ANNUAL REPORT
1997
1997
1997
1997
1997
SMITH BARNEY
NEW JERSEY
MUNICIPALS
FUND INC.
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March 31, 1997
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
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Smith Barney New Jersey Municipals Fund Inc.
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Dear Shareholder:
We are pleased to provide the annual report for the Smith Barney New Jersey
Municipals Fund Inc. for the period ended March 31, 1997. In this report, we
summarize the period's prevailing economic and market conditions and outline our
portfolio strategy. A detailed summary of the Fund's performance can be found in
the appropriate sections that follow in the annual report.
Performance Update
For the year ended March 31, 1997, the Class A shares of the New Jersey
Municipals Fund had a total return of 5.74% which compares favorably to its
Lipper Analytical Services, Inc. peer group average total return of 4.79% for
the same period. (Lipper Analytical Services, Inc. is an independent fund
tracking organization.) Over the twelve months covered by the report, the Fund
distributed dividends totaling $0.684 per Class A share. In addition, we are
pleased to announce that effective April 1, 1997, the Fund increased its monthly
dividend from $0.057 to $0.059 per Class A share, from $0.0517 to $0.0538 per
Class B share, and from $0.0511 to $0.0534 per Class C share.
Based on its net asset value (NAV) of $12.92 as of March 31, 1997 for Class A
shares (and the current dividend of $0.059 per Class A share), the Fund has an
annualized distribution rate of 5.48%. For a New Jersey state resident in the
combined federal and state income tax bracket of 40.21% (assuming a federal tax
bracket of 36%, which represents 10% of the U.S. federal taxpayers), the Fund's
tax-free yield of 5.48% is equivalent to a taxable yield of 9.17%. We believe
the Fund's emphasis on income and its defensive posture over the reporting
period contributed to its competitive performance.
Market and Economic Overview
Over the past year, the domestic bond market experienced significant volatility
as investors vacillated between expectations of slower growth and resurgent
demand. This investor uncertainty over the future direction of the U.S. economy
could be seen in the price swings of the benchmark 30-year U.S. Treasury bond.
For example, during the spring of 1996, yields on the 30-year U.S. Treasury bond
fluctuated in a relatively broad range of approximately 6.5% to over 7.2%.
The fixed income markets began to rally in the fourth quarter of 1996, with
strong performance gains by investment grade bonds and U.S. Treasury bonds. An
apparent slowdown in U.S. economic growth at the onset of the fourth quarter,
1
<PAGE>
combined with favorable inflation data, generally helped to bolster the fixed
income markets. The bond market rally was also fueled by the Federal Reserve
Board's ("Fed") decision to remain on the sidelines and not raise interest
rates.
However, since December 1996, Fed Chairman Alan Greenspan has continued to warn
investors about the possible re-emergence of higher inflation in the U.S.
economy. Greenspan's comments caused many investors to believe that a move to
raise short-term interest rates by the Fed was imminent. In late March of this
year, a steady stream of strong economic reports prompted the Fed to raise the
federal funds rate by 25 basis points, or 0.25%. (The federal funds rate is the
interest rate banks charge each other for overnight loans and a closely watched
indicator of the direction of interest rates.)
Municipal Bond Market Update
Despite the challenges faced by fixed income markets, municipal bonds have
continued to deliver competitive performance with less overall volatility
relative to U.S. government bonds. In our opinion, the municipal bond market
continues to be driven primarily by many investors who may be concerned with the
recent historically high value of the stock market. As the equity market has
grown more turbulent, many investors have gravitated toward bonds in an effort
to rebalance their portfolios. In our opinion, this increased demand combined
with light supply, has tended to support municipal bond prices.
New Jersey Economic Highlights
The New Jersey economy has made steady improvement over the last year, although
its economic growth still slightly trails other states in the Northeast region.
In particular, New Jersey has made significant improvements in the area of
health care through consolidations and mergers of health-care providers.
However, we believe that the relatively large percentage of uninsured residents
could pose future problems for the state.
Because both Governor Whitman and the legislature are facing re-election later
this year, we do not expect to see additional tax-reform in the state for the
remainder of 1997. After a 30% income tax reduction implemented by the Governor
in 1994, we believe that further tax reductions in New Jersey are unlikely.
Fund's Investment Strategy
The Smith Barney New Jersey Municipals Fund seeks to provide New Jersey
investors with as high a level of current income exempt from federal and New
Jersey personal income taxes as is consistent with prudent investment management
and the preservation of capital. The Fund invests primarily in investment-grade
municipal securities.
2
<PAGE>
Over the period covered by this report, the Fund continued to focus on
high-quality issues and remained broadly diversified across various sectors. As
of March 31, 1997, approximately 85% of the Fund's holdings were rated
investment grade (BBB/Baa and higher) by either Standard and Poor's Ratings
Services or Moody's Investors Service Inc., and about 54% of the Fund's
portfolio was invested in AAA-rated bonds, the highest rating. (Standard and
Poor's Ratings Services and Moody's Investors Service are two major credit
reporting and bond rating agencies.) The Fund's largest holdings are
concentrated in hospital bonds (22.7%), education bonds (12.5%), utility bonds
(11.2%), and general obligation bonds (11.6%). The Fund's average weighted
maturity was just over 20 years as of March 31, 1997.
Municipal Bond Market Outlook
In the months ahead, we believe that municipal bonds should provide investors
with competitive returns with significantly less volatility than the U.S.
Treasury bond market. We expect to see continued Fed vigilance against any
possible inflationary pressures. In our view, although it is likely that the Fed
will move to raise short-term interest rates again this year, yields on the 30
year U.S. Treasury bond will probably moderate to a range of 6.75% to 7.0% as
opposed to the current range of 7.0% to 7.25%. In addition, we are optimistic on
positive developments in the political arena including proposed adjustments to
the Consumer Price Index (CPI) and the rejection of federal tax reform by voters
in last November's election. We believe the proposed CPI reduction could
substantially reduce payments made to costly entitlement programs such as Social
Security and Medicare. In our opinion, although the issue of tax reform is far
from over, it should not become a big issue in the near future.
