As filed with the Securities and Exchange Commission
on July 21, 1995
____________________________________________________________
_________________________
Registration No. 33
43446
____________________________________________________________
_________________________
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 MUNI FUNDS -
CALIFORNIA LIMITED TERM PORTFOLIO
388 Greenwich Street
New York, New York 10013
June , 1995
DearSMITH BARNEY MUTUAL FUNDS -[SMITH BARNEY LOGO]
Investing for your future. Every day.
Dear Valued Shareholder:
An Important Notice About the Smith Barney Muni Funds (the
"Trust"), on behalf of the California Limited Term portfolio
(the "Limited Term Portfolio"), a separate series of the
Trust, has recently reviewed and unanimously endorsed a
proposal for the reorganization of the Limited Term
Portfolio, which it judges to be in the best interests of
the Limited Term Portfolio's shareholders.
Under the terms of the proposal, Smith Barney
Intermediate Maturity California Municipals Fund (the
"Intermediate Maturity Fund"), a separate series of the
Smith Barney Income Trust (the "Income Trust"), would
acquire all or substantially all of the assets and
liabilities of the Limited Term Portfolio. After the
transaction, the Limited Term Portfolio t would be
terminated and you would become a shareholder of the
Intermediate Maturity Fund, having received shares with an
aggregate net asset value equivalent to the aggregate net
asset value of your Limited Term Portfolio investment at the
time of the transaction. The transaction would, in the
opinion of counsel, be free from Federal income taxes to you
and the Limited Term Portfolio.
antially all of the assets and liabilities of the Limited
Term Portfolio. After the transaction, the Limited Term
Portfolio would be terminated and you would become a
shareholder of the Intermediate Maturity Fund, having
received shares with an aggregate net asset value equivalent
to the aggregate net asset value of your Limited Term
Portfolio investment at the time of the transaction. The
transaction would, in the opinion of counsel, be free from
Federal income taxes to you and the- California Limited
Term Portfolio.
SPECIAL MEETING OF SHAREHOLDERS: YOUR VOTE IS IMPORTANT
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!
The Board of Trustees of the Trust has determined that
the proposed reorganization should provide benefits to
shareholders due, in part, to savings in expenses borne by
shareholders. We have therefore called a Special Meeting of
Shareholders to be held July __A Special Meeting of
Shareholders will be held on August 28, 1995 to consider
this transaction. We strongly urge your participation by
asking you to to participate by reviewing, completing and
returning your proxy by no later than August 25, 1995 in the
postage-paid envelope provided.
review, complete and return your proxy no later than July
__, 1995.
Detailed information about the proposed transaction is
described in the enclosed proxy statement. On behalf of the
Board, I thank you for your participation as a shareholder
and urge you to exercise your right to vote by completing,
dating and signing the enclosed proxy card. A self-
addressed, postage-paid envelope has been enclosed for your
convenience. If 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.
If you have any questions regarding the proposed
transaction, please feel free to call your Financial
Consultant.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE
RECEIVED NO LATER THAN JULY __, 1995We 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
CALIFORNIA LIMITED TERM PORTFOLIO
TERM PORTFOLIO
388 Greenwich Street
New York, New York 10013
of the outstanding shares of the Limited Ter388 Greenwich
Street
New York, New York 10013
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On July __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 July __,
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 May 31, 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
Junely 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 JUNELY 21, 1995
Acquisition of the Assets Of1
SMITH BARNEY MUNI FUNDS - 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 July __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
Pportfolio 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 taxincome taxes as is consistent with the
preservation of principal by investing in investment grade
obligations issued by the State of California and its
political subdivisions, agencies and public
authoritiesprincipal. 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 Junely 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
Fee Table
Summary
Risk Factors
Reasons for the Reorganization
Information about the 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
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 Junely 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, 19945.
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
Ex
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
..................
..
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
Limited Term Porfolio 30 52 76 143
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
Limited Term Porfolio 30 52 76 143
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 a majority of the
outstandingthe lesser of: (1) 67% or more of the shares of
the Limited Term Portfolio. See "Voting Information."
