dividends and
distributions. The dollar amounts of dividends excluded or exempt from Federal
income taxation or New Jersey personal income taxation and the dollar amount
of dividends subject to Federal income taxation or New Jersey personal income
taxation, if any, will vary for each shareholder depending upon the size and
duration of each shareholder's investment in the Fund. To the extent that the
Fund earns taxable net investment income, it intends to designate as taxable
dividends the same percentage of each day's dividend as its actual taxable net
investment income bears to its total net investment income earned on that day.
Therefore, the percentage of each day's dividend designated as taxable, if
any, may vary from day-to-day.
Investors considering buying shares of the Fund just prior to a record
date for a capital gain distribution should be aware that, regardless of
whether the price of the Fund shares to be purchased reflects the amount of
the forthcoming distribution payment, any such payment will be a taxable
distribution payment.
If a shareholder fails to furnish the Fund with a correct taxpayer
identification number, fails to report fully dividend or interest income, or
fails to certify that he or she has provided a correct taxpayer identification
number and that he or she is not subject to "backup withholding,'' then the
shareholder may be subject to a 31% "backup withholding" tax with respect to
(a) taxable dividends and distributions, if any, and (b) proceeds of any
redemption of Fund shares. An individual's taxpayer identification number is
his or her social security number. The "backup withholding" tax is not an
additional tax and may be credited against a shareholder's Federal income tax
liability.
In the opinion of the Fund's New Jersey counsel, income distributions,
including interest income and gains realized by the Fund upon disposition of
investments paid from a "qualified investment fund'' are exempt from the New
Jersey personal income tax to the extent attributable to New Jersey Municipal
Securities or to obligations that are free from state or local taxation under
New Jersey or Federal laws ("Tax-Exempt Obligations''). A "qualified
investment fund'' is any investment or trust company, or series of such
investment company or trust registered with the SEC, which for the calendar
year in which a distribution is paid, has no investments other than
interest-bearing obligations, obligations issued at a discount, financial
options, futures, forward contracts or other similar financial instruments
related to interest-bearing obligations, obligations issued at a discount or
related bond indexes and cash and cash items, including receivables, and which
has, at the close of each quarter of the taxable year, at least 80% of the
aggregate principal amount of all of its investments, excluding financial
options, futures, forward contracts, or other similar financial instruments
related to interest-bearing obligations, obligations issued at a discount or
bond indexes related there to as authorized under the Code, cash and cash
items, such as receivables, invested in New Jersey Municipal Securities or in
Tax-Exempt Obligations. Furthermore, gains resulting from the redemption or
sale of shares of the Fund to the extent attributable to interest or gain from
obligations issued by New Jersey or its local government entities or
obligations which are free from state or local taxes under New Jersey or
Federal law, are exempt from the New Jersey personal income tax.
<PAGE>168
The New Jersey personal income tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, dividends
and distributions from a "qualified investment fund" are included in the net
income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of Fund shares by a
corporate shareholder is also included in the net income tax base for purposes
of computing the Corporation Business Tax.
The foregoing is only a summary of certain Federal and New Jersey tax
considerations generally affecting the Fund and its shareholders, and is not
intended as a substitute for careful tax planning. Shareholders are urged to
consult their tax advisors with specific reference to their own tax
situations.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on
November 12, 1987. The Fund commenced operations on April 22, 1988 under the
name Shearson Lehman New Jersey Municipals Inc. On December 15, 1988, March
31, 1992, July 30, 1993 and October 14, 1994, the Fund changed its name to SLH
New Jersey Municipals Fund Inc., Shearson Lehman Brothers New Jersey
Municipals Fund Inc., Smith Barney Shearson New Jersey Municipals Fund Inc.
and Smith Barney New Jersey Municipals Fund Inc., respectively.
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as the Fund's custodian
pursuant to a custody agreement. Under the custody agreement, Boston Safe
holds the Fund's portfolio securities and keeps all necessary accounts and
records. For its services, Boston Safe receives a monthly fee based upon the
month-end market value of securities held in custody and also receives
securities transaction charges. The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109 and serves
as the Fund's transfer agent. Under the transfer agency agreement, TSSG
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund and distributes dividends and
distributions payable by the Fund. For these services, TSSG receives a monthly
fee computed on the basis of the number of shareholder accounts it maintains
for the Fund during the month and is reimbursed for out-ofpocket expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended March 31, 1995,
accompanies this Statement of Additional Information and is incorporated
herein by reference in its entirety.
<PAGE>169
APPENDIX
Description of S&P and Moody's ratings:
S&P Ratings for Municipal Bonds
S&P's Municipal Bond ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue bonds.
General obligation bonds are usually secured by all resources available to the
municipality and the factors outlined in the rating definitions below are
weighed in determining the rating. Because revenue bonds in general are
payable from specifically pledged revenues, the essential element in the
security for a revenue bond is the quantity and quality of the pledged
revenues available to pay debt service.
Although an appraisal of most of the same factors that bear on the
quality of general obligation bond credit is usually appropriate in the rating
analysis of a revenue bond, other factors are important, including
particularly the competitive position of the municipal enterprise under review
and the basic security covenants. Although a rating reflects S&P's judgment as
to the issuer's capacity for the timely payment of debt service, in certain
instances it may also reflect a mechanism or procedure for an assured and
prompt cure of a default, should one occur, i.e., an insurance program,
Federal or state guarantee or the automatic withholding and use of state aid
to pay the defaulted debt service.
AAA
Prime -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to
remain, substantial. Stability of the pledged revenues is also exceptionally
strong, due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds, and debt service reserve
requirements) are rigorous. There is evidence of superior management.
AA
High Grade -- The investment characteristics of general obligation and
revenue bonds in this group are only slightly less marked than those of the
prime quality issues. Bonds rated ``AA'' have the second strongest capacity
for payment of debt service.
A
Good Grade -- Principal and interest payments on bonds in this category
are regarded as safe. This rating describes the third strongest capacity for
payment of debt service. It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the issuer to
meet debt obligations at some future date.
<PAGE>170
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Medium Grade -- Of the investment grade ratings, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of debt
service. The difference between ``A'' and ``BBB'' ratings is that the latter
shows more than one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the factors
considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more than
adequate. Management performance could be stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
C
The rating C is reserved for income bonds on which no interest is being
paid.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
S&P Ratings for Municipal Notes
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) by S&P to distinguish more clearly
the credit quality of notes as compared to bonds. Notes rated SP-1 have a very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given the
designation of SP-1+. Notes rated SP-2 have a satisfactory capacity to pay
principal and interest.
Moody's Ratings for Municipal Bonds
Aaa
Bonds that are 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
<PAGE>171
likely to change, such changes as can be visualized are most unlikely to
impair the ***fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the longterm risks appear somewhat larger than in Aaa
securities.
A
Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds that are rated Baa are considered as mediumgrade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of ***position
characterizes bonds in this class.
B
Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
Caa
Bonds that are rated Caa are of poor standing. These issues may be in
default or present elements of danger may exist with respect to principal or
interest.
Ca
Bonds that are rated Ca represent obligations that are speculative in a
high degree. These issues are often in default or have other marked short
comings.
<PAGE>172
C
Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's Ratings for Municipal Notes Moody's ratings for state and
municipal notes and other short-term loans are designated Moody's Investment
Grade ("MIG'') and for variable rate demand obligations are designated
Variable Moody's Investment Grade ("VMIG''). This distinction is in
recognition of the differences between short-term credit risk and long-term
credit risk. Loans bearing the designation MIG 1 or VMIG 1 are of the best
quality, enjoying strong protection by established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG 2 or VMIG 2 are of
high quality, with ample margins of protection although not as large as the
preceding group. Loans bearing the designation MIG 3 or VMIG 3 are of
favorable quality, with all security elements accounted for, but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow may be
tight and market access for refinancing, in particular, is likely to be less
well established.
Description of S&P A-1+ and A-1 Commercial Paper Rating
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must have either the direct
credit support of an issuer or guarantor that possesses excellent long-term
operating and financial strengths combined with strong liquidity
characteristics (typically, such issuers or guarantors would display credit
quality characteristics which would warrant a senior bond rating of "AA\-'' or
higher), or the direct credit support of an issuer or guarantor that possesses
above average long-term fundamental operating and financing capabilities
combined with ongoing excellent liquidity characteristics. Paper rated A-1 by
S&P has the following characteristics: liquidity ratios are adequate to meet
cash requirements; long-term senior debt is rated ``A'' or better; the issuer
has access to at least two additional channels of borrowing; basic earnings
and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and the reliability and
quality of management are unquestioned.
Description of Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (a) evaluation of the management of the issuer; (b) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (c) evaluation
of the issuer's products in relation to competition and customer acceptance;
(d) liquidity; (e) amount and quality of long-term debt; (f) trend of earnings
over a period of ten years; (g) financial strength of a parent company and the
relationships which exist with the issuer; and (h) recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations.
<PAGE>173
Smith Barney
New Jersey
Municipals Fund Inc.
Statement of
Additional Information
May 29, 1995
Smith Barney
New Jersey Municipals Fund Inc.
388 Greenwich Street
New York, NY 10013
...................................Fund 66,206
SMITH BARNEY
A Member of Travelers Group
<PAGE>174
ANNUAL REPORT
OF
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
<PAGE>175
1995
ANNUAL
REPORT
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a highway going across New Jersey's
homes and trees.
SMITH BARNEY
NEW JERSEY
MUNICIPALS
FUND INC.
MARCH 31, 1995
Smith Barney Mutual Funds
INVESTING IN YOUR FUTURE.
EVERY DAY.
<PAGE>176
NEW JERSEY MUNICIPALS FUND INC.
DEAR SHAREHOLDER:
We are pleased to provide you with the Annual Report and portfolio of in-
vestments for Smith Barney New Jersey Municipals Fund Inc. (the "Fund")
for the fiscal year ended March 31, 1995. Although municipal bond prices
declined during the first half of the Fund's fiscal year, they rebounded
quite sharply during its second half. Despite this variable and oftentimes
difficult investment environment, the Fund provided investors in Class A
shares with a total return of 6.37% and Class B shares with a total return
of 5.76% for the twelve months ended March 31, 1995. Reflecting the im-
provement in the municipal market that began in late 1994, Class C shares,
a newly-available class of shares, earned a total return of 8.01% for the
period between December 13, 1994 and March 31, 1995. Additional perfor-
mance data for each class of shares during this and previous fiscal years
is available in the performance section of the report which follows this
letter.
ECONOMIC AND MARKET OVERVIEW
Much can be said about the municipal bond and other fixed income markets
of the past twelve months, but they certainly cannot be described as dull.
The Federal Reserve increased interest rates six times in 1994 and once in
1995 in an attempt to slow the rate of economic growth and prevent infla-
tion from increasing. This process resulted in declining bond prices and
rising interest rates during the first half of the Fund's fiscal year.
During the second half of the year, the market produced a powerful bond
rally that began in December as investors came to the conclusion that an
elusive "soft landing" was indeed possible and inflation posed no real
threat. The Fund's net asset value rebounded as a result of this rally,
allowing it to post an increase for this fiscal year. We anticipate that
slower economic growth (at least over the near term) will contribute to a
more stable interest rate environment in 1995 than investors experienced
in 1994. We believe that this will be particularly true of the tax-exempt
market.
Prices for New Jersey tax-exempt securities rallied along with the rest of
the municipal sector as investors, who had experienced a very difficult
downturn in the market and perhaps even a significant erosion in the value
of their investments, became more comfortable with the economic scenario
that began unfolding in late 1994. In addition, Governor Whitman's tax re-
ductions and general approach to less government have been viewed favor-
ably by tax-exempt investors. As a result, demand from individual inves-
tors has exceeded issuance and this, too, has led to higher prices for New
Jersey tax-exempt securities.
<PAGE>177
D I V I D E N D P O L I C Y
Although not explicitly stated in the Prospectus, the Fund's policy is to
pay a level monthly dividend based on our projections for the municipal
bond market and the general direction of interest rates. This policy has
no appreciable affect on the Fund's investment strategies or net asset
value per share since it is guided by market conditions. It means that we
do not invest in more speculative securities that may undermine the
Funds's net asset value per share in order to maintain an unrealistically
high dividend policy. We continually monitor both the market and the
Fund's income stream to see that our dividend projections are realistic.
PORTFOLIO STRATEGY
We have continued to invest the Fund's assets in a portfolio of high-
quality New Jersey tax-exempt securities with an average maturity of
approximately 21 years. As of the end of the Fund's fiscal year, 68% of
the portfolio was invested in issues rated Aaa/AAA or Aa/AA -- the two
highest ratings in the investment grade category -- by Moody's Investors
Services and Standard & Poor's Corporation, respectively. We believe these
securities offer our shareholders the best value. The majority of assets
were invested in general obligation, hospital, education, utility and pol-
lution control bonds. These types of bonds provide the Fund with competi-
tive yields and a high degree of liquidity, which makes it easier to
navigate through turbulent market periods.
OUTLOOK
While the fixed income market has had a meaningful rally since the
beginning of 1995, we think that it will be difficult to sustain for the
balance of the year. Although the market may encounter some periodic vola-
tility, we believe that it will be relatively stable for the remainder of
the year. Municipal bond issuance in New Jersey is almost 70% lower to
date in 1995 than it was in 1994, and this trend is expected to continue
for the balance of the year. This scarcity of supply should have a steady-
ing effect on the market over the months ahead.
<PAGE>178
As we have done since the Fund's inception in 1988, we will continue to
strive to provide you with superior investment management results. We look
forward to reporting to you in the Fund's semi-annual report to sharehold-
ers.
Sincerely,
Heath B. McLendon Lawrence T. McDermott
Heath B. McLendon Lawrence T. McDermott
Chairman of the Board Vice President and
Investment Officer
May 10, 1995
<PAGE>179
HISTORICAL PERFORMANCE -- CLASS A SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value
Year Ended Capital Dividends Return of Total
March 31 Beginning Ending Gains Paid Paid Capital Return*
<S> <C> <C> <C> <C> <C> <C>
4/22/88 - 3/31/89 $11.40 $11.67 $0.01 $0.82 -- 9.84%
1990 $11.67 $11.92 $0.03 $0.82 -- 9.62%
1991 $11.92 $12.17 $0.05 $0.83 $0.01 9.89%
1992 $12.17 $12.44 $0.13 $0.77 $0.04 10.22%
1993 $12.44 $13.16 $0.14 $0.75 $0.01 13.49%
1994 $13.16 $12.55 $0.15 $0.70 -- 1.66%
1995 $12.55 $12.62 -- $0.70 -- 6.37%
Total $0.51 $5.39 $0.06
Cumulative Total Return -- (4/22/88 through 3/31/95) 78.96%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the front-end
sales charge (maximum 4.00%).
</TABLE>
The Fund's policy is to distribute dividends monthly and capital gains, if
any, annually.
AVERAGE ANNUAL TOTAL RETURN** -- CLASS A SHARES
<TABLE>
<CAPTION>
Without Sales Charge With Sales Charge***
With Fee Without With Fee Without
Waiver Fee Waiver Waiver Fee Waiver
and Expense and Expense and Expense and Expense
Reimbursement Reimbursement Reimbursement Reimbursement
<S> <C> <C> <C> <C>
Year Ended 3/31/95 N/A 6.37% N/A 2.11%
Five Years Ended
3/31/95 8.25% 8.09% 7.37% 7.21%
Inception 4/22/88
through 3/31/95 8.75% 8.46% 8.11% 7.82%
<FN>
** All average annual total return figures shown reflect reinvestment of
dividends and capital gains distributions at net asset value. The Fund
commenced operations on April 22, 1988. The Fund's investment adviser,
sub-investment adviser and/or administrator waived investment advi-
sory, sub-investment advisory and administration fees and/or reimbursed
expenses from April 22, 1988 to March 31, 1994. A shareholder's actual
return for periods during which waivers and reimbursements were in effect
would be the higher of the two numbers shown.
*** Average annual total return figures shown assume the deduction of the
maximum 4.00% sales charge at the time of investment.
NOTE: On November 6, 1992, existing shares of the Fund were desig-
nated Class A shares. Class A shares are subject to a maximum 4.00%
front-end sales charge and an annual service fee of 0.15% of the value
of the average daily net assets attributable to that class. The Fund's
annual rates of return would have been lower had service fees been in
effect prior to November 6, 1992.
</TABLE>
<PAGE>180
GROWTH OF $10,000 INVESTED IN CLASS A SHARES OF
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.+
VS. LIPPER NEW JERSEY PEER GROUP AVERAGE
AND LEHMAN MUNICIPAL BOND INDEX
April 22, 1988 -- March 31, 1995
DESCRIPTION OF MOUNTAIN CHART IN COVERS (CLASS A)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in New
Jersey Municipals Fund's Class A shares on April 22, 1988 through March
31, 1995 as compared with the growth of a $10,000 investment in Lipper New
Jersey Peer Group Average and Lehman Municipal Bond Index. The plot points
used to draw the line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000
GROWTH OF $10,000 INVESTMENT IN THE INVESTMENT IN THE
INVESTED IN CLASS A LIPPER NEW JERSEY LEHMAN MUNICIPAL
MONTH ENDED SHARES OF THE FUND PEER GROUP AVERAGE BOND INDEX
<S> <C> <C> <C>
04/22/88 $ 9,600 -- --
04/88 $ 9,651 $10,000 $10,000
05/88 $ 9,726 $10,002 $ 9,971
06/88 $ 9,916 $10,215 $10,117
09/88 $10,236 $10,531 $10,375
12/88 $10,530 $10,835 $10,568
03/89 $10,545 $10,895 $10,638
06/89 $11,160 $11,571 $11,268
09/89 $11,159 $11,501 $11,276
12/89 $11,506 $11,905 $11,709
03/90 $11,559 $11,926 $11,761
06/90 $11,861 $12,218 $12,036
09/90 $11,855 $12,167 $12,043
12/90 $12,429 $12,749 $12,563
03/91 $12,701 $13,042 $12,846
06/91 $12,943 $13,321 $13,121
09/91 $13,526 $13,873 $13,631
12/91 $13,949 $14,303 $14,089
03/92 $13,999 $14,331 $14,131
06/92 $14,577 $15,261 $14,667
09/92 $14,970 $14,914 $15,058
12/92 $15,264 $15,573 $15,332
03/93 $15,888 $16,169 $15,901
06/93 $16,452 $16,768 $16,421
09/93 $17,038 $17,349 $16,976
12/93 $17,246 $17,522 $17,214
03/94 $16,152 $16,463 $16,269
06/94 $16,299 $16,549 $16,450
09/94 $16,384 $16,644 $16,562
12/94 $16,039 $16,348 $16,324
03/95 $17,181 $17,406 $17,478
<FN>
+ Illustration of $10,000 invested in Class A shares on April 22, 1988 as-
suming deduction of the maximum 4.00% sales charge at the time of in-
vestment and reinvestment of dividends and capital gains distributions
at net asset value through March 31, 1995.
LIPPER NEW JERSEY PEER GROUP AVERAGE -- The Lipper New Jersey Peer Group
Average is composed of an average of the Fund's peer group of mutual
funds (50 as of March 31, 1995) investing in New Jersey tax-exempt
bonds.
LEHMAN MUNICIPAL BOND INDEX -- The Lehman Municipal Bond Index is an un-
managed, broad-based index which includes about 8,000 tax-free bonds and
reflects approximately $300 billion of market capitalization.
Index information is available at month-end only; therefore the closest
month-end to inception date of the Fund has been used.
NOTE: All figures cited here represent past performance of the Fund and
do not guarantee future results.
</TABLE>
<PAGE>181
HISTORICAL PERFORMANCE -- CLASS B SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value
Year Ended Capital Dividends Return of Total
March 31 Beginning Ending Gains Paid Paid Capital Return*
<S> <C> <C> <C> <C> <C> <C>
11/6/92 - 3/31/93 $12.75 $13.16 $0.14 $0.27 $0.01 6.60%
1994 $13.16 $12.55 $0.15 $0.63 -- 1.15%
1995 $12.55 $12.62 -- $0.62 -- 5.76%
Total $0.29 $1.52 $0.01
Cumulative Total Return -- (11/6/92 through 3/31/95) 14.04%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the contin-
gent deferred sales charge ("CDSC").
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** -- CLASS B SHARES
<TABLE>
<CAPTION>
Without CDSC With CDSC***
With Fee Without With Fee Without
Waiver Fee Waiver Waiver Fee Waiver
and Expense and Expense and Expense and Expense
Reimbursement Reimbursement Reimbursement Reimbursement
<S> <C> <C> <C> <C>
Year Ended 3/31/95 N/A 5.76% N/A 1.26%
Inception 11/6/92
through 3/31/95 5.63% 5.55% 4.47% 4.40%
<FN>
** All average annual total return figures shown reflect reinvestment of
dividends and capital gains distributions at net asset value. The
Fund's investment adviser, sub-investment adviser and/or administrator
waived fees and/or reimbursed expenses from November 6, 1992 to March
31, 1994. A shareholder's actual return for periods during which waiv-
ers and reimbursements were in effect would be the higher of the two
numbers shown.
*** Average annual total return figures shown assume the deduction of the
maximum applicable CDSC which is described in the prospectus.
NOTE: The Fund began offering Class B shares on November 6, 1992.
Class B shares are subject to a maximum 4.50% CDSC and annual service
and distribution fees of 0.15% and 0.50%, respectively, of the value
of the average daily net assets attributable to that class.
</TABLE>
<PAGE>182
GROWTH OF $10,000 INVESTED IN CLASS B SHARES OF
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.+
VS. LIPPER NEW JERSEY PEER GROUP AVERAGE
AND LEHMAN MUNICIPAL BOND INDEX
November 6, 1992 -- March 31, 1995
DESCRIPTION OF MOUNTAIN CHART IN COVERS (CLASS B)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in New
Jersey Municipals Fund's Class B shares on November 6, 1992 through March
31, 1995 as compared with the growth of a $10,000 investment in Lipper New
Jersey Peer Group Average and Lehman Municipal Bond Index. The plot points
used to draw the line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000
GROWTH OF $10,000 INVESTMENT IN THE INVESTMENT IN THE
INVESTED IN CLASS B LIPPER NEW JERSEY LEHMAN MUNICIPAL
MONTH ENDED SHARES OF THE FUND PEER GROUP AVERAGE BOND INDEX
<S> <C> <C> <C>
10/31/92 -- $10,000 $10,000
11/06/92 $10,000 -- --
11/92 $10,140 $10,265 $10,179
12/92 $10,255 $10,398 $10,283
03/93 $10,660 $10,797 $10,664
06/93 $11,025 $11,197 $11,013
09/93 $11,404 $11,585 $11,385
12/93 $11,529 $11,700 $11,545
03/94 $10,782 $10,993 $10,911
06/94 $10,865 $11,051 $11,032
09/94 $10,907 $11,114 $11,108
12/94 $10,662 $10,916 $10,948
03/95 $11,404 $11,623 $11,722
<FN>
+ Illustration of $10,000 invested in Class B shares on November 6, 1992
assuming reinvestment of dividends and capital gains distributions at
net asset value through March 31, 1995.
++ Value does not assume deduction of applicable CDSC.
+++ Value assumes deduction of applicable CDSC (assuming redemption on
March 31, 1995).
LIPPER NEW JERSEY PEER GROUP AVERAGE -- The Lipper New Jersey Peer Group
Average is composed of an average of the Fund's peer group of mutual funds
(50 as of March 31, 1995) investing in New Jersey tax- exempt bonds.
LEHMAN MUNICIPAL BOND INDEX -- The Lehman Municipal Bond Index is an un-
managed, broad-based index which includes about 8,000 tax-free bonds and
reflects approximately $300 billion of market capitalization.
Index information is available at month-end only; therefore, the closest
month-end to inception date of the Fund has been used.
NOTE: All figures cited here represent past performance of the Fund and
do not guarantee future results.
</TABLE>
<PAGE>183
HISTORICAL PERFORMANCE -- CLASS C SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value
Period Ended Capital Dividends Total
March 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>
12/13/94 - 3/31/95 $11.86 $12.62 -- $0.18 8.01%
Cumulative Total Return -- (12/13/94 through 3/31/95) 8.01%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the CDSC.
</TABLE>
AGGREGATE TOTAL RETURN** -- CLASS C SHARES
<TABLE>
<CAPTION>
Without CDSC With CDSC
Actual Actual***
<S> <C> <C>
Inception 12/13/94
through 3/31/95 8.01% 7.01%
<FN>
** All aggregate total return figures shown reflect reinvestment of divi-
dends and capital gains distributions at net asset value.
*** Aggregate total return figures shown assume the deduction of the maxi-
mum applicable CDSC which is described in the prospectus.
NOTE: The Fund began offering Class C shares on November 7, 1994 and
commenced selling these shares on December 13, 1994. Class C shares
are subject to a maximum 1.00% CDSC and annual service and distribu-
tion fees of 0.15% and 0.55%, respectively, of the value of the aver-
age daily net assets attributable to that class.