In closing, thank you for investing in the Smith Barney New Jersey Municipals
Fund. We look forward to continuing to help you achieve you financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Lawrence T. McDermott
Heath B. McLendon Lawrence T. McDermott
Chairman Vice President and
Investment Officer
April 11, 1997
3
<PAGE>
================================================================================
Historical Performance -- Class A Shares
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
3/31/97 $12.88 $12.92 $ 0.68 $ 0.00 $ 0.00 5.74%
- --------------------------------------------------------------------------------------------------------------
3/31/96 12.62 12.88 0.70 0.00 0.00 7.77
- --------------------------------------------------------------------------------------------------------------
3/31/95 12.55 12.62 0.70 0.00 0.00 6.37
- --------------------------------------------------------------------------------------------------------------
3/31/94 13.16 12.55 0.70 0.15 0.00 1.66
- --------------------------------------------------------------------------------------------------------------
3/31/93 12.44 13.16 0.75 0.14 0.01 13.49
- --------------------------------------------------------------------------------------------------------------
3/31/92 12.17 12.44 0.77 0.13 0.04 10.22
- --------------------------------------------------------------------------------------------------------------
3/31/91 11.92 12.17 0.83 0.05 0.01 9.89
- --------------------------------------------------------------------------------------------------------------
3/31/90 11.67 11.92 0.82 0.03 0.00 9.62
- --------------------------------------------------------------------------------------------------------------
Inception*-3/31/89 11.40 11.67 0.82 0.01 0.00 9.84+
==============================================================================================================
Total $ 6.77 $ 0.51 $ 0.06
==============================================================================================================
</TABLE>
================================================================================
Historical Performance -- Class B Shares
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
3/31/97 $12.88 $12.92 $ 0.62 $ 0.00 $ 0.00 5.23%
- --------------------------------------------------------------------------------------------------------------
3/31/96 12.62 12.88 0.63 0.00 0.00 7.20
- --------------------------------------------------------------------------------------------------------------
3/31/95 12.55 12.62 0.62 0.00 0.00 5.76
- --------------------------------------------------------------------------------------------------------------
3/31/94 13.16 12.55 0.63 0.15 0.00 1.15
- --------------------------------------------------------------------------------------------------------------
Inception*-3/31/93 12.75 13.16 0.27 0.14 0.01 6.60+
==============================================================================================================
Total $ 2.77 $ 0.29 $ 0.01
==============================================================================================================
</TABLE>
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Historical Performance -- Class C Shares
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
-------------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
3/31/97 $12.88 $12.92 $ 0.61 $ 0.00 $ 0.00 5.17%
- --------------------------------------------------------------------------------------------------------------
3/31/96 12.62 12.88 0.63 0.00 0.00 7.17
- --------------------------------------------------------------------------------------------------------------
Inception*-3/31/95 11.86 12.62 0.18 0.00 0.00 8.01+
==============================================================================================================
Total $ 1.42 $ 0.00 $ 0.00
==============================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
4
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================================================================================
Average Annual Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
---------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Year Ended 3/31/97 5.74% 5.23% 5.17%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/97 6.94 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 3/31/97 8.29 5.89 8.94
================================================================================
</TABLE>
<TABLE>
<CAPTION>
With Sales Charge(2)
---------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Year Ended 3/31/97 1.49% 0.73% 4.17%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/97 6.07 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 3/31/97 7.80 5.70 8.94
================================================================================
</TABLE>
================================================================================
Cumulative Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (Inception* through 3/31/97) 103.92%
- --------------------------------------------------------------------------------
Class B (Inception* through 3/31/97) 28.64
- --------------------------------------------------------------------------------
Class C (Inception* through 3/31/97) 21.75
================================================================================
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and C
shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 4.00% and Class B shares reflect the
deduction of a 4.50% CDSC, which applies if shares are redeemed within one
year from initial purchase. This CDSC declines by 0.50% the first year
after purchase and thereafter by 1.00% per year until no CDSC is incurred.
Class C shares reflect the deduction of a 1.00% CDSC, which applies if
shares are redeemed within the first year of purchase.
* Inception dates for Class A, B and C shares are April 22, 1988, November 6,
1992 and December 13, 1994, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
5
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A Shares of the
Smith Barney New Jersey Municipals Fund Inc.
vs. Lehman Brothers Municipal Bond Index+
- --------------------------------------------------------------------------------
April 1988 -- March 1997
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
Smith Barney New Jersey Lehman Brothers
Municipals Fund Inc. Municipal Bond Index
-------------------- ----------------------
<S> <C> <C>
4/22/88 $ 9,596 $ 10,000
3/89 10,540 10,641
3/90 11,554 11,763
3/91 12,696 12,847
3/92 13,992 14,131
3/93 15,879 15,900
3/94 16,143 16,269
3/95 17,171 17,479
3/96 18,505 18,945
3/31/97 19,568 19,975
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares at inception
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, if any, at
net asset value through March 31, 1997. The Lehman Brothers Municipal Bond
Fund Index is a broad based, total return index comprised of 8,000 bonds which
are all investment grade, fixed rate, long term maturities (greater than two
years) and are selected from issues larger than $50 million dated since
January, 1984. The index is unmanaged and is not subject to the same
