As filed with the Securities and Exchange Commission
on July 26, 1995
__________________________________________________________
__ _________________________
Registration No. 33
58817
__________________________________________________________
__ _________________________
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 INCOME TRUST
(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.
Secretary
Smith Barney Income
Trust 388 Greenwich
Street
New York, New York
10013
_____________________
(Name and Address of Agent for
Service)
Copies to:
Burton M. Leibert, Esq.
John
Baumgardner, Esq.
Willkie Farr & Gallagher
Sullivan
&
Cromwell
One Citicorp Center 125
Broad
Street
153 East 53rd Street
New
York,
NY 10004
New York, NY 10022
Approximate date of proposed public offering: As
soon as possible after the effective date of this
Registration Statement.
Registrant has registered an indefinite amount of
securities pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.
Registrant's Rule 24f2 Notice for the fiscal year
ended November 30, 1994 was filed with the
Securities and Exchange Commission on January 27,
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, action pursuant to
said Section 8(a), may determine.
SMITH BARNEY
INCOME TRUST
CONTENTS
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
Exhibit
SMITH BARNEY INCOME TRUST
FORM N-14 CROSS REFERENCE
SHEET
Pursuant to Rule 481(a) Under the Securities
Act of 1933
Prospectus/Proxy Part A Item No. and
Caption Statement
Caption
Item 1. Beginning of Registration
Cover Page; Cross Reference
Statement and Outside Front
Sheet
Cover Page of Prospectus
Item 2. Beginning and Outside Back
Table
of Contents
Cover Page of Prospectus
Item 3. Synopsis Information and
Overview; Comparison of
Risk Factors
Investment
Objectives and
Policies Item 4. Information About
the Summary; Reasons for the
Transaction
Reorganization;
Information About
the
Reorganization; Comparative
Information on
Shareholder
Rights;
Exhibit A (Agreement and
Plan of
Reorganization)
Item 5. Information About the
Cover
Page; Summary;
Registrant
Information
About the
Reorganization;
Comparison
of Investment
Objectives
and Policies;
Comparative Information on
Shareholders Rights; Additional
Information About the Acquiring
Fund and
the Acquired Fund;
Prospectus
of Smith Barney
Intermediate Maturity California
Municipals
Fund dated January 29,
1995
Item 6. Information About the
Summary; Information About the
Company Being Acquired
Reorganization; Comparison of
Investment
Objectives and
Policies;
Comparative Information
on
Shareholder Rights; Additional
Information About the Acquiring
Fund and
the Acquired Fund
Item 7. Voting Information
Summary;
Information About the
Reorganization; Comparative
Information on Shareholder
Rights;
Voting Information
Item 8. Interest of Certain Persons
Financial Statements and Experts;
and Experts
Legal
Matters
Item 9. Additional Information
Not
Applicable
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 Information
Cover
Page; Statement of
About the Registrant
Additional
Information of
Smith
Barney Income Trust
dated
January 29, 1995
Item 13. Additional Information
About the Company Being Acquired Not
Applicable
Item 14. Financial Statements
Annual
Report of Smith
Barney
Income Trust with
respect
to its Smith Barney
Intermediate Maturity
California Municipals Fund;
Annual
Report of Smith
Barney
Muni Funds California
Limited
Term Portfolio; Pro
Forma
Financial Statements
Part C Item No. and Caption
Other
Information Caption
Item 15. Indemnification
Incorporated by reference to
Part A caption
"Comparative
Information on
Shareholders'
Rights-Liability of
Trustees"
Item 16. Exhibits Exhibits
Item 17. Undertakings
Undertakings
SMITH BARNEY MUTUAL FUNDS -[SMITH BARNEY LOGO]
Investing for your future. Every day.
Dear Valued Shareholder:
An Important Notice About the Smith Barney Muni Funds -
California Limited Term Portfolio.
We would like to inform you of a proposal that has recently
been reviewed and unanimously endorsed by the Board of Trustees
of Smith Barney Muni Funds concerning the reorganization of its
California Limited Term Portfolio.
The proposal calls for all of the California Limited Term
Portfolio's assets to be acquired by Smith Barney Intermediate
Maturity California Municipals Fund, a separate series of Smith
Barney Income Trust. After this reorganization, the California
Limited Term Portfolio would be terminated, and you would become
a shareholder of the Intermediate Maturity California Municipals
Fund. You would receive shares with a total net asset value
equal to the total net asset value of your California Limited
Term Portfolio investment at the time of the transaction.
The Board of Trustees believes that the proposed
reorganization is in the best interests of the California Limited
Term Portfolio shareholders and should provide benefits due, in
part, to savings in expenses paid by shareholders.
Please complete, sign and mail the enclosed proxy
card...today!
A Special Meeting of Shareholders will be held on August 28,
1995 to consider this transaction. We strongly urge you to
participate by reviewing, completing and returning your proxy by
no later than August 25, 1995 in the postage-paid envelope
provided.
For more details about the proposed transaction, please
refer to the enclosed proxy statement. If you sign and date your
proxy card, but do not provide voting instructions, your shares
will be voted FOR the proposal.
We thank you for your timely participation and look forward to
serving your investment needs with Smith Barney Mutual Funds. If
you have any questions, please call your Financial Consultant who
will be pleased to assist you.
Sincerely,
Heath B. McLendon
Chairman of the Board
July 21, 1995
SMITH BARNEY MUNI FUNDS -
CALIFORNIA LIMITED TERM PORTFOLIO
388 Greenwich Street
New York, New York 10013
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On August 28, 1995
___________________
Notice is hereby given that a Special Meeting of
Shareholders of Smith Barney Muni Funds - California Limited Term
Portfolio (the "Limited Term Portfolio"), will be held at 388
Greenwich Street, New York, New York on August 28, 1995,
at 4:30 p.m. for the following purposes:
1. To consider and act upon the Amended and Restated
Agreement and Plan of Reorganization (the "Plan") dated as of
July 19, 1995 providing for (i) the acquisition of all or
substantially all of the assets of the Limited Term Portfolio by
Smith Barney Income Trust (the "Income Trust") on behalf of the
Smith Barney Intermediate Maturity California Municipals Fund
(the "Intermediate Maturity Fund"), a separate series of the
Income Trust, in exchange for shares of the Intermediate
Maturity Fund and the assumption by the Income Trust on behalf of
the Intermediate Maturity Fund of certain liabilities of the
Limited Term Portfolio, (ii) the distribution of such shares of
the Intermediate Maturity Fund to shareholders of the Limited
Term Portfolio in liquidation of the Limited Term Portfolio and
(iii) the subsequent termination of the Limited Term
Portfolio.
2. To transact any other business which may properly come
before the meeting or any adjournment(s) thereof.
The Trustees of Smith Barney Muni Funds have fixed the close
of business on July 11, 1995, as the record date for
the determination of shareholders of the Limited Term Portfolio
entitled to notice of and to vote at this meeting or any
adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND IN PERSON ARE URGED TO
SIGN AND RETURN WITHOUT DELAY THE ENCLOSED PROXY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
CONTINENTAL UNITED STATES, SO THAT THEIR SHARES MAY BE
REPRESENTED AT THE MEETING. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES 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 THE LIMITED TERM PORTFOLIO AT
ANY TIME BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT
THE MEETING. YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL
HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By order of the Board of Trustees
Christina T. Sydor
Secretary
July 21, 1995
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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
PROSPECTUS/PROXY STATEMENT DATED JULY 21, 1995
Acquisition of the Assets Of
SMITH BARNEY MUNI FUNDS -
CALIFORNIA LIMITED TERM PORTFOLIO
388 Greenwich Street
New York, New York 10013
(212) 723-9218
By And In Exchange For Shares Of
SMITH BARNEY INCOME TRUST-
SMITH BARNEY INTERMEDIATE MATURITY CALIFORNIA MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013
(212) 723-9218
This Prospectus/Proxy Statement is being furnished to
shareholders of the California Limited Term Portfolio (the
"Limited Term Portfolio"), a separate series of Smith Barney Muni
Funds (the "Trust"), in connection with a proposed plan of
reorganization (the "Plan"), to be submitted to
shareholders for consideration at a Special Meeting of
Shareholders to be held on August 28, 1995 at 4:30 p.m., New
York City time, at the offices of Smith Barney Inc., located
at 388 Greenwich Street, 22nd Floor, New York, New York, and
any adjournments thereof (collectively, the "Meeting"). The Plan
provides for all or substantially all of the assets of the
Limited Term Portfolio to be acquired by Smith Barney Income
Trust (the "Income Trust") on behalf of the Smith Barney
Intermediate Maturity California Municipals Fund (the
"Intermediate Maturity Fund"), a separate series of the Income
Trust, in exchange for shares of the Intermediate Maturity Fund
and the assumption by the Income Trust on behalf of Intermediate
Maturity Fund of certain liabilities of the Limited Term
Portfolio (hereinafter referred to as the "Reorganization").
(The Limited Term Portfolio and the Intermediate Maturity Fund
are herein referred to individually as a "Fund" and
collectively as the "Funds.") Following the Reorganization,
shares of the Intermediate Maturity Fund will be distributed to
shareholders of the Limited Term Portfolio in liquidation of the
Limited Term Portfolio and the Limited Term Portfolio will be
terminated. As a result of the proposed Reorganization, each
shareholder of the Limited Term Portfolio will receive that
number of shares of the Intermediate Maturity Fund having an
aggregate net asset value equal to the aggregate net asset value
of such shareholder's shares of the Limited Term Portfolio.
Holders of Class A, Class C and Class Y shares of the Limited
Term Portfolio will receive Class A, Class C and Class Y
shares, respectively, of the Intermediate Maturity Fund and no
sales charge will be imposed on the shares of the Intermediate
Maturity Fund received by the Limited Term Portfolio
shareholders. This transaction is being structured as a tax-free
reorganization.
The Intermediate Maturity Fund and the Limited Term
portfolio are both series of open-end non-diversified management
investment companies and each Fund has similar investment
objectives. The Limited Term Portfolio's investment
objective is to seek as high a level of income exempt from
Federal income taxes and California personal income taxes as is
consistent with prudent investing. The investment objective of
the Intermediate Maturity Fund is to provide California investors
with as high a level of current income exempt from Federal
income taxes and California personal income taxes as is
consistent with the preservation of principal. Each Fund
invests primarily, but not exclusively, in California municipal
obligations. Although the investment policies of the Funds are
generally similar, there are certain differences which 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 Intermediate Maturity Fund that a prospective investor
should know before investing. Certain relevant documents listed
below, which have been filed with the Securities and Exchange
Commission ("SEC"), are incorporated by reference. A Statement
of Additional Information dated July 21, 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 and the Limited Term
Portfolio Prospectus referred to below are available upon request
and without charge by writing to the Limited Term Portfolio at
the address listed on the cover page of this Prospectus/Proxy
Statement or by calling 1-800-224-7523.
1. The Prospectus dated January 29, 1995 of Smith Barney
Intermediate Maturity California Municipals Fund is incorporated
in its entirety by reference and a copy is included herein.
2. The Prospectus dated November 7, 1994 of Smith Barney
Muni Funds - California Limited Term Portfolio is incorporated in
its entirety by reference.
Also accompanying this Prospectus/Proxy Statement as Exhibit
A is a copy of the Amended and Restated Agreement and Plan of
Reorganization for the proposed transaction.
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.
TABLE OF CONTENTS
Page
Additional Materials
Fee Tables
Summary
Risk Factors
Reasons for Reorganization
Information about Reorganization
Comparison of Investment Objectives and Policies
Comparative Information on Shareholders' rights
Additional Information about the Intermediate
Maturity Fund
and the Limited Term Portfolio
Other Business
Voting Information
Financial Statements and Experts
Legal Matters
Exhibit A: Amended and Restated Agreement and
Plan of Reorganization
ADDITIONAL MATERIALS
The following additional materials, which have been
incorporated by reference into the Statement of Additional
Information dated July 21, 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
Muni Funds dated November 7, 1994.
2. Statement of Additional Information of Smith Barney
Income Trust dated January 29, 1995.
3. Annual Report of Smith Barney Muni Funds - California
Limited Term Portfolio dated March 31, 1995.
4. Annual Report of Smith Barney Intermediate Maturity
California Municipals Fund dated November 30, 1994.
5. Semi-Annual Report of Smith Barney Intermediate
Maturity California Municipals Fund dated May 31, 1995.
<TABLE>
<CAPTION>
FEE TABLES
Following are tables showing the current costs and expenses
of the Intermediate Maturity Fund and the Limited Term Portfolio
and the pro forma costs and expenses expected to be incurred by
the Fund after giving effect to the Reorganization, each based
upon the maximum sales charges that may be incurred at the time
of purchase or redemption:
<S> <C> <C> <C>
Limited Intermediate
CLASS A SHARES Term Maturity Pro
Portfolio Fund Forma**
Shareholder
Transaction
Expenses:
Maximum sales
charge imposed
on purchases
(as a percentage 2.00% 2.00% 2.00%
of offering
price)............
..................
......
Maximum contingent
deferred sales
charge ("CDSC")
(as a percentage
of original None* None* None*
cost or
redemption
proceeds,
whichever is
lower)............
.
Annual Operating
Expenses:
(as a percentage
of average net
assets)
Management fees*** 0.45 0.55 0.55
................
12b-1 0.15 0.15 0.15
fees..............
..................
.
Other expenses+ 0.43 0.54 0.30
..................
..
Total Portfolio
Operating 1.03% 1.24% 1.00%
Expenses..........
..................
......
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Limited Intermedi
CLASS C SHARES Term ate Pro
Portfolio Maturity Forma++ Fund
Shareholder Transaction
Expenses:
Maximum sales charge
imposed on purchases
(as a percentage of None None None
offering price)
..........................
..........................
Maximum CDSC
(as a percentage of
original cost or
redemption proceeds, 1.00% 1.00% 1.00%
whichever is
lower)....................
..........................
......
Annual Operating Expenses:
(as a percentage of
average net assets)
Management fees* 0.45 0.55 0.55
..........................
............
12b-1 0.35 0.35 0.35
fees......................
..........................
.
Other expenses** 0.43 0.54 0.25
..........................
..................
Total Portfolio Operating 1.23% 1.44% 1.15%
Expenses.......
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Limited Intermedi
CLASS Y SHARES Term ate Pro
Portfolio Maturity Forma++ Fund
Shareholder Transaction
Expenses:
Maximum sales charge
imposed on purchases
(as a percentage of None None None
offering price)
..........................
..........................
Maximum CDSC
(as a percentage of
original cost or
redemption proceeds, None None None
whichever is
lower)....................
..........................
......
Annual Operating Expenses:
(as a percentage of
average net assets)
Management fees* 0.45% 0.55% 0.55%
..........................
............
12b-1 ---- ----- ----
fees......................
..........................
.
Other expenses 0.44 0.54 0.25
..........................
............
Total Portfolio Operating 0.89% 1.09% 0.80%
Expenses.......
</TABLE>
<TABLE>
<CAPTION>
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.
<S> <C> C> <C>
<C>
1 Year 3 5 10
Years Years Years
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
Intermediate Maturity Fund $32 $59 $87 $167
Pro forma 30 51 74 140
Class C
Intermediate Maturity Fund 25 46 79 172
Limited Term Portfolio 23 39 68 149
Pro forma 22 37 63 140
Class Y
Intermediate Maturity Fund 11 35 60 133
Limited Term Portfolio 9 28 49 110
Pro forma 8 26 44 99
</TABLE>
<TABLE>
<CAPTION>
An investor would pay the
following expenses on the
same investment, assuming the
same annual return and no
redemption:
<S> <C> <C> <C> <C>
1 Year 3 5 10
Years Years Years
Class A
Intermediate Maturity Fund $32 $59 $87 $167
Pro forma 30 51 74 140
Class C
Intermediate Maturity Fund 15 46 79 172
Limited Term Portfolio 13 39 68 149
Pro forma 12 37 63 140
Class Y
Intermediate Maturity Fund 11 35 60 133
Limited Term Portfolio 9 28 49 110
Pro forma 8 26 44 99
</TABLE>
These 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 of less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to
the additional information contained elsewhere in this
Prospectus/Proxy Statement, the Prospectus of the Intermediate
Maturity Fund dated January 29, 1995, the Statement of Additional
Information of Smith Barney Income Trust dated January 29, 1995,
the Prospectus of the Limited Term Portfolio and Statement of
Additional Information of the Smith Barney Muni Funds, each
dated November 7, 1994, and the Plan, a copy of which is
attached to this Prospectus/Proxy Statement as Exhibit A.
Proposed Reorganization. The Plan provides for the transfer
of all or substantially all of the assets of the Limited Term
Portfolio in exchange for shares of the Intermediate Maturity
Fund and the assumption by the Income Trust on behalf of the
Intermediate Maturity Fund of certain liabilities of the Limited
Term Portfolio. The Plan also calls for the distribution of
shares of the Intermediate Maturity Fund to the Limited Term
Portfolio shareholders in liquidation of the Limited Term
Portfolio. As a result of this Reorganization, each
shareholder of the Limited Term Portfolio will become the owner
of that number of full and fractional shares of the Intermediate
Maturity Fund having an aggregate net asset value equal to the
aggregate net asset value of the shareholder's shares of the
Limited Term Portfolio as of the close of business on the date
that the Limited Term Portfolio's assets are exchanged for shares
of the Intermediate Maturity Fund. Class A, Class C and Class
Y shareholders of the Limited Term Portfolio will receive
Class A, Class C and Class Y shares, respectively, of the
Intermediate Maturity Fund. See "Information About the
Reorganization."
For the reasons set forth below under "Reasons for the
Reorganization," the Board of Trustees of the Trust, including
all of the "non-interested" Trustees, as that term is defined in
the Investment Company Act of 1940, as amended (the "1940 Act"),
has unanimously concluded that the Reorganization would be in the
best interests of the shareholders of the Limited Term Portfolio
and that the interests of the Limited Term Portfolio's existing
shareholders would not be diluted as a result of the transaction
contemplated by the Reorganization, and therefore has submitted
the Plan for approval by the Limited Term Portfolio's
shareholders. The Board of Trustees of the Trust recommends
approval of the Plan effecting the Reorganization.
The Board of Trustees of the Income Trust has also approved
the Reorganization. Approval of the Reorganization will require
the affirmative vote of the lesser of: (1) 67% or more of the
shares of the Limited Term Portfolio represented in person or by
proxy and entitled to vote at a meeting of shareholders at which
more than 50% of the outstanding securities are present or
represented by proxy or (ii) more than 50% of the shares of the
Limited Term Portfolio outstanding ("Majoriity Vote"). See "Voting
Information."
The consummation of the Reorganization is subject to the
conditions set forth in the Plan, including that the parties
shall have received a no-action letter or exemptive relief from
the SEC with respect to the issues, if any, raised by Section
17(a) of the 1940 Act and concerning the applicability of Rule
17a-8 thereunder which is intended to ensure that shareholders'
interests are not diluted upon a merger of affiliated mutual
funds. An exemption has been granted by the SEC permitting the
Reorganization to be completed as described in this
Prospectus/Proxy Statement.
Tax Consequences. Prior to completion of the
Reorganization, the Limited Term Portfolio will have received
from counsel an opinion that, upon the Reorganization and the
transfer of the assets of the Limited Term Portfolio, no gain or
loss will be recognized by the Limited Term Portfolio or its
shareholders for Federal income tax purposes. The holding period
and tax basis of shares of the Intermediate Maturity Fund that
are received by each Limited Term Portfolio shareholder will be
the same as the holding period and tax basis of the shares of the
Limited Term Portfolio previously held by such shareholder. In
addition, the holding period and tax basis of the assets of the
Limited Term Portfolio in the hands of the Intermediate Maturity
Fund as a result of the Reorganization will be the same as in the
hands of the Limited Term Portfolio immediately prior to the
Reorganization.
Investment Objectives, Policies and Restrictions. The
Limited Term Portfolio and the Intermediate Maturity Fund have
generally similar investment objectives, policies and
restrictions. The Intermediate Maturity Fund seeks as high a
level of current income exempt from federal income taxes and
California state personal income taxes as is consistent with
preservation of principal. The Limited Term Portfolio also seeks
as high a level of income exempt from federal income taxes and
California personal income taxes as is consistent with prudent
investing. Each Fund attempts to achieve its objective by
investing primarily, but not exclusively, in obligations
issued by the State of California and its political subdivisions,
agencies and instrumentalities the interest from which is, in
the opinion of bond counsel, exempt from federal income taxes
at the time of their issuance.
Although the respective investment objectives and
policies of the Intermediate Maturity Fund and the Limited Term
Portfolio are generally similar, shareholders of the Limited
Term Portfolio should consider certain differences in such
objectives and policies. See "Comparison of Investment
Objectives and Policies."
Management of the Funds. Smith Barney Mutual Funds
Management Inc. ("SBMFM") serves as the investment adviser of the
Intermediate Maturity Fund and the Limited Term Portfolio.
SBMFM is a wholly owned subsidiary of Smith Barney Holdings
Inc. ("Holdings"), which in turn, is a wholly owned subsidiary
of Travelers Group Inc., a diversified financial services
company engaged, through its subsidiaries, principally in four
business segments: Investment Services, Consumer Finance
Services, Life Insurance Services and Property & Casualty
Insurance Services. Joseph P. Deane, an investment officer of
SBMFM, has served as Vice President and Investment Officer of
the Intermediate Maturity Fund since it commenced operations on
December 31, 1991, and manages the day-to-day operations of the
Intermediate Maturity Fund, including making all investment
decisions. Mr. Deane would continue to act as portfolio manager
of the Intermediate Maturity Fund upon the Reorganization.
SBMFM also serves as the investment adviser of the
Limited Term Portfolio. Peter M. Coffey, an investment officer
of SBMFM, has served as a Vice President and Investment Officer
of the Limited Term Portfolio since its inception on April 27,
1993. Mr. Coffey manages the Limited Term Portfolio's day-to-day
operations, including making all investment decisions for the
Portfolio.
Purchase and Redemption Procedures. Purchases of
shares of the Intermediate Maturity Fund and the Limited Term
Portfolio must be made through a brokerage account maintained
with Smith Barney, a broker that clears securities transactions
through Smith Barney on a fully disclosed basis or an investment
dealer in the selling group, at the shares' respective public
offering prices (net asset value next determined plus any
applicable sales charges). Class A shares of each Fund are
sold with an initial sales charge of 2.00% of the public
offering price and Class C shares of both Funds are sold
without an initial sales charge but are subject to a CDSC of
1.00% payable upon certain redemptions and an annual
distribution fee of 0.20% of the average daily net assets of the
Class. Class Y shares of each Fund are sold without an initial
sales charge or CDSC, and are available only to investors
investing a minimum of $5,000,000. Additionally, Class A and
Class C shares of both Funds are subject to an annual service fee
of 0.15% of the average daily net assets of each Class.
Shares of both the Intermediate Maturity Fund and the
Limited Term Portfolio may be redeemed at their net asset
value per share next determined after receipt of written
request in proper form at no charge other than any applicable
CDSC. Redemptions made within twelve months of purchase of (i)
certain Class A shares of each Fund and (ii) Class C shares of
each Fund may be subject to a CDSC equal to 1.00% of the amount
being redeemed. Redemptions may be made by forwarding an
appropriate written request for redemption with signature
guarantee to the Fund's transfer agent, The Shareholder Services
Group, Inc. ("TSSG"). See also "Redemption of Shares" in the
accompanying Prospectus of the Intermediate Maturity Fund.
Exchange Privileges. The exchange privileges available to
shareholders of the Intermediate Maturity Fund are identical to
those available to shareholders of the Limited Term Portfolio.
Shareholders of both the Limited Term Portfolio and the
Intermediate Maturity Fund may exchange at net asset value all or
a portion of their shares for shares of the same or a specified
class in certain funds in the Smith Barney Mutual Funds at the
respective net asset values next determined, plus any applicable
sales charge differential. 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. For purposes of
computing the CDSC, if any, that may be payable upon a
disposition of the shares, the holding period for the shares
exchanged is added to the holding period of the new shares.
Exchanges are subject to minimum investment and other
requirements of the fund into which exchanges are made.
Dividends. The policies of each Fund with regard to
dividends and distributions are generally the same. The Limited
Term Portfolio declares and pays dividends of investment income
monthly and the Intermediate Maturity Fund declares dividends of
investment income daily and pays them monthly. Each Fund's
policy is to make distributions of any realized capital gains
annually. Shareholders of both the Intermediate Maturity Fund
and the Limited Term Portfolio, if he or she does not otherwise
instruct, will have their income dividends and capital gain
distributions reinvested automatically in additional shares of
the same Class of the Fund at net asset value, subject to no
sales charge or CDSC. Whichever distribution option is currently
in effect for a shareholder of the Limited Term Portfolio will
remain in effect after the Reorganization, however, shareholders
may change their distribution option at anytime after the
Reorganization by contacting TSSG in writing. See "Dividends,
Distributions and Taxes" in the accompanying Prospectus of the
Intermediate Maturity Fund.
Shareholder Voting Rights. The Trust and the Income Trust
are both open-end investment companies organized in
Massachusetts. As permitted by Massachusetts law, there will
normally be no meetings of shareholders for the purpose of
electing trustees unless and until such time as less than a
majority of the trustees holding office have been elected by
shareholders. At that time, the trustees then in office will
call a shareholders' meeting for the election of trustees.
Shareholders may, at any meeting called for the purpose, remove a
trustee by the affirmative vote of the holders of record of a
majority of the votes entitled to be cast for the election of
trustees. For purposes of voting with respect to the
Reorganization, the Class A, Class C and Class Y shares of the
Limited Term Portfolio shall vote together as a single class.
See "Comparative Information on Shareholders' Right - Voting
Rights."
RISK FACTORS
Due to the similarities of investment objectives and
policies of the Intermediate Maturity Fund and the Limited Term
Portfolio, the investment risks are generally similar. Such
risks are generally those typically associated with investing in
municipal obligations of the State of California and its
political subdivisions. Such risks, and certain differences in
the risks associated with investing in the Funds, are discussed
under the caption "Comparison of Investment Objectives and
Policies."
REASONS FOR THE REORGANIZATION
The Board of Trustees of the Trust has determined that
it would be advantageous to combine the Limited Term
Portfolio with the Intermediate Maturity Fund. The Funds have
generally similar investment objectives and policies and the same
distributor and transfer agent.
The Board of Trustees of the Trust has determined that the
Reorganization should provide certain benefits to the
shareholders of the Limited Term Portfolio. In making such a
determination, the Board of Trustees considered, among other
things: (i) the terms and conditions of the Reorganization; (ii)
the fact that the Reorganization will be effected as a tax-free
reorganization; (iii) the costs of the Reorganization to the
Funds; (iv) the compatibility of the objectives, policies and
restrictions of the two Funds; (v) the savings in total operating
expenses borne by shareholders expected to be realized by the
Reorganization; and (vi) the potential benefits to the Funds'
affiliates, including SBMFM, Smith Barney and Holdings.
In light of the foregoing, the Board of Trustees of the
Trust, including the non-interested Trustees, have decided that
it is in the best interests of the Limited Term Portfolio and its
shareholders to combine with the Intermediate Maturity Fund. The
Board of Trustees has also determined that a combination of the
Limited Term Portfolio and the Intermediate Maturity Fund would
not result in a dilution of the interests of the Limited Term
Portfolio's shareholders.
The Board of Trustees of the Income Trust has considered
the following factors, among others, in approving the
Reorganization and determining that it is advantageous for the
Intermediate Maturity Fund to acquire the assets of the Limited
Term Portfolio: (i) the terms and conditions of the
Reorganization; (ii) the fact that the Reorganization will be
effected as a tax-free reorganization; (iii) the costs of the
Reorganization to the Funds; (iv) the compatibility of the
investment objectives, policies and restrictions of the two
Funds; (v) the savings in total operating expenses borne by
shareholders expected to be realized by the Reorganization; and
(vi) the potential benefits to the Funds' affiliates, including
SBMFM, Smith Barney and Holdings. Accordingly, the Board of
Trustees of the Income Trust, including a majority of the non-
interested Trustees, has determined that the Reorganization is
in the best interests of the Intermediate Maturity Fund's
shareholders and that the interests of the Intermediate Maturity
Fund's shareholders will not be diluted as a result of the
Reorganization.
INFORMATION ABOUT THE REORGANIZATION
Amended and Restated 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
Intermediate Maturity Fund will acquire all or substantially
all of the assets of the Limited Term Portfolio in exchange
for shares of the Intermediate Maturity Fund and the assumption
by the Intermediate Maturity Fund of certain liabilities of the
Limited Term Portfolio on September 1, 1995, or such later date
as may be agreed upon by the parties (the "Closing Date").
Prior to the Closing Date, the Limited Term Portfolio will
endeavor to discharge all of its known liabilities and
obligations. The Intermediate Maturity Fund will not assume any
liabilities or obligations of the Limited Term Portfolio other
than those reflected in an unaudited statement of assets and
liabilities of the Limited Term Portfolio prepared as of the
close of regular trading on the New York Stock Exchange, Inc.
(the "NYSE"), currently 4:00 p.m. New York time, on the
Closing Date. The number of full and fractional shares of the
Intermediate Maturity Fund to be issued to the Limited Term
Portfolio shareholders will be determined on the basis of the
Intermediate Maturity Fund's and the Limited Term Portfolio's
relative net asset values per their respective classes of
shares, computed as of the close of regular trading on the NYSE
on the Closing Date. The net asset value per share of the
affected shares will be determined by dividing assets, less
liabilities, by the total number of such outstanding shares.
Both the Limited Term Portfolio and the Intermediate
Maturity Fund will utilize SBMFM to determine the value of their
respective portfolio securities. The Limited Term Portfolio and
the Intermediate Maturity Fund also will use the same
independent pricing service to determine the value of each
security so that SBMFM can determine the aggregate value of each
Fund's portfolio. The method of valuation employed will be
consistent with Rule 22c-1 under the 1940 Act, and with the
interpretation of such rule by the SEC's Division of
Investment Management.
At or prior to the Closing Date, the Limited Term Portfolio
will, and the Intermediate Maturity Fund may, declare a dividend
or dividends which, together with all previous such dividends,
shall have the effect of distributing to their respective
shareholders all taxable income for the taxable year ending on
or prior to the Closing Date. In addition, the Limited Term
Portfolio's dividends 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 carry forward).
As soon after the Closing Date as conveniently practicable,
the Limited Term Portfolio 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 Intermediate
Maturity Fund received by the Limited Term Portfolio. Such
liquidation and distribution will be accomplished by the
establishment of accounts in the names of the Limited Term
Portfolio's shareholders on the share records of the Intermediate
Maturity Fund's transfer agent. Each account will represent the
respective pro rata number of full and fractional shares of the
Intermediate Maturity Fund due to each of the Limited Term
Portfolio's shareholders. After such distribution and the
winding up of its affairs, the Limited Term Portfolio will be
terminated.
The consummation of the Reorganization is subject to the
conditions set forth in the Plan. Notwithstanding approval of
the Limited Term Portfolio's shareholders, the Plan may be
amended as set forth in the Plan and may be terminated at any
time at or prior to the Closing Date by either party if (i) a
material condition to one party's performance under the Plan or
a material covenant of one party shall not be fulfilled on or
before the date specified for the fulfillment thereof, (ii) a
material default or material breach of the Plan shall be made by
one party that is not cured or (iii) the Closing Date does not
occur on or prior to September 1, 1996.
Smith Barney shall be liable for the expenses incurred in
connection with the Reorganization, except that each Fund shall
be liable for any fees and expenses of its own custodian and
transfer agent incurred in connection with the Reorganization
and the Limited Term Portfolio will be liable for all fees and
expenses incurred relating to its liquidation and termination.
Approval of the Plan will require a Majority Vote. If the
Reorganization is not approved by shareholders of the Limited
Term Portfolio, the Board of Trustees will consider other
possible courses of action, including liquidation of the Limited
Term Portfolio.
Description of the Intermediate Maturity Fund Shares. Full
and fractional shares of the respective Class of shares of
beneficial interest of the Intermediate Maturity Fund will be
issued to the Limited Term Portfolio in accordance with the
procedures detailed in the Plan and as described in the
Intermediate Maturity Fund's Prospectus. Generally, the
Intermediate Maturity Fund does not issue share certificates to
shareholders unless a specific request is submitted to the
Intermediate Maturity Fund's transfer agent, TSSG. The shares of
the Intermediate Maturity Fund to be issued to the Limited Term
Portfolio's shareholders and registered on the shareholder
records of TSSG will have no preemptive or conversion rights.
Federal Income Tax Consequences. The exchange of
assets for shares of the Intermediate Maturity 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 Limited Term Portfolio will receive
an opinion from Willkie Farr & Gallagher, counsel to the
Intermediate Maturity 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:
(1) the transfer of all or substantially all of the Limited
Term Portfolio's assets in exchange for the Intermediate
Maturity Fund's shares and the assumption by the Intermediate
Maturity Fund of certain scheduled liabilities of the Limited
Term Portfolio will constitute a "reorganization" within the
meaning of Section 368 (a)(1)(C) of the Code, and the
Intermediate Maturity Fund and the Limited Term Portfolio 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 Intermediate
Maturity Fund upon the receipt of the assets of the Limited Term
Portfolio in exchange for the Intermediate Maturity Fund's
shares, and the assumption by the Intermediate Maturity Fund of
certain scheduled liabilities of the Limited Term Portfolio;
(3) no gain or loss will be recognized by the Limited
Term Portfolio upon the transfer of the Limited Term
Portfolio's assets to the Intermediate Maturity Portfolio
in exchange for the Intermediate Maturity Fund shares and the
assumption by the Intermediate Maturity Fund of certain scheduled
liabilities of the Limited Term Portfolio or upon the
distribution (whether actual or constructive) of the Intermediate
Maturity Fund shares to the Limited Term Portfolio
shareholders;
(4) no gain or loss will be recognized by shareholders of
the Limited Term Portfolio upon the exchange of their Limited
Term Portfolio shares for the Intermediate Maturity Fund shares
and the assumption of the Intermediate Maturity Fund of
certain scheduled liabilities of the Limited Term Portfolio;
(5) the aggregate tax basis of the Intermediate Maturity
Fund shares received by each Limited Term Portfolio shareholder
pursuant to the Reorganization will be the same as the aggregate
tax basis of the Limited Term Portfolio shares surrendered in
exchange therefor and the holding period of the Intermediate
Maturity Fund shares to be received by each Limited Term
Portfolio shareholder will include the period during which the
shares of the Limited Term Portfolio which are surrendered in
exchange therefor were held by such shareholder (provided the
Limited Term Portfolio shares were held as capital assets on
the date of Reorganization);
(6) the tax basis of the Limited Term Portfolio's assets
acquired by the Intermediate Maturity Fund will be the same
as the tax basis of such assets to the Limited Term Portfolio
immediately prior to the Reorganization and the holding period
of the assets in the hands of the Intermediate Maturity
Fund will include the period during which such assets were
held by the Limited Term Portfolio.
Shareholders of the Limited Term Portfolio 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 Limited Term Portfolio should also
consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
<TABLE>
<CAPTION>
Capitalization. The following table, which is
unaudited, shows the capitalization of the Intermediate Maturity
Fund and the Limited Term Portfolio as of March 15, 1995 and on
a pro forma basis as of that date, giving effect to the proposed
acquisition of assets at net asset value (in thousands, except
per share value):
<S> <C> <C> <C>
Intermediate Pro Forma for
Limited Term Maturity Reorganizatio
Class A Portfolio Fund n
Shares (Unaudited) (Unaudited) (Unaudited)
Net $5,363 $24,737 $30,100
Assets.......
.............
.
Net asset
value per $6.41 $8.14 $8.14
share........
.............
........
Shares 837 3,041 3,700
outstanding..
......
<S> <C> <C> <C>
Intermediate Pro Forma for
Limited Term Maturity Reorganizatio
Class C Portfolio Fund n
Shares (Unaudited) (Unaudited) (Unaudited)
Net $1,780 $214 1,994
Assets.......
.............
.
Net asset
value per $6.41 $8.14 $8.14
share........
.............
........
Shares 278 26 245
outstanding..
......
<S> <C> <C> <C>
Intermediate Pro Forma for
Limited Term Maturity Reorganizatio
Class Y Portfolio Fund n
Shares (Unaudited) (Unaudited) (Unaudited)
Net $518 $0 $518
Assets.......
.............
.
Net asset
value per $6.41 -- $8.14
share........
.............
........
Shares 81 0 64
outstanding..
......
</TABLE>
<TABLE>
<CAPTION>
As of the Record Date, July 11, 1995, there were
outstanding 731,808.776 Class A shares, 246,978.327 Class C
shares and 82,237.545 Class Y shares of the Limited Term
Portfolio. As of the Record Date, the officers and trustees of
the Trust beneficially owned as a group less than 1% of the
outstanding shares of the Limited Term Portfolio. To the best
knowledge of the Trustees, 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") owned
beneficially or of record more than 5% of the Limited Term
Portfolio except:
< <S> <C> <C>
Number of Shares
Name & Address and Class Percent of
Class
Smith Barney Inc. 149,766.909 20.46%
388 Greenwich Street Class A
New York, NY
Alan D. Levy 74,963.000 18.24%
Abby J. Levy Class A
910 N. Roxbury
Beverly Hills, CA
Jeff Herman 16,875.514 6.84%
Kara Herman Class C
12021 Doral Street
Northridge, CA
Robert Smith 16, 849.115 6.82%
Lucille Smith, Class C
Trustees
420 Pebble Beach
Place
Fullerton, CA
Aloke Bosu 15,934.412 6.45%
12070 Telegraph Road Class C
Sante Fe Springs, CA
Camilla Schoch 15,815.459 6.40%
Gerald Schoch, Class C
Trustees
418 Miniko Place
Honolulu, HI
Anthony Wong 82,237.545 100%
Mandy Tang Wong, Class Y
Trustees
1071 Piedmont
Sacramento, CA
</TABLE>
<TABLE>
<CAPTION>
As of the Record Date, July 11, 1995, there were
outstanding 2,794,906.385 Class A shares, 35,468.051 Class C
shares and no Class Y shares of the Intermediate Maturity Fund.
As of the Record Date, the officers and trustees of the Income
Trust beneficially owned as a group less than 1% of the
outstanding shares of the Intemerdiate Maturity Fund. To the
best knowledge of the Trustees of the Income Trust, 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") owned beneficially or of record more than 5% of
the Interrmediate Maturity Fund except:
<S> <C> <C>
Number of Shares
Name & Address and Class Percent of
Class
Thomas G. McKinney, 6,492.287 18.30%
Trustee Class C
501 Woodland Drive
Wofford Heights, CA
Thomas G. McKinney, 6,492.287 18.30%
Trustee Class C
501 Woodland Drive
Wofford Heights, CA
Jason H. Hung 6,410.256 18.07%
8201 Sheffield Lane Class C
Bakersfield, CA
Patsy R. Ricketts 5,971.606 16.84%
and Class C
Melvin L. Rackett
9512 HemingwayPlace
Bakersfield, CA
Aurther E. Rawlings 2,608.345 7.35%
Audrey M. Rawlings Class C
5517 Pepperwood
Lakewood, CA
Robert A. Malik and 1,843.884 5.20%
Marianne G. Malik Class C
2508 Lansford Avenue
San Jose, CA
</TABLE>
INFORMATION ABOUT INTERMEDIATE MATURITY FUND
Management's Discussion and Analysis of Market Conditions
and Portfolio Review (through April 28, 1995). Reflecting the
improvement in the municipal market that began in late 1994,
Class A shares earned a total return of 9.39% for the six-month
period ended May 31, 1995. Class C shares, a newly-available
class of shares, earned a total return of 9.22% for the period
between November 8, 1994 and May 31, 1995.
The increases last year in short-term rates by the Federal
Reserve Board are clearly slowing the economy's expansion from
its faster pace of last fall. The question now on the minds of
economists and investors is whether this is merely a pause in
economic activity or indicative of longer-term economic weakness.
Management does not believe that forthcoming economic data will
show conclusive evidence of a recession, and instead are working
under the assumption that the economy will experience a small
pause and then steady growth with moderate inflation.
The municipal securities market had a strong rally
during the six month period ended March 31, 1995 and the
Intermediate Maturity Fund was positioned to take full advantage
of it. A significant percentage of the Fund's portfolio was
invested in high quality, discount coupons, which allowed it to
maximize its net asset value in the rapidly declining interest
rate environment. The net asset value increased by $0.52 per
share, to $8.32 on May 31, 1995 from $7.80 on February 28, 1995.
Management's current goal is to use market strength to gradually increase
coupons, shorten maturities and take a more conservative approach
to the market until these interest rate levels prove they can
hold. This is consistent with the Fund's long-term strategy of
providing investors with a competitive stream of California tax-
exempt income with the preservation of capital.
Some uncertainties surround the market, however. Among
these are the many flat tax proposals being championed by members
of both political parties. Real legislative action is several
years away and must be revenue neutral to make any economic sense
- - - a very difficult balancing act to accomplish. These
discussions have caused periodic weaknesses in the municipal
securities market during the past months and will no doubt
continue to cause periodic weaknesses over the next few years,
which Management will view as an opportunity to invest at levels
that represent real value to our shareholders. A general rise in
interest rates would be another story, and we clearly would react
differently to that economic circumstance.
A defining moment for the municipal securities market was
Orange County, California's filing for bankruptcy in December
1994 which immediately cast a pall on the entire market. Its
impact on the broader market since then has been minimal., but
had been considerably stronger on the securities of the County
itself. The recent defeat of "Measure R" makes Management
skeptical of Orange County's plans to repay its debt. The Fund
has not participated in any of the recent debt offerings by
Orange County, and holds only two tax allocation securities
(approximately 4.2% of the Fund's portfolio) issued by Orange
County Development Agency. Although these bonds are issued under
the name of the County, they rely on dedicated property tax to
pay debt service. Management believes that the bankruptcy
proceeding will not have any material impact on the ability of
the issuer to make its scheduled interest and principal payments
and therefore, will have little, if any, effect on the Fund.
At the end of the six-month period ended March 31, 1995,
100% of the Fund's portfolio was rated investment grade by either
Standard & Poor's Corporation ("S&P") or Moody's Investor
Service, Inc. ("Moody's"). The majority of the Fund's assets
were invested in general obligation, education, transportation
and pollution control issues. The average maturity of the Fund
was 8.7 years. As stated above, Management intends to increase
coupons, shorten the average maturity of the portfolio and assume
a more conservative stance.
In response to the Federal Reserve's policy of higher short-
term interest rates, management's investment strategy has been
to keep the portfolio average maturity between approximately
8.5 and 9 years. This enabled the Intermediate Maturity Fund
to maximize its tax-exempt income while minimizing its exposure
to changing short-term interest rates. All of the securities in
the portfolio are rated investment grade by either Moody'
Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"), and they are also widely diversified by
investment sector.
Throughout 1994, the California economy has shown signs of
improvement. Significant gains in employment coupled with a
firmer real estate market have boded well for state tax revenues.
However, management has avoided general obligation bonds issued
by the state as well as lease revenue bonds that rely on
state budget appropriations to pay bondholder because of
management's concern over the state's ongoing budget deficits
and the legislature's inability to balance the budget.
Management has instead invested the Intermediate Maturity Fund's
assets in essential service revenue bonds - transportation, water
and sewer bonds - and debt issued by local communities for
redevelopment projects and various civic improvements.
The problems of Orange County's investment pool have
dominated the municipal market since early December when
Orange County filed for bankruptcy. The investment pool
consists of deposits from Orange County, agencies in Orange
County (such as Orange County Sanitation District and Orange
County Transportation Authority) and various local
communities. The pool suffered substantial losses through the
use of leverage and risky derivative investments.
At the end of the fiscal year, approximately 3.70% of the
Intermediate Maturity Fund's assets were invested in Orange
County Development Agency Tax Allocation bonds. Although
these bonds are issued under the name of Orange County, they
rely on a dedicated property tax to pay debt service.
Management believes that the bankruptcy proceeding will not have
any material impact on the ability of the issuer to make its
scheduled interest and principal payments and therefore will have
little, if any, effect on the Intermediate Maturity Fund.
[LINE GRAPH FROM ANNUAL REPORT GOES HERE]
INFORMATION ABOUT THE LIMITED TERM PORTFOLIO
Management's Discussion and Analysis of Market
Conditions and Portfolio Review (through April 28, 1995).
Economic conditions in California are stronger than they have
been in four years. Nevertheless, California was the only state
to experience a rating reduction from the two major rating
agencies in 1994. Moody's lowered its rating from
Aa to A1 and Standard & Poor's reduced its rating from A+ to A.
Rating agencies look at both a state's economy and its budget.
Expenditures for social services, although more realistic than in
previous years, are still high in California's current budget
proposal.
The California Limited Term Portfolio had a total return of
5.89% (Class A shares) for the fiscal year ending March 31, 1995.
This return compared favorably with the 5.21% average total
return for all California intermediate municipal bond funds over
the same period, as reported by Lipper Analytical Services.
While Management has a generally 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. Accordingly, Management is taking a
more cautious approach to structuring the interest-rate
sensitivity of the Portfolio. Relative stability of principal is
an important considerate for this fund, which is positioned in
the five- to 10-year intermediate maturity range. In this
regard, Management is placing emphasis on higher coupon issues
trading at a premium to their face value. Such bonds will
decline less in price than current coupon or market discount
bonds should the economy rebound and cause a rise in interest
rates. In addition, the maturities of these holdings are
effectively shorter than their stated maturity date, which serves
to further reduce the Portfolio's interest-rate sensitivity.
Examples of such issues are bonds priced to a call date earlier
than maturity, bonds with sinking funds designed to retire a
portion of the issue prior to maturity, and housing bonds that
are subject to early call from prepayments on mortgages.
[LINE GRAPH FROM ANNUAL REPORT GOES HERE]
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion comparing investment objectives,
policies and restrictions of the Intermediate Maturity Fund and
the Limited Term Portfolio is based upon and qualified in its
entirety by the respective investment objectives, policies and
restrictions sections of the Prospectuses of the Intermediate
Maturity Fund and the Limited Term Portfolio. For a full
discussion of the investment objectives, policies and
restrictions of the Intermediate Maturity Fund, refer to the
Intermediate Maturity Fund's Prospectus, which accompanies this
Prospectus/Proxy Statement, under the caption, "Investment
Objective and Management Policies," and for a discussion of
these issues as they apply to the Limited Term Portfolio, refer
to the Limited Term Portfolio's Prospectus under the caption,
"Investment Objective and Management Policies."
Investment Objective. The principal investment objective
of the Intermediate Maturity Fund is to provide California
investors with as high a level of current income exempt from
federal income taxes and California state personal income taxes
as is consistent with preservation of principal. The principal
investment objective of the Limited Term Portfolio is to provide
investors with as high a level of income exempt from federal
income taxes and California personal income taxes as is
consistent with prudent investing. Although the language used by
each Fund to define its respective investment objectives is
slightly different, the investment objectives of the Funds are
essentially the same.
Primary Investments. Under normal conditions, the
Intermediate Maturity Fund attempts to invest 100%, and invests
no less than 80%, of its assets in a portfolio of investment
grade debt obligations issued by or on behalf of the State of
California and other states, territories and possessions of the
United States, the District of Columbia and their respective
authorities, agencies, instrumentalities and political
subdivisions ("California Obligations"), the interest from which
is, in the opinion of bond counsel, exempt from Federal
income taxes and California personal income tax. As a non-
diversified fund under the 1940 Act, the Intermediate Maturity
Fund is not limited in the proportion of its assets that it may
invest in the obligations of a single issuer; however, it has
conducted and intends to continue to conduct its operations so as
to qualify as a "regulated investment company" for purposes
of the Code. To so qualify, the Intermediate Maturity Fund
limits its investments so that at the close of each quarter of
each 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 securities of a single issuer
and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer.
Up to 20% of the Intermediate Maturity Fund's total assets
may be invested in unrated securities that are deemed by its
investment adviser to be of a quality comparable to
investment grade. The weighted average maturity of the portfolio
of the Intermediate Maturity Fund normally will be no less
than three nor more than ten years, and the maximum remaining
maturity of such securities will normally be no greater than
twenty years. The Intermediate Maturity Fund may invest,
without limit, in California Obligations that are tax-exempt
"private activity bonds," as defined in the Code, which are in
most cases revenue bonds that generally do not carry the pledge
of the credit of the issuing municipality, but are guaranteed by
the corporate entity on whose behalf they are issued. Up to an
aggregate of 10% of the Fund's assets may be invested in
illiquid assets, which includes securities subject to contractual
and other restrictions on resale or lack readily available
markets. The types of California Obligations in which the
Intermediate Maturity Fund may invest include municipal leases,
zero coupon securities, custodial receipts, floating and variable
rate instruments and participation interests purchased from
financial institutions. Under normal conditions the
Intermediate Maturity Fund may hold up to 20% of its total
assets in cash or money market instruments, including taxable
money market instruments.
Under normal market conditions, the Limited Term
Portfolio seeks to invest 100%, and invests no less than 80%, of
its assets in municipal obligations the interest from which is
exempt from Federal income taxes at the time of their
issuance. Under normal market conditions, the Limited Term
Portfolio invests at least 65% of its assets in municipal
obligations issued by the State of California, its political
subdivisions and their agencies and instrumentalities. At least
80% of the Limited Term Portfolio's assets are invested in
obligations with remaining maturities of less than ten years
and the dollar-weighted average maturity of its entire
portfolio will normally not exceed ten years. Municipal bonds
purchased by the Limited Term Portfolio must, at the time of
purchase, be investment grade municipal bonds and at least two-
thirds of the municipal bonds must be rated in the category of A
or better. (Investment grade bonds are those rated Aaa, Aa, A
and Baa by Moody's and AAA, AA, A and BBB by S&P or have an
equivalent rating by any nationally recognized statistical rating
organization). Up to one-third of the assets of the Limited Term
Portfolio may be invested in municipal bonds rated Baa or BBB.
The Limited Term Portfolio's short-term municipal obligations
will be limited to high grade obligations (i.e., obligations
that are secured by the full faith and credit of the United
States or are rated MIG 1 or MIG 2, VMIG 1 or VMIG 2 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 Limited Term Portfolio's investment adviser to
be equivalent). Among the types of short-term instruments in
which the Limited Term Portfolio may invest are floating or
variable rate 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. The Limited Term Portfolio will not invest more
than 15% of the value of its net assets in illiquid securities
and may purchase new issues of municipal obligations on a when-
issued basis. Under certain conditions, and as a hedging policy
in pursuit of its investment objective, the Limited Term
Portfolio may invest in municipal bond index futures contracts
(currently traded on the Chicago Board of Trade) or in listed
contracts based on United States Government securities.
Investment Restrictions. The fundamental investment
restrictions adopted by the Income Trust and the Trust in
respect of the Intermediate Maturity Fund and the Limited Term
Portfolio, respectively, are generally similar. Neither Fund
may, without the vote of a majority (as defined under the 1940
Act), of its outstanding voting securities: (a) borrow money,
except from banks for temporary or emergency purposes such as
facilitating redemptions, in an amount not to exceed 10% of the
value of its total assets at the time of the borrowing; (b)
mortgage or pledge its assets, except to secure permitted
borrowings; (c) invest more than 25% of its total assets in any
one industry; (d) purchase or sell real estate or real
estate limited partnerships; (e) write or purchase put,
call, straddle or spread options; (f) underwrite the securities
of other issuers; (g) purchase or sell commodities or
commodities contracts; (h) make loans, except to the extent the
purchase of bonds or other evidences of indebtedness or the
entry into repurchase agreements or deposits with banks
may be considered loans; (i) make short sales of securities
or maintain a short position; or (j) purchase securities on
margin.
Investment Risks. Both Funds' concentration in California
obligations involves special risks that should be carefully
considered by investors. Certain California constitutional
amendments, legislative measures, executive orders,
administrative regulations, court decisions and voter initiatives
could result in certain adverse consequences affecting the
California obligations held by the Funds. For example, recent
amendments to the California Constitution and other statutes
have limited the taxing and spending authority of
California governmental entities, which may have the effect
of impairing the ability of certain issuers of California
obligations to pay principal and interest on their
obligations.
Because both Funds are classified as non-diversified funds
under the 1940 Act, investment in either may present greater
risks to investors than an investment in a diversified fund. The
investment return on a non-diversified fund typically is
dependent upon the performance of a smaller number of securities
relative to the number of securities held in a diversified
fund.