</TABLE>
<PAGE>184
PORTFOLIO HIGHLIGHTS (UNAUDITED) MARCH 31, 1995
INDUSTRY BREAKDOWN
DESCRIPTION OF PIE CHARTS IN SHAREHOLDER REPORT
Pie chart depicting the allocation of the New Jersey Municipals Fund's in-
vestment securities held at March 31, 1995 by industry classification. The
pie is broken in pieces representing industries in the following percent-
ages:
<TABLE>
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
TRANSPORTATION 1.8%
HOUSING 4.8%
POLLUTION CONTROL 9.6%
EDUCATION 12.3%
UTILITY 10.4%
OTHER 17.6%
HOSPITAL 20.3%
GENERAL OBLIGATIONS 21.7%
NET OTHER ASSETS AND LIABILITIES 1.5%
</TABLE>
SUMMARY OF MUNICIPAL BONDS AND SHORT-TERM
TAX-EXEMPT INVESTMENTS BY COMBINED RATINGS
<TABLE>
<CAPTION>
Standard & Percentage of
Moody's Poor's Market Value
<S> <C> <C> <C>
Aaa or AAA 55%
Aa AA 13
A A 11
Baa BBB 10
NR NR 11
100%
</TABLE>
AVERAGE MATURITY 21.4 years
<PAGE>185
PORTFOLIO OF INVESTMENTS MARCH 31, 1995
KEY TO INSURANCE ABBREVIATIONS
AMBAC -- American Municipal Bond Assurance Corporation
BIGI -- Bond Investors Guaranty Insurance
FGIC -- Federal Guaranty Insurance Corporation
FHA -- Federal Housing Administration
FSA -- Federal Security Assurance
MBIA -- Municipal Bond Investors Assurance
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 98.3%
NEW JERSEY -- 98.0%
Atlantic County, New Jersey:
$2,500,000 Certificates of Participation, Public
Facilities Lease Agreement, (FGIC In-
sured),
7.400% due 3/1/2009 Aaa AAA $ 2,903,125
375,000 Improvement Authority Revenue, Luxury
Tax Revenue, (Convention Center), (MBIA
Insured),
7.400% due 7/1/2016 Aaa AAA 432,656
950,000 Utilities Authority, Solid Waste Reve-
nue,
7.125% due 3/1/2016 Baa NR 917,937
1,340,000 Bayonne, New Jersey, General Obligation
Bonds, (FGIC Insured),
6.125% due 5/1/2014 Aaa AAA 1,361,775
700,000 Beachwood, New Jersey, Sewer Authority
Revenue, Junior Lien,
6.500% due 12/1/2012 Baa1 NR 713,125
665,000 Belvedere, New Jersey, General Obliga-
tion Refunding Bonds, (AMBAC Insured),
7.300% due 12/1/2014 Aaa AAA 729,837
1,000,000 Bordentown, New Jersey, Sewerage Au-
thority Revenue, Series C, (MBIA In-
sured),
6.900% due 12/1/2016 Aaa AAA 1,056,250
1,000,000 Camden County, New Jersey, Improvement
Authority Revenue, Series B, (AMBAC In-
sured),
5.250% due 12/1/2018 Aaa AAA 916,250
385,000 Cape May County, New Jersey, Bridge
Commission, Guaranteed Revenue Bonds,
6.700% due 6/1/2002 A1 A 399,919
<PAGE>186
200,000 Delaware River Junction, Toll Bridge
Commission, Refunding Bonds, (FGIC In-
sured),
6.250% due 7/1/2012 Aaa AAA 206,750
500,000 Delaware River Port Authority, Pennsyl-
vania and New Jersey, Delaware River
Bridge Revenue Refunding, (AMBAC In-
sured),
7.375% due 1/1/2007 Aaa AAA 543,750
550,000 Dover, New Jersey, Board of Education,
Certificates of Participation, (FGIC
Insured),
6.600% due 6/1/2011 Aaa AAA 576,812
Essex County, New Jersey:
175,000 General Obligation Bonds, (FSA In-
sured),
6.500% due 12/1/2011 Aaa AAA 182,438
2,500,000 Improvement Authority, (FGIC Insured),
5.200% due 12/1/2024 Aaa AAA 2,215,625
650,000 Improvement Authority, Newark, Lease
Revenue Bonds,
6.600% due 4/1/2014 Baa1 BBB+ 650,812
750,000 Evesham Township, New Jersey, Board of
Education, Certificates of Participa-
tion, (FGIC Insured),
6.875% due 9/1/2011 Aaa AAA 809,062
Gloucester County, New Jersey:
900,000 Utilities Authority,
6.250% due 1/1/2024 A1 AA- 910,125
1,000,000 Utilities Authority, Sewerage System
Revenue, Series 91A,
6.500% due 1/1/2021 A1 AA- 1,023,750
500,000 Hoboken, New Jersey, Parking Authority
Revenue, (FGIC Insured),
6.000% due 6/1/2014 Aaa AAA 503,125
Hudson County, New Jersey:
425,000 Certificates of Participation, Correc-
tional Facilities, (MBIA Insured),
6.600% due 12/1/2021 Aaa AAA 443,062
200,000 General Obligation Bonds, (FGIC In-
sured),
6.550% due 7/1/2010 Aaa AAA 214,250
<PAGE>187
3,750,000 Improvement Authority, Solid Waste Sys-
tem Revenue,
7.100% due 1/1/2020 NR BBB- 3,506,250
1,000,000 Improvement Authority, Solid Waste Sys-
tem Revenue, Series A,
6.100% due 7/1/2020 NR A+ 980,000
Jersey City, New Jersey:
1,700,000 Sewerage Authority, (AMBAC Insured),
6.250% due 1/1/2014 Aaa AAA 1,778,625
530,000 Water Utility, General Obligation
Bonds, (AMBAC Insured),
7.500% due 10/1/2003 Aaa AAA 571,737
1,385,000 Kearney, New Jersey, Municipal Utili-
ties Authority Revenue, (FGIC Insured),
7.300% due 11/15/2018 Aaa AAA 1,662,000
1,500,000 Lower Township, New Jersey, Municipal
Utilities Authority, (MBIA Insured),
6.125% due 12/1/2013 Aaa AAA 1,528,125
1,000,000 Lumberton Township, New Jersey, School
District, Certificates of Participa-
tion, (Fiscal Funding New Jersey,
Inc.), (MBIA Insured),
6.100% due 10/1/2013 Aaa AAA 1,017,500
200,000 Mercer County, New Jersey, Improvement
Authority Revenue, Refunding Bonds,
Solid Waste, Series A, (FGIC Insured),
6.700% due 4/1/2012 Aaa AAA 210,750
Middlesex County, New Jersey, Pollution
Control Authority Financing Revenue,
(Amerada Hess):
1,000,000 7.875% due 6/1/2022 NR NR 1,098,750
2,000,000 6.875% due 12/1/2022 NR NR 2,042,500
500,000 Monroe Township, New Jersey, Municipal
Utilities Authority, Gloucester County
Revenue, (AMBAC Insured),
6.650% due 7/1/2011 Aaa AAA 530,000
<PAGE>188
Morris Township, New Jersey, General
Obligation Notes:
550,000 6.550% due 7/1/2009 Aa AA 601,562
550,000 6.550% due 7/1/2010 Aa AA 601,562
500,000 6.550% due 7/1/2011 Aa AA 545,625
1,200,000 Morristown, New Jersey, Revenue Refund-
ing, General Obligation Bonds,
6.500% due 2/1/2006 A1 A+ 1,252,500
1,000,000 New Brunswick, New Jersey, Parking Au-
thority Revenue, City Guaranteed Park-
ing, Series A,
6.500% due 9/1/2019 Aaa AAA 1,041,250
New Jersey, Economic Development Au-
thority:
1,000,000 Economic Development Revenue, (Health
Village Inc.),
7.800% due 5/1/2016 NR BBB 1,055,000
480,000 Economic Development Revenue, (National
Association of Accountants),
7.650% due 7/1/2009 NR NR 509,400
660,000 Economic Development Revenue, Series S,
(Princeton Montessori Society),
6.500% due 6/1/2012 Aaa NR 673,200
1,000,000 Economic Development Revenue, (Trane
Division), (1990 Project),
9.500% due 9/1/2000 NR NR 1,113,750
1,500,000 Economic Development Revenue, (Zirser-
Greenbriar),
7.375% due 7/15/2003 NR NR 1,496,250
1,500,000 Electric Revenue, (Vineland Cogenera-
tion Limited Partnership),
7.875% due 6/1/2019 NR NR 1,567,500
1,250,000 Industrial Revenue, (Garden State Paper
Co.),
7.125% due 4/1/2022 Aa1 NR 1,295,313
2,005,000 Industrial Revenue, (State Plaza Park
and Ride Limited Partnership),
6.625% due 7/1/2003 NR NR 2,030,063
1,000,000 Miscellaneous Revenue, (State Con-
tract), (FSA Insured),
6.000% due 3/15/2021 Aaa AAA 997,500
<PAGE>189
1,000,000 Natural Gas Facilities Revenue, (NUI
Corporation), Series A, (AMBAC Insured)
6.350% due 10/1/2022 Aaa AAA 1,022,500
500,000 Nursing Home Revenue, (Absecon Manor
Project), (FHA Insured),
8.250% due 2/1/2028 NR AA+ 520,625
1,500,000 Nursing Home Revenue, Series A, (Fran-
ciscan Oaks),
8.500% due 10/1/2023 NR NR 1,518,750
1,000,000 Nursing Home Revenue, (Morris Hall-St.
Lawrence),
6.250% due 4/1/2025 NR A+ 992,500
2,500,000 Nursing Home Revenue, (RWJ Health Care
Corporation), (FSA Insured),
6.500% due 7/1/2024 Aaa AAA 2,575,000
Nursing Home Revenue, (St. Barnabas Re-
alty Development Corporation), (MBIA
Insured):
2,000,000 5.250% due 7/1/2013 Aaa AAA 1,850,000
500,000 5.250% due 7/1/2020 Aaa AAA 450,000
4,500,000 Pollution Control Revenue, (Public Ser-
vice Electric & Gas Corporation), (MBIA
Insured),
6.400% due 5/1/2032 Aaa AAA 4,522,500
1,500,000 Sewer Facilities Revenue, (Atlantic
City Sewer Facility),
7.250% due 12/1/2011 NR A 1,612,500
1,500,000 Terminal Revenue, (GATX Terminal Corpo-
ration), Series 1994,
7.300% due 9/1/2019 Baa1 A- 1,629,375
1,000,000 Waste Paper Recycling Revenue, (Marcel
Paper Mills Inc. Project),
8.500% due 2/1/2010 NR NR 1,116,250
750,000 Water Revenue, Series D, (Hackensack
Water),
7.000% due 10/1/2017 NR A 768,750
New Jersey Health Care Facilities, Fi-
nancing Authority Revenue:
250,000 (Atlantic City Medical Center), Series
B, (FHA Insured),
8.375% due 8/1/2020 Aaa AAA 278,125
<PAGE>190
1,000,000 (Atlantic City Medical Center), Series
C,
6.800% due 7/1/2011 A A- 1,038,750
(Burdett Tomlin Memorial Hospital), Se-
ries D, (FGIC Insured):
1,400,000 6.500% due 7/1/2012 Aaa AAA 1,452,500
850,000 6.500% due 7/1/2021 Aaa AAA 876,563
(Columbus Hospital), Series A:
1,200,000 7.200% due 7/1/2001 Baa1 BB- 1,209,000
1,000,000 7.500% due 7/1/2021 Baa1 BB- 963,750
1,500,000 (Community Medical Center), Series E,
(MBIA Insured),
6.000% due 7/1/2019 Aaa AAA 1,498,125
250,000 (Community Memorial Hospital Associa-
tion), Series C,
8.000% due 7/1/2014 A A- 267,500
1,550,000 (Deborah Heart & Lung Center),
6.300% due 7/1/2023 Baa1 BBB+ 1,505,438
1,500,000 (Helene Fuld Medical Center), Series C,
8.125% due 7/1/2013 Aaa A 1,616,250
3,000,000 (Irvington General Hospital), (FHA In-
sured),
6.375% due 8/1/2015 NR AAA 3,090,000
1,125,000 (J.F.K. Health System), Obligated
Group, (FGIC Insured),
6.700% due 7/1/2021 Aaa AAA 1,178,438
260,000 (Kennedy Memorial University Medical
Center), Series D,
7.875% due 7/1/2009 A A- 276,900
435,000 (Kimball Medical Center), Series C,
8.000% due 7/1/1998 Baa BBB- 452,400
830,000 (Medical Center of Ocean County), Se-
ries C, (FSA Insured),
6.750% due 7/1/2020 Aaa AAA 874,613
825,000 (Muhlenberg Regional Medical Center),
Series A, (AMBAC Insured),
8.000% due 7/1/2018 Aaa AAA 900,281
<PAGE>191
3,550,000 (Newark Beth Israel Medical Center),
(FSA Insured),
6.000% due 7/1/2024 Aaa AAA 3,510,063
600,000 (Newcomb Medical Center), Series A,
7.875% due 7/1/2003 Baa BBB+ 645,750
2,000,000 (Ocean County Hospital),
6.250% due 7/1/2023 Baa NR 1,795,000
1,000,000 (Overlook Hospital Association), Series
E, (FGIC Insured),
6.700% due 7/1/2017 Aaa AAA 1,032,500
1,000,000 (Raritan Bay Medical Center),
7.250% due 7/1/2027 NR NR 940,000
1,250,000 (St. Elizabeth's Hospital Project), Se-
ries B,
8.250% due 7/1/2020 Baa BBB 1,326,563
1,750,000 (St. Mary Hospital),
5.875% due 7/1/2012 Baa BBB- 1,529,063
820,000 (Spectrum for Living), (FHA Insured),
6.500% due 2/1/2022 NR AAA 836,400
750,000 (Wayne General Hospital), (FHA In-
sured),
5.750% due 8/1/2011 NR AAA 723,750
New Jersey Sports and Expo Authority,
Series A, State Contract:
1,250,000 6.250% due 7/1/2020, (MBIA Insured) Aaa AAA 1,267,188
2,900,000 6.000% due 3/1/2021 Aa A+ 2,871,000
2,000,000 8.000% due 1/1/2025 NR NR 2,087,500
2,500,000 New Jersey State, Certificates of Par-
ticipation, Equipment Leasing Revenue,
Series A,
6.400% due 4/1/2005 A1 A+ 2,621,875
New Jersey State Educational Facili-
ties, Financing Authority Revenue,
Higher Education:
1,285,000 (Drew University), Series B,
7.450% due 2/1/2005 NR A 1,376,556
2,700,000 (Farleigh Dickinson University), Series
C,
6.625% due 7/1/2023 NR NR 2,369,250
<PAGE>192
2,500,000 New Jersey State, General Obligation
Bond, Series D,
8.000% due 2/15/2007 Aa1 AA+ 3,050,000
2,500,000 New Jersey State Higher Education As-
sistance,
5.300% due 7/1/2010 NR A+ 2,293,750
New Jersey State Housing & Mortgage Fi-
nance Agency:
1,500,000 Mortgage Revenue Refunding, (Manor
Apartments, Newark), Series A, (FHA In-
sured),
7.500% due 2/15/2024 NR AAA 1,603,125
Multifamily Housing Revenue:
1,550,000 (Presidential Plaza-FHA), Series 1,
7.000% due 5/1/2030 NR AAA 1,612,000
1,000,000 (Regency Park Project), Series H,
7.700% due 11/1/2030 NR AA 1,043,750
Home Mortgage Revenue, (MBIA Insured):
740,000 Series B,
8.100% due 10/1/2017 Aaa AAA 788,100
30,000 Series C,
8.375% due 4/1/2017 Aaa AAA 32,175
315,000 Series D,
7.700% due 10/1/2029 Aaa AAA 332,719
1,500,000 New Jersey State Transportation Trust
Fund, (FSA Insured),
4.750% due 6/15/2003 Aaa AAA 1,436,250
North Bergen, New Jersey:
1,500,000 Township Capital Appreciation, (FSA In-
sured),
8.000% due 8/15/2007 Aaa AAA 1,818,750
1,960,000 Township Municipal Utilities Authority,
Sewer Revenue, (FGIC Insured),
7.875% due 12/15/2009 Aaa AAA 2,359,350
North Jersey District Water Supply Com-
mission, New Jersey Refunding, (Wanaque
North Project), Series A, (MBIA In-
sured):
2,500,000 6.000% due 7/1/2021 Aaa AAA 2,503,125
1,195,000 6.500% due 11/15/2021 Aaa AAA 1,248,775
<PAGE>193
Old Bridge Township, New Jersey, Gen-
eral Obligation Bonds, (FGIC Insured):
560,000 6.550% due 7/15/2010 Aaa AAA 588,700
720,000 6.550% due 7/15/2011 Aaa AAA 756,900
750,000 Municipal Utilities Authority Revenue,
(FGIC Insured),
6.400% due 11/1/2009 Aaa AAA 787,500
Passaic Valley, New Jersey, Sewer Com-
mission Revenue, Water Supply Revenue,
Series A:
2,000,000 (AMBAC Insured),
5.875% due 12/1/2022 Aaa AAA 1,960,000
100,000 (FGIC Insured),
6.400% due 12/15/2022 Aaa AAA 102,750
500,000 Perth Amboy, New Jersey, Board of Edu-
cation, Certificates of Participation,
(FSA Insured),
6.125% due 12/15/2017 Aaa AAA 507,500
1,750,000 Piscataway Township, New Jersey School
District, (FHA Insured),
5.375% due 12/15/2010 Aaa AAA 1,664,687
1,750,000 Pleasantville, New Jersey, School Dis-
trict, Certificates of Participation,
(Fiscal Funding New Jersey, Inc.),
(BIGI Insured),
7.700% due 10/1/2013 Aaa AAA 1,894,375
2,000,000 Port Authority New York and New Jersey,
Consolidated Loan, Series 96, (FGIC In-
sured),
6.600% due 10/1/2023 Aaa AAA 2,075,000
750,000 Rutgers State University, New Jersey,
University of New Jersey, Series P,
6.850% due 5/1/2021 A1 AA 803,437
740,000 Sayreville, New Jersey, Housing Devel-
opment Corporation, Mortgage Revenue,
FHA Refunding, (Lakeview Apartments),
7.750% due 8/1/2024 NR AAA 811,225
1,500,000 Scotch Plains Township, New Jersey, Se-
nior Citizen Housing Corporation, Reve-
nue Bonds,
5.750% due 3/1/2023 Aa NR 1,408,125
<PAGE>194
2,500,000 Somerset Raritan Valley, New Jersey,
Sewer Authority Revenue, Series G,
6.750% due 7/1/2010 A1 AA 2,637,500
500,000 South Amboy, New Jersey, General Obli-
gation Bonds, (MBIA Insured),
6.375% due 12/1/2010 Aaa AAA 523,750
South Brunswick Township, New Jersey
Board of Education, (FGIC Insured):
1,500,000 6.400% due 8/1/2018 Aaa AAA 1,556,250
1,500,000 6.400% due 8/1/2019 Aaa AAA 1,550,625
750,000 South Monmouth, New Jersey, Regional
Sewer Authority, (MBIA Insured),
6.000% due 1/15/2014 Aaa AAA 760,313
1,000,000 Southeast Morris County, New Jersey,
Municipal Utilities Authority, Water
Revenue, Series A, (FGIC Insured),
6.500% due 1/1/2011 Aaa AAA 1,043,750
1,500,000 Stafford, New Jersey, Municipal Utili-
ties Authority, Sewer and Water Reve-
nue, (FGIC Insured),
6.125% due 12/1/2022 Aaa AAA 1,520,625
750,000 Trenton, New Jersey, General Obligation
Bonds, (MBIA Insured),
6.550% due 8/15/2009 Aaa AAA 790,312
900,000 Union City, New Jersey, General Obliga-
tion Bonds, (MBIA Insured),
6.700% due 9/1/2012 Aaa AAA 950,625
1,000,000 Union County, New Jersey, Improvement
Authority Revenue, (Cranford Township
Project),
7.750% due 5/1/2003 A1 A+ 1,088,750
1,140,000 University of New Jersey, School of
Medicine and Dentistry, Series C,
7.200% due 12/1/2019 A AA 1,225,500
<PAGE>195
1,400,000 Warren Hills, New Jersey, Regional
School District, (FSA Insured),
5.250% due 12/15/2009 Aaa AAA 1,324,750
854,000 Weehawken Township, New Jersey, General
Obligation Bonds, (FSA Insured),
6.350% due 7/1/2007 Aaa AAA 896,700
West Windsor, Plainsboro, New Jersey,
Regional School District:
180,000 6.750% due 4/1/2006 A1 AA 199,800
490,000 6.750% due 4/1/2007 A1 AA 542,675
435,000 6.800% due 4/1/2008 A1 AA 484,481
170,000 6.800% due 4/1/2009 A1 AA 189,125
159,174,587
PUERTO RICO -- 0.3%
495,000 Commonwealth of Puerto Rico,
8.000% due 7/1/2008 Baa1 A 546,356
TOTAL MUNICIPAL BONDS AND NOTES
(Cost $156,126,777) 159,720,943
SHORT-TERM MUNICIPAL BOND -- 0.2%
(Cost $300,000)
PUERTO RICO -- 0.2%
300,000 Commonwealth of Puerto Rico, Government
Development Bank, Revenue Bond,
4.100% due 12/1/2015+ VMIG1 A-1+ 300,000
TOTAL INVESTMENTS (Cost $156,426,777*) 98.5% 160,020,943
OTHER ASSETS AND LIABILITIES (NET) 1.5 2,480,932
NET ASSETS 100.0% $162,501,875
<FN>
* Aggregate cost for Federal tax purposes.
+ Variable rate demand notes payable upon not more than one business
day's notice.
</TABLE>
<PAGE>196
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$156,426,777) (Note 1)
See accompanying schedule $160,020,943
Interest receivable 2,962,836
Receivable for Fund shares sold 170,004
TOTAL ASSETS 163,153,783
LIABILITIES:
Dividends payable $268,556
Payable for Fund shares redeemed 189,078
Investment advisory fee payable
(Note 2) 48,321
Administration fee payable (Note 2) 27,611
Distribution fee payable (Note 3) 23,474
Service fee payable (Note 3) 20,707
Due to custodian 10,797
Transfer agent fees payable (Note
2) 7,500
Custodian fees payable (Note 2) 6,600
Accrued expenses and other payables 49,264
TOTAL LIABILITIES 651,908
NET ASSETS $162,501,875
NET ASSETS CONSIST OF:
Distributions in excess of net in-
vestment income $(111,297)
Accumulated net realized loss on
investments sold (3,197,132)
Unrealized appreciation of invest-
ments 3,594,166
Par value 12,879
Paid-in capital in excess of par
value 162,203,259
TOTAL NET ASSETS $162,501,875
NET ASSET VALUE:
CLASS A SHARES
NET ASSET VALUE and redemption price
per share
($106,919,491 / 8,474,514 shares of
common stock outstanding) $12.62
MAXIMUM OFFERING PRICE per share
($12.62 / 0.960) (based on maximum
sales charge of 4.00% of the offer-
ing price on March 31, 1995) $13.15
CLASS B SHARES
NET ASSET VALUE and offering price
per share+
($55,334,297 / 4,384,740 shares of
common stock outstanding) $12.62
CLASS C SHARES
NET ASSET VALUE and offering price
per share+
($248,087 / 19,666 shares of common
stock outstanding) $12.62
<<FN>>
+ Redemption price per share is equal to net asset value less any applica-
ble CDSC.
</TABLE>
See Notes to Financial Statements.
<PAGE>197
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $10,758,237
EXPENSES:
Investment advisory fee (Note 2) $579,652
Administration fee (Note 2) 331,230
Distribution fee (Note 3) 260,190
Service fee (Note 3) 248,422
Transfer agent fees (Notes 2 and 4) 72,589
Legal and audit fees 70,711
Custodian fees (Note 2) 42,083
Directors' fees and expenses (Note
2) 16,692
Other 104,608
Total before interest expense 1,726,177
Interest expense (Note 9) 10,129
TOTAL EXPENSES 1,736,306
NET INVESTMENT INCOME 9,021,931
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS
(NOTES 1 AND 5):
Net realized loss on investments
sold during the year (3,197,132)
Net unrealized appreciation of in-
vestments during the year 3,571,504
NET REALIZED AND UNREALIZED GAIN ON IN-
VESTMENTS 374,372
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 9,396,303
</TABLE>
See Notes to Financial Statements.
<PAGE>198
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
3/31/95 3/31/94
<S> <C> <C>
Net investment income $ 9,021,931 $ 8,076,673
Net realized gain/(loss) on investments
sold during the year (3,197,132) 1,474,192
Net unrealized appreciation/(deprecia-
tion) of investments during the year 3,571,504 (8,942,109)
Net increase in net assets resulting
from operations 9,396,303 608,756
Distributions to shareholders from net
investment income:
Class A (6,381,567) (6,377,318)
Class B (2,618,738) (1,613,063)
Class C (1,631) --
Distributions to shareholders in excess
of net investment income:
Class A -- (68,872)
Class B -- (17,420)
Distributions to shareholders from net
realized gain on investments:
Class A (20,959) (1,446,042)
Class B (8,600) (490,715)
Class C (5) --
Distributions to shareholders from cap-
ital:
Class A -- (35,156)
Class B -- (9,844)
Net increase/(decrease) in net assets
from Fund share transactions (Note
6):
Class A (13,038,237) 10,438,364
Class B 6,645,094 35,313,040
Class C 242,421 --
Net increase/(decrease) in net assets (5,785,919) 36,301,730
NET ASSETS:
Beginning of year 168,287,794 131,986,064
End of year (including distributions in
excess of net investment income of
$111,297 and $131,292, respectively) $162,501,875 $ 168,287,794
</TABLE>
See Notes to Financial Statements.
<PAGE>199
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
3/31/95 3/31/94
<S> <C> <C>
Operating performance:
Net asset value, beginning of year $ 12.55 $ 13.16
Income from investment operations:
Net investment income*** 0.70 0.70
Net realized and unrealized gain/(loss)
on investments 0.07 (0.46)
Total from investment operations 0.77 0.24
Less distributions:
Distributions from net investment in-
come (0.70) (0.69)
Distributions in excess of net invest-
ment income -- (0.01)
Distributions from net realized gains (0.00)# (0.15)
Distributions from capital -- (0.00)#
Total distributions (0.70) (0.85)
Net asset value, end of year $ 12.62 $ 12.55
Total return+++ 6.37% 1.66%
Ratios/supplemental data:
Net assets, end of year (in 000's) $106,919 $119,913
Ratio of operating expenses to average
net assets+ 0.88%++ 0.83%
Ratio of net investment income to aver-
age net assets 5.61% 5.17%
Portfolio turnover rate 32% 32%
<<FN>>
* The Fund commenced operations on April 22, 1988. Those shares in ex-
istence prior to November 6, 1992 were designated as Class A shares.
** Annualized.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser, sub-investment adviser and administra-
tor for the years ended March 31, 1994, 1993, 1992, 1991 and 1990, and
the period ended March 31, 1989 would have been $0.69, $0.73, $0.75,
$0.78, $0.77, and $0.74, respectively.
