Registration Nos. 33-52643
811-7149
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 4
X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
X
Amendment No. 7
X
SMITH BARNEY OREGON MUNICIPALS FUND
(formerly known as Smith Barney Shearson Oregon
Municipals Fund)
(Exact name of Registrant as Specified in
Charter) 388 Greenwich Street, New York, New
York 10013 (Address of Principal Executive
Offices) (Zip Code)
Registrant's Telphone Number, including Area
Code (212) 723-9218
Christina T. Sydor
Secretary
Smith Barney Oregon Municipals Fund
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for
Service)
Approximate Date of Proposed Public
Offering: As soon as possible after
this Post-Effective Amendment becomes
effective
It is proposed that this filing become effective:
_____ immediately upon filing pursuant to Rule
485(b) X on June 29, 1995 pursuant to Rule
485(b) _____ 60 days after filing pursuant to
Rule 485(a) _____ on ______________ pursuant to
Rule 485(a)
The Registrant has previously filed a declaration of
indefenite registration of its shares purusant to
Rule 24f2 under the Investment Company Act of 1940,
as amended. Registrant's Rule 24f-2 Notice for the
fiscal period ended April 30, 1995 was filed on
June 22, 1995.
SMITH BARNEY OREGON MUNICIPALS FUND
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A
Item No.
Prospectus
Caption
1. Cover Page
Cover
Page
2. Synopsis
Prospectus
Summary
3. Financial Highlights
Financial
Highlights
4. General Description of Registrant
Cover
Page; Prospectus
Summary; Investment
Objective and Management
Policies; Additiona
l
Informati
on
5. Management of the Fund
Management
of the Fund;
Distributor; Additional
Information; Annual Report
6. Capital Stock and Other Securities
Investment
Objective and
Management Policies;
Dividends, Distribution and
Taxes; Additional
Information
7. Purchase of Securities Being
Offered Purchase of Shares;
Valuation
of Shares; Redemption of
Shares; Exchange
Privilege;
Minimum
Account
Size;
Distributor
;
Additional
Information
8. Redemption or Repurchase
Purchase
of
Shares;
Redemption of Shares;
Exchange Privilege
9. Pending Legal Proceedings
Not
Applicable
Part B.
Statement
of
Additional
Item No.
Information
Caption
10. Cover Page
Cover
Page
11. Table of Contents
Contents
12. General Information and History
Distributor; Additional
Information
13. Investment Objective and Policies
Investment
Objective and
Management Policies
14. Management of the Fund
Management
of the Fund;
Distributor
15. Control Persons and Principal
Holders of Securities Management
of the Fund
16. Investment Advisory and Other
Services Management of the Fund;
Distributor
17. Brokerage Allocation
Investment
Objective and
Management Policies;
Distributor
18. Capital Stock and Other
Securities Investment Objective and
Management Policies;
Purchase of Shares;
Redemption of Shares;
Taxes 19. Purchase, Redemption and Pricing
of Securities Being Offered
Purchase
of
Shares;
Redemption of Shares;
Valuation of Shares;
Exchange Privilege;
Distribu
tor
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculation of Performance Data
Performance Data
23. Financial Statements
Financial
Statements
<PAGE>
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Oregon
Municipals
Fund
JUNE 29, 1995
PROSPECTUS BEGINS ON PAGE ONE
LOGO Smith Barney Mutual Funds
Investing for your future.
Everyday.
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS JUNE 29, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Oregon Municipals Fund (the "Fund") is a non-diversified munici-
pal fund that seeks to provide Oregon investors with as high a level of divi-
dend income exempt from Federal income tax and Oregon state personal income tax
as is consistent with prudent investment management and preservation of capi-
tal.
This Prospectus concisely sets forth certain information about the Fund,
including sales charges, distribution and service fees and expenses, that pro-
spective investors will find helpful in making an investment decision. Invest-
ors are encouraged to read this Prospectus carefully and retain it for future
reference.
Additional information about the Fund is contained in a Statement of Addi-
tional Information dated June 29, 1995, as amended or
supplemented from time to
time, that is available upon request and without charge by calling or writing
the Fund at the telephone number or address set forth above or by contacting a
Smith Barney Financial Consultant. The Statement of Additional Information has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 11
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 13
- -------------------------------------------------
OREGON MUNICIPAL SECURITIES 20
- -------------------------------------------------
VALUATION OF SHARES 21
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 22
- -------------------------------------------------
PURCHASE OF SHARES 24
- -------------------------------------------------
EXCHANGE PRIVILEGE 32
- -------------------------------------------------
REDEMPTION OF SHARES 36
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 38
- -------------------------------------------------
PERFORMANCE 38
- -------------------------------------------------
MANAGEMENT OF THE FUND 39
- -------------------------------------------------
DISTRIBUTOR 41
- -------------------------------------------------
ADDITIONAL INFORMATION 42
- -------------------------------------------------
</TABLE>
No person has been authorized to give any information or to
make any representations in connection with this offering other
than those contained in this Prospectus and, if given or made,
such other information or representations must not be relied upon
as having been authorized by the Fund or the Distributor. This
Prospectus does not constitute an offer by the Fund or the
Distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person
to whom it is unlawful to make such an offer or solicitation in
such jurisdiction
2
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, non-diversified, management
investment company that seeks to provide Oregon investors with as high a level
of dividend income exempt from Federal income taxes and Oregon state personal
income tax as is consistent with prudent investment management and the preser-
vation of capital. Its investments consist primarily of intermediate- and long-
term investment-grade municipal securities issued by the State of Oregon, local
governments in the State of Oregon and certain other municipal issuers such as
the Commonwealth of Puerto Rico ("Oregon Municipal Securities") that pay inter-
est which is excluded from gross income for Federal income tax purposes and
exempt from Oregon state personal income taxes. Intermediate- and long-term
securities generally have remaining maturities at the time of purchase of three
to in excess of twenty years. See "Investment Objective and Management Poli-
cies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.00% of the purchase price and are subject to an annual
service fee of 0.15% of the average daily net assets of the Class. The initial
sales charge may be reduced or waived for certain purchases. Purchases of Class
A shares which, when combined with current holdings of Class A shares offered
with a sales charge, equal or exceed $500,000 in the aggregate will be made at
net asset value with no initial sales charge, but will be subject to a contin-
gent deferred sales charge ("CDSC") of 1.00% on redemptions made within 12
months of purchase. See "Prospectus Summary--Reduced or No Initial Sales
Charge."
3
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds, declining by 0.50% the first year
after purchase and by 1.00% each year thereafter to zero. This CDSC may be
waived for certain redemptions. Class B shares are subject to an annual service
fee of 0.15% and an annual distribution fee of 0.50% of the average daily net
assets of the Class. The Class B shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and dis-
tributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.15% and an annual
distribution fee of 0.55% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months of
purchase. This CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A and Class B shares. Purchases of Class C shares which,
when combined with current holdings of Class C shares of the Fund, equal or
exceed $500,000 in the aggregate should be made in Class A shares at net asset
value with no sales charge, and will be subject to a CDSC of 1.00% on redemp-
tions made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
4
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject
to lower ongoing expenses over the term of the investment. As an alternative,
Class B and Class C shares are sold without any initial sales charge so the
entire purchase price is immediately invested in the Fund. Any investment
return on these additional invested amounts may partially or wholly offset the
higher annual expenses of these Classes. Because the Fund's future return
cannot be predicted, however, there can be no assurance that this would be
the case.
Finally, investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares
which are not subject to an initial sales charge, CDSC or service or distribu-
tion fees. The maximum purchase amount for Class A shares is $4,999,999, Class
B shares is $249,999 and Class C shares is $499,999. There is no maximum pur-
chase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Fund. In addition, Class A share pur-
chases which, when combined with current holdings of Class A shares offered
with a sales charge, equal or exceed $500,000 in the aggregate will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment may be met by adding the purchase to the net asset value of all
Class A shares, offered with a sales charge, held in funds sponsored by Smith
Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Class A share
purchases may also be eligible for a reduced initial sales charge. See "Pur-
chase of Shares."
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the
5
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
CDSC on the Class B and Class C shares is the same as that of the initial sales
charge on the Class A shares. See "Purchase of Shares" and "Management of the
Fund" for a complete description of the sales charges and service and distribu-
tion fees for each Class of shares and "Valuation of Shares," "Dividends, Dis-
tributions and Taxes" and "Exchange Privilege" for other differences between
the Classes of shares.
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith Barney, a broker that clears securities transactions through Smith Barney
on a fully disclosed basis (an "Introducing Broker") or an investment dealer in
the selling group. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000. Investors in
Class Y shares may open an account for an initial investment of $5,000,000.
Subsequent investments of at least $50 may be made for all Classes. The minimum
investment for Class A, Class B and Class C shares and the subsequent invest-
ment for all Classes through the Systematic Investment Plan described below is
$50. There is no minimum investment requirement in Class A for unitholders who
invest distributions from a unit investment trust ("UIT") sponsored by Smith
Barney. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares in an amount of at least $50 .
See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and "Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM")
serves as the Fund's investment adviser and administrator. SBMFM provides
investment advisory and management services to investment companies affiliated
with Smith Barney. SBMFM is a wholly owned subsidiary of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly owned subsidiary of Travelers Group
Inc. ("Travelers"), a diversified financial services holding company engaged
through its subsidiaries principally in four business segments: Investment
Services, Consumer Finance Services, Life Insurance
6
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
Services and Property & Casualty Insurance Services. See "Management of the
Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differen-
tial. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are paid on
the last Friday of each calendar month to shareholders of record as of the pre-
ceding Tuesday. Distributions of net realized long and short-term capital
gains, if any, are declared and paid annually after the end of the fiscal year
in which they were earned. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of any
Class will be reinvested automatically in additional shares of the same Class
at current net asset value unless otherwise specified by an investor. Shares
acquired by dividend and distribution reinvestments will not be subject to any
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the Fund
will achieve its investment objective. Assets of the Fund may be invested in
the municipal securities of non-Oregon municipal issuers. Dividends paid by the
Fund which are derived from interest attributable to Oregon Municipal Securi-
ties will be excluded from gross income for Federal income tax purposes and
exempt from Oregon state personal income taxes (but not from Oregon state fran-
chise tax or Oregon state corporate income tax). Dividends derived from inter-
est on obligations of non-Oregon municipal issuers will be exempt from Federal
income taxes, but may be subject to Oregon state personal income taxes. Divi-
dends derived from certain municipal securities (including Oregon Municipal
Securities), however, may be a specific tax item for Federal alternative mini-
mum tax purposes. The Fund may invest without limit in
7
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
securities subject to the Federal alternative minimum tax. See "Investment
Objective and Management Policies" and "Dividends, Distributions and Taxes."
The Fund is more susceptible to factors adversely affecting issuers of Oregon
municipal securities than is a municipal bond fund that does not emphasize
these issuers. See "Oregon Municipal Securities" in the Prospectus and "Special
Considerations Relating to Oregon Municipal Securities" in the Statement of
Additional Information for further details about the risks of investing in Ore-
gon obligations.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), which means that
the Fund is not limited by the 1940 Act in the proportion of its assets that it
may invest in the obligations of a single issuer. The Fund's assumption of
large positions in the obligations of a small number of issuers may cause the
Fund's share price to fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers. See "Investment Objective and Management Policies."
The Fund generally will invest at least 75% of its assets in securities rated
investment grade, and may invest the remainder of its assets in securities
rated as low as C by Moody's Investors Service, Inc. ("Moody's") or D by Stan-
dard & Poor's Corporation ("S&P"), or in unrated obligations of comparable
quality. Securities in the fourth highest rating category, though considered to
be investment grade, have speculative characteristics. Securities rated as low
as D are extremely speculative and are in actual default of interest and/or
principal payments.
There are several risks in connection with the use of certain portfolio
strategies by the Fund, such as the use of when-issued securities, municipal
bond index futures contracts and put and call options on interest rate futures
as hedging devices, municipal leases and securities lending. See "Investment
Objective and Management Policies--Certain Portfolio Strategies."
THE FUND'S EXPENSES The following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and, unless otherwise noted, the Fund's
operating expenses for its most recent fiscal year:
8
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.00% None None None
Maximum CDSC (as a percentage of original cost
or redemption proceeds, whichever is lower) None* 4.50% 1.00% None
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees (net of fee waivers) 0.00% 0.00% 0.00% 0.00%
12b-1 fees** 0.15% 0.65% 0.70% None
Other expenses*** 0.67% 0.71% 0.67% 0.67%
- -------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.82% 1.36% 1.37% 0.67%
- -------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge, equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but will
be subject to a CDSC of 1.00% on redemptions made within 12 months.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a con-
version feature and, therefore, are subject to an ongoing distribution fee.
As a result, long-term shareholders of Class C shares may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
*** For Class C and Y shares, "Other expenses" have been estimated based on
expenses incurred by Class A shares because no Class C and Y shares had
been sold as of April 30, 1995.
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
actually pay lower or no charges depending on the amount purchased and, in the
case of Class B, Class C and certain Class A shares, the length of time the
shares are held. See "Purchase of Shares" and "Redemption of Shares." Smith
Barney receives an annual 12b-1 fee of 0.15% of the value of average daily net
assets of Class A shares. Smith Barney also receives, with respect to Class B
shares, an annual 12b-1 fee of 0.65% of the value of average daily assets of
that Class, consisting of a 0.50% distribution fee and a 0.15% service fee. For
Class C shares, Smith Barney receives an annual 12b-1 fee of 0.70% of the value
of average daily net assets of the Class, consisting of a 0.55% distribution
fee and a 0.15% service fee. "Other expenses" in the above table include fees
for shareholder services, custodial fees, legal and accounting fees, printing
costs and registration fees.
During the fiscal period ended April 30, 1995, SBMFM waived administrative
fees in an amount equal to 0.20% of the Fund's average daily net assets.
9
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
This had the effect of lowering the Fund's overall expenses and increasing the
returns otherwise available to investors. If these fees had not been waived,
the Fund's total operating expenses for the fiscal period ended April 30, 1995,
as a percentage of its average daily net assets, would have been 2.05% for
Class A shares and 2.59% for Class B shares.