Both Funds are permitted to invest a limited portion of
their respective portfolios in non-publicly traded
securities (Intermediate Maturity Fund: 10%. Limited Term
Portfolio: 15%). Non-publicly traded securities may be less
liquid than publicly-traded securities. Although non-publicly
traded securities may sometimes be sold in privately negotiated
transactions, the prices realized from these sales could be less
than those originally paid by a Fund.
Both Funds are also permitted to invest in when-issued or
delayed-delivery transactions. Securities purchased on
either of these bases may expose the Fund to risk because the
securities may experience fluctuations in value prior to
delivery. Purchasing securities on a when-issued or delayed
delivery basis may involve the additional risk that the
yield available in the market when the delivery takes place may
be higher than that obtained in the transaction itself.
Under the investment policies of both Funds, at the time
of purchase, municipal bonds must be of investment grade. In
addition to this requirement, however, the Limited Term Portfolio
is required to have at least two-thirds of its municipal bonds
rated in the top three rating categories whereas the
Intermediate Maturity Fund is not subject to any similar
requirement. As a result, the Intermediate Maturity Fund may
have a larger portion of its portfolio invested in municipal
bonds that are regarded as having an adequate capacity to pay
interest and repay principal but are only of medium quality and
have speculative characteristics.
The Intermediate Maturity Fund may invest in municipal
leases which are leases or installment contracts issued by state
and local government authorities to obtain funds to acquire a
wide variety of equipment and facilities, such as computer
equipment, and other capital assets. These types of investments
have special risks not normally associated with municipal
obligations. For example, these obligations frequently contain
non-appropriation clauses that provide that the governmental
issuer of the obligation need not make future payments under
the lease or contract unless money is appropriated for that
purpose by a legislative body annually or on another periodic
basis. Municipal leases also represent a type of financing that
has not yet developed the depth of marketability generally
associated with other municipal obligations. Furthermore,
although a municipal lease will be secured by financed
equipment or facilities, the disposition of the equipment or
facilities in the event of foreclosure might prove difficult.
Municipal leases are also subject to the risk of non-payment
which would result in a reduction of income to the Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
General. The Income Trust and the Trust are open-end,
management investment companies registered under the 1940 Act,
which continuously offer to sell shares at their current net
asset value. Each is a trust organized under Massachusetts law
as a "Massachusetts business trust" and is governed by the
respective trust's Master Trust Agreement and Declaration of
Trust, board of trustees and its by-laws. Each Fund is also
governed by applicable state and Federal law. The Intermediate
Maturity Fund is a separate series of the Income Trust. The
Board of Trustees of the Income Trust has authorized the issuance
of four series of shares, each representing shares in one of four
separate portfolios, and may authorize the issuance of additional
series of shares in the future. The assets of each portfolio are
segregated and separately managed and a shareholder's interest is
in the assets of the portfolio in which he or she holds shares.
The Limited Term Portfolio is a separate series of the Trust.
For each of the Funds, Class A shares, Class C shares and Class Y
shares have identical voting, dividend, liquidation, and other
rights on the same terms and conditions except that expenses
related to the distribution of a specific class of shares, are
borne solely by that class and each class of shares has exclusive
voting rights with respect to
provisions of the Fund's Rule 12b-1 distribution plan which
pertains to a particular class.
Trustees. The by-laws of each of the Income Trust and the
Trust provide that the term of office of each trustee shall be
from the time of his election and qualification until the next
annual meeting of shareholders or until his successor shall have
been elected and shall have qualified. Any trustee may be
removed by the shareholders by a majority of the votes
entitled to be cast for the election of trustees. Vacancies on
the Boards of either the Income Trust or the Trust may be
filled by the trustees remaining in office. A meeting of
shareholders will be required for the purpose of electing
additional trustees whenever fewer than a majority of the
Trustees then in office were elected by shareholders.
Voting Rights. As permitted by Massachusetts law, there
will normally be no meetings of shareholders for the purpose of
electing trustees unless and until such time as less than a
majority of the trustees holding office have been elected by
shareholders. At that time, the directors then in office will
call a shareholders' meeting for the election of trustees.
Shareholders may, at any meeting called for the purpose, remove
a trustee by the affirmative vote of the holders of record of a
majority of the votes entitled to be cast for the election of
trustees.
Liquidation or Termination. In the event of the
liquidation or termination of any of the portfolios of the Trust
or the Income Trust, the shareholders of the portfolio would be
entitled to receive, when, and as declared by the Trustees in
respect of the liquidated or terminated portfolio, the excess of
the assets belonging to such portfolio. In either case, the
assets so distributed to shareholders of the portfolio would be
distributed among the shareholders in proportion to the
number of shares of the portfolio held by them and recorded on
the books of the liquidated or terminated portfolio.
Liability of Trustees. The Master Trust Agreement and the
Declaration of Trust of the Income Trust and the Trust,
respectively, provide that each Fund will indemnify Trustees and
officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their
positions with the Income Trust or the Trust as the case may be.
However, nothing in the Master Trust Agreement or the
Declaration of Trust as the case may be, nor the by-laws of
the Income Trust or the Trust protects or indemnifies a trustee
or officer against any liability to which such person would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office.
Rights of Inspection. Shareholders of the Intermediate
Maturity Fund and the Limited Term Portfolio have the same
inspection rights. Currently, each shareholder is permitted to
inspect the records, accounts and books of the trust subject to
reasonable regulations of the Board of Trustees, not contrary to
Massachusetts law, as to whether and to what extent, and at what
times and places, and under what conditions and regulations,
such right shall be exercised.
Appraisal Rights. Under the laws of the Commonwealth of
Massachusetts, shareholders of the Limited Term portfolio do not
have appraisal rights in connection with a combination or
acquisition of the assets of the Portfolio by another entity.
Shareholders of the Portfolio may, however, redeem their shares
at net asset value prior to the date of the Reorganization.
Shareholders of the Intermediate Maturity fund are entitled to
rights of appraisal of their shares with respect to a merger,
consolidation, sale or exchange of assets of the Intermediate
maturity fund to the same extent as shareholders of a
massachusetts business, corporation, and such rights shall be
such shareholders exclusive remedy in respect of their dissent
from any such action.
Shareholder Liability. Under Massachusetts law,
shareholders of each Fund may, under certain circumstances, be
held personally liable for the obligations of the Fund. The
Declaration of the Trust of each Fund, however, disclaims
shareholder liability for acts or obligations of the Fund and
provides indemnification out of the property of the Fund for all
losses and expenses of any shareholder held personally liable for
the obligations of the Fund.
The foregoing is only a summary of certain
characteristics of the operations of the Intermediate Maturity
Fund and the Limited Term Portfolio. The foregoing is not a
complete description of the documents cited. Shareholders
should refer to the provisions of the corporate documents
and state laws governing each Fund for a more thorough
description.
ADDITIONAL INFORMATION ABOUT THE INTERMEDIATE MATURITY FUND
AND THE LIMITED TERM PORTFOLIO
The Limited Term Portfolio. Information about the
Limited Term Portfolio is incorporated herein by reference
from its current Prospectus dated November 7, 1994 and in the
Statement of Additional Information dated November 7, 1994 which
has been filed with the SEC. A copy of the Prospectus and the
Statement of Additional Information is available upon
request and without charge by writing to the Limited Term
Portfolio at 388 Greenwich Street, New York, New York 10013 or by
calling 1-800-224-7523.
The Intermediate Maturity Portfolio. Information concerning
the operation and management of the Intermediate Maturity Fund is
incorporated herein by reference from the Prospectus dated
January 29, 1995 a copy of which is included herein, and
in the Statement of Additional Information dated January 29,
1995 which has been filed with the SEC. A copy of such
Statement of Additional Information is available upon request and
without charge by writing the Intermediate Maturity Fund at 388
Greenwich Street, New York, New York 10013 or by calling 1-800-
224-7523.
Both the Intermediate Maturity Fund and the Limited Term
Portfolio 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 reports 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, 75 Park Place, New York,
New York 10007. 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 the Trust 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 the Trust to be used at the Special Meeting of
Shareholders of the Limited Term Portfolio to be held at 4:30
p.m. on August 28, 1995, at 388 Greenwich Street, New York,
New York 10013 and at any 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
Limited Term Portfolio on or about July 21, 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 adjournments thereof. The holders of a majority of the
shares of the Limited Term Portfolio 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 the instructions marked thereon. Unmarked
proxies will be voted FOR the proposed Reorganization and FOR any
other matters deemed appropriate. A proxy may be revoked at any
time at or before the Meeting by written notice to Smith
Barney Muni Funds - California Limited Term Portfolio, 388
Greenwich Street, New York, New York 10013, 22nd Floor, c/o the
Corporate Secretary. 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 a Majority Vote which is
the lesser of: (i) 67% or more of the voting securities present
at a meeting if the holders of more than 50% of the outstanding
voting securities of the Limited Term Portfolio are present in
person or by proxy or (ii) 50% of the outstanding shares of the
Limited Term Portfolio. Shareholders of Class A, C and Y shares
of the Limited Term Portfolio shall vote together as a single
class.
Proxies are solicited by mail. Additional solicitations may
be made by telephone, telegraph or personal contact by officers
or employees of: the Trust; the Trust's distributor, Smith
Barney; the Trust's transfer agent, TSSG; and the Trust's
adviser, SBMFM. The aggregate cost of solicitation of the
Limited Term Portfolio shareholders is expected to be
$6,000 . Expenses of the Reorganization including the costs
of proxy solicitation, the preparation of this Prospectus/Proxy
Statement and enclosures attached hereto and reimbursement of
expenses for forwarding solicitation material to beneficial
owners of shares of the Limited Term Portfolio will be borne by
Smith Barney.
In the event that sufficient votes to approve the
Reorganization are not received by August 28, 1995, the persons
named as proxies may propose one or more adjournments of the
Meeting to 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 such adjournment after consideration of
the best interests of all shareholders.
The votes of the shareholders of the Intermediate
Maturity Fund are not being solicited by this Prospectus/Proxy
Statement.
FINANCIAL STATEMENTS AND EXPERTS
The audited statements of assets and liabilities of the
Limited Term Portfolio as of March 31, 1995,
and the
Intermediate Maturity Fund as of November 30, 1994 and the
related statements of operations for the year then ended and
changes in net assets for the two years then ended and selected
per share data and ratios, have been incorporated by reference
into the Statement of
Additional Information relating to this
Prospectus/Proxy Statement in reliance on the reports of KPMG
Peat Marwick LLP and Coopers and Lybrand L.L.P., independent
auditors for the Limited Term Portfolio and the Intermediate
Maturity Fund, respectively, given on the authority of such
firms as experts in accounting and auditing. In addition, the
unaudited financial statements for the Intermediate
Maturity Fund for the six-month period ended May 31, 1995 are
incorporated by reference into the aforementioned Statement of
Additional Information.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of
the Intermediate Maturity Fund will be passed upon by Willkie
Farr & Gallagher, 153 East 53rd Street, New York, New York
10022.
THE BOARD OF TRUSTEES OF THE LIMITED TERM PORTFOLIO,
INCLUDING THE "NON- INTERESTED" TRUSTEES, UNANIMOUSLY RECOMMEND
APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL
OF THE PLAN.
EXHIBIT A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF
REORGANIZATION (the" Agreement") is made as of this 19th day
of July, 1995, by and between Smith Barney Income
Trust ("Income Trust"), a business trust organized under
the laws of The Commonwealth of Massachusetts with its
principal place of business at 388 Greenwich Street, New
York, New York 10013, on behalf of Smith Barney
Intermediate Maturity California Municipals Fund (the
"Acquiring Fund"), an investment portfolio of Income Trust
and Smith Barney Muni Funds (the "Trust"), a business trust
organized under the laws of The Commonwealth of
Massachusetts with its principal place of business at 388
Greenwich Street, New York, New York 10013, on behalf
of the California Limited Term Portfolio, an investment
portfolio of the Trust (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 C and
Class Y shares of beneficial interest of the Acquiring Fund
(collectively, the "Acquiring Fund Shares" and each, an
"Acquiring Fund Share") and the assumption by the Acquiring
Fund of certain 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
the termination of the Acquired Fund, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Trust and the Income Trust 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 Trust and the Income Trust are
authorized to issue shares of beneficial interest on behalf
of the Acquired Fund and Acquiring Fund, respectively;
WHEREAS, the Board of Trustees of the Trust, on
behalf of the Acquired Fund, has determined that the
exchange of all or substantially all of the assets and
certain of the 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 Trustees of the Trust has
determined that the exchange of all or substantially all
of the assets of the Acquired Fund for Acquiring Fund
Shares is in the best interests of the Acquiring Fund's
shareholders and that the interests of the 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
THE ACQUIRING FUND SHARES AND ASSUMPTION OF THE ACQUIRED
FUND'S SCHEDULED LIABILITIES 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, the Trust on behalf of the
Acquired Fund agrees to transfer the Acquired Fund's assets
as set forth in paragraph 1.2 to the Acquiring Fund, and
the Income Trust on behalf of 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; (i) 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 Acquiring 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; (iii) to deliver to the Acquired Fund the
number of Class Y Acquiring Fund Shares, including
fractional Class Y Acquiring Fund Shares, determined by
dividing the value of the Acquiring Fund's net assets
attributable to its Class Y 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 Y Acquiring Fund Share,
computed in the manner and as of the time and date set forth
in paragraph 2.2; and (iv) to assume in respect of the
Acquiring Fund certain 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 of its 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 s an
asset on the books of the Acquired Fund on the closing date
provided in paragraph 3.1 (the "Closing Date").
(b) The Trust and the Acquired Fund have
provided the Income Trust and Acquiring Fund with a list of
all of the Acquired Fund's assets as of the date of
execution of this Agreement. The Acquired Fund reserves
the right to sell any of the 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 Trust and 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 Income Trust on behalf
of 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 The Boston Company Advisors, Inc.
("Boston Advisors"), as sub- administrator 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 its 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 shares of the Acquired Fund shall receive Class A
Shares of the Acquiring Fund, shareholders of Class C shares
of the Acquired Fund shall receive Class C Shares of the
Acquiring Fund and shareholders of Class Y shares of the
Acquired Fund shall receive Class Y shares 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's 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 canceled on the books
of the Acquired Fund, although 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.
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 Trust
and the Acquired Fund is and shall remain the responsibility
of the Trust and the Acquired Fund, respectively, 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 hereof, 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
Boston Advisors 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 September 1,
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.
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. The Acquired Fund shall deliver at the
Closing a list of the names and addresses of its
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 President of the Trust. 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 the Trust, on behalf of the Acquired Fund, or provide
evidence satisfactory to the Trust and the Acquired Fund
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. The Trust and the Acquired Fund represent
and warrant to the Income Trust and the Acquiring Fund as
follows:
(a) The Acquired Fund is a subtrust of the
Trust, which is a business trust duly organized, validly
existing and in good standing under the laws of The
Commonwealth of Massachusetts;
(b) The Trust 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) The Trust is not, and the execution, delivery
and performance of this Agreement will not result, in a
material violation of its Master Trust Agreement or By-laws
or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Trust or the Acquired
Fund is a party or by which it is bound;
(d) The Trust 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) Except as otherwise disclosed in writing
to and accepted by the Income Trust on behalf of the
Acquiring Fund, no litigation or administrative proceeding
or investigation of or before any court or governmental body
is presently pending or to its knowledge threatened against
the Trust 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 the financial condition or
the conduct of t he business of the Acquired Fund. The
Trust and the Acquired Fund know of no facts which might
form the basis for the institution of such proceedings and
neither is 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
its business or its ability to consummate the transactions
herein contemplated;
(f) The Statements of Assets and Liabilities
of the Acquired Fund as of March 31, 1994 and 1995 have
been audited by KPMG Peat Marwick LLP., independent
certified public accountants, and, together with the
unaudited Statement of Assets and Liabilities of the
Acquired Fund as of May 31, 1994, are in accordance
with generally accepted accounting principles
consistently applied, and such statements (copies of which
have been furnished to the Income Trust and 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) Since March 31, 1995, there has not been any
material adverse change with respect to the Acquiring Fund's
financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness
maturing more than one year from the date that such
indebtedness was incurred. For the purposes of this
subparagraph (g), a decline in net asset value per share of
the Acquiring Fund Shares shall not constitute a material
adverse change;
(h) At the Closing Date, all federal and other
tax returns and reports of the Trust and the Acquired Fund
required by law then to have been filed by such dates
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 knowledge of the Acquired
Fund and the Trust, 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 Acquired Fund has met the requirements of
Subchapter M of the Code for qualification and
treatment as a regulated investment company;
(j) 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 provided in paragraph 3.4.
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;
(k) At the Closing Date, the Acquired Fund will
have good and marketable title to the 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 Income Trust and the Acquiring Fund;
(l) The execution, delivery and performance of
this Agreement has been duly authorized by all necessary
action on the part of the Trust's Board of Trustees, and
subject to the approval of the acquired Fund's
shareholders, this Agreement, assuming due authorization,
execution and delivery by the Income Trust on behalf of
the Acquiring Fund, will constitute a valid and binding
obligation of the Trust and 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;
(m) The information to be furnished by the Trust
and 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
(n) 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 Income Trust and the Acquiring Fund
represent and warrant to the Trust and the Acquired Fund as
follows:
(a) The Acquiring Fund is a portfolio of the
Income Trust, which is a business trust, duly organized,
validly existing and in good standing under the laws
of The Commonwealth of Massachusetts;
(b) The Income Trust 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 of the Acquiring Fund
and statement of additional information of the Income Trust
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 its assets;
(e) The Income Trust is not, and the execution,
delivery and performance of this Agreement on behalf of
the Acquiring Fund will not result, in a material
violation of its Master Trust Agreement or By-laws or
of any agreement, indenture, instrument, contract, lease or
other undertaking with respect to the Acquiring Fund to
which the Income Trust is a party or by which it is bound;
(f) No material litigation or administrative
proceeding or investigation of or before any court or
governmental body is presently pending or threatened
against the Income Trust with respect to the Acquiring Fund
or any of the Acquiring Fund's properties or assets, except
as previously disclosed in writing to the Trust and the
Acquired Fund. The Income Trust and the Acquiring Fund know
of no facts which might form the basis for the
institution of such proceedings and neither the Income
Trust nor the Acquiring Fund is 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 the Income Trust's
ability on behalf of the Acquiring Fund to consummate the
transactions contemplated herein;
(g) The Statements of Assets and Liabilities of
the Acquiring Fund as of November 30, 1992, 1993 and 1994
have been audited by Coopers & Lybrand L.L.P., independent
certified public accountants, and together with the
unaudited Statement of Assets and Liabilities of the
Acquiring Fund as of May 31, 1995 are in accordance with
generally accepted accounting principles consistently
applied, and such statements (copies of which have
been furnished to the Trust and the Acquired Fund) fairly
reflect the financial condition of the Acquiring Fund as
of such date, and there are no known contingent
liabilities of the Acquiring Fund as of such date not
disclosed therein;
(h) Since November 30, 1994, there has not been any
material adverse change with respect to the Acquiring Fund's
financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness
maturing more than one year from the date that such
indebtedness was incurred. For the purposes of this
subparagraph (h), a decline in net asset value per share of
the Acquiring Fund Shares shall not constitute a material
adverse change;
(i) At the Closing Date, all federal and
other tax returns and reports of the Income Trust and 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 the knowledge
of the Income Trust and the Acquiring Fund, no such
return is currently under audit and no assessment has
been asserted with respect to such returns;
(j) 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;
(k) At the date hereof, all issued and
outstanding shares of the Acquiring Fund are, and at he
Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable, with no
personal liability attaching to the ownership thereof. 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;
(l) The execution, delivery and performance of
this Agreement has been duly authorized by all necessary
action, if any, on the part of the Income Trust's Board of
Trustees and assuming due authorization, execution and
delivery by the Trust on behalf of the Acquired Fund,
this Agreement constitutes a valid and binding obligation of
the Income Trust and 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;
(m) 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;
(n) The information to be furnished by the Income
Trust and 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;
(o) The Proxy Statement to be included in the
Registration Statement (only insofar as it relates to the
Acquiring Fund and the Income Trust) 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
(p) The Income Trust on behalf of 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 they may deem appropriate in order to continue the
Acquiring Fund's operations after the Closing Date.
5. COVENANTS OF THE ACQUIRED FUND, THE TRUST, THE
ACQUIRING FUND AND THE INCOME TRUST
5.1. The Acquiring Fund and 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 Trust, on behalf of the Acquired Funds, 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 Trust and the Acquired Fund covenant 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 Trust and the Acquired Fund will assist the
Income Trust and the Acquiring Fund in obtaining such
information as the Income Trust and the Acquiring Fund
reasonably request concerning the beneficial ownership of
the Acquired Fund's shares.
5.5. Subject to the provisions of this Agreement, the
Trust on behalf of the Acquired Fund and the Income Trust
on behalf of the Acquiring and, 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 Trust and the
Acquired Fund shall furnish to the Income Trust and the
Acquiring Fund, in such form as is reasonably satisfactory
to the Income Trust and 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 President and Treasurer of
the Trust.
5.7. The Trust and the Acquired Fund will provide the
Income Trust and the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus
(the "Prospectus") which will 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 THE TRUST AND
THE ACQUIRED FUND
The obligations of the Trust and the Acquired Fund to
consummate the transactions provided for herein shall be
subject, at their election, to the performance by
Income Trust and 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 Income
Trust and 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 Income Trust, on behalf of the Acquiring
Fund, shall have delivered to the Trust and the
Acquired Fund a certificate executed in its name by its
President or Vice President and its Treasurer or
Assistant Treasurer, in a form reasonably satisfactory to
the Trust and the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and
warranties of Income Trust and the Acquiring Fund made in
this Agreement are true and correct at and as of the
Closing Date, except as they may be affected by
the transactions contemplated by this Agreement; and
6.3. The Trust and 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
Trust, covering the following points:
That (a) the Acquiring Fund is a subtrust of the Income
Trust which is a business trust duly organized and validly
existing under the laws of The Commonwealth of
Massachusetts; (b) the Income Trust is an open-end
management investment company registered under the 1940
Act; (c) this Agreement and the reorganization provided
for thereunder and the execution of this Agreement have
been duly authorized and approved by all requisite action
of the Income Trust , assuming the valid execution and
delivery of the Agreement by the Trust on behalf of the
Limited Term Portfolio, this Agreement has been duly
executed and delivered by the Income Trust on behalf of
the Acquiring Fund and, assuming due authorization,
execution and delivery of the Agreement by the Trust on
behalf of the Acquired Fund, is a valid and binding
obligation of the Income Trust and the Acquiring Fund
enforceable in accordance with its terms against the
assets of the Acquiring Fund; and (d) Class A, Class C and
Class Y Acquiring Fund Shares to be issued to the Acquired
Fund for distribution to its shareholders pursuant to
this Agreement have been duly authorized and such Class A,
Class C and Class Y Acquiring Fund Shares, when issued in
accordance with this Agreement, will be validly issued and
fully paid and non-assessable by the Trust. Such opinion
may state that it is solely for the benefit of the Trust,
its Trustees and its officers, and the Acquired Fund. Such
counsel may rely, as to matters governed by the laws of the
Commonwealth of Massachusetts, on an opinion of
Massachusetts counsel.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INCOME TRUST
AND THE ACQUIRING FUND
The obligations of the Income Trust and the
Acquiring Fund to complete the transactions provided for
herein shall be subject, at their election, to the
performance by the Income Trust 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 the Trust
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. The Trust, on behalf of the Acquired Fund, shall
have delivered to the Income Trust and 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 costs 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 the Trust in respect of the Acquired
Fund;
7.3. The Trust, on behalf of the Acquired Fund, shall
have delivered to the Income Trust and the Acquiring Fund on
the Closing Date a certificate executed in its name by its
President or Vice President and its Treasurer or Assistant
Treasurer, in form and substance satisfactory to the Income
Trust and the Acquiring Fund and dated as of the Closing
Date, to the effect that the representations and warranties
of the Trust and the Acquired Fund made in this Agreement
are true and correct at and as of the Closing Date, except
as they may be affected by the transactions contemplated by
this Agreement; and
7.4. The Income Trust on behalf of the Acquiring Fund
shall have received on the Closing Date a favorable
opinion of Sullivan & Cromwell, counsel to the Trust and the
Acquired Fund, in a form satisfactory to Christina T.
Sydor, Esq., Secretary of the Income Trust, covering the
following points:
That (a) the Limited Term Portfolio is a sub-trust of
the Trust, which is a business trust duly organized and
validly existing under the laws of the Commonwealth of
Massachusetts; (b) the Trust is an open-end management
investment company registered under the 1940 Act; and (c)
this Agreement, the reorganization provided for thereunder
and the execution of this Agreement have been duly
authorized and approved by all requisite action of the
Trust and the Acquired Fund, and this Agreement has
been duly executed and delivered by the Trust on behalf of
the Acquired Fund and, assuming due authorization, execution
and delivery of the Agreement by the Income Trust on behalf
of the Intermediate Term portfolio, is a valid and binding
obligation of the Trust and the Acquired Fund enforceable
in accordance with its terms against the assets of the
Acquired Fund. Such opinion may state that it is solely for
the benefit of the Income Trust, its Trustees, its officers
and the Acquiring Fund. 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
TRUST, ACQUIRED FUND, THE ACQUIRING FUND AND THE INCOME
TRUST
If any of the conditions set forth below do not exist
on or before the Closing Date with respect to the Income
Trust and the Acquiring Fund, or the Trust and the
Acquired Fund, the other parties to this Agreement shall,
at their 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 the Trust's
Master Trust Agreement and By-laws and certified copies
of the votes evidencing such approval shall have been
delivered to the Income Trust and the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither
the Income Trust on behalf of the Acquiring Fund nor
the Trust 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
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 Income Trust and the Acquiring Fund or the
Trust and 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. A dividend or dividends on the outstanding shares
of the Acquired Fund, shall have been declared and paid
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 a and exempt-interest 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 Income
Trust in respect of the Acquiring Fund and the Trust 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 the Acquiring Fund
Shares and the assumption by the Acquiring Fund of
certain 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 certain
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 the Acquiring Fund Shares
and the assumption by the Acquiring Fund of certain
scheduled liabilities of the Acquired Fund or upon the
distribution (whether actual or constructive) of the
Acquiring Fund Shares to the 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 and the assumption
by the Acquiring Fund of certain scheduled liabilities of
the Acquired Fund;
(e) the aggregate tax basis for the 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 the 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 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 Income Trust on behalf of the Acquiring Fund
nor the Trust 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 Income Trust and the Acquiring Fund represent
and warrant to the Trust and the Acquired Fund, and the
Trust and the Acquired Fund hereby represent and warrant
to the Income Trust and 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. shall each 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:
(i) all fees and expenses related to the liquidation,
dissolution and termination of the Acquired Fund; and (ii)
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: (1) the mutual agreement of
the Trust, on behalf of the Acquired Fund, and the Income
Trust, on behalf of the Acquiring Fund; (2) the Trust on
behalf of the Acquired Fund in the event that the Income
Trust in respect of the Acquiring Fund shall, or the Income
Trust in respect of the Acquiring Fund in the event that the
Trust in respect of the Acquired Fund shall, materially
breach any representation, warranty or agreement contained
herein to be performed at or prior to the Closing Date; or
(3) either party, 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 the Trust
on behalf of the Acquired Fund or the Income Trust on
behalf of the Acquiring Fund or their respective Trustees 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.
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 the Trust on
behalf of the Acquired Fund and the Income Trust on behalf
of 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 the 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 or 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 prepaid telegraph, telecopy
or certified mail addressed to the Trust on behalf of the
Acquired Fund, 388 Greenwich Street, New York, New York
10013, Attention: Heath B. McLendon; or to the Income Trust
on behalf of the Acquiring Fund, 388 Greenwich Street, 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 parties. Nothing herein expressed or implied is
intended or shall be construed to confer 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
the Trust in respect of the Acquired Fund and the Income
Trust in respect of the Acquired Fund shall not be
binding upon any of their respective Trustees,
shareholders, nominees, officers, agents or employees
personally, but bind only the trust property of the
Acquired Fund or the Acquiring Fund as provided in the
trust instruments of the Trust and the Income Trust. The
execution and delivery of this Agreement have been
authorized by the Trustees of each of the Trust on behalf of
the Acquired Fund and the Income Trust on behalf of the
Acquiring Fund and this Agreement has been executed by
authorized officers of the Trust on behalf of the
Acquired Fund and the Income Trust on behalf of the
Acquiring Fund, 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 the Acquired Fund or the Acquiring Fund as
provided in the Trust's or Income Trust's Master Trust
Agreement, as the case may be.
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 INCOME TRUST
on behalf of the SMITH BARNEY INTERMEDIATE
MATURITY CALIFORNIA MUNICIPALS FUND
By: /s/Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
Attest: /s/ Christina T. Sydor
Name: Christina T. Sydor
Title: Secretary
SMITH BARNEY MUNI FUNDS
on behalf of the CALIFORNIA
LIMITED TERM PORTFOLIO
By: /s/Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
Attest: /s/ Christina T. Sydor
Name: Christina T. Sydor
Title: Secretary
- -------------------------------------------------------------
- ------------------
- -------------------------------------------------------------
- ------------------
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
California
Limited
Term
Portfolio
November 7, 1994
Prospectus begins on page one
Smith Barney Mutual Funds
Investing for your future,
Every day.
<PAGE>
Smith Barney Mutual Funds
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Prospectus
November 7, 1994 --------------------------------------------
- -----------------------------------
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The California Limited Term Portfolio (the "Portfolio")
is one of thirteen investment portfolios that currently
comprise Smith Barney Muni Funds (the
"Fund"). The Portfolio seeks to pay its shareholders as high
a level of income
exempt from Federal income taxes and California personal
income taxes as is
consistent with prudent investing. The Portfolio seeks to
achieve its objective
by investing primarily in obligations issued by the State of
California and its
political subdivisions, agencies and instrumentalities. At
least 80% of the
Portfolio's assets will be invested in obligations with
remaining maturities of
less than ten years and the dollar-weighted average maturity
of the entire
portfolio will normally not exceed ten years. The Portfolio
may invest without
limit in municipal obligations whose interest is a tax
preference for purposes
of the Federal alternative minimum tax.
This Prospectus sets forth concisely certain information
about the Fund and
the Portfolio, including sales charges, distribution and
service fees and
expenses, that prospective investors will find helpful in
making an investment
decision. Investors are encouraged to read this Prospectus
carefully and retain
it for future reference.
Additional information about the Portfolio is contained
in a Statement of
Additional Information dated November 7, 1994, as amended or
supplemented from
time to time, that is available upon request and without
charge by calling or
writing the Fund at the telephone number or address set forth
above or by
contacting a Smith Barney Financial Consultant. The Statement
of Additional
Information 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
MUTUAL MANAGEMENT CORP.
Investment Manager
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.
1
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Table of Contents -------------------------------------------
- ------------------------------------
Prospectus Summary
3 -----------------------------------------------------------
- --------------------
Financial Highlights
9 -----------------------------------------------------------
- --------------------
Investment Objective and Management Policies
10 ----------------------------------------------------------
- ---------------------
Valuation of Shares
14 ----------------------------------------------------------
- ---------------------
Dividends, Distributions and Taxes
15 ----------------------------------------------------------
- ---------------------
Purchase of Shares
17 ----------------------------------------------------------
- ---------------------
Exchange Privilege
23 ----------------------------------------------------------
- ---------------------
Redemption of Shares
27 ----------------------------------------------------------
- ---------------------
Minimum Account Size
28 ----------------------------------------------------------
- ---------------------
Performance
28 ----------------------------------------------------------
- ---------------------
Management of the Fund
29 ----------------------------------------------------------
- ---------------------
Distributor
31 ----------------------------------------------------------
- ---------------------
Additional Information
32 ----------------------------------------------------------
- ---------------------
============================================================
====================
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
and
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 offer or solicitation in such jurisdiction.
============================================================
====================
2
<PAGE>
Smith Barney Muni Funds --
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
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 Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio seeks to pay its
shareholders as high a
level of income exempt from Federal income taxes and
California personal income
taxes as is consistent with prudent investing. The Portfolio
seeks to achieve
its objective by investing primarily in obligations issued by
the State of
California and its political subdivisions, agencies and
instrumentalities. At
least 80% of the Portfolio's assets will be invested in
obligations with
remaining maturities of less than ten years and the dollar
weighted average
maturity of the entire portfolio will normally not exceed ten
years. The
Portfolio may invest without limit in municipal obligations
whose interest is a
tax preference for purposes of the Federal alternative
minimum tax. See
"Investment Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Portfolio offers
three 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 two Classes of shares: Class A shares and Class C
shares, which differ
principally in terms of sales charges and rate of expenses to
which they are
subject. A third 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 2.00% 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 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
- -- No Initial Sales Charge."
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 0.20% of the average daily net assets of
the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares
within 12 months of
purchase. The 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
3
<PAGE>
Smith Barney Muni Funds --
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Prospectus Summary (continued) ------------------------------
- -------------------------------------------------
with current holdings of Class C shares of the Portfolio
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 redemptions 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. They are not
subject to any service
or distribution fees.
In deciding which Class of Portfolio 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
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 purchase of shares without an
initial sales charge
and the shares are subject to lower ongoing expenses over the
term of the
investment. As an alternative, Class C shares are sold
without any initial sales
charge so the entire purchase price is immediately invested
in the Portfolio.
Any investment return on these additional invested amounts
may partially or
wholly offset the higher annual expenses of this Class.
Because the Portfolio'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 in the context of their own investment time frame.
Investors investing a minimum of $5,000,000 must
purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or
service or
distribution fees. The maximum purchase amount for Class A
shares is $4,999,999
and Class C shares is $499,999. There is no maximum purchase
amount for Class Y
shares.
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 Portfolio. In addition, Class A
share purchases,
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 with 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." See "Purchase of
Shares." Because
the ongoing expenses of Class A shares may be lower than
those for Class C
4
<PAGE>
Smith Barney Muni Funds --
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Prospectus Summary (continued) ------------------------------
- -------------------------------------------------
shares, purchasers eligible to purchase Class A shares at net
asset value should
consider doing so.
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 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
description of the sales charges and service and distribution
fees for each
Class of shares and "Valuation of Shares," "Dividends,
Distributions and Taxes"
and "Exchange Privilege" for other differences between the
Classes of shares.
PURCHASE OF SHARES Shares may be purchased through the
Portfolio'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 and Class C
shares may open an
account by making an initial investment of at least $1,000
for each account.
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 and
Class C shares and
the subsequent investment requirement for all Classes through
the Systematic
Investment Plan described below is $100. It is not
recommended that the
Portfolio be used as a vehicle for Keogh, IRA or other
qualified retirement
plans. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio offers
shareholders a Systematic
Investment Plan under which they may authorize the automatic
placement of a
purchase order each month or quarter for Portfolio shares in
an amount of at
least $100. See "Purchase 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
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO Mutual Management Corp.
("MMC" or the
"Manager") serves as the Portfolio's investment manager. MMC
provides investment
advisory and management services to investment companies
affiliated with Smith
Barney. MMC is a wholly owned subsidiary of Smith Barney
Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of The
Travelers Inc.
("Travelers"), a diversified financial services holding
company engaged, through
5
<PAGE>
Smith Barney Muni Funds --
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Prospectus Summary (continued) ------------------------------
- -------------------------------------------------
its subsidiaries, principally in four business segments:
Investment Services,
Consumer Finance Services, Life Insurance Services and
Property & Casualty
Insurance Services. 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
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Portfolio
for the prior day
generally is quoted daily in the financial section of most
newspapers and is
also available from a Smith Barney Financial Consultant. See
"Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net
investment income are paid
monthly. Distributions of net realized capital gains, if any,
are paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions
paid on shares of any
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. See "Dividends, Distributions
and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no
assurance that the
Portfolio's investment objective will be achieved. The
Portfolio's concentration
in California obligations involves certain additional risks
that should be
considered carefully by investors. Changes in California laws
and regulations
could result in adverse consequences affecting California
obligations.
Additionally, the value of the Portfolio's investments, and
thus the net asset
value of the Portfolio's shares, will fluctuate in response
to changes in market
and economic conditions, as well as the financial condition
and prospects of
issuers of municipal obligations purchased by the Portfolio.
See "Investment
Objective and Management."
6
<PAGE>
Smith Barney Muni Funds --
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Prospectus Summary (continued) ------------------------------
- -------------------------------------------------
THE PORTFOLIO'S EXPENSES The following expense table
lists the costs and
expenses an investor will incur either directly or indirectly
as a shareholder
of the Portfolio, based on the maximum sales charge or
maximum CDSC that may be
incurred at the time of purchase or redemption and the
Portfolio's current
operating expenses:
<TABLE>
<CAPTION>
Class A
Class C Class Y
- -------------------------------------------------------------
- ------------------
<S> <C>
<C>
<C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) 2.00%
None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever
is lower) None*
1.00% None
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management fees 0.45%
0.45% 0.45%
12b-1 Fees*** 0.15
0.35 --
Other Expenses 0.20
0.20 0.19%
-------
- ----
Total Fund Operating Expenses 0.80%
1.00% 0.64%
-------
- ----
-------
- ----
- -------------------------------------------------------------
- ------------------
</TABLE>
* 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 CDSC of 1.00% on redemptions made within 12
months.
** The expenses of Class Y shares are estimated based
on amounts incurred
by Class A shares because Class Y shares were not available
for purchase prior
to November 7, 1994. The Management fee and 12b-1 fee for the
fiscal period
ended March 31, 1994 have been restated to reflect current
expenses of the
Portfolio.
*** Class C shares are subject to an ongoing
distribution fee and, 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.
The sales charge and CDSC set forth in the above table
are the maximum
charges imposed on purchases or redemptions of Portfolio
shares and investors
may actually pay lower or no charges depending on the amount
purchased and, in
the case of Class C shares and certain Class A shares, the
length of time the
shares are held. See "Purchase of Shares" and "Redemption of
Shares." 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 C shares an annual 12b-1 fee of 0.35% of the value of
average daily net
assets of that Class, consisting of a 0.20% 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.
7
<PAGE>
Smith Barney Muni Funds --
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Prospectus Summary (continued) ------------------------------
- -------------------------------------------------
EXAMPLE
The following example is intended to assist an investor
in understanding
the various costs that an investor in the Portfolio will bear
directly or
indirectly. The example assumes payment by the Portfolio 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>
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.................. $28 $45 $64
$117
Class C... .............. 20 32 55
122
Class Y.................. 7 20 36
80
Aninvestor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A.... ............... $28 $45 $64
$117
Class C.........................10 32 55
122
Class Y......................... 7 20 36 80
- -------------------------------------------------------------
- ---
</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 Portfolio's actual return
will vary and may be
greater or less than 5.00%. This example should not be
considered a
representation of past or future expenses and actual
expenses may be greater or
less than those shown.
8
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Financial Highlights ----------------------------------------
- ---------------------------------------
The following schedule has been audited in conjunction
with the annual
audits of the financial statements of Smith Barney Muni Funds
by KPMG Peat
Marwick LLP, independent auditors. The 1994 Financial
Statements and the
independent auditors' report thereon appear in the March 31,
1994 Annual Report
to Shareholders. No information is presented for Class Y
shares, which were not
available for purchase until November 7, 1994.
For a Portfolio share outstanding throughout each period:
<TABLE>
<CAPTION>
Period ended March 31, 1994 Class A(a) Class
C(b) --------------------------------------------------------
- -----------------------
<S> <C>
<C>
Net Asset Value, Beginning of Period $6.50
$6.51 -------------------------------------------------------
- ------------------------
Net Investment Income 0.27
0.25
Net Realized and Change in Unrealized
Gains on Investments (0.12) (0.12)
- -------------------------------------------------------------
- ------------------
Total from Investment Operations 0.15
0.13
============================================================
====================
Less Distributions:
Dividends from Net Investment Income (0.24) (0.23)
Distributions from Net Realized Gains 0.00
0.00 --------------------------------------------------------
- -----------------------
Total Distributions (0.24) (0.23)
- -------------------------------------------------------------
- ------------------
Net Asset Value, End of Period $6.41
$6.41
============================================================
====================
Total Return* 2.29%++
1.87%++ -----------------------------------------------------
- --------------------------
Net Assets, End of Period (in thousands) $8,020 $2,361
- -------------------------------------------------------------
- ------------------
Ratios to Average Net Assets:
Expenses (1) 0.19%+ 0.53%+
Net Investment Income 4.99%+ 4.52%+
- -------------------------------------------------------------
- ------------------
Portfolio Turnover 47.91% 47.91%
============================================================
====================
</TABLE>
(1) The Manager has waived all of its fees in each of
the periods ended
March31, 1994. If such fees were not waived, the
per share effect on
expenses and the ratio of expenses to average net
assets would have been
$0.32 and 0.75%+, respectively, for Class A shares,
and $0.41 and 1.18%+,
respectively, for Class C shares.
(a) From April 27, 1993 (commencement of operations) to
March 31, 1994.
(b) From May 18, 1993 (inception date) to March 31, 1994
+ Annualized.
++ Total returns are not annualized as they may not be
representative of the
total returns for the year.
* Total returns do not reflect sales loads or
contingent deferred sales
charges.
9
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Investment Objective and Management Policies ----------------
- --------------------------------------------
- --------------------
The California Limited Term Portfolio seeks as high a
level of income
exempt from Federal income taxes and California personal
income taxes as is
consistent with prudent investing. The Portfolio will invest
primarily in
obligations issued by the State of California and its
political subdivisions,
agencies and instrumentalities, the interest from which is, in
the opinion of
bond counsel for the various issuers, exempt from Federal
income taxes at the
time of their issuance. At least 80% of the Portfolio's assets
will be invested
in obligations with remaining maturities of less than ten
years and the
dollar-weighted average maturity of the entire portfolio will
normally not
exceed ten years. (For certain shareholders, a portion of the
Portfolio's income
may be subject to the alternative minimum tax ("AMT") on tax
exempt income
discussed below.) Such obligations are issued to raise money
for a variety of
public projects that enhance the quality of life including
health facilities,
housing, airports, schools, highways and bridges.
Under the Tax Reform Act of 1986, interest income from
municipal
obligations issued to finance certain "private activities"
("AMT-Subject Bonds")
becomes an item of "tax preference" which is subject to the
AMT when received by
a person in a tax year during which he is subject to that tax.
Such private
activity bonds include bonds issued to finance such projects
as certain solid
waste disposal facilities, student loan programs, and water
and sewage projects.
Because interest income on AMT-Subject Bonds is taxable to
certain investors, it
is expected, although there can be no guarantee, that such
municipal obligations
generally will provide somewhat higher yields than other
municipal obligations
of comparable quality and maturity. There is no limitation on
the percent or
amount of the Portfolio's assets that may be invested in AMT
Subject Bonds.
Municipal bonds purchased for the Portfolio must, at
the time of purchase,
be investment grade municipal bonds and at least two-thirds of
the Portfolio's
municipal bonds must be rated in the category of A or better.
Investment grade
bonds are those rated Aaa, Aa, A and Baa by Moody's Investors
Service, Inc.
("Moody's") and AAA, AA, A and BBB by Standard & Poor's
Corporation ("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 Portfolio 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) 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 Portfolio
may invest. In
10
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Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Investment Objective and Management Policies (continued) ----
- -------------------------------------------------------------
- --------------
determining the suitability of an investment in an unrated
municipal bond, the
Manager will take into consideration debt service coverage,
the purpose of the
financing, history of the issuer, existence of other rated
securities of the
issuer and other general conditions as may be relevant,
including comparability
to other issues. After the Portfolio purchases a municipal
bond, the issue 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
Portfolio but the Manager will consider such an event in
determining whether the
Portfolio should continue to hold the security.
The Portfolio'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 are rated MIG 1 or MIG 2, VMIG 1 or VMIG
2 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 Portfolio
may invest are
floating or variable rate 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
over 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 Portfolio may purchase participation
interests 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 Portfolio. Participation interests will be
purchased only if
management believes interest income on such interests will be
tax-exempt when
distributed as dividends to shareholders.
The Portfolio will not invest more than 15% of the
value of its net assets
in illiquid securities, including those that are not readily
marketable or for
which there is no established market.
The Portfolio may purchase new issues of municipal
obligations on a
when-issued basis, i.e. delivery and payment normally take
place 15 to 45 days
after the purchase date. The payment obligation and the
interest rate to be
received are each fixed on the purchase date, although no
interest accrues with
11
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Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Investment Objective and Management Policies (continued) ----
- -------------------------------------------------------------
- --------------
respect to a when-issued security prior to its stated
delivery date. During the
period between purchase and settlement, assets consisting of
cash or liquid high
grade debt securities, marked-to-market daily, of a dollar
amount sufficient to
make payment at settlement will be segregated at the
custodian bank. Interest
rates at settlement may be lower or higher than on the
purchase date, which
would result in appreciation or depreciation, respectively.
Although the
Portfolio will only purchase a municipal obligation on a when-
issued basis with
the intention of actually acquiring the securities, the
Portfolio may sell these
securities before the settlement date if it is deemed
advisable.
Portfolio transactions will be undertaken primarily to
accomplish the
Portfolio's objective in relation to anticipated movements in
the general level
of interest rates, but the Portfolio may also engage in short-
term trading
consistent with its objective.
The Portfolio may 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 deposits on
the Portfolio's
existing futures contracts would not exceed 5% of the value
of its total assets.
Since any income would be taxable, it is anticipated that
such investments will
be made only in those circumstances when the Manager
anticipates the possibility
of an extreme change in interest rates or market conditions
but does not wish to
liquidate the Portfolio's securities. A further discussion of
futures contracts
and their associated risks is contained in the Statement of
Additional
Information.
It is a fundamental policy that under normal market
conditions, the
Portfolio will seek to invest 100% of its assets - and the
Portfolio 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). It
is also a fundamental policy that under normal market
conditions, the Portfolio
will invest at least 65% of its assets in municipal
obligations issued by the
State of California, its political subdivisions and their
agencies and
instrumentalities. The Portfolio 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, 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 Fund's monies available for investment exceed the
municipal obligations
available for purchase that meet the Fund's rating, maturity
and other
investment criteria. To the extent the Portfolio is so
invested, the investment
objective may not be achieved.
12
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Investment Objective and Management Policies (continued) ----
- -------------------------------------------------------------
- --------------
RISK FACTORS AFFECTING CALIFORNIA
The Portfolio's concentration in California obligations
involves certain
additional risks that should be considered carefully by
investors. Certain
California constitutional amendments, legislative measures,
executive orders,
administrative regulations, court decisions and voter
initiatives could result
in certain adverse consequences affecting California
obligations. In particular,
there are risks resulting from certain recent amendments to
the California
Constitution and other statutes that limit the taxing and
spending authority of
California governmental entities, and these may have the
effect of impairing the
ability of certain issuers of California obligations to pay
principal and
interest on their obligations. ("Appendix B" in the Statement
of Additional
Information provides additional details.)
RISK AND INVESTMENT CONSIDERATIONS
The ability of the Portfolio to achieve its investment
objective is
dependent on a number of factors, including the skills of the
Manager in
purchasing municipal obligations whose issuers have the
continuing ability to
meet their obligations for the payment of interest and
principal when due. The
ability to achieve a high level of income is dependent on the
yields of the
securities in the portfolio. Yields on municipal obligations
are the product of
a variety of factors, including the general conditions of the
municipal bond
markets, the size of a particular offering, the maturity of
the obligation and
the rating of the issue. In general, the longer the maturity
of a municipal
obligation, the higher the rate of interest it pays. However,
a longer average
maturity is generally associated with a higher level of
volatility in the market
value of a municipal obligation. During periods of falling
interest rates, the
values of long-term, municipal obligations generally rise;
conversely, during
periods of rising interest rates, the values of such
securities generally
decline. Changes in the value of Portfolio securities will
not affect interest
income derived from those securities but will affect the
Portfolio's net asset
value. Since the Portfolio's objective is to provide high
current income, it
will invest in municipal obligations with an emphasis on
income rather than
stability of net asset values.
The Fund is registered as a "non-diversified" company
under the 1940 Act in
order for the Portfolio to have the ability to invest more
than 5% of its assets
in the securities of any issuer. The Portfolio intends to
comply with Subchapter
M of the Internal Revenue Code that limits the aggregate
value of all holdings
(except U.S. Government and cash items, as defined in the
Code) that exceed 5%
of the Portfolio's total assets to an aggregate amount of 50%
of such assets.
Also, holdings of a single issuer (with the same exceptions)
may not exceed 25%
of the Portfolio's total assets. These limits are measured at
the end of each
13
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Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Investment Objective and Management Policies (continued) ----
- -------------------------------------------------------------
- --------------
quarter. Under the Subchapter M limits,"nondiversification"
allows up to 50%
of a Portfolio's total assets to be invested in as few as two
single issuers. In
the event of decline of creditworthiness or default upon the
obligations of one
or more such issuers exceeding 5%, an investment in the
Portfolio will entail
greater risk than in a portfolio having a policy of
"diversification" because a
high percentage of the Portfolio's assets may be invested in
municipal
obligations of one or two issuers. Furthermore, a high
percentage of investments
among few issuers may result in a greater degree of
fluctuation in the market
value of the assets of the Portfolio, and consequently a
greater degree of
fluctuation of the Portfolio's net asset value, because the
Portfolio will be
more susceptible to economic, political, or regulatory
developments affecting
these securities than would be the case with a portfolio
composed of varied
obligations of more issuers.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Portfolio's portfolio securities ordinarily are
purchased from and sold
to parties acting as either principal or agent. Newly issued
securities
ordinarily are purchased directly from the issuer or from an
underwriter; other
purchases and sales usually are placed with those dealers
from which it appears
that the best price or execution will be obtained. Usually no
brokerage
commissions, as such, are paid by the Portfolio for purchases
and sales
undertaken through principal transactions, although the price
paid usually
includes an undisclosed compensation to the dealer acting as
agent.
The Portfolio cannot accurately predict its portfolio
turnover rate, but
anticipates that the annual turnover will not exceed 100%. An
annual turnover
rate of 100% would occur when all of the securities held by
the Portfolio are
replaced one time during a period of one year. The Manager
will not consider
turnover rate a limiting factor in making investment
decisions consistent with
the investment objective and policies of the Portfolio.
- -------------------------------------------------------------
- ------------------
Valuation of Shares -----------------------------------------
- --------------------------------------
The Portfolio'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 Portfolio's net assets attributable to each
Class by the total
number of shares of the Class outstanding.
The Portfolio's securities will be valued on the basis
of bid prices
provided by a pricing service when the Fund believes such
prices reflect fair
14
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Valuation of Shares (continued) ----------------------------
- ---------------------------------------------------
market value. Pricing services generally determine value by
reference to
transactions in municipal obligations, quotations from
municipal bond dealers,
market transactions in comparable securities and various
relationships between
securities. If a pricing service is not used, municipal
obligations will be
valued at the quoted bid prices provided by municipal bond
dealers. Short-term
instruments maturing within 60 days will be valued at cost
plus (minus)
amortized discount (premium), if any, when the Trustees have
determined that
amortized cost equals fair value. Securities and other assets
that are not
priced by a pricing service and for which market quotations
are not available
will be valued in good faith at fair value by or under the
direction of the
Trustees.
- -------------------------------------------------------------
- ------------------
Dividends, Distributions and Taxes --------------------------
- -----------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends of substantially all of the Portfolio's net
investment income are
declared and paid monthly and any realized capital gains are
declared and
distributed annually.
If a shareholder does not otherwise instruct, dividends
and capital gain
distributions will be reinvested automatically in additional
shares of the same
Class at net asset value, subject to no sales charge or CDSC.
Income dividends and capital gain distributions that
are invested are
credited to shareholders' accounts in additional shares at
the net asset value
as of the close of business on the payment date. A
shareholder may change the
option at any time by notifying his or her Financial
Consultant.
The per share dividends on Class C shares of the
Portfolio 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 C shares. The
per share dividends on Class A shares of the Portfolio may be
lower than the per
share dividends on Class Y shares principally as a result of
the service fee
applicable to Class A shares. Distributions of capital gains,
if any, will be in
the same amount for Class A, Class C and Class Y shares.