+ Expense ratios before waiver of fees and/or reimbursement of expenses
by investment adviser, sub-investment adviser and administrator for
the years ended March 31,1994, 1993, 1992, 1991, and 1990 and the pe-
riod ended March 31, 1989 were 0.88%, 0.90%, 0.83%, 0.90%, 1.08% and
1.23%, respectively.
++ The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense was 0.89% and 0.68% for the
years ended March 31, 1995 and 1992, respectively.
+++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charges.
# Amount represents less than $0.01 per Class A share.
</TABLE>
See Notes to Financial Statements.
<PAGE>200
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
3/31/93 3/31/92 3/31/91 3/31/90 3/31/89*
<S> <C> <C> <C> <C>
$ 12.44 $ 12.17 $ 11.92 $ 11.67 $ 11.40
0.75 0.77 0.82 0.83 0.82
0.87 0.44 0.32 0.27 0.28
1.62 1.21 1.14 1.10 1.10
(0.75) (0.77) (0.83) (0.82) (0.82)
-- -- -- -- --
(0.14) (0.13) (0.05) (0.03) (0.01)
(0.01) (0.04) (0.01) -- --
(0.90) (0.94) (0.89) (0.85) (0.83)
$ 13.16 $ 12.44 $ 12.17 $ 11.92 $ 11.67
13.49% 10.22% 9.89% 9.62% 9.84%
$115,694 $92,797 $65,378 $38,728 $29,265
0.74% 0.67%++ 0.57% 0.55% 0.52%**
5.76% 6.18% 6.74% 6.89% 7.23%**
58% 98% 44% 42% 25%
</TABLE>
See Notes to Financial Statements.
<PAGE>201
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
3/31/95 3/31/94 3/31/93*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of year $ 12.55 $ 13.16 $ 12.75
Income from investment operations:
Net investment income*** 0.63 0.64 0.28
Net realized and unrealized gain/(loss)
on investments 0.06 (0.47) 0.55
Total from investment operations 0.69 0.17 0.83
Less distributions:
Distributions from net investment in-
come (0.62) (0.62) (0.27)
Distributions in excess of net invest-
ment income -- (0.01) --
Distributions from net realized gains (0.00)# (0.15) (0.14)
Distributions from capital -- (0.00)# (0.01)
Total distributions (0.62) (0.78) (0.42)
Net asset value, end of year $ 12.62 $ 12.55 $ 13.16
Total return+++ 5.76% 1.15% 6.60%
Ratios/supplemental data:
Net assets, end of year (in 000's) $55,334 $48,375 $16,293
Ratio of operating expenses to average
net assets+ 1.39%++ 1.36% 1.33%**
Ratio of net investment income to aver-
age net assets 5.09% 4.64% 5.17%**
Portfolio turnover rate 32% 32% 58%
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** Annualized.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment advisor, sub-investment advisor and administra-
tor for the years ended March 31, 1994 and 1993 would have been $0.63
and $0.27, respectively.
+ Expense ratios before partial waivers of fees by investment adviser,
sub-investment adviser and administrator for the years ended March
31, 1994 and 1993 were 1.41% and 1.49%, respectively.
++ The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense was 1.40% for the year ended
March 31, 1995.
+++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charge.
# Amount represents less than $0.01 per Class B share.
</TABLE>
See Notes to Financial Statements.
<PAGE>202
FINANCIAL HIGHLIGHTS
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
3/31/95*
<S> <C>
Operating performance:
Net asset value, beginning of period $11.86
Income from investment operations:
Net investment income 0.20
Net realized and unrealized gain on investments 0.74
Total from investment operations 0.94
Less distributions:
Distributions from net investment income (0.18)
Distributions from net realized gains (0.00)#
Total distributions (0.18)
Net asset value, end of period $12.62
Total return+++ 8.01%
Ratios/supplemental data:
Net assets, end of period (in 000's) $ 248
Ratio of operating expenses to average net assets++ 1.44%**
Ratio of net investment income to average net assets 5.05%**
Portfolio turnover rate 32%
<FN>
* The Fund commenced selling Class C shares on December 13, 1994.
** Annualized.
++ The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense was 1.45% for the period
ended March 31, 1995.
+++ Total return represents aggregate total return for the period and
does not reflect any applicable sales charge.
# Amount represents less than $0.01 per Class C share.
</TABLE>
See Notes to Financial Statements.
<PAGE>203
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney New Jersey Municipals Fund Inc. (formerly known as "Smith
Barney Shearson New Jersey Municipals Fund Inc.") (the "Fund") was incor-
porated under the laws of the State of Maryland on November 12, 1987. The
Fund is a non-diversified, open-end management investment company regis-
tered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund commenced oper-
ations on April 22, 1988. Effective November 7, 1994, the Fund began of-
fering Class C and Class Y shares and continued to offer Class A and Class
B shares. The Fund commenced selling Class C shares on December 13, 1994.
As of March 31, 1995, no Class Y shares had been sold. Class A shares are
sold with a front-end sales charge. Class B and Class C shares may be sub-
ject to a contingent deferred sales charge ("CDSC") upon redemption. Class
B shares will convert automatically 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 and are not subject to
any sales charges, service or distribution fees. All classes of shares
have identical rights and privileges except with respect to the effect of
the respective sales charges to each class, the distribution and/or ser-
vice fees 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 consistently
followed by the Fund in the preparation of its financial statements.
Portfolio valuation: Securities are valued at the close of trading on the
New York Stock Exchange by The Boston Company Advisors, Inc. ("Boston
Advisors") after consultation with an independent pricing service (the
"Service") approved by the Board of Directors. When, in the judgment of
the Service, quoted bid prices for investments are readily available and
are representative of the bid side of the market, these investments are
valued at the mean between the quoted bid prices and asked prices (as ob-
tained by the Service from dealers in such securities). Securities for
which, in the judgment of the Service, there are no readily available mar-
ket quotations (which may constitute a majority of the portfolio securi-
ties) are carried at fair value as determined by the Service, based on
methods which include consideration of: yields or prices of municipal se-
curities of comparable quality, coupon, maturity and type; indications as
to values from dealers; and general market conditions. Short-term invest-
ments that mature in 60 days or less are valued at
<PAGE>204
amortized cost whenever the Board of Directors determines that amortized cost
reflects the fair value of those investments.
Securities transactions and investment income: Securities transactions
are recorded as of the trade date. Realized gains and losses from securi-
ties 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. Interest income is recorded on the accrual
basis. 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. When required, the Fund instructs
the custodian to segregate assets in a separate account with a current
value at least equal to the amount of its when-issued purchase commit-
ments.
Dividends and distributions to shareholders: Dividends from net invest-
ment income determined on a class level, if any, of the Fund are declared
daily and paid on the last business day of the Smith Barney Inc. ("Smith
Barney") statement month. Distributions determined on a fund level, if
any, of any net short- and long-term capital gains earned by the Fund will
be declared and paid annually after the close of the fiscal year in which
they are earned. Additional distributions of net investment income and
capital gains for the Fund may be made at the discretion of the Board of
Directors in order to avoid the application of a 4% nondeductible excise
tax on certain undistributed amounts of net investment income and capital
gains. To the extent net realized capital gains can be offset by capital
losses and loss carryforwards, it is the policy of the Fund not to dis-
tribute such gains. Income distributions and capital gain distributions
are determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are pri-
marily due to differing treatments of income and gains on various invest-
ment securities held by the Fund, timing differences and differing charac-
terization of distributions made by the Fund as a whole.
Federal taxes: The Fund intends to qualify as a regulated investment com-
pany, if such qualification is in the best interests of its shareholders,
by complying with the requirements of the Internal Revenue Code of 1986,
as amended, applicable to regulated investment companies and by distribut-
ing substantially all of its earnings to its shareholders. Therefore, no
Federal income tax provision is required.
<PAGE>205
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION
AGREEMENT AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, a division of Mutual
Management Corp., which was transferred effective November 7, 1994 to
Smith Barney Mutual Funds Management Inc. ("SBMFM"). Mutual Management
Corp. and SBMFM (formerly known as "Smith, Barney Advisers, Inc."), are
both wholly owned subsidiaries of Smith Barney Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary of Travelers Group Inc. Under the
Advisory Agreement, the Fund pays a monthly fee at the annual rate of
0.35% of the value of its average daily net assets up to $500 million and
0.32% of the value of its average daily net assets in excess of $500 mil-
lion.
Prior to April 20, 1994, the Fund was party to an administration agreement
(the "Administration Agreement") with Boston Advisors, an indirect wholly
owned subsidiary of Mellon Bank Corporation ("Mellon"). Under this Agree-
ment, the Fund paid a monthly fee at the annual rate of 0.20% of the value
of its average daily net assets up to $500 million and 0.18% of the value
of its average daily net assets in excess of $500 million.
As of the close of business on April 20, 1994, SBMFM succeeded Boston Ad-
visors as the Fund's administrator. The new administration agreement con-
tains substantially the same terms and conditions, including the same
level of fees, as the predecessor agreement.
As of the close of business on April 20, 1994, the Fund and SBMFM 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.
For the year ended March 31, 1995, Smith Barney received from investors
$199,930 representing commissions (sales charges) on sales of Class A
shares.
A CDSC is generally payable by a shareholder in connection with the re-
demption of certain Class A, Class B and Class C shares. In circumstances
in which the CDSC is imposed, the amount of the charge will vary depending
on the number of years since the date of purchase. For the year ended
March 31, 1995, Smith Barney received from shareholders $178,656 in CDSC
on the redemption of Class B shares.
<PAGE>206
No officer, director or employee of Smith Barney or of any parent or sub-
sidiary of Smith Barney receives any compensation from the Fund for serv-
ing 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 af-
filiates $1,000 per annum plus $100 per meeting attended and each Director
emeritus who is not an officer, director or employee of Smith Barney or
any of its affiliates $500 per annum plus $50 per meeting attended. The
Fund reimburses all Directors for travel and out-of-pocket expenses in-
curred to attend such meetings.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of Mellon, serves as the Fund's custodian. The Shareholder Services Group,
Inc., a subsidiary of First Data Corporation, serves as the Fund's trans-
fer agent.
3. DISTRIBUTION PLAN
Smith Barney acts as distributor of the Fund's shares pursuant to a dis-
tribution 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, as amended, 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 an annual
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 an
annual distribution fee with respect to Class B and Class C shares at the
annual rate of 0.50% and 0.55% of the value of the average daily net as-
sets of Class B and Class C shares, respectively. For the year ended March
31, 1995, the Fund incurred service fees of $170,371, $77,993 and $58 for
Class A, Class B and Class C shares, respectively. For the year ended
March 31, 1995, the Fund incurred distribution fees of $259,976 and $214
for Class B and Class C shares, respectively.
Under its terms, the Plan shall remain in effect from year to year, pro-
vided that such continuance is approved annually by vote of the Fund's
Board of Directors, including a majority of those Directors who are not
"interested persons" of the Fund and who have no direct or indirect finan-
cial interest in the operation of the Plan.
<PAGE>207
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any
class of shares are prorated among the classes based upon the relative net
assets of each class. Operating expenses directly attributable to a class
of shares are charged to that class' operations. In addition to the above
servicing and distribution fees, class specific operating expenses include
transfer agent fees. For the year ended March 31, 1995, transfer agent
fees for Class A, Class B and Class C shares were $43,741, $28,828, and
$20, respectively.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities,
excluding short-term investments, during the year ended March 31, 1995,
amounted to $53,299,273 and $59,740,268, respectively.
At March 31, 1995, the aggregate gross unrealized appreciation for all se-
curities in which there was an excess of value over tax cost amounted to
$5,781,773 and the aggregate gross unrealized depreciation for all securi-
ties in which there was an excess of tax cost over value amounted to
$2,187,607.
6. COMMON STOCK
As of March 31, 1995, the Fund had authorized 100 million shares of $.001
par value common stock divided into four classes: Class A, Class B, Class
C and Class Y. Changes in common stock outstanding were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1995 MARCH 31, 1994
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Sold 806,228 $ 9,970,151 1,647,480 $ 22,242,307
Issued as reinvestment of
dividends 326,175 4,033,183 392,313 5,278,384
Redeemed (2,211,779) (27,041,571) (1,274,430) (17,082,327)
Net increase/(decrease) (1,079,376) $(13,038,237) 765,363 $ 10,438,364
</TABLE>
<PAGE>208
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1995 MARCH 31, 1994
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Sold 1,011,453 $12,515,653 2,659,770 $35,847,840
Issued as reinvestment of
dividends 146,701 1,813,092 114,141 1,536,557
Redeemed (628,611) (7,683,651) (156,456) (2,071,357)
Net increase 529,543 $ 6,645,094 2,617,455 $35,313,040
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1995*
CLASS C SHARES: SHARES AMOUNT
<S> <C> <C>
Sold 19,546 $240,919
Issued as reinvestment of
dividends 120 1,502
Net increase 19,666 $242,421
<<FN>>
* The Fund commenced selling Class C shares on December 13, 1994.
</TABLE>
As of March 31, 1995, no Class Y shares had been sold.
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of New
Jersey 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 New Jersey municipal securities
than is a municipal bond fund that is not concentrated in these issuers to
the same extent.
8. CAPITAL LOSS CARRYFORWARD
At March 31, 1995, the Fund had capital loss carryforwards of $2,456,970
expiring in 2003 to offset future capital gains.
In accordance with tax law, the Fund has elected to defer the recognition
of losses occurring between October 31, 1994 and March 31, 1995 until the
first day of the following fiscal year. The amount of such deferral is
$740,162 of capital losses. These losses for tax purposes will be deemed
to occur on April 1, 1995.
<PAGE>209
9. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line
of credit provided by Bank of America (formerly known as Continental Bank
N.A.) under an Amended and Restated Line of Credit Agreement (the "Agree-
ment") 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 securi-
ties. Under this Agreement, the Fund may borrow up to the lesser of $25
million or 25% of its net assets. However, pursuant to the Fund's prospec-
tus, the Fund may only borrow up to 10% of its total net assets. Under the
terms of the Agreement, as amended, the Fund and the other affiliated en-
tities are charged an aggregate commitment fee of $100,000 which is allo-
cated 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 aggre-
gate amount of indebtedness pursuant to the Agreement of no less than 5 to
1. During the year ended March 31, 1995, the Fund had an average outstand-
ing daily balance of $163,836 with interest rates ranging from 5.125% to
7.125%. Interest expense totaled $10,129 for the year ended March 31,
1995. At March 31, 1995, the Fund had no outstanding borrowings under this
Agreement.
<PAGE>210
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.:
We have audited the accompanying statement of assets and liabilities of
Smith Barney New Jersey Municipals Fund Inc., including the schedule of
portfolio investments, as of March 31, 1995, the related statement of op-
erations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended and the financial high-
lights for each of the six years in the period ended March 31, 1995 and
for the period from April 22, 1988 (commencement of operations) to March
31, 1989. These financial statements and financial highlights are the re-
sponsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and fi-
nancial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclo-
sures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 1995 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Smith Barney New Jersey Municipals Fund Inc. as of March 31, 1995, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the finan-
cial highlights for each of the six years in the period then ended and for
the period from April 22, 1988 (commencment of operations) to March 31,
1989, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 10, 1995
<PAGE>211
TAX INFORMATION (UNAUDITED) YEAR ENDED MARCH 31, 1995
Of the dividends paid by the Fund attributable to net investment income
for the year ended March 31, 1995, 100% is tax-exempt for regular Federal
income tax purposes.
The above figure may differ from those cited elsewhere in this report due
to differences in the calculations of income and capital gains for Securi-
ties and Exchange Commission (book) purposes and Internal Revenue Service
(tax) purposes.
<PAGE>212
NEW JERSEY
MUNICIPALS
FUND INC.
DIRECTORS
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt Dorsett
Elliot Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
Cornelius Rose
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Jessica Bibliowicz
President
Lawrence T. McDermott
Vice President and
Investment Officer
Karen L. Mahoney-Malcomson
Investment Officer
Lewis E. Daidone
Senior Vice President and
Treasurer
Christina T. Sydor
Secretary
Recycled
Recyclable
SMITH BARNEY
A Member of TravelersGroup
This report is submitted for the
general information of the
shareholders of Smith Barney
New Jersey 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, fees and expenses as well
as other pertinent information.
SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
Fund 66, 206, 485, 467
FD0370 E5
<PAGE>213
ANNUAL REPORT
OF
SMITH BARNEY MUNI FUNDS -- NEW JERSEY PORTFOLIO
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
<PAGE>214
- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
1995
1995
1995 [ARTWORK APPEARS HERE]
1995
1995
Smith Barney
Muni Funds
New Jersey
Portfolio
--------------------------------------------------------
March 31, 1995
[LOGO APPEARS HERE] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>215
- --------------------
New Jersey Portfolio
- --------------------
Dear Shareholder:
We are pleased to present the annual report and audited financial statements
for Smith Barney Muni Funds: New Jersey Portfolio for the fiscal year ended
March 31, 1995.
Municipal bond prices posted extremely strong gains in the first quarter of
1995, erasing most of the losses from last year's turbulent market. The New
Jersey Portfolio had a total return of 6.64% (Class A shares) for the fiscal
year. That was significantly above the 5.68% average total return for all New
Jersey municipal bond funds over the same period, as reported by Lipper
Analytical Services.
Longer-term performance of the Portfolio is also excellent relative to its
peers. The Portfolio's three-year cumulative total return (excluding sales
charge) of 23.73% (Class A shares) outperformed the average cumulative total
return of 22.61% for all New Jersey municipal bond funds in the Lipper survey
for the period ended March 31, 1995. (Please see Average Annual Total Return
chart on page 5 of this report for additional performance information.) It
should be noted that this strong performance over the last three years has been
achieved with the need for only minimal capital gains distributions, an
important consideration for investors interested in after-tax income.
Market and Economic Overview
Since our last report to you in November, the fixed-income markets, and
municipal bonds in particular, have enjoyed a powerful rally. Municipal bond
yields have declined more than a full percentage point, as evidenced by the drop
in the average yield on The Bond Buyer's weekly 25-Bond Revenue Index of 30-year
municipal bonds from a high of 7.37% on November 17, 1994 to 6.29% on March 31,
1995. This was substantially better than the performance of the benchmark 30-
year Treasury bond, which experienced a decline in yield of 70 basis points from
8.13% to 7.43% during the same time frame.
The vastly improved bond markets reflect a growing consensus that inflation will
remain under control, and the Federal Reserve Board will be successful in
engineering a "soft landing" by slowing the economy down to a more sustainable,
non-inflationary rate of growth. The seven increases in the federal funds rate
(the rate banks charge each other for overnight loans), orchestrated by the Fed
since February 1994, appear to be slowing the pace of economic growth. Recent
economic reports show a slower rate of increase in employment, producer prices,
and retail sales. Industrial production and
1
<PAGE>216
capacity utilization were also lower than expected signaling a possible slowdown
in the country's strong manufacturing sector. These generally favorable economic
fundamentals are more than offsetting concerns about the substantial decline in
the value of the dollar relative to the Japanese yen and German mark on the
foreign exchange markets.
Late in April, several tax-reform proposals which recommend a flat Federal
income tax rate began to receive increased attention in the national financial
press and from municipal bond market participants. Adoption of a flat tax would
diminish the advantages of tax exemption for municipal bonds. Although the
various plans being circulated are only proposals, the publicity surrounding
them has recently caused some investors to back away from the municipal bond
market. In our opinion it is much too early in the process to predict what
changes in the tax laws, if any, will actually take place, but tax reform will
certainly be a major topic of political debate over the next few years. Many
observers believe that the more radical proposals for changes in the way taxes
are collected have little chance for enactment.
Absent these tax-reform concerns, municipals would probably continue to be
strong performers relative to Treasuries and other taxable investments due to
the low supply of new issues. Not only did last year's spike in interest rates
sharply reduce refinancing activity in the municipal market, but voter pressure
on states and municipalities to rein in spending and cut taxes, or at least
avoid tax increases, has also resulted in a roughly 30% decline in new-money
financing. In addition, the universe of existing municipal bonds is shrinking.
In 1995, an estimated $230 billion in older high-coupon issues will mature or be
called as they reach their first optional call dates. With estimates of new-
issue volume at less than $150 billion, the net reduction in municipal debt
outstanding could approach $100 billion this year, contracting the market by
about eight percent. Ordinarily, a reduction in supply of this magnitude would
be expected to provide a powerful boost for municipal bond values as it did
earlier this year. Uncertainties about various tax proposals, however, will
probably keep municipals from trading any better than their normal relationship
to taxable investment alternatives.
The New Jersey Economy
Economic conditions in New Jersey are slowly recovering, producing increased
state revenue collections. A proposed tax-cut plan will be closely watched by
the major rating agencies for offsetting reductions in expenditures. New
Jersey's general obligation debt currently carries an Aa1 rating from Moody's
and at AA+ rating from Standard & Poor's with a "stable" outlook.
Portfolio Strategy and Outlook
While we generally have a positive outlook for the fixed-income markets, the
2
<PAGE>217
size of the rally we have experienced so far would seem to leave little room for
disappointment, and any sign of a rebound in economic activity is likely to
result in a return to higher interest rates. We also believe that the unique
supply and demand characteristics of the municipal market and tax-reform
uncertainties will tend to exaggerate price swings relative to taxable
investments.
In light of this viewpoint, we are maintaining a balanced approach to
structuring the interest-rate sensitivity of the Portfolio by investing in a
combination of both long and short effective maturities. Most long-term
municipal bonds are callable prior to their stated maturity date. When a bond
has a coupon higher than prevailing market yields, its maturity is effectively
shortened to the call date for trading purposes because of the possibility that
the issuer will exercise its option to replace the bond with lower-cost debt. We
are retaining high-coupon bonds that trade well above their face value for the
defensiveness of their shorter effective maturities and the above-market level
of income they provide. However, we are also focusing on eliminating bonds with
shorter call dates when they are trading near their face value. Such bonds have
unfavorable performance characteristics because they retain the downside risk of
their longer maturity if rates should rise, but their appreciation potential is
limited by the shorter call date if interest rates decline. We are replacing
such issues with bonds that have similar stated maturities but greater call
protection.
Although this strategy sacrifices some of the current income being generated by
the Portfolio, it enhances long-term performance potential if interest rates
continue to decline without adding to downside risk if interest rates rise. We
believe that positioning the Portfolio in this manner is the best way to achieve
our objective of the highest tax-free income consistent with prudent investment
risk.
We thank you for your investment in the Portfolio and your continued confidence
in our investment management.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman and Vice President and
Chief Executive Officer Investment Officer
April 28, 1995
3
<PAGE>218
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns/(1)/
==================================================================================================
<S> <C> <C> <C> <C> <C>
3/31/95 $13.23 $13.29 $0.78 $0.00 6.64%
- --------------------------------------------------------------------------------------------------
3/31/94 13.71 13.23 0.80 0.00 2.17
- --------------------------------------------------------------------------------------------------
3/31/93 12.90 13.71 0.82 0.06 13.55
- --------------------------------------------------------------------------------------------------
3/31/92 12.52 12.90 0.85 0.08 10.73
- --------------------------------------------------------------------------------------------------
Inception* - 3/31/91 12.00 12.52 0.33 0.00 7.12
==================================================================================================
Total $3.58 $0.14
==================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns/(1)/
==================================================================================================
<S> <C> <C> <C> <C> <C>
Inception* - 3/31/95 $12.26 $13.28 $0.29 $0.00 10.86%
==================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class C Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns/(1)/
==================================================================================================
<S> <C> <C> <C> <C> <C>
3/31/95 $13.22 $13.28 $0.69 $0.00 5.91%
- --------------------------------------------------------------------------------------------------
3/31/94 13.71 13.22 0.71 0.00 1.40
- --------------------------------------------------------------------------------------------------
Inception* - 3/31/93 13.36 13.71 0.19 0.00 4.04
==================================================================================================
Total $1.59 $0.00
==================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
4
<PAGE>219
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge/(1)/
-----------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Year Ended 3/31/95 6.64% N/A 5.91%
- --------------------------------------------------------------------------------
Inception* through 3/31/95 8.96 10.86% 5.10
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
With Sales Charge/(2)/
-----------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Year Ended 3/31/95 2.38% N/A 4.91%
- --------------------------------------------------------------------------------
Inception* through 3/31/95 7.97 6.36% 5.10
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge/(1)/
-------------------------
<S> <C>
Class A (Inception* through 3/31/95) 46.74%
- --------------------------------------------------------------------------------
Class B (Inception* through 3/31/95) 10.86
- --------------------------------------------------------------------------------
Class C (Inception* through 3/31/95) 11.74
- --------------------------------------------------------------------------------
<FN>
(1) Assumes reinvestment of all dividends and capital gain distributions at net
asset value and does not reflect deduction of the applicable sales charge
with respect to Class A shares or the applicable contingent deferred sales
charges ("CDSC") with respect to Class B and Class C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions at net
asset value. In addition, Class A shares reflect the deduction of the
maximum initial sales charge of 4.00%; Class B shares reflect the deduction
of a 4.50% CDSC, which applies if shares are redeemed less than one year
from initial purchase. This CDSC declines by 0.50% the first year after
purchase and by 1.00% per year thereafter until no CDSC is incurred. Class C
shares reflect the deduction of a 1.00% CDSC which applies if shares are
redeemed within the first year of purchase.
* Inception dates for Class A, B and C shares are October 11, 1990, November
16, 1994 and January 5, 1993, respectively.
</TABLE>
5
<PAGE>220
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of
the New Jersey Portfolio vs. Lehman Long Bond Index+
(unaudited)
- --------------------------------------------------------------------------------
October 1990 - March 1995
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
54964 S/B New Jersey Portfolio
New Jersey Lehman Long Bond Index
<S> <C> <C>
10/11/90 9600 10000
Mar-91 10273.03 10757.71
Mar-92 11345.4 11982.77
Mar-93 12851.1 13735.72
Mar-94 13099.6 13893.25
Mar-95 13949.8 15147.72
<FN>
+ Hypothetical illustration of $10,000 invested in Class A shares at inception
on October 11, 1990, assuming deduction of the maximum 4.00% sales charge at
the time of investment and reinvestment of dividends (after deduction of sales
charges, if any) and capital gains (at net asset value) through March 31,
1995. The Index is unmanaged and is not subject to the same management and
trading expenses of a mutual fund. The performance of the Portfolio's other
classes may be greater or less than the Class A shares' performance indicated
on this chart, depending on whether greater or lesser sales charges and fees
were incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
values may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.