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 ("Majority Vote"). See "Voting
Information."
The consummation of the Reorganization is subject to
the conditions set forth in the agreement and plan of
reorganization, Plan, including that the parties shall have
received a no-action letter or exemptive relief from the
Securities and Exchange Commission (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 Sstate 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 Ffederal 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
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 the
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 Ffederal 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. Shareholders of each Fund also may exchange certain
classes of shares for shares of the corresponding class of
shares of certain Smith Barney sponsored mutual funds. (See
"Exchange Privilege" in each Fund's Prospectus.) 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' Rights , - 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 July ___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
oligations. bligations. 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 The Boston Company Advisors,
Inc. ("Boston Advisors") as agentSBMFM 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 Boston Advisors, as
agent,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 July ___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 the affirmative vote
of a majority of the outstanding shares of the Limited Term
Portfolio as defined by the 1940 Act which requires approval
by the lesser of (1) 67% or more of the shares present at
the Meeting or (ii) more than 50% of the outstanding shares
of the Portfolioa 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, May 3July 11, 1995, there were
outstanding ________Class A shares, _______ Class C shares
and _______731,808.776 Class A shares, 246,978.327 Class C
shares and 82,237.545 Class Y shares of the Limited Term
Portfolio and outstanding __________ Class A shares,
___________ Class C shares and ___________ Class Y shares of
the Intermediate Maturity Fund. 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 t
than 5% of the Limited Term Portfolio except Smith Barney
which owns in excess of 5% of the outstanding shares of the
Portfolio. (The SEC has granted exemptive relief to permit
Smith Barney to redeem these shares.) As of thehan 5% of the
Limited Term Portfolio except Smith Barney which owns in
excess of 5% of the outstanding shares of the Portfolio.
(The SEC has granted exemptive relief to permit Smith Barney
to redeem these shares.) 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 November 30, 1994).
During the year ended November 30, 1994, the bond market
experienced significant volatility. After falling to their
lowest levels in 15 years in November 1993, yields on
municipal bonds retraced their path during the course of the
yearApril 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 March 31, 1995. Class C shares, a newly-available
class of shares, earned a total and in November 1994 they
reached their highest levels in three years.
The reason for this change in interest rates was the
improving economy. In late 1993 and early 1994, the U.S.
economy was clearly showing signs of moderate growth. In
addition, a significant amount of leverage also had built up
in the fixed income markets. To curb the possibility of
higher inflation and to stem the growth of leverage in the
market, the Federal Reserve began to raise short-term
interest rates for the first time since 1988. The Federal
Reserve continued this policy of higher short-term rates
throughout 1994, raising the Federal funds rate to 5.50% and
the discount rate to 4.75%. Both are sensitive indicators
of the direction of interest rates. return of 9.22% for the
six-month period.
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
no 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 spectacular 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 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 weakness
in the municipal securities market during the past months
and will no doubt continue to cause periodic weakness 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
pans 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 September 30,
1994). In July of 1994, Moody's downgraded California's
debt rating for the third time in two years, this time
from Aa to A1. S&P also cut its rating to A from A+.
Despite some signs of economic recovery, the State
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 continued to grapple with
a structurally imbalanced budget, an accumulated deficit
of over $3 billion and short- term borrowings of $7
billion. One widely publicized outcome of the November
elections was the approval by voters of the proposition
barring illegal aliens from receiving state benefits.
However, most observers view the resulting benefits as
uncertain and anticipate they will be slow in
implementation, given anticipated legal challenges.
Reflecting the volatile municipal bond market
conditions, the Limited Term Portfolio's total return in the
six-month period ended September 30, 1994, was 0.39%. As
a result, the Limited Term Portfolio was rated as the No. 1
fund among the California intermediate municipal funds
included in the September 1994 survey by Lipper Analytical
ds included in the September 1994 survey by Lipper
Analytical Services, Inc.