TAXES
The Portfolio intends to qualify as a "regulated
investment company" and to
meet the requirements for distributing "exempt-interest
dividends" under the
Internal Revenue Code (the "Code") so that no Federal income
taxes will be
payable by the Portfolio and dividends representing net
interest received on
15
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Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Dividends, Distributions and Taxes (continued) -------------
- -------------------------------------------------------------
- -----
municipal obligations will not be includable by shareholders
in their gross
income for Federal income tax purposes. To the extent
dividends are derived from
taxable income from temporary investments, from market
discounts or from the
excess of net short-term capital gain over net long-term
capital loss, they are
treated as ordinary income whether the shareholder has
elected to receive them
in cash or in additional shares. No portion of such dividends
would qualify for
the corporate dividends-received deduction. Distributions
derived from the
excess of net long-term capital gain over net short-term
capital loss are
treated as long-term capital gain regardless of the length of
time a shareholder
has owned shares of the Portfolio and regardless of whether
such distributions
are received in cash or in additional shares.
Exempt-interest dividends allocable to interest
received by the Portfolio
from the AMT-Subject Bonds in which the Portfolio may invest
will be treated as
interest paid directly on such obligations and will give
rise to an "item of tax
preference" that will increase a shareholder's alternative
minimum taxable
income. In addition, for corporations, alternative minimum
taxable income will
be increased by a percentage of the amount by which a
special measure of income
(including exempt-interest dividends) exceeds the amount
otherwise determined to
be alternative minimum taxable income. Accordingly,
investment in the Portfolio
may cause shareholders to be subject to (or result in an
increased liability
under) the AMT. The Fund will annually furnish to Portfolio
shareholders a
report indicating the ratable portion of exempt-interest
dividends attributable
to AMT-Subject Bonds.
Each Portfolio of the Fund will be treated as a
separate regulated
investment company for Federal tax purposes. Accordingly,
each Portfolio's net
investment income is determined separately based on the
income earned on its
securities less its costs of operations. Each Portfolio's
net long-term and
short-term gain (loss) realized on investments will be
determined separately and
net capital gains distributed by the Portfolio are
determined after offsetting
any capital loss carryover of the Portfolio from prior
periods.
Under the Code, interest on indebtedness incurred or
continued to purchase
or carry shares of the Fund will not be deductible to the
extent that the Fund's
distributions are exempt from Federal income tax. In
addition, any loss realized
upon the redemption of shares held less than 6 months will
be disallowed to the
extent of any exempt-interest dividends received by the
shareholder during such
period. Further, persons who may be "substantial users" (or
"related persons" of
substantial users) of facilities financed by industrial
development bonds should
consult their tax advisors concerning an investment in the
Fund.
16
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Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Dividends, Distributions and Taxes (continued) -------------
- -------------------------------------------------------------
- -----
CALIFORNIA STATE TAXES
The Portfolio's shareholders will not be subject to
California state
personal income tax on Portfolio dividends to the extent that
such distributions
qualify as exempt-interest dividends under the Code and
California law;
provided, that at the close of each quarter of the Fund's
taxable year at least
50% of the Portfolio's total assets are invested in municipal
obligations of
California issuers. To the extent that distributions are
derived from taxable
income, including long or short-term capital gains, such
distributions will not
be exempt from California state personal income tax.
Dividends on the Portfolio
are not excluded in determining California state franchise
taxes on corporations
and financial institutions.
Investors purchasing municipal obligations of their
state of residence, or
a fund comprised of such obligations, should recognize that
the benefits of the
exemption from local taxes, in addition to the exemption from
Federal taxes,
necessarily limits the fund's ability to diversify
geographically. The Portfolio
will make available annually to its shareholders information
concerning the tax
status of its distributions, including the amount of its
dividends designated as
exempt-interest dividends and as capital gain dividends.
The foregoing is only a brief summary of some of the
important tax
considerations generally affecting the Portfolio and its
shareholders.
Additional tax information of relevance to particular
investors is contained in
the Statement of Additional Information. Investors are urged
to consult their
tax advisors with specific reference to their own tax
situation.
- -------------------------------------------------------------
- ------------------
Purchase of Shares ------------------------------------------
- -------------------------------------
GENERAL
The Portfolio offers three classes of shares. Class A
shares are sold to
investors with an initial sales charge and Class C shares are
sold without an
initial sales charge but are subject to a CDSC payable upon
certain redemptions.
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 "Prospectus
Summary -- Alternative Purchase Arrangements" for a
discussion of factors to
consider in selecting which Class of shares to purchase.
Purchases of Portfolio shares must be 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 Portfolio,
investors must
specify whether the purchase is for Class A, Class C or
Class Y shares. No
17
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Purchase of Shares (continued) ------------------------------
- -------------------------------------------------
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 and Class C shares may open an
account by making an
initial investment of at least $1,000 for each account in the
Portfolio.
Investors in Class Y shares may open an account by making an
initial investment
of $5,000,000. Subsequent investments of at least $50 may be
made for all
Classes. For participants in the Portfolio's Systematic
Investment Plan, the
minimum initial investment requirement for Class A and Class
C shares and the
subsequent investment requirement for all Classes is $100.
There are no minimum
investment requirements in Class A shares for employees of
Travelers and its
subsidiaries, including Smith Barney, Trustees 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 Shareholder Services Group,
Inc. ("TSSG"), a
subsidiary of First Data Corporation. Share certificates are
issued only upon a
shareholder's written request to TSSG. It is not recommended
that the Portfolio
be used as a vehicle for Keogh, IRA or other qualified
retirement plans.
Purchase orders received by Smith Barney prior to the
close of regular
trading on the NYSE, on any day the Portfolio calculates its
net asset value,
are priced according to the net asset value determined on
that day (the "trade
date"). Orders received by dealers or Introducing Brokers
prior to the close of
regular trading on the NYSE on any day the Portfolio
calculates its net asset
value, are priced according to the net asset value determined
on that day,
provided the order is received by Smith Barney prior to Smith
Barney's close of
business. Currently, payment for Portfolio shares is due on
the fifth business
day (the "settlement date") after the trade date. The
Portfolio anticipates
that, in accordance with regulatory changes, beginning on or
about June 1, 1995,
the settlement date will be the third business day after the
trade date.
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
preauthorized transfers of $100 or more to charge the regular
bank account or
other financial institution indicated by the shareholder on a
monthly or
quarterly basis to provide systematic additions to the
shareholder's Portfolio
account. A shareholder who has insufficient funds to complete
the transfer will
18
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Purchase of Shares (continued) ------------------------------
- -------------------------------------------------
be charged a fee of up to $25 by Smith Barney or TSSG. The
Systematic 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.
Additional information is
available from the Fund or a Smith Barney Financial
Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A
shares of the
Portfolio are as follows:
============================================================
====================
Sales Charge
Dealer's
% of %of Amount
Reallowance as %
Amount of Investment Offering Price Invested
of Offering Price -------------------------------------------
- ------------------------------------
Less than $500,000 2.00% 2.04%
1.80%
$500,000 and over * *
*
============================================================
====================
*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 C shares is waived. See
"Deferred Sales Charge Alternatives -- Waivers of CDSC."
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.
The $500,000 investment may be met by aggregating the
purchases of Class A
shares of the Portfolio made at one time by "any person,"
which includes an
individual, his or her spouse and children, or a trustee or
other fiduciary of a
single trust estate or single fiduciary account. It may also
be met by
aggregating the purchase with the net asset value of all
Class A shares offered
with a sales charge held in funds sponsored by Smith Barney
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 trustees
of the Fund and employees of Travelers and its subsidiaries,
or to the spouse
and children of such persons (including the surviving spouse
of a deceased
Trustee or employee, and retired Trustees or employees); (b)
offers of Class A
19
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Purchase of Shares (continued) ------------------------------
- -------------------------------------------------
shares to any other investment company in connection with the
combination of
such company with the Portfolio 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
purchase 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 Portfolio (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 Portfolio) and who wish to reinvest their
redemption
proceeds in the Portfolio, provided the reinvestment is made
within 60 calendar
days of the redemption; and (e) accounts managed by
registered investment
advisory subsidiaries of Travelers. In order to obtain such
discounts, the
purchaser must provide sufficient information at the time of
purchase to permit
verification that the purchase would qualify for the
elimination of the sales
charge.
RIGHT OF ACCUMULATION
Class A shares of the Portfolio may be purchased by
"any person" (as
defined above) at net asset value determined by aggregating
the dollar amount of
the new purchase and the total net asset value of all Class A
shares of the
Portfolio and of funds sponsored by Smith Barney that 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 purchase
at net asset value.
The right of accumulation is subject to modification or
discontinuance at any
time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, purchase
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 eligible
for such purchase at net asset value, all purchases must be
pursuant to an
employer- or partnership-sanctioned plan meeting certain
requirements. One such
20
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Purchase of Shares (continued) ------------------------------
- -------------------------------------------------
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 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 individual who is a member of a qualified group
may also purchase
Class A shares at the 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 Portfolio shares at a discount and (c) satisfies
uniform criteria
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 Portfolio
and the members, and must agree to include sales and other
materials related to
the Portfolio in its publications and mailings to members at
no cost to Smith
Barney. In order to purchase at net asset value, the
purchaser must provide
sufficient information at the time of purchase to permit
verification that the
purchase qualifies for purchase at net asset value. Approval
of group purchase
at net asset value is subject to the discretion of Smith
Barney.
LETTER OF INTENT
A Letter of Intent for amounts of $500,000 or more
provides an opportunity
for an investor to purchase shares at net asset value by
aggregating the
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
purchases of all Class A shares of the Portfolio and other
funds of the Smith
Barney Mutual Funds offered with a sales charge over a 13
month period based on
the total amount of intended purchases plus the value of all
Class A shares
previously purchased and still owned. An alternative is to
compute the 13 month
period starting up to 90 days before the date of execution of
a Letter of
Intent. Each investment made during the period receives the
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 appropriate number of escrowed shares will be redeemed.
New Letters of
21
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Purchase of Shares (continued) ------------------------------
- ------------------------------
- --------------------
Intent will be accepted beginning January 1, 1995. Please
contact a Smith Barney
Financial Consultant or TSSG to obtain a Letter of Intent
application.
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 Portfolio. A CDSC, however, may
be imposed on
certain redemptions of these shares. "CDSC Shares" are: (a)
Class C shares and
(b) 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 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
Portfolio assets; (b) reinvestment of dividends or capital
gain distributions;
or (c) shares redeemed more than 12 months after their
purchase. CDSC Shares are
subject to a 1.00% CDSC if redeemed within 12 months of
purchase.
In determining the applicability of any CDSC, it will
be assumed that a
redemption is made first of shares representing capital
appreciation, next of
shares representing the reinvestment of dividends and capital
gain distributions
and finally of other shares held by the shareholder for the
longest period of
time. 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
Portfolio 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 C shares at
$10 per share for a cost of $1,000. Subsequently, the
investor acquired 5
additional shares through dividend reinvestment. During the
tenth 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
22
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Purchase of Shares (continued) ------------------------------
- -------------------------------------------------
charged at a rate of 1.00% (the applicable rate for Class C
shares) for a total
deferred sales charge of $2.40.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see
"Shareholder Services --
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 below) (provided, however,
that automatic 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 twelve
months following the death or disability of the shareholder;
(d) involuntary
redemptions; and (e) redemptions of shares in connection with
a combination of
the Portfolio with any investment company by merger,
acquisition of assets or
otherwise. 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 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 and Class C shares are
subject to minimum
investment requirements and all shares are subject to the
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 European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -- Capital Appreciation
Portfolio
23
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Exchange Privilege (continued) -----------------------------
- --------------------------------------------------
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- International
Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth
Portfolio
Smith Barney Funds, Inc. -- Utility Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund Smith Barney
Strategic Investors Fund Smith Barney Utilities Fund
Smith Barney World Funds, Inc. -- International
Balanced Portfolio
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 Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Limited Maturity Treasury Fund Smith
Barney Managed Governments Fund Inc.
Smith Barney World Funds, Inc. -- Global Government
Bond Portfolio
Municipal Bond 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.
24
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
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 Jersey Municipals Fund Inc. Smith
Barney New York Municipals Fund Inc. Smith Barney
Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
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
* Smith Barney Municipal Money Market Fund, Inc.
* Smith Barney Muni Funds -- California Money Market
Portfolio
* Smith Barney Muni Funds -- New York Money Market
Portfolio. --------------------------------------------------
- -----------------------------
*Available for exchange with Class A and Class Y shares of
the Portfolio.
**Available for exchange with Class C shares of the
Portfolio.
***Available for exchange with Class A shares of the
Portfolio.
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 limited
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
purposes of the exchange privilege, shares obtained through
automatic
reinvestment of dividends and capital gain distributions are
treated as having
paid the same sales charges applicable to the shares on which
the dividends or
distributions were paid; however, if no sales charge was
imposed upon the
25
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Exchange Privilege (continued) -----------------------------
- --------------------------------------------------
initial purchase of the shares, any shares obtained through
automatic
reinvestment will be subject to a sales charge differential
upon exchange. Class
A shares held in the Portfolio prior to November 7, 1994
that are subsequently
exchanged for shares of other funds of the Smith Barney
Mutual Funds will not be
subject to a sales charge differential.
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 Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders of the
Portfolio 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 Portfolio's performance and its
shareholders. The
investment manager may determine that a pattern of frequent
exchanges is
excessive and contrary to the best interests of the
Portfolio's other
shareholders. In this event, the investment manager will
notify Smith Barney and
Smith Barney may, at its discretion, decide to limit
additional purchases and/or
exchanges by the 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
in the Portfolio or
(b) remain invested in the Portfolio 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
Portfolio reserves the right to modify or discontinue
exchange privileges upon
60 days' prior notice to shareholders.
26
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Redemption of Shares ---------------------------------------
- ----------------------------------------
The Fund is required to redeem the shares of the
Portfolio 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 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 redemption must specify the Class being redeemed. In the
event of a failure
to specify which Class, or if the investor owns fewer shares
of the Class than
specified, 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. The redemption
proceeds will be remitted on or before the seventh day
following receipt of
proper tender, except on any days on which the NYSE is closed
or as permitted
under the 1940 Act in extraordinary circumstances. The Fund
anticipates that, in
accordance with regulatory changes, beginning on or about
June 1, 1995, payment
will be made on or before the third business day following
receipt of proper
tender. 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
Financial Consultant, Introducing Broker or dealer in the
selling group or by
submitting a written request for redemption to:
Smith Barney Muni Funds/California Limited Term
Portfolio
Class A, C or Y (please specify)
c/o The Shareholder 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 registered.
If the shares to be redeemed were issued in certificate form,
the certificates
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
27
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Redemption of Shares (continued) ---------------------------
- ----------------------------------------------------
appearing on a redemption request, share certificate or stock
power must 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 Portfolio offers shareholders an automatic cash
withdrawal plan, under
which shareholders who own shares with a value of at least
$10,000 may elect to
receive cash payments of at least $100 monthly or quarterly.
The withdrawal plan
will be carried over on exchanges between funds or Classes of
the Portfolio. 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
value 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 Consultant.
- -------------------------------------------------------------
- ------------------
Minimum Account Size ----------------------------------------
- ---------------------------------------
The Fund reserves the right to involuntarily liquidate
any shareholder's
account if the aggregate net asset value of the shares held
in the Portfolio
account is less than $500. (If a shareholder has more than
one account in this
Portfolio, each account must satisfy the minimum account
size). The Fund,
however, 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 the account up
to the minimum to
avoid involuntary liquidation.
- -------------------------------------------------------------
- ------------------
Performance ------------------------------------------------
- -------------------------------
From time to time the Portfolio may include its yield,
tax equivalent
yield, total return and average annual total return in
advertisements. In other
types of sales literature the Fund may also include a
Portfolio's distribution
28
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Performance (continued)
- -------------------------------------------------------------
- ------------------
rate. These figures are computed separately for Class A,
Class C and Class Y
shares of the Portfolio. These figures are based on
historical earnings and are
not intended to indicate future performance. The yield of a
Portfolio Class
refers to the net income earned by an investment in the Class
over a thirty-day
period ending at month end. This net income is then
annualized, i.e., the amount
of income earned by the investment during that thirty-day
period is assumed to
be earned each 30-day period for twelve periods and is
expressed as a percentage
of the investment. The net income earned on the investment
for six periods is
also assumed to be reinvested at the end of the sixth 30-day
period. The tax
equivalent yield is calculated similarly to the yield, except
that a stated
income tax rate is used to demonstrate the taxable yield
necessary to produce an
after-tax yield equivalent to the tax-exempt yield of the
Class. The yield and
tax equivalent yield quotations are calculated according to a
formula prescribed
by the SEC to facilitate comparison with yields quoted by
other investment
companies. The distribution rate is calculated by annualizing
the latest daily
dividend rate and dividing the result by the maximum offering
price per share as
of the end of the period to which the distribution relates.
The distribution
rate is not computed in the same manner as, and therefore can
be significantly
different from, the above described yield. 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 gains distributions on the reinvestment dates at
prices calculated as
stated in this Prospectus, then dividing the value of the
investment 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 redeemable
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 may
also include comparative performance information in
advertising or marketing its
shares. Such performance information may include data from
Lipper Analytical
Services, Inc. and other financial publications. The Fund
will include
performance data for each class of shares of the Portfolio in
any advertisement
or information including performance data of the Portfolio.
- -------------------------------------------------------------
- ------------------
Management of the Fund --------------------------------------
- -----------------------------------------
TRUSTEES
Overall responsibility for management and supervision
of the Fund rests
with the Fund's Trustees. The Trustees approve all
significant agreements
29
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Management of the Fund (continued) --------------------------
- -----------------------------------------------------
between the Fund and the companies that furnish services to
the Fund and the
Portfolio, including agreements with the Fund's distributor,
investment manager,
custodian and transfer agent. The day-to-day operations of
the Portfolio are
delegated to the Portfolio's investment manager. The
Statement of Additional
Information contains background information regarding each
Trustee and executive
officer of the Fund.
MANAGER
MMC manages the day to day operations of the Portfolio
pursuant to a
management agreement entered into on behalf of the
Portfolio. MMC is a
subsidiary of Holdings, the parent company of Smith Barney
(the "Distributor").
Holdings is a wholly owned subsidiary of Travelers which is
a 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. MMC,
Holdings and Smith
Barney are each located at 388 Greenwich Street, New York,
New York 10013. MMC
is also the investment manager for investment companies
having aggregate assets
of approximately $45.8 billion, and its affiliates provide
similar services to
investment companies having different investment objectives
and also advise
employee benefit and other institutional accounts.
MMC provides the Portfolio with investment management
services and
executive and other personnel, pays the remuneration of Fund
officers, provides
the Fund with office space and equipment, furnishes the Fund
with bookkeeping,
accounting, administrative services and services relating to
research,
statistical work and supervision of the Portfolio. For the
services provided,
the Management Agreement provides that the Portfolio will pay
MMC a daily fee at
the annual rate of 0.45% of the Portfolio's net assets. MMC
has agreed to waive
its fee with respect to any Class to the extent that it is
necessary if in any
fiscal year the aggregate expenses of such Class exclusive of
12b-1 fees, taxes,
brokerage, interest and extraordinary expenses, such as
litigation costs, exceed
0.65% of its average daily net assets for that fiscal year.
The 0.65% expense
limitation shall be in effect until it is terminated by
notice to shareholders
and by supplement to the then current prospectus.
PORTFOLIO MANAGEMENT
Peter M. Coffey, a Managing Director of Smith Barney,
has served as Vice
President of the Fund and portfolio manager of the Portfolio
since its inception
(April 27, 1993) and manages its day-to-day operations,
including making all
investment decisions. Mr. Coffey also serves as the portfolio
manager for the
Fund's other non-money market Portfolios.
Management's discussion and analysis, and additional
performance
information regarding the Portfolio during the fiscal year
ended March 31, 1994
30
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Management of the Fund (continued) --------------------------
- -----------------------------------------------------
is included in the Annual Report dated March 31, 1994. A copy
of the Annual
Report may be obtained upon request and without charge from a
Smith Barney
Financial Consultant or by writing or calling the Fund at the
address or phone
number listed on page one of this Prospectus.
- -------------------------------------------------------------
- ------------------
Distributor -------------------------------------------------
- ------------------------------
Smith Barney distributes shares of the Portfolio 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
Portfolio under Rule 12b-1 under the 1940 Act (the "Plan"),
Smith Barney is paid
a service fee with respect to Class A and Class C shares of
the Portfolio at the
annual rate of 0.15% of the average daily net assets
attributable to these
Classes. Smith Barney is also paid a distribution fee with
respect to Class C
shares at the annual rate of 0.20% of the average daily net
assets attributable
to these shares. The fees are used by Smith Barney to pay its
Financial
Consultants for servicing shareholder accounts and, in the
case of 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 and
expenses of Smith
Barney Financial Consultants and other persons who provide
support services in
connection with the distribution of shares; interest and/or
carrying charges;
and indirect and overhead costs of Smith Barney associated
with the sale of
Portfolio 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 and Class C shares,
a continuing 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 the different Classes of shares.
Actual distribution expenses for Class C shares of the
Portfolio for any
given year may exceed the fees received pursuant to the Plan
and will be carried
forward and paid by the Portfolio in future years so long as
the Plan is in
effect. Interest is accrued monthly on such carryforward
amounts at a rate
comparable to that paid by Smith Barney for bank borrowings.
31
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
- -------------------------------------------------------------
- ------------------
Additional Information --------------------------------------
- -----------------------------------------
The Fund, an open-end non-diversified, management
investment company, is
organized as a "Massachusetts business trust" pursuant to a
Declaration of Trust
dated August 14, 1985. Pursuant to the Declaration of Trust,
the Trustees have
authorized the issuance of twenty series of shares, each
representing shares in
one of twenty separate Portfolios. The assets of each
Portfolio are segregated
and separately managed. Class A, Class C and Class Y shares
of the Portfolio
represent interests in the assets of the Portfolio and have
identical voting,
dividend, liquidation and other rights on the same terms and
conditions, except
that expenses related to the service and distribution of
Class A and Class C
shares are borne by the respective Classes and each such
Class of shares has
exclusive voting rights with respect to provisions of the
Portfolio's Rule 12b-1
distribution plan which pertain to that Class. It is the
intention of the Fund
not to hold annual meetings of shareholders. The Trustees may
call meetings of
shareholders for action by shareholder vote as may be
required by the 1940 Act
or the Declaration of Trust, and shareholders are entitled to
call a meeting of
shareholders upon a vote of 10% of the Fund's outstanding
shares for purposes of
voting on removal of a Trustee or Trustees. Shareholders will
receive assistance
in communicating with other shareholders in connection with
the removal of
Trustees as required by Section 16(c) of the Act. Shares do
not have cumulative
voting rights or preemptive rights and have only such
conversion or exchange
rights as the Trustees may grant in their discretion. When
issued for payment as
described in this Prospectus, the Fund's shares will be fully
paid and
transferrable (subject to the Portfolio's minimum account
size). Shares are
redeemable as set forth under "Redemption of Shares" and are
subject to
involuntary redemption as set forth under "Minimum Account
Size."
PNC Bank, National Association, located at 17th and
Chestnut Streets,
Philadelphia, PA 19103, serves as custodian of the
Portfolio's investments.
TSSG, located at Exchange Place, Boston, Massachusetts
02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-annual report
and an audited annual
report, which include listings of the investment securities
held by the
Portfolio at the end of the period covered. 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. In addition, the Fund
also plans to
consolidate the mailing of its Prospectus so that a
shareholder having multiple
accounts will receive a single Prospectus annually.
Shareholders who do not want
this consolidation to apply to their account should contact
their Smith Barney
Financial Consultant or the Fund's transfer agent.
32
<PAGE>
Smith Barney
Muni Funds
California
Limited Term
Portfolio
388 Greenwich Street
New
York, New York 10013
FD 0607 G4
STATEMENT OF ADDITIONAL INFORMATION DATED JULY 21, 1995
Acquisition Of The Assets Of
CALIFORNIA LIMITED TERM
PORTFOLIO a separate
series of
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
(800) 224-7523
By And In Exchange For Class A, Class C and Class Y Shares
Of
SMITH BARNEY INTERMEDIATE MATURITY CALIFORNIA MUNICIPALS
FUND
a separate series of
SMITH BARNEY INCOME TRUST
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
California Limited Term Portfolio (the
"Acquired Fund"), a separate series of Smith
Barney Muni Funds (the "Trust")
to Smith Barney Income Trust ("Income
Trust") on behalf of Smith Barney
Intermediate Maturity California
Municipals Fund (the "Acquiring Fund")
in exchange for Class A, Class C and Class
Y shares of the Acquiring Fund
and the assumption by the Income Trust
on behalf of the Acquiring Fund of
certain 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 Muni
Funds dated November 7, 1994.
2. Statement of Additional
Information of Smith Barney Income
Trust dated January
29, 1995.
3. Annual Report of Smith Barney
Muni Funds -
California Limited Term
Portfolio dated March 31, 1995.
4. Semi-Annual Report of Smith
Barney Muni Funds California
Limited Term
Portfolio dated September
30, 1994.
5. Annual Report of Smith Barney
Intermediate Maturity California
Municipals Fund dated November 30,
1994.
6. Semi-Annual Report of Smith
Barney Intermediate
Maturity California
Municipals Fund dated May
31, 1995.
7. Pro Forma Financial
Statements.
This Statement of Additional
Information is not a prospectus. A
Prospectus/Proxy Statement, dated July 21,
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 1800
224-7523. This Statement of
Additional Information should be read in
conjunction with the
Prospectus/Proxy Statement dated July 21,
1995.
The date of this Statement of
Additional Information is July 21, 1995.
PART B
November 7, 1994
SMITH BARNEY MUNI
FUNDS 388 Greenwich
Street
New York, New York 10013
STATEMENT OF ADDITIONAL INFORMATION Shares of
Smith Barney Muni Funds (the "Fund") are
offered currently with a choice of thirteen Portfolios,
the National Portfolio, the Limited Term
Portfolio, the
California Portfolio, the California Limited Term
Portfolio, the Florida Portfolio, the Florida Limited
Term Portfolio, the Georgia Portfolio, the New York
Portfolio, the New Jersey Portfolio, the Ohio
Portfolio, the Pennsylvania Portfolio, the California
Money Market Portfolio and the New York Money Market
Portfolio1 (collectively referred to as "Portfolios" and
individually as "Portfolio"):
The National Portfolio and the Limited Term
Portfolio each seeks as high a level of income
exempt from Federal income taxes as is consistent
with prudent investing.
The California Portfolio and the California
Limited Term Portfolio each seek as high a level of
income exempt from Federal income taxes
and from California personal income taxes as
is consistent with prudent investing.
The Florida Portfolio and the Florida Limited
Term Portfolio each seek to pay its shareholders as high
a level of income exempt from Federal income taxes as
is consistent with prudent investing.
The Georgia Portfolio seeks as high a level of
income exempt from Federal income taxes and from
Georgia personal income taxes as is consistent
with prudent investing.
The New York Portfolio seeks as high a level of
income exempt from Federal income taxes and from New
York State and City personal income taxes as is
consistent with prudent investing.
The New Jersey Portfolio seeks to pay its
shareholders as high a level of income exempt from
both Federal income taxes and New Jersey personal
income taxes as is consistent with prudent
investing.
The Ohio Portfolio seeks to pay its
shareholders as high a level of income exempt
from both Federal income taxes and Ohio personal
income taxes as is consistent with prudent investing.
The Pennsylvania Portfolio seeks to pay its
shareholders as high a level of income exempt from
both Federal income taxes and Pennsylvania personal
income taxes as is consistent with prudent
investing.
The California Money Market Portfolio seeks
to
provide income exempt from Federal income taxes and
from California personal income taxes from a
portfolio of high quality short-term municipal
obligations selected for liquidity and stability. The
New York Money Market Portfolio seeks to
provide its shareholders with income exempt from both
Federal income taxes and New York State and New York
City personal income taxes from a portfolio of high
quality short-term New York municipal obligations selected
for liquidity and stability.
The National Portfolio, California Portfolio,
Florida Portfolio, Georgia Portfolio, New York Portfolio,
New Jersey Portfolio, Ohio Portfolio and Pennsylvania
Portfolio each offer four classes of shares: Class A,
Class B, Class C and Class Y. The Limited Term
Portfolio, California Limited Term Portfolio and Florida
Limited Term Portfolio each offer three classes
of
shares: Class A, Class C and Class Y. 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 with higher ongoing expenses and a
Contingent Deferred Sales Charge ("CDSC") payable upon
certain redemptions. Class Y shares are sold without an
initial sales charge and are available only to
investors investing a minimum of
$5,000,000. The California Money Market Portfolio and
the New York Money Market Portfolio each offer two
classes of shares: Class A and Class Y. Class A
shares of each of the California Money Market and New
York Money Market Portfolios are sold without an initial
sales charge. These alternatives are designed to provide
investors with the flexibility of selecting an investment
best suited to his or her needs based on the amount
of purchase, the length of time the investor expects to
hold the shares and other circumstances.
This Statement of Additional Information ("SAI") is not
a prospectus. It is intended to provide more
detailed information about the Fund as well as
matters already discussed in each Prospectus and
therefore should be read in conjunction with the
appropriate Prospectus which may be obtained from
the Fund or a Smith Barney
Financial Consultant. TABLE OF
CONTENTS
Page Trustees and Officers
4
Additional Information Regarding Investment Policies
6
Additional Tax Information 9
Investment Restrictions
10
Performance Information
12
Valuation of Shares 15
The
Management Agreement 16
Custodian
18
Independent Auditors
19
The Fund
19
Voting Rights
20
Financial Statements
22 Appendix A
23
Appendix B
25
Appendix C
29
Appendix D 34
Appendix E
37
Appendix F
41
Appendix G
43
Appendix H 45
TRUSTEES AND OFFICERS
RALPH D. CREASMAN, Trustee
Retired, 4 Moss Hammock Lane, The Landings, Skidaway Island,
Savannah, Georgia 31411. Director of certain other
investment companies associated with Smith Barney Inc.
("Smith Barney"). Formerly Chairman, President and Chief
Executive Officer of Lionel D. Edie & Co., Inc. (investment
counselors), Chairman of Edie International S.A. and
President and Director of Edie Ready Assets Trust,
Fundamerica of Japan, Edie Special Growth Fund and Edie
Capital Fund.
JOSEPH H. FLEISS, Trustee
Retired, 3849 Torrey Pines Blvd., Sarasota, Florida 34238.
Director of certain other investment companies associated
with Smith Barney . Formerly Senior Vice President of
Citibank, Manager of Citibank's Bond Investment Portfolio
and Money Management Desk and a Director of Citicorp
Securities Co., Inc.
DONALD R. FOLEY, Trustee
Retired, 3668 Freshwater Drive, Jupiter, Florida 33477.
Director of certain other investment companies associated
with Smith Barney. Formerly Vice President of Edwin Bird
Wilson, Incorporated (advertising).
PAUL HARDIN, Trustee
Chancellor of the University of North Carolina at Chapel
Hill, University of North Carolina, 103 S. Building, Chapel
Hill, North Carolina 27599; Director of certain other
investment companies associated with Smith Barney; and a
Director of The Summit Bancorporation.
FRANCIS P. MARTIN, Trustee
Practicing physician, 2000 North Village Avenue, Rockville
Centre, New York 11570. Director of certain other
investment companies associated with Smith Barney. Formerly
President of the Nassau Physicians' Fund, Inc.
RODERICK C. RASMUSSEN, Trustee
Investment Counselor, 81 Mountain Road, Verona, New Jersey
07044. Director of certain other investment companies
associated with Smith Barney. Formerly Vice President of
Dresdner and Company Inc. (investment counselors).
JOHN P. TOOLAN, Trustee
Retired, 13 Chadwell Place, Morristown, New Jersey 07960.
Director of certain other investment companies associated
with Smith Barney. Formerly, Director and Chairman of Smith
Barney Trust Company, Director of Smith Barney Holdings
Inc., the Manager and Mutual Management Corp. ("MMC") and
Senior Executive Vice President, Director and Member of the
Executive Committee of Smith Barney.
*STEPHEN J. TREADWAY, Chairman of the Board and Chief
Executive Officer
Executive Vice President and Director of Smith Barney;
Chairman of the Board and Chief Executive Officer of certain
other investment companies associated with Smith Barney, of
Mutual Management Corp. (the
"Manager" or "Adviser") and Smith Barney Mutual Funds
Management Inc.;
Director and Chairman of Corporate Realty Advisers, Inc.
and Trustee of Corporate Realty Income Trust I. C. RICHARD
YOUNGDAHL, Trustee
Retired, 339 River Drive, Tequesta, Florida 33469. Director
of certain other investment companies
associated with Smith Barney and Member of the Board of
Directors of D.W. Rich & Company, Inc. Formerly Chairman
of the Board of Pensions Lutheran Church in America,
Chairman of the Board and Chief Executive Officer of
Aubrey G. Lanston & Co. (dealers in U.S. Government
securities) and President of the Association of Primary
Dealers in U.S. Government Securities.
*HEATH P. McLENDON, President
Executive Vice President of Smith Barney; President of
certain other investment companies associated with Smith
Barney; Chairman of the Board of Smith Barney Strategy
Advisors Inc.; prior to July 1993, Senior Executive Vice
President of Shearson Lehman Brothers; Vice Chairman of the
Board of Shearson Asset Management; and a Director of
PanAgora
Asset Management, Inc. and PanAgora Asset
Management Limited. His address is Two World Trade Center,
New York, New York 10048.
*LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Director of Smith Barney, Senior Vice President
and Treasurer of certain other investment companies
associated with Smith Barney, and Senior Vice President of
Smith Barney Mutual Funds Management Inc. and of the
Manager. Prior to January 1990, Senior Vice President
and Chief Financial Officer of Cortland Financial Group,
Inc. and Vice President and Treasurer of its associated
investment companies and subsidiary brokerdealer.
*PETER M. COFFEY, Vice President
Managing Director of Smith Barney and Vice President of the
Manager, Smith Barney Municipal Money Market Fund, Inc.,
Smith Barney Intermediate Municipal Fund, Inc. and Smith
Barney Municipal Fund, Inc.
*JOHN J. DUFFY, Vice President
First Vice President of Smith Barney in the Asset
Management Division, of the Manager and certain other
investment companies associated with Smith Barney.
*THOMAS P. RIVOIR, Vice President
Managing Director of Smith Barney, Vice President of the
Manager and certain other investment companies associated
with Smith Barney.
*THOMAS M. REYNOLDS, Controller and Assistant Secretary
First Vice President of Smith Barney in the Asset
Management Division, and Controller and Assistant Secretary
of certain other investment companies associated with
Smith Barney. Prior to September 1991,
Assistant Treasurer of Aquila Management Corporation and
its associated investment companies.
*CHRISTINA T. SYDOR, Secretary
Managing Director of Smith Barney and Secretary of
certain other investment companies associated with Smith
Barney, and of Smith Barney Mutual Funds Management
Inc. and the Manager.
*ANTHONY PACE, Assistant Controller
Vice President of Smith Barney in the Asset Management
Division and Assistant Controller of certain other
investment companies associated with Smith Barney.
*NANCY Le DONNE, Assistant Secretary
Vice President of Smith Barney in the Asset Management
Division and Assistant Secretary of certain other investment
companies associated with Smith Barney and of Smith Barney
Mutual Funds Management Inc. and the Manager. Prior to
October 1993, Attorney in the Equity Products Division of
the Guardian Life Insurance Company of America. Prior to
November 1991, Associate Attorney at Gaston & Snow.
On August 12, 1994 directors and officers owned in the
aggregate less than 1% of the outstanding shares of the
Fund.
ADDITIONAL INFORMATION REGARDING INVESTMENT POLICIES
In general, municipal obligations are debt obligations
(bonds or notes) issued
by or on behalf of states, territories and possessions
of the United States and their political subdivisions,
agencies and instrumentalities the interest on which is
exempt from Federal income tax in the opinion of bond
counsel to the issuer. Municipal
obligations are issued to obtain funds for various public
purposes that enhance the quality of life, including the
construction of a wide range of public facilities, such as
airports, bridges, highways, housing hospitals, mass
transportation, schools, streets, water and sewer works and
gas and electric utilities. They may also be issued to
refund outstanding obligations, to obtain funds for general
operating expenses, or to obtain funds to loan to other
public institutions and facilities and in anticipation of
the receipt of revenue or the issuance of other obligations.
In addition, the term "municipal obligations" includes
certain types of industrial development bonds issued by
public authorities to obtain funds to provide various
privately-operated facilities for business
and manufacturing, housing, sports, convention or trade
show facilities, airport, mass transit, port and
parking facilities, air or water pollution control
facilities, and certain facilities for water supply, gas,
electricity or sewerage or solid waste disposal.
The two principal classifications of municipal obligations
are "general obligation" and "revenue." General obligations
are secured by a municipal issuer's pledge of its full
faith, credit, and taxing power for the
payment of principal and interest. Revenue obligations are
payable only 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. Although industrial development bonds
("IDBs") are issued by
municipal authorities, they are generally secured by the
revenues derived from payments of the industrial user. The
payment of the principal and interest on IDBs is dependent
solely on the ability of the user of the facilities financed
by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment. Currently, the majority of each
Portfolio's municipal obligations are revenue bonds.
For purposes of diversification and concentration under the
Investment Company Act of 1940 (the "Act"), the
identification of the issuer of municipal obligations
depends on the terms and conditions of the obligation. If
the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate
from those of the government creating the subdivision and
the obligation is backed only by the assets and revenues of
the subdivision, such subdivision is regarded as the sole
issuer. Similarly, in the case of an industrial development
revenue bond or a pollution control revenue bond, if the
bond is backed only by the assets and revenues of the
nongovernmental user, the nongovernmental user is regarded
as the sole issuer. If in either case the creating
government or another entity guarantees an obligation, the
guaranty is regarded as a separate security and treated
as an issue of such guarantor.
Among the types of short-term instruments in which each
Portfolio may invest are floating or variable rate 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). Each
Portfolio may purchase participation interest
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 Portfolio.
Participation interests will be purchased only, if
management believes interest income on such interests will
be tax-exempt when distributed as dividends to shareholders.
Investments in participation interests in variable rate
taxexempt securities (such as IDBs) purchased from banks
give the purchaser an undivided interest in the tax
exempt security in the proportion that the Portfolio
participation interest bears to the total principal amount
of the taxexempt
security with a demand repurchase feature.
Participation interest are frequently backed by an
irrevocable letter of credit or guarantee of a bank that the
Manager, under the supervision of the Trustees, has
determined meets the prescribed quality standards for the
Portfolio . A
Portfolio has the right to sell the
instrument back to the bank and draw on the letter of credit
on demand on seven days' notice or less, for all or any part
of the Portfolio's participation interest in the tax-exempt
security, plus accrued interest. Each Portfolio intends to
exercise the demand under the letter of credit only (1) upon
a default under the terms of the documents of the taxexempt
security, (2) as needed to provide liquidity in order
to
meet redemptions, or (3) to maintain a high quality
investment portfolio. Banks will retain a service and
letter of credit fee and a fee for issuing repurchase
comments in an amount equal to the excess of the interest
paid on the tax-exempt securities over the negotiated yield
at which the instruments were purchased by a Portfolio. The
Manager will monitor the pricing, quality and liquidity of
the variable rate demand instruments held by each Portfolio,
including the IDBs supported by bank letters of credit or
guarantees, on the basis of published
financial information, reports
of rating agencies and other bank
analytical
services to which the Manager may subscribe.
The yields on municipal obligations are dependent on a
variety of factors, including general market conditions,
supply and demand, general conditions of the municipal
market, size of a particular offering, the maturity of the
obligation and the rating of the issue. The rating
of Moody's Investment
Service, Inc. and Standard & Poor's Corporation
represent their opinion as to the quality to the municipal
obligations that they
undertake to rate.
It should be emphasized, however, that such ratings are
general and are not absolute standards of quality.
Consequently, municipal obligations with the same
maturity, coupon and rating may have different yields
when purchased in the open market, while municipal
obligations of the same maturity and coupon with different
ratings may have the same yield.
Municipal obligations purchased on a when-issued basis as
well as the securities held in each Portfolio are
generally subject to similar changes in market value
based upon the pubic's perception of the creditworthiness
of the issuer and changes in the level of interest
rates (i.e., both experiencing appreciation when
interest
rates decline and depreciation when interest rates rise).
Therefore, to the extent a Portfolio remains
substantially fully invested at
the same time that it has purchased securities on a
whenissued basis, there will be a greater possibility that
the market value of a Portfolio's assets will
fluctuate. Purchasing a tax-exempt security on a when
issued basis involves the risk that the yields available
in the market when the delivery takes place may be
higher than those obtained on the security so purchased.
A separate account of each Portfolio consisting of cash
or liquid high-grade debt securities equal to the amount
of the when-issued commitments will be established with
the Custodian and marked-tomarket daily, with additional
cash or liquid highgrade debt securities added when
necessary. When the time comes to pay for when-issued
securities, the Portfolios will meet their respective
obligations from then available cash flow, sale of
securities held in the separate account, sale of other
securities or, although they would not normally expect to
do so, from the sale of the when-issued securities
themselves (which may have a value greater or lesser than
the Portfolios' payment obligations). Sale of securities
to meet such obligations carries with it a greater
potential for the realization of capital gain, which is
not exempt from Federal income tax (see "Dividends,
Distributions and Taxes" in the Prospectus).
Each Portfolio, other than the California Money Market
Portfolio and the New York Money Market Portfolio, may
invest in municipal bond index futures contracts or in
listed contracts based on U.S. Government securities. Such
investments will be made solely for the purpose of hedging
against changes in the value of portfolio securities due to
anticipated changes in interest rates and market
conditions, and not for purposes of speculation. The
acquisition
or
sale of a futures contract could enable the Fund to
protect a Portfolio's assets from fluctuations in rates
on taxexempt securities without actually
buying or selling securities. The municipal bond index
futures contract is
based on an index of long-term, tax-exempt municipal
bonds.
The "contract" obligates the buyer or seller to take or
make delivery, respectively, of an amount of cash equal to
the difference between the value of the index upon
liquidation of the "contract" and the price at which the
index contract was originally purchased or sold. In
connection with the use of futures contracts as a
hedging device, there can be no assurance that there will
be a precise or even a positive correlation between price
movement in the futures contracts with that of the
municipal bonds that are the subject of the hedge,
consequently, a Portfolio may realize a profit on a
futures contract that is less than the loss in the price of
the municipal bonds being hedged or may even incur a loss.
A Portfolio also may not be able to close a futures
position in the event of adverse price movements or in the
event an active market does not exist for the hedging
contract on the exchange or board of trade on which the
contract is traded. The successful use of these
investments is dependent on the ability of the Manager to
predict price or interest rate movements or the
correlation of futures and cash markets, or both. Each
Portfolio may invest in securities the disposition of which
is subject to legal or contractual restrictions. The sale
of restricted securities often requires more time and
results in higher dealer discounts or other selling
expenses than does the sale of securities that are not
subject to restrictions on resale. Restricted securities
often sell at a price lower than similar securities that
are not subject to restrictions on resale.
Securities may be sold in anticipation of a market decline
(a rise in interest rates) or purchased in anticipation of
a market rise (a decline in interest rates). In addition,
a security may be sold and another purchased at
approximately the same time to take advantage of what the
Manager believes to be a temporary disparity in the normal
yield relationship between the two securities. The Fund
beliefs that, in general, the secondary market for
taxexempt securities in each of the Fund's Portfolios may
be less liquid than that for taxable fixed-income
securities. Accordingly, the ability of a Portfolio
to make purchases and sales of securities in the
foregoing manner may be limited. Yield disparities may
occur for reasons not directly related to the investment
quality of particular issues or the general movement of
interest rates, but instead due to such factors as changes
in the overall demand for or supply of various types of
tax-exempt securities or changes in the investment
objectives of investors. Portfolio turnover rate for a
fiscal year is the ratio of the lesser of purchases or
sales (including maturities and calls) of portfolio
securities to the monthly average of the value of
portfolio securities including longterm U.S. Government
securities but excluding securities with maturities
at acquisition of one year or less. The
Fund effects portfolio transactions with a view towards
attaining the investment objective of each Portfolio
and is not limited to a predetermined rate of portfolio
turnover. A high portfolio turnover results in
correspondingly greater transaction costs. The Fund
anticipates that each Portfolio's annual turnover rate
generally will not exceed 100%.
Though not obligated to do so, the Fund will normally
provide upon request a listing of portfolio holdings as of
a recent date.
ADDITIONAL TAX INFORMATION
Capital gain distributions, if any, are taxable to
shareholders, and are declared and paid at least annually.
At March 31, 1994 the unused capital loss carryovers of
the Fund by Portfolio were approximately as follows:
National Portfolio, $689,570; California Portfolio,
$71,246; New York Portfolio, $505,849, Florida Portfolio,
$37,460, New Jersey, $96,950, Limited Term Portfolio,
$1,389,591 and Florida Limited Term, $3,261. For Federal
income tax purposes theses amounts are available to be
applied against future securities gains, if any, realized.
The carryovers expire as follows:
March 31,
1997 1998 1999 2000 2001 2002
(in thousands)
National Portfolio -- -- -- -- --
$690 California Portfolio -- -- -- -- --
71 Florida Portfolio -- -- -- -- $
37 --
New Jersey Portfolio -- -- -- -- 23
74 New York Portfolio $427 $ 79 -- -- --
- -Limited Term Portfolio 3 77 $29 656 170
455 Florida Limited Term Portfolio --- -- --
- --
- -- 3
Generally, interest on municipal obligations is exempt from
Federal income tax. However, interest
on municipal
obligations that are considered to be industrial
development bonds (as defined in the Internal Revenue
Code (the
"Code")), will not be exempt from Federal income tax to any
shareholder who is considered to be a "substantial user" of
any facility financed by the proceeds of such obligations
(or a "related person" to such "substantial user" as
defined in the Code).
In addition, interest on municipal obligations may subject
certain investors' Social Security benefits to Federal
income taxation. Section 86 of the Internal Revenue Code
provides that the amount of Social Security benefits
includable in gross income for a taxable year is the lesser
of (a) one-half of the Social Security benefits or (b)
onehalf of the amount by which the sum of "modified
adjusted gross income" plus onehalf of the Social Security
benefits exceeds a "base amount." The base amount is
$25,000 for unmarried taxpayers, $32,000 for married
taxpayers filling a joint return and zero for married
taxpayers not living apart who
file separate returns. Modified adjusted gross income is
adjusted gross income determined without regard to
certain otherwise allowable deductions and exclusions from
gross income, plus tax-exempt interest
on municipal obligations. To the extent that Social
Security benefits are included in gross income they will
be treated as any other item of gross income and
therefore may be taxable. Tax-exempt interest is
included in modified adjusted gross income solely for the
purpose of determining what portion, if any, of Social
Security benefits will be included in gross income; no
tax-exempt interest, including that received from
the Fund, will be subject to Federal income tax for most
investors.
Additionally, the Tax Reform Act of 1986 (the "Tax Reform
Act") provides that interest on certain municipal
obligations (i.e. certain private activity bonds) issued
after August 7, 1986 will be treated as a preference item
for purposes of both the corporate and individual
alternative minimum tax. Under Treasury regulations,
that portion of the Portfolio's exempt interest dividend
which is to be treated as a preference item for
shareholders will be based on the proportionate share of
the interest received by the Portfolio from the specified
private activity bonds.
In
addition, the Tax Reform Act provides generally that tax
preference items for corporations for 1987-1989 will
include one-half the amount by which adjusted net book
income (which would include tax-exempt interest) of the
taxpayer exceeds the alternative minimum taxable income
of the taxpayer before any amount is added to
alternative minimum taxable income because of this
preference.
A similar provision based on adjusted earnings and profits
would apply after 1989. Investors should consult their tax
advisors before investing in shares of the Fund.
From time to time, proceeds have been introduced before
Congress for the purpose of restricting or eliminating the
Federal income tax exemption for interest on municipal
obligations. It may be expected that similar proposals
may be introduced in the future. If such proposals were to
be
enacted, the ability of the Fund to pay "exempt interest"
dividends could be adversely affected and the Fund would
then need to reevaluate its investment objectives and
policies and consider changes in its structure.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as
fundamental policies that cannot be changed without
approval by the holders of a majority of the
outstanding voting securities of each Portfolio affected
by the matters
as
defined in the Investment Company Act of 1940 (see "Voting
Rights").
Without the approval of a majority of their outstanding
voting securities, the National Portfolio and the New York
Portfolio each may not:
(1) Borrow money, except from banks for temporary purposes
(such as facilitating redemptions or for extraordinary or
emergency purposes) in an amount not to exceed 10% of the
value of its total assets at the time the borrowing is made
(not including the amount borrowed) and no investment will
be made while borrowing exceeds 5% of total assets; (2)
Mortgage or pledge any of its assets, except to secure
borrowings permitted under (1) above; (3) Invest more
than 25% of 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 Municipal Obligations of New York
State with respect
to
the New York Portfolio are not considered an industry for
purposes of this limitation; (4) The National Portfolio may
not with respect to 75% of the value of its total assets,
purchase securities of any issuer if immediately
thereafter more than 5% of total assets at market value
would
be
invested in the securities of any issuer (except that this
limitation does not apply to obligations issued
or
guaranteed as to principal and interest either by the U.S.
Government or its agencies or instrumentalities or by New
York State or its political subdivisions with respect to
the New York Portfolio); (5) Invest in securities issued
by
other investment companies, except as permitted by
Section 12(d)(1) of the Investment Company Act of 1940
or in connection
with a merger, consolidation, acquisition or
reorganization; (6) Purchase or hold any real estate,
except that a Portfolio may invest in securities secured
by real estate or interest therein or issued by persons
(other than real estate investment trusts) who deal in
real estate
or interests therein; (7) Purchase or hold the securities
of any issuer, if to its knowledge, Trustees or officers of
the Fund individually owning beneficially more than .5% of
the securities of that issuer own in the aggregate more
than
5% of such securities; (8) write or purchase put, call
straddle or spread options; purchase securities or margin
or sell "short"; (9) Underwrite the securities of other
issuers; (10) Purchase or sell commodities and commodity
contracts, except that each Portfolio may invest in or
sell municipal bond index future contracts; provided
that immediately thereafter not more than 33 1/3% of its
net assets would be hedged or the amount of
margin deposits on the Portfolio's existing futures
contracts would not exceed 5% of the value of its total
assets; or (ii) Make loans, except to the extent
the purchase of bonds or other evidences
of indebtedness or the entry into repurchase agreements
or
deposits with banks, including the Fund's Custodian, may be
considered loans (and the Fund has no present intention of
entering into repurchase agreements). Without the approval
of a majority of its outstanding voting securities, the
Limited Term Portfolio, the California Portfolio, the
New Jersey Portfolio, the
Florida Portfolio, the California Limited Term Portfolio,
the Florida Limited Term Portfolio, the Georgia
Portfolio, the Pennsylvania Portfolio and the Ohio
Portfolio each may not:
(1) Borrow money, except from banks for temporary purposes
(such as facilitating redemptions or for extraordinary or
emergency purposes) in an amount not to exceed 10% of the
value of its total assets at the time the borrowing is made
(not including the amount borrowed) and no investments
will be made while borrowing exceed 5% of total assets;
(2) Mortgage or pledge any of its assets, except to
secure borrowings permitted under (1) above; (3) Invest
more than 25% of 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 Municipal Obligations of California
with respect to the California Portfolio and the
California Limited Term Portfolio, Municipal Obligations
of New Jersey with respect to the New Jersey Portfolio,
Municipal Obligations of
Georgia with respect to the Georgia Portfolio, Municipal
Obligations of Pennsylvania with respect to the
Pennsylvania Portfolio and Municipal Obligations of Florida
with respect to the Florida Portfolio and the
Florida Limited Term Portfolio are not considered an
industry for purposes
of this limitation; (4) Purchase or hold any real
estate, except that the Portfolio may invest in securities
secured by real estate or interests therein or issued by
persons (other than real estate investment trusts) which
deal in real estate or interests
therein; (5) Write or purchase put, call, straddle or
spread options; purchase securities
on
margin or sell "short"; (6) Underwrite the securities of
other issuers: (7) Purchase or sell commodities and
commodity contracts, except that the Portfolio may invest
in
or sell municipal bond index futures contracts, provided
that immediately thereafter not more than 33 1/3% of its
net assets would be hedged or the amount of margin
deposits on the Portfolio's existing futures contracts
would not exceed 5% of the value of its total assets; or
(8) Make loans, except to the extent the purchase of
bonds or other evidences of indebtedness or the entry
into repurchase agreements or deposits with banks,
including the Funds' Custodian, may be considered loans.