The following example is intended to assist an investor in understanding the
various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS*
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A $48 $65 $84 $137
Class B 59 73 84 149
Class C 24 43 75 165
Class Y 7 21 37 83
- ------------------------------------------------------------------------------
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A 48 65 84 137
Class B 14 43 74 149
Class C 14 43 75 165
Class Y 7 21 37 83
- ------------------------------------------------------------------------------
</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A shares at the
end of the eighth year following the date of purchase
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
10
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
FINANCIAL HIGHLIGHTS
Except where otherwise noted, the following information has been audited by
Coopers & Lybrand, independent accountants, whose report thereon appears in the
Fund's Annual Report dated April 30, 1995. This information should be read in
conjunction with the financial statements and related notes that also appear in
the Fund's Annual Report, which is incorporated by reference into the Statement
of Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
4/30/95*
- -------------------------------------------------------------------
<S> <C>
OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR $ 9.55
- -------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income*** 0.49
Net realized and unrealized gain/(loss) on investments 0.54
- -------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.03
- -------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.49)
Distributions in excess of net investment income (0.00)#
- -------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.49)
- -------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.09
- -------------------------------------------------------------------
TOTAL RETURN++ 11.12%(a)
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $6,323
Ratio of operating expenses to average net assets+ 0.82%**
Ratio of net investment income to average net assets 5.28%**
- -------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 30%
- -------------------------------------------------------------------
</TABLE>
* The Fund commenced selling Class A shares on May 23, 1994.
** Annualized.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser and administrator for the period ended April
30, 1995 was $0.37.
+ Annualized expense ratio before waiver of fees and/or reimbursement of
expenses by investment adviser and administrator for the period ended April
30, 1995 was 2.05%.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
# Amount represents less than $0.01 per share.
(a) Total return includes the effect of a voluntary cash contribution in the
amount of $251,349 from the investment adviser on October 24, 1994. With-
out this cash contribution the total return would have been 6.23%.
11
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
4/30/95*
- -----------------------------------------------------------------
<S> <C>
OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR $ 9.55
- -----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income*** 0.44
Net realized and unrealized gain on investments 0.55
- -----------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.99
- -----------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.45)
Distributions in excess of net investment income (0.00)#
- -----------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.45)
- -----------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.09
- -----------------------------------------------------------------
TOTAL RETURN++ 10.62%(a)
- -----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $6,556
Ratio of operating expenses to average net assets+ 1.36%**
Ratio of net investment income to average net assets 4.74%**
- -----------------------------------------------------------------
PORTFOLIO TURNOVER RATE 30%
- -----------------------------------------------------------------
</TABLE>
* The Fund commenced selling Class B shares on May 23, 1994.
** Annualized.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser and administrator for the period ended April
30, 1995 was $0.33.
+ Annualized expense ratio before waiver of fees and/or reimbursement of
expenses by investment adviser and administrator for the period ended April
30, 1995 was 2.59%.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
# Amount represents less than $0.01 per share.
(a) Total return includes the effect of a voluntary cash contribution in the
amount of $221,556 from the investment adviser on October 24, 1994. With-
out this cash contribution the total return would have been 5.55%.
12
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is to provide Oregon investors with as
high a level of dividend income exempt from Federal income taxes and Oregon
state personal income tax as is consistent with prudent investment management
and the preservation of capital. This investment objective may not be changed
without the approval of the holders of a majority of the Fund's outstanding
shares. There can be no assurance that the Fund's investment objective will be
achieved.
The Fund will operate subject to an investment policy providing that, under
normal market conditions, the Fund will invest at least 80% of its net assets
in Oregon Municipal Securities, which pay interest which is excluded from gross
income for Federal income tax purposes and which is exempt from Oregon state
personal income tax. The Fund may invest up to 20% of its net assets in munici-
pal securities of non-Oregon municipal issuers, the interest on which is
excluded from gross income for Federal income tax purposes (not including the
possible applicability of a Federal alternative minimum tax), but which is sub-
ject to Oregon state personal income tax. When SBMFM believes
that market conditions warrant adoption of a temporary defensive investment
posture, the Fund may invest without limit in non-Oregon municipal issuers
and in "Temporary Investments" as described below.
The Fund generally will invest at least 75% of its total assets in investment
grade debt obligations rated no lower than Baa, MIG 3 or Prime-1 by Moody's or
BBB, SP-2 or A-1 by S&P, or in unrated obligations of comparable quality.
Unrated securities will be considered to be of investment grade if deemed by
SBMFM to be comparable in quality to instruments so rated, or if other out-
standing obligations of the issuers thereof are rated Baa or better by Moody's
or BBB or better by S&P. The balance of the Fund's assets may be invested in
securities rated as low as C by Moody's or D by S&P, or comparable unrated
securities. (These securities are sometimes referred to as "junk bonds.") Secu-
rities in the fourth highest rating category, though considered to be invest-
ment grade, have speculative characteristics. Securities rated as low as D are
extremely speculative and are in actual default of interest and/or principal
payments. A description of the rating systems of Moody's and S&P is contained
in the Statement of Additional Information.
The Fund's average weighted maturity will vary from time to time based on the
judgment of SBMFM . The Fund intends to focus on intermediate- and
13
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
long-term obligations, that is, obligations generally having remaining maturi-
ties at the time of purchase of three to in excess of twenty years.
The value of debt securities varies inversely to changes in the direction of
interest rates. When interest rates rise, the value of debt securities gener-
ally falls, and when interest rates fall, the value of debt securities gener-
ally rises.
Low and Comparable Unrated Securities. While the market values of low-rated
and comparable unrated securities tend to react less to fluctuations in inter-
est rate levels than the market values of higher-rated securities, the market
values of certain low-rated and comparable unrated municipal securities also
tend to be more sensitive than higher-rated securities to short-term corporate
and industry developments and changes in economic conditions (including reces-
sion) in specific regions or localities or among specific types of issuers. In
addition, low-rated securities and comparable unrated securities generally
present a higher degree of credit risk. During an economic downturn or a pro-
longed period of rising interest rates, the ability of issuers of low-rated and
comparable unrated securities to service their payment obligations, meet pro-
jected goals or obtain additional financing may be impaired. The risk of loss
due to default by such issuers is significantly greater because low-rated and
comparable unrated securities generally are unsecured and frequently are subor-
dinated to the prior payment of senior indebtedness. The Fund may incur addi-
tional expenses to the extent it is required to seek recovery upon a default in
payment of principal or interest on its portfolio holdings.
While the market for municipal securities is considered to be generally ade-
quate, the existence of limited markets for particular low-rated and comparable
unrated securities may diminish the Fund's ability to (a) obtain accurate mar-
ket quotations for purposes of valuing such securities and calculating its net
asset value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in the financial markets.
The market for certain low-rated and comparable unrated securities is rela-
tively new and has not fully weathered a major economic recession. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
Fixed-income securities, including low-rated securities and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as the
Fund.
14
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
If an issuer exercises these rights during the periods of declining interest
rates, the Fund may have to replace the security with a lower yielding securi-
ty, thus resulting in a decreased return to the Fund.
The Fund may invest in "Municipal leases," which generally are participations
in intermediate- and short-term debt obligations issued by municipalities con-
sisting of leases or installment purchase contracts for property or equipment.
Although lease obligations do not constitute general obligations of the munici-
pality for which the municipality's taxing power is pledged, a lease obligation
is ordinarily backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease obligation. However, certain lease
obligations contain "non-appropriation" clauses which provide that the munici-
pality has no obligation to make lease or installment purchase payments in
future years unless money is appropriated for such purpose on a yearly basis.
In addition to the "non-appropriation" risk, these securities represent a rela-
tively new type of financing that has not yet developed the depth of market-
ability associated with more conventional bonds. Although "non-appropriation"
lease obligations are often secured by the underlying property, disposition of
the property in the event of foreclosure might prove difficult. There is no
limitation on the percentage of the Fund's assets that may be invested in
municipal lease obligations. In evaluating municipal lease obligations,
SBMFM will consider such factors as it deems appropriate, which may
include: (a)whether the lease can be canceled; (b) the ability of the lease
obligee to
direct the sale of the underlying assets; (c) the general creditworthiness of
the lease obligor; (d) the likelihood that the municipality will discontinue
appropriating funding for the leased property in the event such property is no
longer considered essential by the municipality; (e) the legal recourse of the
lease obligee in the event of such a failure to appropriate funding; (f)
whether the security is backed by a credit enhancement such as insurance; and
(g) any limitations which are imposed on the lease obligor's ability to utilize
substitute property or services rather than those covered by the lease obliga-
tion.
The Fund may invest without limit in private activity bonds. Interest income
on certain types of private activity bonds issued after August 7, 1986 to
finance non-governmental activities is a specific tax preference item for pur-
poses of the Federal individual and corporate alternative minimum taxes. Indi-
vidual and corporate shareholders may be subject to a Federal alternative mini-
mum tax to the extent the Fund's dividends are derived from interest on those
bonds. Dividends derived from interest income on Oregon Municipal Securities
are a component
15
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
of the "current earnings" adjustment item for purposes of the Federal corporate
alternative minimum tax.
The Fund is classified as a non-diversified investment company under the 1940
Act, which means that the Fund is not limited by the 1940 Act in the proportion
of its assets that it may invest in the obligations of a single issuer. The
Fund intends to conduct its operations, however, so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which will relieve the Fund of any liability for
Federal income tax and Oregon state franchise tax to the extent its earnings
are distributed to shareholders. To so qualify, among other requirements, the
Fund will limit its investments so that, at the close of each quarter of the
taxable year, (a) not more than 25% of the market value of the Fund's total
assets will be invested in the securities of a single issuer and (b) with
respect to 50% of the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the securities of a single
issuer and the Fund will not own more than 10% of the outstanding voting secu-
rities of a single issuer. The Fund's assumption of large positions in the
obligations of a small number of issuers may cause the Fund's share price to
fluctuate to a greater extent than that of a diversified company as a result of
changes in the financial condition or in the market's assessment of the
issuers.
The Fund may invest without limit in debt obligations that are repayable out
of revenue streams generated from economically-related projects or facilities.
Sizable investments in such obligations could involve an increased risk to the
Fund should any of the related projects or facilities experience financial dif-
ficulties. In addition, the Fund may invest up to an aggregate of 15% of its
total assets in securities with contractual or other restrictions on resale and
other instruments which are not readily marketable. The Fund also is authorized
to borrow an amount of up to 10% of its total assets (including the amount bor-
rowed) valued at market less liabilities (not including the amount borrowed) in
order to meet anticipated redemptions and to pledge its assets to the same
extent in connection with the borrowings.
Further information about the Fund's investment policies, including a list of
those restrictions on the Fund's investment activities that cannot be changed
without shareholder approval, appears in the Statement of Additional Informa-
tion.
16
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
CERTAIN PORTFOLIO STRATEGIES
In attempting to achieve its investment objective, the Fund may employ, among
others, the following portfolio strategies.
When-Issued Securities. New issues of Oregon Municipal Securities (and other
tax-exempt obligations) frequently are offered on a when-issued basis, which
means that delivery and payment for such securities normally take place within
15 to 45 days after the date of the commitment to purchase. The payment obliga-
tion and the interest rate that will be received on when-issued securities are
fixed at the time the buyer enters into the commitment. Oregon Municipal Secu-
rities, like other investments made by the Fund, may decline or appreciate in
value before their actual delivery to the Fund. Due to fluctuations in the
value of securities purchased and sold on a when-issued basis, the yields
obtained on these securities may be higher or lower than the yields available
in the market on the date when the investments actually are delivered to the
buyers. The Fund will not accrue income with respect to a when-issued security
prior to its stated delivery date. The Fund will establish a segregated account
with the Fund's custodian consisting of cash, obligations issued or guaranteed
by the United States government or its agencies or instrumentalities ("U.S.
government securities") or other high grade debt obligations in an amount equal
to the purchase price of the when-issued securities. Placing securities rather
than cash in the segregated account may have a leveraging effect on the Fund's
net assets. The Fund generally will make commitments to purchase Oregon Munici-
pal Securities (and other tax-exempt obligations) on a when-issued basis only
with the intention of actually acquiring the securities, but the Fund may sell
such securities before the delivery date if it is deemed advisable.
Temporary Investments. Under normal market conditions, the Fund may hold up
to 20% of its total assets in cash or money market instruments, including tax-
able money market instruments ("Temporary Investments"). In addition, when
SBMFM believes that market conditions warrant, including when
acceptable Oregon
Municipal Securities are not available, the Fund may take a temporary defensive
posture and invest without limitation in Temporary Investments. Tax-exempt
securities eligible for short-term investment by the Fund are municipal notes
having, at the time of purchase, a rating within the three highest grades of
Moody's or S&P or, if not rated, having an issue of outstanding debt securities
rated within the three highest grades of Moody's or S&P, and certain taxable
short-term instruments having quality characteristics comparable to
17
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
those for tax-exempt investments. To the extent the Fund holds Temporary
Investments, it may not achieve its investment objective.
Financial Futures and Options Transactions. The Fund may enter into financial
futures contracts and invest in options on financial futures contracts that are
traded on a U.S. exchange or board of trade. Such investments, if any, by the
Fund will be made solely for the purpose of hedging against changes in the
value of its portfolio securities due to anticipated changes in interest rates
and market conditions and where the transactions are economically appropriate
to the reduction of risks inherent in the management of the Fund. The futures
contract or options on futures contracts that may be entered into by the Fund
will be restricted to those that are either based on a municipal bond index or
relate to debt securities the prices of which are anticipated by
SBMFM to correlate with the prices of the Municipal Bonds
owned or to be purchased by the Fund.
In entering into a financial futures contract, the Fund will be required to
deposit with the broker through which it undertakes the transaction an amount
of cash or cash equivalents equal to approximately 5% of the contract amount.
This amount, which is known as "initial margin," is subject to change by the
exchange or board of trade on which the contract is traded, and members of the
exchange or board of trade may charge a higher amount. Initial margin is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. In accordance with a process known
as "marking-to-market," subsequent payments known as "variation margin," to and
from the broker will be made daily as the price of the index or securities
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable. At any time prior to the expira-
tion of a futures contract, the Fund may elect to close the position by taking
an opposite position, which will operate to terminate the Fund's existing posi-
tion in the contract.
A financial futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of a specified property at
a specified price, date, time and place. Unlike the direct investment in a
futures contract, an option on a financial futures contract gives the purchaser
the right, in return for the premium paid, to assume a position in the finan-
cial futures contract at a specified exercise price at any time prior to the
expiration date of the option. Upon exercise of an option, the delivery of the
futures position by
18
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account,
which represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The potential loss
related to the purchase of an option on financial futures contracts is limited
to the premium paid for the option (plus transaction costs). The value of the
option may change daily and that change would be reflected in the net asset
value of the Fund.