</TABLE>
6
<PAGE>221
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments March 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Education -- 6.9%
$ 750,000 AAA Hamilton Township Board of Education, FSA-Insured,
7.00% due 12/15/15 $ 800,625
650,000 AAA Lakewood Township School District, AMBAC-Insured,
Bank Qualified, Series 92, 6.25% due 2/15/11 679,250
600,000 AA Rutgers State University Refunding, State University of
New Jersey, Series 92A, 6.40% due 5/1/13 645,000
1,000,000 Baa1* Shrewsbury Board of Education, COP, 6.60% due 8/15/15
1,015,000
1,000,000 AAA South Brunswick Township, New Jersey Board of
Education, FGIC-Insured 6.40% due 8/1/21 1,032,500
- ------------------------------------------------------------------------------------------------------
4,172,375
- ------------------------------------------------------------------------------------------------------
Escrowed to Maturity (e) -- 5.4%
700,000 AAA Atlantic County Improvement Luxury Tax Revenue,
Convention Center, MBIA-Insured, (Escrowed to Maturity
with U.S. Government Securities), 7.40% due 7/1/16 806,750
1,705,000 AAA New Jersey State Turnpike Authority Revenue Refunding,
(Escrowed to Maturity with U.S. Government Securities),
10.375% due 1/1/03 2,073,706
200,000 AAA Ringwood Boro Sewer Authority Special Obligation,
(Escrowed to Maturity with U.S. Government Securities),
9.875% due 7/1/13 263,000
125,000 AAA Virgin Islands Public Financing Authority Revenue, Series A,
(Escrowed to Maturity with U.S. Government Securities),
7.30% due 10/1/18 146,094
- ------------------------------------------------------------------------------------------------------
3,289,550
- ------------------------------------------------------------------------------------------------------
General Obligation -- 4.3%
500,000 AAA The City of Jersey City, (Hudson County) Fiscal Year
Adjustment Bonds, Series 1991 B, FSA-Insured, 8.40%
due 5/15/06 611,875
1,000,000 BBB Guam Government, GO, Series A, 5.375% due 11/15/13
878,750
2,025,000 Aa1* Parsippany-Troy Hills Township Refunding, zero coupon
due 4/1/06 1,103,625
- ------------------------------------------------------------------------------------------------------
2,594,250
- ------------------------------------------------------------------------------------------------------
Hospital -- 19.1%
New Jersey Health Care Facilities Financing Authority Revenue:
2,000,000 A* Atlantic City Medical Center, 6.80% due 7/1/11 2,072,500
1,985,000 Aa* Cathedral Health Services Inc., FHA-Insured, 7.25%
due 2/15/21 2,121,469
</TABLE>
See Notes to Financial Statements.
7
<PAGE>222
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Hospital -- 19.1% (continued)
$ 1,300,000 Baa1* Deborah Heart & Lung Center, 6.30% due 7/1/23 $
1,259,375
750,000 BBB+ East Orange General Hospital, Series B, 7.75%
due 7/1/20 (d) 780,000
1,500,000 AAA Irvington General Hospital, FHA-Insured, 6.375%
due 8/1/15 1,541,250
1,000,000 A- Pascack Valley Hospital, Series 91, 6.70% due 7/1/11 990,000
1,000,000 AAA St. Clare's Hospital, Riverside Medical Center,
MBIA-Insured, 5.75% due 7/1/10 991,250
1,000,000 Baa* St. Mary's Hospital, Franciscan Sisters Health Systems,
5.875% due 7/1/12 871,250
1,150,000 AAA Somerset Medical Center, Series A, FGIC-Insured,
5.20% due 7/1/24 1,006,250
- ------------------------------------------------------------------------------------------------------
11,633,344
- ------------------------------------------------------------------------------------------------------
Housing: Multi-Family -- 3.3%
1,000,000 AAA New Jersey Housing & Mortgage Finance Agency
Housing Revenue Refunding Bonds, Presidential Plaza,
FHA-Insured, 7.00% due 5/1/30 1,037,500
1,000,000 A+ New Jersey State HFA Mortgage Revenue, Series A,
Sec 236, 8.25% due 11/1/20 1,000,000
- ------------------------------------------------------------------------------------------------------
2,037,500
- ------------------------------------------------------------------------------------------------------
Housing: Single-Family -- 4.8%
New Jersey State Housing & Mortgage Finance Agency
Revenue:
100,000 AAA Home Mortgage, Series A, MBIA-Insured, 7.875%
due 10/1/17 105,624
450,000 AAA Home Mortgage, Series C, MBIA-Insured, 8.00%
due 4/1/12 479,813
225,000 AAA Puerto Rico Housing Finance Corporation, Single-Family
Mortgage, Series A, GNMA-Collateralized, 7.80%
due 10/15/21 235,969
1,000,000 BBB Puerto Rico Housing Bank & Finance Agency, Single-Family
Mortgage, 7.50% due 12/01/06 1,091,250
1,000,000 AAA Virgin Islands HFA, Single-Family Mortgage,
GNMA-Collateralized, 6.50% due 3/1/25 (a) 995,000
- ------------------------------------------------------------------------------------------------------
2,907,656
- ------------------------------------------------------------------------------------------------------
Industrial Development -- 9.2%
New Jersey EDA Economic Development Revenue:
1,000,000 Aa3* Economic Growth Bonds, LOC Banque Nationale De
Paris, 6.55% due 12/1/07 (a) 1,021,250
</TABLE>
See Notes to Financial Statements.
8
<PAGE>223
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
- ------------------------------------------------------------------------------------------------------
<C> <C> <S> <C>
Industrial Development -- 9.2% (continued)
$ 1,435,000 AA- Economic Growth Bonds, Series E, LOC National
Westminster USA, 5.40% due 10/1/13 (a) $ 1,329,168
1,250,000 AAA The Market Transition Facilities Revenue, Senior
Lien-Series A, MBIA-Insured, 5.875% due 7/1/11 1,248,438
2,000,000 A+ State Contract Economic Recovery, zero coupon
due 9/15/10 785,000
1,155,000 Aa1* State 91L, LOC Banque Nationale De Paris, 7.10%
due 12/1/11 (a) 1,230,075
- ------------------------------------------------------------------------------------------------------
5,613,931
- ------------------------------------------------------------------------------------------------------
Nursing Home -- 1.8%
1,000,000 Aaa* New Jersey EDA, Economic Development Bonds,
(Eagle Rock Convalescent, Inc 1990),
GNMA-Collateralized, 7.375% due 12/20/06 1,092,500
- ------------------------------------------------------------------------------------------------------
Pollution Control -- 1.6%
1,000,000 Aa2* Salem County Pollution Control Financing Authority,
Waste Disposal Revenue, E.I. Dupont De Nemours
& Co., 6.125% due 7/15/22 (a) 982,500
- ------------------------------------------------------------------------------------------------------
Power -- 1.6%
1,000,000 AAA Puerto Rico Electric Power Authority, Power Revenue,
FSA-Insured, 8.478% due 7/1/23 (c) 1,001,250
- ------------------------------------------------------------------------------------------------------
Pre-Refunded (e) -- 9.4%
500,000 AAA Hoboken, Union City, Weehawken Sewer Authority,
Sewer Revenue, MBIA-Insured, (Escrowed with U.S.
Government Securities to 8/1/99 Call @ 102), 7.25%
due 8/1/19 553,125
250,000 AAA Long Branch Sewer Authority Revenue, FGIC-Insured,
Series 90A, (Escrowed with U.S. Government Securities
to 6/1/00 Call @ 102), 7.15% due 6/1/10 278,125
750,000 AAA New Jersey Highway Authority, Garden State Parkway
Revenue, (Escrowed with U.S. Government Securities
to 1/1/99 Call @ 102), 7.25% due 1/1/16 823,125
500,000 AAA New Jersey State GO, (Escrowed with U.S. Government
Securities to 9/15/01 Call @ 101.5), 6.80% due 9/15/11 550,000
500,000 AAA North Jersey District Water Supply Commission,
New Jersey Wanaque South Project, Series A, (Escrowed
with U.S. Government Securities to 7/1/96 Call @ 102),
7.375% due 7/1/16 526,875
1,000,000 AAA Puerto Rico Commonwealth Highway Revenue, (Escrowed
with U.S. Government Securities to 7/1/00 Call @ 102),
7.75% due 7/1/10 1,142,500
</TABLE>
See Notes to Financial Statements.
9
<PAGE>224
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Pre-Refunded (e) -- 9.4% (continued)
$ 790,000 AAA Puerto Rico Electric Power Authority, (Escrowed with
U.S. Government Securities to 7/1/99 Call @ 101.5)
7.125% due 7/1/74 $ 870,975
875,000 AAA Virgin Islands Public Financing Authority Revenue,
Series A, (Escrowed with U.S. Government Securities
to 10/1/01 Call @ 101), 7.30% due 10/1/18 981,094
- ------------------------------------------------------------------------------------------------------
5,725,819
- ------------------------------------------------------------------------------------------------------
Public Facilities -- 4.5%
615,000 A- City of Atlantic City, COP Series 1991 (Public Facilities
Lease Agreements Atlantic City Project), 8.875%
due 1/15/13 782,588
1,000,000 Aa* New Jersey Building Authority State Building Revenue,
Garden State Savings Bond, Series 91A, Capital
Appreciation, zero coupon due 6/15/11 377,500
500,000 A+ New Jersey EDA Revenue Bonds, (New Jersey Performing
Arts Center Site Acquisition Project), 6.75% due 6/15/12 521,875
1,000,000 NR New Jersey Sports & Exposition Authority Revenue,
Monmouth Park, Series A, 8.00% due 1/1/25 1,041,250
- ------------------------------------------------------------------------------------------------------
2,723,213
- ------------------------------------------------------------------------------------------------------
Solid Waste -- 6.8%
1,000,000 AAA Mercer County Improvement Revenue, FGIC-Insured,
Series A, 6.70% due 4/1/13 (a) 1,052,500
2,000,000 A- Union County Utility Authority Solid Waste Revenue,
Series A, 7.15% due 6/15/09 (a) 2,035,000
1,035,000 A- Union County, Solid Waste Revenue, Series A, 7.20%
due 6/15/14 (a) 1,049,231
- ------------------------------------------------------------------------------------------------------
4,136,731
- ------------------------------------------------------------------------------------------------------
Transportation -- 9.8%
800,000 Baa1* Essex County Improvement Authority Airport Project
Revenue, Series 92, 6.80% due 11/1/21 (a) 833,000
1,000,000 Baa2* New Jersey EDA Revenue, American Airlines Inc. Project,
7.10% due 11/1/31 (a) 1,013,750
1,500,000 AA- Port Authority of New York & New Jersey,
67th Series, 6.875% due 1/1/25 1,560,000
1,750,000 A Puerto Rico Commonwealth Highway & Transportation
Authority Highway Revenue, Series W, 5.50%
due 7/1/15 1,614,375
1,000,000 A+ South Jersey Port Corporation Marine Terminal Revenue
Bonds, 1993 Series H, 5.75% due 1/1/13 (a) 965,000
- ------------------------------------------------------------------------------------------------------
5,986,125
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>225
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Utilities -- 4.2%
$ 1,000,000 AAA Middlesex County Utility Authority Sewer Revenue
Refunding, Series A, MBIA-Insured, (Inverse Floating
Rate Security convertible to 6.25% on 8/15/97),
6.775% variable rate due 8/15/10 (c) $ 1,028,750
1,000,000 AAA New Jersey EDA, Natural Gas Facilities Revenue,
Series A, AMBAC-Insured, 6.25% due 8/1/24 (a) 1,011,250
1,500,000 AAA West New York Municipal Utility Authority Sewer
Revenue Refunding, FGIC-Insured, zero coupon
due 12/15/12 536,250
- ------------------------------------------------------------------------------------------------------
2,576,250
- ------------------------------------------------------------------------------------------------------
Water & Sewer -- 7.3%
245,000 A+ The Hudson County Improvement Authority (Essential
Purpose Pooled Governmental Loan Project), Series
1986, 7.60% due 8/1/25 267,356
New Jersey EDA:
1,000,000 A Sewer Facility (Atlantic Sewer Co.), 7.25% due 12/1/11 1,072,500
1,000,000 AAA Water Facilities Revenue Refunding, New Jersey
American Water Company Project), Series A,
FGIC-Insured, 5.35% due 6/1/23 906,250
1,000,000 NR Water Facilities Revenue, Series 1991, (New Jersey
American Water Company Inc. Project), 7.40%
due 11/1/01 (a) 1,060,000
345,000 A* Pennsville Authority Sewer Revenue, 7.10% due 11/1/20 369,150
700,000 AAA Willingboro Municipal Utilities Authority Water & Sewer
Revenue, Series C, MBIA-Insured, 7.00% due 1/1/11 769,125
- ------------------------------------------------------------------------------------------------------
4,444,381
- ------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--100% (Cost--$58,993,068)(f)
$60,917,375
======================================================================================================
<FN>
(a) Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Variable rate obligations payable at par on demand at any time on no more
than seven days notice.
(c) Residual interest bonds - coupon varies inversely with level of short-term
tax-exempt interest rates.
(d) Securities segregated by custodian for open purchase commitment.
(e) Pre-refunded bonds escrowed by U.S. Government Securities and bonds escrowed
to maturity by U.S. Government Securities are considered by manager to be
triple-A rated even if issuer has not applied for new ratings.
(f) The cost for Federal income tax purposes is substantially the same.
See pages 12 and 13 for definitions of ratings and certain security
descriptions.
</TABLE>
See Notes to Financial Statements.
11
<PAGE>226
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Bond Ratings
- --------------------------------------------------------------------------------
All ratings are by Standard & Poor's Corporation, except those identified by an
asterisk (*) are rated by Moody's Investors Services. The definitions of the
applicable rating symbols are set forth below:
Standard & Poor's -- Ratings from "AA" to "BBB" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
AAA -- Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issue only in a
small degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher rated categories.
Moody's -- Numerical modifiers 1, 2 and 3 may be applied to each generic
rating from "Aa" to "Baa", where 1 is the highest and 3 the lowest
ranking within its generic category.
Aaa -- Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa -- Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
NR -- Indicates that the bond is not rated by Standard & Poor's
Corporation or Moody's Investors Services.
12
<PAGE>227
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Short-Term Securities Ratings
- --------------------------------------------------------------------------------
SP-1 -- Standard & Poor's highest rate rating indicating very strong or
strong capacity to pay principal and interest; those issues
determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate
demand obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong;
those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to
the advent of the VMIG 1 rating.
- --------------------------------------------------------------------------------
Security Decriptions
- --------------------------------------------------------------------------------
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity Corporation
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
COP -- Certificate of Participation
EDA -- Economic Development Authority
FAIRS -- Floating Adjustable Interest Rate Securities
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FSA -- Federal Savings Association
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PCR -- Pollution Control Revenue
RIBS -- Residual Interest Bonds
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
13
<PAGE>228
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities March 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost--$58,993,068) $60,917,375
Cash 309,469
Receivable for securities sold 30,000
Receivable for Fund shares sold 397,187
Interest receivable 1,070,005
Other receivables 370
- ------------------------------------------------------------------------------------------
Total Assets 62,724,406
- ------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares purchased 5,005
Management fees payable 23,919
Distribution costs payable 32,422
Accrued expenses and other liabilities 11,909
- ------------------------------------------------------------------------------------------
Total Liabilities 73,255
- ------------------------------------------------------------------------------------------
Total Net Assets $62,651,151
- ------------------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 4,714
Capital paid in excess of par value 61,698,299
Undistributed net investment income 23,140
Accumulated net realized loss on security transactions (999,309)
Net unrealized appreciation on investments 1,924,307
- ------------------------------------------------------------------------------------------
Total Net Assets $62,651,151
==========================================================================================
Shares Outstanding:
Class A 4,371,985
--------------------------------------------------------------------------------------
Class B 81,274
--------------------------------------------------------------------------------------
Class C 261,068
--------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $13.29
--------------------------------------------------------------------------------------
Class B* $13.28
--------------------------------------------------------------------------------------
Class C** $13.28
--------------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.17% of net asset value per share) $13.84
==========================================================================================
<FN>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed less than one year from initial purchase. This CDSC declines by
0.50% the first year after purchase and by 1.00% per year thereafter until no
CDSC is incurred.
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC which
applies if shares are redeemed within the first year of purchase.
</TABLE>
See Notes to Financial Statements.
14
<PAGE>229
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended March 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $4,399,983
- ------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 4) 301,338
Distribution costs (Note 4) 69,588
Shareholder servicing agent fees 17,282
Shareholder communications fees 14,111
Audit and legal fees 11,159
Pricing service fees 11,001
Registration fees 8,001
Custodian fees 7,501
Trustees' fees 3,000
Other 4,000
- ------------------------------------------------------------------------------------
Total Expenses 446,981
- ------------------------------------------------------------------------------------
Net Investment Income 3,953,002
- ------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 27,419,804
Cost of securities sold 28,313,411
- ------------------------------------------------------------------------------------
Net Realized Loss (893,607)
- ------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation
of Investments:
Beginning of year 1,021,954
End of year 1,924,307
- ------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 902,353
- ------------------------------------------------------------------------------------
Net Gain on Investments 8,746
- ------------------------------------------------------------------------------------
Increase In Net Assets From Operations $3,961,748
====================================================================================
</TABLE>
See Notes to Financial Statements.
15
<PAGE>230
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets For the Years Ended March 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
===============================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,953,002 $ 3,798,018
Net realized loss on security transactions (893,607) (73,918)
Increase (decrease) in net unrealized
appreciation on investments 902,353 (3,020,513)
- -----------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 3,961,748 703,587
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE3):
Net investment income (3,976,821) (3,830,335)
Net realized gain from security transactions (8,752) --
- -----------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (3,985,573) (3,830,335)
- -----------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares 11,016,066 25,151,376
Net asset value of shares issued for
reinvestment of dividends 2,086,806 1,930,645
Cost of shares reacquired (22,333,035) (8,529,411)
- -----------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions (9,230,163) 18,552,610
- -----------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (9,253,988) 15,425,862
NET ASSETS
Beginning of year 71,905,139 56,479,277
- -----------------------------------------------------------------------------------------------
End of year* $62,651,151 $71,905,139
===============================================================================================
*Includes undistributed net investment income of: $23,140 $46,959
===============================================================================================
</TABLE>
See Notes to Financial Statements.
16
<PAGE>231
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The New Jersey Portfolio ("Portfolio") is a separate investment portfolio
of the Smith Barney Muni Funds ("Fund"). The Fund, a Massachusetts business
trust, is registered under the Investment Company Act of 1940, as amended, as a
non-diversified, open-end management investment company and consists of this
Portfolio and twelve other separate investment portfolios: California, Florida,
Georgia, Limited Term, New York, National, Ohio, Pennsylvania, California
Limited Term, Florida Limited Term, California Money Market and New York Money
Market Portfolios. The financial statements and financial highlights for the
other portfolios are presented in separate annual reports.
The significant accounting policies consistently followed by the Portfolio
are: (a) security transactions are accounted for on the trade date; (b)
securities are valued at bid prices provided by an independent pricing service
that are based on transactions in municipal obligations, quotations from
municipal bond dealers, market transactions in comparable securities and various
relationships between securities; short-term securities and securities maturing
within 60 days are valued at cost plus (minus) accreted discount (amortized
premium), which approximates value; (c) gains or losses on the sale of
securities are calculated by using the specific identification method; (d)
interest income, adjusted for amortization of premiums and accretion of original
issue discount, is recorded on the accrual basis; market discount is recognized
upon the disposition of the security; (e) direct expenses are charged to the
Portfolio and each class; management fees and general fund expenses are
allocated on the basis of relative net assets; and (f) the Portfolio intends to
comply with the requirements of the Internal Revenue Code pertaining to
regulated investment companies and to make the required distributions to
shareholders; therefore, no provision for Federal income taxes has been made.
2. Portfolio Concentration
Since the Portfolio invests primarily in obligations of issues within New
Jersey, it is subject to possible concentration risks associated with economic,
political, or legal developments or individual or regional matters specifically
affecting New Jersey.
3. Exempt-Interest Dividends and Other Distributions
The Portfolio intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from Federal income tax and from
designated state income taxes, to retain such tax-exempt status
17
<PAGE>232
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
when distributed to the shareholders of the Portfolio.
Capital gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually. At March 31, 1995 the New Jersey Portfolio
had a net capital loss carryover of $999,309 (expiring March 31, 2003) available
to offset future capital gains. To the extent that this carryover loss is used
to offset capital gains it is probable that any gains so offset will not be
distributed.
4. Management Agreements and Transactions with Affiliated Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager to the Fund. The New
Jersey Portfolio pays SBMFM a management fee calculated at the annual rate of
0.45% of the average daily net assets. Such fee is calculated daily and paid
monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. SB received sales charges of approximately $181,000 (paid by
purchasers of the Portfolio's Class A shares) for the year ended March 31, 1995.
All officers and two Trustees of the Fund are employees of SB.
Effective November 7, 1994, the Fund adopted a new class structure,
renaming Class B shares as Class C shares and exchanging the former Class C
shares into Class A shares. Under this new class structure, a contingent
deferred sales charge ("CDSC") of 4.50% is imposed on Class B shares if
redemption occurs less than one year from initial purchase. This CDSC declines
by 0.50% the first year after purchase and by 1.00% per year thereafter until no
CDSC is incurred. A CDSC of 1.00% is also imposed on Class C shares if
redemption occurs less than one year from initial purchase. Any CDSC imposed on
redemptions is paid to SB. For the year ended March 31, 1995, there were
approximately $600 in such charges.
On September 16, 1994, a new Distribution Plan was approved by the
shareholders. Pursuant to this Distribution Plan, the New Jersey Portfolio pays
a service fee of 0.15% of average net assets on an annual basis with respect to
its Class A, B and C shares. In addition, the New Jersey Portfolio pays a
distribution fee of 0.50% and 0.55% of average net assets on an annual basis
with respect to its Class B and C shares, respectively.
18
<PAGE>233
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
5. Investments
During the year ended March 31, 1995, the aggregate cost of purchases and
proceeds from sales (including maturities, but excluding short-term securities)
of investments were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $18,164,811
- --------------------------------------------------------------------------------
Sales 27,419,804
================================================================================
</TABLE>
At March 31, 1995, the gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were as follows:
<TABLE>
================================================================================
<S> <C>
Gross unrealized appreciation $ 2,608,530
- --------------------------------------------------------------------------------
Gross unrealized depreciation (684,223)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 1,924,307
================================================================================
</TABLE>
6. Capital Shares
At March 31, 1995, there were an unlimited amount of shares of $.001 par
value capital stock authorized. The Fund has established multiple classes of
shares within each Portfolio of the Fund. Each share of a class represents an
identical interest in the Portfolio and has the same rights, except that each
class bears certain expenses specifically related to the distribution of its
shares. At March 31, 1995, total paid-in capital amounted to the following for
each class:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Total Paid-In Capital $57,024,725 $1,040,643 $3,637,645
================================================================================
</TABLE>
19
<PAGE>234
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1995 March 31, 1994
----------------------------- ----------------------------
Shares Amount Shares Amount
=========================================================================================================
<S> <C> <C> <C> <C>
Class A*
Shares sold 720,829 $ 9,328,289 1,477,357 $20,728,190
Shares issued on reinvestment 149,704 1,955,106 131,800 1,846,214
Shares redeemed (1,696,457) (21,851,611) (604,828) (8,443,372)
- ---------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (825,924) $(10,568,216) 1,004,329 $14,131,032
- ---------------------------------------------------------------------------------------------------------
Class B+
Shares sold 81,393 $ 1,042,288 -- --
Shares issued on reinvestment 667 8,718 -- --
Shares redeemed (786) (10,363) -- --
- ---------------------------------------------------------------------------------------------------------
Net Increase 81,274 $ 1,040,643 -- --
- ---------------------------------------------------------------------------------------------------------
Class C++
Shares sold 49,774 $ 645,489 183,145 $ 2,587,089
Shares issued on reinvestment 9,488 122,982 4,578 64,075
Shares redeemed (37,013) (471,061) (6,207) (86,039)
- ---------------------------------------------------------------------------------------------------------
Net Increase 22,249 $ 297,410 181,516 $ 2,565,125
=========================================================================================================
<FN>
* On October 10, 1994 the former Class C shares were exchanged into Class A
shares; therefore Class C share activity for the period from April 1, 1994 to
October 9, 1994 is included with the Class A share activity. The year ended
March 31, 1994 includes only Class A share activity.
+ For the period from November 16, 1994 (inception date) to March 31, 1995.
++ On November 7, 1994 the former Class B shares were renamed Class C shares.