Without the approval of a majority of its outstanding
voting securities, the California Money Market Portfolio
and the New York Money Market Portfolio each may not: (1)
Borrow money, except from banks for temporary
purposes (such as facilitating redemptions or for
extraordinary or emergency purposes) in an amount not to
exceed 10% of the value of its total assets at the time
the borrowing is made (not including the amount borrowed)
and no investments will be made while borrowings exceed
5% of total assets; (2) Mortgage or pledge any of its
assets, except to secure borrowings permitted under (1)
above; (3) Invest more than 25% of 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
Municipal Obligations of California with respect to the
California Money Market Portfolio and Municipal
Obligations of New York with respect to the New York
Money Market Portfolio are not considered an industry
for purposes of this limitation; (4) Purchase or hold
any real estate, except that the Portfolio may invest in
securities secured by real estate or interests therein or
issued by persons (other than real estate investment
trusts) which deal in real estate or interests therein;
(5) Write or purchase put, call, straddle or spread
options; purchase securities on margin or sell "short"; (6)
Underwrite the securities of other issuers;
(7) Purchase or sell commodities and
commodity contracts; or (8) Make loans, except to the
extent the purchase of bonds or other evidences of
indebtedness or the entry into repurchase agreements or
deposits with banks, including the Fund's Custodian, may be
considered loans.
In order to comply with certain state statutes and
policies, none of the Portfolios will, as a matter of
operating policy:
(1) Purchase oil, gas or other mineral leases, rights or
royalty contracts or exploration or development programs,
except that each Portfolio may invest in the
securities of issuers which operate, invest in, or
sponsor such programs; (2) invest more than 5% of their
assets in unseasoned issuers, including their
predecessors, which have been in operation for less than
three years.
The foregoing percentage restrictions apply at the time an
investment is made; a subsequent
increase or decrease in percentage may result from changes
in values or net assets.
PERFORMANCE INFORMATION
From time to time, in advertisements and other types of
sales literature, each Portfolio may compare its
performance to that of other mutual funds with similar
investment
objectives, to appropriate indices or rankings such as
those compiled by Lipper Analytical Services, Inc. or to
other financial alternatives.
Each Portfolio, other than the California Money Market
Portfolio and the New York Money Market Portfolio, computes
the average annual total return during specified periods
that would equate the initial amount invested to the
ending redeemable value of such investment by adding one
to the computed average annual total return, raising the
sum to a power equal to the number of years covered
by the computation and multiplying the result by one
thousand dollars which represents the hypothetical
initial investment. The calculation assumes deduction
of the maximum sales charge from the initial amount
invested and reinvestment of all income dividends
and capital gains distributions on the reinvestment dates
at prices calculated as stated in the Prospectus. The
ending redeemable value is determined by assuming a
complete redemption at the end of the period(s) covered
by the average annual total return computation. Such
standard total return information may also be
accompanied with nonstandard total return information
for differing
periods computed in the same manner but without
annualyzing the total return or taking sales charges into
account.
Each Portfolio's average annual total return with respect
to its Class A Shares for the one-year period, five
year period, if any, and for the life of the Portfolio
ended March 31, 1994 is as follows:
One Year Five Years Life Inception Date
National(1.23%) 8.18% 7.45% 8/20/86
Limited Term1.41% 7.15% 6.89%
11/28/88
New York(1.66%) 8.17% 6.60%
1/16/87
California(2.15%) 7.86% 6.01%
4/3/87
New Jersey2.14% N/A 8.11%
10/11/90
Florida (1.58)% N/A 6.73%
4/2/91
Florida Ltd Term N/A N/A 0.66%
4/27/93
Cal. Ltd TermN/A N/A 0.19% 4/27/93
Each Portfolio's average annual total return with
respect to its Class C Shares for a one-year period and
the life of the Portfolio's Class C shares through
March 31, 1994 is as follows:
Portfolio One Year Life Inception Date
National 1.40% 4.42%
1/5/93
Limited Term2.15% 3.63%
1/5/93
New York 0.96% 4.12%
1/8/93
California 0.45% 3.59%
1/5/93
New Jersey 0.40% 3.62% 1/5/93
Florida 1.05% 4.18% 1/5/93
Florida Ltd Term N/A 1.28% 5/4/93
CA Ltd Term N/A 1.05% 5/18/93
No perfomance information is presented for Class B and
Class Y shares, which were not available for purchase
until November 7, 1994.
Each Portfolio's yield, other than for the California
Money Market Portfolio and the New York Money Market
Portfolio, is computed by dividing the net investment
income per share earned during a specified thirty day
period ending at month end by the maximum offering price
per share on the last day of such period and analyzing
the result. For purposes of yield calculation, interest
income is determined based on a yield to maturity
percentage for each long-term debt obligation
in the Portfolio; income or
shortterm obligations is based on current payment
rate. Yield information may be accompanied with
information on tax equivalent
yield computed in the same manner, with adjustment
for assumed federal income tax rates. No taxable
instruments are presently held by the Fund.
Each Portfolio's distribution rate, other than for
the California Money Market Portfolio and the New York
Money Market Portfolio, is calculated by analyzing the
latest income distribution and dividing the result by the
maximum offering price per share as of the end of the
period to which the distribution relates. The
distribution rate is not computed in the same manner
as, and therefore can be significantly different from,
the above described yield which
will be computed in accordance with applicable
regulations. A Portfolio may quote its distribution rate
together with the above described standard total return and
yield information in its supplemental sales literature. The
use of such distribution rates would be subject to an
appropriate explanation of, among other matters, how the
components of the distribution rate differ from the above
described yield.
California Money Market Portfolio's yield with respect to
its Class A shares for the seven-day period ended March
31, 1994 was 1.78%
(the effective yield was 1.79%) with an
average dollar-weighted portfolio maturity of 46.8 days;
the New York Money Market Portfolio's yield with respect
to its Class A shares for the seven-day period ended March
31, 1994 was 1.62% (the effective yield was 1.61%) with
an average dollar-weighted portfolio maturity of 51.7
days. From time to time the California Money Market
Portfolio and, the New York Money Market Portfolio may
advertise their yield, effective yield and tax
equivalent yield. These yield figures are based on
historical earnings and are not intended to indicate
future performance. The
yield of each Portfolio refers to the net investment
income generated by an investment in each Portfolio over
a specific seven-day period (which will be stated in the
advertisement). This net investment income is then
annualized. The effective yield is calculated
similarly but, when annualized, the income earned by an
investment in each Portfolio is assumed to be reinvested.
The effective yield will be slightly higher than the
yield because of the compounding effect of the assumed
reinvestment. The tax equivalent yield also is calculated
similarly to the yield, except that a stated income tax
rate is used to demonstrate the taxable yield necessary to
produce an after-tax yield equivalent to the tax-exempt
yield of each Portfolio. Performance information may be
useful in evaluating a Portfolio and for providing a
basis for comparison with other financial alternatives.
Since the performance of each Portfolio changes in
response to fluctuations in market conditions, interest
rates and Portfolio expenses, no performance quotation
should be considered
a representation as to the Portfolio's performance for any
future period.
VALUATION OF SHARES
The Prospectus states that the net asset value of each
Portfolio's Classes of shares will be determined on any
date that the New York Stock Exchange ("NYSE") is open. The
NYSE is closed on the following holidays: New Year's
Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
The California Money Market Portfolio and the New York
Money Market Portfolio use the "amortized cost method" for
valuing portfolio securities pursuant to Rule 2a-7 under
the Act (the "Rule"). The amortized cost method of
valuation of a Portfolio's securities (including any
securities held in the separate account maintained for
"when-issued" securities -See "Investment Objective and
Management Policies" and "Portfolio Management" in the
Prospectus) involves valuing a security at its cost at the
time of purchase and thereafter assuming a constant
amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on
the market value of the instrument. The market value of
each Portfolio's securities will fluctuate on the basis of
the creditworthiness of the issuers of such securities
and with changes in interest rates generally. While the
amortized cost method provides certainty in valuation,
it may result in periods during which value, as determined
by amortized cost, is higher or lower than the price each
Portfolio would receive if it sold
the
instrument. During such periods the yield to investors in
each Portfolio may differ somewhat from that obtained in a
similar company that uses mark-to-market values for all
its portfolio securities. For example, if the use of
amortized cost resulted in a lower (higher) aggregate
portfolio value on a particular day, a prospective
investor in each Portfolio would be able to obtain a
somewhat higher (lower) yield than would result from
investment in such similar company, and existing
investors would receive less (more) investment income.
The purpose of this method of valuation is to attempt to
maintain a constant net asset value per share, and it is
expected that the price of each Portfolio's shares will
remain at $1.00; however, shareholders should be aware that
despite procedures that will be followed to have a
stabilized price, including maintaining a maximum dollar
weighted average portfolio maturity of 90 days, investing
in securities that have or are deemed to have
remaining maturities of only 13 months or less and
investing in only United States dollar-denominated
instruments determined by the Fund's Trustees to be of
high quality with minimal credit risks and which are
Eligible Securities (as defined below), there is no
assurance that at some future date there will not be a
rapid change in prevailing interest rates, a default by
an issuer or some other event that could cause
each Portfolio's price per share to change from $1.00. An
Eligible Security is defined in the Rule to mean a
security which: (a) has a remaining maturity of 397 days
or less; (b)(i) is rated in the two highest shortterm
rating categories by any two "nationallyrecognized
statistical rating organizations" ("NRSROs") that have
issued a shortterm rating with respect to the security or
class of debt obligations of the issuer, or (ii) if only
one NRSRO has issued a short-term rating with respect
to the security, then by that NRSRO; (c) was a long-term
security at the time of issuance whose issuer has
outstanding a short-term debt obligation which is
comparable in priority and security and has a rating as
specified in clause (b) above; or (d) if no rating is
assigned by any NRSRO as provided in clauses (b) and (c)
above, the unrated security is determined by the Trustees
to be of comparable quality to any such rated
security.
THE MANAGEMENT AGREEMENT AND OTHER AGREEMENTS
Manager
The Management Agreement for each of the Fund's
Portfolios, other than the California Money Market
Portfolio and the New York Money Market Portfolio, provides
for a daily management fee at the annual rate of 0.45% of
the Portfolio's average net assets. With respect to the
California Money Market Portfolio and the New York
Money Market Portfolio, the Manager receives as
compensation for its services a daily management fee at
the annual rate of 0.50% of each
Portfolio's net assets. With respect to the
California Limited Term Portfolio and the Florida
Limited
Term
Portfolio, the Manager has agreed to absorb all expenses
in excess of .30% of each Portfolio's average daily net
assets through October 31, 1994. With respect to the
Georgia Portfolio and the Pennsylvania Portfolio, the
Manager has agreed to absorb all expenses in excess of
.20% of each Portfolio's average daily net
assets through October 31, 1994. With respect to
the Ohio
Portfolio, the Manager has agreed to absorb .45% of the
Ohio Portfolio's average daily net assets through October
31, 1994.
On April 27, 1994, the Trustees approved new
management agreements between the Fund, on behalf of
each of the California Money Market Portfolio and the
New York Money Market Portfolio (collectively the
"Money Market Portfolios"). The new management
agreements
were
subsequently approved by shareholders at a meeting of held
on September 2, 1994. The new management agreements
provide for the payment of an effective management fee at
an annual rate based on each Money Market Portfolio's
average daily net assets in accordance with the following
schedule:
0.50% on the first $2.5 billion of net assets;
0.475% on the next $2.5 billion; and
0.45% on net assets in excess of $5 billion.
Based on the current asset levels of each Money
Market Portfolio, the effective management fee is 0.50%.
The new management agreements were proposed and approved in
conjunction with the proposed acquisition
(the
"Acquisition") by each of the Money Market Portfolios of
the assets of Smith Barney Shearson California Money Market
Fund
and Smith Barney Shearson New York Money Market Fund,
respectively. As a result of the Acquisitions, it is
expected that the level of assets of each Money Market
Portfolio will substantially increase. The new management
fee would result in the same effective management fee
on each Portfolio's current net assets and on the
assets expected immediately after the Acquisitions.
However, the management fee payable would
be reduced as higher levels of assets are attained.
For the fiscal years ended March 31, 1992, 1993
and 1994, the management fee for each Portfolio was
as follows:
Portfolio 1994 1993
1992
National (a) $ 1,985,609 $ 1,439,308 $
976,336 Limited Term (b)1,339,152 944,993
427,911
California (c) 823,356 638,950
334,897
New York (d) 334,878 233,445
137,053
New Jersey (e) 240,296 129,326
59,415
Florida (f) 505,761 311,509
41,978
California Money 897,858 772,368
670,207
New York Money (g)293,600 110,008
N/A
CA Ltd Term (h) N/A N/A
N/A
FL Ltd Term (i) N/A N/A
N/A
(a) The Manager absorbed all expenses in excess of 0.50% of
the National Portfolio's average daily net assets for 1992.
(b) The Manager absorbed all expenses in excess of 0.49% of
the Limited Term Portfolio's average daily net assets for
1992.
(c) The Manager waived its management fee in excess of
0.30%
of the California Portfolio 's average daily net assets
for 1992.
(d) The Manager waived its management fee in excess of
0.375% of such Portfolio's average daily net assets for
1992.
(e) The Manager waived its management fee with respect to
the New Jersey Portfolio's average daily net assets in
excess of 0.20% and 0.30% of such Portfolio's average daily
net assets for 1992 and 1993, respectively.
(f) The Manager waived its management fee in excess of
0.035% of the Florida Portfolio's average daily net assets
for the period April 1, 1992 through January 1, 1993.
(g) The Manager waived its management fee in excess of
0.36%
of the New York Money Market Portfolio's average daily net
assets for the period between September 17,1992 through
March 31, 1993.
(h) The Manager waived its entire management fee with
respect to the California Limited Term Portfolio's average
daily net assets for the period between April 27, 1993
through March 31, 1994.
(i) The Manager waived its entire management fee with
respect to the Florida Limited Term Portfolio's average
daily net assets for the period between April
27, 1993 through March 31, 1994.
The Management Agreements further provide that all other
expenses not specifically assumed by the Manager under the
Management Agreement on behalf of each portfolio are borne
by the Fund. Expenses payable by the Fund include, but
are not limited to, all charges of custodians (including
sums as custodian and sums for keeping books and for
rendering other services to the Fund) and shareholder
servicing agents, expenses of preparing,
printing and distributing
all
prospectuses, proxy material, reports and notices to
shareholders, all expenses of shareholders' and Trustees'
meeting, filing
fees and expenses relating to
the
registration and qualification of the Fund's shares and the
Fund under Federal or state securities laws and
maintaining such registrations and qualifications
(including the
printing of the Fund's registration statements), fees of
auditors and legal counsel, costs of performing portfolio
valuations, out-of-pocket expenses of Trustees and fees of
Trustees who are not "interested persons" as defined in
the Act, interest, taxes and governmental fees, a fees
and commissions of every kind, expenses, of issue,
repurchase or redemption of shares, insurance expense,
association membership dues, all other costs incident to
the Fund's existence and extraordinary expenses such as
litigation and indemnification expenses. Direct expenses
of each Portfolio of the Fund, including but not limited to
the management fee are charged to that Portfolio, and
general trust expenses are allocated among the Portfolios
on the basis of relative net assets. The Manager has
voluntarily agreed to waive its fee with respect to each
Portfolio to the extent it is necessary if in any fiscal
year the aggregate expenses of the Portfolio, exclusive
of taxes, brokerage, interest, payments of distribution
fees and extraordinary expenses, such as litigation
costs, exceed the most restrictive expense limitation
imposed by any state in which a Portfolio sells shares, if
any. Distributor
The Fund, on behalf of each Portfolio, has adopted a plan
of distribution pursuant to Rule 12b-1 (the "Plan") under
the 1940 Act under which a service fee is paid by each
class of shares (other than Class Y shares ) of each
Portfolio to Smith Barney in connection with
shareholder service expenses. The service fee is equal
to 0.15% of the average daily net assets of each class
(the service fee payable by the Class A shares of the
Money Market Portfolios is 0.10%). With respect to Class
B and Class C shares of each Portfolio, Smith Barney
is also paid a distribution fee, pursuant to a plan of
distribution adopted by each Portfolio. See
"Distributor" in each applicable Prospectus.
CUSTODIAN
All portfolio securities and cash owned by the Fund will be
held in the custody of PNC Bank, National Association,
17th and Chestnut Streets, Philadelphia, Pennsylvania
19103.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York
10154, have been selected as independent auditors for the
Fund for its fiscal year ending March 31, 1995 to report
annually on their audit of the financial statements of the
Fund and to perform required reviews of certain filings
with the Commission.
THE FUND
The interest of a shareholder is in the assets and
earnings of the Portfolio in which he or she holds
shares. The
Trustees have authorized the issuance of twenty series of
shares, each representing shares in one of twenty separate
Portfolios. Pursuant to such authority, the Trustees may
also authorize the creation of additional
series of shares and additional classes of share within
any series. The
investment objectives, policies and restrictions
applicable to additional Portfolios would
be established by the
Trustees at the term such Portfolios were established and
may differ from those set forth in the Prospectuses and
this the Statement of Additional Information. In the
event of liquidation or dissolution of a Portfolio or of
the Fund, shares of a Portfolio are entitled to receive
the assets belonging to that
Portfolio and a proportionate
distribution, based on the relative net assets of the
respective Portfolios, of any general assets not belonging
to any particular Portfolio that are available for
distribution.
The Declaration of Trust may be amended only by a
"majority shareholder vote" as defined therein, except
for certain
amendments that may be made by the Trustees. The
Declaration of Trust and the By-Laws of the Fund are
designed to make the Fund similar in most respects to a
Massachusetts business corporation. The
principal
distinction between the two forms relates to shareholder
liability described below. Under Massachusetts law,
shareholders of a business trust may, under
certain
circumstances, be held personally liable as partners for
the obligations of the trust, which is not the case
with a
corporation. The Declaration of Trust of the Fund provides
that shareholders shall not be subject to any personal
liability for the acts or obligations of the Fund and that
every written obligation, contract, instrument or
undertaking made by the Fund shall contain a provision to
the effect that the shareholders are not personally liable
thereunder.
Special counsel for the Fund are of the opinion that no
personal liability will attach to the shareholders under
any undertaking containing such provision when adequate
notice of such provision is given, except possibly in
a few jurisdictions. With respect to all types of claims
in the
latter jurisdictions and with respect to tort
claims, contract claims where the provision referred to is
omitted from the undertaking, claims for taxes and certain
statutory liabilities in other jurisdictions, a
shareholder may be
held personally liable to the extent that claims are not
satisfied by the Fund; however, upon payment of any such
liability the shareholder will be entitled to
reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Fund,
with the advice of counsel, in such a way so as to
avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Fund.
The Declaration of Trust further provides that no Trustee,
officer or employee of the Fund is liable to the Fund or to
a shareholder, except as such liability may arise from his
or its own bad faith, willful misfeasance, gross
negligence, or reckless disregard of his or its duties,
nor is any Trustee, officer or employee
personally liable to any third persons in connection with
the affairs of the Fund. It also provides that all third
persons shall look solely to the Fund
property or the property of the appropriate Portfolio of
the Fund for satisfaction of claims arising in connection
with the affairs of the Fund or a particular Portfolio,
respectively. With the exceptions stated, the Declaration
of Trust provides that a Trustee, officer or employee is
entitled to be indemnified against all liability
in
connection with the affairs of the Fund.
Other distinctions between a corporation and a
Massachusetts business trust include the fact that business
trusts are not required to issue share certificates or hold
annual meetings of shareholders.
The Fund shall continue without limitation of time subject
to the provisions in the Declaration of Trust concerning
termination of the trust or any of the series of the trust
by action of the shareholders or by action of the Trustees
upon notice to the shareholders.
VOTING RIGHTS
The Trustee themselves have the power to alter the number
and the terms of office of the Trustees, and they may at
any time lengthen their own terms or make their terms
of unlimited duration (subject to certain removal
procedures) and appoint their own successors, provided
that in
accordance with the Act always at least a majority, but in
most instances, at least two-thirds of the Trustees have
been elected by the shareholders of the Fund. Shares do not
have cumulative voting rights and therefore the holders
of more than 50% of the outstanding shares of the Fund
may elect all of the Trustees irrespective of the votes of
other shareholders. Class A, Class B, Class C and Class Y
shares of a Portfolio of the Fund, if any, represent
interests in the assets of that Portfolio and have
identical voting, dividend, liquidation and other rights on
the same terms and conditions, except that each class of
shares has exclusive voting rights with respect to
provisions of the Fund's Rule 12b-1 distribution plan
which pertain to a particular class .
For example, a change in investment policy for a
Portfolio would be voted upon only by shareholders of the
Portfolio involved. Additionally, approval
of each
Portfolio's management agreement is a matter to be
determined separately by that Portfolio. Approval of a
proposal by the shareholders of one Portfolio is effective
as to that Portfolio whether or not enough votes are
received from the shareholders of the other Portfolios to
approve the proposal as to those Portfolios. As of August
12, 1994, Robert H. Smith & Marilyn B. Smith owned
11,526.00 (9.39%) of the outstanding Class B shares of
the Florida Portfolio; Benjamin S. Loewenstein and
Eleanor S. Loewenstein owned 10,043.103 (8.19%)
of the outstanding Class B shares of the Florida
Portfolio; Phyllis L. O'Neill owned 9,604 (7.83%) of the
outstanding Class B
shares of the Florida Portfolio; Betty S. Holmes owned
8,089.18 (6.59%) of the outstanding Class B shares of the
Florida Portfolio; Jolie Chermey owned 74,350.00 (67.06)
of the outstanding Class C shares of the Florida
Portfolio; Carleton N. Rowe & Margaret T. Rowe owned
15,694.085 (14.37%) of the outstanding Class B
shares of the New Jersey Portfolio;
Gerard W.Boyle owned 7,107 (6.51%) of the outstanding Class
B shares of the New Jersey Portfolio; Eric Muelberger,
Jr. owned 40,709 (40.84%) of the outstanding Class C
shares of the New
Jersey Portfolio; Edith F. Williams owned 38,388 (38.51%)
of the outstanding Class C shares of the New Jersey
Portfolio; Betty Wahl and Avron Wahl
owned 13,390.104
(13.43%) of the outstanding Class C shares of the New
Jersey Portfolio: William J. Roberts and Vilma E. Roberts
owned
5,000 (5.02%) of the outstanding Class C shares of the New
Jersey Portfolio; Donald Lent owned 19,921.843 (10.23%) of
the outstanding Class B shares of the National Portfolio;
Ester Zitwer owned 14,135.199 (7.26%) of the outstanding
Class B shares of the National Portfolio; Jean
Dilorenzo
owned 118,521 (72.71%) of the outstanding Class C shares of
the National Portfolio; Alan L. Corey, Jr. owned
38,267.036 (23.48%) of the outstanding Class C
shares of the National
Portfolio; John Nisser owned 26,944.00 (9.36%) of the
outstanding Class B shares of the California Portfolio;
Matilda D. Serpa owned 18,248.00 (6.34%) of the
outstanding
Class B shares of the California Portfolio; Samuel Oschin
owned 236,678.878 (36.30%) of the outstanding Class C
shares of the California Portfolio; Michael E. Mullen &
Maryann T. Mullen owned 77,340 (11.86%) of the
outstanding Class C shares of the California Portfolio;
Robert M. Leeds owned 45,276 (6.94%) of the outstanding
Class C shares of the California Portfolio; Matilda D.
Serpa owned 41,734.00 (6.40%) of the outstanding Class C
shares of the California Portfolio; William Fariester and
Eileen Fariester Comm Prop. owned 39,620 (6.08%) of the
outstanding Class C shares of the California
Portfolio;Leroy H. Goldman and Lois H. Goldman owned
38,954.751 (5.97%) of the outstanding Class C shares of
the California Portfolio; Armand L. Fontaine owned
38,462.00 (5.90%) of the outstanding Class
C shares of the California Portfolio; Robert G. Erickson
and Mavis A. Erickson owned 38,264.749 (5.87%) of the
outstanding Class C shares of the California Portfolio;
Samuel Oschin ATF Barbara Oschin, U/W/O Helen Oschin
owned 38,263,955 (5.87%)
of the outstanding Class C shares of the California
Portfolio; Samuel Oschin ATF Michael Oschin U/W/O Helen
Oschin owned 35,685.459 (5.47%) of the outstanding Class C
shares of the California Portfolio; Mr. Raymond Sczudlo FBO
Martin S. Thaler owned 229,062.081
(13.93%) of the outstanding Class C shares of the
Limited Term
Portfolio; Stewart R. Crane owned 135,725.00 (8.25%) of the
outstanding Class C shares of the
Limited Term Portfolio; Nana Bachtel
Stewart owned 118,479.00 (7.20%) of the outstanding Class
C shares of the Limited Term Portfolio; Marathon Company
owned 105,740 (6.43%) of the outstanding Class C
shares of the
Limited Term Portfolio; Lillian V. Hudson and Thomas F.
Hudson owned 89,417.107 (5.44%) of the outstanding Class C
shares of the Limited Term Portfolio; George C. Doerfler and
Alice C. Doerfler TTEES, Doerfler Intrivos Trust owned
12,363,554.54 (6.59%) of the astounding Class A shares of
the California Money Market Portfolio; Alico Inc. owned
46,013.436 (12.54%) of the outstanding Class B shares of the
Florida Limited
Term Portfolio; Gabriel H. Pou and
Guillermina F. Pou owned 45,455.00 (12.39%) of the
outstanding Class B shares of the Florida Limited Term
Portfolio; Alec Englestein owned 24,540.00 (6.69%) of the
outstanding Class B shares of the
Florida Limited Term Portfolio; Edward J. Kirk and Rhoda F.
Kirk owned 19,212.718 (5.24%) of the
outstanding Class B shares of the Florida
Limited Term Portfolio; Albert Casgrande and Della Rose
Casagrande owned 233,147.460 (29.40%) of the outstanding
Class C shares of
the Florida Limited Term Portfolio;
Stephen J. Carlan and Brenda S. Carlan owned 76,688.00
(9.67%) of the outstanding Class C shares of the Florida
Limited Term Portfolio; Catherine A. Barnes TR owned
75,481.389 (9.52%) of the outstanding Class C shares of the
Florida Limited Term Portfolio; Harry A. Pierce Jr. and
Betty J. Pierce owned 72,603.908 (9.16%) of the outstanding
Class C shares of the Florida Limited Term Portfolio; Mutual
Management
Corp. owned 827,581.959
(55.03%) of the
outstanding Class A shares of the California Limited Term
Portfolio; James H. Herbst owned 83,030.797 (5.52%) of the
outstanding Class A shares of the California Limited Term
Portfolio; Henry Siewertsen & Friedl J. Trust 20,758.476
(12.56%) of the Class B shares of the California Limited
Term Portfolio; U.S. Carbon Corp. owned 19,906.237 (12.04%)
of the outstanding Class B shares of the California Limited
Term Portfolio; Jeff Herman & Kara Ann Herman JTWROS owned
11,433.00 (6.92%) of the outstanding Class B shares of the
California Limited Term Portfolio; Robert L. Smith and
Lucille L. Smith TRA, FBO Smith Family Trust owned
15,488.948 (9.37%) of the outstanding Class B shares of the
California Limited Term Portfolio; Sharman SpectorAngel and
Beverly Spector and Audrey Spector, General Partnership owned
11,521.00 (6.47%) of the outstanding Class B shares of the
California Limited Term Portfolio; Bruce A. Reitz and
Nancy
N. Reitz owned 11,433.00 (6.92%) of the outstanding Class B
shares of the California Limited Term Portfolio; and Carol J.
Scarioni owned 198,663.290 (100.00%) of the outstanding
Class C shares of the California Limited Term Portfolio.
FINANCIAL STATEMENTS
The following information is hereby incorporated by reference
to the Fund's March 31, 1994 Annual Reports to Shareholders:
Page(s) in:
Annual Report
Annual Report of
Limited Annual Report
of National Term of
New
Jersey
Portfolio
Portfolio Portfolio
Schedules of Investments 5 - 21 5 - 21 5 -
10
Statements of Assets and Liabilities 24 24
13
Statements of Operations 25 25
14
Statements of Changes in Net Assets 26
26
15
Notes to Financial Statements 27-30 27 - 29 16-
19
Financial Highlights (for a share
of each series of beneficial interest
outstanding throughout each year) 31-32 30-
31
20-21
Independent Auditors' Report 33 32
22
Page(s) in: Annual
Report
of California,Annual
Rep ort
Annual Report CA Limited Term,of
NY & of Florida &CA Money
MarketNew York
Florida Limited Term Money Market
Portfolios Portfolios Portfo
lios
Schedules of Investments 7 - 18 7 - 24 5 -
14
Statements of Assets and Liabilities 20 27
17
Statements of Operations 21 28 18
Statements of Changes in Net Assets 22 29
19
Notes to Financial Statements 23-27 30 - 34 20-
23
Financial Highlights (for a share
of each series of beneficial interest
outstanding throughout each year) 28-30 35-
38
24-26
Independent Auditors's Report 31 39 27
APPENDIX A
RATINGS OF MUNICIPAL BONDS, NOTES AND COMMERCIAL PAPER
Description of Four Highest Municipal Bond Ratings
Moody's Investors Service, Inc. ("Moody's"):
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 as 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.
Standard & Poor's Corporation ("S&P"):
AAA - Debt rated AAA has the highest rating assigned by S&P.
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 higher rated
issues only in 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 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.
Description of State and Local Government Municipal Note
Ratings
Notes are assigned distinct rating symbols in recognition of
the differences between short-term credit risk and
longterm
risk.
Factors affecting the liquidity of the borrower and shortterm
cyclical elements are critical in short-term ratings,
while other factors of major importance in bond risk, long-
term secular trends for example, may be less important
over the short run.
Moody's Investors Service, Inc.:
Moody's ratings for state and municipal notes and other short
term loans are designated Moody's Investment Grade (MIG). A
short-term rating may also be assigned on an issue having a
demand feature -- a variable rate demand obligation. Such
ratings will be designated as VMIG. Short-term ratings on
issues with demand features are differentiated by the use of
the VMIG symbol to reflect such characteristics as payment
upon periodic demand rather than fixed maturity dates and
payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of
payment may be limited to the external liquidity with no or
limited legal recourse to the issuer in the event the demand
is
not met. Symbols used are as follows:
MIG/VMIG 1 - Loans bearing this designation are of the best
quality, enjoying strong protection from established cash
flows of funds, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2 - Loans bearing this designation are of high
quality, with margins of protection ample although not so
large as in the preceding group.
Standard & Poor's Corporation:
SP-1 - Very strong or strong capacity to pay principal
interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
Description of Highest Commercial Paper Ratings
Moody's Investors Service, Inc.:
Prime-1 - Issuers (or related supporting institutions) rated
Prime-1 have a superior capacity for repayment of short
term promissory obligations. Prime-1 repayment
capacity will
normally be evidenced by the following characteristics:
leading market positions in wellestablished industries;
high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and
ample asset protection; broad margins in earnings coverage
of
fixed financial charges and high internal cash
generation; and well-established access to a range of
financial markets and assured sources of alternate
liquidity.
Standard & Poor's Corporation:
A-1 - This designation indicates 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
designation.
APPENDIX B
The following information is a summary of special
factors affecting California Municipal Obligations. It
does not
purport to be a complete description and is based on
information from statements relating to securities offerings
of
California issuers.
Additional Discussion of Special Factors Relating to
California
Municipal Obligations
California's economy is the largest among the 50
states.
The State's January 1, 1992 population of 31 million
represented approximately 12.0% of the total United States
population. Total employment was about 14 million,
the
majority of which was in the service, trade and
manufacturing sectors.
Since the start of the 1990-91 fiscal year, the State
has faced the worst economic, fiscal and budget conditions
since the 1930s. Construction,
manufacturing (especially
aerospace), and financial services, among others, have all
been severely affected. Job losses have been the worst of
any post-war recession. Employment levels are expected to
stabilize by late 1993. However, pre-recession job levels
are not expected to be reached for several more years.
Unemployment reached 10% in November 1992 and is expected to
remain above 9% through 1993 and 1994. According to the
Department of Finance, recovery from the recession in
California is not expected in meaningful terms until late
1993 or 19994, notwithstanding signs of recovery elsewhere
in
the nation.
After three years of recession, California's economy
seems to be stabilizing, however, economic signals remain
mixed.
On the plus side, nonfarm employment in April
was
essentially unchanged from the December level.
The
unemployment rate seems to be moving down, although the
large April drop, from 9.4% to 8.6%, probably exaggerates
the
improvement. Personal income growth is improving
gradually, from gains of 2% or less in 1991 to slightly over
3%
at the beginning of 1993, and taxable sales
are
stabilizing after a lengthy decline.
There are still ample signs of weakness. Manufacturing
employment continues to decline, with deep losses in
aerospace, reflecting defense cuts and weak commercial
markets. Despite strong output and sales gains, electronics
firms continue to cut payrolls. All manufacturing
industries, with the exception of apparel and textiles, are
posting employment losses. Housing, usually an engine of
recovery, remains in a slump. Permit volume has averaged a
95,000 unit annual rate in recent months, actually somewhat
below 1992's 98,000 total. Nonresidential construction
continues to hit new recession lows, reflecting oversupplied
commercial office, retail and hotel markets.
Employment continues to decline in normally stable industries
such as banking, the utilities and most segments of
wholesale and retail trade. Food, department and apparel
stores are shedding jobs and government employment is down
30,000 jobs over the past year.
The department of Finance, in its May 1993 Revision of
the Governor's 1993-94 Budget, states that it expects
this
essentially flat pattern of economic activity to persist
throughout 1993, with employment by year end only marginally
higher than in April. Gains in service industries, mainly
health care, temporary agencies (in business services),
motion picture production and amusements are expected to
continue. There should be modest increases in wholesale and
retail trade. The finance and transportation and utilities
groups will be stable to down slightly. Assuming a modest
pickup in homebuilding,
construction employment will also be flat this year. Against
these, manufacturing and government will
continue to lose jobs. The largest losses in
percentage terms will be in aerospace manufacturing and the
Federal Department of Defense, reflecting cuts in the
military budget. Budget constraints will also affect State
and local government.
The recession has seriously affected State tax
revenues,
which basically mirror economic conditions. It has also
caused increased expenditures for health and welfare
programs. The State is also facing a structural imbalance
in
its budget with the largest programs supported by
the General Fund--K-14 education (kindergarten through
community college), health, welfare and corrections-growing
at
rates significantly higher than the growth rates for the
principal revenue sources of the General Fund. As a result,
the State entered a period of chronic budget imbalance,
with
expenditures exceeding revenues for four of the last five
fiscal years. Revenues declined in 1990-91 over 1989-90,
the
first time since the 1930s. By June 30,
1993, the State's General Fund had an accumulated deficit,
on
a budget basis, of approximately $2.75 billion. Further
consequence of the larger budget imbalances over the last
three fiscal years has been that the State depleted its
available cash resources and has had to use a series of
external borrowings to meet its cash needs.
The 1992-93 Governor's Budget proposed expenditures of
$56.3 billion in General and Special Funds for the 199293
fiscal year, a 1.6% increase over corresponding figures
for the 1991-92 fiscal year. General Fund expenditures
were
projected at $43.8 billion, an increase of 0.2% over the
1992-93 Revised Governor's Budget. The Budget estimated
$45.7 billion of revenues and transfers for the General Fund
(a
4.7% increase over 1991-92) and $12.4 billion for Special
Funds (a 9.6% increase over 1991-92). To balance the
proposed budget, program reductions totaling $4.365 billion
and revenue and transfer increases of $872 million were
proposed for the 1991-92 and 1992-93 fiscal years. By the
time of the Governor's May Revision issued on May 20, 1992,
the Administration estimated that the 1992-93 Budget needed
to
address a gap of about $7.9 billion, much of which was
needed
to repay the accumulated budget deficits of the previous
two years.
The severity of the budget actions needed led to a
long
delay in adopting the budget. With the failure to adopt a
budget by July 1, 1992, which would have allowed the State
to
carry out its normal annual cash flow borrowing, the
Controller was forced to issue registered warrants to pay a
variety of obligations representing prior year's or
continuing appropriations, and mandates from court orders.
Available funds were used to make constitutionally-mandated
payments, such as debt service on bonds and revenue
anticipations warrants. After that date, all remaining
outstanding registered warrants (about $2.9 billion) were
called for redemption from proceeds of the issuance of 1992
Interim Notes after the budget was adopted.
The 1992-93 Budget Act provided for expenditures of
$57.4 billion, consisting of General Fund expenditures of
$40.8 billion and Special Fund and Bond Fund expenditures of
$16.6 billion. The Department of Finance estimates there
will
be
a balance in the Special Fund for Economic Uncertainties of
$28 million on June 30, 1993.
The 1993-94 fiscal year represents the third
consecutive year the Governor and the Legislature were faced
with a very difficult budget environment, requiring revenue
actions and expenditure cuts totalling multiple billions of
dollars to produce a balanced budget.
The 1993-94 Budget Act, signed by the Governor on
June
30, 1993, is predicated on revenue and transfer estimates
of $40.6 billion, about $700 million higher than the
January
Governor's Budget, but still about $400 million below 199293
(and the second consecutive year of actual decline). The
principal reasons for this decline are the continued weak
economy and the expiration (or repeal) of three fiscal steps
taken in 1991-a half cent temporary sales tax (which
generates about $1.5 billion annually), a deferral of
operating loss carry forwards ($440 million), and repeal by
initiative of a sales tax on candy and snack foods ($300
million). The Governor also proposes a number of fiscal
steps (tax credits and the like) to stimulate job growth,
which could result in short-term revenue costs. The 1993-94
Budget Act assumes Special Fund revenues of $11.8 billion,
an increase of 5.0% over 199293.
The 1993-94 Budget Act includes General Fund
expenditures of $38.5 billion (a 6.5% reduction from
projected 1992-93 expenditures of $41.2 billion), in order
to
keep a balanced budget within the available revenues.
The Budget also includes Special Fund expenditures of $12.1
billion, a 4.2% increase.
A key feature of the 1993-94 Budget Act is a plan to
retire the projected $2.8 billion accumulated deficit over
an
18 month period by the use of external borrowing. The Budget
Act estimates that about $1.6 billion of the deficit
elimination loan would be repaid by December 23, 1993 from
the proceeds of the $2.0 billion Revenue Anticipation
Warrants issued on June 23, 1993.
The State is subject to an annual appropriations
limit imposed by Article XIIIB of the State
Constitution (the
"Appropriations Limit"), and is prohibited from spending
"appropriations subject to limitation" in excess of the
Appropriations Limit. Article XIIIB, originally adopted in
1979, was modified substantially by Propositions 98 and 111
in 1988 and 1990, respectively. "Appropriations
subject to limitation" are authorizations to spend "proceeds
of taxes", which consist of tax revenues and certain
other funds, including proceeds from regulatory
licenses, user charges or other fees to the extent that
such proceeds exceed the reasonable cost of providing the
regulation, product or service. The
Appropriations Limit is based on the limit for the prior
year, adjusted annually for certain changes, and is tested
over consecutive two-year periods. Any excess of
the aggregate proceeds of taxes received over such two-year
period above the combined Appropriation Limits for those two
years is divided equally between transfers to K-14 districts
and refunds to taxpayers.
Exempted from the Appropriations Limit are debt service
costs of certain bonds, court or federally mandated costs,
and, pursuant to Proposition 111, qualified capital outlay
projects and appropriations or revenues derived from any
increase in gasoline taxes and motor vehicle weight fees
above January 1, 1990 levels. Some recent initiatives were
structured to create new tax revenues dedicated to specific
uses and expressly exempted from the Article XIIIB limits.
The Appropriations Limit may also be exceeded in cases of
emergency arising from civil disturbance or natural disaster
declared by the Governor and approved by two-thirds of the
Legislature. If not so declared and approved,
the Appropriations
Limit for the next three years must be reduced by the
amount of the excess.
Article XIIIB, as amended by Proposition 98 on
November 8, 1988, also establishes a minimum level of state
funding for school and community college districts and
requires that excess revenues up to a certain limit be
transferred to schools and community college districts
instead of returned
to the taxpayers. Determination of the minimum level of
funding is based on several tests set forth in Proposition
98. During fiscal year 1991-92 revenues were smaller than
expected, thus reducing the payment owed to schools in 199192
under alternate "test" provisions. In response to the
changing revenue situation, and to fully
fund
the
Proposition 98 guarantee in the 1991-92 and 1992-93 fiscal
years
without exceeding it, the Legislature
enacted
legislation to reduce 1991-92 appropriations. The amount
budgeted to schools but which exceeded the reduced
appropriation was treated as a non-Proposition 98 shortterm
loan in 1991-92. As part of the 1992-93
Budget, $1.1 billion of the amount budgeted to K14
schools was
designated to "repay" the prior year loan, thereby reducing
cash outlays in 1992-93 by that amount.
Because of the complexities of Article XIIIB, the
ambiguities and possible inconsistencies in its terms, the
applicability of its exceptions and
exemptions and the impossibility of predicting future
appropriations, the
Sponsor cannot predict the impact of this or related
legislation on the Bonds in the California Trust Portfolio.
Other Constitutional amendments affecting state and local
taxes and appropriations have been proposed from time to
time. If any such
initiatives are adopted, the State could
be pressured to provide additional financial assistance to
local governments or appropriate revenues as mandated by
such initiatives. Propositions such as
Proposition 98 and others that may be adopted in the
future, may place increasing pressure on the State's budget
over future years, potentially reducing resources available
for other State programs, especially to the extent the
Article XIIIB
spending limit would restrain the State's ability to fund
such other programs by raising taxes.
As of June 30, 1993, the State had over $17.64 billion
aggregate amount of its general obligation bonds
outstanding. General obligation bond authorizations in the
aggregate amount of approximately $7.24 billion remained
unissued as of June 30, 1993. The State also builds and
acquires capital facilities through the use of lease
purchase borrowing. As of June 30, 1992,
the State had approximately $2.88 billion of outstanding
LeasePurchase Debt.
In addition to the general obligation bonds, State
agencies and authorities had approximately $21.87 billion
aggregate principal amount of revenue bonds and notes
outstanding as of March 31, 1993. Revenue bonds represent
both obligations
payable from State revenue-producing
enterprises and projects, which are not payable from the
General Fund, and conduit obligations payable only from
revenues paid by private users of facilities financed by
such revenue bonds. Such enterprises and projects include
transportation projects, various public
works and exposition projects, education facilities
(including the California State University and University
of California systems),
housing health facilities and pollution control facilities.
The State is a party to numerous legal proceedings,
many of which normally occur in governmental operations.
In
addition, the State is involved in certain other legal
proceedings that, if decided against the State, might
require the State to make significant future expenditures or
impair future revenue sources. Examples of such cases
include challenges to the State's method of taxation of
certain businesses, challenges to certain vehicle license
fees, and challenges to the State's use of Public Employee
Retirement System funds to offset future State and local
pension contributions. Other cases which could
significantly impact revenue or expenditures involve
reimbursement to school districts for voluntary school
desegregation and state mandated costs, challenges to Medi
Cal eligibility, recovery for flood damages, and liability
for toxic waste cleanup. Because of the prospective nature
of these proceedings, it is not presently possible to
predict the outcome of such litigation or estimate the
potential impact on the ability of the State to pay debt
service on its obligations.
As a result of the deterioration in the State's budget
and cash situation in fiscal year 1991-92, and the delay
in adopting the 1992-93 budget which resulted in issuance
of registered warrants (I.O.U.s), rating agencies reduced
the State's credit rating. Between November 1991 and
September 30, 1992, the rating on the State's general
obligation bonds was reduced by Standard & Poor's
Corporation from "AAA" to "A+", by Moody's Investors
Service, Inc. from "Aaa" to "Aa", and by Fitch Investors
Service, Inc. from "AAA" to "AA".
There can be no assurance that such ratings will continue
for any given period of time or that they will not in the
future be further revised or withdrawn.
The January 1994 Los Angeles earthquake may negatively
impact the ability of certain issuers to make scheduled
interest and principal payments, for example, if
the
specific project for which bonds were issued is damaged or
if revenues backing certain bonds decline. In addition, the
impact on tourism and business spending resulting from
earthquake damaage and any delay in its repair could
negatively impact the ability of certain issuers to make
timely debt payments. Further, as with October 1989 Loma
Prieta earthquake that struck San Francisco, lawsuits may be
filed against state agencies. Both Moody's Investors Service
and Standard & Poor's Corporation have said that it is too
soon to offer official assessments of the damage and its
effect on bondholders. However, Moody's has also stated that
because the pledge to make debt service payments for general
obligation bonds and essential purpose revenue bonds is
absolute and unconditional, it does not expect any rating
adjustment over the short-term for such bonds. The Sponsors
are unable to predict the effects of this earthquake or any
other future natural disaster on the bonds in the Portfolio
of
the California Trust.
APPENDIX C
The following information is a summary of special
factors affecting New York Municipal Obligations. It
does
not purport to be a complete description and is based
on
information from statements relating to securities offerings
of
New York issuers.
Additional Discussion of Special Factors Relating to New York
Municipal Obligations
The national and regional economic recession has
caused
a substantial reduction in State tax receipts. This
reduction
is the principal cause of the imbalance between recurring
receipts and disbursements that faced the Governor and
Legislature in the adoption of the budget for the 1992-1993
fiscal year.
Consequently, the State took various actions for its
1992 fiscal year, which included increases in certain State
taxes and fees, substantial decreases in certain expenditures
from previously projected levels, including cuts in
State
operations and reductions in State aid to localities, and
the
sale of $531 million of short-term deficit notes prior to the
end of the State's 1992 fiscal year. The State's 1992-93
budget was passed on time, closing an estimated $4.8 billion
imbalance resulting primarily from the national and regional
economic recession. Major budgetary actions included a
freeze in the scheduled reduction in the personal income tax
and business tax surcharge, adoption of significant
Medicaid
cost containment or revenue initiatives, and
reductions
in both agency operations and grants to local governments
from previously anticipated levels.
the State completed its 1993 fiscal year with a
positive margin of $671 million in the General Fund which
was adopted into a tax refund reserve account.
The Governor released the recommended Governor's
Executive Budget for the 1993-94 fiscal year on January 19,
1993. The
recommended 1993-94 State Financial Plan projected a
balanced General Fund. General Fund receipts and transfers
from other funds were projected at $31.6 billion, including
$184 million carried over from the
State's 1993 fiscal year. Disbursements and transfers from
other funds were projected at $31.5 billion, not including
a
$67 million repayment to the State's Tax Stabilization
Reserve Fund. To achieve General Fund budgetary balance
in
the 1994 State fiscal year, the Governor recommended
various actions. These included proposed spending
reductions
and other actions that would reduce General Fund spending
($1.6 billion); continuing the freeze on personal income and
corporate tax reductions and on hospital assessments
(41.3
billion); retaining moneys in the General Fund that would
otherwise have been deposited in dedicated highway and
transportation funds ($516 million); a 21-cent increase in
the cigarette tax ($180 million); and new revenues from
miscellaneous sources ($91 million). The recommended
Governor's 1993-94 Executive Budget included reductions in
anticipated aid to all levels of local government.
In comparison to the recommended 1993-94 Executive
Budget, the 1993-94 State budget, as enacted, reflects
increases in both receipts and disbursements in the general
Fund of $811 million.
The $811 million increase in projected receipts
reflects
(i) an increase of $487 million, from $184 million
to $671 million, in the positive year-end margin at March
31,
1993, which resulted primarily from improving economic
conditions and higher-than-expected tax collections, (ii) an
increase of $269 million in projected receipts,
$211
million
resulting from the improved 1992-93 results
and
the
expectation of an improving economy and the balance from
improved auditing and enforcement measures
and
other miscellaneous items, (iii) additional payments of
$200 million from the Federal government to reimburse the
State for the cost of providing indigent medical care, and
(iv) the payment of an additional $50 million of personal
income tax refunds in the 1993-94; offset by (v) $195
million of revenue raising recommendations in the Executive
Budget that were not enacted in the budget and thus are not
included in the 1993-94 State Financial Plan.
The $811 million increase in projected disbursements
reflects (i) an increase of $252 million in projected
schoolaid payments, after applying estimated receipts
from the State Lottery allocated to school aid, (ii) an
increase of $194 million in projected payments for
Medicaid assistance and other social service programs,
(iii) additional spending on the judiciary ($56 million)
and criminal justice ($48 million), (iv) a net increase in
projected disbursements for all other programs and
purposes, including mental hygiene and capital projects,
of $161 million, after reflecting certain re-estimates in
spending, and (v) the transfer of $100 million to a newly
established contingency reserve.
The 1993-94 State budget, as enacted, included
$400 million less in State actions that the City had
anticipated. Reform of education aid formulas was achieved
which brought an additional 145 million education dollars
to New York City.
However, the State legislature failed to enact a takeover
of local Medicaid cost containment items proposed by the
Governor, which would have provided the City with savings.
The adopted State budget cut aid for probation services,
increased sanctions on social service programs, eliminated
the pass-through of a State surcharge on parking tickets,
cut reimbursement for CHIPS
transportation
operating dollars, and required a large contribution in City
funds to hold the MTA fare at the current level. In the
event of any significant reduction in
projected State revenues or increases in projected State
expenditures from the amounts currently projected by the
State, there could be an adverse impact on the timing and
amounts of State aid payments to the City in the future.
In certain prior fiscal years, the State has failed
to enact a budget prior to the beginning of the State's
fiscal year. A delay in the adoption of the
State's budget beyond
the statutory April 1 deadline and the resultant delay in
the State's Spring borrowing has in certain prior years
delayed the projected receipt by the City of State aid, and
there can be no assurance that State budgets in the future
fiscal years will be adopted by the
April 1 statutory
deadline.
The State has noted that its forecasts of tax
receipts have been subject to variance in recent fiscal
years. As a result of these uncertainties and other
factors, actual
results could differ materially and adversely from the
State's current projections and the State's projections
could be materially and adversely changed from time to time.
There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting
from a significant disparity between tax revenues projected
from a lower recurring receipts base and the spending
required to maintain State programs at current levels.
To address any potential budgetary imbalance, the
State may need to take significant actions to align
recurring receipts and disbursements in future fiscal years.
Ratings on general obligation bonds of the State of
New York were lowered by Standard & Poor's Corporation
and Moody's Investors Service during 1990 from AA- to A and
Aa to A, respectively. On January 6, 1992, Moody's
Investors Service lowered its rating on certain
appropriations-backed debt of New York State to Baa1 from A.
The agency cited the failure of Governor Mario M. Cuomo
and New York State lawmakers to close New York's
current year budget gap. Moody's Investors Services
also placed the general obligation, State guaranteed
and New York local Municipal Assistance Corporation Bonds
under review for possible downgrade in coming months. In
addition, on January 13, 1992, Standard & Poor's
Corporation lowered its rating on general obligation debt
and guaranteed debt to A- from A. Standard & Poor's
Corporation also downgraded its rating on variously rated
debt, State moral obligations, contractual obligations,
lease purchase obligations and other State
guarantees. Additional reductions in ratings
could result in a loss to Unit holders.
The fiscal stability of the State is related to the
fiscal stability of its authorities, which generally
have
responsibility for financing, constructing, and operating
revenue-producing benefit facilities. Certain authorities
of the State, including the State Housing
Finance Agency ("HFA"), the Urban Development Corporation
("UDC") and the Metropolitan Transportation Authority
("MTA") have faced and continue to experience substantial
financial difficulties which could adversely affect the
ability of such authorities to make payments of interest on,
and principal amounts of,
their respective bonds. Should any of its authorities
default on their respective obligations, the State's access
to public credit markets could be impaired. The
difficulties have in certain instances caused the State
(under its so-called "moral obligation") to appropriate
funds on behalf of the authorities. Moreover, it
is expected
that the problems faced by these authorities
will continue and will require increasing amounts of
State assistance in future years. Failure of the State
to
appropriate necessary amounts or to take other action to
permit those authorities having financial difficulties to
meet their obligations (including HFA, UDC and MTA) could
result in a default by one or more of the authorities. Such
default, if it were to occur, would be likely to have a
significant adverse effect on investor confidence in, and
therefore the market price of,
obligations of the defaulting authority. In addition, any
default in payment of
any
general obligation of any authority whose bonds contain a
moral obligation provision could constitute a failure of
certain conditions that must be satisfied in connection with
Federal guarantees of City and MAC obligations and could
thus jeopardize the City's long-term financing plans.