management and trading expenses of a mutual fund. The performance of the
Fund's other classes may be greater or less than the Class A shares'
performance indicated on this chart, depending on whether greater or lesser
sales charges and fees were incurred by shareholders investing in the other
classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
values may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.
6
<PAGE>
================================================================================
Portfolio Highlights (unaudited) March 31, 1997
================================================================================
Portfolio Breakdown
[GRAPHIC]
General Obligation 11.6%
Hospital 22.7%
Utilities 11.2%
Other 12.9%
Education 12.5%
Industrial Development 7.2%
Pollution Control 9.0%
Housing 6.8%
Transportation 6.1%
Summary of Investments by Combined Ratings
<TABLE>
<CAPTION>
Standard & Percentage of
Moody's and/or Poor's Total Investments
- --------------------------------------------------------------------------------
<S> <C> <C>
Aaa AAA 53.5%
Aa AA 10.4
A A 7.1
Baa BBB 14.4
Ba BB 3.1
NR NR 11.5
-----
100.0%
=====
</TABLE>
7
<PAGE>
================================================================================
Schedule of Investments March 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================
<S> <C> <C> <C>
Education -- 12.5%
Clifton Board of Education, FGIC-Insured:
$ 850,000 AAA 5.200% due 12/15/16 $ 804,312
850,000 AAA 5.200% due 12/15/17 799,000
750,000 AAA Hamilton Township Board of Education, FSA-Insured,
7.000% due 12/15/15 807,187
Jersey City Board of Education, MBIA-Insured:
1,500,000 AAA 5.500% due 3/15/16 1,460,625
1,600,000 AAA 5.500% due 3/15/17 1,556,000
500,000 AAA Jersey City (Hudson County) Fiscal Year Adjustment
Bonds, Series 1991 B, FSA-Insured, 8.400% due 5/15/06 611,875
650,000 AAA Lakewood Township School District, AMBAC-Insured,
Bank Qualified, Series 92, 6.250% due 2/15/11 693,062
New Jersey EDR:
1,000,000 AAA Educational Testing Service, MBIA-Insured,
Series E, 6.000% due 5/15/25 1,017,500
620,000 Aa3* Princeton Montessori Society, LOC Banque National
De Paris, Series S, 6.500% due 6/1/12 637,825
New Jersey State Educational Facilities,
Financing Authority Revenue:
1,000,000 NR Caldwell College, Series A, 7.250% due 7/1/25 1,023,750
1,110,000 A- Drew University, Series B, 7.450% due 2/1/05 1,154,089
Fairleigh Dickinson University, Series C:
2,700,000 NR 6.625% due 7/1/23 2,632,500
970,000 NR Escrowed to Maturity with U.S. Government
Securities, 7.750% due 7/1/01 (a) 1,036,688
4,365,000 AAA Richard Stockton College, AMBAC-Insured,
Series F, 5.400% due 7/1/21 4,157,663
2,000,000 AAA University of Medicine and Dentistry, AMBAC-Insured,
Series B, 5.250% due 12/1/16 1,895,000
Rutgers State University Refunding, State University of
New Jersey:
600,000 AA Series 92A, 6.400% due 5/1/13 655,500
750,000 AA Series P, 6.850% due 5/1/21 803,438
1,000,000 Baa1* Shrewsbury Board of Education, COP, 6.600% due 8/15/15 1,035,000
South Brunswick Township, New Jersey Board of Education,
FGIC-Insured:
1,500,000 AAA 6.400% due 8/1/18 1,593,750
1,500,000 AAA 6.400% due 8/1/19 1,590,000
1,000,000 AAA 6.400% due 8/1/21 1,060,000
- ------------------------------------------------------------------------------------------
27,024,764
- ------------------------------------------------------------------------------------------
General Obligation -- 11.6%
2,500,000 AAA Atlantic County COP, Lease Agreement, FGIC-Insured,
7.400% due 3/1/09 (b) 2,959,375
1,340,000 AAA Bayonne GO, FGIC-Insured, 6.125% due 5/1/14 1,385,225
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
================================================================================
Schedule of Investments (continued) March 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================
<S> <C> <C> <C>
General Obligation -- 11.6% (continued)
$ 665,000 AAA Belvedere GO, AMBAC-Insured, 7.300% due 12/1/14 $ 714,044
550,000 AAA Dover Board of Education, COP, FGIC-Insured,
6.600% due 6/1/11 578,187
2,000,000 AAA Essex County GO, Improvement Authority,
FGIC-Insured, 5.200% due 12/1/24 1,822,500
200,000 AAA Hudson County GO, FGIC-Insured, 6.550% due 7/1/10 219,750
1,000,000 AAA Lumberton Township School District COP, MBIA-Insured,
6.100% due 10/1/13 1,028,750
Morris Township GO:
550,000 AA 6.550% due 7/1/09 611,187
550,000 AA 6.550% due 7/1/10 609,125
500,000 AA 6.550% due 7/1/11 553,750
1,200,000 A1* Morristown GO, Revenue Refunding, 6.500% due 2/1/06 1,230,156
2,500,000 A+ New Jersey State COP, Equipment Leasing Revenue,
Series A, 6.400% due 4/1/05 2,662,500
2,500,000 AA+ New Jersey State GO, Series D, 8.000% due 2/15/07 3,081,250
1,500,000 AAA North Bergen Township Capital Appreciation, FSA-Insured,
8.000% due 8/15/07 1,828,125
500,000 AAA Perth Amboy Board of Education, COP, FSA-Insured,
6.125% due 12/15/17 510,625
495,000 A Puerto Rico Commonwealth GO Unlimited,
8.000% due 7/1/08 523,462
500,000 AAA South Amboy GO Unlimited, MBIA-Insured,
6.375% due 12/1/10 530,000
750,000 AAA Trenton GO, MBIA-Insured, 6.550% due 8/15/09 797,812
900,000 AAA Union City GO, MBIA-Insured, 6.700% due 9/1/12 976,500
125,000 AAA Virgin Islands Public Financing Authority Revenue,
Series A, (Escrowed to Maturity with U.S. Government
Securities), 7.300% due 10/1/18 149,531
854,000 AAA Weehawken Township GO, FSA-Insured, 6.350% due
7/1/07 905,240
West Windsor/Plainsboro GO, Regional School District:
180,000 AA 6.750% due 4/1/06 201,375
490,000 AA 6.750% due 4/1/07 551,250
435,000 AA 6.800% due 4/1/08 491,550
170,000 AA 6.800% due 4/1/09 192,737
- ------------------------------------------------------------------------------------------
25,114,006
- ------------------------------------------------------------------------------------------
Hospital -- 22.7%
Camden County Improvement Authority Revenue:
1,000,000 AAA Health Services Project B, AMBAC-Insured,
5.250% due 12/1/18 943,750
7,700,000 Baa2* Health Care Redevelopment Project, (Cooper Health),
5.875% due 2/15/15 7,392,000
2,500,000 AAA New Jersey EDA, Nursing Home Revenue, RWJ Health
Care Corp., FSA-Insured, 6.500% due 7/1/24 2,643,750
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
================================================================================
Schedule of Investments (continued) March 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================
<S> <C> <C> <C>
Hospital -- 22.7% (continued)
New Jersey Health Care Facilities Financing
Authority Revenue: Burdett Tomlin Memorial Hospital,
Series D, FGIC-Insured:
$1,400,000 AAA 6.500% due 7/1/12 $ 1,482,250
850,000 AAA 6.500% due 7/1/21 898,875
1,985,000 AA Cathedral Health Services Inc., FHA-Insured,
7.250% due 2/15/21 2,118,987
Columbus Hospital, Series A:
900,000 Baa3* 7.200% due 7/1/01 929,250
1,000,000 Baa3* 7.500% due 7/1/21 1,052,500
250,000 A+ Community Memorial Hospital Association, Series C,
8.000% due 7/1/14 263,750
2,300,000 Baa1* Deborah Heart & Lung Center, 6.300% due 7/1/23 2,305,750
750,000 BBB+ East Orange General Hospital, Series B,
7.750% due 7/1/20 792,188
1,500,000 A Helene Fuld Medical Center, Series C,