20
<PAGE>235
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
</TABLE>
<TABLE>
<CAPTION>
Class A Shares (a) 1995 1994 1993 1992 1991(b)
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.23 $13.71 $12.90 $12.52
$12.00
- ------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (1) 0.77 0.79 0.82 0.86 0.34
Net realized and unrealized gain (loss)
on investments (2) 0.07 (0.47) 0.87 0.45 0.51
- ------------------------------------------------------------------------------------------------------------------------
Total Income from Investment Operations 0.84 0.32 1.69 1.31
0.85
- ------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income (0.78) (0.80) (0.82) (0.85)
(0.33)
Distributions from net realized gains on
security transactions -- -- (0.06) (0.08) --
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.78) (0.80) (0.88) (0.93) (0.33)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.29 $13.23 $13.71 $12.90
$12.52
- ------------------------------------------------------------------------------------------------------------------------
Total Return 6.64% 2.17% 13.55% 10.73%
7.12%++
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $58,103 $66,459 $55,137 $35,969
$23,484
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (1) 0.63% 0.44% 0.38% 0.31%
0.30%+
Net investment income 5.94 5.63 6.15 6.63 7.15+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27.76% 11.02% 26.04% 55.13%
19.61%
========================================================================================================================
Class B Shares 1995(c)
========================================================================================================================
Net Asset Value, Beginning of Year $12.26
- ------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.31
Net realized and unrealized gain
on investments (2) 1.00
- ------------------------------------------------------------------------------------------------------------------------
Total Income from Investment Operations 1.31
- ------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income (0.29)
Distributions from net realized gains on
security transactions --
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.29)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.28
- ------------------------------------------------------------------------------------------------------------------------
Total Return 10.86%++
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $1,080
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.23%+
Net investment income 5.24+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27.76%
========================================================================================================================
<FN>
(a) On October 10, 1994 the former Class C shares were exchanged into Class A
shares.
(b) For the period from October 11, 1990 (inception date) to March 31, 1991.
(c) For the period from November 16, 1994 (inception date) to March 31, 1995.
(1) See page 22 for full footnote disclosure.
(2) See page 22 for full footnote disclosure.
++ Not annualized, as the result may not be representative of the total
return for the year.
+ Annualized.
</TABLE>
21
<PAGE>236
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class C Shares (a) 1995 1994 1993(b)
=================================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $13.22 $13.71 $13.36
- -------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (1) 0.69 0.70 0.21
Net realized and unrealized gain (loss)
on investments (2) 0.06 (0.48) 0.33
- -------------------------------------------------------------------------------------------------
Total Income from Investment Operations 0.75 0.22 0.54
- -------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income (0.69) (0.71) (0.19)
Distributions from net realized gains on
security transactions -- -- --
- -------------------------------------------------------------------------------------------------
Total Distributions (0.69) (0.71) (0.19)
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.28 $13.22 $13.71
- -------------------------------------------------------------------------------------------------
Total Return 5.91% 1.40% 4.04%++
- -------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $3,468 $3,156 $786
- -------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (1) 1.27% 1.17% 1.08%+
Net investment income 5.28 4.85 5.28+
- -------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27.76% 11.02% 26.04%
=================================================================================================
<FN>
(a) On November 7, 1994 the former Class B shares were renamed Class C shares.
(b) For the period from January 5, 1993 (inception date) to March 31, 1993.
++ Not annualized, as the result may not be representative of the total
return for the year.
+ Annualized.
(1) The manager has waived all or a part of its fees in each of the years in the
four-year period ended March 31, 1994. If such fees were not waived, the per
share decrease of net investment income and the ratios of expenses to
average net assets would be as follows:
</TABLE>
<TABLE>
<CAPTION>
Expense Ratios
Per Share Decreases Without Fee Waivers*
------------------------------------- --------------------------------------
1994 1993 1992 1991 1994 1993 1992 1991
------ ------ ------ ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.014 $0.023 $0.031 $0.017 0.54% 0.55% 0.54% 0.50%+
Class C 0.012 0.007 -- -- 1.25 1.23+ -- --
<FN>
* As a result of voluntary expense limitations, the ratios of expenses to
average net assets will not exceed 0.80%, 1.30% and 1.35% for Class A, B and
C shares, respectively.
(2) Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at net asset values less
than the beginning of the period.
</TABLE>
22
<PAGE>237
Smith Barney Muni Funds
New Jersey Portfolio
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders and the Board of Trustees of the
New Jersey Portfolio of Smith Barney Muni Funds:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the New Jersey Portfolio of Smith
Barney Muni Funds as of March 31, 1995, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended and the financial highlights for each of
the years in the four-year period then ended and the period from October 11,
1990 (commencement of operations) to March 31, 1991. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of securities owned
as of March 31, 1995, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
New Jersey Portfolio of Smith Barney Muni Funds as of March 31, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended and the financial
highlights for each of the years in the four-year period then ended and the
period from October 11, 1990 (commencement of operations) to March 31, 1991, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
May 15, 1995
23
<PAGE>238
SMITH BARNEY
- ------------
A Member of Travelers Group [LOGO APPEARS HERE]
Smith Barney
Muni Funds
Trustees
Jessica M. Bibliowicz
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
C. Richard Youngdahl
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Peter M. Coffey
Vice President
Daniel Malone
Vice President
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Manager
Smith Barney Mutual
Funds Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the shareholders of
Smith Barney Muni Funds New Jersey Portfolio. It is not authorized for
distribution to prospective investors unless accompanied or preceded by a
current Prospectus for the Portfolio, which contains information concerning the
Portfolio's investment policies and expenses as well as other pertinent
information.
Smith Barney Muni Funds
388 Greenwich Street
New York, New York 10013
FD2307 E5 82108
<PAGE>239
PRO FORMA FINANCIAL STATEMENTS
<PAGE>240
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT MARCH 31, 1995 (unaudited)
<TABLE>
<CAPTION>
SBS
New Jersey Smith Barney Pro Forma Pro Forma
Municipal New Jersey Adjustments Combined
------------ ------------ ----------- ---------
(Historical) (Historical)
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value ( Cost $215,419,845) $160,020,943 $60,917,375 $99,269 (a) $221,037,587
Cash - 309,469 - 309,469
Interest receivable 2,962,836 1,070,005 - 4,032,841
Receivable for Fund shares sold 170,004 397,187 - 567,191
Receivable for Securities sold - 30,000 - 30,000
Other Receivables - 370 - 370
------------ ----------- ------- ------------
Total Assets 163,153,783 62,724,406 99,269 225,977,458
------------ ----------- ------- ------------
LIABILITIES:
Payable for Fund shares redeemed 189,078 5,005 - 194,083
Management fee payable 48,321 23,919 - 72,240
Distribution fee payable 23,474 32,422 - 55,896
Accrued expenses and other liabilities 122,479 11,909 - 134,388
Dividends payable 268,556 - - 268,556
------------ ----------- ------- ------------
Total Liabilities 651,908 73,255 0 725,163
------------ ----------- ------- ------------
Net Assets $162,501,875 $62,651,151 $99,269 $225,252,295
=============== =============== ============== ===============
NET ASSETS:
Par value of capital shares $12,879 $4,714 $257 (c) $17,850
Capital paid in excess of par value 162,203,259 61,698,299 (257)(c) 223,901,301
Distributions in excess of net investment income (111,297) 23,140 - (88,157)
Accumulated net realized loss (3,197,132) (999,309) - (4,196,441)
Net unrealized appreciation of investments 3,594,166 1,924,307 99,269 (a) 5,617,742
------------ ----------- ------- ------------
Net Assets $162,501,875 $62,651,151 $99,269 $225,252,295
============ =========== ======= ============
Outstanding Shares:
CLASS A 8,474,514 4,371,985 239,039 (c) 13,085,538
============ =========== ======= ============
CLASS B 4,384,740 81,274 4,379 (c) 4,470,393
============ =========== ======= ============
CLASS C 19,666 261,068 14,067 (c) 294,801
============ =========== ======= ============
Net Asset Value
CLASS A (and redemption price) $12.62 $13.29 $12.62
============ =========== ============
CLASS B $12.62 $13.29 $12.62
============ =========== ============
CLASS C $12.62 $13.28 $12.62
============ =========== ============
MAXIMUM OFFERING PRICE $13.15 $13.84 $13.15
============ =========== ============
</TABLE>
See accompanying notes to pro forma financial statements.
<PAGE>241
PRO FORMA STATEMENT OF OPERATIONS For the year ended March 31, 1995 (unaudited)
<TABLE>
<CAPTION>
SBS
New Jersey Smith Barney Pro Forma Pro Forma
Municipal New Jersey Adjustments Combined
------------ ------------ ----------- ---------
(Historical) (Historical)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $10,758,237 $ 4,399,983 - $15,158,220
----------- ----------- -------- -----------
EXPENSES:
Management fees 579,652 301,338 (66,964)(b) 814,026
Administration fee 331,230 - 133,928 (b) 465,158
Distribution fees 508,612 69,588 - 578,200
Shareholder servicing agent and custodian fees 114,672 24,783 - 139,455
Shareholder communications fees 56,403 14,111 - 70,514
Registration fees 19,622 8,001 (2,667)(d) 24,956
Legal and auditing fees 70,711 11,159 (7,450)(d) 74,420
Directors' fees 16,692 3,000 (2,000)(d) 17,692
Other 28,583 15,001 - 43,584
Interest expense 10,129 - - 10,129
----------- ----------- -------- -----------
Total Expenses 1,736,306 446,981 54,847 2,238,134
----------- ----------- -------- -----------
NET INVESTMENT INCOME $ 9,021,931 $ 3,953,002 ($54,847)(e) $12,920,086
----------- ----------- -------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized Loss From Security Transactions
(excluding short term securities)
Proceeds from sales 59,740,268 27,419,804 - 87,160,072
Cost of securities sold 62,937,400 28,313,411 - 91,250,811
----------- ----------- -------- -----------
Net Realized Loss (3,197,132) (893,607) - (4,090,739)
----------- ----------- -------- -----------
Change in Unrealized Appreciation of Investments
Beginning of Year 22,662 1,021,954 - 1,044,616
--------
End of Year 3,594,166 1,924,307 99,269 (a) 5,617,742
----------- ----------- -------- -----------
Change in Net Unrealized Appreciation 3,571,504 902,353 99,269 4,573,126
----------- ----------- -------- -----------
Net Gain On Investments 374,372 8,746 99,269 482,387
----------- ----------- -------- -----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,396,303 $ 3,961,748 $ 44,422 $13,402,473
=========== =========== ======== ===========
</TABLE>
See accompanying notes to pro forma financial statements.
(a) reflects change from bid prices to mean prices by New Jersey Portfolio
(b) reflects management fee agreement of surviving fund
(c) reflects new shares issued by New Jersey Municipals
(d) decrease due to duplicative services
(e) increase in expenses not reflected in undistributed net investment income
as the fund distributes substantialy all its net investment income.
<PAGE>242
PRO FORMA FOOTNOTES OF MERGER BETWEEN NEW JERSEY MUNICIPALS AND NEW JERSEY
PORTFOLIO
March 31, 1995 (unaudited)
1. GENERAL
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of Smith Barney New Jersey Portfolio (the
"Portfolio"), by the Smith Barney New Jersey Municipals Fund (the "Fund"), as if
such acquisition had taken place as of April 1, 1994.
Under the terms of the Plan of Reorganization the combination of the Portfolio
and the Fund will be treated as a tax-free business combination and accordingly
will be accounted for by a method of accounting for tax free mergers of
investment companies (sometimes referred to as the pooling with out restatement
method). The acquisition would be accomplished by an acquisition of the net
assets of the Portfolio in exchange for shares of the Fund at net asset value.
The statements of assets and liabilities and the related statements of
operations of the Portfolio and the Fund have been combined as of and for the
year ended March 31, 1995.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedules of investments of the Portfolio and
the Fund which are included in their respective annual reports dated March 31,
1995. With certain limited exceptions, Smith Barney Inc. is liable for the
expenses incurred in connection with the Reorganization, which are estimated
to be $53,000.
2. SIGNIFICANT ACCOUNTING POLICIES
The Fund (formerly Smith Barney Shearson New Jersey Municipals Fund Inc.) was
incorporated under the laws of the State of Maryland on November 12, 1987. The
Fund is a non-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"). The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of the
pro-forma financial statements.
Portfolio valuation: Securities are valued by the Boston Company Advisors, Inc.
("Boston Advisors") after consultation with an independent pricing service (the
"Service") approved by the Board of Directors. Investments are valued at the
mean between the quoted bid prices and asked prices (as obtained by the Service
from dealers in such securities). Securities for which, in the judgment of the
Service, there are not readily obtainable market quotations (which may
constitute a majority of the portfolio securities) are carried at fair value as
determined by the Service, based on methods which include consideration of:
yields or prices of municipal securities of comparable quality, coupon, maturity
and type; indications as to values from dealers; and general market conditions.
Short-term investments that mature in 60 days or less are valued at amortized
cost.
Futures contracts: The Fund may enter into futures contracts. Future
transactions will be entered into for hedging purposes to protect against a
decline in the price of securities that the Fund owns, or to protect the Fund
against an increase in the price of securities it is committed to purchase.
1
<PAGE>243
PRO FORMA FOOTNOTES OF MERGER BETWEEN NEW JERSEY MUNICIPALS AND NEW JERSEY
PORTFOLIO
March 31, 1995 (unaudited), (continued)
Upon entering into a futures contract, the Fund is required to deposit with the
broker an amount of cash or cash equivalents equal to a certain percentage of
the contract amount. This is known as the "initial margin." Subsequent
payments ("variation margin") are made or received by the Fund each day,
depending on the daily fluctuation of the value of the contract.
For financial statement purposes, an amount equal to the settlement amount of
the contract is included in its Statement of Assets and Liabilities as an asset
and as an equivalent liability. For long futures positions, the asset is
marked-to-market daily; for short futures positions, the liability is marked-to-
market daily. The daily changes in the contract are recorded as unrealized
gains or losses. The Fund recognizes a realized gain or loss when the contract
is closed.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
Securities transactions and investment income: Securities transactions are
recorded as of the trade date. Interest income is recorded on the accrual basis.
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 on all securities
is not accrued until settlement date. When required, the Fund instructs the
custodian to segregate assets in a separate account with a current value at
least equal to the amount of its when-issued purchase commitments. 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 the relative net assets of each class of shares.
Dividends and distributions to shareholders: Dividends from net investment
income are determined on a class level, declared on each day that the Fund is
open for business and paid on the last day of the Smith Barney Inc. ("Smith
Barney") statement month. Distributions from net realized capital gains are
declared and paid annually.
Federal taxes: The Fund intends to comply with the requirements of the Internal
Revenue Code pertaining to regulated investment companies and to make the
required distributions to shareholders; therefore, no provision for Federal
income taxes has been made.
3. PRO-FORMA ADJUSTMENTS
The accompanying Pro Forma financial statements reflect changes in fund shares
and expenses as if the merger had taken place on April 1, 1994.
4. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, formerly a division of Mutual
Management Corp., which was transferred effective November 7, 1994 to Smith
Barney Mutual Funds Management Inc. ("SMBFM"). Mutual Management
2
<PAGE>244
PRO FORMA FOOTNOTES OF MERGER BETWEEN NEW JERSEY MUNICIPALS AND NEW JERSEY
PORTFOLIO
March 31, 1995 (unaudited), (continued)
Corp. and SBMFM are both wholly owned subsidiaries of Smith Barney Holdings Inc.
("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 its average daily net assets up to $500 million and 0.32%
of the value of its average daily net assets in excess of $500 million.
Prior to April 20, 1994, the Fund was party to an administration agreement (the
"Administration Agreement") with Boston Advisors, an indirect wholly owned
subsidiary of Mellon Bank Corporation ("Mellon"). Under the Administration
Agreement, the Fund paid a monthly fee at the annual rate of 0.20% of the value
of its average daily net assets up to $500 million and 0.18% of the value of its
daily net assets in excess of $500 million.
As of the close of business on April 20, 1994, SBMFM (formerly known as Smith,
Barney Advisers, Inc.) succeeded Boston Advisors as the Fund's administrator.
The new agreement contains substantially the same terms and conditions,
including the same level of fees, as the predecessor agreement.
As of the close of business on April 20, 1994, the Fund and SBMFM 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.
No officer, director or employee of Smith Barney or any of its affiliates
receives any compensation from the Fund from serving as a Director or officer of
the Fund.
5. 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 an annual 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 an annual 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 of each class.
6. COMMON STOCK
As of March 31, 1995, the Fund had authorized capital of 100 million shares of
$.001 par value common stock divided into four classes: Class A, Class B, Class
C and Class Y.
3
<PAGE>245
PRO FORMA FOOTNOTES OF MERGER BETWEEN NEW JERSEY MUNICIPALS AND NEW JERSEY
PORTFOLIO
March 31, 1995 (unaudited), (continued)
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of New Jersey
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 New Jersey municipal securities than is a municipal bond
fund that is not concentrated in these issuers to the same extent.
4
<PAGE>246
SMITH BARNEY MUNI FUNDS - NEW JERSEY
SCHEDULES OF INVESTMENTS (unaudited) (continued) March 31,1995
<TABLE>
<CAPTION>
NEW JERSEY
NEW JERSEY NEW JERSEY TOTAL NEW JERSEY PORTFOLIO NEW JERSEY TOTAL
PORTFOLIO MUNICIPAL COMBINED PORTFOLIO BID TO MUNICIPAL COMBINED
FACE FACE FACE MARKET MEAN MARKET MARKET
AMOUNT AMOUNT AMOUNT RATING SECURITY VALUE ADJUSTMENT VALUE VALUE
- ---------- ---------- --------- ------ -------- ---------- ---------- ---------- --------
MUNICIPAL BONDS & NOTES
New Jersey - 96.6%
<C> <C> <C> <C> <S> <C> <C> <C> <C>
$615,000 $ 615,000 A- Atlantic City, COP Series 1991
(Public Facilities Lease
Agreements Atlantic City Project),
8.875% due 1/15/13 $782,588 $768 $ 783,356
$2,500,000 2,500,000 AAA Atlantic County, NJ, COP
Lease Agreement, FGIC-Insured,
7.400% due 3/1/2009 $2,903,125 2,903,125
700,000 375,000 1,075,000 AAA Atlantic County Improvement Luxury
Tax Revenue, Convention
Center, MBIA-Insured, 7.40% due
7/1/16 806,750 875 432,656 1,240,281
950,000 950,000 Baa* Atlantic County, NJ Utilities
Authority, Solid Waste Revenue,
7.125% due 3/1/2016 917,937 917,937
1,340,000 1,340,000 AAA Bayonne, New Jersey, General
Obligation Bonds, FGIC-Insured,
6.125% due 5/1/95 1,361,775 1,361,775
700,000 700,000 Baa1* Beachwood, New Jersey, Sewer
Authority Revenue, Junior Lien,
6.500% due 12/1/2012 713,125 713,125
665,000 665,000 AAA Belvedere, New Jersey, General
Obligation Refunding Bonds,
AMBAC-Insured,
7.300% due 12/1/2014 729,837 729,837
1,000,000 1,000,000 AAA Bordentown, New Jersey, Sewerage
Authority Revenue, Series C,
MBIA-Insured, 6.900% due 12/1/2016 1,056,250 1,056,250
1,000,000 1,000,000 AAA Camden County, New Jersey, Improvement
Authority Revenue, Series B,
AMBAC-Insured, 5.250% due
12/1/2018 916,250 916,250
385,000 385,000 A1* Cape May County, New Jersey, Bridge
Commission, Guaranteed Revenue
Bonds, 6.700% due 6/1/2002 399,919 399,919
200,000 200,000 AAA Delaware River Junction, Toll Bridge
Commission, Refunding Bonds,
FGIC-Insured, 6.250% due 7/1/2012 206,750 206,750
500,000 500,000 AAA Delaware River Port Authority,
Pennsylvania and New Jersey,
Delaware River Bridge Revenue
Refunding, AMBAC-Insured,
7.375% due 1/1/2007 543,750 543,750
550,000 550,000 AAA Dover, New Jersey, Board of Education,
Certificates of Participation,
FGIC-Insured, 6.600% due 6/1/2011 576,812 576,812
175,000 175,000 AAA Essex County, NJ GO, FSA-Insured,
6.500% due 12/1/2011 182,438 182,438
2,500,000 2,500,000 AAA Essex County, NJ Improvement
Authority, FGIC-Insured, 5.200%
due 12/1/2024 2,215,625 2,215,625
650,000 650,000 BBB+ Essex County, NJ Improvement
Authority, Newark, Lease Revenue
Bonds, 6.600% due 4/1/2014 650,812 650,812
800,000 800,000 A1* Essex County Improvement Authority
Airport Project Revenue, Series
92, 6.80% due 11/1/21 (a) 833,000 1,000 834,000
750,000 750,000 AAA Evesham Township, New Jersey, Board
of Education, Certificates of
Participation, FGIC-Insured, 6.875%
due 9/1/2011 809,062 809,062
See Notes to Pro-Forma Financial Statements.
</TABLE>
<PAGE>247
SMITH BARNEY MUNI FUNDS - NEW JERSEY
SCHEDULES OF INVESTMENTS (unaudited) March 31,1995
<TABLE>
<CAPTION>
NEW JERSEY
NEW JERSEY NEW JERSEY TOTAL NEW JERSEY PORTFOLIO NEW JERSEY TOTAL
PORTFOLIO MUNICIPAL COMBINED PORTFOLIO BID TO MUNICIPAL COMBINED
FACE FACE FACE MARKET MEAN MARKET MARKET
AMOUNT AMOUNT AMOUNT RATING SECURITY VALUE ADJUSTMENT VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
Gloucester County, New Jersey:
1,000,000 1,000,000 AA- Utilities Authority,
Sewerage System Revenue,
Series 91A,6.500% due 1/1/2021 1,023,750 1,023,750
900,000 900,000 Utilities Authority, 6.250% due
1/1/2024 910,125 910,125
750,000 750,000 AAA Hamilton Township Board of
Education, FSA-Insured, 7.00%
due 12/15/15 800,625 938 801,563
500,000 500,000 AAA Hoboken, New Jersey, Parking
Authority Revenue, FGIC-
Insured, 6.000% due 6/1/2024 503,125 503,125
500,000 500,000 AAA Hoboken, Union City, Weehawken
Sewer Authority, Sewer Revenue,
MBIA-Insured, 7.25% due 8/1/19,
(Escrowed with U.S. Government
Securities to 8/1/99 Call @
102) 553,125 0 553,125
Hudson County, NJ:
3,750,000 3,750,000 BBB- Improvement Authority, Solid
Waste System Revenue, 7.100%
due 1/1/2020 3,506,250 3,506,250
1,000,000 1,000,000 A+ Improvement Authority, Solid
Waste System Revenue, Series A,
6.100% due 7/1/2020 980,000 980,000
200,000 200,000 AAA Hudson County, NJ GO Bonds, FGIC-
Insured, 6.550% due 7/1/2010 214,250 214,250
425,000 425,000 AAA Hudson County, NJ COP,
Correctional Facilities,
MBIA-Insured, 6.600% due
12/1/2021 443,062 443,062
245,000 245,000 A+ The Hudson County Improvement
Authority (Essential Purpose
Pooled Governmental Loan
Project), Series 1986, 7.60%
due 8/1/25 267,356 306 267,662
530,000 530,000 AAA Jersey City, NJ Water Utility,
General Obligation Bonds,
AMBAC-Insured, 7.500% due
10/1/2003 571,737 571,737
500,000 500,000 AAA The City of Jersey City, (Hudson
County) Fiscal Year Adjustment
Bonds, Series 1991 B, FSA-
Insured, 8.40% due 5/15/06 611,875 625 612,500
1,700,000 1,700,000 AAA Jersey City, NJ Sewerage
Authority, AMBAC-Insured,
6.250% due 1/1/2014 1,778,625 1,778,625
1,385,000 1,385,000 AAA Kearney, New Jersey, Municipal
Utilities Authority Revenue,
FGIC-Insured, 7.300% due
11/15/2018 1,662,000 1,662,000
650,000 650,000 AAA Lakewood Township School
District, AMBAC-Insured,
Bank Qualified, Series 92,
6.25% due 2/15/11 679,250 813 680,063
250,000 250,000 AAA Long Branch Sewer Authority
Revenue, FGIC-Insured,
Series 90A, 7.15% due
6/1/10, (Escrowed with U.S.
Government Securities to
6/1/00 Call @ 102). 278,125 0 278,125
1,500,000 1,500,000 AAA Lower Township, New Jersey,
Municipal Utilities
Authority, MBIA-Insured,
6.125% due 12/1/2013 1,528,125 1,528,125
1,000,000 1,000,000 AAA Lumberton Township, New
Jersey, School District,
Certificates of Participation,
(Fiscal Funding New Jersey,
Inc.), MBIA-Insured, 6.100%
due 10/1/2013 1,017,500 1,017,500
1,000,000 200,000 1,200,000 AAA Mercer County Impovement Revenue,
FGIC-Insured, Series A, 6.70%
due 4/01/13 (a) 1,052,500 1,250 210,750 1,264,500
Middlesex County, NJ Pollution
Control Authority
</TABLE>
See Notes to Pro-Forma Financial Statements.