The fiscal health of the State is closely related to
the fiscal health of its localities, particularly The City
of New York (the "City"), which has required and continues
to require significant financial assistance from the
State. The City's independently audited operating results
for each of its 1981 through 1992 fiscal years show a
General Fund surplus reported in accordance with GAAP. The
City has
eliminated the cumulative deficit in its net General Fund
position. In addition, the City's financial statements for
the 1992 fiscal year received an unqualified opinion from
the City's independent auditors, the tenth consecutive year
the City has received such an opinion.
In response to the City's fiscal crisis in 1975, the
State took a number of steps to assist the City in
returning to
fiscal stability. Among these actions, the State created
the Municipal Assistance Corporation for The City of New
York ("MAC") to provide financing assistance to the City.
The State also enacted the New York State Financial
Emergency Act for The City of New York (the "Financial
Emergency Act") which, among other things, established the
New York State Financial Control Board (the "Control Board")
to oversee the City's financial affairs. The State also
established the Office of the State Deputy Comptroller for
The City of New York ("OSDC") to assist the Control Board in
exercising its powers and responsibilities. On June 30,
1986, the Control Board's powers of approval over the City's
Financial Plan were suspended pursuant to the Financial
Emergency Act. However, the Control Board,
MAC and OSDC continue to exercise various monitoring
functions relating to the City's financial position. The
City operates under a four-year financial plan which is
prepared annually and is
periodically updated. The City submits its financial plans
as well as the periodic updates to the Control
Board for its review.
The City's economy, whose rate of growth
slowed substantially over the past three years, is
currently in
recession. During the 1990 and 1991 fiscal years, as a
result of the slowing economy, the City has experienced
significant shortfalls in almost all of its major tax
sources and increases in social services costs, and has been
required to take actions to close substantial budget gaps in
order to maintain balanced budgets in accordance with the
Financial Plan.
Beginning in 1992, the improvement in the national
economy helped stabilize conditions in the City. The
City
now projects, and its current four-year financial plan
assumes, that the City's economy will continue to improve
during calendar year 1993 and that a modest economic recovery
will begin during the second half of this calendar year. On
July 6, 1993, the City prepared the Financial
Plan for the 1994 through 1997 fiscal years, which relates
to the City, the Board of Education ("BOE") and the City
University
of New York ("CUNY"). The City is in the process of
preparing a more detailed financial plan, which will conform
to the Financial Plan, and which the City expects to submit
to the Control Board in August 1993.
The 1994-97 Financial Plan projects revenues
and expenditures for the 1994 fiscal year balanced in
accordance with GAAP. The 1994-1997 Financial Plan sets
forth actions to close a previously projected gap of
approximately $2.0 billion in the 1994 fiscal year. The
gap-closing actions for the 1994 fiscal year included agency
actions aggregating $666 million, including productivity
savings and savings from restructuring the delivery of
City services; service reductions aggregating $274 million;
the sale of delinquent real property tax receivables
for $215 million;
discretionary transfers from the 1993 fiscal year of $110
million;
reduced debt service costs aggregating $187 million,
resulting from refinancings and other actions; $150 million
in proposed increased Federal assistance; a proposed
continuation of the personal income tax surcharge, resulting
in revenues of $143 million; $80 million in proposed
increased State aid, of which approximately $35 million may
be subject to approval by the
Governor and State Legislature; and revenue actions
aggregating !173 million. The projected expenditures, for
the 1994 fiscal year reflect the $131 million of
expenditure reductions announced subsequent to the adoption
of the budget on June 14, 1993, including a $50 million
reduction in BOE expenditures, a $30 million reduction in
personal service costs and a
$25 million reduction in other than personal services.
The City Comptroller issued a statement on June 14,
1993 that identified problems totalling $476 million in
the fiscal year 1994 budget. The problems included
the
uncertainty of (1) receiving all the Federal aid
anticipated, (ii) completing the sale or reorganization of
OTB in fiscal year 1994 and (iii) winning approval to
eliminate preparation time of certain teachers. The City
Comptroller is expected to issue reports on the Financial
Plan in the near future.
Although the City has maintained balanced budgets in
each of its last twelve fiscal years, and is projected to
achieve balanced operating results for the 1993 fiscal
year, there can be no assurance that the gap-closing actions
proposed in the Financial Plan can be successfully
implemented or that the City will maintain a balanced
budget in future years without
additional State aid, revenue increases or expenditure
reductions. Additional tax increases and reductions in
essential City services could adversely affect the City's
economic base.
The 1994-97 Financial Plan is based on
numerous assumptions, including the recovery of the City's
and the region's economy early in the calendar year 1993.
The 1994-
97 Financial Plan is subject to various other uncertainties
and contingencies relating to, among other factors, the
extent, if any, to which wage increases for City employees
exceed the annual increases assumed for the 1994 through
1997 fiscal years; continuation of the 9% interest earnings
assumptions for pension fund assets affecting the City's
required pension fund contributions; the
willingness and the ability of the State to provide the aid
contemplated by the Financial Plan and to take various
other actions to assist the City, including the proposed
State takeover of certain Medicaid costs and State mandate
relief, the ability of
HHC, BOE and other agencies to maintain budget balance;
the willingness of the Federal government to provide
Federal aid; approval of the proposed continuation of the
personal income tax surcharge and the State budgets;
adoption of
the City's budgets by the City Council; the ability of the
City to implement contemplated productivity and service
and personnel reduction programs and the success with which
the City controls expenditures; additional expenditures that
may be incurred due to the requirements of certain
legislation requiring minimum levels of funding for
education; the City's ability to market its securities
successfully in the public credit markets; the level of
funding required to comply with the Americans with
Disabilities Act of 1990; and additional expenditures that
may be incurred as a result of deterioration in the
condition of the City's infrastructure. Certain of these
assumptions have been questioned by the City Comptroller
and other public officials.
Estimates of the City's revenues and expenditures are
based on numerous assumptions and the subject to various
uncertainties. If expected Federal or State aid is not
forthcoming, if unforeseen developments in the economy
significantly reduce revenues derived from economically
sensitive taxes or necessitate increased expenditures for
public assistance, if the City provided for in the City's
Financial Plan of if other uncertainties materialize that
reduce expected
revenues or increase projected expenditures then, to avoid
operating deficits, the City may be required to implement
additional actions, including increases in taxes and
reductions in essential City services. The
City might also seek additional assistance from the State.
The City depends on the State for State aid both to
enable the City to balance its budget and to meet its
cash requirements. For its 1993 fiscal year, the State,
before taking any remedial action, reported a potential
budget deficit of $4.8 billion (before providing for
repayment
of the deficit notes as described below). If the State
experiences revenue shortfalls or spending increases beyond
its projections during its 1993 fiscal year or subsequent
years, such developments could result in reductions in
projected State aid to the City. In addition, there can be
no assurance that State budgets in future fiscal years will
be
adopted by the April 1 statutory deadline and that there will
not be adverse effects on the City's cash flow and
additional City expenditures as a result of such delays.
On February 11, 1991, Moody's Investors Service
lowered its rating on the City's general obligation bonds
from
A to Baa1. On July 2, 1993, Standard & Poor's reconfirmed its
Arating of City bonds, continued its negative rating outlook
assessment and stated that maintenance of such ratings
depended upon the City's making further progress towards
reducing budget gaps in the outlying years.
Certain localities in addition to New York City could
also have financial problems leading to requests for
additional State assistance during the State's 1992-93 fiscal
year and thereafter. The 1992-93 State Financial Plan
includes a significant reduction in State aid to localities
in such programs as revenue sharing and aid to
education
from projected base-line growth in such programs. It is
expected that such reductions will result in the need for
localities
to reduce their spending or increase their revenues. Fiscal
difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for
the City of Yonkers (the "Yonkers Board") by the State in
1984.
The Yonkers Board is charged with oversight of the fiscal
affairs of Yonkers. Future actions taken by
the Governor or the State Legislature to assist
Yonkers could result in allocation of State resources
in amounts that cannot yet be determined.
Municipalities and school districts have engaged
in substantial short-term and long-term borrowings. In
1991,
the total indebtedness of all localities in the State was
approximately $31.6 billion, of which $16.8 billion was debt
of New York City (excluding $6.7 billion in MAC debt);
a small portion (approximately $39 million) of
the $31.6 billion of indebtedness represented borrowing to
finance budgetary deficits and was issued pursuant to
enabling State legislation. In 1992, an unusually large
number of local government units requested authorization
for deficit financings. Although the comptroller has
indicated that the level of deficit financing requests is
unprecedented, such developments are not expected to have a
material adverse effect on the financial conditions of
the State. Certain
proposed Federal expenditure reductions would reduce, or in
some cases affected localities. If the State, New York City
or
any of the Authorities were to
suffer serious financial
difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds
issued by localities within the State could be adversely
affected. Localities also face anticipated and potential
problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range
problems of declining urban population, increasing
expenditures, and other economic trends could adversely
affect localities and require increasing State assistance in
the future.
The State is the subject of numerous legal
proceedings
relating to State finances, State programs and miscellaneous
tort, real property and contract claims in which the State
is
a defendant and where monetary damages sought are
substantial. These proceedings could adversely affect the
financial condition of the State in the 1993-94 fiscal years
or
thereafter.
APPENDIX D
The following information is a summary of special
factors
affecting New Jersey municipal obligations. It does not
purport to be a complete description and is based on
information from statements relating to securities offerings
of
New Jersey issuers.
Additional Discussion of Special Factors Relating to New
Jersey
Municipal Obligations
Risk Factors: Prospective investors should consider
the
recent financial difficulties and pressures which the State
of
New Jersey (the "State") and certain of its public
authorities have undergone.
The State's 1994 fiscal year budget became law on
June 30, 1993.
The economic recovery is likely to be slow and uneven
in
both New Jersey and the nation.
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 corresponding 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
Division of Budget and Accounting, who reviews the budget
requests and forwards them with his recommendation to the
Governor. The Governor then transmits his 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
signing 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 determines that such expenditure is
not in the best interest of the State.
State Aid to Local Governments is the largest
portion of fiscal year 1994 appropriations. In fiscal
year 1994, $6,562.0 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 $4,824.1 million, was
provided for local elementary and secondary education
programs. Of this amount, $2,538.2 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 million program was also funded
for pupils at risk of educational failure, including
basic skills improvement. The State appropriated $767.2
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 four years.
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 are
pledged to meet the principal and interest 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.
All appropriations for capital projects and all
proposals for State bond authorizations are subject to the
review and recommendation of the New Jersey Commission on
Capital Budgeting and Planning. This permanent
commission
was established in November, 1975, and is
charged with the preparation of the State Capital
Improvement Plan, which contains proposals for State
spending for capital projects.
The aggregate outstanding general obligation bonded
indebtedness of the State as of June 30, 1993 was $3.549.7
billion. The debt service obligation for outstanding
indebtedness is $119.9 million for fiscal year 1994.
Aside from its general obligation bonds, the
State's "moral obligation" backs certain obligations
issued by the New Jersey Housing and Mortgage Finance
Agency, the South Jersey Port Corporation (the
"Corporation") and the Higher Education Assistance
Authority. As of June 30, 1992, there was outstanding
in excess of $1 billion of moral obligation bonded
indebtedness issued by such entities, for which the
maximum annual debt service was over $101 million as of
such date.
The State provides the Corporation with funds to
cover debt service and property tax requirements when
earned revenues are anticipated to be insufficient to
cover these obligations. For the calendar years 1986
through 1992, the State has appropriated $12,237,565.00
to cover property tax shortfalls of the Corporation.
At any given time, there are various numbers of
claims and cases
pending against the State, State 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. In addition, at any
given time there are various contract claims against the
State and State agencies seeking recovery of monetary
damages. The State is unable to estimate its exposure for
these claims and cases. An independent study estimated an
aggregate potential exposure of $50 million for claims
pending, as of January 1, 1982. It is estimated that were a
similar study made of claims currently pending, the amount
of
such estimated exposure would be somewhat higher.
New
Jersey is involved in a number of lawsuits in which adverse
decisions could materially affect revenues or expenditures.
Such cases include challenges to its system of educational
funding, the methods by which the State Department of Human
Services shares with county governments the maintenance
recoveries and costs for residents in State psychiatric
hospitals and residential facilities for the developmentally
disabled.
Other lawsuits that could materially affect revenue or
expenditures include a suit by a number of taxpayers seeking
refunds of taxes paid to the Spill Compensation Fund
pursuant to N.J.S.A. 58:10-23.11; a suit alleging that
unreasonably low Medicaid payment rates have
been
implemented for long-term care facilities in New Jersey; a
suit
alleging unfair taxation on interstate commerce; a suit by
Essex County seeking to invalidate the State's
method of funding the medical system and a suit seeking
return of moneys paid by various counties for maintenance
of Medicaid or Medicare eligible residents of
institutions
and facilities for the developmentally disabled, and a
suit
challenging the imposition of premium tax surcharges on
insurers doing business in New Jersey, and assessments upon
property and casualty liability insurers
pursuant to the Fair Automobile Insurance Reform Act. Bond
Ratings: 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 from Aaa to
Aa1 the rating assigned to New Jersey general obligation
bonds.
Currently, Standard & Poor's rates New Jersey general
obligation bonds AA+. On July 6, 1992, Standard & Poor's
affirmed its AA+ ratings on 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: (i) the Federal
Health Care Facilities Administration ruling concerning
retroactive Medicaid hospital reimbursements and (ii) the
State's
uncompensated health care funding system, which is under
review in the U.S. Supreme Court.
APPENDIX E
The following information is a summary of special
factors
affecting Florida municipal obligations. It does not
purport to be a complete description and is based on
information from statements relating to securities offerings
of
Florida issuers.
Additional Discussion of Special Factors Relating to Florida
Municipal Obligations
The State's economy in the past has been highly
dependent
on the construction industry and construction related
manufacturing. This dependency has declined in recent years
and
continues to do so as a result of continued
diversification of the State's economy. For example, in
1980
total contract construction employment as a share of total
nonfarm employment was just over seven percent, and in 1990
the share had edged downward to six percent. This trend
is expected to continue as the State's economy
continues to diversify. Florida nevertheless has a dynamic
construction industry, with single and multi-family housing
starts accounting for 9.48% of total U.S. housing starts in
1991 while the State's population is 5.3% of the U.S. total
population.
A driving force behind the State's construction
industry
has been the State's rapid rate of population growth.
Although Florida currently is the fourth most populous
state, its population growth is now projected to decline as
the
number of people moving into the State is expected to hover
near the mid-200,000 range annually
well into the 1990s. This population trend should provide
plenty of fuel for business and home builders to keep
construction activity lively in Florida for some time to
come. However, some factors
that have adversely affected the construction industry's
performance include:
(i) Federal tax reform legislation that has
eliminated
tax deductions for owners of three or more residential
real
estate properties and the lengthening
of
depreciation schedules on investment and commercial
properties;
(ii) Costs of financing that have been relatively
high in recent years; and
(iii) Economic growth and existing supplies
of
commercial buildings and homes also contribute to
the level of construction activities in the State.
Since 1980, the State's job creation rate is well
over
twice the rate for the nation as a whole, and its growth
rate in new non-agricultural jobs is the fastest of the 11
most populous states and second only to California in the
absolute number of new jobs created. Contributing to the
State's rapid rate of growth in employment and income is
international trade. In addition, since 1980, the State's
unemployment rate has generally tracked below that of the
Nation's unemployment rate. However, in the last two years,
the State's jobless rate moved ahead of the national average
of approximately
7.2%. According to Florida's Office of
Planning & Budgeting Revenue and Economic Analysis Unit
("Office of Planning & Budget"), the State's unemployment
rate was 5.9% during 1990. The State's unemployment rate
had increased to 7.3% for 1991. The State forecasts that
the unemployment rate will be 8.2% in 1992. Unemployment is
projected to be 7.3% of the labor force in 1992-93 and 6.8%
in 1993-94. The State's non-farm job growth rate is expected
to mirror the path of employment growth of the nation
(decline 1.3% in 1992-93 and rise 4.3% in 1993-94). The
State's two largest and fastest growing private employment
categories are the service and trade sectors. Employment in
these sectors is expected to decline 3.6% for trade and
growth and 1.5% for services in 1991-92 and are expected to
grow 0.7% and 3.7% in 1992-93, respectively. Together, they
account for more than half of the total non-farm employment
growth over the next two years. The service sector has
overtaken the trade sector and is now the State's largest
employment category.
The number of tourists coming to the State has
stabilized. The State's tourist industry over the years has
become more sophisticated, attracting visitors year-round,
thus, to a degree,
reducing its seasonality. Approximately 40.9
million people visited the State in 1992. During 1992-93,
tourist arrivals are expected to be approximately 42
million.
The State's per capita personal income in 1992 of
$19,397 was slightly below the national average of $19,841
and significantly ahead of that for the southeast United
States, which was $17,661. Growth in real personal income in
the State follows a course similar to that of the nation. Real
personal income is estimated to increase 0.7% in 199293
and increasing 5.1% in 1993-94. The decrease in the 199293
level is due to property loses resulting from Hurricane
Andrew.
Compared to other states, Florida has a proportionately
greater retirement age population, which comprises 18.3% of
the State's population, and is forecast to grow at over
1.96% through the 1990s. Thus, property income (dividends,
interest, and rent) and transfer payments (Social Security
and pension benefits, among other sources of income) are
relatively more important sources of income. For example,
Florida's total wages and salaries and other labor income in
1990 and 1991 was 54.9% and 54.8%, respectively of total
income, while a similar figure for the nation for 1990 and
1991 was 64.8% and 64.4%, respectively. Transfer payments
are typically less sensitive to the business cycle than
employment income and, therefore, act as stabilizing forces
in weak economic periods; however, these payments, which
have increased approximately 8.6% annually from 1985-90, may
also be subject to greater risks from inflation.
In fiscal year 1990-91, approximately 64% of the
State's total direct revenue to its four operating funds
were derived from state taxes, with federal grants
and other special revenue accounting for the balance. State
sales and use tax, corporate income tax, and beverage tax
amounted to
66%, 7%, and 5%, respectively, of total receipts by the
General Revenue Fund during fiscal 1990-91. In that same
year, expenditures for education, health and welfare, and
public safety amounted to 55%, 27%, and 8%, respectively, of
total expenditures from the General Revenue Fund. At the
end of fiscal year 1991, approximately $4.45 billion in
principal amount of debt secured by the full faith and
credit of the State was outstanding. Since July 1, 1991
through August 1992, the State has issued $965 million in
principal amount of full faith and credit bonds.
Fiscal year 1991-92 General Revenue plus Working
Capital funds available total $11,253.1 million. Compared
to
199192 General Revenue effective appropriations of
$11,066.1
million.
Estimated fiscal year 1992-93 General Revenue plus
Working Capital funds available total $12,255.9 million, a
9.1% increase over 1991-92. The amount reflects a transfer
of
$228.8 million, out of an estimated $233.5 million in non
recurring revenue due to Hurricane Andrew, to a hurricane
relief trust fund. The $12,004.1 million Estimated Revenues
(excluding the Hurricane Andrew impacts) represent an
increase of 10.1% over the previous year's Estimated
Revenues. With effective General Revenue plus Working
Capital Fund appropriations at $11,804.5 million,
unencumbered reserves at the end of the fiscal year are
estimated at $441.4 million.
The State Constitution and statutes mandate that the
State budget, as a whole, and each separate fund within the
State budget, be kept in balance from currently available
revenues each fiscal year. If the Governor or Comptroller
believes a deficit will occur in any State fund, by statute,
he must
certify his opinion to the Administrative Commission, which
then is authorized to reduce all State agency budgets
and releases by a sufficient amount to prevent a deficit in
any fund. In response to the deficits projected for fiscal
199091, the State established mandatory budget holdbacks
of
$479.9 million and $270 million. To
effectuate the
holdbacks, and thus prevent a deficit, the State has
undertaken significant budget reducing and
revenue
increasing measures, including, but not limited to, layoffs
of
State employees and curtailments of State services. While
there can be no assurance that such measures will eliminate
the
State budget deficit, as of early January 1991, the 199091
revenue shortfall was
reported to be forecast at approximately $270 million, and
the
State has indicated since such forecast that, based on
projected revenues and further budget reductions, there will
be no shortfall.
The State's sales and use tax (6%) currently accounts
for the State's single largest source of tax receipts.
Slightly
less than 10% of the State's sales and use tax is designated
for local governments and is distributed to the respective
counties in which collected for such use by such counties
and
municipalities. In addition to this distribution, local
governments may (by referendum) assess a 0.5% or a 1.0%
discretionary sales surtax within their county. Proceeds
from this local option sales tax are earmarked for funding
local infrastructure programs and acquiring land for public
recreation or conservation or protection of natural
resources as provided under Florida law. Certain charter
counties have other taxing powers in addition. For the
fiscal year ended June 30, 1992, estimated sales and use tax
receipts (exclusive of the tax on gasoline and special
fuels) totalled $8,375.5 million, an increase of 2.7% over
fiscal year 1990-91.
The State imposes an alcoholic beverage wholesale tax
(excise tax) on beer, wine, and liquor. This tax is one of
the State's major tax sources, with revenues totalling
$435.2 million in fiscal year ending June 30, 1992.
Alcoholic beverage tax receipts declined over the previous
year. The revenues collected from this tax are deposited
into the State's General Revenue Fund.
The second largest source of State tax receipts is the
tax on motor fuels. However, these revenues are almost
entirely dedicated trust funds for specific purposes and
are
not included in the State's General Fund.
The State imposes a corporate income tax. All
receipts
of the corporate income tax are credited to the General
Revenue
Fund. For
the fiscal year ended June 30, 1992, receipts
from this source were $801.3 million, a increase of 14.2%
from fiscal year 1990-91.
The State also imposes a stamp tax on deeds and other
documents relating to realty, corporate shares, bonds,
certificates of indebtedness, promissory notes, wage
assignments, and retail charge accounts. The documentary
stamp tax collections totaled $472.4 million during fiscal
year 1991-92, a 0.5% increase from the previous fiscal year.
For the fiscal year 1991-92, 76.21% of the documentary stamp
tax revenues were deposited to the General Revenue Fund.
Beginning in fiscal year 1992-93, 71.29% of these taxes are
to
be deposited to the General Revenue Fund.
Currently under litigation are several issues
relating
to State actions or State taxes that put at risk
substantial
amounts of General Revenue Fund monies. Accordingly, there
is
no assurance that any of such matters, individually or in the
aggregate, will not have a material
adverse effect on the State's financial position. Florida
law provides preferential tax treatment to
insurers who maintain a home office in the State. Certain
insurers challenged the constitutionality of this tax
preference and sought a refund of taxes paid. Recently, the
State Supreme Court ruled in favor of the State. Similar
issues have been raised in other cases where insurers have
challenged taxes imposed on premiums received for certain
motor vehicle service agreements. These four cases and
pending refund claims total about $200 million.
On August 24, 1992, the State was hit with a major
hurricane, Hurricane Andrew. Published speculation
estimates total damage to the southern portion of the State
to
be $20-30 billion. The actual economic impact to the
State
is unknown at this time, but, in published reports, the
director of economic and demographic research for the Joint
Legislative Management Committee of the State's
Legislature estimates that the State's revenues from sales
tax collection will exceed the estimates prior to Andrew.
It
is estimated that about $15.0 billion of these losses are
insured. In addition, a major funding package totalling
$10.6 billion from the federal government will provide
additional funding to help offset these losses. However, the
Revenue Estimating Conference has estimated additional non
recurring General Revenues totalling $645.8 million during
fiscal years 1992-93, 1993-94 and 1994-95 as a result of
increased economic activity. In a December 1992 special
session, the Legislature enacted a law that sets aside an
estimated $630.4 million of the $645.8 million hurricane
revenue windfall to be used by State and local government
agencies to defray a wide array of expenditures related to
Hurricane Andrew.
Florida maintains a bond rating of Aa and AA from
Moody's Investors Service and Standard & Poor's
Corporation, respectively, on the majority of its general
obligation bonds, although the rating of a particular series
of
revenue bonds relates primarily to the project, facility, or
other revenue source from which such series derives funds
for repayment. While these ratings and some of the
information presented above may indicate that Florida is in
satisfactory economic health, there can be no assurance that
there will not be a decline in economic conditions or that
particular Bonds in the portfolio of the Florida Trust will
not be adversely affected by any such changes.
The sources for the information above include official
statements and financial statements of the State of Florida.
While the sponsor has not independently verified this
information, the Sponsor has no reason to believe that the
information is not correct in all material respects.
APPENDIX F
The following information is a summary of special
factors affecting Georgia Municipal Obligations. It does
not purport to be a complete description and is based
on
information from statements relating to securities offerings
of
Georgia issuers.
Additional Discussion of Special Factors Relating to Georgia
Municipal Obligations
On December 31, 1992, the state government of Georgia had
the 46th lowest debt level per capita of all states in the
United States, which is reflective of a very conservative
fiscal approach taken by elected state officials, tempered
during a three to four year economic slow-down. Typically,
general obligation bonds of the state are issued pursuant to
the powers granted under Article VII, Section IV of the
Constitution of the State of Georgia ( the "Georgia
Constitution"), which provides that the bonds are the direct
and general obligations of
the state.
The Georgia Constitution further mandates that
the General Assembly "shall raise by taxation
and
appropriate each fiscal year ... such amounts as are
necessary to pay debt service requirements in such fiscal
year on all general obligation debt". The Georgia
Constitution further provides for the establishment of a
special trust fund which is designated the "State of
Georgia General Obligation Debt Sinking Fund" which is used
for the payment of annual debt service requirements on all
general obligation debt.
Virtually all debt obligations represented by bonds issued
by the State of Georgia, counties, or municipalities or
other public authorities require validation by a judicial
proceeding prior to the issuance of such obligation. The
judicial validation makes these obligations incontestable
and conclusive, as provided under the Georgia Constitution.
The State of Georgia operates on a fiscal year beginning
on July 1 and ending on June 30. Each year the
State Economist, the Governor, and the State Revenue
Commissioner jointly prepare a revenue forecast upon which
is based the state budget which is considered, amended, and
approved by the Georgia General Assembly. Since 1975, the
Governor and the General Assembly have attempted to
maintain a $100 million reserve fund, which in 1992 was
eroded because of a revenue shortfall. From November 1992
until the end of
the most recent fiscal year, June 1993, the State of
Georgia enjoyed eight consecutive months of double digit
growth in revenues and had an $844,797,869.87 increase in
revenues in fiscal 1993 above fiscal 1992, representing an
increase of 12.1%. This is a dramatic increase over fiscal
year 1991 to fiscal 1992, which had only a modest 1.7%
increase in revenues. The surplus for fiscal year 1993 far
exceeded the Governor's budget allocation of $124
million.
Revenue
collections for the month of August represented an 8.9%
increase over collections in August of 1992, further
reflective of a healthy state economy.
In the past two years, the Governor has successfully
eliminated more than 5,000 state jobs, which has contributed
dramatically to his efforts to balance the state budget.
For the next several years, Georgia has a very
bright economic future highlighted by a $2 billion stimulus
to the economy which is expected from Atlanta's hosting of
the 1996 Summer Olympic Games. Manufacturing activity,
particularly in the textile, apparel and carpet sectors,
has increased dramatically as a result of increased
home building. However, the real
estate/construction industry remains in a recession caused
by over-building of commercial office space and industrial
parks in the late 1980s. Military base closings in
other states are expected to mildly impact the Georgia
economy with the consolidation
of military
installations so that Georgia will have a net gain in
service personnel. In recent years, Georgia has enjoyed the
economic stimulus caused by a number of major corporate
relocations led by United Parcel Service of America, Inc.,
which moved its World Headquarters from Greenwich,
Connecticut to Atlanta. This move was followed by
Holiday Inn Worldwide, which moved its headquarters to
Atlanta from Memphis.
APPENDIX G
The following information is a summary of special
factors affecting Pennsylvania Municipal Obligations. It
does not purport to be a complete description and is
based on information from statements relating to
securities offerings of Pennsylvania issuers. Additional
Discussion of Special Factors Relating to Pennsylvania
Municipal Obligations
Potential investors of the Pennsylvania Portfolio should
consider the fact that the Pennsylvania's portfolio
consists primarily of securities issued by the
Commonwealth of Pennsylvania (the "Commonwealth"), its
municipalities and authorities and should realize the
substantial risks associated with an investment
in
such securities. Although the Commonwealth had a
positive budgetary balance at the end of each fiscal year
from fiscal 1984 to fiscal 1989, the positive balance in
the General Fund of the Commonwealth (the principal
operating fund of the Commonwealth) declined to a zero
balance at the close of fiscal 1989, and a negative
balance was experienced in 1990 and 1991, tax increases
and spending decreases helped return the General Fund
balance to a surplus at June 30, 1992 of $87.5 million. The
deficit in the Commonwealth's unreserved/undesignated
funds was also reduced, from $1.1462 million at June
30, 1991 to $138.6 million at June 30, 1992.
Pennsylvania's economy historically has been dependent
upon heavy industry, but has diversified recently into
various services, particularly into medical and health
services, education and financial services. Agricultural
industries continue to be an important part of the
economy, including not only the production of diversified
food and livestock products, but substantial economic
activity in agribusiness
and food-related industries. Service
industries
currently employ the greatest share of nonagricultural
workers, followed by the categories of trade and
manufacturing. Future economic difficulties in any of
these industries could have an adverse impact on the
finances of the Commonwealth or its municipalities, and
could adversely affect the market value of the Bonds in the
Pennsylvania Trust or the ability of the respective
obligors to make payments of interest and principal due
on such Bonds.
Certain litigation is pending against the Commonwealth
that could adversely affect the ability of the
Commonwealth to pay debt service on its obligations,
including suits relating to the following matters: (i)
the ACLU has filed suit in federal court demanding
additional funding for child welfare services
(no available estimates of potential liability); (ii)
in 1987, the Supreme Court of
Pennsylvania held that the statutory scheme for county
funding of the
judicial system to be in conflict with the Constitution of
the
Commonwealth but stayed judgment pending enactment by the
legislature of funding consistent with the opinion and the
legislature has yet to consider legislation implementing
the
judgment; (iii) several banks have filed suit against the
Commonwealth contesting the constitutionality of a law
enacted in 1989 imposing a bank shares tax (potential
liability estimated at $1.023 billion through June 1993
plus interest); (iv) litigation has been filed in both
state
and federal court by an association of rural and small
schools and several individual school districts and
parents challenging the constitutionality of the
Commonwealth's system for funding local school districts
the federal case has been stayed pending resolution of the
state case and the state case is in the pre-trial
state (no available estimate of potential liability); (v)
litigation has been filed in state court by a variety
of plaintiffs challenging the validity
of a number of provisions in the 1991 tax
legislation, including the tax on leased vehicles the sales
tax on
periodicals, and the repeal of the deduction for net
operating loss carryforwards (no available estimate of
potential liability for refund of taxes collected or amount
of tax revenue at risk); (vi) the ACLU has brought a class
action on behalf of inmates challenging the conditions
of confinement in thirteen of the Commonwealth's
correctional institutions (no available estimate of
potential cost of complying with the injunction sought)
and (vii) a consortium of public interest law firms has
filed a class action suit alleging that the Commonwealth
has not complied with a federal mandate to provide
screening, diagnostic and treatment services for all
Medicaid-eligible children under 21 (potentially liability
estimated at $98 million).
The Commonwealth's general obligation bonds have
been rated AA- by Standard & Poor's and A1 by Moody's
for approximately the last five years.
The City of Philadelphia (the "City") has
been
experiencing severe financial difficulties which has
impaired its access to public credit markets and a longterm
solution to the City's financial crisis is still being
sought.
The City experienced a series of General Fund deficits
for fiscal years 1988 through 1991.
Additional deficits are expected for the 1992 and 1993
fiscal years. The City has no legal authority to issue
deficit reduction bonds on its own behalf, but state
legislation has been enacted to create an
Intergovernmental Cooperation Authority to provide
fiscal oversight
for
Pennsylvania cities (primarily Philadelphia) suffering
recurring financial difficulties. The Authority is broadly
empowered to assist cities in avoiding defaults
and
eliminating deficits by encouraging the adoption of
sound budgetary practices and issuing bonds. In order
for the Authority to issue bonds on behalf of the City,
the City and the
Authority entered into an intergovernmental cooperative
agreement providing the Authority with certain
oversight powers with respect to the fiscal affairs of
the City, and
the Authority approved a five-year financial plan
prepared
by the City. On June 16, 1992, the Authority issued
a $474,555,000 bond issue on behalf of the City. A five
year
plan that projects a balanced General Fund budget in
Fiscal Year 1994 without a grant from the Authority was
approved by the
Authority on April 6, 1992. Full implementation of the
five year plan was delayed due to labor negotiations
that were not completed until October 1992, three months
after the expiration of the old labor contracts. The terms
of the new labor contracts are estimated to cost
approximately $144 million more than the amount budgeted
in the original five year plan. In March 1993,
Philadelphia filed an amended five year plan with the
Authority, in which the General Fund balance deficit for
the fiscal year ending June 30, 1993, is projected at $6.6
million. The City Council and the authority have
approved a fiscal 1994 budget that projects no deficit
for the fiscal year ending June 30, 1994. In June 1992,
the Authority issued $475,555,000 in bonds to
liquidate the City's deficit balance in its general fund.
In July 1993, the Authority issued $643,430,000 of bonds
to refund certain general obligation bonds of the City
and to fund additional capital projects. In September
1993, the Authority issued $178,675,000 of bonds to
advance refund certain of the bonds issued in June 1992.
APPENDIX H
The following information is a summary of special
factors affecting Ohio Municipal Obligations. It does
not purport to be a complete description and is based
on information from statements relating to securities
offerings of Ohio issuers.
Additional Discussion of Special Factors Relating to
Ohio Municipal Obligations
The Ohio Portfolio will invest substantially all of its
net assets in Ohio Obligations. The Ohio Trust is
therefore susceptible to political, economic and
regulatory factors that may affect issuers of Ohio
Obligations. The following information constitutes only a
brief summary of some of the complex factors that may
affect the financial situation of issuers in Ohio, and
is not applicable to "conduit" obligations on which
the public issue itself has no financial
responsibility.
The creditworthiness of obligations issued by local
Ohio issuers may be unrelated to the
creditworthiness of obligations issued by the State, and
generally there is no responsibility on the part of the
State to make payments on those local obligations. There
may be specific factors that are applicable in connection
with investment in particular Ohio Obligations or in the
obligations of particular Ohio issuers, and it is
possible the investment will be in
Ohio Obligations or in obligations of particular issuers
as to which such specific factors are applicable.
However, the information set forth below is intended only
as a general summary and not a discussion of any such
specific factors that may affect any particular issuer
or issue of Ohio Obligations.
Ohio is the seventh most populous state, with a
1990 Census Count of 10,847,000 indicating a 0.5%
population increase from 1980.
The economy of Ohio, while diversifying more into
the service and other non-manufacturing areas, continues
to rely in part on durable goods manufacturing, which
is largely concentrated in motor vehicles and equipment,
steel, rubber products and household appliances. As a
result, general economic activity in Ohio, as in many
other industriallydeveloped states, tends to be more
cyclical than in some other states and in the nation as
a whole. Agriculture also
is an important segment of the economy in the State, and
the State has instituted several programs to provide
financial assistance to farmers. The State's economy, has
had varying effects on different geographic areas of the
State and the political subdivisions located within
those geographic areas.
The State's overall unemployment rate is commonly
somewhat higher than the national average. The
unemployment rate, and its effects, vary among
particular geographic areas of the State.
There can be no assurance that future state-wide
or regional economic difficulties, and the resulting
impact on State or local government finances
generally, will not adversely affect the market value
of Ohio Obligations held in the portfolio of the Ohio
Trust or the ability of the particular obligors to make
timely payments of debt service on (or lease payments
relating to) those obligations.
The State operates on the basis of a fiscal biennium
for its appropriations and expenditures, and is precluded
by law from ending a fiscal year or biennium in a deficit
position. Most operations are financed through the
General Reserve Fund (GRF), with personal income and
sales-use taxes being the major GRF sources.
Growth and depletion of GRF ending fund balances show a
consistent pattern related to national economic
conditions, with the June 30 (end of fiscal year) balance
reduced during less favorable national economic periods
and increased during more favorable economic times.
Key end of biennium fund balances at June 30, 1991
were $135,365,000
(unaudited) (GRF) and approximately $300,000,000
(Budget Stabilization Fund (BSF), a cash and budgetary
management fund). Necessary corrective steps were taken
in fiscal year 1991 to respond to lower than estimated
receipts and higher expenditures in certain categories.
Those steps included the transfer of $64,000,000 from
the BSF to the GRF. The State reported biennium ending
fund balances of $135.3 million (GRF) and $300 million
(BSF).
The State has established procedures for, and has
timely taken, necessary actions to ensure a
resource/expenditures balance during less favorable
economic periods. These include general and selected
reductions in appropriations spending; none have been
applied to appropriations needed for debt service or
lease rentals on any State obligations.
To allow time to complete the resolution of certain
Senate and House differences in the budget and
appropriations for the current biennium (beginning July
1, 1991), an interim appropriations act was enacted,
effective July 1; it included debt service and lease
rental appropriations for the entire 1992-93 biennium,
while continuing most other appropriations for 31 days
at 97% of fiscal year 1991 monthly levels. The
general appropriations act for the entire biennium was
passed on July 11, 1991 and signed by the Governor. It
authorized the transfer, which has been made, of $200
million from the BSF to the GRF and provided for transfers
in fiscal year 1993 back to the BSF if revenues are
sufficient for the purpose (which the State Office of
Budget and Management, OBM, at present thinks unlikely).
Based on updated fiscal year financial results
and economic forecast for the State, in light of the
continuing uncertain nationwide economic situation, OBM
has projected, and has timely addressed, a fiscal year
1992 imbalance in GRF resources and expenditures.
GRF receipts were significantly below original
forecasts, a shortfall resulting primarily from lower
collections of certain taxes, particularly sales and use
taxes. Higher than earlier projected expenditure
levels resulted from higher spending in certain areas,
particularly human services, including Medicaid.
As an initial action, the Governor ordered most
State agencies to reduce GRF appropriations spending in
the final six months of fiscal year 1992 by a
total of approximately $196 million (debt service and
lease rental obligations were not affected). The
General Assembly has authorized the transfer, made late
in the fiscal year, to the GRF of the $100.4 million
BSF balance and additional amounts from certain other
funds, and made adjustments in the timing of certain
tax payments. Other administrative revenue and spending
actions have resolved the remaining GRF imbalance. The
administration and the General Assembly are reviewing the
longer term fiscal situation, particularly that through
the June 30, 1993 end of the current biennium; a
significant GRF shortfall is currently projected for
fiscal year 1993, to be addressed by appropriate
legislative and administrative actions. As a first step
the Governor ordered, effective July 1, 1992, selected
GRF appropriations spending reductions totalling $315.6
million.
The incurrence or assumption of debt by the State
without a popular vote is, with limited exceptions,
prohibited by
current provisions of the State Constitution. The State
may incur debt to cover casual deficits or failures in
revenues or to meet expenses not otherwise provided for,
but limited in amount to $750,000. The State is
expressly precluded from assuming the debts of any
local government
or
corporation. (An exception in both cases is made for
any debt incurred to repel invasion, suppress
insurrection, or defend the State in war.)
By twelve constitutional amendments (the last adopted in
1987), Ohio voters have authorized the incurrence of up to
$3.939 billion (excluding certain highway obligations
bonds payable primarily from highway use charges) in State
debt to which taxes or excesses were pledged for
payment; $434.2 million of this debt was outstanding at
June 18, 1992.
The
only such State debt still authorized to be incurred at
June 18, 1992 are portions of the highway obligations
bonds, and portions of the following bonds: (a) up to
$100,000,000 of State full faith and credit obligations
for coal research and development may be outstanding
at any one time ($50,000,000 issued, with $41,200,000
outstanding); and (b) $1.2 billion of State full faith
and credit obligations are authorized for local
infrastructure improvements, with no more than
$120,000,000 to be issued in any calendar year
($331,000,000 outstanding, and $840,000,000 remain to
be issued).
The Constitution also authorized the issuance, for
certain purposes, of State obligations, the owners of
which are not given the right to have excises or taxes
levied to pay debt service. Those special obligations
include bonds and notes issued by, among others, the
Ohio Public Facilities Commission and the Ohio Building
Authority. A total of $3.57 billion of those
obligations were
outstanding at June
18, 1992.
A 1990 constitutional amendment authorized greater State
and political subdivision participation in the provision
of individual and family housing, including borrowing for
this purpose. The General Assembly may authorize the
issuance of State obligations secured by a pledge of all
or such portion as it authorizes of State revenues or
receipts, although the obligations may not be supported by
the State's full faith and credit.
State and local agencies issue revenue obligations
that are payable from revenues of revenue-producing
facilities or categories of facilities, which obligations
are not "debt" within constitutional provisions or
payable from taxes.
In
general, lease payment obligations under leasepurchase
agreements of Ohio issuers (in connection with
which
certificates of participation may be issued) are limited
in duration to the issuer's fiscal period, and are
renewable only upon appropriations being made
available for the subsequent fiscal periods.
Local school districts in Ohio receive a major portion
(on a statewide basis, historically approximately
46%) of their
operating moneys from State subsidies, but are dependent
on local ad valorem property taxes and in, 88 districts,
income taxes for significant portions of their budgets.
Litigation has recently been filed, similar to that in
other states, questioning the constitutionality of Ohio's
system of school funding. A small number of the State's
612 local school districts have in any year required
special assistance to avoid year-end
deficits. A current program provides for school
district cash-need borrowing directly from commercial
lenders, with State diversion of subsidy distributions
to repayment if needed; 26 districts borrowed a total of
$41.8 million in fiscal year 1991 under this program,
and in fiscal year 1992, districts approved borrowings
which
totalled $93.8 million (including over $46.6 million by
one district).
Ohio's 943 incorporated cities and villages rely
primarily on property and municipal income taxes for their
operations, and, with other local governments, receive
local government support and property tax relief monies
distributed by the State. Procedures have been
established for those few municipalities that have on
occasion faced significant financial problems, which
include establishment of a joint State/local commission
to monitor the municipality's fiscal affairs, with a
financial plan developed to eliminate deficits and
cure any defaults. Since inception in 1979, these
procedures have been applied to 22 cities and
villages, in 16 of which the fiscal situation has
been resolved and the procedures terminated.
At present the State itself does not levy any ad valorem
taxes on real or tangible personal property. Those taxes
are levied by political subdivisions and other local
taxing districts. The Constitution has since 1934
limited the amount of the aggregate levy of ad valorem
property taxes, without
a vote of the electors or municipal charter
provision, to 1% of true value in money, and statutes
limit the amount of the aggregate levy without a vote or
charter provision to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation").
Voted general obligations of subdivisions are payable
from property taxes unlimited as to amount or rate.
Although revenue obligations of the State or its
political subdivisions may be payable from a specific
project or source, including lease rentals, there can be
no assurance that future economic difficulties and the
resulting impact on State and local government finances
will not adversely affect the market value of Ohio
obligations held in the portfolio of the Trust or
the ability of the respective obligors to make timely
payments of principal and interest on such obligations.
The outstanding Bonds issued by the Sinking Fund are
rated Aa by Moody's Investors Service ("Moody's") and
AAA by Standard & Poor's Corporation ("S&P"). In January
1982, S&P adjusted its rating on certain of the
State's general obligation bonds from AA+ to AA.
Previously, in November 1979, the ratings on general
obligation debt of the State were changed by Moody's and
S&P from Aaa and AAA to Aa and AA+, respectively. S&P
did not at either time change its AAA ratings on the
Bonds. The outstanding State Bonds issued by the Ohio
Public Facilities Commission and the Ohio Building
Authority are rated A+ by S&P and A by Moody's.
_______________________________
* Designates an "interested person" as defined
in the Investment Company Act of 1940 whose business
address is 1345 Avenue of the Americas, New York, New
York 10105.
[[1]] EDGAR only
EDG: 14-JUN-1995 21:31 BLK: 00-000-0000 00:00
[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
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1995
1995
1995 [ARTWORK APPEARS HERE]
1995
1995
Smith Barney
Muni Funds
California Money
Market Portfolio
California Limited
Term Portfolio
California Portfolio -------------
-------------------
- -----------------------
March 31,1995
[LOGO APPEARS HERE] Smith Barney Mutual Funds
Investing for your future. Every
day.
[[1]] EDGAR only
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Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
- --------------------------------------
California, California Limited Term
and California Money Market Portfolios -------------------
- ------------------
Dear Shareholder:
We are pleased to present the annual report and audited
financial statements for
Smith Barney Muni Funds California Portfolio, California
Limited Term Portfolio
and California Money Market Portfolio for the fiscal year
ended March 31, 1995.
Market and Economic Overview
Since our last report to you in November, the fixedincome
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 capacity
utilization were also lower
than expected, signalling 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.
1
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R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
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 of 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.
We would also like to briefly discuss the Orange County,
California financial
crisis that forced both the county and its investment pool
to declare bankruptcy
late in 1994. The seeds of this situation were sown in the
declining interest-
rate environment of prior years. As short-term interest
rates plummeted through
late 1993, some market participants, such as Orange County's
investment pool
manager, turned to leverage or derivatives as a way of
boosting yields. Leverage
is simply the process of borrowing in the short-term market
and investing in
longer-term bonds in order to take advantage of the
difference in yield between
the two sectors. Derivatives are securities that have a rate
of return that is
derived from an underlying asset or market index. In many
cases, the use of
derivatives had the same effect as leverage by allowing
investors to magnify
returns, but without actually borrowing money. When short
term rates rebounded,
many of these portfolios suffered serious damage, with
Orange County the most
prominent example due to its size and the severity of its
losses. Leverage,
rather than the use of derivatives, caused the bulk of the
harm that occurred in
this situation.
Fortunately, the extent of the problems facing the county
and other participants
in its investment pool appear to be virtually unique. While
certain other
municipalities experienced losses as a result of higher
interest rates, none of
these losses appear to be of sufficient magnitude to create
the risk of default
or bankruptcy. However, should Orange County default on
upcoming repayments of
short-term notes--and its disclosed plans for dealing with
this crisis have so
far demonstrated a less than forthright willingness to pay--
there could be
serious repercussions for other California local government
issuers and possibly
the entire municipal market. In any case, neither the
California Portfolio nor
the California Limited Term Portfolio held bonds issued by
Orange County, and
only one issue held by the California Portfolio (that was
not insured or
otherwise credit enhanced) was identified as a pool
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R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
participant. This solid-waste system issue represents less
than one percent of
the Portfolio's assets and is secured by a separate, ongoing
revenue stream that
should not be encumbered because revenue bond payments are
not subject to the
automatic stay of a bankruptcy.
The California Economy
Economic conditions in California are stronger than they
have been in four
years. Nevertheless, California was the only state to
experience a rating
reduction from the two major rating agencies in 1994.
Moody's lowered its rating
from Aa to A1 and Standard & Poor's reduced its rating
from A+ to A. Rating
agencies look at both a state's economy and its budget;
and expenditures for
social services, although more realistic than in previous
years, are still high
in California's current budget proposal.
California Portfolio
The California Portfolio had a total return of 6.47%
(Class A shares) for the
fiscal year. That was well above the 5.94% average total
return for all
California municipal bond funds over the same period, as
reported by Lipper
Analytical Services.
Long-term performance of the Portfolio is also excellent
relative to its peers.
The Portfolio's five-year cumulative total return (excluding
sales charge) of
48.62% (Class A shares) substantially outperformed the
average cumulative total
return of 44.09% for all California municipal bond funds in
the Lipper survey
for the period ended March 31, 1995. (Please see Average
Annual Total Return
chart on page 10 of this report for additional performance
information.) It is
also noteworthy that this strong performance over the last
five years has been
achieved with the need for only minimal capital gains
distributions, an
important consideration for investors interested in after
tax income.
While we have a generally positive outlook for the fixed
income markets, the
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.
3
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California Fund R.R. Donnelley (212) 341-7777
EDITOR V2.7
<PAGE>
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.
California Limited Term Portfolio
The California Limited Term Portfolio had a total return
of 5.89% (Class A
shares) for the fiscal year. This return compared
favorably with the 5.21%
average total return for all California intermediate
municipal bond funds over
the same period, as reported by Lipper Analytical
Services.
As discussed above in our commentary on the California
Portfolio, any rebound in
economic activity is likely to result in a return to
higher interest rates.
Accordingly, we are taking a more cautious approach to
structuring the interest-
rate sensitivity of the Portfolio. Relative stability of
principal is an
important consideration for this fund, which is
positioned in the five- to 10-
year intermediate maturity range. In this regard, we are
placing emphasis on
higher coupon issues trading at a premium to their face
value. Such bonds will
decline less in price than current coupon or market
discount bonds should the
economy rebound and cause a rise in interest rates. In
addition, the maturities
of these holdings are effectively shorter than their
stated maturity date, which
serves to further reduce the Portfolio's interest-rate
sensitivity. Examples of
such issues are bonds priced to a call date earlier than
maturity, bonds with
sinking funds designed to retire a portion of the issue
prior to maturity, and
housing bonds that are subject to early call from
prepayments on mortgages.
California Money Market Portfolio
As of March 31, 1995, the California Money Market
Portfolio's 7-day current
yield was 3.39%, and its 7-day effective yield, which
reflects compounding, was
3.45%. For the same period, the Portfolio's taxequivalent
yield, the yield you
would have to earn on a similar taxable investment to match
the
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California Fund R.R. Donnelley (212) 341-7777
WP2EDG
<PAGE>
tax-free yield, was 5.71% assuming you are in the 39.6% tax
bracket. During the
12 months ended March 31, 1995, the Portfolio's monthly tax-
exempt dividend
distributions resulted in a tax-exempt annualized yield of
2.66%.
As mentioned earlier in this letter, Orange County,
California and its
investment fund were pushed into bankruptcy late in 1994.
The California Money
Market Portfolio did hold a small amount of securities
issued by Orange County
which were backed by commercial bank letters of credit
which guarantee payment
to the security holder in case of default.
The California Money Market Portfolio invests only in short-
term securities
which carry minimal credit risk. All of the Portfolio's
holdings are rated
within the top two short-term rating categories or are of
comparable quality.
The Portfolio's average maturity, which has not changed
during the past year, is
in the 30- to 50-day range. This relatively short maturity
range allows us to
readjust the Portfolio's holdings sooner should interest
rates rise, as we
believe they might sometime later this year.
An investment in the California Money Market Portfolio is
neither insured nor
guaranteed by the U.S. Government and there can be no
assurance that the
Portfolio will be able to maintain a stable net asset value
of $1.00 per share.
We thank you for your investment in the Portfolios 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 Chief Vice President
and Investment Officer
Executive Officer
/s/ Karen
Mahoney-Malcomson
Karen Mahoney
Malcomson
Vice President
and Investment Officer
April 28, 1995
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R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds
California Limited Term 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 $6.41 $6.44 $0.32
$0.01 5.89% -------------------------------------
- ------------------------------------------------Inception*
- - 3/31/94 6.50 6.41 0.24
0.00 2.29
=========================================================
===============================
Total $0.56
$0.01
=========================================================
===============================
</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 $6.41 $6.44 $0.31
$0.01 5.56% -------------------------------------
- ------------------------------------------------Inception*
- - 3/31/94 6.51 6.41 0.23
0.00 1.87
=========================================================
===============================
Total $0.54
$0.01
=========================================================
===============================
</TABLE>
- -----------------------------------------------------------
- -------------------
Historical Performance - Class Y 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 $6.41 $6.44 $0.32
$0.01 5.87% ------------------------------------
- -------------------------------------------------Inception*
- - 3/31/94 6.57 6.41 0.16
0.00 N/A
=========================================================
===============================
Total $0.48
$0.01
=========================================================
===============================
</TABLE>
It is the Fund's policy to distribute dividends monthly and
capital gains, if
any, annually.