The Limited Term Portfolio's relative performance was
primarily the result of an emphasis on higher quality issues
that are trading at a premium to face value. In
particular, management has concentrated on those bonds that
are priced to a call date earlier than their stated
maturity date, and issues have been diminished or lost
over the month of September 1994. During late October
and the first half of November, 1994, municipal bond yields
had increased substantially, and many issues were no
longer trading at a premium. Even though much of the
rise in long-term interest rates is probably behind, the
prospect of continued tightening of monetary policy by the
Federal Reserve Board is likely to sustain at least some
upward pressure on the yields of shorter-term securities.
Accordingly, management intends to increase the use of short-
term floating rate securities and continue to favor higher
quality bonds trading at a premium to face value. Though
this strategy may result in some sacrifice to current
yield, it will reduce volatility if rates rise 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.
Services, Inc.
The Limited Term Portfolio's relative performance was
primarily the result of an emphasis on higher quality issues
that are trading at a premium to face value. In
particular, management has concentrated on those bonds that
are priced to a call date earlier than their stated
maturity date, and issues have been diminished or lost
over the month of September 1994. During late October
and the first half of November, 1994, municipal bond yields
had increased substantially, and many issues were no
longer trading at a premium. Even though much of the
rise in long-term interest rates is probably behind, the
prospect of continued tightening of monetary policy by the
Federal Reserve Board is likely to sustain at least some
upward pressure on the yields of shorter-term securities.
Accordingly, management intends to increase the use of short-
term floating rate securities and continue to favor higher
quality bonds trading at a premium to face value. Though
this strategy may result in some sacrifice to current
yield, it will reduce volatility if rates rise
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]
further, while providing reasonable performance should rates
begin to decline.
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 captions, "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 Ffederal income taxes and California Sstate
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 Ffederal 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 will
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 also 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 and may purchase securities on a when-issued or
delayed delivery basior lack readily available markets. The
types of California Obli 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, in the opinion of bond counsel, 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 (an "NRSRO"). Up to one- ). 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 NRSROnationally 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 basies 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 canmay 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. Investment grade bonds are those rated Aaa, Aa, A and
Baa by Moody's and AAA, AA, A and BBB by S&P. 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 boteach 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 the Intermediate Maturity
Fund or the Limited Term Portfolio, the
shareholders of each Fund arany 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 Fundliquidated or terminated
portfolio, the excess of the assets belonging to the Fund
over the liabilities belonging to such Fund. portfolio. In
either case, the assets so distributed to shareholders of
the Fund willportfolio would be distributed among the
shareholders in proportion to the number of shares of
the Fundportfolio held by them and recorded on the books of
the Fundliquidated 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. There are no appraisal rights under
Massachusetts law for shareholders of an open-end investment
company registered under the 1940 Act if the value placed
on the shareholder's stock that is the subject of the
transaction is its net asset value. Because shares of the
Limited Term Portfolio to be exchanged for 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 Intermediate Maturity Fund in
the Reorganization will be valued at their net asset
values, shareholders of the Limited Term Portfolio will
have no appraisal rights under Massachusetts law and will be
bound by the terms of the Plan, if approved.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 July __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 Junely 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 onat 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 the affirmative vote
of a majorita 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 as defined by the
1940 Act . re 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 administratoviser, 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 July __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, 19945,
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, 19945
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 dissolution and 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, DISSOLUTION
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: (Ii) 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 and (iithe 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 3.43, 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.
dissolved and
deregistered. 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. The custodian for the Acquiring Fund (the
"Custodian"), shall deliver at the Closing a c certificate
of an authorized officer stating that: (a) the Acquired
Fund's portfolio securities, cash and any other assets
shall have been delivered in proper form to the Acquiring
Fund within two business days prior to or on the Closing
Date and (b) all necessary transfer taxes including all
applicable federal and state stock transfer stamps, if
any, shall have been paid, or provision for payment shall
have been made, in conjunction with the delivery of
portfolio securities.
3. 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 nd 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.