<PAGE>248
SMITH BARNEY MUNI FUNDS - NEW JERSEY
SCHEDULES OF INVESTMENTS (unaudited) March 31,1995
<TABLE>
<CAPTION>
NEW JERSEY
NEW JERSEY NEW JERSEY TOTAL NEW JERSEY PORTFOLIO NEW JERSEY TOTAL
PORTFOLIO MUNICIPAL COMBINED PORTFOLIO BID TO MUNICIPAL COMBINED
FACE FACE FACE MARKET MEAN MARKET MARKET
AMOUNT AMOUNT AMOUNT RATING SECURITY VALUE ADJUSTMENT VALUE VALUE
- ---------- ---------- --------- ------ -------- ---------- ---------- ---------- --------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
Financing Revenue, Amerada Hess:
1,000,000 1,000,000 NR 7.875% due 6/1/2022 1,098,750 1,098,750
2,000,000 2,000,000 NR 6.875% due 12/1/2022 2,042,500 2,042,500
1,000,000 1,000,000 AAA Middlesex County Utility Authority
Sewer Revenue Refunding, Series
A, MBIA-Insured, (Inverse
Floating Rate Security convertible
to 6.25% on 8/15/97), 6.775%
variable due 8/15/10 (f) 1,028,750 2,500 1,028,750
500,000 500,000 AAA Monroe Township, New Jersey,
Municipal Utilities Authority,
Gloucester County Revenue,
AMBAC-Insured, 6.650% due
7/1/2011 530,000 530,000
Morris Township, NJ, General
Obligation Notes:
550,000 550,000 AA 6.550% due 7/1/2009 601,562 601,562
550,000 550,000 AA 6.550% due 7/1/2010 601,562 601,562
500,000 500,000 AA 6.550% due 7/1/2011 545,625 545,625
1,200,000 1,200,000 A+ Morristown, NJ, Revenue Refunding,
General Obligation Bonds, 6.500%
due 2/1/2006 1,252,500 1,252,500
1,000,000 1,000,000 AAA New Brunswick, New Jersey, Parking
Authority Revenue City Guaranteed
Parking, Series A, 6.500% due
9/1/2019 1,041,250 1,041,250
1,500,000 1,500,000 NR NJ EDA, Electric Revenue, (Vineland
Cogeneration Limited
Partnership), 7.875% due 6/1/2019 1,567,500 1,567,500
New Jersey EDA Economic Development
Revenue:
1,000,000 1,000,000 NR Economic Development Revenue,
(Trane Division), (1990 Project),
9.500% due 9/1/2000 1,113,750 1,113,750
1,000,000 1,000,000 Aaa* Economic Development Bonds,
(Eagle Rock Convalescent, Inc
1990), GNMA-Collateralized,
7.375% due 12/20/06 1,092,500 2,500 1,092,500
480,000 480,000 NR Economic Development Revenue,
(National Association of
Accountants), 7.650% due
7/1/2009 509,400 509,400
1,000,000 1,000,000 BBB (Health Village Inc.),
7.800% due 5/1/2016 1,055,000 1,055,000
1,000,000 1,000,000 Baa2* American Airlines Inc. Project
7.10% due 11/1/31 (a) 1,013,750 2,500 1,013,750
1,155,000 1,155,000 Aa1* State 91L, LOC Banque Nationale
De Paris, 7.10% due 12/1/11 (a) 1,230,075 1,444 1,231,519
660,000 660,000 Aaa* Princeton Montessori Society,
Series S 6.500% due 6/1/2012 673,200 673,200
1,500,000 1,500,000 Aa1* (Zirser-Greenbriar), 7.375% due
7/15/2003 1,496,250 1,496,250
2,005,000 2,005,000 NR Industrial Revenue, (State
Plaza Park and Ride Limited
Partnership), 6.625% due
7/1/2003 2,030,063 2,030,063
1,000,000 1,000,000 Aa* New Jersey Building Authority
State Building Revenue, Garden
State Savings Series 91A,
Capital Appreciation, zero
coupon due 6/15/11 377,500 1,250 378,750
500,000 500,000 AA+ Nursing Home Revenue,
(Absecon Manor Project),
FHA-Insured, 8.250% due
2/1/2028 520,625 520,625
1,500,000 1,500,000 NR Nursing Home Revenue, Series A,
(Franciscan Oaks),
8.500% due 10/1/2023 1,518,750 1,518,750
</TABLE>
See Notes to Pro-Forma Financial Statements.
<PAGE>249
<TABLE>
SMITH BARNEY MUNI FUNDS -- NEW JERSEY March 31, 1995
SCHEDULES OF INVESTMENTS (UNAUDITED)
<CAPTION>
NEW JERSEY
NEW JERSEY NEW JERSEY TOTAL NEW JERSEY PORTFOLIO NEW JERSEY TOTAL
PORTFOLIO MUNICIPAL COMBINED PORTFOLIO BID TO MUNICIPAL COMBINED
FACE FACE FACE MARKET MEAN MARKET MARKET
AMOUNT AMOUNT AMOUNT RATING SECURITY VALUE ADJUSTMENT VALUE VALUE
- ---------- ---------- --------- ------ -------- ---------- ---------- ---------- --------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
4,500,000 4,500,000 AAA Pollution Control Revenue,
(Public Service Electric &
Gas Corporation),
MBIA-Insured,
6.400% due 5/1/2032 4,522,500 4,522,500
1,000,000 1,000,000 AAA Natural Gas Facilities Revenue,
(NUI Corporation),
Series A, AMBAC-Insured,
6.350% due 10/1/2022 1,022,500 1,022,500
1,000,000 1,000,000 AAA Natural Gas Facilities
Revenue, Series A,
AMBAC-Insured,
6.25 due 8/1/24 (a) 1,011,250 1,250 1,012,500
1,000,000 1,000,000 NR Water Facilities Revenue,
Series 1991,
(New Jersey American
Water Company
Inc. Project),
7.40% due 11/1/01 (a) 1,060,000 2,500 1,062,500
750,000 750,000 A Water Revenue, Series D,
(Hackensack Water),
7.000% due 10/1/2017 768,750 768,750
1,000,000 1,000,000 AAA Water Facilities Revenue
Refunding, (New Jersey
American Water
Company Project),
Series A, FGIC-Insured,
5.35% due 6/1/23 906,250 1,250 907,500
New Jersey Health Care
Facilities Financing
Authority Revenue:
3,550,000 3,550,000 AAA (Newark Beth Israel
Medical Center),
FSA-Insured,
6.000% due 7/1/2024 3,510,063 3,510,063
(J.F.K. Health System),
Obligated Group,
FGIC-Insured,
1,125,000 1,125,000 AAA 6.700% due 7/1/2021 1,178,438 1,178,438
1,400,000 1,400,000 AAA 6.500% due 7/1/2012 1,452,500 1,452,500
850,000 850,000 AAA 6.500% due 7/1/2021 876,563 876,563
(Columbus Hospital), Series A:
1,200,000 1,200,000 Baa1* 7.200% due 7/1/2001 1,209,000 1,209,000
1,000,000 1,000,000 Baa1* 7.500% due 7/1/2021 963,750 963,750
1,500,000 3,000,000 4,500,000 AAA Irvington General Hospital,
FHA-Insured,
6.375% due 8/1/15 1,541,250 3,750 3,090,000 4,635,000
1,000,000 1,000,000 A- Pascack Valley Hospital,
Series 91,
6.70% due 7/1/11 990,000 2,500 992,500
1,000,000 1,000,000 AAA St. Clare's Hospital,
Riverside Medical Center,
MBIA-Insured,
5.75% due 7/1/10 991,250 1,250 992,500
1,000,000 1,000,000 AAA (Overlook Hospital Association),
Series E, FGIC-Insured,
6.700% due 7/1/2017 1,032,500 1,032,500
2,000,000 1,000,000 3,000,000 A* Atlantic City Medical Center,
6.80% due 7/1/11 2,072,500 5,000 1,038,750 3,116,250
820,000 820,000 AAA (Spectrum for Living),
6.5000% due 2/1/2022 836,400 836,400
1,300,000 1,550,000 2,850,000 Baa1* Deborah Heart & Lung Center,
6.30% due 7/1/23 1,259,375 3,250 1,505,438 2,768,063
1,000,000 1,000,000 Baa* St. Mary's Hospital,
Franciscan Sisters
Health Systems,
5.875% due 7/1/12 871,250 2,500 873,750
2,000,000 2,000,000 Baa* (Ocean County Hospital),
6.250% due 7/1/2023 1,795,000 1,795,000
1,750,000 1,750,000 Baa* (St. Mary Hospital),
5.875% due 7/1/2012 1,529,063 1,529,063
1,150,000 1,150,000 AAA Somerset Medical Center,
Series A, FGIC-Insured,
5.20% due 7/1/24 1,006,250 1,437 1,007,687
750,000 750,000 AAA (Wayne General Hospital),
FHA-Insured,
5.750% due 8/1/2011 723,750 723,750
1,000,000 1,000,000 NR (Raritan Bay Medical Center),
7.250% due 7/1/2027 940,000 940,000
250,000 250,000 AAA (Atlantic City
Medical Center),
Series B, FHA-Insured,
8.375% due 8/1/2020 278,125 278,125
See Notes to Pro-Forma Financial Statements
</TABLE>
<PAGE>250
SMITH BARNEY MUNI FUNDS - NEW JERSEY
SCHEDULES OF INVESTMENTS (unaudited) March 31,1995
<TABLE>
<CAPTION>
NEW JERSEY
NEW JERSEY NEW JERSEY TOTAL NEW JERSEY PORTFOLIO NEW JERSEY TOTAL
PORTFOLIO MUNICIPAL COMBINED PORTFOLIO BID TO MUNICIPAL COMBINED
FACE FACE FACE MARKET MEAN MARKET MARKET
AMOUNT AMOUNT AMOUNT RATING SECURITY VALUE ADJUSTMENT VALUE VALUE
--------- ---------- -------- ------ -------- ---------- ---------- ---------- --------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
260,000 260,000 A* (Kennedy Memorial University Medical
Center), Series D, 7.875% due 7/1/2009 276,900 276,900
250,000 250,000 A* (Community Memorial Hospital Association),
Series C, 8.000% due 7/1/2014 267,500 267,500
825,000 825,000 AAA (Riverview Medical Center), Series A,
AMBAC-Insured,
8.000% due 7/1/2018 900,281 900,281
1,500,000 1,500,000 Aaa* (Helene Fuld Medical Center), Series C,
8.125% due 7/1/2013 1,616,250 1,616,250
600,000 600,000 BBB+ (Newcomb Medical Center), Series A,
7.875% due 7/1/2003 645,750 645,750
435,000 435,000 Baa* (Kimball Medical Center), Series C,
8.000% due 7/1/1998 452,400 452,400
750,000 750,000 A- East Orange General Hospital, Series 780,000 1,875 781,875
B, 7.75% due 7/1/20 (d)
1,250,000 1,250,000 BBB (St. Elizabeth's Hospital Project), Series
B, 8.250% due 7/1/2020 1,326,563 1,326,563
830,000 830,000 AAA (Medical Center of Ocean County), Series C,
FSA-Insured,
6.750% due 7/1/2020 874,613 874,613
1,985,000 1,985,000 Aa* Cathedral Health Services Inc., FHA-Insured,
7.25% due 2/15/21 2,121,469 4,962 2,126,431
1,500,000 1,500,000 A- NJ EDA,Terminal Revenue, (GATX Terminal
Corporation), Series 1994,
7.300% due 9/1/2019++ 1,629,375 1,629,375
1,250,000 1,250,000 Aa1* NJ EDA, Industrial Revenue, (Garden State
Paper Co.), 8.125% due 4/1/2022 1,295,313 1,295,313
500,000 500,000 A+ New Jersey EDA Revenue Bonds, (New Jersey
Performing Arts Center Site Acquisition
Project), 6.75% due 6/15/12 521,875 625 522,500
1,000,000 1,500,000 2,500,000 A Sewer Facility (Atlantic Sewer Co.),
7.25% due 12/1/11 1,072,500 2,500 1,612,500 2,687,500
1,000,000 1,000,000 Aa1* Economic Growth Bonds, LOC Banque
Nationale De Paris, 6.55% due 12/1/07 (a) 1,021,250 1,250 1,022,500
1,000,000 1,000,000 A+ Nursing Home Revenue,
(Morris Hall-St. Lawrence),
6.250% due 4/1/2025 992,500 992,500
1,435,000 1,435,000 AA- Economic Growth Bonds, Series E, LOC
National Westminster USA, 5.40% due
10/1/2013 (a) 1,329,168 1,795 1,330,963
2,000,000 2,000,000 AAA 5.250% due 7/1/2013 1,850,000 1,850,000
500,000 500,000 AAA 5.250% due 7/1/2020 450,000 450,000
2,500,000 2,500,000 AAA NJ EDA, Nursing Home Revenue, (RWJ Health Care
Corporation), FSA-Insured,
6.500% due 7/1/2024 2,575,000 2,575,000
1,000,000 1,000,000 NR NJ EDA, Waste Paper Recycling Revenue,
(Marcel Paper Mills Inc. Project),
8.500% due 2/1/2010 1,116,250 1,116,250
2,000,000 2,000,000 A+ State Contract Economic Recovery, zero
coupon due 9/15/10 785,000 2,500 787,500
1,000,000 1,000,000 AAA NJ EDA, Miscellaneous Revenue, (State Contract),
FSA-Insured,
6.000% due 3/15/2021 997,500 997,500
1,250,000 1,250,000 AAA The Market Transition Facilities Revenue,
Senior Lien-Series A, MBIA-Insured,
5.875% due 7/1/11 1,248,438 1,563 1,250,000
1,000,000 2,000,000 3,000,000 NR New Jersey Sports & Exposition Authority
Revenue, Monmouth Park Series A, 8.00%
due 1/1/25 1,041,250 2,500 2,087,500 3,131,250
</TABLE>
See Notes to Pro-Forma Financial Statements.
<PAGE>251
SMITH BARNEY MUNI FUNDS - NEW JERSEY
SCHEDULES OF INVESTMENTS (unaudited) March 31,1995
<TABLE>
<CAPTION>
NEW JERSEY
NEW JERSEY NEW JERSEY TOTAL NEW JERSEY PORTFOLIO NEW JERSEY TOTAL
PORTFOLIO MUNICIPAL COMBINED PORTFOLIO BID TO MUNICIPAL COMBINED
FACE FACE FACE MARKET MEAN MARKET MARKET
AMOUNT AMOUNT AMOUNT RATING SECURITY VALUE ADJUSTMENT VALUE VALUE
--------- ---------- -------- ------ -------- ---------- ---------- ---------- --------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
New Jersey Sports and Expo Authority,
Series A, State Contract:
1,250,000 1,250,000 AAA 6.250% due 7/1/2020, MBIA-Insured 1,267,188 1,267,188
2,900,000 2,900,000 Aa* 6.000% due 3/1/2021 2,871,000 2,871,000
500,000 500,000 AAA New Jersey State GO, 6.80% due 9/15/11,
(Escrowed with U.S. Government
Securities to 9/15/01 Call @ 101.5) 550,000 0 550,000
2,500,000 2,500,000 AA+ New Jersey State Transportation Authority,
Series D, 8.000% due 2/15/2007 3,050,000 3,050,000
2,500,000 2,500,000 A+ New Jersey State, Certificates of
Participation, Equipment Leasing Revenue,
Series A, 6.400% due 4/1/2005 2,621,875 2,621,875
New Jersey State Educational Facilities,
Financing Authority Revenue, Higher Education:
2,700,000 2,700,000 NR (Farleigh Dickinson University), Series C,
6.625% due 7/1/2023 2,369,250 2,369,250
1,500,000 1,500,000 AAA (Trenton State University), Series E,
AMBAC-Insured,
6.000% due 7/1/2019 1,498,125 1,498,125
1,285,000 1,285,000 A (Drew University), Series B,
7.450% due 2/1/2005 1,376,556 1,376,556
2,500,000 2,500,000 A+ New Jersey State Higher Education Assistance,
5.300% due 7/1/2010 2,293,750 2,293,750
750,000 750,000 AAA New Jersey Highway Authority, Garden State
Parkway Revenue, 7.25% due 1/1/16
(Escrowed with U.S. Government Securities
to 1/1/99 Call @ 102) 823,125 0 823,125
New Jersey State Housing & Mortgage Finance
Agency: Multifamily Housing Revenue;
1,000,000 1,000,000 AA (Regency Park Project), Series H,
7.700% due 11/1/2030 1,043,750 1,043,750
1,000,000 1,550,000 2,550,000 AAA Bonds, Presidential Plaza, FHA-Insured,
7.00% due 5/1/30 1,037,500 2,500 1,612,000 2,652,000
1,000,000 1,000,000 A+ New Jersey State HFA Mortgage Revenue,
Series A, Sec 236, 8.25% due 11/1/20 1,000,000 0 1,000,000
New Jersey State Housing & Mortgage Finance
100,000 100,000 AAA Agency Revenue: Home Mortgage, Series A,
MBIA-Insured, 7.875% due 10/1/17 105,624 126 105,750
New Jersey State Housing & Mortgage Finance
Agency Revenue: MBIA-Insured:
740,000 740,000 AAA Series B,
8.100% due 10/1/2017 788,100 788,100
450,000 450,000 AAA Home Mortgage, Series C, MBIA-Insured,
8.00% due 4/1/12 479,813 563 480,375
30,000 30,000 AAA Series C,
8.375% due 4/1/2017 32,175 32,175
315,000 315,000 AAA Series D,
7.700% due 4/1/2029 332,719 332,719
1,500,000 1,500,000 AAA New Jersey State Transportation Trust Fund,
FSA-Insured,
4.750% due 6/15/2003 1,436,250 1,436,250
1,705,000 1,705,000 AAA New Jersey State Turnpike Authority Revenue
Refunding, (Escrowed to Maturity with U.S.
Government Securities), 10.375% due 1/1/03 2,073,706 2,132 2,075,838
1,500,000 1,500,000 AAA Newark, New Jersey Housing Financing
Corporation, Mortgage Revenue Refunding,
</TABLE>
<PAGE>252
SMITH BARNEY MUNI FUNDS - NEW JERSEY
SCHEDULES OF INVESTMENTS (unaudited) March 31,1995
<TABLE>
<CAPTION>
NEW JERSEY
NEW JERSEY NEW JERSEY TOTAL NEW JERSEY PORTFOLIO NEW JERSEY TOTAL
PORTFOLIO MUNICIPAL COMBINED PORTFOLIO BID TO MUNICIPAL COMBINED
FACE FACE FACE MARKET MEAN MARKET MARKET
AMOUNT AMOUNT AMOUNT RATING SECURITY VALUE ADJUSTMENT VALUE VALUE
- ---------- ---------- --------- ------ -------- ------ ---------- --------- --------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
(Manor Apartments), Series A,
FHA-Insured, 7.500% due
2/15/2024 1,603,125 1,603,125
North Bergen, New Jersey:
1,500,000 1,500,000 AAA Township Capital Appreciation,
FSA-Insured, 8.000% due 8/15/2007 1,818,750 1,818,750
1,960,000 1,960,000 AAA Township Municipal Utilities
Authority, Sewer Revenue,
FGIC-Insured, 7.875% due
12/15/2009 2,359,350 2,359,350
500,000 500,000 AAA North Jersey District Water Supply
Commission, New Jersey Wanaque
South Project, Series A, 7.375%
due 7/1/16 (Escrowed with U.S.
Government Securities
to 7/1/96 Call @ 102) . 526,875 0 526,875
North Jersey District Water Supply
Commission, New Jersey Refunding,
(Wanaque North Project), Series A,
MBIA-Insured:
1,195,000 1,195,000 AAA 6.500% due 11/15/2021 1,248,775 1,248,775
2,500,000 2,500,000 AAA 6.000% due 7/1/2021 2,503,125 2,503,125
Old Bridge Township, New Jersey,
General Obligation Bonds,
FGIC-Insured:
750,000 750,000 AAA Municipal Utilities Authority
Revenue, FGIC-Insured,
6.400% due 11/1/2009 787,500 787,500
560,000 560,000 AAA 6.550% due 7/15/2010 588,700 588,700
720,000 720,000 AAA 6.550% due 7/15/2011 756,900 756,900
2,025,000 2,025,000 Aa1* Parsippany-Troy Hills Township
Refunding, zero coupon due 4/1/06 1,103,625 2,531 1,106,156
Passaic Valley, New Jersey, Sewer
Commission Revenue, Water Supply
Revenue, Series A, FGIC-Insured:
2,000,000 2,000,000 AAA 5.875% due 12/15/2022 1,960,000 1,960,000
100,000 100,000 AAA 6.400% due 12/15/2022 102,750 102,750
345,000 345,000 A* Pennsville Authority Sewer Revenue,
7.10% due 11/1/20 369,150 431 369,581
500,000 500,000 AAA Perth Amboy, New Jersey, Board of
Education, Certificates of
Participation, FSA-Insured,
6.125% due 12/15/2017 507,500 507,500
1,750,000 1,750,000 AAA Piscataway Township, New Jersey
School District, FHA-Insured,
5.375% due 12/15/2010 1,664,687 1,664,687
1,750,000 1,750,000 AAA Pleasantville, New Jersey, School
District, Certificates of
Participation, (Fiscal Funding New
Jersey, Inc.), BIGI-Insured,
7.700% due 10/1/2013 1,894,375 1,894,375
1,500,000 1,500,000 AA- Port Authority New York & New
Jersey:
67th Series, 6.875% due 1/1/25 1,560,000 1,875 1,561,875
2,000,000 2,000,000 AAA Port Authority New York and New
Jersey, Consolidated Loan, Series 96,
6.600% due 10/1/2023 2,075,000 2,075,000
200,000 200,000 AAA Ringwood Boro Sewer Authority Special
Obligation, (Escrowed to Maturity
with U.S. Government Securities),
9.875% due 7/1/13 263,000 250 263,250
600,000 600,000 AA Rutgers State University Refunding,
State University of New Jersey,
</TABLE>
See Notes to Pro-Forma Financial Statements.
<PAGE>253
SMITH BARNEY MUNI FUNDS - NEW JERSEY
SCHEDULES OF INVESTMENTS (unaudited) March 31,1995
<TABLE>
<CAPTION>
NEW JERSEY
NEW JERSEY NEW JERSEY TOTAL NEW JERSEY PORTFOLIO NEW JERSEY TOTAL
PORTFOLIO MUNICIPAL COMBINED PORTFOLIO BID TO MUNICIPAL COMBINED
FACE FACE FACE MARKET MEAN MARKET MARKET
AMOUNT AMOUNT AMOUNT RATING SECURITY VALUE ADJUSTMENT VALUE VALUE
- ---------- ---------- --------- ------ -------- ------ ---------- --------- --------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
Series 92A, 6.40% due 5/1/13 . 645,000 750 645,750
750,000 750,000 AA Rutgers State University, New
Jersey, University of New Jersey,
Series P,
6.850% due 5/1/2021 803,437 985,000
1,000,000 1,000,000 AA Salem County Pollution Control
Financing Authority, Waste Disposal
Revenue, E.I. Dupont De Nemours
& Co., 6.125% due 7/15/22 (a) 982,500 2,500 982,500
740,000 740,000 AAA Sayreville, New Jersey, Housing
Development Corporation, Mortgage
Revenue, FHA Refunding, (Lakeview
Apartments),
7.750% due 8/1/2024 811,225 811,225
1,500,000 1,500,000 Aa* Scotch Plains Township, New Jersey,
Senior Citizen Housing Corporation,
Revenue Bonds,
5.750% due 3/1/2023 1,408,125 1,408,125
1,000,000 1,000,000 Baa1* Shrewsbury Board of Education, COP,
6.60% due 8/15/15 . 1,015,000 1,250 1,016,000
2,500,000 2,500,000 AA Somerset Raritan Valley, New Jersey,
Sewer Authority Revenue, Series G,
6.750% due 7/1/2010 2,637,500 2,637,500
500,000 500,000 AAA South Amboy, New Jersey, General
Obligation Bonds, MBIA-Insured,
6.375% due 12/1/2010 523,750 523,750
South Brunswick Township, New
Jersey Board of Education:
1,500,000 1,500,000 AAA 6.400% due 8/1/2018 1,556,250 1,556,250
1,500,000 1,500,000 AAA 6.400% due 8/1/2019 1,550,625 1,550,625
1,000,000 1,000,000 AAA South Brunswick Township, New
Jersey Board of Education,
FGIC-Insured
6.40% due 8/1/21 1,032,500 1,250 1,033,750
1,000,000 1,000,000 A+ South Jersey Port Corporation
Marine Terminal Revenue Bonds,
1993 Series H,
5.75% due 1/1/13 (a) 965,000 1,250 966,250
750,000 750,000 AAA South Monmouth, New Jersey,
Regional Sewer Authority,
MBIA-Insured,
6.000% due 1/15/2014 760,313 760,313
1,000,000 1,000,000 AAA Southeast Morris County, New
Jersey, Municipal Utilities
Authority, Water Revenue,
Series A, FGIC-Insured,
6.500% due 1/1/2011 1,043,750 1,043,750
1,500,000 1,500,000 AAA Stafford, New Jersey, Municipal
Utilities Authority, Sewer and
Water Revenue, FGIC-Insured,
6.125% due 12/1/2022 1,520,625 1,520,625
750,000 750,000 AAA Trenton, New Jersey, General
Obligation Bonds,
MBIA-Insured,
6.550% due 8/15/2009 790,312 790,312
900,000 900,000 AAA Union City, New Jersey, General
Obligation Bonds, MBIA-Insured,
6.700% due 9/1/2012 950,625 950,625
1,000,000 1,000,000 A+ Union County, New Jersey,
Improvement Authority Revenue,
(Cranford Township Project),
</TABLE>
See Notes to Pro-Forma Financial Statements.
<PAGE>254
SMITH BARNEY MUNI FUNDS - NEW JERSEY
SCHEDULES OF INVESTMENTS (unaudited) March 31,1995
<TABLE>
<CAPTION>
NEW JERSEY
NEW JERSEY NEW JERSEY TOTAL NEW JERSEY PORTFOLIO NEW JERSEY TOTAL
PORTFOLIO MUNICIPAL COMBINED PORTFOLIO BID TO MUNICIPAL COMBINED
FACE FACE FACE MARKET MEAN MARKET MARKET
AMOUNT AMOUNT AMOUNT RATING SECURITY VALUE ADJUSTMENT VALUE VALUE
--------- ---------- -------- ------ -------- ---------- ---------- ---------- --------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
7.750% due 5/1/2003 1,088,750 1,088,750
2,000,000 2,000,000 A- Union County Utility Authority Solid
Waste Revenue, Series A, 7.15%
due 6/15/09 (a) 2,035,000 5,000 2,040,000
1,035,000 1,035,000 A- Union County, Solid Waste Revenue,
Series A, 7.20% due 6/15/14 (a) 1,049,231 2,588 1,051,819
1,140,000 1,140,000 AA University of New Jersey, School of
Medicine and Dentistry, Series C,
7.200% due 12/1/2019 1,225,500 1,225,500
1,000,000 1,000,000 AAA Virgin Islands HFA, Single-Family
Mortgage, GNMA-Collateralized,
6.50% due 3/1/25 (a) 995,000 2,500 997,500
125,000 125,000 AAA Virgin Islands Public Financing
Authority Revenue, Series A,
(Escrowed to Maturity with U.S.