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R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds
California Limited Term Portfolio -------------------------
- ----------------------------------------------------Annual
Average Total Return --------------------------------------
- ----------------------------------------
<TABLE>
<CAPTION>
Without Sales
Charge/(1)/
-----------------------
- -------------------
Class A
Class C Class Y
=========================================================
=======================
<S> <C> <C>
<C>
Year Ended 3/31/95 5.89%
5.56% 5.87% ----------------------------------
- -------------------------------------------Inception*
through 3/31/95 4.23
3.97 3.22 -----------------------------------
- ------------------------------------------<CAPTION>
With Sales
Charge/(2)/
-----------------------
- -------------------
Class A
Class C Class Y
=========================================================
=======================
<S> <C> <C>
<C>
Year Ended 3/31/95 3.79%
4.56% N/A ----------------------------------
- -------------------------------------------Inception*
through 3/31/95 3.17
3.97 N/A ----------------------------------
- -------------------------------------------</TABLE>
- -----------------------------------------------------------
- -------------------
Cumulative Total Return -----------------------------------
- -------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge/(1)/
=========================================================
=======================
<S>
<C>
Class A (Inception* through 3/31/95)
8.32% -----------------------------------------------------
- -------------------------
Class C (Inception* through 3/31/95)
7.54 ------------------------------------------------------
- ------------------------
Class Y (Inception* through 3/31/95)
5.76 ------------------------------------------------------
- ------------------------
</TABLE>
(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 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 2.00% and Class C
shares reflect the
deduction of a 1.00% CDSC which applies if shares are
redeemed less than one
year from initital purchase.
* Inception dates for Class A, C and Y shares are April
27, 1993, May 18,
1993 and June 23, 1993, respectively.
7
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R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds
California Limited Term Portfolio -------------------------
- ----------------------------------------------------
Historical Performance ------------------------------------
- ------------------------------------------
Growth of $10,000 Invested in Class A Shares of the
California
Limited Term Portfolio vs. Lehman Ten Year General
Obligation Index/+/
(unaudited) -------------
- -----------------------------------------------------------
- -----
April 1993 - March 1995
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
54990 S/B Calif. Money Mkt. pg. 7
California Limited Term Lehman 10
Year\General Obligation Index
<S> <C> <C>
4/27/93 9800 10000
Apr-93 9800 10101
May-93 9800 10143.42
Jun-93 9939.7 10322.96
Jul-93 9964.8 10357.03
Aug-93 10156.5 10571.42
Sep-93 10257.8 10703.56
Oct-93 10267.7 10717.48
Nov-93 10201.4 10640.31
Dec-93 10411.5 10864.82
Jan-94 10530.1 11002.8
Feb-94 10276.2 10657.32
Mar-94 10021.2 10265.13
Apr-94 10391.39
May-94 10474.52
Jun-94 10416.91
Jul-94 10583.58
Aug-94 10635.44
Sep-94 10240.5 10484.42
Mar-95 10,605.00 11,000.12
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class
A shares at inception
on April 27, 1993, assuming deduction of the maximum
2.00% 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.
8
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R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds
California 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 $12.27 $12.28 $0.75
$0.00 6.47% -----------------------------------
- ---------------------------------------------------------
3/31/94 12.78 12.27 0.77
0.03 2.15 -------------------------------------
- --------------------
- ------------------------------------
3/31/93 12.05 12.78 0.78
0.00 12.93
- ----------------------------------------------------------
- ----------------------------------
3/31/92 11.62 12.05 0.80
0.00 11.11
- ----------------------------------------------------------
- ----------------------------------
3/31/91 11.47 11.62 0.84
0.00 8.90
- ----------------------------------------------------------
- ----------------------------------
3/31/90 11.17 11.47 0.85
0.00 10.44
- ----------------------------------------------------------
- ----------------------------------
3/31/89 10.96 11.17 0.86
0.00 10.07
- ----------------------------------------------------------
- ----------------------------------
Inception* - 3/31/88 12.50 10.96 0.88
0.00 (5.79)
=========================================================
=====================================
Total $6.53
$0.03
=========================================================
=====================================
</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 $11.52 $12.29 $0.28
$0.00 9.18%
=========================================================
=====================================
</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 $12.26 $12.28 $0.66
$0.00 5.80% ----------------------------------
- ---------------------------------------------------------
3/31/94 12.77 12.26 0.68
0.03 1.45 ------------------------------------
- -------------------------------------------------------
Inception* - 3/31/93 12.46 12.77 0.18
0.00 3.95
=========================================================
=====================================
Total $1.52
$0.03
=========================================================
=====================================
</TABLE>
It is the Fund's policy to distribute dividends monthly
and capital gains, if
any, annually.
9
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Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds
California 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 6.47%
N/A 5.80% -------------------------------------
- -----------------------------------------
Five Years Ended 3/31/95 8.24
N/A N/A --------------------------------------
- ----------------------------------------
Inception* through 3/31/95 6.88
9.18 5.02 -------------------------------------
- -----------------------------------------
<CAPTION>
With
Sales Charge/(2)/
-----------------
- --------------------
Class A
Class B Class C
=========================================================
=======================
<S> <C>
<C> <C>
Year Ended 3/31/95 2.22%
N/A 4.80% -------------------------------------
- -----------------------------------------
Five Years Ended 3/31/95 7.36
N/A N/A --------------------------------------
- ----------------------------------------
Inception* through 3/31/95 6.33
4.68 5.02 -------------------------------------
- -----------------------------------------
</TABLE>
- ----------------------------------------------------------
- --------------------
Cumulative Total Return ----------------------------------
- --------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge/(1)/
=========================================================
=======================
<S>
<C>
Class A (Inception* through 3/31/95)
70.16% ---------------------------------------------------
- ---------------------------
Class B (Inception* through 3/31/95)
9.18 -----------------------------------------------------
- -------------------------
Class C (Inception* through 3/31/95)
11.57 ----------------------------------------------------
- --------------------------
</TABLE>
(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 initital 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 April
3, 1987, November 11,
1994 and January 5, 1993, respectively.
10
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[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds
California Portfolio --------------------------------------
- ----------------------------------------
Historical Performance ------------------------------------
- ------------------------------------------
Growth of $10,000 Invested in Class A Shares of the
California
Portfolio vs. Lehman Long Bond Index/+/
(unaudited) -------------
- -----------------------------------------------------------
- -----
April 1987 - March 1995
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
54990 S/B Calif. Money Mkt. pg. 10
California Lehman Long
Bond Index
<S> <C> <C>
4/3/87 9600.61 10000
Mar-88 9394.4 10165.6
Mar-89 10307 11126.44
Mar-90 11350.4 12337.77
Mar-91 12324.8 13298.21
Mar-92 13657 14805.68
Mar-93 15383.5 16967.65
Mar-94 15677.1 17156.89
Mar-95 16666.7 18706.04
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class
A shares at inception
on April 3, 1987, 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.
11
[[1]] EDGAR only
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Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
===============================================
<C> <C> <S>
<C>
$ 2,000,000 VMIG 1 ABAG Finance Authority for
Nonprofit Corporations
COP (Lucile Salter Packard
Project) 3.90%(b) $ 2,000,000
12,350,000 VMIG 1 Anaheim COP (Police Facility
Refinancing
Project) 4.00%(b) 12,350,000
4,000,000 A-1 Anaheim Housing Authority
Multi-Family Housing
(Park Vista Apartments-A)
4.20%(a)(b) 4,000,000
1,100,000 A-1+ Burbank Redevelopment Agency
Multi-Family
Revenue 4.05%(b) 1,100,000
6,000,000 SP-1 Butte County Office of
Education BAN 5.00%
due 10/27/95
6,022,366
California Alternative Energy
Source Finance Authority:
Cogeneration Revenue
Refunding Arroyo Energy:
27,100,000 A-1+ Series A 4.10%(a)(b)
27,100,000
8,000,000 A-1+ Series B 4.10%(a)(b)
8,000,000
3,800,000 VMIG 1 Hydroelectric Rock Creek
Limited 3.95%(a)(b) 3,800,000
2,300,000 A-1 Modesto Energy Project
Series A 4.25%(b) 2,300,000
California Health Facility
Authority Revenue
Daughters of Charity:
26,983,466 MIG 1 O' Connor Hospital
Series A 4.15%(b) 26,983,466
6,340,000 MIG 1 O' Connor Hospital
Series B 4.15%(b) 6,340,000
20,245,000 MIG 1 Seton Medical Center
Series B 4.15%(b) 20,245,000
34,500,000 VMIG 1 St. Francis Medical
Center 4.15%(b) 34,500,000
25,810,109 MIG 1 Tri-Provincial Health
Care System
Sister Mary's Health
Hospital 3.95%(b) 25,810,109
California Housing Finance
Agency Revenue:
12,120,000 VMIG 1 P-Floats (PT - 40A)
4.35%(a)(b) 12,120,000
900,000 VMIG 1 Multi-Family Housing
Series A 4.20%(a)(b) 900,000
California Health Facility
Financing Authority Revenue:
5,000,000 P-1 Adventist Health System
Series B 4.00%(b) 5,000,000
1,700,000 VMIG 1 Granada Hills Community
Hospital 4.35%(b) 1,700,000
9,000,000 VMIG 1 Kaiser Permanente Series
93A 4.00%(b) 9,000,000
1,500,000 MIG 1 Orange County Children's
Hospital 3.95%(b) 1,500,000
2,200,000 VMIG 1 Pool Program Series 90A
4.20%(b) 2,200,000
California Pollution Control
Finance Authority:
4,000,000 AA PCR (Chevron USA Inc.
Project) 3.10%
due 5/15/95(f) 3,993,932
300,000 A-1+ PCR (Southdown Inc.
Project) 3.60%(b) 300,000
4,900,000 A-1+ PCR (Southdown Inc.
Project) 3.60%(b) 4,900,000
1,100,000 A-1+ PCR (Southdown Inc.
Project) Series B 3.60%(b) 1,100,000
1,500,000 A-1 PCR (San Diego Gas &
Electric) 4.25% due 9/1/95(f) 1,500,000
</TABLE>
See Notes to Financial Statements. 12
[[1]] EDGAR only
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[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
===============================================
<C> <C> <S>
<C>
$ 2,000,000 A-1 PCR (San Diego Gas &
Electric) Series A 4.25%
due 8/1/95(f)
$ 2,000,000
7,000,000 P-1 PCR Refunding (Sierra
Pacific Project) 4.05%(b) 7,000,000
5,300,000 A-1 Resource Recovery (Wadham
Energy Project)
Series A 4.15%(a)(b)
5,300,000
1,900,000 A-1 Resource Recovery (Wadham
Energy Project)
Series C 4.15%(a)(b)
1,900,000
4,250,000 Aa2 Resource Recovery (Sanger
Project) Series A
4.05%(a)(b)
4,250,000
Solid Waste Disposal Revenue:
17,900,000 VMIG 1 Colmac Energy Project
Series A 4.05%(a)(b) 17,900,000
18,400,000 VMIG 1 Colmac Energy Project
Series B 4.05%(a)(b) 18,400,000
7,000,000 VMIG 1 Colmac Energy Project
Series C 4.05%(a)(b) 7,000,000
2,075,000 P-1 Sierra Pacific Project
4.15%(a)(b) 2,075,000
7,000,000 MIG 1 California School Cash
Reserve Program Authority
Pool Series A 4.50% due
7/5/95 7,013,154
1,200,000 Aa2 California State Community
Development Authority
Solid Waste Facility Revenue
(Chevron U.S.A. Inc
Project) 4.45% (a)(b)
1,200,000
9,500,000 MIG 1 California State RAN Series
A 5.00% due 6/28/95 9,515,526
80,800,000 MIG 1 California State RAN Series
B 4.07% due 6/28/95 80,795,087
22,780,000 VMIG 1 California State TOB (BTP-93
A) 4.35%(b) 22,780,000
8,500,000 VMIG 1 California State TOB (BTP-94
A) 4.35%(b) 8,500,000
27,420,000 VMIG 1 California State TOB (BTP-
106 A) 4.35%(b) 27,420,000
17,500,000 VMIG 1 California State GO Custody
Receipt Series 1992A
4.10% due 5/1/95(f)
17,500,000
6,255,000 A-1+ California State Trust
Receipts Series 95 (SGA-7)
4.40%(b)
6,255,000
5,000,000 MIG 1 California Statewide
Community Development Authority
TRAN Series A 4.50% due
7/17/95 5,010,586
2,600,000 SP-1+ Castro Valley Union School
District TRAN 4.50%
due 7/5/95
2,604,234
845,000 SP-1+ Chula Vista IDR
(Sutherland/Palumbo Project)
4.15%(a)(b)
845,000
26,500,000 P-1 Chula Vista IDR (San Diego
Gas & Electric Co.)
4.20%(a)(b)
26,500,000
12,570,000 VMIG 1 Clipper California Series 94-
2 4.22%(b) 12,570,000
23,100,000 MIG 2 Clovis Union School District
TRAN 4.50% due 7/31/95 23,141,749
3,500,000 A-1+ Concord Multi-Family
Mortgage Revenue (Crossroads
Apartments) Series 88B
4.00%(b) 3,500,000
12,000,000 VMIG 1 Contra Costa County Multi-
Family Housing Revenue
(Park Regency) Series 92A
4.20% (a)(b) 12,000,000
</TABLE>
See Notes to Financial Statements.
13
[[1]] EDGAR only
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[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
===============================================
<C> <C> <S>
<C>
$ 3,500,000 A-1 Contra Costa County Multi-
Family Housing Revenue
Refunding (Del Norte
Apartments) Series 94A
4.30%(a)(b)
$ 3,500,000
2,000,000 VMIG 1 Fairfield IDA (R. Dakin &
Company Project) 3.65%(b) 2,000,000
100,000 VMIG 1 Fontana Multi-Family Housing
Revenue Bonds
(Citrus Avenue Apartments
Project) Series A 4.05%(b) 100,000
500,000 A-1+ Fontana Multi-Family Housing
Revenue Bonds
(Springtime Apartments
Project) Series A 4.05%(a)(b) 500,000
5,500,000 A-1 Fremont Multi-Family Housing
Revenue (Mission
Wells Project) 4.10%(b)
5,500,000
1,000,000 VMIG 1 Garden Grove Multi-Family
Housing (Valley View
Senior Villas) 4.35%(b)
1,000,000
2,800,000 A-1+ Glendale Public Parking
(Reliance Development
Company) 1984A 3.60%(b)
2,800,000
1,140,000 VMIG 1 Grand Terrace Community
Redevelopment Agency
Multi-Family Revenue (Mt
Vernon Villas) 4.20%(b) 1,140,000
2,900,000 A-1 Hayward Housing Authority
Multi-Family Revenue
Refunding Mortgage
(Huntwood Terrace
Apartments) 4.15%(b)
2,900,000
1,230,000 A-1 Healdsburg Community
Redevelopment Agency
Revenue Refunding (Vineyard
Plaza Project- A
Shopping Center) 4.20%(b)
1,230,000
4,000,000 SP-1 Humbolt County Office of
Education TRAN 4.25%
due 7/5/95
4,005,512
1,225,000 VMIG 1 Indigo Housing Authority
Revenue (Smoketree
Apartments) 4.20%(b)
1,225,000
6,550,000 SP-1+ Irvine TRAN 4.50% due
7/28/95 6,560,138
27,400,000 A-1 Irvine Multi-Family Housing
Revenue Series 1993A
4.20%(b)
27,400,000
Kern County COP (Kern Public
Facility Project):
1,900,000 VMIG 1 Series A 3.95%(b)
1,900,000
4,000,000 VMIG 1 Series C 3.95%(b)
4,000,000
1,900,000 VMIG 1 Series D 3.95%(b)
1,900,000
2,600,000 A-1+ Kern County Union School
District COP Financing
Project 4.10%(b) 2,600,000
1,675,000 VMIG 1 Livermore COP Water
Reclamation Plant Project
4.05%(b)
1,675,000
8,000,000 P-1 Lodi IDR (Dart Container)
4.13%(b) 8,000,000
9,500,000 VMIG 1 Long Beach Health Facility
Revenue (Memorial
Health Services) 1991
4.05%(b) 9,500,000
</TABLE>
See Notes to Financial Statements.
14
[[1]] EDGAR only
EDG: 11-JUN-1995 17:10 BLK: 00-000-0000 00:00 [[1]]Smith
Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
===============================================
<C> <C> <S>
<C>
$ 1,500,000 VMIG 1 Los Angeles COP (Simon
Wiesenthal Center Project)
3.95%(b)
$ 1,500,000
Los Angeles Community
Redevelopment Agency COP:
100,000 VMIG 1 Broadway Spring Center
Project 4.10%(a)(b) 100,000
2,770,000 VMIG 1 Multi-Family Housing
Revenue Skyline at Southpark
Apartments Series 85
4.10%(b) 2,770,000
Los Angeles Convention &
Exhibition Center
Authority COP: 2,800,000 A-
1+ Series 89B 4.10%(b)
2,800,000
25,740,000 A-1+ Series 95B 4.35%(b)
25,740,000
4,005,000 A-1+ Los Angeles Department of
Water & Power Electric
4.40%(b)
4,005,000
Los Angeles Multi-Family
Housing Revenue:
2,700,000 NR++ Beverly Park Apartments
4.00%(a)(b) 2,700,000
2,000,000 VMIG 1 Masselin Manor 4.05%(b)
2,000,000
18,100,000 A-1+ Series K 3.70%(b)
18,100,000
1,500,000 MIG 1 Los Angeles County TRAN
4.50% due 6/30/95 1,502,315
Los Angeles County
Housing Authority Multi-Family
Housing Revenue:
13,000,000 A-1 Diamond Apartments
Project Series A 4.00%(a)(b) 13,000,000
5,000,000 A-1 Malibu Meadows II
Project Series B 4.00%(b) 5,000,000
15,300,000 VMIG 1 Riverpark Apartments
Project Series D 4.10%(a)(b) 15,300,000
14,700,000 A-1+ Los Angeles County
Metropolitan Transportation Authority
Sales Tax Revenue Refunding
Series A 4.00%(b) 14,700,000
21,100,000 VMIG 1 Los Angeles County
Metropolitan Transportation Authority
(General Union Station
Gateway) Series A 4.10%(b) 21,100,000
1,100,000 A-1 Los Angeles County Housing
Multi-Family Mortgage
Revenue (Valencia Village
Project) Series C 3.90%(b) 1,100,000
8,750,000 A-1+ Los Angeles County
Sanitation District 93A 4.35%(b) 8,750,000
2,100,000 SP-1 Milpitas Union School
District TRAN 4.50% due 7/5/95 2,103,683
4,875,000 A-1+ Modesto Multi-Family Housing
Revenue Refunding
(Live Oak Apartments
Project) 4.10%(a)(b) 4,875,000
13,500,000 VMIG 1 Mountain View Multi-Family
Housing Revenue
(Villa Mariposa Project)
4.00%(b) 13,500,000
2,000,000 SP-1+ Newark Union School District
TRAN 4.50% due 7/5/95 2,003,508
9,600,000 VMIG 1 Newport News Redevelopment &
Housing Authority
Multi-Family Housing Revenue
(Newport Oxford
Project) 4.20%(b) 9,600,000
3,650,000 MIG 1 North Monterey County Union
School District TRAN
4.25% due 7/5/95 3,655,030
</TABLE>
See Notes to Financial Statements.
15
[[1]] EDGAR only
EDG: 11-JUN-1995 17:10 BLK: 00-000-0000 00:00 [[1]]Smith
Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
===============================================
<C> <C> <S>
<C>
$ 3,000,000 A-1+ Oakland Revenue (Children's
Hospital Medical
Center) 4.00%(b)
$ 3,000,000
260,000 VMIG 1 Ontario Multi-Family Revenue
(Vineyard
Village Project) 4.10%(b)
260,000
Orange County Apartment
Development Revenue:
1,725,000 VMIG 1 Latern Pines Project
4.25%(b) 1,725,000
15,800,000 A-1+ Monarch Bay Apartments
4.50%(b) 15,800,000
2,700,000 A-1 The Lakes Project Series A
4.20%(b) 2,700,000
1,700,000 VMIG 1 Wood Canyon Villas
4.40%(a)(b) 1,700,000
1,070,000 SP-1 Petaluma City Union School
District TRAN 4.50%
due 7/5/95
1,071,606
8,160,000 A-1+ Pleasanton Multi-Family
Mortgage Revenue
(Valley Plaza) 4.00%(b)
8,160,000
400,000 VMIG 1 Puerto Rico Commonwealth
Government Development
Bank 4.10%(b)
400,000
500,000 P-1 Rancho Mirage Redevelopment
Agency COP 4.15%(a)(b) 500,000
3,940,000 A-1+ Riverside County Housing
Authority Multi-Family
Mortgage Revenue (Woodcreek
Village)
Series D 4.00%(b) 3,940,000
1,000,000 A-1+ Roseville Finance Authority
Hospital Lease Revenue
(Roseville Hospital) Series
A 4.05%(b) 1,000,000
500,000 VMIG 1 Sacramento County Housing
Authority Multi-Family
Housing Revenue Refunding
(Grouse Run
Apartments) 4.05%(b)
500,000
Sacramento County Multi
Family Housing Revenue:
2,200,000 VMIG 1 Series 1985A 4.20%(b)
2,200,000
200,000 VMIG 1 Series 1985B 4.20%(b)
200,000
1,200,000 VMIG 1 Series 1985C 4.20%(b)
1,200,000
5,000,000 VMIG 1 Saint Charles County IDA
Revenue (Sun River Village
Apartments Project)
4.10%(b) 5,000,000
510,000 VMIG 1 San Bernardino IDR (Gate
City Beverage
Distributor Inc.) 4.10%(b)
510,000
950,000 A-1 San Bernardino Multi-Family
Housing Revenue
(Castle Park Apartments
Project) 4.45%(b) 950,000
2,550,000 A-1+ San Bernardino County Multi-
Family Housing
Revenue (Quail Apartments)
4.00%(b) 2,550,000
San Bernardino County IDA:
2,100,000 P-1 Master Halco Series 1986II
4.20%(a)(b) 2,100,000
190,000 P-1 Ring Can Co. Series 1986II
4.20%(a)(b) 190,000
1,045,000 P-1 Tower Industries Series IV
4.20%(a)(b) 1,045,000
</TABLE>
See Notes to Financial Statements.
16
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Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
$ 3,000,000 MIG 1 San Diego (City of) TAN
4.25% due 6/30/95 $ 3,004,636
1,500,000 A-1+ San Diego Multi-Family
Mortgage Revenue (La Hoya
Point) 3.90%(b) 1,500,000
100,000 VMIG 1 San Diego Multi-Family
Housing Revenue Refunding
(University Town Center
Apartments) 4.05%(b) 100,000
16,000,000 VMIG 1 San Diego County Regional
Transportation Community
Sales Tax Revenue 3.90%(b)
16,000,000
3,000,000 A-1 San Dimas Redevelopment
Agency (San Dimas
Community Center) 3.85%(b)
3,000,000
San Francisco (City & County
of) Multi-Family Housing
2,400,000 A-1 Winterland Project Series
1985C 3.95%(b) 2,400,000
8,500,000 A-1 San Francisco (City & County
of) Redevelopment
Agency Multi-Family Housing
(Fillmore Center) 3.95%(b) 8,500,000
100,000 VMIG 1 San Joaquin County
Transportation Authority Sales
Tax Revenue 4.15%(b) 100,000
300,000 VMIG 1 San Jose Mortgage Revenue
Multi-Family (Somerset
Park) Series A 4.25%(a)(b)
300,000
3,300,000 VMIG 1 San Jose Multi-Family
Housing Revenue (Fairway Glen)
Series A 4.00%(b) 3,300,000
6,000,000 SP-1+ San Jose Union School
District Santa Clara County
TRAN 4.25% due 7/5/95
6,008,268
1,125,000 A-1+ San Leandro Multi-Family
Revenue (Parkside
Commons) Series A 4.00%(b)
1,125,000
2,750,000 SP-1+ San Mateo Union High School
District TRAN
4.50% due 7/10/95 2,754,344
2,000,000 VMIG 1 Santa Ana IDR (Fiesta Market
Place) 4.20%(b) 2,000,000
2,100,000 A-1 Santa Clara County Multi-
Family Housing Revenue
Refunding (Garden Grove
Apartments) 3.95%(b) 2,100,000
5,000,000 MIG 1 Temecula Union School
District TRAN
4.25% due 7/5/95 5,006,890
1,200,000 VMIG 1 Visilia IDR (Akers West
Association) 4.25%(a)(b) 1,200,000
3,490,000 Aa2 West Covina Lease Revenue
Refunding (The Lake
Public Parking Project)
4.15%(b) 3,490,000
1,000,000 AAA Whittier Health Facility
Revenue (Presbyterian
Intercommunity Hospital)
9.50% due 6/1/95(f) 1,029,335
3,320,000 A-1+ Woodland Multi-Family
Mortgage Revenue
(Crossroads Village) Series
A 4.00%(b) 3,320,000
- -----------------------------------------------------------
- --------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost - $946,020,474)(g)
$946,020,474 ----------------------------------------------
- -------------------------------------------------------
</TABLE>
See page 30 for full footnote disclosures.
See Notes to Financial Statements.
17
[[1]] EDGAR only
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Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA LIMITED TERM PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
Education - 8.7%
$ 375,000 A* Fresno Unified School
District COP Refunding,
Measure A Capital Project,
Series A, 5.40% due 4/1/03 $ 363,750
300,000 A- New Haven Unified School
District, Alameida County
1993 Refunding COP, 5.30%
due 7/1/01 296,250
- -----------------------------------------------------------
- --------------------------------------------
660,000 ---------------------------------------------------
- --------------------------------------------------Escrowed
to Maturity (e) - 15.0%
440,000 AAA Arlington Community Hospital
Corporation, Parkview
Community Hospital First
Mortgage Revenue,
(Escrowed to Maturity with
U.S. Government
Securities), 8.00% due
6/1/04 486,200
135,000 AAA Montclair Redevelopment
Agency, Residential
Mortgage Revenue, (Escrowed
to Maturity with U.S.
Government Securities),
7.75% due 10/1/11 155,250
220,000 AAA San Francisco Airport
Improvement Corp., Lease
Revenue, (Escrowed to
Maturity with U.S.
Government Securities),
8.00% due 7/1/13 257,125
215,000 AAA Virgin Islands Territory GO,
(Escrowed to Maturity
with U.S. Government
Securities), 8.00% due 3/1/98 234,350 -----
- -----------------------------------------------------------
- --------------------------------------
1,132,925 -------------------------------------------------
- ----------------------------------------------------
Hospital - 13.0%
345,000 AAA City of Marysville Hospital
Revenue Refunding Bonds,
(The Fremont-Rideout Health
Group), 1993 Series A,
AMBAC-Insured, 5.10% due
1/1/03(d) 336,806
250,000 A+ Riverside County Asset
Leasing Corp., Leasehold
Revenue, Riverside County
Hospital Project-A,
6.00% due 6/1/04
248,750
400,000 NR Valley Health Systems COP
Refunding Project, 6.25%
due 5/15/99
396,500 ---------------------------------------------------
- ----------------------------------------------------
982,056 ---------------------------------------------------
- --------------------------------------------------Housing:
Multi-Family - 10.7%
300,000 AAA San Luis Obispo HFA Multi-
Family Housing Revenue,
Parkwood Apartments Project,
Series A, FNMA-
Collateralized, 5.50% due
8/1/03 297,000
525,000 AAA City of Santa Rosa Mortgage
Revenue Refunding,
Marlow Apartments Project,
FHA-Insured,
5.60% due 9/1/05
511,219 ---------------------------------------------------
- ----------------------------------------------------
808,219 ---------------------------------------------------
- --------------------------------------------------</TABLE>
See Notes to Financial Statements.
18
[[1]] EDGAR only
EDG: 11-JUN-1995 17:11 BLK: 00-000-0000 00:00 [[1]]Smith
Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA LIMITED TERM PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
Housing: Single-Family - 4.0%
$ 300,000 Aa* California HFA Home Mortgage
Series B-1, 5.90%
due 8/1/04(a)
$ 300,375
- -----------------------------------------------------------
- -------------------------------------------Industrial
Development - 3.6%
270,000 AA- Simi Valley Community
Development Agency COP,
Simi Valley Business Center,
Guaranty Agreement with
New England Mutual Life,
6.05% mandatory put 10/1/99 273,713
- -----------------------------------------------------------
- --------------------------------------------
Public Facilities - 17.9%
300,000 AA- Berkeley Revenue, Berkeley
YMCA, LOC Banque
Nationale De Paris, 4.80%
mandatory put 6/1/98 294,000
500,000 A- Foster City Public Financing
Authority Revenue,
Foster City Community
Development, Project Loan,
Series A, 5.20% due 9/1/00
489,375
345,000 A Mendocino County Public
Facilities Authority
Corporation COP 1993, 5.50%
due 8/15/03 329,906
250,000 A San Francisco City & County
COP, San Francisco
Permit Center, 5.00% due
3/1/03 235,625
- -----------------------------------------------------------
- --------------------------------------------
1,348,906 -------------------------------------------------
- ----------------------------------------------------Short-
Term (b) - 4.0%
300,000 P-1* California Pollution Control
Financing Authority,
Resource Recovery Revenue,
Delano Project, LOC
ABN Amro Bank, 4.35% due
8/1/19(a) 300,000
- -----------------------------------------------------------
- --------------------------------------------
Tax Allocation - 18.9%
690,000 AAA Lynwood Redevelopment Agency
Tax Allocation,
Project Area, Series A,
AMBAC-Insured, 5.125%
due 7/1/03(d)
676,200
750,000 A- Paramount Redevelopment
Agency Tax Allocation
Refunding, Redevelopment
Project Area No. 1, 5.80%
due 8/1/03
748,125 ---------------------------------------------------
- ----------------------------------------------------
1,424,325 -------------------------------------------------
- ----------------------------------------------------Utility
- - 4.2%
325,000 BBB- Trinity County Public
Utilities District COP, Electric
District Facilities, 5.60%
due 4/1/00 (a) 315,656
- -----------------------------------------------------------
- --------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost - $7,581,187)(g)
$7,546,175
=========================================================
================================================ </TABLE>
See page 30 for full footnote disclosures.
See Notes to Financial Statements.
19
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
Education - 6.8%
$ 2,000,000 AAA Adelanto School District
Series-B, FGIC-Insured,
zero coupon due 9/1/18
$ 452,500
1,000,000 Baa* California Educational
Facilities Authority Revenue,
Pooled College & University
Financing Series B,
Refunding, 6.125% due 6/1/09
975,000
1,000,000 A- California State Public
Works Board High Technology
Facility Revenue, San Jose
Facility Series-A, 7.75%
due 8/1/06
1,121,250
1,000,000 AAA Gilroy Unified School
District, COP Refunding, FSA-
Insured, 6.25%, due 9/1/12
1,018,750
1,020,000 AAA Pomona Unified School
District, Series B, FGIC-Insured,
6.25% due 8/1/14 1,049,323
4,000,000 AAA San Dieguito Union High
School District COP, FSA-
Insured, stepped zero coupon
to 4/1/00 then 5.95% to
maturity, due 4/1/23
2,800,000
1,530,000 AAA Santa Rosa High School, FGIC-
Insured, 5.90% due 5/1/14 1,512,787
2,500,000 Baa1* Yuba City Unified School
District COP, Andors
Karperos School Construction
Project, 6.70%
due 2/1/13
2,462,500 -------------------------------------------------
- ------------------------------------------------------
11,392,110 ------------------------------------------------
- -----------------------------------------------------
Escrowed to Maturity (e) - 7.8%
270,000 AAA Contra Costa County Home
Mortgage, GNMA-Collateralized
(Escrowed to Maturity with
U.S. Government
Securities), 7.75% due
5/1/22(a) 324,337
3,325,000 AAA Perris County Single Family
Mortgage Revenue, GNMA-
Backed Security Series A
(Escrowed to Maturity with
U.S. Government Securities),
8.30% due 6/1/13(a) 4,085,593
400,000 AAA Pleasanton Capital Projects
1 & 2, (Escrowed to Maturity
with U.S. Government
Securities), 8.75% due 10/1/08 444,500
6,000,000 AAA Pleasanton-Suisun City Home
Finance Authority
Home Mortgage Revenue, MBIA
Insured (Escrowed
to Maturity with U.S.
Government Securities),
zero coupon due 10/1/16
1,455,000
2,620,000 AAA Riverside County Single-
Family Mortgage Revenue
Series-A (Escrowed to
Maturity with U.S. Government
Securities), 8.30% due
11/1/12(a) 3,245,525
1,500,000 AAA Sacramento County Single-
Family Mortgage Revenue,
GNMA-Collateralized, Issue A,
(Escrowed to Maturity with
U.S. Government Securities),
8.125% due 7/1/16(a)
1,805,625
</TABLE>
See Notes to Financial Statements.
20
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<PAGE>
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- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA PORTFOLIO <TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
Escrowed to Maturity (e) - 7.8% (continued)
$4,310,000 AAA San Marcos Public Facilities
Authority, Public Facilities
Revenue (Escrowed to
Maturity with U.S. Government
Securities), zero coupon due
1/1/19 $ 894,325
700,000 AAA Santa Rosa Hospital Revenue,
Santa Rosa Memorial
Hospital Project, (Escrowed
to Maturity with U.S.
Government Securities),
10.30% due 3/1/01 936,250
- -----------------------------------------------------------
- --------------------------------------------
13,191,155 ------------------------------------------------
- -----------------------------------------------------
Finance - 1.9%
Association of Bay Area
Governments:
1,000,000 A Finance Corp. California
COP, ABAG XXVI-Series A,
6.25% due 6/1/11 968,750
765,000 A* Municipal Financing Pool,
8.05% due 9/1/10 816,637
150,000 A- Concord Santa Cruz South
Gate COP, 7.625%
due 6/1/11
150,187
750,000 Baa* Public Capital Improvements
Financing Authority,
SunLife GIC, 8.50% due
3/1/18 805,313
500,000 Baa* Special District Financing
Authority, COP, SunLife GIC,
8.50% due 7/1/18
540,000 ---------------------------------------------------
- ----------------------------------------------------
3,280,887 -------------------------------------------------
- ----------------------------------------------------
Government Facilities - 1.9%
2,000,000 A- State Public Works Board
Lease Revenue, Various
California State University
Projects, Series A,
6.70% due 10/1/17 2,052,500
1,300,000 BBB Murrieta Financing Authority
Police & Civic Center
Lease Revenue, Series A,
6.375% due 8/1/18 1,212,250
- -----------------------------------------------------------
- --------------------------------------------
3,264,750 -------------------------------------------------
- ----------------------------------------------------General
Obligation - 1.7%
1,000,000 AAA San Diego Public Safety
Communication Project,
6.65% due 7/15/11 1,091,250
1,500,000 AAA Santa Margarita/Dana Point
Authority Revenue Bond,
MBIA-Insured, 7.25% due
8/1/14 1,717,500
- -----------------------------------------------------------
- --------------------------------------------
2,808,750 -------------------------------------------------
- ----------------------------------------------------
Hospital - 15.7%
1,500,000 A Association of Bay Area
Governments Finance
Authority Nonprofit Corps,
California-Insured
COP, Rehabilitation Mental
Health Services Inc.
Project, 6.55% due 6/1/22
1,492,500
</TABLE>
See Notes to Financial Statements.
21
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ------------
- -----------------------
CALIFORNIA PORTFOLIO <TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
Hospital - 15.7% (continued)
$1,500,000 A Bakersfield Hospital Revenue,
Bakersfield Memorial
Hospital, Series A, 6.50% due
1/1/22 $1,468,125
465,000 A+ California Health Facilities
Financing Authority Revenue:
Community Provider Pooled
Loan Program Series
1990A, LOC Swiss Bank
Corporation,
7.35% due 6/1/20
489,994
1,150,000 A Episcopal Homes Foundation
Project, CHFCLI-
Insured, 7.70% due 7/1/18
1,208,938
2,015,000 Aa* Hospital Revenue Bonds
(Daughters of Charity
National Health System),
Series 1994A,
5.65% due 10/1/14 1,858,838
1,450,000 A+ St. Elizabeth Hospital
Project, 6.20% due 11/15/09 1,431,875
1,250,000 A South Coast Medical Center,
CHFCLI-Insured,
7.25% due 7/1/15
1,300,000
1,200,000 AAA California Statewide Community
Development
Corporation, COP (Villaview
Hospital), CHFCLI-
Insured, 7.00% due 9/1/09
1,249,500
1,000,000 AA California Statewide Community
Development Authority
Revenue, (St. Joseph Health
System),
6.625% due 7/1/21 1,021,250
1,405,000 A+ Contra Costa County,
California COP, Merrithew Memorial
Hospital, 6.50% due 11/1/06
1,429,588
2,000,000 A+ County of Riverside Asset
Leasing Corp. Leasehold
Revenue Bonds 1993A,
Riverside Hospital Project,
6.375% due 6/1/09 1,995,000
1,000,000 Aa* Fresno Health Facilities
Revenue (Holy Cross System-
St. Agnes), 6.625% due 6/1/21
1,016,250
250,000 BB+ Glendale Hospital Revenue
Refunding (Glendale
Memorial Hospital), 9.00% due
11/1/17 262,500
1,000,000 A+ Inglewood Insured Hospital
Revenue Bonds
(Daniel Freeman Hospital
Inc.), Series 1991,
CHFCLI-Insured, 6.75% due
5/1/13 1,012,500
1,000,000 A Rancho Mirage Joint Powers
Financing Authority
(Eisenhower Memorial
Hospital), 7.00% due 3/1/22 1,013,750
2,000,000 A San Bernardino Capital
Facilities Project, COP
Series B, 6.875% due 8/1/24
2,237,500
2,620,000 A- San Bernardino County Medical
Center
Financing Project, 6.00% due
8/1/09 2,390,750
</TABLE>
See Notes to Financial Statements.
22
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
Hospital - 15.7% (continued)
$2,750,000 A* San Joaquin County COP,
General Hospital Poject
1993, 6.25% due 9/1/13
$ 2,653,750
910,000 A Torrance Hospital Revenue
(Little Co. of Mary Hospital),
6.875% due 7/1/15 933,888 --
- -----------------------------------------------------------
- -----------------------------------------
26,466,496 ------------------------------------------------
- -----------------------------------------------------
Housing: Multi-Family - 4.0%
California HFA Revenue:
245,000 AAA Multi-Family Housing
Revenue, MBIA-Insured,
8.75% due 8/1/10(d)
259,394
1,630,000 A+ Multi-Unit Rental Housing
Series A, 6.625%
due 2/1/24
1,615,738
1,100,000 A California Statewide
Communities Development
Corporation (Solheim
Lutheran Home),
6.50% due 11/1/17
1,038,124
2,400,000 Aaa* San Francisco City & County
Redevelopment Agency
Multi-Family Revenue
Refunding South Beach
Project, GNMA
Collateralized, 5.70% due 3/1/29
2,211,000
1,500,000 A1* San Jose Multi-Family
Housing Senior Revenue
(Timberwood Apartments),
Series A, LOC Wells Fargo
Bank, 7.50% due 2/1/20
1,550,625 -------------------------------------------------
- ------------------------------------------------------
6,674,881 -------------------------------------------------
- ----------------------------------------------------
Housing: Single-Family - 3.2%
California HFA Home Mortgage
Revenue:
40,000 AA 9.125% due 2/1/07
41,200
615,000 Aa* 8.25% due 8/1/08(a)
639,600
235,000 Aa* 8.60% due 8/1/19(a)
247,338
770,000 Aa* 8.30% due 8/1/19(a)
809,462
1,000,000 AA- 7.00% due 8/1/26
1,010,000
350,000 Aa* Zero coupon due 8/1/15
45,062
520,000 Aa* Series E, 8.35% due
8/1/19(a) 544,700
480,000 AAA California Housing Finance
Agency Revenue Housing
Series C, MBIA-Insured,
7.00% due 8/1/23(a) 495,600
800,000 AAA Los Angeles Single-Family
Home Mortgage Revenue,
GNMA-Collateralized Mortgage
Backed Securities
Program, Issue A, 7.55% due
12/1/23(a) 833,000
295,000 Baa* Riverside County Housing
Authority, 7.90% due 10/1/18 308,643
115,000 AAA San Francisco City & County
Single-Family Mortgage
Revenue GNMA & FNMA Mortgage
Backed Securities
Program, Series 1990, 7.45%
due 1/1/24(a) 120,463
</TABLE>
See Notes to Financial Statements.
23
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 -------------------------------------------
- ------------------------------------
CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
Housing: Single-Family - 3.2% (continued)
$ 25,000 BBB+ Sonoma County Home Mortgage
Revenue, 9.125%
due 6/1/15(d)
$ 25,938
195,000 AAA Southern California Home
Financing Authority Single-
Family Mortgage Revenue, GNMA
& FNMA Mortgage
Backed Securities Program,
1990 Issue B, 7.75%
due 3/1/24(a)
207,188 ----------------------------------------------------
- --------------------------------------------------
5,328,194 --------------------------------------------------
- --------------------------------------------------Industrial
Development - 2.1%
1,000,000 A1* Los Angeles County, IDA
Revenue (Altshule Properties
Project) LOC Security
Pacific, 7.20% due 10/1/11(a) 1,022,500
2,470,000 AA- Simi Valley Community
Development Agency COP, Simi
Valley Business Center,
Guaranty Agreement with New
England Mutual Life, 6.05%
mandatory put 10/1/99 2,503,963
- ------------------------------------------------------------
- ------------------------------------------
3,526,463 --------------------------------------------------
- --------------------------------------------------
Miscellaneous - 4.1%
1,000,000 A- COP County of Los Angeles,
1991 Master Refunding
Project-RIBS, 8.772% due
5/1/15(c) 1,011,250
1,000,000 A COP County of Los Angeles,
For Multiple Capital
Facilities Projects III SYCC,
7.34% due 11/1/11 1,022,500
Orange County Community
Facilities District Special Tax:
1,000,000 A- #87-5A Rancho Santa
Margarita, 7.80% due 8/15/13 1,108,750
1,500,000 AAA Rancho Santa Margarita, CGIC-
Insured, 7.125%
due 8/15/17
1,580,625
1,000,000 A* Orange County (Mission
Viejo) Series A 1990, Special
Tax Bonds Community
Facilities District (Mello Roos),
7.80% due 8/15/15 1,142,500
1,000,000 AAA San Diego County Building
Authority, Registered Fixed
Option Certificates, 6.363%
due 11/18/19 1,018,750
- ------------------------------------------------------------
- ------------------------------------------
6,884,375 --------------------------------------------------
- --------------------------------------------------Pollution
Control - 5.2%
California Pollution Control
Financing Authority:
2,500,000 A1* PCR (Pacific Gas &
Electric Co.), 6.35%
due 6/1/09(a)
2,550,000
800,000 A1* PCR (Pacific Gas &
Electric Co.), 8.20% due 12/1/18 863,000
500,000 AA- Resource Recovery Revenue
Bonds (Waste
Management Inc.), 1991
Corporate Series A,
7.15% due 2/1/11(a) 530,000
</TABLE>
See Notes to Financial Statements.
24
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA PORTFOLIO <TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
- -----------------------------------------------------------
- --------------------------------------------
<C> <C> <S>
<C>
Pollution Control - 5.2% (continued)
$1,500,000 Aa3* San Diego Gas & Electric Co.
Series A, 6.80% due
6/1/15(a)
$1,618,125
1,000,000 A2* Southern California (Edison),
4.25% due 2/28/08 1,000,000
2,125,000 AAA Southern California, 6.40% due
12/1/24(a) 2,143,594
- -----------------------------------------------------------
- --------------------------------------------
8,704,719 ------------------------------------------------
- -------------------------------------------------------Power
- -- 2.6%
1,110,000 A* Northern California Power
Agency (Geothermal Project),
5.00% due 7/1/09
978,188
2,000,000 AAA Northern California Power
Agency (Hydroelectric Project),
5.50% due 7/1/16
1,865,000
1,000,000 AAA Redding COP Electric System
Revenue, 8.345% due
7/1/22(c)
1,073,750
600,000 A Southern California Public
Power Authority, Multiple
Project Revenue 1989 Series,
5.50% due 7/1/20 537,000
- ------------------------------------------------------------
- -------------------------------------------
4,453,938 --------------------------------------------------
- ----------------------------------------------------Pre
Refunded (e) - 16.1%
1,500,000 AAA California COP Lease Finance
Authority, CSAC-Nevada
County, (Escrowed with U.S.
Government Securities to
10/1/98 Call @ 101), 7.60% due
10/1/19 1,629,375
1,245,000 AAA Concord Redevelopment Agency
Tax Allocation Bonds
(Central Concord Redevelopment
Project) BIG-Insured,
(Escrowed with U.S. Government
Securities to 7/1/98
Call @ 102), 8.00% due 7/1/18
1,386,619
1,500,000 AAA Desert Hospital Corporation
Project, COP Series 1990,
(Escrowed with U.S. Government
Securities to 7/1/00
Call @ 102), 8.10% due 7/1/20
1,736,250
320,000 AAA Dublin COP, Public Facilities
Project No. 1, (Escrowed with
U.S. Government Securities to
2/1/96 Call @ par),
9.25% due 2/1/10
332,800
750,000 AAA El Camino Hospital Revenue
COP, (Escrowed with U.S.
Government Securities to 9/1/97
Call @ 102), 8.50%
due 9/1/17
822,188
550,000 AAA Grossmont Hospital District,
MBIA-Insured, (Escrowed with
U.S. Government Securities to
11/15/97 Call @ 102),
8.00% due 11/15/17 605,000
1,200,000 AAA Huntington Beach COP, Civic
Center Project, (Escrowed with
U.S. Government Securities to
8/1/95 Call @ 102),
7.90% due 8/1/16 1,237,500
</TABLE>
See Notes to Financial Statements.
25
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Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA PORTFOLIO <TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
Pre-Refunded (e) - 16.1% (continued)
$1,500,000 AAA Kings River Conservation
District, Pine Flat Power
Revenue Series C, (Escrowed
with U.S. Government
Securities to 1/1/97 Call @
102), 7.90% due 1/1/20(d) $1,612,500
640,000 AAA Loma Linda Water Revenue,
(Escrowed with U.S.
Government Securities to
12/1/95 Call @ 102),
9.25% due 12/1/10
672,800
500,000 AAA Los Angeles County
Transportation Commission
Sales Tax Revenue Series A,
(Escrowed with U.S.
Government Securities to
7/1/98 Call @ 102),
8.00% due 7/1/18
556,875
450,000 AAA Los Angeles Convention and
Exhibition Center
Authority COP, (Escrowed with
U.S. Government
Securities to 12/1/05 Call @
100), 9.00% due 12/1/20 587,250
Los Angeles Department of Water
and Power:
1,550,000 AAA Water Works Revenue,
(Escrowed with U..S. Government
Securities to 2/15/99 Call @
102), 7.20% due 2/15/19 1,699,188
1,000,000 AAA Electric Revenue, (Escrowed
with U.S. Government
Securities to 5/1/98 Call @
102), 7.90% due 5/1/28 1,105,000
1,950,000 AAA Electric Revenue, (Escrowed
with U.S. Government
Securities to 1/15/01 Call @
102), 7.10% due 1/15/31 2,164,500
1,200,000 AAA Los Angeles Waste Water System
Revenue, (Escrowed
with U.S. Government
Securities to 11/1/97 Call @ 102),
8.125% due 11/1/17 1,321,500
425,000 AAA Norwalk Redevelopment Agency
(Norwalk Redevelopment
Area 1), (Escrowed with U.S.
Government Securities to
12/1/95 Call @ 102), 9.10% due
12/1/15 444,656
500,000 AAA Oceanside County COP, AMBAC-
Insured, (Escrowed with
U.S. Government Securities to
8/1/02 Call @ 102),
7.30% due 8/1/21
575,000
1,000,000 AAA Rancho Water District Finance
Authority Revenue Bonds,
Series 1991, RITES, AMBAC
Insured, (Escrowed with
U.S. Government Securities to
8/17/01 Call @ 104),
9.574% due 8/15/21(c)
1,180,000
2,500,000 AAA Riverside County Asset Leasing
Corp. Leasehold
Revenue (Riverside County
Hospital Project)
(Escrowed with U.S. Government
Securities to 6/1/99
Call @ 102), 7.40% due 6/1/14
2,768,750
1,000,000 AAA Sacramento Municipal Utilities
District Electric Revenue,
Series P, (Escrowed with U.S.
Government Securities to
7/1/95 Call @ 102), 8.625% due
7/1/10 1,030,500
</TABLE>
See Notes to Financial Statements.
26
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued)
March 31, 1995 --------------------------------------------
- ----------------------------------
CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
Pre-Refunded (e) - 16.1% (continued)
$1,000,000 AAA San Bernardino County COP
(West Valley Detention
Center Project), (Escrowed with
U.S. Government
Securities to 11/1/98 Call @
102), 7.70% due 11/1/18 $ 1,112,500
250,000 AAA San Diego Redevelopment Agency
(Marina
Redevelopment Project),
(Escrowed with U.S.
Government Securities to
12/1/97 Call @ 101.5),
8.75% due 12/1/08
278,750
500,000 AAA Santa Clara County 1986 COP
Capital Project I
(Courthouse and Detention
Center), (Escrowed with
U.S. Government Securities to
10/1/96 Call @ 102),
8.00% due 10/1/16
535,000
1,000,000 AAA State Public Works Board Lease
Revenue, Department
of Corrections (State Prison
Madera County),
(Escrowed with U.S. Government
Securities to
9/1/00 Call @ 102), 7.00% due
9/1/09 1,111,250
500,000 AAA Upland COP (Police Building
Construction Project),
(Escrowed with U.S. Government
Securities to 8/1/98
Call @ 102), 8.20% due 8/1/16
533,125 ----------------------------------------------------
- ---------------------------------------------------
27,038,876 -------------------------------------------------
- -----------------------------------------------------Public
Facilities - 9.7%
2,000,000 AAA Anaheim COP Convention Center
RITES, MBIA-
Insured, 6.20% due 7/16/23(c)
2,035,000
2,000,000 AAA Anaheim Public Financing
Authority Tax Allocation
Revenue, 6.45% due 12/28/18
2,077,500
500,000 A3* Association of Bay Area
Governments Penninsula Family
YMCA, LOC Daiwa Bank, 6.80% due
10/1/11 504,375
1,025,000 Baa* Azusa COP Refunding Capital
Improvement Refining
Project, 6.625% due 8/1/13
1,010,906
2,000,000 A- Burbank Redevelopment Agency
Tax Allocation Series
A, 6.00% due 12/1/23 1,802,500
2,000,000 AAA California Public School
District Financing Authority
Convertible Capital
Appreciation Bonds, Palmdale School
District, FSA-Insured, Series
1993B, stepped zero coupon
to 9/30/99 then 6.20% to
maturity, due 10/1/23 1,322,500
1,500,000 Baa* Corona Public Finance
Authority 1993 Public
Improvement Refunding Revenue
Bonds, 6.00%
due 7/1/14
1,365,000
2,000,000 A Mendocino County Public
Facilities Authority
Corporation COP, Series 1993,
6.00% due 8/15/23 1,832,500
</TABLE>
See Notes to Financial Statements.