3.43. 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 Trust 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 4, 199431, 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;
(gh) 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;
(hi) 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;
(ij) 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;
(jk) 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;
(kl) 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;
(lm) 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
(m (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 materially 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;
(hi) 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;
(i (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;
(j(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;
(kl) 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;
(lm) 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;
(mn) 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;
(n (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 materially misleading; and
(o) The Income Trust and the Acquiring Fund agree
(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) That (a) the Acquiring Fund is a subtrust of the
Income Trust iswhich 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) theClass 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, to the extent of the
number of Acquiring Fund Shares authorized to be issued by
the Income Trust in respect of the Acquiring Fund in
the Master Trust Agreement of the Income Trust and then
unissued, duly authorized and, subject to the receipt by the
Income Trust of consideration equal to the net asset value
thereof(but in no event less than the par value thereof),
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:
points: That (a) the Trust is 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 Tthe 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 andTerm
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 Thethe 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
Iincurred 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 A 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
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 short-term
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 1992-93
and increasing 5.1% in 1993-94. The decrease in the 1992-
93 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.
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<PAGE>
- ---------------------------------------------------------
- -----------------------
ANNUAL REPORT ----------
- ---------------------------------------------------------
- ------------
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.
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- --------------------------------------
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.
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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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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.
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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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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
5
[[1]] EDGAR only
EDG: 12-JUN-1995 14:26 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 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.
6
[[1]] EDGAR only
EDG: 11-JUN-1995 17:09 BLK: 00-000-0000 00:00
[[1]]Smith Barney California Fund
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
[[1]] EDGAR only
EDG: 16-JUN-1995 12:02 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 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
[[1]] EDGAR only
EDG: 11-JUN-1995 17:09 BLK: 00-000-0000 00:00
[[1]]Smith Barney California Fund
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
[[1]] EDGAR only
EDG: 11-JUN-1995 17:09 BLK: 00-000-0000 00:00
[[1]]Smith 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
[[1]] EDGAR only
EDG: 16-JUN-1995 07:37 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 -------------------------------------
- ------------------------------------------
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
EDG: 12-JUN-1995 09:09 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 ----------------------------------
- ---------------------------------------------
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
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>
$ 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
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>
$ 3,500,000 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
[[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 (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
[[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 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
[[1]] EDGAR only
EDG: 12-JUN-1995 14:25 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 ----------------------------------
- ---------------------------------------------
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
[[1]] EDGAR only
EDG: 11-JUN-1995 17:12 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 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
[[1]] EDGAR only
EDG: 11-JUN-1995 17:12 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 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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[[1]]Smith 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>
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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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>
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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<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)
$1,500,000 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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R.R. Donnelley (212) 341-7777 WP2EDG
<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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[[1]]Smith 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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R.R. Donnelley (212) 341-7777 EDITOR V2.7
<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
32
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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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<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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<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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<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
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<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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<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>
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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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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.
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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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<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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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
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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
_______________________________
[FN]
* Purchases of Class A shares, which when combined with
current holding s 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 pro forma financial figures are intended to
provide shareholders with information about the continuing
impact of the proposed Reorganization as if the
Reorganization had taken place as of December 1, 1993. ***
Does not include waivers. During the fiscal year ended
November 30, 1994, the Intermediate Maturity Fund's
investment adviser and administrator voluntarily waived
portions of their fees in amounts equal to 0.31%
and 0.18%, respectively, of the value of the Fund's
average daily net assets. For the fiscal year ended March
31, 1995, the Limited Term Portfolio's investment adviser
voluntarily waived all of its advisory fees and waived
expenses in an aggregate amount equal to 0.55% of
the value of the Portfolio's average daily net
assets.*** Does not include waivers. During the fiscal
year ended November 30, 1994, the Intermediate Maturity
Fund's investment adviser and administrator
voluntarily waived portions of
their respective fees in an aggregate amount equal to ___%
of the value of the Fund's average daily net
assets
or
approximately $________. For the fiscal year ended March
31, 1995, the Limited Term Portfolio's investment advisory
fees in an aggregate amount equal to 0.49% of the value
of the Portfolio's average daily net assets or
approximately $________.