Regulations of the Commodity Futures Trading Commission applicable to the
Fund require that its transactions in financial futures contracts and options
on financial futures contracts engaged in for other than bona fide hedging pur-
poses be limited such that no such transactions may be entered into by the Fund
if the aggregate initial margin deposits and premiums paid by the Fund exceed
5% of the market value of its assets. In addition, the Fund will, with respect
to its purchases of financial futures contracts, establish a segregated account
consisting of cash or cash equivalents in an amount equal to the total market
value of the futures contracts, less the amount of initial margin on deposit
for the contracts. The Fund's ability to trade in financial futures contracts
and options on financial futures contracts may be limited to some extent by the
requirements of the Code, applicable to a regulated investment company that are
described below under "Dividends, Distributions and Taxes."
Lending of Portfolio Securities. The Fund has the ability to lend securities
from its portfolio to brokers, dealers and other financial organizations. Such
loans, if and when made, may not exceed 20% of the Fund's total assets, taken
at value. Loans of portfolio securities by the Fund will be collateralized by
cash, letters of credit or U.S. government securities which are maintained at
all times in an amount equal to at least 100% of the current market value (de-
termined by marking to market daily) of the loaned securities. The risks in
lending portfolio securities, as with other extensions of secured credit, con-
sist of possible delays in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the bor-
rower fail financially. Loans will be made to firms deemed by
SBMFM to be of good standing and will not be made unless, in
the judgment of SBMFM ,
the consideration to be earned from such loans would justify the risk.
19
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
OREGON MUNICIPAL SECURITIES
The interest on Oregon Municipal Securities is, in the opinion of bond coun-
sel to the issuers, excluded from gross income for Federal income tax purposes
and exempt from Oregon state personal income tax, and for that reason generally
is fixed at a lower rate than it would be if it were subject to such taxes.
Interest income on certain municipal securities (including Oregon Municipal
Securities) is a specific tax preference item for purposes of the Federal indi-
vidual and corporate alternative minimum taxes.
CLASSIFICATIONS
The two principal classifications of Oregon Municipal Securities are "general
obligation bonds" and "revenue bonds." General obligation bonds are secured by
the issuer's pledge of its full faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are payable from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source, but not from
the issuer's general taxing power. Sizable investments in such obligations
could involve an increased risk to the Fund should any of such related facili-
ties experience financial difficulties. In addition, certain types of private
activity bonds issued by or on behalf of public authorities to obtain funds for
privately operated facilities are included in the term Oregon Municipal Securi-
ties, provided the interest paid thereon is excludable from gross income for
Federal income tax purposes and exempt from Oregon state personal income tax.
Private activity bonds generally do not carry the pledge of the credit of the
issuing municipality.
SPECIAL CONSIDERATIONS
The Fund normally will invest at least 65% of its total assets in Oregon
Municipal Securities, and therefore it is more susceptible to factors adversely
affecting issuers of Oregon Municipal Securities than a tax-exempt mutual fund
that is not concentrated in issuers of Oregon Municipal Securities to this
degree. The State of Oregon predicts a modest deceleration of the state
economy
during the latter part of 1995, likely to be most evident in the residential
construction and durable goods manufacturing sectors. However, a growing high
technology manufacturing sector, rising exports and continued migration to Ore-
gon should provide, at least in part, a counterbalance to these negative
trends. The State estimates that employment will increase in 1995 and personal
income will rise 6.8% in 1995, which is slightly less than the predicted
increase of 7.5% for 1994.
20
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
OREGON MUNICIPAL SECURITIES (CONTINUED)
A recently enacted property tax limitation has adversely affected the finan-
cial condition of the State of Oregon and many local governments. In addition,
efforts to protect threatened and endangered species have limited, and may fur-
ther restrict, available timber and fish supplies, and could increase costs of
power and transportation in the State. SBMFM does not believe that the current
economic conditions in Oregon will have a significant adverse effect on the
Fund's ability to invest in high quality Oregon Municipal Securities. Because
the Fund's portfolio will be comprised primarily of investment grade securi-
ties, the Fund is expected to be less subject to market and credit risks than a
fund that invests primarily in lower quality Oregon Municipal Securities. See
"Special Considerations Relating to Oregon Municipal Securities" in the State-
ment of Additional Information.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE, on each day that the NYSE is open, by dividing the value
of the Fund's net assets attributable to each Class by the total number of
shares of that Class outstanding.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Trustees. Certain
securities may be valued on the basis of prices provided by pricing services
approved by the Board of Trustees. Short-term investments that mature in 60
days or less are valued at amortized cost whenever the Trustees determine that
amortized cost is fair value. Amortized cost valuation involves valuing an
instrument at its cost initially and, thereafter, assuming a constant amortiza-
tion to maturity of any discount or premium, regardless of the impact of fluc-
tuating interest rates on the market value of the instrument. Further informa-
tion regarding the Fund's valuation policies is contained in the Statement of
Additional Information.
21
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund pays dividends from its net investment income (that is, income other
than its net realized long- and short-term capital gains) on the last Friday of
each calendar month to shareholders of record as of the preceding Tuesday. Dis-
tributions of net realized long- and short-term capital gains, if any, are
declared and paid annually after the end of the fiscal year in which they have
been earned.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 of each year of any undistributed ordi-
nary income or capital gains and expects to pay any other distributions as are
necessary to avoid the application of this tax.
If, for any full fiscal year, the Fund's total distributions exceed net
investment income and net realized capital gains, the excess distributions may
be treated as a tax-free return of capital (up to the amount of the sharehold-
er's tax basis in his or her shares). The amount treated as a tax-free return
of capital will reduce a shareholder's adjusted basis in his or her shares.
Pursuant to the requirements of the 1940 Act and other applicable laws, a
notice will accompany any distribution paid from sources other than net invest-
ment income. In the event the Fund distributes amounts in excess of its net
investment income and net realized capital gains, such distributions may have
the effect of decreasing the Fund's total assets, which may increase the Fund's
expense ratio.
The per share dividends on Class B and Class C shares may be lower than the
per share dividends on Class A and Class Y shares principally as a result of
the distribution fee applicable with respect to Class B and Class C shares. The
per share dividends on Class A shares of the Fund may be lower than the per
share dividends on Class Y shares principally as a result of the service fee
applicable to Class A shares. Distributions of capital gains, if any, will be
in the same amount for Class A, B, C and Y shares.
22
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAXES
The Fund has qualified and intends to continue to qualify each year as a reg-
ulated investment company under the Code and will designate and pay exempt-
interest dividends derived from interest earned on qualifying tax-exempt obli-
gations. Such exempt-interest dividends may be excluded by shareholders from
their gross income for Federal income tax purposes although (a) all or a por-
tion of such exempt-interest dividends will be a specific preference item for
purposes of the Federal individual and corporate alternative minimum taxes to
the extent they are derived from certain types of private activity bonds issued
after August 7, 1986 and (b) all exempt-interest dividends will be a component
of the "current earnings" adjustment item for purposes of the Federal corporate
alternative minimum tax. In addition, corporate shareholders may incur a
greater Federal "environmental" tax liability through the receipt of the Fund's
dividends and distributions. Dividends derived from interest on Oregon Munici-
pal Securities also will be exempt from Oregon state personal income (but not
corporate franchise or corporate income) taxes. On April 6, 1995, the House of
Representatives passed H.R. 1215, which would, among other things, alter the
corporate alternative minimum tax by repealing the preference relating to tax-
exempt interest on private activity bonds for interest accruing after December
31, 1995 and would otherwise repeal the corporate alternative minimum tax for
taxable years beginning after December 31, 2000. There can be no assurance that
this proposed legislation will be enacted or, if enacted, will include the pro-
visions described herein.
Dividends paid from taxable net investment income, if any, and distributions
of any net realized short-term capital gains (whether from tax-exempt or tax-
able securities) are taxable to shareholders as ordinary income, regardless of
how long they have held their Fund shares and whether such dividends or distri-
butions are received in cash or reinvested in additional Fund shares. Distribu-
tions of net realized long-term capital gains will be taxable to shareholders
as long-term capital gains, regardless of how long they have held their Fund
shares and whether such distributions are received in cash or reinvested in
additional shares. Furthermore, as a general rule, a shareholder's gain or loss
on a sale or redemption of his or her shares will be a long-term capital gain
or loss if the shareholder has held the shares for more than one year and will
be a short-term capital gain or loss if the shareholder has held the shares for
one year or less. The Fund's dividends and distributions will not qualify for
the dividends-received deduction for corporations.
23
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Statements as to the tax status of each shareholder's dividends and distribu-
tions are mailed annually. Each shareholder will also receive, if appropriate,
various written notices after the close of the Fund's prior taxable year as to
the Federal income tax status of his or her dividends and distributions which
were received from the Fund during the Fund's prior taxable year. These state-
ments set forth the dollar amount of income excluded from Federal income taxes
or Oregon state personal income taxes and the dollar amount, if any, subject to
Federal income taxes. Moreover, these statements will designate the amount of
exempt-interest dividends that is a specific preference item for purposes of
the Federal individual and corporate alternative minimum taxes. Shareholders
should consult their tax advisors with specific reference to their own tax
situations.
PURCHASE OF SHARES
GENERAL
The Fund offers four classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without an
initial sales charge but are subject to a CDSC payable upon certain redemp-
tions. Class Y shares are sold without an initial sales charge or CDSC and are
available only to investors investing a minimum of $5,000,000. See "Prospectus
Summary--Alternative Purchase Arrangements" for a discussion of factors to con-
sider in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, with an Introducing Broker or with an investment dealer in
the selling group. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A, Class B, Class C or Class Y shares. No
maintenance fee will be charged by the Fund in connection with a brokerage
account through which an investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account in the
Fund by making an initial investment of at least $1,000. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000. Sub-
sequent investments of at least $50 may be made for all Classes. For the Fund's
Systematic Investment Plan, the minimum initial investment requirement for
Class A, Class B and Class C shares and the subsequent investment requirement
for all Classes is $50. There are no minimum investment requirements for
24
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
Class A shares for employees of Travelers and its subsidiaries, including
Smith Barney, unitholders who invest distributions from a UIT sponsored by
Smith Barney, and Trustees of the Fund and their spouses and children. The Fund
reserves the right to waive or change minimums, to decline any order to pur-
chase its shares and to suspend the offering of shares from time to time.
Shares purchased will be held in the shareholder's account by the Fund's trans-
fer agent, The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation ("TSSG"). Share certificates are issued only upon a shareholder's
written request to TSSG.
Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset val-
ue, are priced according to the net asset value determined on that day. Orders
received by dealers or Introducing Brokers prior to the close of regular trad-
ing on the NYSE on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day, provided the order is
received by the Fund or Smith Barney prior to Smith Barney's close of business
(the "trade date"). Payment for Fund shares is due on the third business day
after the trade date (the "settlement date").
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG is authorized through preau-
thorized transfers of $50 or more to charge an account with a bank or other
financial institution on a monthly or quarterly basis as indicated by the
shareholder to provide for systematic additions to the shareholder's Fund
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or TSSG. The Systematic Invest-
ment Plan also authorizes Smith Barney to apply cash held in the shareholder's
Smith Barney brokerage account or redeem the shareholder's shares of a Smith
Barney money market fund to make additions to the account. Additional informa-
tion is available from the Fund or a Smith Barney Financial Consultant.
25
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
as follows:
<TABLE>
<CAPTION>
DEALERS
SALES CHARGE AS % SALES CHARGE AS % REALLOWANCE AS
AMOUNT OF INVESTMENT OF TRANSACTION OF AMOUNT INVESTED % OF OFFERING PRICE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $ 25,000 4.00% 4.17% 3.60%
$ 25,000 - $ 49,999 3.50 3.63 3.15
$ 50,000 - $ 99,999 3.00 3.09 2.70
$100,000 - $249,999 2.50 2.56 2.25
$250,000 - $499,999 1.50 1.52 1.35
$500,000 and over * * *
- ---------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months
of purchase. The CDSC on Class A shares is payable to Smith Barney, which
compensates Smith Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The CDSC is waived in the same
circumstances in which the CDSC applicable to Class B and Class C shares is
waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act
of 1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Fund made at one time by "any person," which includes an
individual, his or her spouse and children, or a trustee or other fiduciary of
a single trust estate or single fiduciary account. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value
of all Class A shares held in funds sponsored by Smith Barney that are offered
with a sales charge listed under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to Trustees
of the Fund and employees of Travelers and its subsidiaries, or to the spouses
and children of such persons (including the surviving spouse of a deceased
Trustee or employee, and retired Trustees or employees) or employees of NASD
members; (b) offers of Class A shares to any other investment company in connec-
26
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
tion with the combination of such company with the Fund by merger, acquisition
of assets or otherwise; (c) purchases of Class A shares by any client of a
newly employed Smith Barney Financial Consultant (for a period up to 90 days
from the commencement of the Financial Consultant's employment with Smith Bar-
ney), on the condition the purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to the client by the
Financial Consultant and (iii) was subject to a sales charge; (d) shareholders
who have redeemed Class A shares in the Fund (or Class A shares of another fund
of the Smith Barney Mutual Funds that are offered with a sales charge equal to
or greater than the maximum sales charge of the Fund) and who wish to reinvest
their redemption proceeds in the Fund, provided the reinvestment is made within
60 calendar days of the redemption; (e) accounts managed by registered invest-
ment advisory subsidiaries of Travelers; and (f) investments of distributions
from a UIT sponsored by Smith Barney. In order to obtain such discounts, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase would qualify for the elimination of the sales
charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of funds sponsored by Smith Barney which are
offered with a sales charge listed under "Exchange Privilege" then held by such
person and applying the sales charge applicable to such aggregate. In order to
obtain such discount, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase qualifies for the
reduced sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth under
"Initial Sales Charge Alternative--Class A Shares," and will be based upon the
27
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
aggregate sales of Class A shares of Smith Barney Mutual Funds offered with a
sales charge to, and share holdings of, all members of the group. To be eligi-
ble for such reduced sales charges or to purchase at net asset value, all pur-
chases must be pursuant to an employer or partnership-sanctioned plan meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions. Smith
Barney may also offer a reduced sales charge or net asset value purchase for
aggregating related fiduciary accounts under such conditions that Smith Barney
will realize economies of sales efforts and sales related expenses. An individ-
ual who is a member of a qualified group may also purchase Class A shares at
the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be available to
arrange for group meetings between representatives of the Fund and the members,
and must agree to include sales and other materials related to the Fund in its
publications and mailings to members at no cost to Smith Barney. In order to
obtain such reduced sales charge or to purchase at net asset value, the pur-
chaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes (i) all
Class A shares of the Fund and other funds of the Smith Barney Mutual Funds
offered with a sales charge acquired during the term of the Letter plus (ii)
the value of all Class A shares previously purchased and still owned. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If the goal is not achieved within
the
28
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
period, the investor must pay the difference between the sales charges applica-
ble to the purchases made and the charges actually paid, or an appropriate num-
ber of escrowed shares will be redeemed. The term of the Letter will commence
upon the date the Letter is signed, or at the option of the investor, up to 90
days before such date. Please contact a Smith Barney Financial Consultant or
TSSG to obtain a Letter of Intent application.