Government Securities), 7.30%
due 10/1/18 146,094 156 146,250
875,000 875,000 AAA Virgin Islands Public Financing
Authority Revenue, Series A,
7.30% due 10/1/18, (Escrowed
with U.S. Government Securities
to 10/1/01 Call @ 101) 981,094 0 981,094
1,400,000 1,400,000 AAA Warren Hills, New Jersey, Regional School
District, FSA-Insured,
5.250% due 12/15/2009 1,324,750 1,324,750
854,000 854,000 AAA Weehawken Township, New Jersey, General
Obligation Bonds, FSA-Insured,
6.350% due 7/1/2007 896,700 896,700
1,500,000 1,500,000 AAA West New York, Municipal Utility
Authority Sewer Revenue Refunding,
FGIC-Insured, zero coupon due 12/15/12 536,250 1,875 538,125
West Windsor, Plainsboro, New Jersey,
Regional School District:
180,000 180,000 AA 6.750% due 4/1/2006 199,800 199,800
490,000 490,000 AA 6.750% due 4/1/2007 542,675 542,675
435,000 435,000 AA 6.800% due 4/1/2008 484,481 484,481
170,000 170,000 AA 6.800% due 4/1/2009 189,126 189,126
700,000 700,000 AAA Willingboro Municipal Utilities
Authority Water & Sewer Revenue,
Series C, MBIA-Insured, 7.00%
due 1/1/11 769,125 0 769,125
- ------------------------------------------------------------------------------------------------------------------------------------
54,082,305 159,174,588 213,374,445
- ------------------------------------------------------------------------------------------------------------------------------------
Guam - 0.4%
1,000,000 1,000,000 BBB Guam Government, GO, Series A, 5.375%
due 11/15/13 878,750 1,250 880,000
- -----------------------------------------------------------------------------------------------------------------------------------
Puerto Rico 2.9%
495,000 495,000 A Commonwealth of Puerto Rico, GO
8.000% due 7/1/2008 546,355 546,355
1,750,000 1,750,000 A Puerto Rico Commonwealth Highway &
Transportation Authority
Highway Revenue, Series W, 5.50%
due 7/1/15 1,614,375 2,187 1,616,562
1,000,000 1,000,000 AAA Puerto Rico Commonwealth Highway
Revenue, 7.75% due 7/1/10,
(Escrowed with U.S. Government
Securities to 7/1/00 Call @ 102) 1,142,500 0 1,142,500
790,000 790,000 A- Puerto Rico Electric Power Authority,
7.125% due 7/1/14, (Escrowed with
U.S. Government Securities to
7/1/99 Call @ 101.5) 870,975 0 870,975
1,000,000 1,000,000 AAA Puerto Rico Electric Power Authority,
Revenue, FSA-Insured, 8.478%
due 7/1/23 1,001,250 2,500 1,003,750
1,000,000 1,000,000 BBB Puerto Rico Housing Bank & Finance
Agency, Single-Family Mortgage,
7.50% due 12/01/06 1,091,250 2,500 1,093,750
225,000 225,000 AAA Puerto Rico Housing Finance Corporation,
Single-Family Mortgage, Series A,
GNMA-Collateralized, 7.80%
due 10/15/21 235,970 280 236,250
</TABLE>
See Notes to Pro-Forma Financial Statements.
<PAGE>255
SMITH BARNEY MUNI FUNDS - NEW JERSEY
SCHEDULES OF INVESTMENTS (unaudited) March 31,1995
<TABLE>
<CAPTION>
NEW JERSEY
NEW JERSEY NEW JERSEY TOTAL NEW JERSEY PORTFOLIO NEW JERSEY TOTAL
PORTFOLIO MUNICIPAL COMBINED PORTFOLIO BID TO MUNICIPAL COMBINED
FACE FACE FACE MARKET MEAN MARKET MARKET
AMOUNT AMOUNT AMOUNT RATING SECURITY VALUE ADJUSTMENT VALUE VALUE
- --------- ---------- -------- ------ -------- ---------- ---------- ---------- --------
<C> <C> <C> <C> <S> <C> <C> <C> <C>
5,956,320 546,355 6,510,142
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS & NOTES 60,917,375 99,269 159,720,943 220,836,856
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL BOND - 0.1%
Puerto Rico - 0.1%
300,000 300,000 VMIG1 Commonwealth of Puerto Rico, Government
Development Bank, Revenue Bond,
4.100% due 12/1/2015 + 300,000 300,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-100% (Cost-$215,419,845)(c) $60,917,375 $99,269 $160,020,943 $221,037,587
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Pro-Forma Financial Statements
</TABLE>
<PAGE>256
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
PART C
OTHER INFORMATION
Item 15. Indemnification
The response to this item is incorporated by reference to
"Liability of Directors/Trustees" under the caption
"Information on Shareholders' Rights" in Part A of this
Registration Statement.
Item 16. Exhibits -- References are to Registrant's Registration
Statement on Form N-1A as filed with the
Securities and Exchange Commission on December
1, 1987 (File Nos. 33-18779 and 811-5486) (the
"Registration Statement")
(1) (a) Registrant's Articles of Incorporation dated November 12, 1987,
Articles of Amendment dated December 15, 1988 to Articles of
Incorporation, Articles of Revival dated March 31, 1992 to
Articles of Incorporation, Articles Supplementary dated
November 5, 1992 to Articles of Incorporation, and Articles of
Amendment dated July 30, 1993 to Articles of Incorporation are
incorporated by reference to Post-Effective Amendment No. 12 to
the Registration Statement
(1)(b) Articles of Amendment dated October 14, 1994, Articles
Supplementary effective November 7, 1994, and Articles of
Amendment effective November 7, 1994 to the Registrant's
Articles of Incorporation.**
(2) (a) By-Laws of the Registrant dated November 23, 1987 are
incorporated by reference to the Registration Statement.
(2) (b) Amendments to Registrant's By-Laws dated July 20, 1994.**
(3) Not Applicable.
(4) Agreement and Plan of Reorganization (included as Exhibit A to
Registrant's Prospectus/Proxy Statement contained in Part A of
this Registration Statement).*
<PAGE>257
(5) Not Applicable.
(6) (a) Investment Advisory Agreement dated July 30, 1993 between the
Registrant and Greenwich Street Advisors is incorporated by
reference to Post-Effective Amendment No. 12 to the
Registration Statement.
(6) (b) Form of Transfer and Assumption of Investment Advisory
Agreement dated as of November 7, 1994, among the Registrant,
Mutual Management Corp and the Manager is incorporated by
reference to Post-Effective Amendment No. 14 to the
Registration Statement.
(7) Form of Distribution Agreement dated July 30, 1993 between the
Registrant and Smith Barney Shearson Inc. is incorporated by
reference to Post-Effective Amendment No. 12 to the
Registration Statement.
(8) Not Applicable.
(9) (a) Form of Custodian Agreement effective July 11, 1995.*
(9) (b) Transfer Agency Agreement dated August 2, 1993 between the
Registrant and the Shareholder Services Group, Inc. is
incorporated by reference to Post-Effective Amendment No. 12
to the Registration Statement.
(10) Amended and Restated Distribution Plan of the Registrant dated
November 7, 1994 pursuant to Rule 12b-1 is incorporated by
reference to Post-Effective Amendment No. 13 to the
Registration Statement.
(11) (a) Opinion and Consent of Willkie Farr & Gallagher with respect
to validity of shares.*
(11) (b) Opinion and Consent of Venable, Baetjer and Howard, LLP with
respect to certain matters under Maryland law.*
(12) Opinion and Consent of Willkie Farr & Gallagher with respect
to tax matters.*
(13) Not Applicable.
(14) (a) Consent of Coopers & Lybrand L.L.P.*
(14) (b) Consent of KPMG Peat Marwick LLP.*
<PAGE>258
(15) Not Applicable.
(16) Powers of Attorney (included on signature page).**
(17) (a) Form of Proxy Card.*
(17) (b) Registrant's Declaration pursuant to Rule 24f-2 is
incorporated by reference to its initial Registration
Statement.
* Filed herewith.
** Previously filed.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by
any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part of
an amendment to the Registration Statement and will not be
used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933,
each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
<PAGE>259
SIGNATURES
As required by the Securities Act of 1933, this Registration
Statement has been signed on behalf of the registrant, in the City of New York
and State of New York on the 24th day of October, 1995.
Smith Barney New Jersey Municipals Fund Inc.
By:/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board
and Chief Executive Officer
As required by the Securities Act of 1933, this Registration has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Heath B. McLendon Chairman of the Board October 24, 1995
Heath B. McLendon and Chief Executive
Officer
/s/ Lewis E. Daidone Treasurer (Chief Financial October 24, 1995
Lewis E. Daidone and Accounting Officer)
* Director October 24, 1995
Herbert Barg
* Director October 24, 1995
Alfred J. Bianchetti
<PAGE>260
* Director October 24, 1995
Martin Brody
* Director October 24, 1995
Dwight B. Crane
* Director October 24, 1995
Burt N. Dorsett
* Director October 24, 1995
Elliott S. Jaffe
* Director October 24, 1995
Stephen E. Kaufman
* Director October 24, 1995
Joseph J. McCann
* Director October 24, 1995
Cornelius Rose
*By /s/ Caren A. Cunningham
Caren A. Cunningham
Attorney-in-fact
<PAGE>261
EXHIBIT INDEX
Exhibit Number Description Page
(1)(b) Articles of Amendment dated October 14, 1995, **
Articles Supplementary effective November 7,
1994 and Articles of Amendment effective
November 7, 1994, to the Registrant's Articles
of Incorporation
(2)(b) Amendment to By-Laws dated July 20, 1994 **
(4) Agreement and Plan of Reorganization *
(included as Exhibit A to Registrant's
Prospectus/Proxy Statement contained in Part A
of this Registration Statement).
(9)(a) Form of Custodian Agreement effective July 11, 1995. *
(11) (a) Opinion and Consent of Willkie Farr & Gallagher *
with respect to validity of shares.
(11) (b) Opinion and Consent of Venable, Baetjer and Howard, LLP *
with respect to certain matters under Maryland law.
(12) Opinion and Consent of Willkie Farr & *
Gallagher with respect to tax matters.
(14) (a) Consent of Coopers & Lybrand L.L.P. *
(14) (b) Consent of KPMG Peat Marwick LLP. *
(16) Powers of Attorney (included on signature page). **
(17) (a) Form of Proxy Card. *
* Filed herewith.
** Previously filed.
<PAGE>1
FORM OF
CUSTODIAN SERVICES AGREEMENT
This Agreement is made as of ___________ by and between
_________________, a Maryland corporation/Massachusetts business trust (the
"Fund") and PNC BANK, NATIONAL ASSOCIATION, a national banking association
("PNC Bank").
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund wishes
to retain PNC Bank to provide custodian services and PNC Bank wishes to
furnish such services, either directly or through an affiliate or affiliates,
as more fully described herein. In consideration of the premises and mutual
covenants herein contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall mean
any officer of the Fund and any other person, who is duly authorized by the
Fund's Governing Board, to give Oral and Written Instructions on behalf of the
Fund. Such persons are listed in the Certificate attached hereto as the
Authorized Persons Appendix, as such Appendix may be amended in writing by the
Fund's Governing Board from time to time.
(b) "Book-Entry System". The term "Book-Entry System" means
Federal Reserve Treasury book-entry system for United States and federal
agency securities, its successor or successors, and its nominee or nominees
and any book-entry system maintained by an
<PAGE>2
exchange registered with the SEC under the 1934 Act.
(c) "CFTC". The term "CFTC" shall mean the Commodities Futures
Trading Commission.
(d) "Governing Board". The term "Governing Board" shall mean the
Fund's Board of Directors if the Fund is a corporation or the Fund's Board of
Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(e) "Oral Instructions". The term "Oral Instructions" shall mean
oral instructions received by PNC Bank from an Authorized Person or from a
person reasonably believed by PNC Bank to be an Authorized Person.
(f) "SEC". The term "SEC" shall mean the Securities and Exchange
Commission.
(g) "Securities and Commodities Laws". The term "Securities and
Commodities Laws" shall mean the "1933 Act" which shall mean the Securities
Act of 1933, the "1934 Act" which shall mean the Securities Exchange Act of
1934, the 1940 Act, and the "CEA" which shall mean the Commodities Exchange
Act, as amended.
(h) "Shares". The term "Shares" shall mean the shares of stock of
any series or class of the Fund, or, where appropriate, units of beneficial
interest in a trust where the Fund is organized as a Trust.
(i) "Property". The term "Property" shall mean:
(i) any and all securities and other investment
<PAGE>3
items which the Fund may from time to time deposit, or cause to be deposited,
with PNC Bank or which PNC Bank may from time to time hold for the Fund;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by PNC Bank from time to time,
from or on behalf of the Fund.
(j) "Written Instructions". The term "Written Instructions" shall
mean written instructions signed by one Authorized Person and received by PNC
Bank. The instructions may be delivered by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to provide custodian
services to the Fund, and PNC Bank accepts such appointment and agrees to
furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable,
will provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Governing Board, approving the appointment of PNC Bank or its
affiliates to provide services;
<PAGE>4
(b) a copy of the Fund's most recent effective registration
statement;
(c) a copy of the Fund's advisory agreement or agreements;
(d) a copy of the Fund's distribution agreement or agreements;
(e) a copy of the Fund's administration agreements if PNC Bank is
not providing the Fund with such services; (f) copies
of any shareholder servicing agreements made in respect of the Fund; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PNC Bank
undertakes to comply with all applicable requirements of the Securities and
Commodities Laws and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to all duties to be performed by
PNC Bank hereunder. Except as specifically set forth herein, PNC Bank assumes
no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement, PNC Bank
shall act only upon Oral and Written Instructions. PNC Bank shall be entitled
to rely upon any Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to be an Authorized
Person) pursuant to this Agreement. PNC Bank may assume that any
<PAGE>5
Oral or Written Instructions received hereunder are not in any way
inconsistent with the provisions of organizational documents or this Agreement
or of any vote, resolution or proceeding of the Fund's Governing Board or of
the Fund's shareholders.
The Fund agrees to forward to PNC Bank Written Instructions confirming
Oral Instructions so that PNC Bank receives the Written Instructions by the
close of business on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by PNC
Bank shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no liability to the
Fund in acting upon Oral or Written Instructions provided such instructions
reasonably appear to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt as to any action
it should or should not take, PNC Bank may request directions or advice,
including Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to any
questions of law pertaining to any action it should or should not take, PNC
Bank may request advice at its own cost from such counsel of its own choosing
(who may be counsel for the Fund, the Fund's advisor or PNC Bank, at the
option of PNC Bank).
<PAGE>6
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions PNC Bank receives from the
Fund, and the advice it receives from counsel, PNC Bank shall be entitled to
rely upon and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be protected in any
action it takes or does not take in reliance upon directions, advice or Oral
or Written Instructions it receives from the Fund or from counsel and which
PNC Bank believes, in good faith, to be consistent with those directions,
advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed so as to impose an
obligation upon PNC Bank (i) to seek such directions, advice or Oral or
Written Instructions, or (ii) to act in accordance with such directions,
advice or Oral or Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PNC Bank's properly
taking or not taking such action.
7. Records. The books and records pertaining to the Fund which are in
the possession of PNC Bank, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund, or the Fund's
Authorized Persons, shall have access to such books and records at all time
during PNC Bank's normal business hours. Upon the reasonable request of the
<PAGE>7
Fund, copies of any such books and records shall be provided by PNC Bank to
the Fund or to an Authorized Person of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep confidential all records of
the Fund and information relative to the Fund and its shareholders (past,
present and potential), unless the release of such records or information is
otherwise consented to, in writing, by the Fund. The Fund agrees that such
consent shall not be unreasonably withheld and may not be withheld where PNC
Bank may be exposed to civil or criminal contempt proceedings or when required
to divulge. The Fund further agrees that, should PNC Bank be required to
provide such information or records to duly constituted authorities (who may
institute civil or criminal contempt proceedings for failure to comply), PNC
Bank shall not be required to seek the Fund's consent prior to disclosing such
information.
9. Cooperation with Accountants. PNC Bank shall cooperate with the
Fund's independent public accountants and shall take all reasonable action in
the performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. Disaster Recovery. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is
<PAGE>8
available. In the event of equipment failures, PNC Bank shall, at no
additional expense to the Fund, take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
11. Compensation. As compensation for custody services rendered by PNC
Bank during the term of this Agreement, the Fund will pay to PNC Bank a fee or
fees as may be agreed to in writing from time to time by the Fund and PNC
Bank.
12. Indemnification. The Fund agrees to indemnify and hold harmless PNC
Bank and its nominees from all taxes, charges, expenses, assessment, claims
and liabilities (including, without limitation, liabilities arising under the
Securities and Commodities Laws and any state and foreign securities and blue
sky laws, and amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which PNC Bank takes or does not take (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its nominees, shall be
indemnified against any liability to the Fund or to its shareholders (or any
expenses incident to such liability) arising out of PNC Bank's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be under no duty to take
any action on behalf of the Fund except as
<PAGE>9
specifically set forth herein or as may be specifically agreed to by PNC Bank,
in writing. PNC Bank shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
effort, within reasonable limits, in performing services provided for under
this Agreement. PNC Bank shall be responsible for its own negligent failure
to perform its duties under this Agreement. Notwithstanding the foregoing, PNC
Bank shall not be responsible for losses beyond its control, provided that PNC
Bank has acted in accordance with the standard of care set forth above; and
provided further that PNC Bank shall only be responsible for that portion of
losses or damages suffered by the Fund that are attributable to the negligence
of PNC Bank.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PNC Bank, in connection with its duties under
this Agreement, shall not be under any duty or obligation to inquire into and
shall not be liable for (a) the validity or invalidity or authority or lack
thereof of any Oral or Written Instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, and which PNC Bank
reasonably believes to be genuine; or (b) delays or errors or loss of data
occurring by reason of circumstances beyond PNC Bank's control, including acts
of civil or military authority, national emergencies, labor difficulties,
fire, flood or catastrophe, acts of God, insurrection, war, riots or failure
of the mails,
<PAGE>10
transportation, communication or power supply.
Notwithstanding anything in this Agreement to the contrary, PNC Bank
shall have no liability to the Fund for any consequential, special or indirect
losses or damages which the Fund may incur or suffer by or as a consequence of
PNC Bank's performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund will deliver or arrange for
delivery to PNC Bank, all the property owned by the Fund, including cash
received as a result of the distribution of its Shares, during the period that
is set forth in this Agreement. PNC Bank will not be responsible for such
property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon
Written Instructions, shall open and maintain separate account(s) in the
Fund's name using all cash received from or for the account of the Fund,
subject to the terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial accounts for each
separate series, class or portfolio of the Fund and shall hold in such
account(s) all cash received from or for the accounts of the Fund specifically
designated to each separate series, class or portfolio. PNC Bank shall make
cash payments from or for the account of the Fund only for:
<PAGE>11
(i) purchases of securities in the name of the Fund or PNC
Bank or PNC Bank's nominee as provided in sub-paragraph j
and for which PNC Bank has received a copy of the broker's
or dealer's confirmation or payee's invoice, as
appropriate;
(ii) purchase or redemption of Shares of the Fund delivered
to PNC Bank;
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution, advisory,
management fees or similar expenses which are to be borne
by the Fund;
(iv) payment to, subject to receipt of Written Instructions,
the Fund's transfer agent, as agent for the shareholders,
an amount equal to the amount of dividends and
distributions stated in the Written Instructions to be
distributed in cash by the transfer agent to shareholders,
or, in lieu of paying the Fund's transfer agent, PNC Bank
may arrange for the direct payment of cash dividends and
distributions to shareholders in accordance with
procedures mutually agreed upon from time to time by and
among the Fund, PNC Bank and
<PAGE>12
the Fund's transfer agent;
(v) payments, upon receipt of Written Instructions, in
connection with the conversion, exchange or surrender of
securities owned or subscribed to by the Fund and held by
or delivered to PNC Bank;
(vi) payments of the amounts of dividends received with
respect to securities sold short; payments made to a
sub-custodian pursuant to provisions in sub-paragraph c of
this Paragraph; and
(viii) payments, upon Written Instructions made for other proper
Fund purposes. PNC Bank is hereby authorized to endorse
and collect all checks, drafts or other orders for the
payment of money received as custodian for the account of
the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all securities received by it for the
account of the Fund in a separate account that physically
segregates such securities from those of any other
persons, firms or corporations, except for securities held
in a Book-Entry System. All such securities shall be
held or disposed of
<PAGE>13
only upon Written Instructions of the Fund pursuant to the terms of this
Agreement. PNC Bank shall have no power or authority to assign, hypothecate,
pledge or otherwise dispose of any such securities or investment, except upon
the express terms of this Agreement and upon Written Instructions, accompanied
by a certified resolution of the Fund's Governing Board, authorizing the
transaction. In no case may any member of the Fund's Governing Board, or any
officer, employee or agent of the Fund withdraw any securities. At PNC Bank's
own expense and for its own convenience, PNC Bank may enter into sub-custodian
agreements with other banks or trust companies to perform duties described in
this sub-paragraph c. Such bank or trust company shall have an aggregate
capital, surplus and undivided profits, according to its last published
report, of at least one million dollars ($1,000,000), if it is a subsidiary or
affiliate of PNC Bank, or at least twenty million dollars ($20,000,000) if
such bank or trust company is not a subsidiary or affiliate of PNC Bank. In
addition, such
<PAGE>14
bank or trust company must agree to comply with the relevant provisions of the
1940 Act and other applicable rules and regulations. PNC Bank shall remain
responsible for the performance of all of its duties as described in this
Agreement and shall hold the Fund harmless from PNC Bank's own (or any
sub-custodian chosen by PNC Bank under the terms of this sub-paragraph c) acts
or omissions, under the standards of care provided for herein.
(d) Transactions Requiring Instructions. Upon receipt of Oral or
Written Instructions and not otherwise, PNC Bank, directly or through the use
of the Book-Entry System, shall:
(i) deliver any securities held for the Fund against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated
in such Oral or Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the
authority of the Fund as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or its
agent, when such securities are
<PAGE>15
called, redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to PNC Bank;
(iv) deliver any securities held for the Fund against receipt
of other securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing, tender
offer, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(v) deliver any securities held for the Fund to any
protective committee, reorganization committee or other
person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold
under the terms of this Agreement such certificates of
deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such
delivery;
(vi) make such transfer or exchanges of the assets of the Fund
and take such other steps as shall be stated in said Oral
or Written Instructions to be for the purpose of
<PAGE>16
effectuating a duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(vii) release securities belonging to the Fund to any bank or
trust company for the purpose of a pledge or hypothecation
to secure any loan incurred by the Fund; provided,
however, that securities shall be released only upon
payment to PNC Bank of the monies borrowed, except that in
cases where additional collateral is required to secure a
borrowing already made subject to proper prior
authorization, further securities may be released for that
purpose; and repay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing the loan;
(viii) release and deliver securities owned by the Fund in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund in connection
with such repurchase agreements, but only upon the
delivery of the securities;
<PAGE>17
(ix) release and deliver or exchange securities owned by the
Fund in connection with any conversion of such securities,
pursuant to their terms, into other securities;
(x) release and deliver securities owned by the Fund for the
purpose of redeeming in kind shares of the Fund upon
delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by the
Fund for other corporate purposes. PNC Bank must also
receive a certified resolution describing the nature of
the corporate purpose and the name and address of the
person(s) to whom delivery shall be made when such action
is pursuant to sub-paragraph d above.
(e) Use of Book-Entry System. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Governing Board approving, authorizing and
instructing PNC Bank on a continuous and on-going basis, to deposit in the
Book-Entry System all securities belonging to the Fund eligible for deposit
therein and to utilize the Book-Entry System to the extent possible in
connection with settlements of purchases and sales of securities by the Fund,
and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings.
<PAGE>18
PNC Bank shall continue to perform such duties until it receives Written or
Oral Instructions authorizing contrary actions(s).
To administer the Book-Entry System properly, the following provisions
shall apply:
(i) With respect to securities of the Fund which are
maintained in the Book-Entry system, established pursuant
to this sub-paragraph e hereof, the records of PNC Bank
shall identify by Book-Entry or otherwise those securities
belonging to the Fund. PNC Bank shall furnish the Fund a
detailed statement of the Property held for the Fund under
this Agreement at least monthly and from time to time and
upon written request.
(ii) Securities and any cash of the Fund deposited in the
Book-Entry System will at all times be segregated from
any assets and cash controlled by PNC Bank in other than a
fiduciary or custodian capacity but may be commingled with
other assets held in such capacities. PNC Bank and its
sub-custodian, if any, will pay out money only upon
receipt of securities and will deliver securities only
upon the receipt of money.
(iii) All books and records maintained by PNC Bank
<PAGE>19
which relate to the Fund's participation in the Book-Entry System will at all
times during PNC Bank's regular business hours be open to the inspection of
the Fund's duly authorized employees or agents, and the Fund will be furnished
with all information in respect of the services rendered to it as it may
require.
(iv) PNC Bank will provide the Fund with copies of any report
obtained by PNC Bank on the system of internal accounting
control of the Book-Entry System promptly after receipt of
such a report by PNC Bank. PNC Bank will also provide the
Fund with such reports on its own system of internal
control as the Fund may reasonably request from time to
time.
(f) Registration of Securities. All Securities held for the Fund
which are issued or issuable only in bearer form, except such securities held
in the Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name of the Fund; PNC
Bank; the Book-Entry System; a sub-custodian; or any duly appointed nominee(s)
of the Fund, PNC Bank, Book-Entry system or sub-custodian. The Fund reserves
the right to instruct PNC Bank as to the method of registration and
safekeeping of the securities of the Fund. The Fund agrees to furnish to PNC
Bank appropriate instruments to
<PAGE>20
enable PNC Bank to hold or deliver in proper form for transfer, or to register
its registered nominee or in the name of the Book-Entry System, any securities
which it may hold for the account of the Fund and which may from time to time
be registered in the name of the Fund. PNC Bank shall hold all such
securities which are not held in the Book-Entry System in a separate account
for the Fund in the name of the Fund physically segregated at all times from
those of any other person or persons.
(g) Voting and Other Action. Neither PNC Bank nor its nominee
shall vote any of the securities held pursuant to this Agreement by or for the
account of the Fund, except in accordance with Written Instructions. PNC
Bank, directly or through the use of the Book-Entry System, shall execute in
blank and promptly deliver all notice, proxies, and proxy soliciting materials
to the registered holder of such securities. If the registered holder is not
the Fund then Written or Oral Instructions must designate the person(s) who
owns such securities.