+ These expenses for Class A shares of the Intermediate
Maturity Fund are based on amounts for the fiscal year
ended November 30, 1994 before fee waivers and
reimbursement of expenses. The expenses for Class A
shares of the Limited Term Portfolio are based on
amounts for the fiscal year ended March 31, 1995
(restated to reflect 12b-1 fees for the full year) before
waivers and reimbursement of expenses. The pro forma
numbers are based on estimated amounts for the fiscal
year ending November 30, 1995.
[FN]
++ The pro forma financial figures are intended to provide
shareholders with information about the continuing impact of
the proposed Reorganization as if the Reorganization had
taken place as of December 1, 1993.
* Does not include waivers. During the fiscal year ended
November 30, 1994, the Intermediate Maturity
Fund's investment adviser and administrator voluntarily
waived portions of their fees in amounts equal to
0.31%
and
0.18%, respectively, of the value of the Fund's average
daily net assets. For the fiscal year ended March 31,
1995, the Limited Term Portfolio's investment adviser
voluntarily waived all of its advisory fees and waived
expenses in an aggregate amount equal to 0.54% of
the value of the Portfolio's average daily net
assets.*** Does not include waivers. During the fiscal
year ended November 30, 1994, the Intermediate Maturity
Fund's investment adviser
and
administrator voluntarily waived portions of
their respective fees in an aggregate amount equal to ___%
of the value of the Fund's average daily net
assets
or
approximately $________. For the fiscal year ended March
31, 1995, the Limited Term Portfolio's investment advisory
fees in an aggregate amount equal to 0.49% of the value
of the Portfolio's average daily net assets or
approximately $_________.
Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing distribution fee. As
a result, long-term shareholders of Class C shares may
pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
** The expenses for Class C shares of the Intermediate
Maturity Fund are based on amounts for the fiscal year
ended November 30, 1994 before fee waivers and
reimbursement of expenses.
The expenses for Class C shares of the Limited
Term Portfolio are based on amounts for the fiscal year
ended March 31, 1995 before fee waivers and reimbursement
of expenses.
The pro forma numbers are based on estimated amounts
for the fiscal year ending November 30, 1995.
[FN]
+ The pro forma financial figures are intended to
provide shareholders with information about the continuing
impact of the proposed Reorganization as if the
Reorganization had taken place as of December 1, 1993. *
Does not include waivers. For the fiscal year ended
March
31, 1995, the Limited Term Portfolio's investment adviser
voluntarily waived all of its advisory fees and waived
expenses in an aggregate amount equal to 1.55% of the
value of the Portfolio's average daily net assets.
These expenses for Class Y shares of the
Intermediate Maturity Fund have been estimated based on
expenses incurred by Class A shares because prior to
November 30, 1994, no Class Y shares were outstanding.
The expenses for the California Limited Term Portfolio
are based on estimated expenses for the year ending
March 31, 1996 (restated to reflect 12b-1 plan fees for
the full year). The pro forma numbers are based on
estimated amounts for the fiscal year ending November 30,
1995.
_______________________________
[FN]
* Purchases of Class A shares, which when combined with
current holding s 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 pro forma financial figures are intended to provide
shareholders with information about the continuing impact of
the proposed Reorganization as if the Reorganization had
taken place as of December 1, 1993.