Class Y Shares. A Letter of Intent may also be used as a way for investors to
meet the minimum investment requirement for Class Y shares. Such investors must
make an initial minimum purchase of $1,000,000 in Class Y shares of the Fund
and agree to purchase a total of $5,000,000 of Class Y shares of the Fund
within six months from the date of the Letter. If a total investment of
$5,000,000 is not made within the six month period, all Class Y shares pur-
chased to date will be transferred to Class A shares, where they will be sub-
ject to all fees (including a service fee of 0.15%) and expenses applicable to
the Fund's Class A shares, which may include a CDSC of 1.00%. Please contact
TSSG or a Smith Barney Financial Consultant for further information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares which when combined with Class A shares offered
with a sales charge currently held by an investor equal or exceed $500,000 in
the aggregate.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the time of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gain distributions; and
(c) with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class C shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class C and Class A shares that are CDSC Shares are subject to a 1.00% CDSC
if redeemed within 12 months of purchase. In circumstances in which
29
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- --------------------------------
<S> <C>
First 4.50%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
- --------------------------------
</TABLE>
Class B shares will convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fees. There will also be converted at that time such pro-
portion of Class B Dividend Shares owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to the total number
of outstanding Class B shares (other than Class B Dividend Shares) owned by the
shareholder. Shareholders who held Class B shares of Smith Barney Shearson
Short-Term World Income Fund (the "Short-Term World Income Fund") on July 15,
1994 and who subsequently exchanged those shares for Class B shares of the Fund
will be offered the opportunity to exchange all such Class B shares for Class A
shares of the Fund four years after the date on which those shares were deemed
to have been purchased. Holders of such Class B shares will be notified of the
pending exchange in writing approximately 30 days before the fourth anniversary
of the purchase date and, unless the exchange has been rejected in writing, the
exchange will occur on or about the fourth anniversary date. See "Prospectus
Summary--Alternative Purchase Arrangements--Class B Shares Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital
30
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
appreciation or dividend and capital gain distribution reinvestments in such
other funds. For Federal income tax purposes, the amount of the CDSC will
reduce the gain or increase the loss, as the case may be, on the amount real-
ized on redemption. The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of
the shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares in connection with a combination of
the Fund with any investment company by merger, acquisition of assets or other-
wise. In addition, a shareholder who has redeemed shares from other funds of
the Smith Barney Mutual Funds may, under certain circumstances, reinvest all or
part of the redemption proceeds within 60 days and receive pro rata credit for
any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by TSSG in the case
of all other shareholders) of the shareholder's status or holdings, as the case
may be.
31
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
funds of the Smith Barney Mutual Funds, to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of Class A, Class B and
Class C shares are subject to minimum investment requirements and all shares
are subject to the other requirements of the fund into which exchanges are made
and a sales charge differential may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Income and Growth Portfolio
Smith Barney Funds, Inc.--Utility Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
*Smith Barney Funds, Inc.--Income Return Account Portfolio
Smith Barney Funds, Inc.--Monthly Payment Government Portfolio
32
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
EXCHANGE PRIVILEGE (CONTINUED)
++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
*Smith Barney Intermediate Maturity California Municipals Fund
*Smith Barney Intermediate Maturity New York Municipals Fund
*Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Muni Funds--California Portfolio
*Smith Barney Muni Funds--Florida Limited Term Portfolio
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
*Smith Barney Muni Funds--Limited Term Portfolio
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New Jersey Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Ohio Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Tax-Exempt Income Fund
33
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
EXCHANGE PRIVILEGE (CONTINUED)
International Funds
Smith Barney World Funds, Inc.--Emerging Markets Portfolio
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Smith Barney World Funds, Inc.--International Balanced Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
Smith Barney Precious Metals and Minerals Fund Inc.
Money Market Funds
+Smith Barney Exchange Reserve Fund
++Smith Barney Money Funds, Inc.--Cash Portfolio
++Smith Barney Money Funds, Inc.--Government Portfolio
**Smith Barney Money Funds, Inc.--Retirement Portfolio
++Smith Barney Municipal Money Market Fund, Inc.
++Smith Barney Muni Funds--California Money Market Portfolio
++Smith Barney Muni Funds--New York Money Market Portfolio
- --------------------------------------------------------------------------------
* Available for exchange with Class A, Class C and Class Y shares of the Fund.
** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund.
Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold without a
sales charge or with a maximum sales charge of less than the maximum charged by
other Smith Barney Mutual Funds will be subject to the appropriate "sales
charge differential" upon the exchange of such shares for Class A shares of a
fund sold with a higher sales charge. The "sales charge differential" is lim-
ited to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For pur-
poses of the exchange privilege, shares obtained through automatic reinvestment
of dividends and capital gains distributions are treated as having paid the
same
34
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
EXCHANGE PRIVILEGE (CONTINUED)
sales charges applicable to the shares on which the dividends or distributions
were paid; however, if no sales charge was imposed upon the initial purchase of
shares, any shares obtained through automatic reinvestment will be subject to a
sales charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder (unless such share-
holder was a Class B shareholder of the Short-Term World Income Fund on July
15, 1994) wishes to exchange all or a portion of his or her shares in any of
the funds imposing a higher CDSC than that imposed by the Fund, the exchanged
Class B shares will be subject to the higher applicable CDSC. Upon an exchange,
the new Class B shares will be deemed to have been purchased on the same date
as the Class B shares of the Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be deemed to
have been purchased on the same date as the Class C shares of the Fund that
have been exchanged.
Class Y Exchanges. Class Y shareholders of the Fund who wish to exchange all
or a portion of their Class Y shares for Class Y shares in any of the funds
identified above may do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. SBMFM may deter-
mine that a pattern of frequent exchanges is excessive and contrary to the best
interests of the Fund's other shareholders. In this event, SBMFM will notify
Smith Barney and Smith Barney may, at its discretion, decide to limit addi-
tional purchases and/or exchanges by a shareholder. Upon such a determination,
Smith Barney will provide notice in writing or by telephone to the shareholder
at least 15 days prior to suspending the exchange privilege and during the 15
day period the shareholder will be required to (a) redeem his or her shares in
the Fund or (b) remain invested in the Fund or exchange into any of the funds
of the Smith Barney Mutual Funds ordinarily available, which position the
shareholder would be expected to maintain for a significant period of time. All
relevant factors will be considered in determining what constitutes an abusive
pattern of exchanges.
Exchanges will be processed at the net asset value next determined, plus any
applicable sales charge differential. Redemption procedures discussed below are
35
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
EXCHANGE PRIVILEGE (CONTINUED)
also applicable for exchanging shares, and exchanges will be made upon receipt
of all supporting documents in proper form. If the account registration of the
shares of the fund being acquired is identical to the registration of the
shares of the fund exchanged, no signature guarantee is required. A capital
gain or loss for tax purposes will be realized upon the exchange, depending
upon the cost or other basis of shares redeemed. Before exchanging shares,
investors should read the current prospectus describing the shares to be
acquired. The Fund reserves the right to modify or discontinue exchange privi-
leges upon 60 days' prior notice to shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until the Fund's transfer agent
receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third business day following receipt
of proper tender, except on any days on which the NYSE is closed or as permit-
ted under the 1940 Act in extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit without specific
instruction and Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by check, other than
a certified or official bank check, will be remitted upon clearance of the
check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
36
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
REDEMPTION OF SHARES (CONTINUED)
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Oregon Municipals Fund
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to TSSG together with the redemption request. Any
signature appearing on a redemption request, share certificate or stock power
must be guaranteed by an eligible guarantor institution such as a domestic
bank, savings and loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national securities exchange. TSSG
may require additional supporting documents for redemptions made by corpora-
tions, executors, administrators, trustees or guardians. A redemption request
will not be deemed properly received until TSSG receives all required documents
in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. The withdrawal plan
will be carried over on exchanges between funds or Classes of the Fund. Any
applicable CDSC will not be waived on amounts withdrawn by a shareholder that
exceed 1.00% per month of the value of the shareholder's shares subject to the
CDSC at the time the withdrawal plan commences. (With respect to withdrawal
plans in effect prior to November 7, 1994, any applicable CDSC will be waived
on amounts withdrawn that do not exceed 2.00% per month of the shareholder's
shares subject to the CDSC.) For further information regarding the automatic
cash withdrawal plan, shareholders should contact a Smith Barney Financial Con-
sultant.
37
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The Fund, how-
ever, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
PERFORMANCE
YIELD
From time to time, the Fund may advertise its 30-day "yield" and "equivalent
taxable yield" for each Class of shares. The yield refers to the income gener-
ated by an investment in those shares over the 30-day period identified in the
advertisement and is computed by dividing the net investment income per share
earned by the Class during the period by the maximum public offering price per
share on the last day of the period. This income is "annualized" by assuming
that the amount of income is generated each month over a one-year period and is
compounded semi-annually. The annualized income is then shown as a percentage
of the net asset value.
The equivalent taxable yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to the Fund's tax-exempt yield
for each Class. It is calculated by increasing the yield shown for the Class to
the extent necessary to reflect the payment of taxes at specified tax rates.
Thus, the equivalent taxable yield always will exceed the Fund's yield.
TOTAL RETURN
From time to time, the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A, Class
B, Class C and Class Y shares of the Fund. These figures are based on histori-
cal earnings and are not intended to indicate future performance. Total return
is computed for a specific period of time assuming deduction of the maximum
sales charge, if any, from the initial amount invested and reinvestment of all
income dividends and capital gain distributions on the reinvestment dates at
38
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PERFORMANCE (CONTINUED)
prices calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount
invested and subtracting 100%. The standard average annual total return, as
prescribed by the SEC, is derived from this total return, which provides the
ending redeemable value. Such standard total return information may also be
accompanied with nonstandard total return information for differing periods
computed in the same manner but without annualizing the total return or taking
sales charges into account. The Fund calculates current dividend return for
each Class by annualizing the most recent monthly distribution and dividing by
the net asset value of the maximum public offering price (including sales
charge) on the last day of the period for which current dividend return is pre-
sented. The current dividend return for each Class may vary from time to time
depending on market conditions, the composition of its investment portfolio and
operating expenses. These factors and possible differences in the methods used
in calculating current dividend return should be considered when comparing a
Class' current return to yields published for other investment companies and
other investment vehicles. The Fund may also include comparative performance
information in advertising or marketing its shares. Such performance informa-
tion may include data from Lipper Analytical Services, Inc. or similar indepen-
dent services that monitor the performance of mutual funds or other industry
publications. The Fund will include performance data for Class A, Class B,
Class C and Class Y shares in any advertisement or information including per-
formance data of the Fund.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Trustees. The Trustees approve all significant agreements
between the Fund and the companies that furnish services to the Fund, including
agreements with its distributor, investment adviser, administrator, custodian
and transfer agent. The day-to-day operations of the Fund are delegated by the
Board to the Fund's investment adviser and administrator. The Statement of
Additional Information contains background information regarding each Trustee
and executive officer of the Fund.
39
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
MANAGEMENT OF THE FUND (CONTINUED)
INVESTMENT ADVISER AND ADMINISTRATOR
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser pursuant to a transfer of the advisory agreement,
effective November 7, 1994, from its affiliate Mutual Management Corp. (Mutual
Management Corp. and SBMFM are both wholly owned subsidiaries of Holdings.)
Investment advisory services continue to be provided to the Fund by the same
portfolio managers who provided services under the agreement with Mutual Man-
agement Corp. SBMFM (through predecessor entities) has been in the investment
counseling business since 1934 and is a registered investment adviser. SBMFM
renders investment advice to investment companies that had aggregate assets
under management as of May 31, 1995, in excess of $61 billion.
Subject to the supervision and direction of the Fund's Board of Trustees,
SBMFM manages the Fund's portfolio in accordance with the Fund's stated invest-
ment objective and policies, makes investment decisions for the Fund, places
orders to purchase and sell securities and employs professional portfolio man-
agers and securities analysts who provide research services to the Fund. For
investment advisory services rendered, the Fund pays SBMFM a fee at the follow-
ing annual rates of average daily net assets: 0.35% up to $500 million; 0.32%
of the value of its average daily net assets in excess of $500 million. For the
fiscal year ended April 30, 1995, SBMFM was paid investment advisory fees equal
to 0.35% of the value of the average daily net assets of the Fund.
SBMFM also serves as the Fund's administrator and oversees all aspects of the
Fund's administration. For administration services rendered, the Fund pays
SBMFM a fee at the following annual rates of average daily net assets: 0.20% to
$500 million and 0.18% of the value of its average daily net assets in excess
of $500. For the period ended April 30, 1995, SBMFM was paid administration
fees equal to 0.20% of the value of the average daily net assets of the Fund.
PORTFOLIO MANAGEMENT
Peter M. Coffey, Vice President and Investment Officer of the Fund since May
10, 1994 and a Managing Director of SBMFM, is responsible for managing the day-
to-day operations of the Fund including making all investment decisions.