8.125% due 7/1/13 1,573,125
1,125,000 AAA Holy Name Hospital, AMBAC-Insured,
5.250% due 7/1/20 1,040,625
4,500,000 AAA Irvington General Hospital, FHA-Insured,
6.375% due 8/1/15 4,713,750
1,125,000 AAA J.F.K. Health System, Obligated Group, FGIC-Insured,
6.700% due 7/1/21 1,195,313
Kennedy Memorial University Medical Center:
260,000 A1* Series D, 7.875% due 7/1/09 273,974
1,500,000 A1* Series E, 6.000% due 7/1/20 1,481,250
235,000 BBB- Kimball Medical Center, Series C, 8.000% due 7/1/98 240,288
825,000 AAA Medical Center of Ocean County, Series C, FSA-Insured,
6.750% due 7/1/20 877,593
2,750,000 AAA Newark Beth Israel Medical Center, FSA-Insured,
6.000% due 7/1/24 2,763,750
520,000 BBB+ Newcomb Medical Center, Series A, 7.875% due 7/1/03 554,450
2,000,000 Baa* Ocean County Hospital, 6.250% due 7/1/23 1,967,500
585,000 AAA Overlook Hospital Association, Series E, FGIC-Insured,
6.700% due 7/1/17 599,911
1,000,000 BBB+ Pascack Valley Hospital, Series 91, 6.700% due 7/1/11 1,013,750
1,000,000 NR Raritan Bay Medical Center, 7.250% due 7/1/27 1,043,750
825,000 AAA Riverview Medical Center, Series A, AMBAC-Insured,
8.000% due 7/1/18 876,563
1,150,000 AAA Somerset Medical Center, Series A, FGIC-Insured,
5.200% due 7/1/24 1,043,625
2,000,000 BBB St. Elizabeth's Hospital, 6.000% due 7/1/14 1,947,500
750,000 AAA St. Joseph's Hospital & Medical Center,
6.000% due 7/1/26 747,188
2,750,000 Baa1* St. Mary Hospital, 5.875% due 7/1/12 2,684,688
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
================================================================================
Schedule of Investments (continued) March 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================
<S> <C> <C> <C>
Hospital -- 22.7% (continued)
$ 695,000 AAA Wayne General Hospital, Series B, FHA-Insured,
5.750% due 8/1/11 $ 697,606
1,000,000 AAA Puerto Rico Tourist & Environmental Control Facilities,
Group A, MBIA-Insured, 6.250% due 7/1/24 1,037,500
- ------------------------------------------------------------------------------------------
49,196,749
- ------------------------------------------------------------------------------------------
Housing: Multi-Family -- 3.6%
650,000 BBB+ Essex County Improvement Authority, Lease Revenue
Bonds, 6.600% due 4/1/14 663,813
1,500,000 AAA Newark Housing Financing Corp., Mortgage Revenue,
Refunding, Manor Apartments, Series A, FHA-Insured,
7.500% due 2/15/24 1,618,124
New Jersey State Housing & Mortgage Finance Agency,
Multi-Family Housing Revenue:
2,550,000 AAA Presidential Plaza, Series 1, FHA-Insured,
7.000% due 5/1/30 (b) 2,661,562
1,000,000 AAA Refunding, Series A, AMBAC-Insured,
6.000% due 11/1/14 1,012,500
1,000,000 AA Regency Park Project, Series H, 7.700%
due 11/1/30 1,033,750
725,000 AAA Sayreville Housing Development Corp., Mortgage
Revenue Refunding, Lakeview Apartments, FHA-Insured,
7.750% due 8/1/24 737,999
- ------------------------------------------------------------------------------------------
7,727,748
- ------------------------------------------------------------------------------------------
Housing: Single-Family -- 3.2%
New Jersey State Housing & Mortgage Finance Agency
Revenue, MBIA-Insured:
100,000 AAA Home Mortgage, Series A, 7.875% due 10/1/17 103,592
350,000 AAA Home Mortgage, Series C, 8.000% due 4/1/12 365,138
740,000 AAA Series B, 8.100% due 10/1/17 771,391
30,000 AAA Series C, 8.375% due 4/1/17 31,351
210,000 AAA Series D, 7.700% due 10/1/29 (c) 218,663
1,940,000 AAA Series R, 5.750% due 4/1/17 1,947,275
2,440,000 AAA Series S, 5.950% due 10/1/17 (c) 2,449,150
30,000 AAA Puerto Rico Housing Finance Corp., Single-Family
Housing Mortgage, Series A, GNMA-Collateralized,
7.800% due 10/15/21 31,088
1,000,000 AAA Virgin Islands HFA, Single-Family Mortgage,
GNMA-Collateralized, 6.500% due 3/1/25 (c) 1,017,500
- ------------------------------------------------------------------------------------------
6,935,148
- ------------------------------------------------------------------------------------------
Industrial Development -- 7.2% New Jersey EDA, EDR:
970,000 Aa3* Economic Growth Bonds, LOC Banque National De Paris,
6.550% due 12/1/07 (c) 1,005,163
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
================================================================================
Schedule of Investments (continued) March 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================
<S> <C> <C> <C>
Industrial Development -- 7.2% (continued)
$1,305,000 A Economic Growth Bonds, Series E, LOC National
Westminster USA, 5.400% due 10/1/13 (c) $ 1,244,644
1,500,000 BB+ Electric Revenue, Vineland Cogeneration LP,
7.875% due 6/1/19 (c) 1,614,375
1,000,000 AAA Miscellaneous Revenue, State Contract, FSA-Insured,
6.000 due 3/15/21 1,011,250
Nursing Home Revenue:
1,500,000 NR Franciscan Oaks, Series A, 8.500% due 10/1/23 1,627,500
1,000,000 A+ Morris Hall-St. Lawrence, 6.250% due 4/1/25 1,012,500
1,495,000 BBB+ Preston Trucking Co., 6.500% due 9/1/14 1,524,900
1,085,000 Aaa* Series L, 7.100% due 12/1/11 (c) 1,154,169
1,500,000 BBB+ Terminal Revenue, GATX Terminal Corp., Series 1994,
7.300% due 9/1/19 1,661,250
1,000,000 NR Trane Division, 1990 Project, 9.500% due 9/1/00 1,092,500
1,500,000 NR Zirser-Greenbriar, 7.375% due 7/15/03 1,546,875
1,000,000 AAA New Jersey EDA, Natural Gas Facilities Revenue,
NUI Corp., Series A, AMBAC-Insured,
6.350% due 10/1/22 1,038,750
- ------------------------------------------------------------------------------------------
15,533,876
- ------------------------------------------------------------------------------------------
Life Care -- 2.6%
1,000,000 Aaa* New Jersey EDA, EDR, Eagle Rock Convalescent, Inc.,
GNMA-Collateralized, 7.375% due 12/20/06 1,090,000
New Jersey Health Care Facilities Financing Authority
Revenue:
Berkeley Heights Convalescent, AMBAC-Insured:
2,500,000 AAA 5.000% due 7/1/15 2,306,250
1,690,000 AAA 5.000% due 7/1/26 1,497,763
790,000 AAA Spectrum for the Living, FHA-Insured,
6.500% due 2/1/22 821,600
- ------------------------------------------------------------------------------------------
5,715,613
- ------------------------------------------------------------------------------------------
Miscellaneous -- 4.3%
615,000 A- Atlantic City COP, Series 1991 (Public Facilities Lease
Agreements Atlantic City Project), 8.875% due 1/15/13 789,506
200,000 AAA Delaware River Junction, Toll Bridge Commission,
Refunding Bonds, FGIC-Insured, 6.250% due 7/1/12 207,500
1,000,000 AAA New Brunswick Parking Authority Revenue, City Guaranteed
Parking, Series A, FGIC-Insured, 6.500% due 9/1/19 1,053,750
New Jersey EDA:
480,000 NR EDR, National Association of Accountants,
7.650% due 7/1/09 509,400
1,925,000 NR Industrial Revenue, State Plaza Park and Ride LP,
6.625% due 7/1/03 (c) 1,977,938
1,000,000 NR Waste Paper Recycling Revenue, (Marcal Paper Project),
8.500% due 2/1/10 (c) 1,136,250
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
================================================================================
Schedule of Investments (continued) March 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================
<S> <C> <C> <C>
Miscellaneous -- 4.3% (continued)