*** Does not include waivers. During the fiscal year ended
November 30, 1994, the Intermediate Maturity Fund's
investment adviser and administrator voluntarily waived
portions of their fees in amounts equal to 0.31% and
0.18%, respectively, of the value of the Fund's average
daily net assets. For the fiscal year ended March 31, 1995,
the Limited Term Portfolio's investment adviser voluntarily
waived all of its advisory fees and waived expenses in an
aggregate amount equal to 0.55% of the value of the
Portfolio's average daily net assets.*** Does not include
waivers. During the fiscal year ended November 30, 1994,
the Intermediate Maturity Fund's investment adviser and
administrator voluntarily waived portions of their
respective fees in an aggregate amount equal to ___% of the
value of the Fund's average daily net assets or
approximately $________. For the fiscal year ended March
31, 1995, the Limited Term Portfolio's investment advisory
fees in an aggregate amount equal to 0.49% of the value of
the Portfolio's average daily net assets or approximately
$_________
+These expenses for Class A shares of the Intermediate
Maturity Fund are based on amounts for the fiscal year ended
November 30, 1994 before fee waivers and reimbursement of
expenses. The expenses for Class A shares of the Limited
Term Portfolio are based on amounts for the fiscal year
ended March 31, 1995 (restated to reflect 12b-1 fees for the
full year) before waivers and reimbursement of expenses. The
pro forma numbers are based on estimated amounts for the
fiscal year ending November 30, 1995.
*** Does not include waivers. During the fiscal year ended
November 30, 1994, the Intermediate Maturity Fund's
investment adviser and administrator voluntarily waived
portions of their respective fees in an aggregate amount
equal to ___% of the value of the Fund's average daily net
assets or approximately $________. For the fiscal year
ended March 31, 1995, the Limited Term Portfolio's
investment advisory fees in an aggregate amount equal to
0.49% of the value of the Portfolio's average daily net
assets or approximately $_______
++ The pro forma financial figures are intended to provide
shareholders with information about the continuing impact of
the proposed Reorganization as if the Reorganization had
taken place as of December 1, 1993.
[FN]
* Does not include waivers. During the fiscal year ended
November 30, 1994, the Intermediate Maturity Fund's
investment adviser and administrator voluntarily waived
portions of their fees in amounts equal to 0.31% and
0.18%, respectively, of the value of the Fund's average
daily net assets. For the fiscal year ended March 31, 1995,
the Limited Term Portfolio's investment adviser voluntarily
waived all of its advisory fees and waived expenses in an
aggregate amount equal to 0.54% of the value of the
Portfolio's average daily net assets.*** Does not include
waivers. During the fiscal year ended November 30, 1994,
the Intermediate Maturity Fund's investment adviser and
administrator voluntarily waived portions of their
respective fees in an aggregate amount equal to ___% of the
value of the Fund's average daily net assets or
approximately $________. For the fiscal year ended March
31, 1995, the Limited Term Portfolio's investment advisory
fees in an aggregate amount equal to 0.49% of the value of
the Portfolio's average daily net assets or approximately
$_________.
Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing distribution fee. As a
result, long-term shareholders of Class C shares may pay
more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of
Securities Dealers, Inc.
** The expenses for Class C shares of the Intermediate
Maturity Fund are based on amounts for the fiscal year ended
November 30, 1994 before fee waivers and reimbursement of
expenses. The expenses for Class C shares of the Limited
Term Portfolio are based on amounts for the fiscal year
ended March 31, 1995 before fee waivers and reimbursement of
expenses. The pro forma numbers are based on estimated
amounts for the fiscal year ending November 30, 1995.
[FN]
+The pro forma financial figures are intended to provide
shareholders with information about the continuing impact of
the proposed Reorganization as if the Reorganization had
taken place as of December 1, 1993.
* Does not include waivers. For the fiscal year ended March
31, 1995, the Limited Term Portfolio's investment adviser
voluntarily waived all of its advisory fees and waived
expenses in an aggregate amount equal to 1.55% of the value
of the Portfolio's average daily net assets.
These expenses for Class Y shares of the Intermediate
Maturity Fund have been estimated based on expenses incurred
by Class A shares because prior to November 30, 1994, no
Class Y shares were outstanding. The expenses for the
California Limited Term Portfolio are based on estimated
expenses for the year ending March 31, 1996 (restated to
reflect 12b-1 plan fees for the full year). The pro forma
numbers are based on estimated amounts for the fiscal year
ending November 30, 1995.
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 N-14
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)
................................................................................
................................................................................
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)
................................................................................
................................................................................
...................
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