40
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
MANAGEMENT OF THE FUND (CONTINUED)
Management's discussion and analysis, and additional performance regarding
the Fund during the fiscal period ended April 30, 1995 is included in the
Annual Report dated April 30, 1995. A copy of the Annual Report may be obtained
upon request and without charge from a Smith Barney Financial Consultant or by
writing or calling the Fund at the address or phone number listed on page one
of this Prospectus.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee
with respect to Class A, Class B and Class C shares of the Fund at the annual
rate of 0.15% of the average daily net assets of the respective Class. Smith
Barney is also paid a distribution fee with respect to Class B and Class C
shares at the rate of 0.50% and 0.55%, respectively, of the average daily net
assets attributable to those Classes. Class B shares which automatically con-
vert to Class A shares eight years after the date of original purchase, will no
longer be subject to a distribution fee. The fees are used by Smith Barney to
pay its Financial Consultants for servicing shareholder accounts and, in the
case of Class B and Class C shares, to cover expenses primarily intended to
result in the sale of those shares. These expenses include: advertising
expenses; the cost of printing and mailing prospectuses to potential investors;
payments to and expenses of Smith Barney Financial Consultants and other per-
sons who provide support services in connection with the distribution of
shares; interest and/or carrying charges; and indirect and overhead costs of
Smith Barney in connection with the sale of Fund shares, including lease, util-
ity, communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
41
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
DISTRIBUTOR (CONTINUED)
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Fund's Board of Trust-
ees will evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
ADDITIONAL INFORMATION
The Fund was organized on March 10, 1994 under the laws of the Commonwealth
of Massachusetts and is a business entity commonly known as a "Massachusetts
business trust." The Fund is registered with the SEC as a non-diversified,
open-end management investment company.
Each Class of the Fund represents an identical interest in the Fund's invest-
ment portfolio. As a result, the Classes have the same rights, privileges and
preferences, except with respect to: (a) the designation of each Class; (b) the
effect of the respective sales charges for each Class; (c) the distribution
and/or service fees borne by each Class; (d) the expenses allocable exclusively
to each Class; (e) voting rights on matters exclusively affecting a single
Class; (f) the exchange privilege of each Class; and (g) the conversion feature
of the Class B shares. The Board of Trustees does not anticipate that there
will be any conflicts among the interests of the holders of the different Clas-
ses. The Trustees, on an ongoing basis, will consider whether any such conflict
exists and, if so, take appropriate action.
The Fund does not hold annual shareholder meetings. There normally will 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. The Trustees will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Fund's outstanding
shares, and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full share owned and a
proportionate, fractional vote for any fractional share held of that Class.
Generally, shares of the Fund will be voted on a Fund-wide basis on all matters
except matters affecting only the interests of one Class.
42
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
ADDITIONAL INFORMATION (CONTINUED)
PNC Bank, National Association, located at 17th and Chestnut Streets, Phila-
delphia Pennsylvania 19103, serves as custodian of the Fund's investments.
TSSG, located at Exchange Place, Boston, Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends to each of its shareholders a semi-annual report and an
audited annual report, which include listings of the investment securities held
by the Fund at the end of the reporting period. In an effort to reduce the
Fund's printing and mailing costs, the Fund plans to consolidate the mailing of
its semi-annual and annual reports by household. This consolidation means that
a household having multiple accounts with the identical address of record will
receive a single copy of each report. Shareholders who do not want this consol-
idation to apply to their account should contact their Financial Consultants or
the Fund's transfer agent.
43
<PAGE>
SMITH BARNEY
------------
A Member of Travelers Group LOGO
SMITH BARNEY
OREGON
MUNICIPALS
FUND
388 Greenwich Street
New York, New York 10013
FD 0209 F5
Smith Barney
Oregon Municipals Fund
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information
June 29, 1995
This Statement of Additional Information expands upon
and supplements the information contained in the current
Prospectus of Smith Barney Oregon Municipals Fund
(the "Fund"), dated June 29, 1995, as amended or
supplemented from time to time, and should be read in
conjunction with the Fund's Prospectus. The Fund's
Prospectus may be obtained from a Smith Barney
Financial Consultant or by writing or calling the
Fund at the address or telephone number set forth above.
This Statement of Additional Information, although not
in itself a prospectus, is incorporated by reference
into the Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference the same section headings are used
in both the Prospectus and the Statement of Additional
Information, except where shown below:
<TABLE>
<C> <C>
Management of the
Fund....................................................
.. .. ....................... 1
Investment Objective and Management
Policies............................................. 5
Municipal Bonds (See in the Prospectus "Oregon Municipal
Securities")....... 12
Purchase of
Shares..................................................
.. .. .................................. 16
Redemption of
Shares..................................................
.. .. .............................. 16
Distributor.............................................
.. ..
...................................................
17 Valuation of
Shares..................................................
.. .. ................................. 18
Exchange
Privilege...............................................
.. .. ..................................... 19
Performance Data (See in the Prospectus
"Performance").............................. 20
Taxes (See in the Prospectus "Dividends, Distributions
and Taxes").............. 22
Additional
Information.............................................
.. .. ................................. 25
Financial
Statements..............................................
.. .. ................................... 25
Appendix................................................
.. .. ..................................................
A-1 </TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of
certain of the organizations that provide services to
the Fund. These organizations are as follows:
<TABLE>
<CAPTION>Name <CAPTION>Service
<C> <C>
Smith Barney Inc.
("Smith
Barney ").........................................
.. Di stributor
Smith Barney Mutual Funds Management Inc.
("SBMFM") ...........................................
.. .. ......... Investment Adviser and
Administrator
PNC Bank, National Association
("PNC") .............................................
.. .. ..............Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data
Corporation........................ Transfer Agent
</TABLE>
These organizations and the functions they perform for
the Fund are discussed in the Prospectus and in this
Statement of Additional Information.
<PAGE>
Trustees and Executive Officers of the Fund
The names of the Trustees and executive officers of the
Fund, together with information as to their principal
business occupations during the past five years, are
shown below. Each Trustee who is an "interested person"
of the Fund, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), is indicated by an
asterisk.
Herbert Barg, Trustee (Age 73) .. Private
Investor. His address is 273 Montgomery Avenue, Bala
Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Trustee (Age 72) . Retired;
formerly Senior Consultant to Dean Witter Reynolds Inc.
His address is 19 Circle End Drive, Ramsey, Oregon
17466.
Martin Brody, Trustee (Age 73) . Vice Chairman of
the Board of Restaurant Associates Corp.; a Director of
Jaclyn, Inc. His address is HMK Associates, Three ADP
Boulevard, Roseland, Oregon 07068.
Dwight B. Crane, Trustee (Age 57) . Professor,
Graduate School of Business Administration, Harvard
University; a Director of Peer Review Analysis, Inc. His
address is Graduate School of Business Administration,
Harvard University, Boston, Massachusetts 02163.
Burt N. Dorsett, Trustee (Age 64). Managing Partner
of Dorsett McCabe Management, Inc., an investment
counselling firm; Director of Research Corporation
Technologies, Inc.,
a non-profit patent-clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York
10021.
Elliot S. Jaffe, Trustee (Age 68). Chairman of the
Board and President of The Dress Barn, Inc. His address
is 30 Dunnigan Drive, Suffern, New York 10901.
Stephen E. Kaufman, Trustee (Age 63) . Attorney.
His address is 277 Park Avenue, New York, New York
10017.
Joseph J. McCann, Trustee (Age 64) . Financial
Consultant; formerly Vice President of Ryan Homes, Inc.,
Pittsburgh, Pennsylvania. His address is 200 Oak Park
Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment
Officer (Age 62) . Managing Director of Smith
Barney, Chairman of the Board of Smith Barney Strategy
Advisers Inc. and President of SBMFM; prior to July
1993, Senior Executive Vice President of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"), Vice
Chairman of Asset Management Division of Shearson Lehman
Brothers; a Director of PanAgora Asset Management, Inc.
and PanAgora Asset Management Limited. His address is
388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr., Trustee (Age 61). President,
Cornelius C. Rose Associates, Inc., financial
consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address
is P.O. Box 355, Fair Oaks, Enfield, New Hampshire
03748.
James J. Crisona, Trustee emeritus (Age 87) .
Attorney; formerly Justice of the Supreme Court of the
State of New York. His address is 118 East 60th Street,
New York, New York 10022.
Jessica M. Bibliowicz, President (Age 35). Executive
Vice President of Smith Barney; prior to 1994, Director
of Sales and Marketing for Prudential Mutual Funds;
prior to 1990, First Vice President, Asset Management
Division of Shearson Lehman Brothers. Ms. Bibliowicz
also serves as President of 40 other mutual funds of the
Smith Barney Mutual Funds. Her address is 388 Greenwich
Street, New York, New York 10013.
<PAGE>
Peter M. Coffey, Vice President and Investment Officer
(Age 51). Managing Director of SBMFM; prior to July
1993, Managing Director of Smith Barney Advisors, the
predecessor to SBMFM. Mr. Coffey also serves as
Investment Officer of 12 other mutual funds of the Smith
Barney Mutual Funds. His address is 388 Greenwich
Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer
(Age 37). Managing Director of Smith Barney; Director
and Senior Vice President of SBMFM. Mr. Daidone also
serves as Senior Vice President and Treasurer of 41
other mutual funds of the Smith Barney Mutual Funds.
His address is 388 Greenwich Street, New York, New York
10013.
Christina T. Sydor, Secretary (Age 44). Managing
Director of Smith Barney; General Counsel and Secretary
of SBMFM. Ms. Sydor also serves as Secretary of 41 other
mutual funds of the Smith Barney Mutual Funds. Her
address is 388 Greenwich Street, New York, New York
10013.
Each Trustee also serves as a director, trustee and/or
general partner of certain other mutual funds for which
Smith Barney
serves as distributor. As of May 31,
1995, the Trustees and officers of the Fund as a group
owned less than 1.00% of the outstanding common stock of
the Fund. As of May 31, 1995, to the knowledge of the
Fund and the Board, no single shareholder or "group" (as
that term is used in Section 13(d) of the Securities Act
of 1934) beneficially owned more than 5% of the
outstanding shares of the Fund with the exception of the
following: <TABLE>
<CAPTION>Shareholder <CAPTION>Class <CAPTION>Percent
Ownership
<C> <C> <C>
Smith Barney Inc.388 Greenwich StreetNew York, New York
10013 Class A 16.89%
Jacqueline R. Miller1516 Seattle Slew DriveSalem, Oregon
97301 Class C 40.12%
Elsie C. Goble 2030 Elm Street Apt. #320Forrest Grove,
Oregon 97116 Class C 39.87%
Margaret F. Tabacchi3383 Country Club Drive Salem,
Oregon 97302 Class C 20.01%
</TABLE>
No Trustee, officer or employee of Smith Barney or of
any parent or subsidiary receives any compensation from
the Fund for serving as an officer or Trustee of the
Fund. The Fund pays each Trustee who is not an officer,
director or employee of Smith Barney or any of its
affiliates a fee of $2,500 per annum plus $250 per
meeting attended and each Trustee emeritus who is not
an officer, director or employee of Smith Barney or any
of its affiliates a fee of $1,750 per annum plus $125
per meeting attended. The Fund reimburses all Trustees
for travel and out-of-pocket expenses. For the fiscal
period ended April 30, 1995, such fees and expenses
totalled $36,828.
<PAGE>
For the fiscal period ended April 30, 1995, the Trustees
of the Fund were paid the following compensation:
<TABLE>
<CAPTION>Aggregate Compensation
<CAPTION>Aggregate
Compensation from the Smith Barney
<CAPTION> Trustee (*) from the Fund
Mutual Funds
<C> <C>
<C>
Herbert Barg (13).................................
$3,750 $91,775.00
Alfred J. Bianchetti (8).........................
3,750 47,775.00
Martin Brody (15)................................
3,750 117,850.00
Dwight B. Crane (18)...........................
3,750 135,775.00
Burt N. Dorsett (12).............................
3,750 51,900.00
Robert A. Frankel(7)a...........................
2,000 76,800.00
Dr. Paul Hardin(12)a...............................
2,000 53,300.00
Elliot S. Jaffe (12)................................
2,625 50,900.00
Stephen E. Kaufman (10).....................
3,750 87,525.00
Joseph J. McCann (18)........................
3,750 55,375.00
Heath B. McLendon (29).....................
- ----- -------
Cornelius C. Rose (12)........................
2,625 50,650.00
James J. Crisona** (10)......................
2,875 59,850.00
</TABLE>
_____________________
* Number of directorships/trusteeships held with other
mutual funds in the Smith Barney Mutual Funds.
** Trustee Emeritus. A Trustee emeritus may attend
meetings of the Fund's Board of Trustees but has no
voting rights at such meetings.
a The information presented in this table for Aggregate
Compensation reflects the compensation paid to Messrs.
Frankel and Hardin and the number of funds within the
Smith Barney Mutual Funds for which they served as board
members as of the date of this Statement of Additional
Information. As of January 1, 1995, Messrs. Frankel and
Hardin resigned from the Fund's Board of Trustees.
Investment Adviser and Administrator-SBMFM
SBMFM serves as investment adviser to the Fund pursuant
to a transfer of the investment advisory agreement,
effective November 7, 1994, from its affiliate, Mutual
Management Corp. Mutual Management Corp. and SBMFM are
both wholly owned subsidiaries of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly owned subsidiary
of Travelers Group Inc. ("Travelers"). The advisory
agreement is dated May 23, 1994 (the "Advisory
Agreement") and was first approved by the Board of
Trustees, including a majority of those Trustees who are
not "interested persons'' of the Fund or Smith Barney,
on April 20, 1994. The services provided by SBMFM under
the Advisory Agreement are described in the Prospectus
under "Management of the Fund." SBMFM pays the salary of
any officer or employee who is employed by both it and
the Fund.
As compensation for investment advisory services, the
Fund pays SBMFM a fee computed daily and paid monthly at
the following annual rates of the Fund's average daily
net assets: 0.35% up to $500 million; and 0.32% in
excess of $500 million. For the fiscal period ended
April 30, 1995, the Fund incurred investment advisory
fees in the amount of $32,860. For the fiscal period
ended April 30, 1995, Mutual Management Corp. and/or
SBMFM voluntarily waived investment advisory fees in the
amount of $32,860 and reimbursed expenses in th eamount
of $64,336.
SBMFM also serves as administrator to the Fund pursuant
to a written agreement dated May 23, 1994 (the
"Administration Agreement"), which was first approved by
the Fund's Board of Trustees, including a majority of
Trustees who are not "interested persons" of the Fund or
SBMFM, on April 20, 1994. The services provided by SBMFM
under the Administration Agreement are described in the
Prospectus under "Management of the Fund." SBMFM pays
the salary of any officer and employee who is employed
by both it and the Fund
and bears all expenses in connection with the
performance of its services.
As compensation for administrative services rendered to
the Fund, SBMFM receives a fee paid at the following
annual rates: 0.20% of average daily net assets up to
$500 million; and 0.18% of average daily net assets in
excess of $500 million. For the fiscal period ended
April 30, 1995, the Fund incurred administration fees in
the amount of $18,777, all of which were waived.