27
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Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds ----------------------------------
- -------------------------------------------Schedules of
Investments (continued)
March 31, 1995 -------------------------------------------
- -----------------------------------
CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
=================================================
<C> <C> <S>
<C>
Public Facilities - 9.7% (continued)
$2,875,000 AAA Santa Ana Financing Authority
Lease Revenue-Police
Administration and Holding
Facility, 6.25%
due 7/1/24
$ 2,925,313
1,500,000 NR Valley Health System COP
Refunding Project, 6.875%
due 5/15/23
1,393,125 ------------------------------------------------
- -------------------------------------------------------
16,268,719 -----------------------------------------------
- ------------------------------------------------------
Short-Term (b) - 0.1%
100,000 A-1+ California Health Facilities
Financing Authority Revenue,
St. Joseph Health System,
4.40% due 7/1/13 100,000
100,000 P-1* California Pollution Control
Financing Authority, Shell
Oil Company Project, 4.40%
due 10/1/11 100,000
- ----------------------------------------------------------
- ---------------------------------------------
200,000 --------------------------------------------------
- -----------------------------------------------------
Solid Waste - 1.8%
1,300,000 CAA Orange County COP, Orange
County Public Facilities
Corp. (Solid Waste
Management), 7.875%
due 12/1/07
1,314,625
750,000 A- Southeast Resource Recovery
Facilities Authority,
Lease Revenue, 9.00% due
12/1/08 780,000
1,000,000 A- West Nevada County COP Solid
Waste, 7.50%
due 6/1/21
990,000 --------------------------------------------------
- -----------------------------------------------------
3,084,625 ------------------------------------------------
- ------------------------------------------------------Tax
Allocation - 3.2%
1,000,000 Baa* Azusa Redevelopment Agency Tax
Allocation Refunding
Merged Project Area, Series
A, 6.75% due 8/1/23 993,750
295,000 AAA Brea Public Finance Authority
Tax Allocation, MBIA-
Insured, 7.00% due 8/1/15
315,281
1,000,000 BBB Carson Redevelopment Agency
Redevelopment Project
Area No. 2, 6.00% due 10/1/13
922,500
30,000 AAA Concord Redevelopment Agency
Tax Allocation Bonds
(Central Concord
Redevelopment Project), BIG-Insured,
8.00% due 7/1/18
33,075
1,000,000 Baa* Pomona Public Finance
Authority Revenue Refunding
Southwest Pomona
Redevelopment, 5.50% due 2/1/08
921,250
2,000,000 AAA South Orange County Public
Financing Authority
Special Tax Revenue-Series A,
7.00% due 9/1/10 2,227,500
- ----------------------------------------------------------
- ---------------------------------------------
5,413,356 ------------------------------------------------
- ------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
28
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued) March 31, 1995 ----
- -----------------------------------------------------------
- --------------
CALIFORNIA PORTFOLIO <TABLE>
<CAPTION>
FACE
AMOUNT RATING
SECURITY VALUE
=========================================================
================================================
<C> <C> <S>
<C>
Transportation - 4.0%
$2,500,000 AAA Sacramento County Airport
System Revenue, Series A,
FGIC-Insured, 6.00% due
7/1/12(a) $ 2,468,750
3,000,000 AAA San Francisco City & County
Airports Second Series
Issue 5, FGIC-Insured, 6.50%
due 5/1/19(a) 3,052,500
1,250,000 A* Santa Barbara COP Harbor
Refunding Project, 6.75%
due 10/1/27
1,262,500 -------------------------------------------------
- ------------------------------------------------------
6,783,750 -------------------------------------------------
- ----------------------------------------------------
Utilities - 1.0%
1,760,000 BBB- Trinity County Public
Utilities District COP, Electric
District Facilities, 6.75% due
4/1/23(a) 1,713,800
- -----------------------------------------------------------
- --------------------------------------------
Water & Sewer - 7.1%
1,200,000 A1* Bakersfield, COP (Waste Water
Treatment Plant 3
Projects), 8.00% due 1/1/10
1,291,500
1,000,000 AAA Eastern Municipal Water
District, Water & Sewer
Revenue COP, FGIC-Insured,
6.75% due 7/1/12 1,088,750
Irvine Ranch Water District
Joint Powers Agency,
Local Agency Pool Revenue
Bonds:
1,750,000 A+ 7.875% due 2/15/23(d)
1,820,000
1,000,000 A+ 8.25% due 8/15/23(d)
1,057,500
3,000,000 AAA Los Angeles Department of
Water & Power,
Electric Plant Revenue, 5.375%
due 9/1/23 2,700,000
1,425,000 AAA Los Angeles Wastewater Systems
Revenue,
5.60% due 6/1/20
1,330,594
1,000,000 AAA San Buenaventura COP (1990
Water Enterprise
Financing), AMBAC-Insured,
7.50% due 10/1/20 1,136,250
1,300,000 AAA Yolo County Flood Control &
Water Conservation
District COP, FGIC-Insured,
7.125% due 7/15/15 1,475,500
- -----------------------------------------------------------
- --------------------------------------------
11,900,094 ------------------------------------------------
- ------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost - $163,257,338)(g)
$168,379,938
=========================================================
================================================ </TABLE>
See Notes to Financial Statements.
29
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Schedules of Investments (continued) March 31, 1995 ----
- -----------------------------------------------------------
- --------------
(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) Variable rate obligations payable at par on demand on
the date indicated.
(g) The cost for Federal income tax purposes is
substantially the same.
++ Security has not been rated by either Moody's Investors
Services or
Standard & Poors, however, the portfolio manager has
determined the
equivalent rating to be A-1+.
See pages 31 and 32 for definition of ratings and
certan security
descriptions.
See Notes to Financial Statements. 30
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
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 -- Rating from "AA" to "BB" 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.
BB -- Debt rated "BB" has less near-term
vulnerability to default than
other speculative issues. However, it faces
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 "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.
31
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Short-Term Security 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.
MIG 1 -- Moody's highest rating for short-term
municipal obligations.
MIG 2 -- Moody's second highest rating for short-term
municipal
obligations.
- -----------------------------------------------------------
- -------------------
Security Descriptions -------------------------------------
- -----------------------------------------
ABAG -- Association of Bay Area Governors
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility Construction Loan
Insurance
COP -- Certificate of Participation
EDA -- Economic Development Authority
ETM -- Escrowed To Maturity
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
FRTC -- Floating Rate Trust Certificates
FSA -- Federal Savings Association
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon
Security
PCR -- Pollution Control Revenue
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
SYCC -- Structured Yield Curve Certificate
VA -- Veterans Administration
VRWE -- Variable Rate Wednesday Demand
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Statements of Assets and Liabilities
March 31, 1995 --------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
California California
Money Market Limited Term California
Portfolio Portfolio Portfolio
=========================================================
=========================================
<S>
<C> <C> <C>
ASSETS:
Investments, at value (Cost--$946,020,474, $7,581,187
and $163,257,338, respectively)
$946,020,474 $7,546,175 $168,379,938
Cash
41,743 39,508 11,412
Receivable for Fund shares sold
- -- -- 96,033
Interest receivable
9,264,118 108,201 2,820,179
Receivable from manager (Note 4)
- -- 8,087 --
Other receivables
27,419 -- 558
- -----------------------------------------------------------
- -------------------------------------
Total Assets
955,353,754 7,701,971 171,308,120
- -----------------------------------------------------------
- -------------------------------------
LIABILITIES:
Payable for Fund shares purchased
- -- -- 72,052
Payable for securities purchased
- -- -- 1,574,775
Management fees payable
315,080 -- 64,719
Distribution costs payable
30,069 4,270 84,032
Dividends payable
1,640,278 -- --
Accrued expenses and other liabilities
48,493 11,722 24,650
- -----------------------------------------------------------
- -------------------------------------
Total Liabilities
2,033,920 15,992 1,820,228
- -----------------------------------------------------------
- -------------------------------------
Total Net Assets
$953,319,834 $7,685,979 $169,487,892
=========================================================
=========================================
NET ASSETS:
Par value of capital shares $
953,647 $ 1,193 $ 13,800
Capital paid in excess of par value
952,693,160 7,876,194 164,073,039
Undistributed net investment income -
31,762 197,611
Accumulated net realized gain (loss) on
security transactions
(326,973) (188,158) 80,842
Net unrealized appreciation (depreciation) of
investments
- -- (35,012) 5,122,600
- -----------------------------------------------------------
- -------------------------------------
Total Net Assets
$953,319,834 $7,685,979 $169,487,892
=========================================================
=========================================
Shares Outstanding:
Class A
953,646,807 834,901 13,189,538 ------------------
----------------------------------
- -----------------------------------------
Class B
- -- -- 49,404
-------------------------------------------------------
- -------------------------------------
Class C
- -- 277,285 560,918
-------------------------------------------------------
- -------------------------------------
Class Y
- -- 81,185 --
-------------------------------------------------------
- -------------------------------------
Net Asset Value:
Class A (and redemption price)
$1.00 $6.44 $12.28 -----------------------
-------------------------------------------------------
- ---------------
Class B *
- -- -- $12.29
-------------------------------------------------------
- -------------------------------------
Class C **
- -- $6.44 $12.28
-------------------------------------------------------
- -------------------------------------
Class Y (and redemption price)
- -- $6.44 --
-------------------------------------------------------
- -------------------------------------
Class A Maximum Public Offering Price Per Share
($6.44 plus 2.04% and $12.28 plus 4.17% of net asset
value per share, respectively)
- -- $6.57 $12.79
=========================================================
=========================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by
4.50% if shares are
redeemed less than one year from initial purchase,
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
1.00% which applies
if shares are redeemed within the first year of
purchase.
See Notes to Financial Statements. 33
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<PAGE>
Smith Barney Muni Funds ----------------------------------
- ---------------------------------------------
Statements of Operations For the
Year Ended March 31, 1995 ---------------------------------
- ---------------------------------------------
<TABLE>
<CAPTION>
California California
Money Market Limited Term California
Portfolio Portfolio Portfolio
=========================================================
===============================================
<S>
<C> <C> <C>
INVESTMENT INCOME:
Interest
$16,977,373 $469,595 $11,647,965
- -----------------------------------------------------------
- ------------------------------------------EXPENSES:
Management fees (Note 4)
2,339,712 39,849 773,229
Distribution costs (Note 4)
467,929 11,585 172,390
Shareholder servicing agent fees 99,166
2,200 28,634
Shareholder communication fees
36,629 6,500 26,003
Audit and legal fees
5,767 8,000 9,902
Registration fees
5,154 4,000 12,001 Trustees' fees
3,188 4,796 9,001
Pricing service fees
1,200 3,600 23,002 Other
5,748 9,200 18,002
- -----------------------------------------------------------
- -------------------------------------------
Total Expenses
2,964,493 89,730 1,072,164
Less: Expense reimbursement and
management fee waiver
100,000 47,936 --
- -----------------------------------------------------------
- -------------------------------------------
Net Expenses
2,864,493 41,794 1,072,164
- -----------------------------------------------------------
- -------------------------------------------
Net Investment Income
14,112,880 427,801 10,575,801
- -----------------------------------------------------------
- ------------------------------------------REALIZED AND
UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized Gain (Loss) From Security Transactions
(excluding short-term securities*): Proceeds
from sales
9,600,191 3,602,130 55,858,979
Cost of securities sold
9,601,626 3,790,197 55,689,937
- -----------------------------------------------------------
- -------------------------------------------
Net Realized Gain (Loss)
(1,435) (188,067) 169,042
- -----------------------------------------------------------
- -------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of year
- -- (256,768) 5,567,001
End of year
- -- (35,012) 5,122,600
- -----------------------------------------------------------
- ------------------------------------------
Increase (Decrease) in Net Unrealized
Appreciation
- -- 221,756 (444,401)
- -----------------------------------------------------------
- -------------------------------------------
Net Gain (Loss) on Investments
(1,435) 33,689 (275,359)
- -----------------------------------------------------------
- ------------------------------------------Increase in Net
Assets
From Operations
$14,111,445 $461,490 $10,300,442
=========================================================
=============================================== </TABLE>
* Represents only short-term securities for the
California Money Market
----
Portfolio.
See Notes to Financial Statements. 34
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Statements of Changes in Net Assets -----------------------
- -------------------------------------------------------
For the Years Ended March 31,
<TABLE>
<CAPTION>
California
California
Money Market
Portfolio Limited Term Portfolio
----------------------
- ------- --------------------------
1995
1994 1995 1994(a)
=========================================================
=========================================
<S> <C> <C>
<C> <C>
OPERATIONS:
Net investment income $ 14,112,880 $
3,268,439 $ 427,801 $ 457,146
Net realized gain (loss)
from security transactions (1,435)
4,258 (188,067) 11,343
Increase (decrease) in net
unrealized appreciation
of investments --
- -- 221,756 (256,768) -----------------------
- -----------------------------------------------------------
- --------------
Increase In Net Assets
From Operations 14,111,445
3,272,697 461,490 211,721 ------------------
- -----------------------------------------------------------
- ------------------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM (Note 3):
Net investment income (14,075,680)
(3,268,439) (443,189) (409,996)
Net realized gain from
security transactions --
- -- (11,434) ---------------------------
- -----------------------------------------------------------
- -----------
Decrease In Net Assets From
Distributions To Shareholders (14,075,680)
(3,268,439) (454,623) (409,996) ----------------
- -----------------------------------------------------------
- --------------------
FUND SHARE TRANSACTIONS:
Net proceeds from sale
of shares 2,335,326,000
1,043,269,466 1,026,856 15,494,663
Net value of shares issued in
connection with the transfer of
the Smith Barney Shearson
California Municipal Money
Market Fund net assets 830,711,463
- -- -- --
Net asset value of shares issued
for reinvestment of dividends 12,583,409
3,127,064 309,019 283,108
Cost of shares reacquired (2,415,119,839)
(1,016,298,261) (4,531,777) (4,704,482) ------------
- -----------------------------------------------------------
- ------------------------
Increase (Decrease) In Net
Assets From Fund Share
Transactions 763,501,033
30,098,269 (3,195,902) 11,073,289 -----------------
- -----------------------------------------------------------
- -------------------
Increase (Decrease) In Net Assets 763,536,798
30,102,527 (3,189,035) 10,875,014
NET ASSETS:
Beginning of year 189,783,036
159,680,509 10,875,014 ------------------
- -----------------------------------------------------------
- --------------------
End of year* $ 953,319,834 $
189,783,036 $ 7,685,979 $ 10,875,014
=========================================================
=========================================
*Includes undistributed net
investment income of: --
- -- $ 31,762 $ 47,150
=========================================================
=========================================
</TABLE>
(a) For the period from April 27, 1993 (commencement of
operations) to March 31,
1994.
See Notes to Financial Statements.
35
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Statements of Changes in Net Assets (continued) -----------
- -----------------------------------------------------------
- -------
For the Years Ended March 31,
<TABLE>
<CAPTION>
California Portfolio
1995 1994
=========================================================
===========================
<S>
<C>
<C>
OPERATIONS:
Net investment income $
10,575,801 $ 10,731,905
Net realized gain from security transactions
169,042 483,893
Decrease in net unrealized appreciation
of investments
(444,401) (7,814,856) -------------------------------
- ---------------------------------------------------
Increase In Net Assets From Operations
10,300,442 3,400,942 ------------------------------
- ----------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 3):
Net investment income
(10,612,295) (10,789,706)
Net realized gain from security transactions
(16,954) (545,063) --------------------------------
- -------------------------------------------------
Decrease In Net Assets From Distributions
To Shareholders
(10,629,249) (11,334,769) ----------------------------
- ------------------------------------------------------
FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares
30,935,315 53,466,294
Net value of shares issued in connection with the
transfer of the Smith Barney Shearson California
Municipal Money Market Fund net assets
- -- --
Net asset value of shares issued for reinvestment
of dividends
3,672,477 4,422,622
Cost of shares reacquired
(41,508,956) (38,954,545)
- -----------------------------------------------------------
- -----------------------
Increase (Decrease) In Net Assets From
Fund Share Transactions
(6,901,164) 18,934,371
- -----------------------------------------------------------
- -----------------------
Increase (Decrease) In Net Assets
(7,229,971) 11,000,544
NET ASSETS:
Beginning of year
176,717,863 165,717,319
- -----------------------------------------------------------
- -----------------------
End of year*
$169,487,892 $176,717,863
=========================================================
===========================
*Includes undistributed net investment income of: $197,611
$234,105
=========================================================
===========================
</TABLE>
See Notes to Financial Statements. 36
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<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Notes to Financial Statements -----------------------------
- -------------------------------------------------
1. Significant Accounting Policies
The California Money Market, California Limited Term
and California
Portfolios ("Portfolios") are separate investment
portfolios 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
these Portfolios and ten
other separate investment portfolios: Florida, Georgia, New
Jersey, New York,
National, Ohio, Pennsylvania, Limited Term, Florida Limited
Term 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 Portfolios
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 each
Portfolio and each class; management fees and general fund
expenses are
allocated on the basis of relative net assets; and (f) the
Portfolios intend 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 each Portfolio invests primarily in obligations
of issuers within
California, it is subject to possible concentration risks
associated with
economic, political, or legal developments or industrial or
regional matters
specifically affecting California.
37
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Barney California Fund R.R.
Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Notes to Financial Statements (continued) -----------------
- -----------------------------------------------------------
- -
3. Exempt-Interest Dividends and Other Distributions
The California Money Market Portfolio declares and
records a dividend of
substantially all its net investment income on each
business day. Such dividends
are paid or reinvested monthly in fund shares on the
payable date. Furthermore,
all Portfolios intend 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 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
California Money
Market and California Limited Term Portfolios had net
capital loss carryovers of
$326,973 and $188,158, respectively, 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.
The amount and
expiration of the carryovers are indicated below.
Expiration occurs on March 31
of the year indicated.
<TABLE>
<CAPTION>
1997 1998 1999
2000 2001 2002 2003
=========================================================
=============================================
<S> <C> <C>
<C> <C> <C> <C> <C>
California Money Market Portfolio $93,180 $58,601
$7,368 $74,192 $10,769 $81,428 $ 1,435
California Limited Term Portfolio -- --
- -- -- -- -- 188,158
=========================================================
=============================================
</TABLE>
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
California Money Market Portfolio pays SBMFM a management
fee calculated at an
annual rate of 0.50% of average daily net assets. The
California Limited Term
and California Portfolios pay SBMFM a management fee
calculated at an annual
rate of 0.45% of their average daily net assets. Such fees
are calculated daily
and paid monthly. SBMFM waived $39,849 and $100,000 of its
management fees for
the California Limited Term and California Money Market
Portfolios,
respectively, for the year ended March 31, 1995. SBMFM also
reimbursed expenses
of $8,087 for the California Limited Term Portfolio.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as distributor of
Fund shares. SB received sales charges of approximately
$255,000 (paid by
purchasers of the Portfolios' Class A shares) for the year
ended March 31, 1995.
All officers and two Trustees of the Fund are employees of
SB.
38
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California Fund R.R. Donnelley (212) 341-7777
EDITOR V2.7
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Notes to Financial Statements (continued) -----------------
- -----------------------------------------------------------
- -
Effective November 7, 1994, the Fund adopted a new
class structure,
renaming Class B shares as Class C shares for the
California Limited Term and
California Portfolios. In addition, in the California
Limited Term Portfolio the
former Class C shares were renamed as Class Y shares and in
the California
Portfolio the former Class C shares were exchanged into
Class A shares. Under
the new class structure, for the California Portfolio, 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.
For the California Limited Term and California Portfolios 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 $7,000 in
such charges.
On September 16, 1994, a new Distribution Plan was
approved by the Fund's
shareholders. Pursuant to this Distribution Plan, the
California Portfolio pays
a service fee of 0.15% of average net asssets on an annual
basis with respect to
its Class A, B and C shares; the California Limited Term
Portfolio pays a
service fee of 0.15% of average net assets on an annual
basis with respect to
its Class A and C shares. In addition, the California
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; the
California Limited
Term Portfolio pays a distribution fee of 0.55% of average
net assets on an
annual basis with respect to its Class C shares. The
California Money Market
Portfolio pays for distribution related services calculated
at annual rate of
0.10% of average net assets.
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>
<CAPTION>
California California
Money Market Limited
Term California
Portfolio
Portfolio Portfolio
=========================================================
=====================
<S> <C> <C>
<C>
Purchases --
$2,332,226 $53,053,788 ------------------------------
- ----------------------------------------------
Sales --
3,602,130 55,858,979
=========================================================
=====================
</TABLE>
39
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Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Notes to Financial Statements (continued) -----------------
- -----------------------------------------------------------
- -
At March 31, 1995, the gross unrealized appreciation
and depreciation of
investments for Federal income tax purposes were as
follows:
<TABLE>
<CAPTION>
California
California
Money Market Limited
Term California
Portfolio Portfolio
Portfolio
=========================================================
=======================
<S> <C> <C>
<C>
Gross unrealized appreciation -- $
56,614 $ 6,843,249
Gross unrealized depreciation --
(91,626) (1,720,649) ----------------------------------
- --------------------------------------------
Net unrealized appreciation
(depreciation) -- $
(35,012) $ 5,122,600
=========================================================
=======================
</TABLE>
6. Transfer of Assets
On November 18, 1994 the net assets of the Smith
Barney Shearson California
Municipal Money Market Fund were merged into Smith Barney
California Money
Market Portfolio pursuant to an Agreement and Plan of
Reorganization dated
August 2, 1994.
The transaction was structured for tax purposes to
qualify as a tax-free
reorganization under the Internal Revenue Code. The Smith
Barney Shearson
California Municipal Money Market Fund net assets at that
date were
$830,711,463. Directly after the merger the combined net
assets were
$1,034,833,204 for the Smith Barney California Money Market
Portfolio.
7. Capital Shares
At March 31, 1995, there were an unlimited amount of
shares of $.001 par
value capital stock authorized. The Fund has multiple
classes of shares within
each Portfolio of the Fund. Each share of a class
represents an identical
interest in its respective 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 and respective Portfolio:
<TABLE>
<CAPTION>
Portfolio Class A Class B
Class C Class Y
=========================================================
====================
<S> <C> <C> <C>
<C>
California Money Market $953,646,807 --
- -- --
California Limited Term 5,520,311 -$1,859,511
$497,565
California 156,275,600 $578,555 7,232,684
=========================================================
====================
</TABLE>
40
[[1]] EDGAR only
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Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Notes to Financial Statements (continued) -----------------
- -----------------------------------------------------------
- -
Transactions in shares of each Portfolio were as
follows:
<TABLE>
<CAPTION>
Year Ended
Year Ended
March 31, 1995 March
31, 1994
California Money ---------------------------
- -------------------
Market Portfolio Shares Amount
Shares Amount
=========================================================
=======================================
<S> <C> <C>
<C> <C>
Class A
Shares sold 2,335,326,000 $ 2,335,326,000
1,043,269,466 $ 1,043,269,466 Transfer from
Smith Barney
Shearson California
Municipal Money
Market Fund 831,064,777 831,064,777
- -- --
Shares issued on
reinvestment 12,583,409 12,583,409
3,127,064 3,127,064
Shares redeemed (2,415,119,839) (2,415,119,839)
(1,016,298,261) (1,016,298,261) -------------------------
- -----------------------------------------------------------
- ----------
Net Increase 763,854,347 $ 763,854,347
30,098,269 $ 30,098,269
=========================================================
=======================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Year Ended
March 31, 1995 March
31, 1994*
California Limited ---------------------------
- -------------------
Term Portfolio Shares Amount
Shares Amount
=========================================================
=======================================
<S> <C> <C>
<C> <C>
Class A
Shares sold 112,206 $ 711,580
1,698,497 $11,136,992
Shares issued on
reinvestment 31,795
202,029 37,037 246,457 Shares
redeemed (560,588) (3,557,722)
(484,046) (3,219,025)
- -----------------------------------------------------------
- -----------------------------------
Net Increase (Decrease) (416,587)
$(2,644,113) 1,251,488 $ 8,164,424
=========================================================
=======================================
Class C+
Shares sold 49,747 $ 315,276
386,889 $ 2,558,573
Shares issued on
reinvestment 12,721
80,696 4,738 31,447 Shares redeemed
(153,794) (974,055) (23,016) (152,426) ---
- -----------------------------------------------------------
- --------------------------------
Net Increase (Decrease) (91,326) $ (578,083)
368,611 $ 2,437,594
=========================================================
=======================================
Class Y++
Shares sold --
- -- 274,912 $ 1,799,098
Shares issued on
reinvestment 4,143 $
26,294 793 5,204
Shares redeemed --
- -- (198,663) (1,333,031) ------------------
- -----------------------------------------------------------
- -----------------
Net Increase 4,143 $
26,294 77,042 $ 471,271
=========================================================
=======================================
</TABLE>
* For Class A shares, transactions are for the period
from April 27, 1993
(inception date) to March 31, 1994; for Class C
shares, transactions are for
the period from May 18, 1993 (inception date) to March
31, 1994 and for Class
Y shares, transactions are for the period from June
23, 1993 (inception date)
to March 31, 1994.
+ On November 7, 1994 the former Class B shares were
renamed Class C shares.
++ On November 7, 1994 the former Class C shares were
renamed Class Y shares.
41
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[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Notes to Financial Statements (continued) -----------------
- -----------------------------------------------------------
- -
<TABLE>
<CAPTION>
Year Ended Year
Ended
March 31, 1995
March 31, 1994
------------------------
- ----------------------
California Portfolio Shares
Amount Shares Amount
=========================================================
=======================================
<S> <C> <C>
<C> <C>
Class A*
Shares sold 2,324,798 $
27,987,508 2,938,814 $ 38,173,347
Shares issued on
reinvestment 287,711
3,455,371 313,867 4,066,011 Shares redeemed
(3,314,660) (39,556,136) (2,305,447) (29,781,514)
- -----------------------------------------------------------
- -----------------------------------
Net Increase (Decrease) (702,151) $
(8,113,257) 947,234 $ 12,457,844
=========================================================
=======================================
Class B+
Shares sold 84,879 $
1,001,483 -- --
Shares issued on
reinvestment 480
5,781 -- --
Shares redeemed (35,955)
(428,708) -- -------------------
- -----------------------------------------------------------
- -----------------
Net Increase 49,404 $ 578,556
- --
=========================================================
=======================================
Class C++
Shares sold 161,193 $
1,946,324 457,886 $ 5,950,014
Shares issued on
reinvestment 17,630
211,325 8,761 113,273
Shares redeemed (129,420)
(1,524,112) (94,684) (1,212,861) --------------
- -----------------------------------------------------------
- --------------------
Net Increase 49,403 $ 633,537
371,963 $ 4,850,426
=========================================================
=======================================
</TABLE>
* 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 11, 1994 (inception date)
to March 31, 1995.
++ On November 7, 1994 the former Class B shares were
renamed Class C
shares.
42
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[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds
California Money Market Portfolio -------------------------
- ----------------------------------------------------
Financial Highlights --------------------------------------
- ----------------------------------------
For a share of each class of capital stock outstanding
throughout each year:
<TABLE>
<CAPTION>
Class A Shares: 1995
1994 1993 1992 1991(a)
=========================================================
===================================================== <S>
<C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Year $1.00
$1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------
- ------------------------------------------------Income from
Investment Operations:
Net investment income (1) 0.026
0.018 0.021 0.035 0.044
- -----------------------------------------------------------
- ------------------------------------------------Total
Income from Investment Operations 0.026
0.018 0.021 0.035 0.044
- -----------------------------------------------------------
- ------------------------------------------------Less
Distributions:
Dividends from net investment income (0.026)
(0.018) (0.021) (0.035) (0.044)
- -----------------------------------------------------------
- ------------------------------------------------Total
Distributions (0.026)
(0.018) (0.021) (0.035) (0.044)
- -----------------------------------------------------------
- ------------------------------------------------Net Asset
Value, End of Year $1.00
$1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------
- ------------------------------------------------Total
Return 2.66%
1.84% 2.05% 3.51% 4.49%++
- -----------------------------------------------------------
- ------------------------------------------------Net Assets,
End of Year (000s) $953,320
$189,783 $159,681 $167,172 $135,608
- -----------------------------------------------------------
- ------------------------------------------------Ratios to
Average Net Assets:
Expenses (1) 0.61%
0.64% 0.67% 0.60% 0.46%+
Net investment income 3.02
1.82 2.05 3.46 4.73 +
=========================================================
=====================================================
</TABLE>
(a) From May 10, 1990 (inception date) to March 31, 1991.
++ Not annualized, as the result may not be
representative of the total
return for the year.
+ Annualized.
(1) The manager has waived all or part of its fees for the
period ended March
31, 1991 and the year ended March 31, 1995. 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>
<CAPTION>
Expense Ratios
Per Share Decreases
Without Fee Waivers
-------------------------------------
- --------------
1995 1991
1995 1991
---- ---- ---
- ----
<S> <C> <C> <C>
<C>
Class A $.002 $.001
0.63% 0.60%+
</TABLE>
43
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[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds
California Limited Term Portfolio -------------------------
- ----------------------------------------------------
Financial Highlights --------------------------------------
- ----------------------------------------
For a share of each class of capital stock outstanding
throughout each year:
<TABLE>
<CAPTION>
Class A
Class C(a) Class Y(b)
------------------
- -------------------- -----------------
1995
1994(c) 1995 1994(d) 1995 1994(e)
=========================================================
===================================================
<S> <C> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 6.41 $
6.50 $ 6.41 $ 6.51 $6.41 $6.57
- -----------------------------------------------------------
- -----------------------------------------------
Income from Investment Operations:
Net investment income(1) 0.32
0.27 0.30 0.25 0.31 0.15
Net realized and unrealized gain (loss)
on investments 0.04
(0.12) 0.05 (0.12) 0.05 (0.15)
- -----------------------------------------------------------
- ----------------------------------------------Total Income
from Investment Operations 0.36
0.15 0.35 0.13 0.36 --
- -----------------------------------------------------------
- ----------------------------------------------Less
Distributions:
Dividends from net investment income (0.32)
(0.24) (0.31) (0.23) (0.32) (0.16)
Distributions from net realized gains
on security transactions (0.01)
- -- (0.01) -- (0.01) --
- ----------------------------------------------------------
- -----------------------------------------------Total
Distributions (0.33)
(0.24) (0.32) (0.23) (0.33) (0.16) ----
- ----------------------------------------------------------
- --------------------------------------------
Net Asset Value, End of Year $ 6.44 $
6.41 $ 6.44 $ 6.41 $6.44 $6.41
- ----------------------------------------------------------
- -----------------------------------------------Total
Return 5.89%
2.29%++ 5.56% 1.87%++ 5.87% N/A
- ----------------------------------------------------------
- ------------------------------------------------
Net Assets, End of Year (000s) $5,377
$8,020 $1,786 $2,361 $523 $ 494 ----
- ----------------------------------------------------------
- -------------------------------------------Ratios to
Average Net Assets:
Expenses(1) 0.40%
0.19%+ 0.69% 0.53%+ 0.43% 0.35%+
Net investment income 4.89
4.99+ 4.63 4.52+ 4.89 4.84+
- ----------------------------------------------------------
- ----------------------------------------------Portfolio
Turnover Rate 27.40%
47.91% 27.40% 47.91% 27.40% 47.91%
=========================================================
===================================================
</TABLE>
(a) On November 7, 1994 the former Class B shares were
renamed Class C shares.
(b) On November 7, 1994 the former Class C shares were
renamed Class Y shares.
(c) For the period from April 27, 1993 (inception date)
to March 31, 1994.
(d) For the period from May 18, 1993 (inception date) to
March 31, 1994.
(e) For the period from June 23, 1993 (inception date) to
March 31, 1994.
++ Not annualized, as the result may not be
representative of the total
return for the year.
+ Annualized.
(1) The manager has waived all of its fees and reimbursed
expenses of $8,087 and
$10,992 for the year ended March 31, 1995 and the
period ended March 31,
1994, respectively. 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>
<CAPTION>
Expense Ratios
Per Share Decreases
Without Fee Waivers*
---------------------------------
- --------------------
1995 1994
1995 1994
---- ---- -
- - ----
<S> <C> <C>
<C> <C>
Class A $0.037 $0.032
0.95% 0.75%+
Class C 0.037 0.041
1.23 1.18+
Class Y 0.036 0.011
1.98 0.88+
</TABLE>
* As a result of voluntary expense limitations, the
ratio of expenses to
average net assets will not exceed 0.80%, 1.00% and
0.65% for Class A, C and
Y Shares, respectively.
44
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[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds
California Portfolio --------------------------------------
- ----------------------------------------
Financial Highlights (continued) --------------------------
- ----------------------------------------------------
For a share of each class of capital stock outstanding
throughout each year:
<TABLE>
<CAPTION>
Class A Shares (a) 1995
1994 1993 1992 1991
=========================================================
===========================================
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.27
$12.78 $12.05 $11.62 $11.47
- -----------------------------------------------------------
- ---------------------------------------
Income from Investment Operations:
Net investment income (1) 0.74
0.76 0.78 0.81 0.84
Net realized and unrealized gain (loss)
on investments (2) 0.02
(0.47) 0.73 0.42 0.15
- -----------------------------------------------------------
- ---------------------------------------
Total Income from Investment Operations 0.76
0.29 1.51 1.23 0.99
- -----------------------------------------------------------
- ---------------------------------------
Less Distributions:
Dividends from net investment income (0.75)
(0.77) (0.78) (0.80) (0.84)
Distributions from net realized gains
on security transactions --
(0.03) -- -- --
- -----------------------------------------------------------
- ---------------------------------------
Total Distributions (0.75)
(0.80) (0.78) (0.80) (0.84)
- -----------------------------------------------------------
- ---------------------------------------
Net Asset Value, End of Year $12.28
$12.27 $12.78 $12.05 $11.62
- -----------------------------------------------------------
- ---------------------------------------
Total Return 6.47%
2.15% 12.93% 11.11% 8.90% -----------------------
- -----------------------------------------------------------
- ---------------
Net Assets, End of Year (000s) $161,993
$164,833 $159,635 $123,268 $98,740 --------------------
- -----------------------------------------------------------
- ------------------
Ratios to Average Net Assets:
Expenses (1) 0.59%
0.51% 0.53% 0.38% 0.21%
Net investment income 6.16
5.90 6.32 6.78 7.25 ------------------------
- -----------------------------------------------------------
- ---------------
Portfolio Turnover Rate 31.65%
38.68% 24.28% 44.03% 45.37%
=========================================================
===========================================
Class B Shares 1995(b)
=========================================================
===========================================
Net Asset Value, Beginning of Period $11.52 --
- -----------------------------------------------------------
- ------------------------------------
Income from Investment Operations:
Net investment income 0.30
Net realized and unrealized gain
on security transactions (2) 0.75
- -----------------------------------------------------------
- ---------------------------------------
Total Income from Investment Operations 1.05 -
- -----------------------------------------------------------
- --------------------------------------
Less Distributions:
Dividends from net investment income (0.28)
Distributions from net realized gains
on security transactions ----
- -----------------------------------------------------------
- ------------------------------------
Total Distributions (0.28) -
- -----------------------------------------------------------
- --------------------------------------
Net Asset Value, End of Period $12.29 --
- -----------------------------------------------------------
- ------------------------------------
Total Return
9.18%++ ---------------------------------------------------
- -----------------------------------------------
Net Assets, End of Period (000s) $607 --
- -----------------------------------------------------------
- ------------------------------------
Ratios to Average Net Assets:
Expenses
1.19%+
Net investment income 5.56+
- -----------------------------------------------------------
- ---------------------------------------
Portfolio Turnover Rate 31.65%
=========================================================
===========================================
</TABLE>
(a) On October 10, 1994 the former Class C shares were
exchanged into Class A
shares.
(b) For the period from November 11, 1994 (inception date)
to March 31, 1995.
(1) See page 45 for full footnote disclosure.
(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.
++ Not annualized, as the result may not be representative
of the total
return for the year.
+ Annualized.
45
[[1]] EDGAR only EDG: 12-
JUN-1995 09:34 BLK: 00-000-0000 00:00
[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 EDITOR V2.7
<PAGE>
Smith Barney Muni Funds
California 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
$12.26 $12.77 $12.46 -----------------
- -----------------------------------------------------------
- ------------------------
Income from Investment Operations:
Net investment income
0.67 0.68 0.20
Net realized and unrealized gain (loss)
on investments (2)
0.01 (0.48) 0.29 -------------------
- -----------------------------------------------------------
- ----------------------
Total Income from Investment Operations
0.68 0.20 0.49 -------------------
- -----------------------------------------------------------
- ----------------------
Less Distributions:
Dividends from net investment income
(0.66) (0.68) (0.18) Distributions
from net realized gains on
security transactions
- -- (0.03) -
- ----------------------------------------------------------
- ------------------------------------------
Total Distributions
(0.66) (0.71) (0.18) ----------------
- ----------------------------------------------------------
- --------------------------
Net Asset Value, End of Year
$12.28 $12.26 $12.77 ----------------
- ----------------------------------------------------------
- --------------------------
Total Return
5.80% 1.45% 3.95%++ ---------------
- ------------------------------------------
- --------------------------------------------
Net Assets, End of Year (000s)
$6,888 $6,269 $1,784
- ----------------------------------------------------------
- ------------------------------------------
Ratios to Average Net Assets:
Expenses
1.23% 1.22% 1.20%+
Net investment income
5.57 5.15 5.44+
- ----------------------------------------------------------
- -------------------------------------------
Portfolio Turnover Rate
31.65% 38.68% 24.28%
=========================================================
=============================================
</TABLE>
(a) On November 7, 1994 the former Class B shares were
renamed Class C shares.
(b) 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 part of its fees for
each of the periods in
the two-year period ended March 31, 1992. 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>
<CAPTION>
Expense Ratios
Per Share Decrease
Without Fee Waivers*
-------------------------
- -------------------------------
<S> <C> <C>
<C> <C>
1992 1991
1992 1991
---- --------
- --
Class A $0.017 $0.029
0.51% 0.46%
</TABLE>
* 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.
46
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[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds -----------------------------------
- -------------------------------------------
Independent Auditors' Report ------------------------------
- ------------------------------------------------
To the Shareholders and Board of Trustees
of the California Money Market, California Limited Term and
California Portfolios of Smith Barney Muni Funds:
We have audited the accompanying statements of
assets and liabilities,
including the schedules of investments, of the California
Money Market,
California Limited Term and California Portfolios of Smith
Barney Muni Funds as
of March 31, 1995, the related statements 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 with respect to the California Money
Market and California
Portfolios and for the year then ended and the period from
April 27, 1993
(commencement of operations) to March 31, 1994 with respect
to the California
Limited Term Portfolio and the financial highlights for
each of the years in the
four-year period then ended and for the period from May 10,
1990 (commencement
of operations) to March 31, 1991 with respect to the
California Money Market
Portfolio, for the year then ended and the period from
April 27, 1993
(commencement of operations) to March 31, 1994 with respect
to the California
Limited Term Portfolio and for each of the years in the
five-year period then
ended with respect to California Portfolio. These financial
statements and
financial highlights are the responsibility of the Funds'
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
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.
47
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[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
Smith Barney Muni Funds ----------------------------------
- -------------------------------------------Independent
Auditors' Report (continued) ----------------------------
- -------------------------------------------------
In our opinion, the financials statements referred to
above present fairly,
in all material respects, the financial position of the
California Money Market
California Limited Term and California Portfolios of Smith
Barney Muni Funds as
of March 31, 1995, the results of their operations for the
year then ended, the
changes in net assets for each of the years in the two
year period then ended
with respect to the California Money Market and California
Portfolios and for
the year then ended and the period from April 27, 1993
(commencement of
operations) to March 31, 1994 with respect to the
California Limited Term
Portfolio and the financial highlights for each of the
years in the four-year
period then ended and the period from May 10, 1990
(commencement of operations)
to March 31, 1991 with respect to the California Money
Market Portfolio, for the
year then ended and the period from April 27, 1993
(commencement of operations)
to March 31, 1994 with respect to the California Limited
Term Portfolio and for
each of the years in the five-year period then ended with
respect to the
California Portfolio, in conformity with generally
accepted accounting
principles.
/s/ KPMG
Peat Marwick LLP
New York, New York
May 15, 1995
48
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[[1]]Smith Barney California Fund
R.R. Donnelley (212) 341-7777 WP2EDG
<PAGE>
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
Karen L. Mahoney-Malcomson
Vice President
Irving P. David
Controller
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 California Money Market,
California Limited Term and
California Portfolios. 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
FD2309 E5
82110
<PAGE>
[GRAPHIC]
SMALL BOX ABOVE FUND NAME SHOWING PALM
TREES IN FRONT OF A HIGH-RISE BUILDING.
SEMI- SMITH BARNEY
ANNUAL INTERMEDIATE
REPORT MATURITY
CALIFORNIA
MUNICIPALS
FUND
.......................................
MAY 31, 1995
[LOGO]
<PAGE>
Intermediate Maturity California
Municipals Fund
DEAR SHAREHOLDER:
We are please to provide you with the
semi-annual report and
portfolio of investments for Smith
Barney Intermediate
Maturity California Municipals Fund
Inc. for the period ended
May 31, 1995. Reflecting the improvement in the
municipal market that
began in late 1994, Class A shares earned a
total return of 9.39% for
this six-month period. Class C shares, a newly
available class of
shares, earned a total return of 9.22% between
November 8, 1994 and May 31, 1995for the
six months period.
Additional performance data for each class of
shares during this and
previous reporting periods is available in the
"Financial Highlights"
section of this report.
ECONOMIC AND MARKET UPDATE
The increases last year in short-term rates by
the Federal Reserve
Board are clearly slowing the economy's
expansion from its faster pace
of last fall. The question now on the minds of
economists and
investors is whether this is merely a pause in
economic activity or
indicative of longer-term economic weakness. We
do not believe that
forthcoming economic data will show conclusive
evidence of a
recession, and instead are working under the
assumption that the
economy will experience a small pause and then
steady growth with
moderate inflation.
The municipal securities market had a
strong rally during the
past six months and the Fund was positioned to
take full advantage of
it. A significant percentage of the Fund's
portfolio was invested in
high quality, discount coupons, which allowed it
to maximize its net
asset value in the rapidly declining interest
rate environment. The net asset value increased by $0.52
per share, to $8.32 on
May 31, 1995, from $7.80 on February 28, 1995. Our current
goal
is to use market
strength to gradually increase coupons, shorten maturities
and take a more
conservative approach to the market until these interest
rate levels prove they
can hold. This is consistent with our long-term strategy of
providing investors
in the Fund with a competitive stream of California tax
exempt income with
preservation of capital.
Some uncertainties surround the market, however. Among
these are the many flat
tax proposals being championed by members of both political
parties. Real
legislative action is several years away and must be
REVENUE NEUTRAL to make any
economic sense -- a very difficult balancing act to
accomplish. These
discussions have caused periodic weaknesses in the
1
<PAGE>
municipal securities market during the past months and will
no doubt continue to
cause periodic weaknesses over the next few years, which we
will view as an
opportunity to invest at levels that represent real value
to our shareholders. A
general rise in interest rates would be another story, and
we clearly would
react differently to that economic circumstance.
A defining moment for the municipal securities market was
Orange County
California's filing for bankruptcy in December 1994, which
immediately cast a
pall on the entire market. Its impact on the broader
market since then has been
minimal, but has been considerably stronger on the
securities of the County
itself. The recent defeat of "Measure R" makes us quite
skeptical of Orange
County's plans to repay its debt. The Fund has not
participated in any of the
recent debt offerings by Orange County, and holds only two
tax allocation
securities (approximately 4.2% of the Fund's portfolio)
issued by Orange County
Development Agency. Although these bonds are issued under
the name of the
County, they rely on a dedicated property tax to pay debt
service. Management
believes that the bankruptcy proceeding will not have any
material impact on the
ability of the issuer to make its scheduled interest and
principal payments and
therefore will have little, if any, effect on the Fund.
PORTFOLIO UPDATE
At the end of this reporting period, 100% of the Fund's
portfolio was rated
investment grade (BBB/Baa and higher) by either Standard &
Poor's Corporation
or Moody's Investors Service, Inc. The majority of the
Fund's assets were
invested in general obligation, education, transportation
and pollution control
issues. The average maturity of the Fund was 8.7 years. As
we stated earlier, we
intend to gradually increase coupons, shorten the average
maturity of the
portfolio and assume a more conservative stance.
We look forward to reporting to you in the Fund's annual
report to investors.
Should you have any questions about your investment in the
Fund or how other
Smith Barney mutual funds may be useful in helping you
reach your financial
goals, please speak with your Smith Barney Financial
Consultant.
Sincerely,
Heath B. McLendon Joseph P.
Deane
CHAIRMAN OF THE BOARD VICE PRESIDENT
AND
INVESTMENT
OFFICER
JULY 18 , 1995
2
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
- --------------
PORTFOLIO HIGHLIGHTS (UNAUDITED)
MAY 31, 1995
INDUSTRY BREAKDOWN
Pie chart depicting the allocation of the Income Trust
Intermediate Maturity
California Municipals Fund investment securities held at
May 31, 1995 by
industry classification. The pie is broken in pieces
representing industries in
the following percentages:
<TABLE>
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
General Obligation 22.3%
Transportation 16.3%
Education 14.8%
Housing 6.1%
Other Industries and Net Other Assets
and Liabilities 16.4%
Pollution Control 11.5%
Hospital 8.8%
Utility 3.8%
</TABLE>
SUMMARY OF MUNICIPAL BONDS BY COMBINED RATINGS
<TABLE>
<CAPTION>
Standard & Percent
Moody's Poor's of Value
<S> <C> <C> <C>
-------------------------------------------------
AAA AAA 21.9%
-------------------------------------------------
AA AA 16.3
-------------------------------------------------
A A 36.2
-------------------------------------------------
BAA BBB 25.6
-------------------------------------------------
100.0% -----
---------
</TABLE>
AVERAGE MATURITY 8.7 years
3
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- ------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
MAY 31, 1995
--------------------------------------------------
- ---------
<TABLE>
<S> <C>
KEY TO INSURANCE ABBREVIATIONS
AMBAC -- American Municipal Bond Assurance
Corporation
FGIC -- Federal Guaranty Insurance
Corporation
FHA -- Federal Housing Administration
GNMA -- Government National Mortgage
Association
MBIA -- Municipal Bond Investor Assurance
</TABLE>
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S
S&P (NOTE 1)
<C> <S> <C>
<C> <C>
--------------------------------------------------------
- --------------------
MUNICIPAL BONDS AND NOTES -- 97.0%
CALIFORNIA -- 97.0%
Belmont, California,
Redevelopment Agency, Tax
Allocation Project, (Los Costanos
Community Development), Series A:
$ 150,000 5.850% due 8/1/02 A
A- $ 153,375
160,000 5.950% due 8/1/03 A
A- 164,000
California Educational Facilities
Authority,
Revenue Bonds:
945,000 (College of Osteopathic),
5.550% due 6/1/06 NR
AAA 954,450
320,000 (Loyola Marymount
University),
Series B,
6.300% due 10/1/03 A1
NR 344,000
200,000 (Mills College),
6.500% due 9/1/02 A
NR 216,000
500,000 (University of Southern
California),
5.300% due 10/1/04 Aa
AA 509,375
200,000 California Health
Facilities Financing Authority,
(Sisters of Providence),
6.200% due 10/1/03 A1
AA- 208,500
400,000 California Health
Facilities,
(St. Elizabeth's Hospital Project),
5.900% due 11/15/03 A1
A+ 410,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1995
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S
S&P (NOTE 1)
--------------------------------------------------------
- --------------------
<C> <S> <C>
<C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
$ 200,000 California Health
Facilities Revenue,
(Adventist Health
System/West Agency), Series
B, (MBIA Insured),
6.150% due 3/1/99 Aaa
AAA $ 211,250
California Housing Finance Agency
Revenue, Home
Mortgage:
5,000 10.000% due 2/1/02 Aa
AA- 5,031
Series E1, (FHA Insured): 700,000
5.900% due 2/1/05 Aa
AA- 713,125
700,000 5.900% due 8/1/05 Aa
AA- 714,000
California State, General
Obligation Bonds:
100,000 9.800% due 10/1/00 A1
A+ 121,625
200,000 6.000% due 9/1/03 A1
A 212,750
1,200,000 California Statewide
Community Development,
Certificates of Participation,
(St. Josephs Health),
5.875% due 7/1/05 Aa
AA 1,255,500
190,000 Escondido, California,
Unified School District,
Certificates of Participation,
Series A,
5.400% due 7/1/03 A
A- 185,963
Fresno, California, Joint Powers
Financing Authority, Series A:
1,500,000 5.750% due 9/2/98 NR
BBB 1,503,750
355,000 Certificates of
Participation,
(Street Light Acquisition),
Project A,
5.375% due 8/1/03 A
A+ 347,900
855,000 Garden Grove, California,
Agency Tax Allocation Revenue,
(Garden Grove Community Project),
5.375% due 10/1/03 NR
A 843,244
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 5
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1995
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S
S&P (NOTE 1)
--------------------------------------------------------
- --------------------
<C> <S> <C>
<C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
$1,000,000 Hawthorne, California,
Community Redevelopment
Agency, (Tax Allocation Redevelopment
Project, Area
2),
6.200% due 9/1/05 Baa
NR $ 1,030,000
Irvine Ranch, California, Water
District, Joint
Powers Agency, Local Pool
Revenue, Issue II:
800,000 7.200% due 8/15/96 NR
A+ 815,000
480,000 7.800% due 8/15/01 NR
A+ 505,800
285,000 Kern, California, High
School District, Series C, (MBIA
Insured),
8.750% due 8/1/03 Aaa
AAA 353,756
Kings County, California, Waste
Management, Solid
Waste Revenue Bonds:
400,000 6.500% due 10/1/03 NR
BBB 418,000
310,000 6.600% due 10/1/04 NR
BBB 327,050
230,000 Kings River Conservation
District, (California Pine Flat
Power Revenue
Project), Series D,
5.375% due 1/1/00 Aa
AA 236,900
30,000 Los Angeles County,
California, Multiple
Capital Facilities, Certificates
of Participation, (Project
III),
5.800% due 11/1/98 A
A- 30,675
Los Angeles County, California,
Transportation Authority,
Transportation Commission,
Certificates of Participation:
500,000 Series B,
6.200% due 7/1/03 A1
A+ 531,875
45,000 Series G,
6.100% due 1/1/00 A
NR 47,531
500,000 Modesto, California, High
School District,
(Stanislaus County), (FGIC Insured),
5.300% due 8/1/04 Aaa
AAA 509,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 6
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1995
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S
S&P (NOTE 1)
--------------------------------------------------------
- --------------------
<C> <S> <C>
<C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
Mojave, California, Water
District, California Improvement
District, (Moronogo Basin):
$ 250,000 6.250% due 9/1/02 Baa
BBB+ $ 260,625
280,000 6.375% due 9/1/03 Baa
BBB+ 293,650
Orange County, Cailfornia,
Development Agency Tax
Allocation, (Santa Ana
Heights Project):
500,000 5.500% due 9/1/00 Caa
BBB 485,000
500,000 5.600% due 9/1/01 Caa
BBB 482,500
Palm Springs, California,
Financing Authority,
Airport Revenue, (Palm
Springs Regional Airport), (MBIA
Insured):
200,000 5.400% due 1/1/03 Aaa
AAA 205,000
400,000 5.500% due 1/1/04 Aaa
AAA 411,000
795,000 Redding, California, Joint
Powers Financing Authority, Solid
Waste and Corporate Yard, Series
A,
5.000% due 1/1/04 A
BBB+ 744,319
150,000 Riverside County,
California, Transportation
Commission, Sales Tax
Revenue, Series A,
6.500% due 6/1/00 A
A+ 162,000
Sacramento, California, Regional
Transportation, Certificates of
Participation, Series A:
300,000 6.375% due 3/1/02 A1
NR 321,000
350,000 6.400% due 3/1/03 A1
NR 375,813
100,000 San Diego, California,
Certificates of Participation,
Unified
School District, Series B, 6.000%
due 7/1/03 Aa
AA- 104,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1995
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S
S&P (NOTE 1)
--------------------------------------------------------
- --------------------
<C> <S> <C>
<C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
San Francisco, California, City
and County Multifamily Revenue,
(South Beach Project), (GNMA
Insured):
$ 340,000 4.750% due 3/1/02 Aaa
NR $ 332,775
305,000 4.900% due 3/1/03 Aaa
NR 298,900
San Francisco, California,
Downtown Parking, Series R:
450,000 6.000% due 4/1/02 A
NR 460,125
280,000 6.150% due 4/1/03 A
NR 288,750
San Jose, California,
Airport Revenue:
500,000 (MBIA Insured),
5.750% due 3/1/03 Aaa
AAA 525,625
800,000 (FGIC Insured),
5.400% due 3/1/04 Aaa
AAA 808,000
Santa Barbara, California,
Certificates of
Participation, (Harbor Refunding
Project):
270,000 6.400% due 10/1/02 A
NR 283,500
285,000 6.500% due 10/1/03 A
NR 301,031
1,000,000 South Napa, California,
Waste Management
Facilities,
6.000% due 2/15/04 Baa1
NR 993,750
450,000 Southern California Rapid
Transit Authority, District
A2, Special Benefit
Assessment,
6.100% due 9/1/03 Baa
A- 469,125
105,000 Tehachapi, California,
Unified School District,
School Facilities
Corporation, Certificates
of Participation,
5.900% due 8/1/03 Baa
NR 103,031
200,000 University of California,
Multiple Purpose Projects, Series A,
(MBIA Insured),
6.100% due 9/1/00 Aaa
AAA 213,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 8
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1995
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S
S&P (NOTE 1)
--------------------------------------------------------
- --------------------
<C> <S> <C>
<C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
$ 205,000 Upland, California,
Certificates of
Participation, (Police
Building Refunding
Project), (AMBAC Insured),
6.200% due 8/1/02 Aaa AAA $
222,936
--------------------------------------------------------
- --------------------
TOTAL MUNICIPAL BONDS AND NOTES (COST
$23,518,190)
23,027,380
--------------------------------------------------------
- --------------------
TOTAL INVESTMENTS (COST $23,518,190*)
97.0% 23,027,380
OTHER ASSETS AND LIABILITIES (NET)
3.0 640,726
--------------------------------------------------------
- --------------------
NET ASSETS
100.0% $23,668,106
--------------------------------------------------------
- --------------------
<FN>
* Aggregate cost for Federal tax purposes.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
- --------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
MAY 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$22,518,190) (Note 1)
See accompanying schedule
$23,027,380
Cash
433,557
Interest receivable
361,853
Receivable for Fund shares sold
39,982
Unamortized organization costs (Note 7)
19,067 ----------------------------------------------------
- ------------
TOTAL ASSETS
23,881,839 ------------------------------------------------
- ----------------
LIABILITIES:
Payable for Fund shares redeemed $113,798
Dividends payable 66,377
Investment advisory fee payable (Note
2) 5,979
Administration fee payable (Note 2) 3,488
Service fee payable (Note 3) 3,066
Custodian fees payable (Note 2) 2,200
Transfer agent fees payable (Note 2) 808
Distribution fee payable (Note 3) 42
Accrued expenses and other payables 17,975
- -----------------------------------------------------------
- -----
TOTAL LIABILITIES
213,733 ---------------------------------------------------
- -------------
NET ASSETS
$23,668,106 -----------------------------------------------
- -----------------
NET ASSETS consist of:
Accumulated net realized loss on
investments sold
(892,242)
Unrealized appreciation of investments
509,190
Par value
2,844
Paid-in capital in excess of par value
24,048,314 ------------------------------------------------
- ----------------
TOTAL NET ASSETS
$23,668,106 -----------------------------------------------
- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
(CONTINUED)
- -----------------------------------------------------------
MAY 31, 1995
<TABLE>
<S> <C>
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE per share+
($23,416,362 DIVIDED BY 2,814,234
shares of beneficial interest
outstanding)
$8.32 -----------------------------------------------------
- ---
MAXIMUM OFFERING PRICE PER SHARE ($8.32
DIVIDED BY 0.980)
(based on sales charge of 2.00% of the
offering price at May 31, 1995)
$8.49 -----------------------------------------------------
- ---
CLASS C SHARES:
NET ASSET VALUE and offering price per
share+
($251,744 DIVIDED BY 30,255 shares of
beneficial interest outstanding)
$8.32 -----------------------------------------------------
- ---
<FN>
+ Redemption price per share is equal to Net Asset
Value less any applicable
contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
- --------------
STATEMENT OF OPERATIONS (UNAUDITED)
- -----------------------------------------------------------
FOR THE SIX
MONTHS ENDED MAY 31, 1995
<TABLE>
<S>
<C> <C>
INVESTMENT INCOME:
Interest
$ 705,382
- -----------------------------------------------------------
- ------------------
EXPENSES:
Investment advisory fee (Note 2) $
42,677
Administration fee (Note 2)
24,387
Service fee (Note 3)
18,290
Legal and audit fees
13,139
Custodian fees (Note 2)
6,542
Amortization of organization costs (Note 7)
6,021
Trustees' fees and expenses (Note 2)
4,695
Transfer agent fees (Notes 2 and 4)
4,673
Distribution fee (Note 3)
205
Other
20,565
Fees waived by investment adviser and
administrator (Note 2)
(50,596) --------------------------------------------------
- ---------------------------
TOTAL EXPENSES
90,598 ----------------------------------------------------
- -------------------------
NET INVESTMENT INCOME
614,784 ---------------------------------------------------
- --------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1
AND 5):
Net realized loss on investments during the
period
(136,860)
Net unrealized appreciation of investments
during the period
1,724,224 -------------------------------------------------
- ----------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,587,364 -
- -----------------------------------------------------------
- -----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$2,202,148 ------------------------------------------------
- -----------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
- --------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
5/31/95 ENDED
(UNAUDITED) 11/30/94
<S>
<C> <C>
Net investment income
$ 614,784 $ 1,505,492
Net realized loss on investments during the period
(136,860) (731,956)
Net unrealized appreciation/(depreciation) of investments
during the period 1,724,224
(1,997,496) -----------------------------------------------
- ------------------------------------
Net increase/(decrease) in net assets resulting from
operations
2,202,148 (1,223,960)
Distributions to shareholders from net investment income:
Class A
(610,051) (1,505,401)
Class C
(4,733) (91)
Distribution to shareholders from net realized gain on
investments:
Class A
- -- (44,755)
Net increase/(decrease) in net assets from Fund share
transactions (Note 6):
Class A
(3,515,489) (4,380,596)
Class C
192,152 45,000 ---------------------------------
- --------------------------------------------------
Net decrease in net assets
(1,735,973) (7,109,803)
NET ASSETS:
Beginning of period
25,404,079 32,513,882 -----------------------------
- ------------------------------------------------------End
of period
$23,668,106 $25,404,079 ----------------------------
- -------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
- --------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
5/31/95 ENDED ENDED ENDED
(UNAUDITED) 11/30/94* 11/30/93 11/30/92*
<S>
<C> <C> <C> <C>
Net Asset Value, beginning of period
$ 7.80 $ 8.50 $ 8.04 $ 7.90
- -----------------------------------------------------------
- ------------------------
Income from investment operations:
Net investment income+
0.20 0.39 0.39 0.35
Net realized and unrealized gain/(loss) on investments 0.52
(0.69) 0.46 0.14
- -----------------------------------------------------------
- ------------------------
Total from investment operations
0.72 (0.30) 0.85 0.49
Less distributions:
Distributions from net investment income
(0.20) (0.39) (0.39) (0.35)
Distributions from net realized capital gains -
(0.01) -- --
- -----------------------------------------------------------
- ------------------------
Total distributions
(0.20) (0.40) (0.39) (0.35) -----------
- -----------------------------------------------------------
- -------------
Net Asset Value, end of period
$ 8.32 $ 7.80 $ 8.50 $ 8.04
- -----------------------------------------------------------
- ------------------------
Total return++
9.39% (3.65)% 10.70% 6.33%
- ----------------------------------------------------------
- --------------------------
Ratios to average net assets/supplemental data: Net
assets, end of period (in 000's)
$23,416 $25,359 $32,514 $10,667 Ratio
of operating expenses to average net assets+++
0.74%** 0.75% 0.72% 0.65%**
Ratio of net investment income to average net assets
5.04%** 4.73% 4.45% 4.81%**
Portfolio turnover rate
4% 39% 16% 46%
- -----------------------------------------------------------
- ------------------------
<FN>
* The Fund commenced operations on December 31, 1991.