(h) Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, PNC Bank is authorized to take the following
actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Fund, all
income, dividends, distributions, coupons, option
premiums, other payments and similar items,
<PAGE>21
included or to be included in the Property, and, in addition, promptly advise
the Fund of such receipt and credit such income, as collected, to the Fund's
custodian account;
(B) endorse and deposit for collection, in the name of
the Fund, checks, drafts, or other orders for the
payment of money;
(C) receive and hold for the account of the Fund all
securities received as a distribution on the Fund's
portfolio securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution
of rights or similar securities issued with respect
to any portfolio securities belonging to the Fund
held by PNC Bank hereunder;
(D) present for payment and collect the amount payable
upon all securities which may mature or be called,
redeemed, or retired, or otherwise become payable on
the date such securities become payable; and
<PAGE>22
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver or cause to be
delivered Property against payment or other
consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer selling
for the account of the Fund in accordance with
street delivery custom;
(2) for the exchange of interim receipts or
temporary securities for definitive securities;
and
(3) for transfer of securities into the name of the
Fund or PNC Bank or nominee of either, or for
exchange of securities for a different number of
bonds,certificates, or other evidence,
representing the same aggregate face amount or
number of
<PAGE>23
units bearing the same interest rate, maturity date and call provisions, if
any; provided that, in any such case, the new securities are to be delivered
to PNC Bank.
(B) Unless and until PNC Bank receives Oral or Written
Instructions to the contrary, PNC Bank shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account
of the Fund;
(2) collect interest and cash dividends received,
with notice to the Fund, to the Fund's account;
(3) hold for the account of the Fund all stock
dividends, rights and similar securities issued
with respect to any securities held by PNC Bank;
and
(4) execute as agent on behalf of the Fund
all necessary ownership certificates required by
the Internal Revenue Code or the Income Tax
Regulations of the United States
<PAGE>24
Treasury Department or under the laws of any State now or hereafter in effect,
inserting the Fund's name, on such certificate as the owner of the securities
covered thereby, to the extent it may lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written or Oral
Instructions establish and maintain segregated account(s)
on its records for and on behalf of the Fund. Such
account(s) may be used to transfer cash and securities,
including securities in the Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option
exchange, providing such procedures comply with the
1940 Act and any releases of the SEC relating to the
maintenance of segregated accounts by registered
investment companies; and
(B) Upon receipt of Written Instructions, for other
proper corporate purposes.
(ii) PNC Bank may enter into separate custodial agreements with
various futures commission
<PAGE>25
merchants ("FCMs") that the Fund uses ("FCM Agreement"). Pursuant to an FCM
Agreement, the Fund's margin deposits in any transactions involving futures
contracts and options on futures contracts will be held by PNC Bank in
accounts ("FCM Account") subject to the disposition by the FCM involved in
such contracts and in accordance with the customer contract between FCM and
the Fund ("FCM Contract"), SEC rules and the rules of the applicable
commodities exchange. Such FCM Agreements shall only be entered into upon
receipt of Written Instructions from the Fund which state that:
(A) a customer agreement between the FCM and the Fund
has been entered into; and
(B) the Fund is in compliance with all the rules and
regulations of the CFTC. Transfers of initial margin
shall be made into a FCM Account only upon Written
Instructions; transfers of premium and variation
margin may be made into a FCM Account pursuant to
Oral Instructions.
Transfers of funds from a FCM Account to the FCM for
which PNC Bank holds such an
<PAGE>26
account may only occur upon certification by the FCM to PNC Bank that pursuant
to the FCM Agreement and the FCM Contract, all conditions precedent to its
right to give PNC Bank such instructions have been satisfied.
(iii) PNC Bank shall arrange for the establishment of IRA
custodian accounts for such share- holders holding Shares
through IRA accounts, in accordance with the Fund's
prospectuses, the Internal Revenue Code (including
regulations), and with such other procedures as are
mutually agreed upon from time to time by and among the
Fund, PNC Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall settle purchased
securities upon receipt of Oral or Written Instructions from the Fund or its
investment advisor(s) that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
<PAGE>27
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through
whom the purchase was made. PNC Bank shall upon receipt of
securities purchased by or for the Fund pay out of the
moneys held for the account of the Fund the total amount
payable to the person from whom or the broker through whom
the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Oral or
Written Instructions.
(k) Sales of Securities. PNC Bank shall settle sold securities
upon receipt of Oral or Written Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the
<PAGE>28
person to whom the sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any. PNC Bank shall deliver the
securities upon receipt of the total amount payable to the
Fund upon such sale, provided that the total amount
payable is the same as was set forth in the Oral or
Written Instructions. Subject to the foregoing, PNC Bank
may accept payment in such form as shall be satisfactory
to it, and may deliver securities and arrange for payment
in accordance with the customs prevailing among dealers in
securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the following reports:
(A) such periodic and special reports as the Fund may
reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of the Fund, listing the
portfolio securities belonging to the Fund with the
adjusted average cost of each issue and the market
value at the end of such month, and stating the cash
account of
<PAGE>29
the Fund including disbursement;
(C) the reports to be furnished to the Fund pursuant to
Rule 17f-4; and
(D) such other information as may be agreed upon from
time to time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or conversion
or similar communication received by it as custodian of
the Property. PNC Bank shall be under no other obligation
to inform the Fund as to such actions or events.
(m) Collections. All collections of monies or other property, in
respect, or which are to become part of the Property (but not the safekeeping
thereof upon receipt by PNC Bank) shall be at the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time after proper
demands have been made, PNC Bank shall notify the Fund in writing, including
copies of all demand letters, any written responses, memoranda of all oral
responses and telephonic demands thereto, and await instructions from the
Fund. PNC Bank shall not be obliged to take legal action for collection
unless and until reasonably indemnified to its satisfaction. PNC Bank shall
also notify the Fund as soon as reasonably practicable whenever income due on
securities is not collected in due course.
<PAGE>30
15. Duration and Termination. This Agreement shall continue until
terminated by the Fund or by PNC Bank on sixty (60) days' prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or
other property), PNC Bank shall not deliver cash, securities or other property
of the Fund to the Fund. It may deliver them to a bank or trust company of
PNC Bank's choice, having an aggregate capital, surplus and undivided profits,
as shown by its last published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under terms similar to
those of this Agreement. PNC Bank shall not be required to make any such
delivery or payment until full payment shall have been made to PNC Bank of all
of its fees, compensation, costs and expenses. PNC Bank shall have a security
interest in and shall have a right of setoff against Property in the Fund's
possession as security for the payment of such fees, compensation, costs and
expenses.
16. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address: Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, marked for the attention of the Custodian
Services Department (or its successor) (b) if to the Fund, at the
<PAGE>31
address of the Fund; or (c) if to neither of the foregoing, at such other
address as shall have been notified to the sender of any such notice or other
communication. If notice is sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
five days after it has been mailed. If notice is sent by messenger, it shall
be deemed to have been given on the day it is delivered.
17. Amendments. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought. 18. Delegation. PNC
Bank may assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of PNC Bank, National Association
or PNC Bank Corp., provided that (i) PNC Bank gives the Fund thirty (30) days
prior written notice; (ii) the delegate agrees with PNC Bank to comply with
all relevant provisions of the 1940 Act; and (iii) PNC Bank and such delegate
promptly provide such information as the Fund may request, and respond to such
questions as the Fund may ask, relative to the assignment, including (without
limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. 20. Further
Actions. Each party agrees to perform such
<PAGE>32
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
21. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the
parties may embody in one or more separate documents their agreement, if any,
with respect to delegated duties and/or Oral Instructions. The captions in
this Agreement are included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise affect their
construction or effect.
This Agreement shall be deemed to be a contract made in Pennsylvania and
governed by Pennsylvania law, without regard to principles of conflicts of
law. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
<PAGE>33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION
By: Title:
[NAME OF FUND]
By: Title:
<PAGE>34
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
<PAGE>1
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
October 23, 1995
Smith Barney New Jersey Municipals
Fund Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We have acted as counsel for Smith Barney New Jersey Municipals Fund
Inc., a corporation organized under the laws of the State of Maryland (the
"Acquiring Fund"), in connection with the transfer of all or substantially all
of the assets of the New Jersey Portfolio (the "Acquired Fund"), a series of
Smith Barney Muni Funds ("SBMF"), a business trust organized under the laws of
The Commonwealth of Massachusetts, to the Acquiring Fund and the related
issuance of shares of the Acquiring Fund's Class A, Class B and Class C shares
of common stock, par value $.001 per share (the "Acquiring Fund Shares"), and
the assumption by the Acquiring Fund of scheduled liabilities of the Acquired
Fund in exchange therefor, all pursuant to an Agreement and Plan of
Reorganization dated as of October 23, 1995 (the "Agreement") between the
Acquiring Fund and SBMF on behalf of the Acquired Fund. Capitalized terms used
herein have the same meanings ascribed to them in the Agreement unless defined
otherwise herein.
As counsel for the Acquiring Fund, we have examined the Acquiring
Fund's Registration Statement on Form N-14 substantially in the form in which
it is to become effective (the "Registration Statement"), the Acquiring Fund's
Articles of Incorporation and By-laws, and all amendments thereto, and the
Agreement.
We have also examined and relied upon such organizational records of
the Acquiring Fund and other documents and certificates with respect to factual
matters as we have deemed necessary to render the opinions expressed herein.
We have assumed without independent verification the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals and the conformity with originals of all
documents submitted to us as copies. As to matters of Maryland law, we have
relied solely on the opinion of Venable Baetjer and Howard, LLP with respect to
the matters addressed therein, which is satisfactory to us in form and scope
and a copy of which is annexed hereto.
<PAGE>2
Smith Barney New Jersey Municipals
Fund Inc.
October 23, 1995
Page 2
Anything in this opinion to the contrary notwithstanding, we render
or imply no opinion with respect to compliance with any applicable securities
or anti-fraud statutes, rules, regulations or other similar laws of any state
(including Maryland) or the United States of America. In rendering the
opinions herein, we assume that there will be no material changes in the facts
and conditions on which we base such opinions between the date hereof and the
time of issuance of the Acquiring Fund Shares pursuant to the Agreement.
Based upon the foregoing, we are of the opinion that the Acquiring
Fund is a corporation validly existing and in good standing under the laws of
the State of Maryland. We are further of the opinion that the Acquiring Fund
Shares to be issued as contemplated in the Agreement have been, to the extent
of the number of shares of the respective class authorized in the Acquiring
Fund's Charter and then unissued, duly authorized, and, subject to the receipt
by the Acquiring Fund of consideration equal to the net asset value thereof
(but in no event less than the par value thereof), when issued in accordance
with the Agreement will be validly issued, fully paid and nonassessable under
the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the references to us in the Prospectus/Proxy
Statement included as part of the Registration Statement and to the filing of
this opinion as an exhibit to any application made by or on behalf of the
Acquiring Fund or any distributor or dealer in connection with the registration
or qualification of the Acquiring Fund or the Acquiring Fund Shares under the
securities laws of any state or other jurisdiction.
This opinion is furnished by us as counsel to the Acquiring Fund, is
solely for the benefit of the Acquiring Fund and its governing board in
connection with the above described acquisition of assets and liabilities and
may not be relied upon for any other purpose or by any other person.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>3
[LETTERHEAD OF VENABLE, BAETJER AND HOWARD, LLP]
October 23, 1995
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022-4669
Re: Smith Barney New Jersey Municipals Fund Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel to Smith Barney New Jersey
Municipals Fund Inc., a Maryland corporation (the "Company"), in connection
with the proposed acquisition by the Company of all or substantially all the
assets and certain scheduled liabilities of the New Jersey Portfolio (the
"Acquired Fund"), a portfolio of Smith Barney Muni-Funds, a Massachusetts
business trust (the "Trust"), in exchange for Class A, Class B, and Class C
shares of the Company (the "Class A Shares," "Class B Shares," and "Class C
Shares," respectively), pursuant to an Agreement and Plan of Reorganization
to be executed by the Company and by the Trust, on behalf of the Acquired
Fund (the "Agreement").
We have examined the Company's Registration Statement on Form N-14
substantially in the form in which it is to become effective (the
"Registration Statement"), the Company's Charter and Bylaws, and a draft of
the Agreement substantially in the form in which it is to be attached to the
Prospectus/Proxy Statement included in the Registration Statement. We have
further examined and relied upon a certificate of the Maryland State
Department of Assessments and Taxation to the effect that the Company is duly
incorporated and existing under the laws of the State of Maryland and is in
good standing and duly authorized to transact business in the State of
Maryland.
We have also examined and relied upon such corporate records of the
Company and other documents and certificates with respect to factual matters
as we have deemed necessary to render the opinion expressed herein. We have
assumed, without independent verification, the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with originals of all documents submitted to us as copies. We have
further assumed that the Agreement will be duly executed and delivered in
substantially the same form as the draft submitted to us and that upon such
execution and delivery,
<PAGE>4
Willkie Farr & Gallagher
November , 1995
Page 2
it will constitute the legal, valid and binding obligation of the Trust,
enforceable against the Trust in accordance with its terms, and, further, that
the number of Class A Shares, Class B Shares, and Class C Shares to be issued
by the Company to the Trust and then distributed to the shareholders of the
Acquired Fund pursuant to the Agreement will not exceed the respective number
of then unissued Class A Shares, Class B Shares, and Class C Shares authorized
in the Company's Charter.
Based upon the foregoing, we are of the opinion that:
1 . The Company is a corporation validly existing and in good
standing under the laws of the State of Maryland.
2. The Class A Shares, Class B Shares, and Class C Shares of the
Company to be issued as contemplated in the Agreement have been, to the extent
of the number of shares of the respective class authorized in the Charter of
the Company and then unissued, duly authorized, and, subject to the receipt by
the Company of consideration equal to the net asset value thereof (but in no
event less than the par value thereof, when issued in accordance with the
Agreement will be validly issued, fully paid and nonassessable Class A Shares,
Class B Shares, and Class C Shares of the Company under the laws of the State
of Maryland.
This letter expresses our opinion with respect to the Maryland
General Corporation Law governing matters such as the authorization and
issuance of stock. It does not extend to the securities or "blue sky" laws of
Maryland, to federal securities laws or to other laws.
You may rely on our foregoing opinion in rendering your opinion to
the Company that is to be filed as an exhibit to the Registration Statement.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters" in the
Prospectus/Proxy Statement included in the Registration Statement. We do not
thereby admit that we are "experts" as that term is used in the Securities Act
of 1933 and the regulations thereunder.
Very truly yours,
/s/ Venable, Baetjer and Howard, LLP
<PAGE>1
[LETTERHEAD OF VENABLE, BAETJER AND HOWARD, LLP]
October 23, 1995
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022-4669
Re: Smith Barney New Jersey Municipals Fund Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel to Smith Barney New Jersey
Municipals Fund Inc., a Maryland corporation (the "Company"), in connection
with the proposed acquisition by the Company of all or substantially all the
assets and certain scheduled liabilities of the New Jersey Portfolio (the
"Acquired Fund"), a portfolio of Smith Barney Muni-Funds, a Massachusetts
business trust (the "Trust"), in exchange for Class A, Class B, and Class C
shares of the Company (the "Class A Shares," "Class B Shares," and "Class C
Shares," respectively), pursuant to an Agreement and Plan of Reorganization
to be executed by the Company and by the Trust, on behalf of the Acquired
Fund (the "Agreement").
We have examined the Company's Registration Statement on Form N-14
substantially in the form in which it is to become effective (the
"Registration Statement"), the Company's Charter and Bylaws, and a draft of
the Agreement substantially in the form in which it is to be attached to the
Prospectus/Proxy Statement included in the Registration Statement. We have
further examined and relied upon a certificate of the Maryland State
Department of Assessments and Taxation to the effect that the Company is duly
incorporated and existing under the laws of the State of Maryland and is in
good standing and duly authorized to transact business in the State of
Maryland.
We have also examined and relied upon such corporate records of the
Company and other documents and certificates with respect to factual matters
as we have deemed necessary to render the opinion expressed herein. We have
assumed, without independent verification, the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with originals of all documents submitted to us as copies. We have
further assumed that the Agreement will be duly executed and delivered in
substantially the same form as the draft submitted to us and that upon such
execution and delivery,
<PAGE>2
Willkie Farr & Gallagher
November , 1995
Page 2
it will constitute the legal, valid and binding obligation of the Trust,
enforceable against the Trust in accordance with its terms, and, further, that
the number of Class A Shares, Class B Shares, and Class C Shares to be issued
by the Company to the Trust and then distributed to the shareholders of the
Acquired Fund pursuant to the Agreement will not exceed the respective number
of then unissued Class A Shares, Class B Shares, and Class C Shares authorized
in the Company's Charter.
Based upon the foregoing, we are of the opinion that:
1 . The Company is a corporation validly existing and in good
standing under the laws of the State of Maryland.
2. The Class A Shares, Class B Shares, and Class C Shares of the
Company to be issued as contemplated in the Agreement have been, to the extent
of the number of shares of the respective class authorized in the Charter of
the Company and then unissued, duly authorized, and, subject to the receipt by
the Company of consideration equal to the net asset value thereof (but in no
event less than the par value thereof), when issued in accordance with the
Agreement will be validly issued, fully paid and nonassessable Class A Shares,
Class B Shares, and Class C Shares of the Company under the laws of the State
of Maryland.
This letter expresses our opinion with respect to the Maryland
General Corporation Law governing matters such as the authorization and
issuance of stock. It does not extend to the securities or "blue sky" laws of
Maryland, to federal securities laws or to other laws.
You may rely on our foregoing opinion in rendering your opinion to
the Company that is to be filed as an exhibit to the Registration Statement.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters" in the
Prospectus/Proxy Statement included in the Registration Statement. We do not
thereby admit that we are "experts" as that term is used in the Securities Act
of 1933 and the regulations thereunder.
Very truly yours,
/s/ Venable, Baetjer and Howard, LLP
<PAGE>1
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
October 23, 1995
Smith Barney Muni Funds - New Jersey Portfolio
388 Greenwich Street
New York, New York 10013
Smith Barney New Jersey Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
You have asked us for our opinion concerning certain federal income tax
consequences to (a) Smith Barney New Jersey Municipals Fund Inc. (the
"Acquiring Fund"), (b) New Jersey Portfolio (the "Acquired
Fund"), a separate series of Smith Barney Muni Funds, and (c) holders of
shares of beneficial interest in the Acquired Fund (the "Acquired Fund
Shareholders") when the holders of Class A, Class B and Class C shares of the
Acquired Fund receive Class A, Class B and Class C shares, respectively, of
the Acquiring Fund (all such shares of the Acquiring Fund referred to
hereinafter as the "Acquiring Fund Shares") in liquidation of their interests
in the Acquired Fund pursuant to an acquisition by the Acquiring Fund of all
or substantially all of the assets of the Acquired Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of scheduled
liabilities of the Acquired Fund and the subsequent liquidation of the
Acquired Fund and distribution in liquidation of the Acquiring Fund Shares to
the Acquired Fund Shareholders.
We have reviewed such documents and materials as we have considered necessary
for the purpose of rendering this opinion. In rendering this opinion, we
assume that such documents as yet unexecuted will, when executed, conform in
all material respects to the proposed forms of such documents that we have
examined. In addition, we assume the genuineness of all signatures, the
capacity of each party executing a document so to execute that document, the
authenticity of all documents submitted to us as
<PAGE>2
October 23, 1995
Page 2
originals and the conformity to original documents of all documents submitted
to us as certified or photostatic copies.
We have made inquiry as to the underlying facts which we considered to be
relevant to the conclusions set forth in this letter. The opinions expressed
in this letter are based upon certain factual statements relating to the
Acquired Fund and the Acquiring Fund set forth in the Registration Statement
on Form N-14 (the "Registration Statement") filed by the Acquiring Fund with
the Securities and Exchange Commission and representations to be made in
letters from the Acquired Fund and the Acquiring Fund addressed to us for our
use in rendering this opinion. Based on information received from the
Acquired Fund and the Acquiring Fund, we have no reason to believe that we
will not be able to render this opinion as a final opinion at the Closing. We
have no reason to believe that these representations and facts will not be
valid, but we have not attempted and will not attempt to verify independently
any of these representations and facts, and this opinion is based upon the
assumption that each of them is accurate. Capitalized terms used herein and
not otherwise defined shall have the meaning given them in the Registration
Statement.
The conclusions expressed herein are based upon the Internal Revenue Code of
1986 (the "Code"), Treasury regulations issued thereunder, published rulings
and procedures of the Internal Revenue Service and judicial decisions, all as
in effect on the date of this letter.
Based upon the foregoing, it is our opinion that:
(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of scheduled liabilities of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code, and
the Acquired Fund and the Acquiring Fund are each a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for Acquiring Fund
Shares and the assumption by the Acquiring Fund of scheduled liabilities of
the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for
Acquiring Fund Shares and the assumption by
<PAGE>3
October 23, 1995
Page 3
the Acquiring Fund of scheduled liabilities of the Acquired Fund or upon the
distribution (whether actual or constructive) of Acquiring Fund Shares to
Acquired Fund Shareholders;
(4) no gain or loss will be recognized by Acquired Fund Shareholders
upon the exchange of their shares of the Acquired Fund for Acquiring Fund
Shares;
(5) the aggregate tax basis of Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will be the same as
the aggregate tax basis of the shares of the Acquired Fund surrendered in
exchange therefor, and the holding period of the Acquiring Fund Shares to be
received by each Acquired Fund Shareholder will include the period during
which the shares of the Acquired Fund exchanged therefor were held by such
Acquired Fund Shareholder (provided the shares of the Acquired Fund were held
as capital assets on the date of the Reorganization); and
(6) the tax basis to the Acquiring Fund of the Acquired Fund's assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization, and the
holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which those assets were held by
the Acquired Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our
firm in the Registration Statement or in the Prospectus/Proxy Statement
constituting a part thereof.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Smith Barney New Jersey Municipals Fund Inc.:
We hereby consent to the following with respect to the
Registration Statement on Form N-14 under the Securities Act of
1933, as amended, of Smith Barney New Jersey Municipals Fund
Inc.:
1. The incorporation by reference of our report dated May 10,
1995, accompanying the Annual Report of the Smith Barney New
Jersey Municipals Fund Inc. (formerly the Smith Barney
Shearson New Jersey Municipals Fund Inc.) as of March 31, 1995,
in the Prospectus/Proxy Statement.
2. The reference to our firm under the heading "Financial
Statements and Experts" in the Prospectus/Proxy Statement.
3. The reference to our firm under the heading "Financial
Highlights" in the Prospectus dated May 29, 1995 of the Smith
Barney New Jersey Municipals Fund Inc..
4. The reference to our firm under the heading "Counsel and
Auditors" in the Statement of Additional Information dated May
29, 1995 of the Smith Barney New Jersey Municipals Fund Inc..
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 25, 1995
<PAGE>1
Independent Auditors' Consent
To Shareholders and Board of Trustees
of the Smith Barney Muni Funds:
We consent to the use of our report dated May 15, 1995 with respect to the New
Jersey Portfolio incorporated herein by reference in the Prospectus and
included in this Registration Statement on Form N-14 for Smith Barney Muni
Funds and to the references to our firm under the headings "Financial
Statements and Experts" in the Prospectus/Proxy Statement and "Financial
Highlights" in the Prospectus incorporated herein by reference.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
October 20, 1995
New York, New York
<PAGE>1
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
..............................................................................
..............................................................................
SMITH BARNEY MUNI FUNDS -- NEW JERSEY PORTFOLIO
PROXY SOLICITED BY THE BOARD OF TRUSTEES
The undersigned holder of shares of Smith Barney Muni Funds -- New Jersey
Portfolio ("New Jersey Portfolio"), hereby appoints Heath B. McLendon,
Christina T. Sydor and Caren A. Cunningham attorneys and proxies for the
undersigned with full powers of substitution and revocation, to represent the
undersigned and to vote on behalf of the undersigned all shares of the New
Jersey Portfolio that the undersigned is entitled to vote at the Special
Meeting of Shareholders of New Jersey Portfolio to be held at the offices of
New Jersey Portfolio, 388 Greenwich Street, 26th Floor, New York, New York on
November 14, 1995 at 4:00 p.m., and any adjournment or adjournments thereof.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
and Prospectus/Proxy Statement dated October 24, 1995 and hereby instructs
said attorneys and proxies to vote said shares as indicated herein. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Special Meeting. A majority of the proxies present
and acting at the Special Meeting in person or by substitute (or, if only one
shall be so present, then that one) shall have and may exercise all of the
power and authority of said proxies hereunder. The undersigned hereby revokes
any proxy previously given.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
Date: ________________________________________________
Note: Please sign exactly as your name appears on this Proxy. If joint
owners, EITHER may sign this Proxy. When signing as attorney, executor,
administrator, trustee, guardian or corporate officer, please give your full
title.
________________________________________________
________________________________________________
Signature(s) (Title(s), if applicable)
<PAGE>2
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
..............................................................................
.............................................................................
Please indicate your vote by filling in the appropriate box below, as shown,
using blue or black ink or dark pencil. Do not use red ink [SYMBOL OF FILLED
IN BLACK BOX]. This proxy, if properly executed, will be voted in the manner
directed by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR APPROVAL OF THE PROPOSAL.
1. To approve or disapprove the
Agreement and Plan of Reorganization
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
dated as of October 23, 1995 providing for (i) the acquisition of all or
substantially all of the assets of Smith Barney Muni Funds -- New Jersey
Portfolio ("New Jersey Portfolio") by Smith Barney New Jersey Municipals Fund
Inc. ("New Jersey Fund") in exchange for shares of New Jersey Fund and the
assumption by New Jersey Fund of scheduled liabilities of New Jersey
Portfolio, (ii) the distribution to shareholders of New Jersey Portfolio of
such shares of New Jersey Fund in liquidation of New Jersey Portfolio and
(iii) the subsequent termination of New Jersey Portfolio.