<PAGE>
The Fund bears expenses incurred in its operations,
including: taxes, interest, brokerage fees and
commissions, if any; fees of Trustees who are not
officers, directors, shareholders or employees of Smith
Barney or SBMFM; SEC fees and state Blue Sky
qualification fees; charges of custodian; transfer and
dividend disbursing agent's fees; certain insurance
premiums; outside auditing and legal expenses; costs of
any independent pricing service; costs of maintaining
corporate existence; costs attributable to investors
services (including allocated telephone and personnel
expenses); costs of preparation and printing of
prospectuses for regulatory purposes and for
distribution to existing shareholders; costs of
shareholders' reports and shareholder meetings and
meetings of the officers or Board of Trustees of the
Fund.
SBMFM has agreed that if in any fiscal year the
aggregate expenses of the Fund (including fees payable
pursuant to the Advisory Agreement and Administration
Agreement but excluding interest, taxes, brokerage fees
paid pursuant to the Fund's services and distribution
plan, and, with the prior written consent of the
necessary state securities commissions, extraordinary
expenses) exceed the expense limitation of any state
having jurisdiction over the Fund, SBMFM will, to the
extent required by state law, reduce its management fees
by the amount of such excess expenses. Such fee
reductions, if any, will be reconciled on a monthly
basis. For the fiscal period ended April 30, 1995, no
such fee reduction was required.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the
Fund. The Trustees who are not "interested
persons" of the Fund have selected Stroock & Stroock &
Lavan as their legal counsel.
KPMG Peat Marwick LLP ("Peat Marwick"), independent
accountants, 345 Park Avenue, New York, New York 10154,
serve as auditors of the Fund and will render an opinion
on the Fund's financial statements annually beginning
with the fiscal year ending April 30, 1996. Prior to
Peat Marwick's appointment, Coopers and Lybrand L.L.P.,
independent accountants served as auditors of the Fund
and rendered an opinion on the Fund's financial
statements for the fiscal period ended April 30,
1995.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective
and the policies it employs to achieve that objective.
The following discussion supplements the description of
the Fund's investment policies in the Prospectus. For
purposes of this Statement of Additional Information,
obligations of non-Oregon municipal issuers, the
interest on which is at least exempt from Federal income
taxation ("Other Municipal Securities"), and obligations
of the State of Oregon and its political subdivisions,
agencies and public authorities (together with certain
municipal issuers such as the Commonwealth of Puerto
Rico, the Virgin Islands and Guam) that pay interest
which is excluded from gross income for Federal income
tax purposes and exempt from Oregon personal income
taxes ("Oregon Municipal Securities") are collectively
referred to as "Municipal Bonds."
As noted in the Prospectus, the Fund is classified as a
nondiversified investment company under the 1940 Act,
which means that the Fund is not limited by the 1940 Act
in the proportion of its assets that may be invested in
the obligations of a single issuer. The identification
of the issuer of Municipal Bonds generally depends upon
the terms and conditions of the security. When the
assets and revenues of an agency, authority,
instrumentality or other political subdivision are
separate from those of the government creating the
issuing entity and the security is backed only by the
assets and revenues of such entity, such entity would be
deemed to be the sole issuer. Similarly, in the case of
a private activity bond, if that bond is backed only by
the assets and revenues of the nongovernmental user,
then such nongovernmental user is deemed to be the sole
issuer. If in either case, however, the creating
government or some other entity guarantees a security,
such a guarantee would be considered a separate security
and would be treated as an issue of such government or
other entity.
<PAGE>
Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Corporation
("S&P") represent the opinions of those agencies as to
the quality of the Municipal Bonds and short-term
investments which they rate. It should be emphasized,
however, that such ratings are relative and subjective,
are not absolute standards of quality and do not
evaluate the market risk of securities. These ratings
will be used by the Fund as initial criteria for the
selection of portfolio securities, but the Fund also
will rely upon the independent advice of SBMFM to
evaluate potential investments. Among the factors that
will be considered are the long-term ability of the
issuer to pay principal and interest and general
economic trends. To the extent the Fund invests in lower-
rated and comparable unrated securities, the Fund's
achievement of its investment objective may be more
dependent on SBMFM's credit analysis of such
securities than would be the case for a portfolio
consisting entirely of higher-rated securities.
Subsequent to its purchase by the Fund, an issue of
Municipal Bonds may cease to be rated or its rating may
be reduced below the rating given at the time the
securities
were acquired by the Fund. Neither event will require
the sale of such Municipal Bonds by the Fund, but
SBMFM will consider such event in its
determination of whether the Fund should continue to
hold the Municipal Bonds. In addition, to the extent the
ratings change as a result of changes in such
organizations or their rating systems or due to a
corporate restructuring of Moody's or S&P, the Fund will
attempt to use comparable ratings as standards for its
investments in accordance with its investment objective
and policies. The Appendix contains information
concerning the ratings of Moody's and S&P and their
significance.
The Fund generally may invest up to 25% of its
total assets in securities rated below investment
grade, i.e., lower than Baa, MIG 3 or Prime-1 by Moody's
or BBB, SP-2 or A-1 by S&P, or in unrated securities
of comparable quality. Such securities (a) will likely
have some quality and protective characteristics that,
in the judgment of the rating organization, are
outweighed by large uncertainties or major risk
exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in
accordance with the terms of the obligation.
Zero coupon securities involve special
considerations. Zero coupon securities are debt
obligations which do not entitle the holder to any
periodic payments of interest prior to maturity of a
specified cash payment date when the securities begin
paying current interest (the "cash payment date") and
therefore are issued and traded at a discount from
their face amounts or par values. The discount varies
depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of
the security and the perceived credit quality of the
issuer. The discount, in the absence of financial
difficulties of the issuer, decreases as the final
maturity or cash payment date of the security
approaches. The market prices of zero coupon securities
generally are more volatile than the market prices of
other debt securities that pay interest periodically
and are likely to respond to changes in interest rates
to a greater degree than do debt securities having
similar maturities and credit quality. The credit
risk factors pertaining to low rated securities also
apply to low-rated zero coupon bonds. Such zero coupon
bonds carry an additional risk in that, unlike bonds
which pay interest throughout the period to maturity,
the Fund will realize no cash until the cash payment
date unless a portion of such securities is sold and,
if the issuer defaults, the Fund may obtain no return
at all on its investment.
Current Federal income tax laws may require the
holder of a zero coupon security to accrue income with
respect to that security prior to the receipt of cash
payments. To maintain
<PAGE>
its qualification as a registered investment company
and to avoid liability for Federal income taxes, the
Fund may be required to distribute income accrued with
respect to zero coupon securities (including to
shareholders not electing to reinvest dividends) and may
have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash
to satisfy these distribution requirements.
Temporary Investments
When the Fund is maintaining a defensive position,
the Fund may invest in short-term investments
("Temporary Investments") consisting of (a) the
following tax-exempt securities: notes of municipal
issuers having, at the time of purchase, a rating
within the three highest grades of Moody's or S&P
or, if not rated, having an issue of outstanding
Municipal Bonds rated within the three highest grades
by Moody's or S&P; and (b) the following taxable
securities: obligations of
the United States government, its agencies or
instrumentalities ("U.S. government securities"),
repurchase agreements, other debt securities rated
within the three highest grades by Moody's or S&P,
commercial paper rated in the highest grade by either
of such rating services, and certificates of deposit of
domestic banks with assets of $1 billion or more. The
Fund may invest in Temporary Investments for defensive
reasons in anticipation of a market decline. At no time
will more than 20% of the Fund's total assets be
invested in Temporary Investments unless the Fund has
adopted a defensive investment policy. The Fund
intends, however, to purchase tax-exempt Temporary
Investments pending the investment of the proceeds of
the sale of portfolio securities or shares of the Fund,
or in order to have highly liquid securities available
to meet anticipated redemptions.
Investments in Financial Futures Contracts and Options
on Financial Futures Contracts
The Fund may invest in financial futures
contracts and options on financial futures contracts
that are traded on a domestic exchange or board of
trade. Such investments may be made by the Fund solely
for the purpose of hedging against changes in the value
of its portfolio securities due to anticipated changes
in interest rates and market conditions, and not for
purposes of speculation. Further, such investments
will be made only in unusual circumstances, such as
when SBMFM anticipates an extreme change in
interest rates or market conditions.
Unlike the purchase or sale of a Municipal
Bond, no consideration is paid or received by the
Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the
broker an amount of cash or cash equivalents equal to
approximately 10% of the contract amount (this amount is
subject to change by the board of trade on which the
contract is traded and members of such board of trade
may charge a higher amount). This amount is known as
initial margin and is in the nature of a performance
bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures
contract, assuming that all contractual obligations
have been satisfied. Subsequent payments, known as
variation margin, to and from the broker, will be made
on a daily basis as the price of the index fluctuates,
making the long and short positions in the futures
contract more or less valuable, a process known
as marking-to-market. At any time prior to the
expiration of the contract, the Fund may elect to close
the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the
futures contract.
There are several risks in connection with the use
of futures contracts as a hedging device. Successful use
of futures contracts by the Fund is subject to
SBMFM's ability to predict correctly movements in
the direction of interest rates. Such predictions involve
skills and techniques which may be different from those
involved in the management of a long-term municipal
bond portfolio. In addition, there can be no assurance
that there will be a correlation between movements in the
price of the municipal bond index and movements in the
price of the Municipal Bonds which are the subject of
the hedge. The degree of imperfection of correlation
depends upon various circumstances, such as variations in
speculative market demand for futures
<PAGE>
contracts and municipal securities, technical influences
on
futures trading, and differences between the municipal
securities being hedged and the municipal securities
underlying the futures contracts, in such respects as
interest rate levels, maturities and creditworthiness of
issuers. A decision of whether, when and how to hedge
involves the exercise of skill and judgment and even a
wellconceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in
interest rates.
Although the Fund intends to purchase or sell
futures contracts only if there is an active market for
such contracts, there is no assurance that a liquid
market will exist for the contracts at any particular
time. Most domestic futures exchanges and boards of
trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The
daily limit establishes the maximum amount the price
of a futures contract may vary either up or down from the
previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a
particular contract, no trades may be made that day at
a price beyond that limit. The daily limit governs only
price movement during a particular trading day and,
therefore, does not limit potential losses because the
limit may prevent the liquidation of unfavorable
positions. It is possible that futures contract
prices could move to the daily limit for several
consecutive trading days with little or
no trading, thereby preventing prompt liquidation of
futures positions and subjecting some futures traders to
substantial losses. In such event, it will not be
possible to close a futures position and, in the event
of adverse price movements, the Fund would be required
to make daily cash payments of variation margin. In
such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may
partially or completely offset losses on the futures
contract. As described above, however, there is no
guarantee that the price of Municipal Bonds will, in
fact, correlate with the price movements in the municipal
bond index futures contract and thus provide an offset
to losses on a futures contract.
If the Fund has hedged against the possibility of
an increase in interest rates adversely affecting the
value of the Municipal Bonds held in its portfolio
and rates decrease instead, the Fund will lose part or
all of the benefit of the increased value of the
Municipal Bonds it has hedged because it will have
offsetting losses in its futures positions. In addition,
in such situations, if the Fund has insufficient cash, it
may have to sell securities to meet daily variation
margin requirements. Such sales of securities may, but
will not necessarily, be at increased prices which
reflect
the decline in interest rates. The Fund may have to
sell securities at a time when it may be
disadvantageous to do so.
When the Fund purchases municipal bond index
futures contracts, an amount of cash and U.S.
government securities or other high grade debt
securities equal to the market value of the futures
contracts will be deposited in a segregated account with
the Fund's custodian (and/or such other persons as
appropriate) to collateralize the positions and thereby
insure that the use of such futures contracts is not
leveraged. In addition, the ability of the Fund to
trade in municipal bond index futures contracts and
options on interest rate futures contracts may be
materially limited by the requirements of the Internal
Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company.
See "Taxes" below.
Options on Financial Futures Contracts. The Fund
may purchase put and call options on futures contracts
which are traded on a domestic exchange or board of
trade as a hedge against changes in interest rates, and
may enter into closing transactions with respect to such
options to terminate existing positions. The Fund will
sell put and call options on interest rate futures
contracts only as part of closing sale transactions to
terminate its options positions. There is no guarantee
that such closing transactions can be effected.
Options on futures contracts, as contrasted
with the direct investment in such contracts, gives the
purchaser the right, in return for the premium paid,
to assume a position in futures contracts at a
specified exercise price at any time prior to the
expiration date of the options. Upon exercise of an
option, the delivery of the futures position by the
writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in
<PAGE>
the writer's futures contract margin account, which
represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of
the option on the futures contract. The potential loss
related to the purchase of an option on interest rate
futures contracts is limited to the premium paid for
the option (plus transaction costs). Because the value
of the option is fixed at the point of sale, there are no
daily cash payments to reflect changes in the value of
the underlying contract; however, the value of the
option does change daily and that change would be
reflected in the net asset value of the Fund.
There are several risks relating to options
on futures contracts. The ability to establish and close
out positions on such options will be subject to the
existence of a liquid market. In addition, the Fund's
purchase of put or call options will be based upon
predictions as to anticipated interest rate trends by
SBMFM , which could prove to be inaccurate. Even if
SBMFM's expectations are correct there may be an
imperfect correlation between the change in the value of
the options and of the Fund's portfolio securities.
Repurchase Agreements. As a defensive position only, the
Fund may enter into repurchase agreements with banks
which are the issuers of instruments acceptable for
purchase by the Fund and with certain dealers on the
Federal Reserve Bank of New York's list of reporting
dealers. A repurchase
agreement is a contract under which the buyer of a
security simultaneously commits to resell the security to
the seller at an agreed-upon price on an agreed-upon
date. Under the terms of a typical repurchase agreement,
the Fund would acquire an underlying debt obligation for
a relatively short period (usually not more than seven
days) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an
agreed-upon price and time, thereby determining the yield
during the Fund's holding period. This arrangement
results in a fixed rate of return that is not subject to
market fluctuations during the Fund's
holding period. Under each repurchase agreement, the
selling institution will be required to maintain the
value of the securities subject to the repurchase
agreement at not less than their repurchase price.
Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party,
including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities, the risk
of a possible decline in the value of the underlying
securities during the period in which the Fund seeks to
assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of
losing all or part of the income from the agreement. In
evaluating these potential risks, SBMFM , acting
under the supervision of the Fund's Board of Trustees,
reviews on an ongoing basis the value of the collateral
and the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements.