$3,000,000 NR New Jersey Sports and Expo Authority, Monmouth Park,
Refunding, Series A, 8.000% due 1/1/25 $ 3,318,750
240,000 A+ The Hudson County Improvement Authority, (Essential
Purpose Pooled Governmental Loan Project),
Series 1986, 7.600% due 8/1/25 261,900
- ------------------------------------------------------------------------------------------
9,254,994
- ------------------------------------------------------------------------------------------
Pollution Control -- 9.0%
1,950,000 Ba* Atlantic County Utilities Authority, Solid Waste Revenue,
7.125% due 3/1/16 1,952,438
2,750,000 BBB- Hudson County Improvement Authority, Solid Waste
System Revenue, 7.100% due 1/1/20 2,750,000
1,200,000 AAA Mercer County Improvement Revenue, FGIC-Insured,
Series A, 6.700% due 4/1/13 (c) 1,210,500
Middlesex County Pollution Control Authority Financing
Revenue, Amerada Hess Corp.:
1,000,000 NR 7.875% due 6/1/22 1,136,250
2,000,000 NR 6.875% due 12/1/22 2,110,000
New Jersey EDA:
5,500,000 AAA PSE&G Corp., MBIA-Insured, 6.400% due 5/1/32 (c) 5,665,000
2,335,000 A Sewer Facility, Atlantic City Sewer Co.,
7.250% due 12/1/11 (c) 2,536,394
1,000,000 AAA Salem County Industrial Pollution Control Finance
Authority, (PSE&G Project C), MBIA-Insured,
6.200% due 8/1/30 1,025,000
1,000,000 AA Salem County Pollution Control Financing Authority,
Waste Disposal Revenue, E.I. du Pont De Nemours & Co.,
6.125% due 7/15/22 (c) 1,013,750
- ------------------------------------------------------------------------------------------
19,399,332
- ------------------------------------------------------------------------------------------
Public Facilities -- 0.8%
1,750,000 AAA New Jersey EDA, Market Transition Facilities Revenue,
Senior Lien, Series A, MBIA-Insured, 5.800%
due 7/1/09 1,798,125
- ------------------------------------------------------------------------------------------
Solid Waste -- 3.6%
3,500,000 Aa2* Mercer County Improvement Authority, County Guaranteed
Solid Waste Revenue, 5.750% due 9/15/16 3,469,375
1,250,000 Aa1* New Jersey EDA, Solid Waste Revenue, Garden State
Paper Co., 7.125% due 4/1/22 (c) 1,270,312
Union County Utility Authority, Solid Waste Revenue,
Series A:
2,000,000 BB 7.150% due 6/15/09 (c) 2,050,000
1,035,000 BB 7.200% due 6/15/14 (c) 1,058,288
- ------------------------------------------------------------------------------------------
7,847,975
- ------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
================================================================================
Schedule of Investments (continued) March 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================
<S> <C> <C> <C>
Transportation -- 6.1%
$ 385,000 A1* Cape May Bridge Commission, Guaranteed Revenue
Bonds, 6.700% due 6/1/02 $ 393,181
500,000 AAA Delaware River Port Authority, PA & NJ Delaware
River Bridges, Revenue Refunding, AMBAC-Insured,
7.375% due 1/1/07 532,500
800,000 Baa1* Essex County Improvement Authority Airport Project
Revenue, Series 92, 6.800% due 11/1/21 (c) 836,000
1,000,000 Baa2* New Jersey EDA Revenue, (American Airlines Inc.
Project), 7.100% due 11/1/31 (c) 1,058,750
Port Authority of New York & New Jersey:
1,500,000 AA- 67th Series, 6.875% due 1/1/25 1,582,500
3,000,000 AAA MBIA-Insured, 5.875% due 10/15/27 3,003,750
Special Obligation Revenue:
3,500,000 NR 5th Installment, 6.750% due 10/1/19 (c) 3,591,875
2,000,000 AAA 96th Series, FGIC-Insured, 6.600% due 10/1/23 (c) 2,140,000
- ------------------------------------------------------------------------------------------
13,138,556
- ------------------------------------------------------------------------------------------
Utilities -- 11.2%
700,000 Baa1* Beachwood Sewer Authority Revenue, Junior Lien,
6.500% due 12/1/12 728,875
1,000,000 AAA Bordentown Sewerage Authority Revenue, Series C,
MBIA-Insured, 6.900% due 12/1/16 1,070,000
2,500,000 AAA Camden County Municipals Utilities Authority, Sewer
Revenue, FGIC-Insured, 5.125% due 7/15/17 2,306,250
1,085,000 AAA Evesham Utilities Authority Revenue,
Series A, MBIA-Insured, 5.550% due 7/1/16 1,060,588
1,300,000 AAA Gloucester County Utilities Authority, Sewer Revenue,
MBIA-Insured, 5.450% due 1/1/24 1,239,875
1,700,000 AAA Jersey City Sewer Authority, AMBAC-Insured,
6.250% due 1/1/14 1,833,875
1,385,000 AAA Kearney Municipal Utilities Authority Revenue,
FGIC-Insured, 7.300% due 11/15/18 1,691,431
1,000,000 AAA Middlesex County Utilities Authority, Sewer Revenue
Refunding, Series A, MBIA-Insured, (Inverse Floating
Rate Security Convertible to 6.250% on 8/15/97), 7.500%
due 8/15/10 (d) 1,076,250
Monmouth County Improvement Authority Revenue:
1,000,000 AAA 5.500% due 7/15/15 971,250
1,000,000 AAA 5.125% due 12/1/16 936,250
500,000 AAA Monroe Township Municipal Utilities Authority, Gloucester
County Revenue, AMBAC-Insured, 6.650% due 7/1/11 541,250
1,000,000 AAA New Jersey EDA, Natural Gas Facilities Revenue,
Series A, AMBAC-Insured, 6.250% due 8/1/24 1,026,250
Newark Water Utilities Authority, MBIA-Insured:
750,000 AAA 5.550% due 10/1/20 725,625
750,000 AAA 5.550% due 10/1/21 724,688
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
================================================================================
Schedule of Investments (continued) March 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
==========================================================================================
<S> <C> <C> <C>
Utilities -- 11.2% (continued)
North Jersey District Water Supply Commission
Refunding, (Wanaque North Project), Series A,
MBIA-Insured:
$2,500,000 AAA 6.000% due 7/1/21 $ 2,537,500
1,195,000 AAA 6.500% due 11/15/21 1,271,181
750,000 AAA Old Bridge Township Municipal Utilities Authority
Revenue, FGIC-Insured, 6.400% due 11/1/09 806,250
2,500,000 AA Somerset/Raritan Valley Sewer Authority Revenue,
6.750% due 7/1/10 2,662,500
1,000,000 AAA Southeast Morris County Municipal Utilities
Authority, Water Revenue, Series A, FGIC-Insured,
6.500% due 1/1/11 1,063,750
- ------------------------------------------------------------------------------------------
24,273,638
- ------------------------------------------------------------------------------------------
Water & Sewer -- 1.6%
New Jersey EDA:
1,610,000 AAA Middlesex County Water Revenue, MBIA-Insured,
5.250% due 2/1/29 (c) 1,479,188
1,000,000 NR Water Facilities Revenue, Series 1991, (New Jersey
American Water Company Inc. Project),
7.400% due 11/1/01 (c) 1,062,500
100,000 AAA Passaic Valley Sewer Commission Revenue,
Water Supply Revenue, Series A, FGIC-Insured,
6.400% due 12/15/22 104,250
750,000 AAA South Monmouth Regional Sewer Authority,
MBIA-Insured, 6.000% due 1/15/14 774,375
- ------------------------------------------------------------------------------------------
3,420,313
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost-- $209,529,135**) $216,380,837
==========================================================================================
</TABLE>
(a) Pre-Refunded bonds escrowed by U.S. Government securities and bonds
escrowed to maturity with U.S. Government securities are considered by the
investment adviser to be triple-A rated even if issuer has not applied for
new ratings.