Those shares in existence
prior to November 7, 1994 were designated Class A
shares.
** Annualized.
+ Net investment income before waiver of fees by
investment adviser and
administrator for the six months ended May 31, 1995
and year ended November
30, 1994 and waiver of fees and reimbursement of
expenses by investment
adviser, sub-investment adviser, administrator,
and/or custodian and
distributor for the year ended November 30,1993 and
period ended November 30,
1992 were $0.19, $0.35, $0.32 and $0.24, respectively.
++ Total return represents aggregate total return for
the period indicated and
does not reflect any applicable sales charges.
+++ Annualized operating expense ratio before waiver of
fees by investment
adviser and administrator for the six months ended
May 31, 1995 and year
ended November 30, 1994 and before waiver of fees
and reimbursement of
expenses by investment adviser, sub-investment
adviser, administrator and/or
custodian and distributor for the year ended
November 30, 1993 and period
ended November 30, 1992 were 1.16%, 1.24%, 1.49% and
2.18%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
- --------------
FINANCIAL HIGHLIGHTS
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
5/31/95 ENDED
(UNAUDITED) 11/30/94*
<S>
<C> <C>
Net Asset Value, beginning of period
$ 7.80 $ 7.76 ---------------------------------------
- ---------------------------------------------
Income from investment operations:
Net investment income+
0.19 0.01
Net realized and unrealized gain on investments
0.52 0.05# ----------------------------------------
- --------------------------------------------
Total from investment operations
0.71 0.06
Less distributions:
Distributions from net investment income
(0.19) (0.02) ----------------------------------------
- -------------------------------------------
Total distributions
(0.19) (0.02) ----------------------------------------
- ----------------
- ----------------------------
Net Asset Value, end of period
$ 8.32 $ 7.80
- -----------------------------------------------------------
- ------------------------
Total return++
9.22% 0.72% -----------------------------------------
- ------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)
$ 252 $ 45
Ratio of operating expenses to average net assets+++
0.94%** 0.95%**
Ratio of net investment income to average net assets
4.85%** 4.53%**
Portfolio turnover rate
4% 39%
- -----------------------------------------------------------
- ------------------------
<FN>
* The Fund commenced selling Class C shares on
November 8, 1994.
** Annualized.
+ Net investment income before waiver of fees by
investment adviser and
administrator for the six months ended May 31, 1995
and for the period ended
November 30, 1994 were $0.18 and $0.01,
respectively.
++ Total return represents aggregate total return for
the period indicated and
does not reflect any applicable sales charges.
+++ Annualized operating expense ratio before waiver of
fees by investment
adviser and administrator for the six months ended
May 31, 1995 and for the
period ended November 30, 1994 were 1.35% and 1.44%,
respectively.
# The amount in this caption for each share outstanding
throughout the period
may not accord with the change in aggregate gains
and losses in the portfolio
securities for the period because of the timing of
purchases and withdrawals
of shares in relation to the fluctuating market
values of the portfolio.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
- ---------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Income Trust (the "Trust") was organized as a
"Massachusetts
business trust" under the laws of the Commonwealth of
Massachusetts on October
17, 1991. The Trust is registered with the Securities and
Exchange Commission
under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an
open-end management investment company. The Trust consists
of the following four
funds: Smith Barney Limited Maturity Treasury Fund, Smith
Barney Limited
Maturity Municipals Fund, Smith Barney Intermediate
Maturity California
Municipals Fund (the "Fund") and Smith Barney Intermediate
Maturity New York
Municipals Fund. Effective November 7, 1994, the Fund began
offering Class C and
Class Y shares and all existing shares were designated
Class A shares. As of May
31, 1995, no Class Y shares have been sold. Class A shares
are sold with a
front-end sales charge. Class C shares may be subject to a
contingent deferred
sales charge ("CDSC") upon redemption. Class Y shares are
available to investors
making an initial investment of at least $5 million and are
not subject to any
sales charges, distribution or service fees. All classes of
shares have
identical rights and privileges except with respect to the
effect of the
respective sales charges, the distribution and/or service
fees borne by each
class, expenses allocable exclusively to each class, voting
rights on matters
affecting a single class and the exchange privilege of each
class. 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, Inc. by The Boston Company Advisors,
Inc. ("Boston
Advisors"), an indirect wholly owned subsidiary of Mellon
Bank Corporation
("Mellon"), after consultation with an independent pricing
service (the
"Service") approved by the Board of Trustees. When, in the
judgment of the
Service, quoted bid prices for securities 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.
Securities for which,
in the judgment of the Service, there are no 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
16
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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. Securities, not valued by the
Service, for which
market quotations are not readily available are valued at
fair value as
determined in good faith by or under the direction of the
Board of Trustees.
Short-term investments that mature in 60 days or less are
valued at amortized
cost.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are
recorded as of the trade date. 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 recorded on the accrual basis. Realized
gains and losses from
securities sold are recorded on the identified cost basis.
Investment income and
realized and unrealized gains and losses are allocated
based upon the relative
net assets of each class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from
net investment
income are determined on a class level. It is the policy of
the Fund to declare
dividends from net investment income daily and to pay such
dividends on the last
business day of the Smith Barney Inc. ("Smith Barney")
statement month.
Distributions of any net realized capital gains are
declared and paid annually,
after the end of the fiscal year. Additional distributions
of net investment
income and capital gains for the Fund may be made at the
discretion of the Board
of Trustees in order to avoid the application of a 4.00%
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
distribute such gains.
Income distributions and capital gain distributions on a
Fund level are
determined in accordance with income tax regulations which
may differ from
generally accepted accounting principles. These differences
are primarily due to
differing treatments of income and gains on various
investment securities held
by the Fund, timing differences and differing
characterization of distributions
made by the Fund as a whole.
17
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEDERAL INCOME TAXES: The Trust intends that the Fund
separately qualify as a
regulated investment company, if such qualification is in
the best interest of
its shareholders, which distributes exempt-interest
dividends, by complying with
the requirements of the Internal Revenue Code of 1986, as
amended, applicable to
regulated investment companies and by distributing
substantially all of its
earnings to its shareholders. Therefore, no Federal income
tax provision is
required.
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT
AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement
(the "Advisory
Agreement") with Smith Barney Mutual Funds Management Inc.
("SBMFM"). SBMFM
(formerly known as Smith Barney Advisers, Inc.), is a
wholly owned subsidiary of
Smith Barney Holdings Inc. ("Holdings"), which in turn 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
The Fund has entered into an administration agreement (the
"Administration
Agreement') with SBMFM. Under the Administration Agreement,
the Fund pays a
monthly fee at the annual rate 0.20% of the value of its
average daily net
assets.
The Fund and SBMFM have also entered into a sub
administration agreement (the
"Sub-Administration Agreement") with Boston Advisors. Under
the
Sub-Administration Agreement, SBMFM pays Boston Advisors a
portion of its
administration fee at a rate agreed upon from time to time
between SBMFM and
Boston Advisors.
From time to time, SBMFM may voluntarily waive a portion or
all of its advisory
and/or administrative fees otherwise payable to it. For the
six months ended May
31, 1995, SBMFM voluntarily waived advisory fees of $32,198
and administrative
fees of $18,398.
18
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
For the six months ended May 31, 1995, Smith Barney Inc.
("Smith Barney")
received $12,346 from investors representing commissions
(sales charges) on
sales of Class A shares.
A CDSC is generally payable by Class C shareholders and may
be payable by
certain Class A shareholders in connection with the
redemption of shares within
one year after the date of purchase. For the six months
ended May 31, 1995,
$4,048 in CDSCs were paid to Smith Barney by Class A
shareholders.
No officer, director or employee of Smith Barney or any of
its affiliates
receives any compensation from the Trust for serving as a
Trustee or officer of
the Trust. The Trust pays each Trustee who is not an
officer, director or
employee of Smith Barney or any of its affiliates $4,000
per annum plus $500 per
meeting attended and each Trustee emeritus who is not an
officer, director or
employee of Smith Barney or any of its affiliates $2,000
per annum plus $250 per
meeting attended. The Trust reimburses each Trustee for
travel and out-of-pocket
expenses incurred in attending such meetings.
Boston Safe Deposit and Trust Company, an indirect wholly
owned subsidiary of
Mellon, serves as the Trust's custodian. The Shareholder
Services Group Inc., a
subsidiary of First Data Corporation, serves as the Trust's
transfer agent.
3. DISTRIBUTION PLAN
Smith Barney acts as distributor of the Fund's shares
pursuant to a distribution
agreement with the Trust and sells shares of the Fund
through Smith Barney or
its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has
adopted a service and
distribution plan (the "Plan"). Under this Plan, the Fund
compensates Smith
Barney for servicing shareholder accounts for Class A and
Class C shareholders,
and covers expenses incurred in distributing Class C
shares. Smith Barney is
paid an annual service fee with respect to Class A and
19
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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
C shares at the
annual rate of 0.20% of the value of the average daily net
assets of that class.
For the six months ended May 31, 1995, the Fund incurred
$18,137 and $153 in
service fees for Class A and Class C shares, respectively.
For the six months
ended May 31, 1995, the Fund incurred $205 in distribution
fees for Class C
shares.
Under its terms, the Plan shall remain in effect from year
to year, provided
that such continuance is approved annually by vote of the
Trust's Trustees,
including a majority of those Trustees who are not
"interested persons" of the
Trust and who have no direct or indirect financial interest
in the operation of
the Plan.
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 for the six months
ended May 31, 1995
included transfer agent fees of $4,636 and $37 for Class A
and Class C shares,
respectively.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities,
excluding short-term
investments, for the six months ended May 31, 1995 were
$937,239 and $3,585,161,
respectively.
At May 31, 1995, aggregate gross unrealized appreciation
for all securities in
which there was an excess of value over tax cost was
$621,400, and aggregate
gross unrealized depreciation for all securities in which
there was an excess of
tax cost over value was $112,210.
20
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of
beneficial interest with a
$.001 par value. Changes in shares of beneficial interest
in the Fund were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
5/31/95 11/30/94*
CLASS A SHARES: Shares
Amount Shares Amount
<S> <C>
<C> <C> <C> ------------------------------
- ----------------------------------------------------Sold
140,297 $ 1,123,479 1,242,342 $ 10,299,195
Issued as reinvestment of dividends 54,036
433,070 146,296 1,207,127
Redeemed (633,174)
(5,072,038) (1,962,629) (15,886,918) ---------------------
- -----------------------------------------------------------
- --
Net decrease (438,841)
$(3,515,489) (573,991) $ (4,380,596) --------------------
- -----------------------------------------------------------
- ---
<CAPTION>
SIX MONTHS
ENDED PERIOD ENDED
5/31/95 11/30/94*
CLASS C SHARES: Shares Amount
Shares Amount
<S> <C>
<C> <C> <C> ------------------------------
- ----------------------------------------------------Sold
24,205 $
190,144 5,799 $ 45,000
Issued as reinvestment of dividends 251
2,008 146,296 1,207,127 ---------------------------
- --------------------------------------------------------
Net increase 24,456 $
192,152 5,799 $ 45,000 -------------------------
- ---------------------------------------------------------
<FN>
* The Fund began offering Class C and Class Y shares
on November 7, 1994. Those
shares in existence prior to November 7, 1994 were
designated Class A shares.
</TABLE>
As of November 30, 1994, no Class Y shares had been sold.
7. ORGANIZATION COSTS
The Fund bears all costs in connection with its
organization including the fees
and expenses of registering and qualifying its shares for
distribution under
Federal and state securities regulations. All such costs
are being amortized on
the straight-line method over a period of five years from
the commencement of
operations of the Fund. In the event that any of the
initial shares of the Fund
owned by Smith Barney are redeemed during such
amortization period, the Fund
will be reimbursed for any unamortized organization costs
in the same proportion
as the number of shares redeemed bears to the number of
initial shares held at
the time of redemption.
21
<PAGE>
Smith Barney
Intermediate Maturity
California Municipals Fund
- -----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by
the State of
California, 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 California municipal
securities than is a
municipal bond fund that is not concentrated in these
issuers to the same
extent.
9. CAPITAL LOSS CARRYFORWARD
As of November 30, 1994, the Fund had available for Federal
tax purposes an
unused capital loss carryforward of $557,124 expiring in
the year 2002.
10. ORANGE COUNTY HOLDINGS
At May 31, 1995, approximately 4% of the Fund's portfolio
was invested in
securities issued by various agencies located within Orange
County, California.
However, none of these holdings are direct obligations of
the county itself, and
more than half are either insured (American Municipal Bond
Assurance
Corporation, Municipal Bond Investor Assurance or Federal
Guaranty Insurance
Corporation) or backed by guaranteed investment contracts.
The Fund believes
that the bankruptcy proceedings entered into by the County
will not have a
material impact on the ability of these issuers to make
scheduled interest and
principal payments and therefore will have little, if any,
effect on the Fund.
22
<PAGE>
INTERMEDIATE
MATURITY
CALIFORNIA
MUNICIPALS
FUND
TRUSTEES
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
Cornelius C. Rose, Jr.
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
AND INVESTMENT OFFICER
Jessica M. Bibliowicz
PRESIDENT
Lewis E. Daidone
SENIOR VICE PRESIDENT
AND TREASURER
Joseph P. Deane
VICE PRESIDENT AND
INVESTMENT OFFICER
Christina T. Sydor
SECRETARY
[LOGO]
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF
THE SHAREHOLDERS OF
SMITH BARNEY INTERMEDIATE MATURITY CALIFORNIA MUNICIPALS
FUND. IT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS
UNLESS ACCOMPANIED OR
PRECEDED BY AN EFFECTIVE PROSPECTUS FOR THE FUND, WHICH
CONTAINS INFORMATION
CONCERNING THE FUND'S INVESTMENT POLICIES AND EXPENSES AS
WELL AS OTHER
PERTINENT INFORMATION.
SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
Fund 165, 480, 496
[LOGO]
FD2330 7/95
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES AT NOVEMBER
30, 1994 (unaudited)
Smith Barney Intermediate
MatSmith
Barney Pro Forma Pro Forma
California MunicCalifornia
LimitAdjustments Combined
(Historical) (Historical)
ASSETS:
Investments, at value 24098275 6857431
11000(f) 30966706
Cash 34300 898493
- - 932793
Interest receivable 408039 124507
- - 532546
Receivable for Fund shares 977222 -
- - 977222
Unamortized organization co 25088 -
- - 25088
Receivable from advisor - 10992
- - 10992
Total Assets 25542924 7891423
11000 33445347
LIABILITIES:
Payable for Fund shares red 500 -
- - 500
Management fee payable 2828 3099
- - 5927
Distribution cost payable 3378 2061
- - 5439
Accrued expenses and other 60280 1270 -
61550
Dividends payable 71859 -
28266(a) 100125
Total Liabilitie 138845 6430
28266 173541
Net Assets 25404079 7884993
- -17266 33271806
NET ASSETS:
Par value of capital shares 3259 1276 -
265(c) 4270
Capital paid in excess of p27371236 8399182
265(c) 35770683
Undistributed net investmen- 49331 -
28266(a) 21065
Accumulated net realized lo -755382 -84083 -
- -839465
Net unrealized depreciation-1215034 -480713
11000(f) -1684747
Net Assets 25404079 7884993
- -17266 33271806
Outstanding Shares:
CLASS A 3253075 882855
- -183362(c) 3952568
CLASS C 5799 313631
- -65139(c) 254291
CLASS Y - 79649
- -16542(c) 63107
Net Asset Value
CLASS A(and redemption pric 7.8 6.18
7.8
CLASS C 7.8 6.18
7.8
CLASS Y - 6.18
7.8
MAXIMUM OFFERING PRICE 7.96 6.31
7.96
See accompanying notes to pro forma financial statements.
PRO FORMA STATEMENT OF OPERATIONS For the year
ended November 30, 1994 (unaudited)
Smith Barney Intermediate
MatSmith
Barney Pro Forma Pro Forma
California MunicCalifornia
LimitAdjustments Combined
(Historical) (Historical)
INVESTMENT INCOME:
Interest 1744106 534854
- - 2278960
EXPENSES:
Management fees 111347 45180
- -10040(b) 146487
Administration fee 63627 -
20080(b) 83707
Distribution costs 47727 9143
- - 56870
Shareholder servicing ag 28315 2539
461(d) 31315
Shareholder communicatio 39264 4056
- - 43320
Registration fees 42586 1654
- -1654(e) 42586
Legal and auditing fees 30079 8283
- -8283(e) 30079
Directors' fees 5520 4122
- -4122(e) 5520
Other 12923 4814
- - 17737
Amortization of organiza 12042 -
- - 12042
Total Expenses 393430 79791
- -3558 469663
Less: Fee waiver -154816 -42081
3558(g) -193339
Net Expenses 238614 37710
- - 276324
NET INVESTMENT INCOME 1505492 497144
- - 2002636
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized Gain From Security Transactions
(excluding short term securities)
Proceeds from sales 18229993 6296813 -
24526806
Cost of securities sold 18961949 6383042 -
25344991
Net Realized Loss -731956 -86229 -
- -818185
Change in Unrealized Appreciation of Investments
Beginning of period 782462 109466
11000(f) 902928
End of Period -1215034 -480713
11000(f) -1684747
Change in Net Unrealiz-1997496 -590179 -
2587675
Net Loss On Investment-2729452 -676408 -
3405860
DECREASE IN NET ASSETS RESULTING-1223960 -179264 -
1403224
See accompanying notes to pro forma financial statements.
(a) reflects difference in dividend decl(e) decrease due to
duplicative services
(b) reflects management fee agreement of(f) reflects change
from bid prices to mean prices by California Limited
(c) reflects new shares issued by Interm(g) reduction in
waiver due to reduction in expenses
(d) increase in expense due to agreement that would be in
effect if combined with
Intermediate Maturity California Municipals
ALT P TO PRINT ALL THREE PAGES
\P :PRSPAGE1~G~:PRSPAGE2~G~:PRSPAGE3~G
Smith Barney Smith Barney Smith Barney
California LimitCalifornia LimitCalifornia Limited
11/30/93 12/1/93-3/31/94 4/1/94-11/30/94
INVESTMENT INCOME:
Interest 287291 193074.5
341779
EXPENSES:
Administration fee - -
Distribution costs 2658 2403.26
6739.82
Shareholder servicing ag 1700 679.39
1859.81
Shareholder communicatio 1000 2893.67
1162.38
Legal and auditing fees 1600 1308.44
6974.27
Directors' fees - 402.6
3719.61
Other 4237 1094.56
3719.61
Fee waived by investment- -
Total Expenses #VALUE! #VALUE! #VALUE!
Realized Gain From Security Transactions
(excluding short term securities)
Proceeds from sales 862720 3633683
2663130
Cost of securities sold 860573 3624487
2758555
Net Realized Gain 2147 9195.72
95425.3
Change in Unrealized Appreciation of Investments End
of Period 109466
Decrease in Net Unreal#VALUE!
Net Gain (Loss) On Inv#VALUE!
Increase in Net Assets Resulting#VALUE!
Pro Forma Footnotes of Merger Between Intermediate
Maturity California Municipals and California Limited
November 30, 1994
1. General
The accompanying pro forma financial statements are
presented to show the effect of the proposed acquisition
of Smith Barney California Limited Term Portfolio (the
"Portfolio"), by the Smith Barney Intermediate Maturity
California Municipals Fund (the "Fund"), as if such
acquisition had taken place as of December 1, 1993.
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 period ended November 30. 1994.
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, 1994 and November 30, 1994 respectively.
2. Significant Accounting Policies
The following notes refer to the accompanying pro forma
financial statements as if the above mentioned
acquisition of the Portfolio and the Fund had taken place
as of December 1, 1993.
Smith Barney Income Trust (the "Trust") was organized as
a "Massachusetts business trust" under the laws of the
Commonwealth of Massachusetts on October 17, 1991. The
Trust is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management
investment company. The Trust consists of the following
four funds: Smith Barney Limited Maturity Treasury Fund,
Smith Barney Limited Maturity Municipals Fund, Smith
Barney Intermediate Maturity California Municipals Fund
(the "Fund") and Smith Barney Intermediate Maturity New
York Municipals Fund. At the time of this report, the
Fund offered three classes of shares: Class A shares,
Class C shares and Class Y shares. Class A shares are
sold with a front-end sales charge. Class C shares may
be subject to a contingent deferred sales charge ("CDSC")
if redeemed within 12 months of 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, distribution or service fees. As of November 7,
1994, the Fund began offering Class C and Class Y shares.
Each class of shares has identical rights and privileges
except with respect to the effect of the respective sales
charges, the distribution and/or service fees borne by
each class, expenses allocable exclusively to each class,
voting rights on matters affecting a single class and the
exchange privilege of each class. The following is a
summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial
statements.
Pro Forma Footnotes of Merger Between Intermediate
Maturity California Municipals and California Limited
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 Trustees. When, in
the judgment of the Service, quoted bid prices for
securities 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. Securities for which, in the judgment of
the Service, there are no 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. Securities, not valued by the
Service, for which market quotations are not readily
available are valued at fair value as determined in good
faith by or under the direction of the Board of Trustees.
Short-term investments that mature in 60 days or less are
valued at amortized cost.
Securities transactions and investment income:
Securities transactions are recorded as of the trade
date. Securities purchased or sold on a when-issued or
delayed-delivery basis may be settled one month or more
after the trade date. Interest income is recorded on the
accrual basis. Realized gains and losses from securities
sold are recorded on the identified cost basis.
Investment income and realized and unrealized gains and
losses are allocated based upon the relative net assets
of each class.
Dividends and distributions to shareholders: Dividends
from net investment income are determined on a class
level and are declared daily and paid generally on the
10th day of the calendar 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 Trustees in order to avoid the
application of a 4.00% 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
distribute such gains.
Income distributions and capital gain distributions on a
Fund level are determined in accordance with income tax
regulations which may differ from generally accepted
accounting principles. These differences are primarily
due to differing treatments of income and gains on
various investment securities held by the Fund, timing
differences and differing characterization of
distributions made by the Fund as a whole.
Federal income taxes: The Trust intends that the Fund
separately qualify as a regulated investment company, if
such qualification is in the best interest of its
shareholders, which distributes exempt-interest
dividends, by complying with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to
regulated investment companies and by distributing
substantially all of its earnings to its shareholders.
Therefore, no Federal income tax provision is required.
Pro Forma Footnotes of Merger Between Intermediate
Maturity California Municipals and California Limited
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 November 30, 1994.
4. Investment Advisory Fee, Administration Fee and Other
Transactions
The Fund has entered into an investment advisory
agreement (the "Advisory Agreement") with a division of
Mutual Management Corp., which was transferred effective
November 7, 1994 to Smith Barney Mutual Funds Management
Inc. ("SBMFM"). Mutual Management Corp. and SBMFM are
both wholly owned subsidiaries of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly owned subsidiary
of The Travelers Inc. Under the Advisory Agreement, the
Fund pays a monthly fee at the annual rate of 0.35% of
the value of its average daily net assets.
As of the close of business on April 20, 1994, SBMFM
(formerly known as Smith Barney Advisors, Inc.")
succeeded Boston Advisors as the Fund's administrator.
The new administration agreement (the "Sub-Administration
Agreement") with Boston Advisors. Under the Sub
Administration Agreement, SBMFM pays Boston Advisors a
portion of its administration fee at a rate agreed upon
from time to time between SBMFM and Boston Advisors.
From time to time, the investment advisor and
administrator may voluntarily waive a portion or all of
its investment advisory and/or administrative fees
otherwise payable to it. For the year ended November 30,
1994, the investment advisor and administrator
voluntarily waived fees of $196,897.
For the year ended November 30, 1994, Smith Barney Inc.
("Smith Barney") received approximately $82,309 from
investors representing commissions (sales charges) on
sales of Class A shares.
A CDSC is generally payable by Class C shareholders and
may be payable by certain Class A shareholders in
connection with the redemption of shares within one year
after the date of purchase. For the year ended November
30, 1994, approximately $24,875 in CDSC were paid to
Smith Barney by Class A and Class C shareholders.
No officer, director or employee of Smith Barney or any
of its affiliates receives any compensation from the
Trust for serving as a Trustee or officer of the Trust.
The Trust pays each Trustee who is not an officer,
director or employee of Smith Barney or any of its
affiliates $4,000 per annum plus $500 per
meeting attended and reimburses each such Trustee for
travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company an indirect wholly
owned subsidiary of Mellon, serves as the Trust's
custodian. The Shareholder Services Group, Inc., a
subsidiary of First Data Corporation, serves as the
Trust's transfer agent.
Pro Forma Footnotes of Merger Between Intermediate
Maturity California Municipals and California Limited
5. Distribution Plan
Smith Barney acts as distributor of the Fund's shares
pursuant to a distribution agreement with the trust and
sells shares of the Fund through Smith Barney or its
affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has
adopted a services and distribution plan (the "Plan").
Under this plan, the Fund compensates Smith Barney for
servicing shareholder accounts for Class A and Class C
shareholders, and covers expenses incurred in
distributing Class C shares. Smith
Barney is paid an annual service fee with respect to
Class A 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 C
shares at the annual rate of 0.20% of the value of the
average daily net assets of that class. For the year
ended November 30, 1994, the Fund incurred $55,704 in
service fees for Class A and Class C shares. For the
period ended November 30, 1994, the Fund incurred $1,166
in distribution fees for Class C shares.
Under its terms, the Plan shall remain in effect from
year to year, provided that such continuance is approved
annually by vote of the Trust's Trustees, including a
majority of those Trustees who are not "interested
persons" of the Trust and who have no direct or indirect
financial interest in the operation of the Plan.
6. Securities Transactions
Cost of purchases and proceeds from sales of securities,
excluding short-term investments, for the year ended
November 30, 1994 were $14,183,378 and $24,526,806
respectively.
At November 30, 1994, aggregate gross unrealized
appreciation of all securities in which there was an
excess of value over tax cost was $8,383 and aggregate
gross unrealized depreciation of all securities in which
there was an excess of tax cost over value was
$1,704,130.
7. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of
beneficial interest which are divided into three classes
(Class A, Class C and Class Y) with a $.001 par value. At
November 30, 1994, paid in capital amounted to the
following for each class, Class A $33,151,620, Class C
$2,135,459 and Class Y $487,874.
8. Concentration of credit
The Fund primarily invests in debt obligations issued by
the State of California, 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 California
municipal securities than is a municipal bond fund that
is not concentrated in these issuers to the same extent.
Pro Forma Footnotes of Merger Between Intermediate
Maturity California Municipals and California Limited
9. Capital Loss Carryforward
As of November 30, 1994, the Fund had available for
Federal tax purposes unused capital loss carryforward of
$839,465 expiring in the year 2002.
10. Subsequent Event
On December 6, 1994, Orange County, California ("Orange
County") filed for bankruptcy. Approximately 2.88% of
the Fund's portfolio at November 30, 1994 was invested in
Orange County bonds and notes. The Fund believes that
the bankruptcy proceeding will not have any material
impact on the ability of the issuer to make its scheduled
interest and principal payments and therefore will have
little, if any, effect on the Fund.
SMITH BARNEY INCOME TRUST
PART C
OTHER INFORMATION Item
15. Indemnification
The response to this item is incorporated by
reference to "Liability of Trustees" under the
caption "Comparative Information on Shareholders'
Rights" in Part A of this Registration Statement.
Item 16. Exhibits
All References are to Registrant's Registration
Statement on Form N-1A (the "Registration
Statement") as filed with the Securities and
Exchange Commission on October 21, 1991 (File
Nos. 33-43446 and 811-6444)
(1)(a)
Registrant's Master Trust Agreement dated October
17, 1991 and Amendments to the Master Trust
Agreement dated November 20, 1991 and July 30,
1993, respectively, are incorporated by
reference to Post-Effective Amendment No. 4.
(b) Amendment Nos. 3 and 4 dated October 14, 1994
and November 7, 1994, respectively, to the Master
Trust Agreement are
incorporated by reference to Exhibit
No. (1) (b) to the
Registrant's Registration Statement on Form N-14 filed with
the Securities and Exchange Commission on
April 25, 1995 ("Form N-14")
(c) Amendment No. 5 to the Master Trust Agreement
dated July 20, 1995 is filed herein.
(2) Registrant's By-laws are incorporated by
reference to the Registration Statement.
(3) Not Applicable.
(4) Amended and Restated Agreement and Plan of
Reorganization dated as of July
19, 1995 is filed herein as Exhibit A to
Registrant's Prospectus/Proxy Statement
contained in Part A of this Registration
Statement.
(5) Registrant's form of stock certificate is
incorporated by reference to Pre-Effective
Amendment No. 1 to the Registration Statement
("Pre-Effective Amendment No. 1").
(6) (a) Investment Advisory Agreement between the
Registrant and Greenwich Street Advisors
dated July 30, 1993 is incorporated by reference to Post
Effective Amendment No. 3
("Post-Effective Amendment No. 3").
(b) Form of Transfer of Investment Advisory
Agreement dated November 7, 1994 is
incorporated by reference to Exhibit No. (6)(b)
to the Registrant's Form N-14.
(7) Distribution Agreement between the Registrant
and Smith Barney Shearson Inc. dated
July 30, 1993 is incorporated by reference to
Post-Effective Amendment No. 3.
(8) Not Applicable.
(9) (a) Administration Agreement dated April 20,
1994 between the Registrant and Smith,
Barney Advisers, Inc. ("SBA") is incorporated by
reference to Exhibit No. (9)(a) to the
Registrant's Form N-14.
(b) Sub-Administration Agreement dated April
20, 1994 between the Registrant, SBA and
The Boston Company Advisors, Inc. is
incorporated by reference to Exhibit No. (9)(b) to
the Registrant's Form N-14.
(c) Custodian Agreement between the Registrant
and Boston Safe Deposit and Trust
Company is incorporated by reference to Pre
Effective Amendment No. 1.
(d) Transfer Agency Agreement between the
Registrant and Boston Safe Deposit and Trust
Company is incorporated by reference to Pre
Effective Amendment No. 1.
(10) Amended Services and Distribution Plan pursuant
to Rule 12b-1 between the Registrant
and Smith Barney is incorporated by reference to
Exhibit No. (10) to the Registrant's Form
N14.
(11)(a) Opinion and Consent of Willkie Farr &
Gallagher with respect to legality of shares is
filed herein
(b) Opinion and Consent of Goodwin Proctor and
Hoar with respect to legality of
shares is filed herein
(12) Opinion and Consent of Willkie Farr & Gallagher
with respect to tax matters is
filed herein
(13) Not Applicable.
(14)(a) Consent of Cooper's & Lybrand L.L.P.
is
filed herein
(b) Consent of KPMG Peat Marwick LLP is filed
herein
(15) Not Applicable.
(16) Not Applicable.
(17) Form of Proxy Card and Instructions is
filed
herein
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, as amended, 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, as amended, 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.
EXHIBIT INDEX
Exhibit Number Description
(4) Amende and Restated Agreement and
Plan
of Reorganization*
(11)(a) Opinion and Consent of Willkie
Farr and Gallagher with respect to
legality of shares
(b) Opinion and Consent of
Goodwin
Proctor and Hoar with repect to
legality of shares.
(12) Opinion and Consent of
Willkie
Farr and Gallagher with respect to tax
matters
(14)(a) Consent of Coopers and Lybrand
L.L.P.
(b) Consent of KPMG Peat Marwick
LLP
(17) Form of Proxy Card
______________________________
* Filed herein as Exhibit A to Registrant's
Prospectus/Proxy Statement contained in Part A of this
Registration Statement.
SIGNATURES
As required by the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed on
behalf of the registrant, in the City of New York and
State of New York on the 19th day of
July,
1995.
Smith Barney Income
Trust
By: /s/ Heath B.
McLendon
Heath B. McLendon
Chief Executive
Officer
We, the undersigned, hereby severally constitute and
appoint Heath B. McLendon, Christina T. Sydor and Lee D.
Augsburger, Caren A Cunningham and each of them
singly, our true and lawful attorneys, with full power to
them and each of them to sign for us, and in our hands
and in the capacities indicated below, any and all
Amendments to this Registration Statement and to file the
same, with all exhibits thereto, and other documents
therewith, with the Securities and Exchange Commission,
granting unto said attorneys, and each of them, acting
alone, full authority and power to do and perform each
and every act and thing requisite or necessary to be done
in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and
confirming all that said attorneys or any of them may
lawfully do or cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
As required by the Securities Act of 1933, this Pre
Effective Amendment to the Registration Statement on Form
N14 and the above Power of Attorney have been signed by the
following persons in the capacities and on the dates
indicated.
Signature Title
Date
/s/ Heath B. McLendon
Heath B. McLendon Chairman of the Board
7/19/95
Chief Executive Officer
/s/ Lewis E. Daidone
Lewis E. Daidone Senior Vice President and
7/19/95
Treasurer (Chief Financial and
Accounting Officer)
/s/ Herbert Barg
Herbert Barg Trustee
7/19/95
/s/ Alfred Bianchetti
Alfred Bianchetti Trustee
7/19/95
/s/ Martin Brody
Martin Brody Trustee
7/19/95
Signature Title
Date
/s/ Dwigh B. Crane
Dwight B. Crane Trustee
7/19/95
/s/ Burt N. Dorsett
Burt N. Dorsett Trustee
7/19/95
/s/ Elliot S. Jaffe
Elliot S. Jaffe Trustee
7/19/95
/s/ Stephen E. Kaufman
Stephen E. Kaufman Trustee
7/19/95
/s/ Joseph J. McCann
Joseph J. McCann Trustee
7/19/95
/s/ Cornelius C. Rose, Jr.
Cornelius C. Rose, Jr. Trustee
7/19/95
SMITH BARNEY INCOME TRUST
AMENDMENT NO. 5 TO THE MASTER TRUST AGREEMENT
WHEREAS, Section 4.1 of the Master Trust Agreement of
Smith Barney Income Trust (the "Trust") dated October 17,
1991, as amended, authorizes the Trustees of the Trust to
issue classes of shares of any Sub-Trust or divide the
Shares of any Sub-Trust into classes, having different
dividend, liquidation, voting and other rights as the
Trustees may determine.
WHEREAS, the Trustees has previously established and
designated two classed of shares for each of the four Sub
Trusts of the Trust: Smith Barney Limited Maturity Treasury
Fund, Smith Barney Limited Maturity Municipals Fund, Smith
Barney Intermediate Maturity New York Municipals Fund and
Smith Barney Intermediate Maturity California Municipals
Fund;
WHEREAS, the Trustees unanimously voted on July 20,
1994 to establish and designated a third class of shares of
each Sub-Trust as Class Y.
NOW THEREFORE, the undersigned Assistant Secretary of
the Trust hereby states as follows:
1. That Pursuant to the vote of Trustees, each of the
aforementioned Sub-Trusts be divided into an additional
class of shares established and designated as Class Y
shares. Such class of shares shall have the rights and
preferences as forth in the Prospectus of each Sub-Trust
dated January 29, 1995, as such Prospectus may be further
amended from time to time.
IN WITNESS WHEREOF, the undersigned hereby sets her
hand this 20th day of July, 1995.
SMITH BARNEY INCOME TRUST
_/s/ Caren Cunningham
By: Caren Cunningham Title:
Assistant Secretary
U:\Cunningham\Sbitamd.doc
Smith Barney Income Trust
July 21, 1995
Page 3
0005514
July 21, 1995
Smith Barney Income Trust
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We have acted as counsel for Smith Barney Income
Trust,
a business trust organized under the laws of The
Commonwealth of
Massachusetts (the "Trust"), in connection with the transfer
of
all or substantially all of the assets of the California
Limited
Term 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 Smith Barney
Intermediate
Maturity California Municipals Fund (the "Acquiring Fund"), a
series of the Trust, and the related issuance of shares of
the
Acquiring Fund's Class A, Class C and Class Y shares of
beneficial interest, par value $.001 per share (the
"Acquiring
Fund Shares"), and the assumption by the Acquiring Fund of
certain liabilities of the Acquired Fund in exchange
therefor,
all pursuant to an Amended and Restated Agreement and Plan of
Reorganization dated as of July 19, 1995 (the "Agreement")
among
the Trust on behalf of 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 Trust, we have examined the
Trust's
Registration Statement on Form N-14 substantially in the form
in
which it is to become effective (the "Registration
Statement"),
the Trust's Master Trust Agreement and By-laws, and all
amendments thereto, and the Agreement.
We have also examined and relied upon such
organizational records of the Trust 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 Massachusetts law, we have relied
solely on the opinion of Goodwin, Procter & Hoar with respect
to
the matters addressed therein, which is satisfactory to us in
form and scope and a copy of which is annexed hereto.
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
Massachusetts) 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
all necessary Trust action precedent to the issuance of the
Acquiring Fund Shares pursuant to the Agreement has been duly
taken. We are further of the opinion that the Acquiring Fund
Shares when issued in accordance with the terms of the
Agreement
will be validly issued, fully paid and nonassessable by the
Trust.
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 Trust
or
any distributor or dealer in connection with the registration
or
qualification of the Trust or the Shares under the securities
laws of any state or other jurisdiction.
This opinion is furnished by us as counsel to the
Trust, is solely for the benefit of the Trust 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,
PROPOSED RESOLUTION FOR SMITH BARNEY INCOME TRUST WITH
RESPECT TO
REORGANIZATION OF SMITH BARNEY MUNI FUNDS - CALIFORNIA
LIMITED
TERM PORTFOLIO INTO SMITH BARNEY INTERMEDIATE MATURITY
CALIFORNIA
MUNICIPALS FUND
Resolved, that the officers of Smith Barney Income
Trust on
behalf of Smith Barney Intermediate California Municipals
Fund
(the "Acquiring Fund") are hereby authorized to issue the
Class
A, Class C and Class Y shares of beneficial interest of the
Acquiring Fund contemplated by the Amended and Restated
Agreement
and Plan of Reorganization among the Trust on behalf of the
Acquiring Fund and Smith Barney Muni Funds on behalf of the
California Limited Term Portfolio, the Board hereby
determining
that the actual value of the consideration to be received by
the
Acquiring Fund for such shares is not less than the net asset
value of the shares.
July 21, 1995
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Re: Acquisition by Smith Barney Income Trust, on
behalf of Smith Barney Intermediate Maturity California
Municipals Fund, of Assets of
California Limited Term Portfolio, an investment
portfolio of
Smith Barney Muni Funds
Ladies and Gentlemen:
You have requested our opinion as special Massachusetts
counsel to Smith Barney Income Trust (the "Trust"), a
business
trust organized under the laws of the Commonwealth of
Massachusetts, on behalf of the Smith Barney Intermediate
Maturity California Municipals Fund (the Acquiring Fund"), an
investment portfolio of the Trust, in connection with the
transfer of all or substantially all of the assets of
California
Limited Term Portfolio (the "Acquired Fund"), an investment
portfolio of Smith Barney Muni Funds, a business trust
organized
under the laws of the Commonwealth of Massachusetts, in
exchange
for shares of beneficial interest of the Acquiring Fund and
the
assumption by the Acquiring Fund of certain liabilities of
the
Acquired Fund, pursuant to an Amended and Restated Agreement
and
Plan of Reorganization (the "Agreement"), dated as of July
19,
1995 by and between the Trust, on behalf of the Acquiring
Fund,
and Smith Barney Muni Funds, on behalf of the Acquired Fund.
In connection with this opinion, we have examined:
1. the Agreement;
2. the Master Trust Agreement of the Trust, dated as of
October 17, 1991, as amended to date, certified by the
Assistant
Secretary of the Trust (the "Declaration of Trust");
3. the By-laws of the Trust, as amended to date,
certified
by the Assistant Secretary of the Trust;
4. a certificate as of a recent date of the Secretary
of
State of the Commonwealth of Massachusetts as to the good
standing of the Trust and the authority of the Trust to
exercise
in the Commonwealth all of the powers recited in the
Declaration
of Trust and to transact business in the Commonwealth; and
5. a certificate of the Assistant Secretary of the
Trust as
to, among other things, the issuance of shares of beneficial
interest of the Trust and actions of the trustees of the
Trust
relating to the adoption and approval of the Agreement.
As to matters of fact underlying the opinions expressed
herein, we have relied exclusively upon certificates of
certain
public officials and officers of the Trust and upon the
representations and warranties of the Trust contained in the
Agreement. We have assumed the authenticity of all documents
submitted to us as originals, the genuineness of all
signatures,
the legal capacity of natural persons and the conformity to
the
originals of all documents submitted to us as copies.
We have made such examination of Massachusetts law as
in our
judgment is necessary and appropriate for the purposes of
this
opinion. We do not purport to be experts in the laws of any
jurisdiction other than the laws of the Commonwealth of
Massachusetts and our opinions expressed herein are limited
solely to the laws of the Commonwealth of Massachusetts. We
have
not, at your instruction, examined independently the question
of
what law would govern the interpretation or enforcement of
any
provision of the Declaration of Trust and have, at your
direction, assumed for purposes of this opinion that the
interpretation and enforcement of each provision of the
Declaration of Trust will be governed by the laws of the
Commonwealth of Massachusetts.
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 Massachusetts)
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 shares of beneficial interest
of
the Trust representing interests in the Acquiring Fund (the
"Shares") pursuant to the Agreement.
Based upon and subject to the foregoing, we are of the
opinion that all necessary Trust action precedent to the
issuance
of the Shares pursuant to the Agreement has been duly taken.
We
are further of the opinion that the Shares when issued in
accordance with the terms of the Agreement will be validly
issued, fully paid and nonassessable by the Trust.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement of the Trust on Form N14
pursuant to which the Shares are to be registered under the
Securities Act of 1933, as amended. This opinion is issued
to,
and may be relied upon only by, you in rendering your opinion
in
connection with the registration of the Shares and this
opinion
may not be used by any other person or for any other purpose
without our prior written consent.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR
GOODWIN, PROCTER & HOAR
185797.c1
July 18, 1995
Smith Barney Muni Funds,
on behalf of
California Limited Term Portfolio
388 Greenwich Street
New York, New York 10013
Smith Barney Income Trust,
on behalf of Smith Barney
Intermediate Maturity California
Municipals Fund
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) California Limited
Term Portfolio (the "Acquired Fund"), a separate investment
series of Smith Barney Muni Funds, (b) Smith Barney
Intermediate Maturity California Municipals Fund (the
"Acquiring Fund"), a separate series of Smith Barney Income
Trust, and (c) holders of shares of beneficial interest in
the Acquired Fund (the "Acquired Fund Shareholders") when
the holders of Class A, Class C and Class Y shares of the
Acquired Fund receive Class A, Class C and Class Y 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 certain 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 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 certain
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 certain 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 the Acquiring Fund of certain
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
Willkie Farr & Gallagher
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Smith Barney Intermediate Maturity California
Municipals Fund of the Smith Barney Income Trust:
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 Income Trust:
1. The incorporation of our report dated January 25,
1995,
accompanying the financial statements of the Smith
Barney
Intermediate Maturity California Municipals Fund
(formerly
the Smith Barney Shearson Intermediate Maturity
California
Municipals Fund) as of November 30, 1994, which
report is
included in Post-Effective Amendment No. 6 to
the
Registration Statement on Form N-1A (File No. 33-
43446) of
the Smith Barney Income Trust.
2. The reference to our firm under the heading
"Financial
Statements and Experts" in the Prospectus/Proxy
Statement.
/s/ Coopers
&
Lybrand L.L.P.
Coopers &
Lybrand
L.L.P
Boston, Massachusetts
July 20, 1995
Independent Auditors' Consent
The Board of Trustees of
Smith Barney Muni Funds:
We consent to the use of our report dated May 15, 1995 with
respect to the California Limited Term Portfolio incorporated
herein by reference in the Prospectus/Proxy Statement 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" and
"Representations and Warranties" in the Prospectus/Proxy
Statement and "Financial Highlights" in the Prospectus and
"Independent Auditors" in the Statement of Additional
Information incorporated herein by reference.
/s/ KPMG Peat Marwick
LLP
KPMG Peat Marwick LLP
July 19, 1995
New York, New York
VOTE THIS VOTING INSTRUCTIONS CARD TODAY
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please detach at Perforation Before Mailing)
............................................................
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............................................................
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SMITH BARNEY MUNI FUNDS
ON BEHALF OF CALIFORNIA LIMITED TERM PORTFOLIO
PROXY SOLICITED BY THE BOARD OF TRUSTEES
The undersigned holder of shares of California Limited
Term Portfolio (the
"Limiited Term Portfolio"), a sub-trust of Smith Barney
Muni Funds, 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 Limited Term Portfolio that
the undersigned is
entitled to vote at the Special Meeting of Shareholders
of the Limited Term
Portfolio to be held at the offices of the Limited Term
Portfolio, 388 Greenwich
Street, 22nd Floor, New York, New York on August 28, 1995
at 4:30 p.m. and any
adjournment or adjournments thereof. The undersigned
hereby acknowledges
receipt of the Notice of Special Meeting and
Prospectus/Proxy Statement dated
July 21, 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
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.
Date:
.
Signature(s):
.
(Title(s),
if applicable):
.
VOTE THIS VOTING INSTRUCTION CARD TODAY
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
............................................................
....................
............................................................
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Please indicate your vote by an "X" in the appropriate box
below. 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 THE
PROPOSAL.
FOR AGAINST ABSTAIN
PROPOSAL: To approve or disapprove an Amended and
Restated Agreement and Plan of Reorganization dated as of
July 19, 1995 providing for: (i) the acquisition of all
or substantially all of the assets of California Limited
Term Portfolio (the "Limited Term Portfolio") by Smith
Barney Income Trust on behalf of Smith Barney
Intermediate Maturity California Municipals Fund (the
"Fund") in exchange for Class A, Class C and Class Y
shares of the Fund and the assumption by the Fund of
certain scheduled liabilities of the Limited Term
Portfolio; (ii) the distribution of such shares of the
Fund to shareholders of the Limited Term Portfolio in
liquidation of the Limited Term Portfolio; and (iii) the
subsequent termination of the Limited Term Portfolio.
u:\osunkwo\imcan14.prx