Investment Restrictions
The Fund has adopted the following investment
restrictions for the protection of shareholders.
Restrictions 1 through 7 below cannot be changed without
the approval of the holders of a majority of the
outstanding shares of the Fund, defined as the lesser of
(a) 67% of the Fund's shares present at a meeting, if the
holders of more than 50% of the outstanding shares are
present in person or by proxy, or (b) more than 50% of
the Fund's outstanding shares. The remaining restrictions
may be changed by the Board of Trustees at any time. The
Fund may not:
1. Issue senior securities as defined in the 1940 Act and
any rules and orders thereunder, except insofar as the
Fund may be deemed to have issued senior securities by
reason of: (a) borrowing money or purchasing securities
on a whenissued or delayed-delivery basis; (b) purchasing
or selling futures contracts and options on futures
contracts and other similar instruments; and (c) issuing
separate classes of shares.
2. Invest more than 25% of its total assets in
securities, the issuers of which are in the same
industry. For purposes of this limitation, U.S.
government securities and securities of state or
municipal governments and their political subdivisions
are not considered to be issued by members of any
industry.
<PAGE>
3. Borrow money, except that the Fund may borrow from
banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests
which might otherwise require the untimely disposition of
securities, in an amount not exceeding 10% of the value
of the Fund's total assets (including the amount
borrowed) valued at market less liabilities (not
including the amount borrowed) at the time the borrowing
is made. Whenever borrowings exceed 5% of the value of
the Fund's total assets, the Fund will not make
additional
investments.
4. Make loans. This restriction does not apply to: (a)
the purchase of debt obligations in which the Fund may
invest consistent with its investment objective and
policies; (b) repurchase agreements; and (c) loans of its
portfolio securities.
5. Engage in the business of underwriting securities
issued by other persons, except to the extent that the
Fund may technically be deemed to be an underwriter under
the Securities Act of 1933, as amended, in disposing of
portfolio securities.
6. Purchase or sell real estate, real estate mortgages,
real estate investment trust securities, commodities or
commodity contracts, but this shall not prevent the Fund
from: (a) investing in securities of issuers engaged in
the real estate business and securities which are secured
by real estate or interests therein; (b) holding or
selling real estate received in connection with
securities it holds; or (c) trading in futures contracts
and options on futures contracts.
7. Purchase any securities on margin (except for such
shortterm credits as are necessary for the clearance of
purchases and sales of portfolio securities) or sell any
securities short (except against the box). For purposes
of this restriction, the deposit or payment by the Fund
of initial or maintenance margin in connection with
futures contracts and related options and options on
securities is not considered to be the purchase of a
security on margin.
8. Purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be invested
in securities that are illiquid.
9. Purchase or sell oil and gas interests.
10. Invest more than 5% of the value of its total assets
in the securities of issuers having a record, including
predecessors, of less than three years of continuous
operation, except U.S. government securities. (For
purposes of this restriction, issuers include
predecessors, sponsors, controlling persons, general
partners, guarantors and originators of underlying
assets.)
11. Invest in companies for the purpose of exercising
control.
12. Invest in securities of other investment companies,
except as they may be acquired as part of a merger,
consolidation or acquisition of assets and except to the
extent permitted by Section 12 of the 1940 Act
(currently, up to 5% of the total assets of the Fund and
no more than 3% of the total outstanding voting stock of
any one investment company).
13. Engage in the purchase or sale of put, call, straddle
or spread options or in the writing of such options,
except that the Fund may engage in transactions involving
municipal bond index and interest rate futures contracts
and options thereon after approval of these investment
strategies by the Board of Trustees and notice thereof to
the Fund's shareholders.
Certain restrictions listed above permit the Fund to
engage in investment practices that the Fund does not
currently pursue. The Fund has no present intention of
altering its current investment practices as otherwise
described in the Prospectus and this Statement of
Additional
<PAGE>
Information and any future change in those practices
would require the approval of the Board of Trustees and
appropriate disclosure to investors.
If a percentage restriction is complied with at the time
of an investment, a later increase or decrease in the
percentage of assets resulting from a change in the
values of portfolio securities or in the amount of the
Fund's assets will not constitute a violation of such
restriction. In order to permit the sale of the Fund's
shares in certain states, the Fund may make commitments
more restrictive than the restrictions described above.
Should the Fund determine that any such commitment is no
longer in the best interests of the Fund and its
shareholders, it will revoke the commitment by
terminating sales of its shares in the state involved.
Portfolio Transactions
Newly issued securities normally are purchased directly
from the issuer or from an underwriter acting as
principal. Other purchases and sales usually are placed
with those dealers from which it appears that the best
price or execution will be obtained; those dealers may be
acting as either agents or principals. The purchase price
paid by the Fund to underwriters of newly issued
securities usually includes a concession paid by the
issuer to the underwriter, and purchases of after-market
securities from dealers normally are executed at a price
between the bid and asked prices. The Fund paid no
brokerage commisions for the period ended April 30,
1995.
Allocation of transactions, including their frequency, to
various dealers is determined by SBMFM in its best
judgment and in a manner deemed fair and reasonable to
shareholders. The primary considerations are the
availability of the desired security and prompt execution
of orders in an effective manner at the most favorable
prices. Subject to these considerations, dealers which
provide supplemental investment research and statistical
or other services to SBMFM may receive orders for
portfolio transactions by the Fund. Information so
received enables SBMFM to supplement its own
research and analysis with the views and information of
other securities firms. Such information may be useful to
SBMFM in serving both the Fund and its other
clients, and, conversely, supplemental information
obtained by the placement of business of other clients
may be useful to SBMFM in carrying out its
obligations to the Fund.
The Fund will not purchase Municipal Bonds during the
existence of any underwriting or selling group relating
thereto of which SBMFM is a member, except to the
extent permitted by the SEC. Under certain circumstances,
the Fund may be at a disadvantage because of this
limitation in comparison with other investment companies
which have a similar investment objective but which are
not subject to such limitation. The Fund also may
execute portfolio transactions through Smith Barney and
its affiliates in accordance with rules promulgated by
the SEC.
While investment decisions for the Fund are made
independently from those of the other accounts managed by
SBMFM , investments of the type that the Fund may
make also may be made by such other accounts. When the
Fund and
one or more other accounts managed by SBMFM are
prepared to invest in, or desire to dispose of, the same
security, available investments or opportunities for
sales will be allocated in a manner believed by
SBMFM to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received
by the Fund or the size of the position obtained or
disposed of by the Fund.
Portfolio Turnover
The Fund's portfolio turnover rate (the lesser of
purchases or sales of portfolio securities during the
year excluding purchases or sales of short-term
securities divided by the monthly average value of
portfolio securities) generally is not expected to exceed
100%, but the portfolio turnover rate will not be a
limiting factor whenever the Fund deems it desirable to
sell or purchase securities. Securities may be sold in
anticipation of a rise in interest rates (market decline)
or purchased in anticipation of a decline in interest
rates (market rise) and later sold. In addition, a
security may be
<PAGE>
sold and another security of comparable quality may be
purchased at approximately the same time in order to take
advantage of what the Fund believes to be a temporary
disparity in the normal yield relationship between the
two securities. These yield disparities may occur for
reasons not directly related to the investment quality of
particular issues or the general movement of interest
rates, such as changes in the overall demand or supply of
various types of tax-exempt securities. For the fiscal
period ended April 30, 1995, the Fund's portfolio
turnover rate was 30%.
MUNICIPAL BONDS
General Information
Municipal Bonds generally are understood to include debt
obligations issued to obtain funds for various public
purposes, including the construction of a wide range of
public facilities, refunding of outstanding obligations,
payment of general operating expenses and extensions of
loans to public institutions and facilities. Private
activity bonds that are issued by or on behalf of public
authorities to finance privately operated facilities are
included within the term Municipal Bonds if the interest
paid thereon qualifies as excludable from gross income
(but not necessarily from alternative minimum taxable
income) for Federal income tax purposes in the opinion of
bond counsel to the issuer.
The yields on Municipal Bonds are dependent upon a
variety
of factors, including general economic and monetary
conditions, general money market factors, the financial
condition of the issuer, the general conditions of the
Municipal Bond market, the size of a particular offering,
the maturity of the obligation offered and the rating of
the issue. Municipal Bonds are subject to the provisions
of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, that may be enacted by
Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing
other constraints upon enforcement of the obligations or
upon the ability of municipalities to levy taxes. The
possibility
also exists that as a result of litigation or other
conditions, the power or ability of any one or more
issuers to pay, when due, principal of and interest on
its, or their, Municipal Bonds may be materially and
adversely affected.
When-Issued Securities
The Fund may purchase Municipal Bonds on a "when-issued"
basis (i.e., for delivery beyond the normal settlement
date at a stated price and yield). The payment obligation
and the interest rate that will be received on the
Municipal Bonds purchased on a when-issued basis are each
fixed at the time the buyer enters into the commitment.
Although the Fund will purchase Municipal Bonds on a when
issued basis only with the intention of actually
acquiring the securities, the Fund may sell these
securities before the settlement date if it is deemed
advisable as a matter of investment strategy.
Municipal Bonds are subject to changes in value based
upon the public's perception of the creditworthiness of
the issuers and changes, real or anticipated, in the
level of interest rates. In general, Municipal Bonds tend
to appreciate when interest rates decline and depreciate
when interest rates rise. Purchasing Municipal Bonds on a
when issued basis, therefore, can involve the risk that
the yields available in the market when the delivery
takes place may actually be higher than those obtained in
the transaction itself. To account for this risk, a
segregated account of the Fund consisting of cash or
liquid debt securities equal to the amount of the when-
issued commitments will be established at the Fund's
custodian bank. For the purpose of determining the
adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the
market or fair value of such securities declines,
additional cash or securities will be placed in the
account daily so that the value of the account will equal
the amount of such commitments by the Fund. Placing
securities rather than cash in the segregated account may
have a leveraging effect on the Fund's net assets. That
is, to the extent the Fund remains substantially fully
<PAGE>
invested in securities at the same time it has committed
to purchase securities on a when-issued basis, there will
be greater fluctuations in its net assets than if it had
set aside cash to satisfy its purchase commitments. Upon
the settlement date of the when-issued securities, the
Fund will meet its obligations from then-available cash
flow, sale of securities held in the segregated account,
sale of other securities or, although it normally would
not expect to do so, from the sale of the when-issued
securities themselves (which may have a value greater or
less than the Fund's payment obligations). Sales of
securities to meet such obligations may involve the
realization of capital gains, which are not exempt from
Oregon personal income taxes or from Federal income
taxes.
When the Fund engages in when-issued transactions, it
relies on the seller to consummate the trade. Failure of
the seller to do so may result in the Fund's incurring a
loss or missing an opportunity to obtain a price
considered to be advantageous.
Special Considerations Relating to Oregon Municipal
Securities
The Fund believes the information summarized below
describes some of the more significant aspects of the
Oregon state economy. The source of such information is
the Preliminary Official Statement relating to the
State's general obligation bonds. Although the Fund has
not independently verified this information, it has no
reason to believe that such information is not correct in
all material respects.
Employment. Oregon's economy has outperformed the
nation's economy in recent years, finishing 1994 with the
state unemployment rate dropping to a 25 year low in the
final quarter. Since 1986, Oregon's employment growth
rate has exceeded the nation's: from 1987 through 1994,
Oregon employment increased 24.1% compared to an
increase in national employment of 11.2% for the same
period. After a 4.3% increase in 1994, the State of
Oregon predicts an employment growth rate of 3.2% in
1995.
As the Oregon economy has grown, it has become more
diverse. With the expansion of the high technology
sectors, the economy has become less dependent on the
forest products industry. By 1994, 15,200 fewer
individuals worked in lumber and products manufacturing
than had in 1980. During the same period, the number of
jobs in the high technology sectors of electrical and
nonelectrical machinery had grown by 13,000.
Most of the state's job gains over the last decade
have come from the nonmanufacturing sectors. Since 1985,
nonmanufacturing employment has increased by 37%, led by
trade (up 32%), services (up 60%) and construction (up
86%). The nonmanufacturing sectors now provide more than
83% of the jobs in Oregon. For a description of the other
major contributors to the State's economy, agriculture
and tourism, see "Housing, Agriculture, Trade and
Tourism," below.
The rate of growth of per capita income in Oregon has
out-paced the national average in recent years; however,
Oregon per capita personal income remains at about 93%
of the national average.
State Forecast. The State of Oregon economy is expected
to slow considerably by the latter part of 1995, most
notably in the residential construction and durable goods
manufacturing sectors. Nevertheless, it is anticipated
that a growing high technology manufacturing sector,
rising exports and continued migration to Oregon should
provide some counterbalance and keep the State's job and
income growth rates above the slowing national economy.
Employment is expected to increase by 43,200 jobs in
1995, down from the 1994 annual average of 55,700.
Personal
income is expected to rise 6.8% in 1995, which also
represents a slight decrease from the predicted increase
of 7.5% for 1994.
<PAGE>
Population. Oregon's population as of July 1, 1994 was
estimated to be 3,082,000 by the State's official bureau
for population data. Since 1960, the State's population
has increased by almost 72%; between 1980 and 1990,
Oregon's population grew 7.7%.
There are four major urban population areas in
Oregon.
The city of Portland, located at the northern end of the
Williamette Valley, is the state's largest city with a
population, as of July 1, 1994, of 495,090. The
metropolitan area of Eugene, located in Lane County at
the southern end of Williamette Valley, is the second
largest urban center in the State with a population of
120,560 as of July 1, 1994. Salem, the state capital,
had a population of 116,950 as of July 1, 1994, making it
the third largest city in Oregon.
Western Oregon consists largely of small coastal
communities which focus on tourism, fishing, agriculture
and dairy operations. Central Oregon, west of the Cascade
Mountains, has the Williamette Valley, Oregon's four
largest cities, and the highly economically diversified
Portland metropolitan area. East of the Cascade
Mountains communities tend to be smaller, and economic
activity centers on agriculture, forestry and ranching. A
number of small, timber dependent communities throughout
the State have been particularly adversely affected by
recent reductions in the timber and forest products
employment. Local economies in Oregon vary substantially,
and respond to different factors; statistical data on
economic activity in the State as a whole may mask
significant differences in local economies.