(b) Securities segregated by Custodian for open purchase commitment.
(c) Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(d) Residual interest bonds-coupon varies inversely with level of short-term
tax-exempt interest rates.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 16 and 17 for definitions of ratings and certain security
descriptions.
See Notes to Financial Statements.
15
<PAGE>
================================================================================
Bond Ratings
================================================================================
All ratings are by Standard & Poor's Rating Services ("Standard & Poor's"),
except those identified by an asterisk (*) are rated by Moody's Investors
Service Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "BBB" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
AAA --Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA --Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issue only in a
small degree.
A --Bonds rated "A" have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB --Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than in
higher rated categories.
BB --Bonds rated "BB"have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
Moody's --Numerical modifiers 1, 2 and 3 may be applied to each generic
rating from "Aa" to "Ba", where 1 is the highest and 3 the lowest
ranking within its generic category.
Aaa --Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa --Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A --Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa --Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba --Bonds 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
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
NR --Indicates that the bond is not rated by Standard & Poor's or
Moody's.
16
<PAGE>
================================================================================
Short-Term Security Ratings
================================================================================
SP-1 --Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to
possess overwhelming safety characteristics are denoted with a plus
(+) sign.
A-1 --Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong; those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
VMIG 1 --Moody's highest rating for issues having a demand feature --
VRDO.
P-1 --Moody's highest rating for commercial paper and for VRDO prior to
the advent of the VMIG 1 rating.
================================================================================
Security Descriptions
================================================================================
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- American Municipal Bond Assurance Corporation
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
COP -- Certificate of Participation
EDA -- Economic Development Authority
EDR -- Economic Development Revenue
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 -- Financing Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation Bonds
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
17
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Statement of Assets and Liabilities March 31, 1997
================================================================================
<S> <C>
ASSETS:
Investments, at value (Cost-- $209,529,135) $ 216,380,837
Cash 17,170
Receivable for Fund shares sold 166,332
Interest receivable 3,686,379
- -------------------------------------------------------------------------------
Total Assets $ 220,250,718
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 4,550,595
Payable for Fund shares purchased 166,743
Investment advisory fees payable 55,329
Administration fees payable 39,892
Distribution fees payable 23,613
Accrued expenses 56,974
- -------------------------------------------------------------------------------
Total Liabilities 4,893,146
- -------------------------------------------------------------------------------
Total Net Assets $ 215,357,572
================================================================================
NET ASSETS:
Par value of capital shares $ 16,668
Capital paid in excess of par value 208,847,110
Undistributed net investment income 265,318
Accumulated net realized loss from security transactions (623,226)
Net unrealized appreciation of investments 6,851,702
- -------------------------------------------------------------------------------
Total Net Assets $ 215,357,572
=============
Shares Outstanding:
Class A 11,473,552
----------------------------------------------------------------------------
Class B 4,818,345
----------------------------------------------------------------------------
Class C 376,392
----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 12.92
----------------------------------------------------------------------------
Class B * $ 12.92
----------------------------------------------------------------------------
Class C ** $ 12.92
----------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.17% of net asset value per share) $ 13.46
================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed within one year from initial purchase (See Note 4).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
18
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
Statement of Operations For the Year Ended March 31, 1997
===============================================================================
<S> <C>
INVESTMENT INCOME:
Interest $ 13,466,419
- -------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 4) 666,991
Investment advisory fees (Note 4) 651,616
Administration fees (Note 4) 434,410
Shareholder and system servicing fees 78,008
Shareholder communications 50,001
Audit and legal 41,800
Pricing service fees 22,681
Custody 19,488
Registration fees 19,199
Directors' fees 13,100
Other 8,002
- -------------------------------------------------------------------------------
Total Expenses 2,005,296
- -------------------------------------------------------------------------------
Net Investment Income 11,461,123
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 5):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 78,814,983
Cost of securities sold 77,041,354
- -------------------------------------------------------------------------------
Net Realized Gain 1,773,629
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 8,395,854
End of year 6,851,702
Decrease in Net Unrealized Appreciation (1,544,152)
Net Gain on Investments 229,477
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 11,690,600
===============================================================================
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================
Statements of Changes in Net Assets For the Years Ended March 31,
==================================================================================================
1997 1996
==================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 11,461,123 $ 9,624,601
Net realized gain 1,773,629 1,429,693
Increase (decrease) in net unrealized appreciation (1,544,152) 380,803
- --------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 11,690,600 11,435,097
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (11,120,528) (9,588,581)
- --------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (11,120,528) (9,588,581)
- --------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 18,876,611 17,834,164
Net asset value of shares issued in
connection with the transfer of the
Smith Barney Muni Funds -- New
Jersey Portfolio's net assets (Note 8) -- 62,810,369
Net asset value of shares issued for
reinvestment of dividends 6,665,371 5,893,070
Cost of shares reacquired (31,528,120) (30,112,356)
- --------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions (5,986,138) 56,425,247
- --------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (5,416,066) 58,271,763
NET ASSETS:
Beginning of year 220,773,638 162,501,875
- --------------------------------------------------------------------------------------------------
End of year* $ 215,357,572 $ 220,773,638
==================================================================================================
* Includes undistributed (overdistributed)
net investment income of: $ 265,318 $ (75,277)
==================================================================================================
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
================================================================================
Notes to Financial Statements
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney New Jersey Municipals Fund Inc. ("Fund"), a Maryland
corporation, is registered under the Investment Company Act of 1940, as amended,
as a non-diversified, open-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on the trade date; (b) securities
are valued at the mean between the quoted bid and asked prices provided by an
independent pricing service that are based on transactions in municipal
obligations, quotations from municipal bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities maturing within 60 days are valued at cost plus accreted discount or
minus amotized premium, which approximates market value; (d) gains or losses on
the sale of securities are calculated by using the specific identification
method; (e) interest income, adjusted for amortization of premium and accretion
of original issue discount, is recorded on the accrual basis; market discount is
recognized upon the disposition of the security; (f) direct expenses are charged
to the Fund and each class; management fees and general fund expenses are
allocated on the basis of relative net assets; (g) dividends and distributions
to shareholders are recorded on the ex-dividend date; (h) the Fund intends to
comply with the applicable provisions of the Internal Revenue Code of 1986, as
amended, pertaining to regulated investment companies and to make distributions
of taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (i) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. FUND CONCENTRATION
Since the Fund invests primarily in obligations of issuers within New
Jersey, it is subject to possible concentration risks associated with economic,
political or legal developments or industrial or regional matters specifically
affecting New Jersey.
21
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
3. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
4. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment adviser to the Fund. The Fund
pays SBMFM an advisory fee calculated at an annual rate of 0.30% of the average
daily net assets. This fee is calculated daily and paid monthly.
SBMFM also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets up to $500
million and 0.18% of the average daily net assets in excess of $500 million.
This fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. For the year ended March 31, 1997, SB received sales charges of
approximately $139,000 on sales of the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B
shares, which applies if redemption occurs within one year from initial
purchase. This CDSC declines by 0.50% the first year after purchase and
thereafter by 1.00% per year until no CDSC is incurred. Class C shares have a
1.00% CDSC, which applies if redemption occurs within the first year of
purchase. For the year ended March 31, 1997, CDSCs paid to SB were
approximately:
<TABLE>
<CAPTION>
Class B Class C
================================================================================
<S> <C> <C>
CDSCs $159,000 $1,000
================================================================================
</TABLE>
Pursuant to a Distribution Plan, the Fund pays a service fee with respect
to its Class A, B and C shares, calculated at the annual rate of 0.15% of the
average daily net assets for each respective class. In addition, the Fund pays a
distribution fee with respect to its Class B and C shares calculated at the
annual rate of 0.50% and 0.55% of the average daily net assets for each class,
respectively. For the year ended March 31, 1997, total Distribution Plan fees
incurred were:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $224,109 $412,244 $30,638
================================================================================
</TABLE>
22
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
All officers and one Director of the Fund are employees of SB.
5. INVESTMENTS
During the year ended March 31, 1997, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $76,587,869
- --------------------------------------------------------------------------------
Sales 78,814,983
================================================================================
</TABLE>
At March 31, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes was substantially as
follows:
<TABLE>
================================================================================
<S> <C>
Gross unrealized appreciation $8,331,140
Gross unrealized depreciation (1,479,438)
- --------------------------------------------------------------------------------
Net unrealized appreciation $6,851,702
================================================================================
</TABLE>
6. CAPITAL LOSS CARRYFORWARD
At March 31, 1997, the Fund had, for Federal income tax purposes,
approximately $622,700 of capital loss carryforwards available to offset future
capital gains through March 31, 2003. To the extent that these carryforward
losses are used to offset capital gains, it is probable that the gains so offset
will not be distributed.
7. CAPITAL SHARES
As of March 31, 1997, the Fund had 100 million shares of capital stock
authorized with a par value of $0.001 per share. The Fund has the ability to
issue multiple classes of shares. Each share of a class represents an identical
interest and has the same rights, except that each class bears certain direct
expenses, including those specifically related to the distribution of its
shares.
At March 31, 1997, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Total Paid-in Capital $140,254,023 $63,661,031 $4,948,724
================================================================================
</TABLE>
23
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1997 March 31, 1996
------------------------- --------------------------
Shares Amount Shares Amount
===========================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 754,734 $ 9,803,565 599,655 $ 7,845,574
Net asset value of shares
issued in connection
with the transfer of the
New Jersey Portfolio's
net assets (Note 8) -- -- 4,320,421 57,233,493
Shares issued on
reinvestment 351,876 4,551,202 304,318 3,936,961
Shares redeemed (1,561,652) (20,175,651) (1,770,314) (23,106,072)
- ------------------------------------------------------------------------------------------
Net Increase (Decrease) (455,042) $ (5,820,884) 3,454,080 $ 45,909,956
==========================================================================================
Class B
Shares sold 591,988 $ 7,667,049 736,489 $ 9,548,116
Net asset value of shares
issued in connection
with the transfer of the
New Jersey Portfolio's
net assets (Note 8) -- -- 163,375 2,164,960
Shares issued on
reinvestment 151,661 1,961,786 147,425 1,905,056
Shares redeemed (835,657) (10,832,102) (521,676) (6,758,534)
- ------------------------------------------------------------------------------------------
Net Increase (Decrease) (92,008) $ (1,203,267) 525,613 $ 6,859,598
==========================================================================================
Class C
Shares sold 108,779 $ 1,405,997 33,600 $ 440,474
Net asset value of shares
issued in connection
with the transfer of the
New Jersey Portfolio's
net assets (Note 8) -- -- 257,534 3,411,916
Shares issued on
reinvestment 11,777 152,383 3,911 51,053
Shares redeemed (40,098) (520,367) (18,777) (247,750)
- ------------------------------------------------------------------------------------------
Net Increase 80,458 $ 1,038,013 276,268 $ 3,655,693
==========================================================================================
</TABLE>
24
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
8. TRANSFER OF NET ASSETS
On December 8, 1995, the Fund acquired the assets and certain liabilities
of the Smith Barney Muni Funds--New Jersey Portfolio ("New Jersey Portfolio")
pursuant to a plan of reorganization approved by Smith Barney New Jersey
Municipals Fund Inc. shareholders on December 1, 1995. Total shares issued by
the Fund and the total net assets of New Jersey Portfolio and the Fund on the
date of the transfer were as follows:
<TABLE>
<CAPTION>
Total Net
Shares Assets of Total Net
Issued by Acquired Assets of
Acquired Portfolio the Fund Portfolio the Fund
================================================================================
<S> <C> <C> <C>
New Jersey Portfolio 4,741,330 $62,810,369 $168,346,376
================================================================================
</TABLE>
The total net assets of New Jersey Portfolio before acquisition included
unrealized appreciation of $4,397,508 and a net realized loss of $629,684. The
total net assets of the Fund immediately after the transfer were $231,156,745.
The transaction was structured for tax purposes to qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended.
25
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Shares(1) 1997 1996 1995 1994 1993
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.88 $ 12.62 $ 12.55 $ 13.16 $ 12.44
- ------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income(2) 0.70 0.70 0.70 0.70 0.75
Net realized and unrealized gain (loss) 0.02 0.26 0.07 (0.46) 0.87
- ------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.72 0.96 0.77 0.24 1.62
- ------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.68) (0.70) (0.70) (0.70) (0.75)
Net realized gains -- -- -- (0.15) (0.14)
Capital -- -- -- -- (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.68) (0.70) (0.70) (0.85) (0.90)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 12.92 $ 12.88 $ 12.62 $ 12.55 $ 13.16
- ------------------------------------------------------------------------------------------------------------------------
Total Return 5.74% 7.77% 6.37% 1.66% 13.49%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 148,248 $ 153,690 $ 106,919 $ 119,913 $ 115,694
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(2) 0.76% 0.84% 0.88%* 0.83% 0.74%
Net investment income 5.44 5.41 5.61 5.17 5.76
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 36% 22% 32% 32% 58%
========================================================================================================================
</TABLE>
(1) Certain prior year numbers have been restated to reflect current year's
presentation. Net investment income, net realized gains and net assets were
not affected by this change.
(2) The investment adviser waived all or part of its fees in the years ended
March 31, 1993 and March 31, 1994. If such fees were not waived, the per
share effects on net investment income and expense ratios would have been
as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios
Net Investment Income Without Fee Waivers
---------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Class A $0.01 $0.02 0.88% 0.90%
</TABLE>
* Expense ratios exclude interest expense. Expense ratio including interest
expense would have been 0.89% for the year ended March 31, 1995.
26
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class B Shares(1) 1997 1996 1995 1994 1993(2)
===================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.88 $ 12.62 $ 12.55 $ 13.16 $ 12.75
- -------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income(3) 0.64 0.63 0.63 0.64 0.28
Net realized and unrealized gain (loss) 0.02 0.26 0.06 (0.47) 0.55
- -------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.66 0.89 0.69 0.17 0.83
- -------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.62) (0.63) (0.62) (0.63) (0.27)
Net realized gains -- -- -- (0.15) (0.14)
Capital -- -- -- -- (0.01)
- -------------------------------------------------------------------------------------------------------------------
Total Distributions (0.62) (0.63) (0.62) (0.78) (0.42)
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 12.92 $ 12.88 $ 12.62 $ 12.55 $ 13.16
- -------------------------------------------------------------------------------------------------------------------
Total Return 5.23% 7.20% 5.76% 1.15% 6.60%++
- -------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 62,249 $ 63,272 $ 55,334 $ 48,375 $ 16,293
- -------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3) 1.28% 1.36% 1.39%* 1.36% 1.33%+
Net investment income 4.92 4.90 5.09 4.64 5.17+
- -------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 36% 22% 32% 32% 58%
===================================================================================================================
</TABLE>
(1) Certain prior year numbers have been restated to reflect current year's
presentation. Net investment income, net realized gains and net assets were
not affected by this change.
(2) For the period from November 6, 1992 (inception date) to March 31, 1993.
(3) The investment adviser waived all or part of its fees in the years ended
March 31, 1993 and March 31, 1994. If such fees were not waived, the per
share effects on net investment income and expense ratios would have been
as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios
Net Investment Income Without Fee Waivers
--------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Class B $0.01 $0.01 1.41% 1.49%+
</TABLE>
* Expense ratios exclude interest expense. Expense ratio including interest
expense would have been 1.40% for the year ended March 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
27
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class C Shares 1997 1996 1995(1)
================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $ 12.88 $ 12.62 $ 11.86
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.63 0.62 0.20
Net realized and unrealized gain 0.02 0.27 0.74
- --------------------------------------------------------------------------------
Total Income From Operations 0.65 0.89 0.94
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.61) (0.63) (0.18)
- --------------------------------------------------------------------------------
Total Distributions (0.61) (0.63) (0.18)
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $ 12.92 $ 12.88 $ 12.62
- --------------------------------------------------------------------------------
Total Return 5.17% 7.17% 8.01%++
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 4,861 $ 3,812 $ 248
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.32% 1.41% 1.44%+
Net investment income 4.88 4.82 5.05+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 36% 22% 32%
================================================================================
</TABLE>
(1) For the period from December 13, 1994 (inception date) to March 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
================================================================================
Tax Information (unaudited)
================================================================================
For Federal tax purposes the Fund hereby designates for the fiscal year
ended March 31, 1997:
o 100.00% of the dividends paid by the Fund from net investment income
as tax-exempt for regular Federal income tax purposes.
28
<PAGE>
================================================================================
Independent Auditors' Report
================================================================================
The Shareholders and Board of Directors of
Smith Barney New Jersey Municipals Fund Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Smith Barney New Jersey Municipals
Fund Inc. as of March 31, 1997, the related statements of operations for the
year then ended, the statements of changes in net assets and the financial
highlights for each of the years in the two-year period then ended. 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. The financial
highlights for each of the years in the three-year period ended March 31, 1995
were audited by other auditors whose report thereon, dated May 10, 1995,
expressed an unqualified opinion on those financial highlights.
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 financial
highlights are free of material misstatement. An audit 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, 1997, by correspondence with the custodian. As to securities purchased but
not received, we performed other appropriate auditing procedures. 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 referred to above present fairly,
in all material respects, the financial position of the Smith Barney New Jersey
Municipals Fund Inc. as of March 31, 1997, the results of its operations for the
year then ended and the changes in its net assets and financial highlights for
each of the years in the two-year period then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
May 9, 1997
29
<PAGE>
SMITH BARNEY
Smith Barney ------------
New Jersey A Member of TravelersGroup [LOGO]
Municipals
Fund Inc. Investment Adviser
and Administrator
Directors Smith Barney Mutual Funds
Management Inc.
Herbert Barg
Alfred J. Bianchetti Distributor
Martin Brody
Dwight B. Crane Smith Barney Inc.
Burt Dorsett
Elliot Jaffe Custodian
Stephen E. Kaufman
Joseph J. McCann PNC Bank, N.A.
Heath B. McLendon, Chairman
Cornelius Rose Shareholder
Servicing Agent
Officers
First Data Investor Services Group, Inc.
Heath B. McLendon P.O. Box 9134
Chief Executive Officer Boston, MA 02205-9134
Jessica M. Bibliowicz
President This report is submitted for the
general information of the
Lewis E. Daidone shareholders of Smith Barney New
Senior Vice President Jersey Municipals Fund Inc. It is
and Treasurer not authorized for distribution to
prospective investors unless
Lawrence T. McDermott accompanied or preceded by a
Vice President current Prospectus for the Fund,
and Investment Officer which contains information
concerning the Fund's investment
Thomas M. Reynolds policies and expenses as well as
Controller other pertinent information.
Christina T. Sydor
Secretary Smith Barney
New Jersey
Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
FD0370 5/97