Housing, Agriculture, Trade and Tourism. Much of
the recent growth in the Oregon nonmanufacturing
sectors can be traced to population growth. Oregon's
quality of life and low housing costs have always
encouraged in-migration. The State's rapid job growth
since 1987 pushed Oregon's population growth rate above
the nation's. The growth caused Oregon housing starts to
increase in 1988, 1989 and 1990, even though national
housing starts declined. In 1990, Oregon housing starts
increased by 1%, compared to a national decline of
12.9%. In 1991 housing starts declined, but increased
again in 1992 and from 1993 through 1994 increased by
20%.
Oregon has a highly diversified agricultural
base, with gross farms sales of over $3 billion in 1994,
over 84 commodities with sales of $1,000,000 or more,
and over 39 commodities with gross sales of
$10,000,000 or more. Agriculture in Oregon follows the
national trend of increasing capital intensity, with
employment decreasing as constant dollar output has
increased. Recent agricultural expansion is attributable
to use of more efficient methods and increased use of
irrigation. Although every county in the State is
involved in agricultural production, activity is
concentrated in the Williamette Valley.
Oregon is located on the western coast of
the United States, where the Columbia River flows into
the Pacific Ocean. International trade and exports are
an important part of the Oregon economy, with much
of
the trade occurring through Oregon's 23 port
districts. The Port of Portland is most active, having
developed an efficient system for dealing with large
numbers of vessels, including modern grain
elevators, cranes, break-bulk and containerized-cargo
facilities and ship repair and dry dock facilities.
Chief export items include grains, logs, lumber and other
forest products.
The value of foreign exports through the
Oregon Columbia-Snake River Customs District, which
includes the Port of Portland, was in excess of $7.3
billion in 1993, and had increased approximately 100.62%
from 1987 levels.
The principal items imported through the Port in 1993
were vehicles, totaling $2.7 billion. Imports through
the Oregon Columbia-Snake River Customs District
increased approximately 16.06% in 1994.
Tourism is a rapidly growing segment of the
Oregon economy. The State has major mountain ranges,
vast coastal and desert regions, and multi-use and
wilderness forest areas. There are more than 400 miles of
seacoast, 47,000 miles of streams, 1,400 lakes and
reservoirs, <PAGE>
225 state parks and a national park in Oregon. 6.8
million people were estimated to visit the State in
1989-1990. Hotel and motel occupancies increased
approximately 14 percent in the 1990 fiscal year, and
room tax revenues increased 42 percent for 1987-89 and
68 percent for 1989-91.
Recent Developments Affecting the Oregon Economy and
Creditworthiness of Oregon. On November 6, 1990,
Oregonians approved an initiative petition ("Measure
Five") amending the Oregon Constitution to limit property
taxes and certain other charges against property. The
measure imposes a maximum tax rate for non-school
local governments of $10/$1,000 of property value, and a
declining rate for schools which begin at $15/$1,000 and
declines $5/$1,000 in the fiscal year 1995-1996.
Measure Five has an exemption for voter-approved
general obligation bonds issued by local governments, and
an exemption for general obligation bonds issued by the
State of Oregon. However, there is no exemption for taxes
collected for operating purposes. Measure Five has
an adverse effect on the financial condition of the
State of Oregon and on all local governments which
impose ad valorem taxes in areas where the aggregate tax
rate exceeds the measure's limits.
Although it does not currently levy property
taxes, the State of Oregon is adversely affected because
Measure Five requires it to contribute State funds to
make up tax revenues lost by school districts as a
result of Measure Five. The State's required contribution
to the schools under Measure Five is estimated to be
approximately $1.5 billion in the 1993-1995 biennium
and approximately $1.4 billion during the 1995-1996
fiscal year. The State's obligation under Measure Five
to replace school revenues terminates after the 1995-1996
fiscal year.
Measure Five adversely affects the financial
condition of many school districts, because the total
amount of property taxes and State funding each school
district receives is often less than it would have been
if Measure Five had not been enacted. The reduction
occurs because the Oregon Legislature has reduced the
portion of its contribution to Oregon schools which is
not mandated by Measure Five, and because State
replacement revenues are distributed proportionally among
districts, not based on the actual losses of individual
districts.
The Oregon Supreme Court has held that tax
increments, or urban renewal revenues collected to pay
bonds, are subject to Measure Five's $10/$1,000 limit.
Measure Five also limits certain kinds of charges which
are not property taxes. Litigation, if resolved adversely
to local governments, could limit the ability of
municipal utilities to impose certain kinds of municipal
utility and other charges.
Pending litigation, environmental proceedings
and President Clinton's timber management plans
relating to the logging of old growth forests and the
protection of
the Northern Spotted Owl make it difficult to predict
future timber supplies in Oregon. In addition,
proceedings to protect threatened anadromous fish species
in the Columbia River and other Oregon waterways may
require changes to the operations of locks and dams on
those waterways. These changes could adversely affect
regional power production and the cost of moving trade
goods along these waterways. Further, an Oregon state
agency recently curtailed fishing for certain species in
1994. This action and future restrictions could, in the
short term, adversely affect the local fishing industry.
Additional Considerations. With respect to Municipal
Obligations issued by the State of Oregon and its
political sub-divisions, the Fund cannot predict what
legislation, if any, may be proposed in the Oregon
State Legislature as regards the Oregon State personal
income tax status of interest on such obligations, or
which proposals, if any, might be enacted. Such
proposals, if enacted, might materially adversely affect
the availability of Oregon Municipal Obligations for
investment by the Fund and the value of the Fund's
portfolio. In such an event, the Trustees would
reevaluate the Fund's investment objective and policies
and consider changes in its structure or possible
dissolution. <PAGE>
PURCHASE OF SHARES
Volume Discounts
The schedule of sales charges on Class A shares described
in the Prospectus applies to purchases made by any
"purchaser," which is defined to include the following:
(a) an individual; (b) an individual's spouse and his or
her children purchasing shares for his or her own
account; (c) a trustee or other fiduciary purchasing
shares for a single trust estate or single fiduciary
account; (d) a pension, profit-sharing or other employee
benefit plan qualified under Section 401(a) of the Code,
and qualified employee benefit plans of employers who are
"affiliated persons" of each other within the meaning of
the 1940 Act; (e) taxexempt organizations enumerated in
Section 501(c)(3) or (13) of the Code; and (f) a trustee
or other professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the
Investment Advisers Act of 1940, as amended) purchasing
shares of the Fund for one or more trust estates or
fiduciary accounts. Purchasers who wish to combine
purchase orders to take advantage of volume discounts
should contact a Smith Barney Financial
Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedule in
the Prospectus, apply to any purchase of Class A shares
if the aggregate investment in Class A shares of the Fund
and in Class A shares of other funds of the Smith
Barney Mutual Funds that are offered with a
sales charge, including the purchase being made, of any
purchaser is $25,000 or more. The reduced sales charge is
subject to confirmation of the shareholder's holdings
through a check of appropriate records. The Fund reserves
the right to terminate or amend the combined right of
accumulation at any time after written notice to
shareholders. For further information regarding the right
of accumulation, shareholders should contact a Smith
Barney Financial
Consultant.
Determination of Public Offering Price
The Fund offers its shares to the public on a continuous
basis. The public offering price for a Class A and
Class Y share of the Fund is equal to the net asset
value per share at the time of purchase, plus for Class A
shares an initial sales charge based on the aggregate
amount of the investment. The public offering price for a
Class B and Class C share (and Class A share
purchases, including applicable rights of accumulation,
equalling or exceeding $500,000 ), is equal to the
net asset value per share at the time of purchase and no
sales charge is imposed at the time of purchase. A
contingent deferred sales charge ("CDSC"), however, is
imposed on certain redemptions of Class B and Class C
shares, and Class A shares when purchased in amounts
exceeding $500,000 . The method of computation of the
public offering price is shown in the Fund's financial
statements, incorporated by reference in their entirety
into this Statement of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of
payment postponed (a) for any period during which the New
York Stock Exchange, Inc. ("NYSE") is closed (other than
for customary weekend and holiday closings), (b) when
trading in markets the Fund normally utilizes is
restricted, or an emergency exists, as determined by the
SEC, so that disposal of the Fund's investments or
determination of net asset value is not reasonably
practicable or (c) for such other periods as the SEC by
order may permit for protection of the Fund's
shareholders.
<PAGE>
Distribution in Kind
If the Board of Trustees of the Fund determines that it
would be detrimental to the best interests of the
remaining shareholders of the Fund to make a redemption
payment wholly in cash, the Fund may pay, in accordance
with SEC rules, any portion of a redemption in excess of
the lesser of $250,000 or 1% of the Fund's net assets by
a distribution in kind of portfolio securities in lieu of
cash. Portfolio securities issued in a distribution in
kind will be readily marketable, although shareholders
receiving distributions in kind may incur brokerage
commissions when subsequently disposing of those
securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan")
is available to shareholders who own shares with a value
of at least $10,000 and who wish to receive specific
amounts of cash monthly or quarterly . Withdrawals
of at least $50 may be made under the Withdrawal Plan by
redeeming as many shares of the Fund as may be necessary
to cover the stipulated withdrawal payment. Any
applicable CDSC will not be waived on amounts withdrawn
by shareholders that exceed 1.00% per month of the
value of a shareholder's shares at the time the
Withdrawal Plan commences. (With respect to Withdrawal
Plans in effect prior to November 7, 1994, any applicable
CDSC will be waived on amounts
withdrawn that do not exceed 2.00% per month of the value
of a shareholder's shares at the time the Withdrawal Plan
commences.) To the extent withdrawals exceed
dividends, distributions and appreciation of a
shareholder's investment in the Fund, there will be a
reduction in the value of the shareholder's investment,
and continued withdrawal payments will reduce the
shareholder's investment and may ultimately exhaust it.
Withdrawal payments should not be considered as income
from investment in the Fund. Furthermore, as it generally
would not be advantageous to a shareholder to make
additional investments in the Fund at the same time he or
she is participating in the Withdrawal Plan, purchases by
such shareholders in amounts of less than $5,000
ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal
Plan and who hold their shares in certificate form must
deposit their share certificates with TSSG as agent for
Withdrawal Plan members. All dividends and distributions
on shares in the Withdrawal Plan are reinvested
automatically at net asset value in additional shares of
the Fund. Withdrawal Plans should be set up with a
Smith Barney Financial Consultant; however, a shareholder
who purchased shares directly through TSSG prior to
November 7, 1994 may continue to do so and
applications for participation in the Withdrawal Plan
must be received by TSSG no later than the eighth day of
the month to be eligible for participation beginning with
that month's withdrawal. For additional information,
shareholders should contact a Smith Barney Financial
Consultant.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on
a best efforts basis pursuant to a written agreement (the
"Distribution Agreement") which was first approved by the
Fund's Board of Trustees on April 20, 1994. For the
fiscal period ended April 30, 1995, Smith Barney received
$158,807 in sales charges from the sale of the Fund's
Class A shares, and did not reallow any portion thereof
to dealers.
For the fiscal period ended April 30, 1995, Smith Barney
incurred distribution expenses totaling approximately
$181,000, consisting of approximately $2,000 for printing
and mailing of Prospectuses, $52,000 for support
services, $123,000 to Smith Barney Financial Consultants,
and $4,000 in accruals for interest on the excess of
Smith Barney expenses incurred in distributing the Fund's
shares over the sum of the distribution fees and CDSC
received by Smith Barney from the Fund.
<PAGE>
When payment is made by the investor before settlement
date, unless otherwise noted by the investor, the funds
will be held as a free credit balance in the investor's
brokerage account and Smith Barney may benefit from the
temporary use of the funds. The investor may designate
another use for the funds prior to settlement date, such
as an investment in a money market fund (other than Smith
Barney Exchange Reserve Fund) of the Smith Barney Mutual
Funds. If the investor instructs Smith Barney to invest
the funds in a Smith Barney money market fund, the amount
of the investment will be
included as part of the average daily net assets of both
the Fund and the money market fund, and affiliates of
Smith Barney that serve the funds in an investment
advisory or administrative capacity will benefit by
receiving fees from both such investment companies for
managing these assets, computed on the basis of their
average daily net assets. The Fund's Board of Trustees
has been advised of the benefits to Smith Barney
resulting from these settlement procedures and will take
such benefits into consideration when reviewing the
Advisory, Administration and Distribution Agreements for
continuance.
Distribution Arrangements
To compensate Smith Barney for the services
it provides and for the expense it bears under the
Distribution Agreement, the Fund has adopted a services
and distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund pays Smith
Barney a service fee, accrued daily and paid
monthly, calculated at the annual rate of 0.15% of the
value of the Fund's average daily net assets attributable
to the Class A, Class B and Class C shares. In
addition, the Fund pays Smith Barney a
distribution fee primarily intended to compensate Smith
Barney for its initial expense of paying Financial
Consultants a commission upon sales of the respective
shares. The Class B distribution fee is calculated at the
annual rate of 0.50% of the value of the Fund's average
net assets attributable to the shares of the Class.
The Class C distribution fee is calculated at the
annual rate of 0.55% of the value of the Fund's average
net assets attributable to the shares of the Class.
For the fiscal period ended April 30, 1995, the Fund's
Class A and Class B shares paid $7,576 and $6,507,
respectively, in service fees. For the same period, the
Fund's Class B paid $21,689 in distribution fees. As of
April 30, 1995, no Class C shares had been sold.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of
the Fund's Board of Trustees, including a majority of the
Trustees who are not interested persons of the Fund and
who have no direct or indirect financial interest in the
operation of the Plan or in the Distribution Agreement
(the "Independent Trustees"). The Plan may not be amended
to increase the amount of the service and distribution
fees without shareholder approval, and all material
amendments of the Plan also must be approved by the
Trustees and the Independent Trustees in the manner
described above. The Plan may be terminated with respect
to a Class at any time, without penalty, by vote of a
majority of the Independent Trustees or by a vote of a
majority of the outstanding voting securities of the
Class (as defined in the 1940 Act). Pursuant to the Plan,
Smith Barney will provide the Board of Trustees
with periodic reports of amounts expended under the Plan
and the purpose for which such expenditures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on
each day, Monday through Friday, except days on which the
NYSE is closed. The NYSE currently is scheduled to be
closed on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving
and Christmas, and
on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday,
respectively. Because of the differences in distribution
fees and Classspecific expenses, the per share net asset
value of each Class may differ. The following is a
description of the procedures used by the Fund in valuing
its assets.
<PAGE>
The valuation of the Fund's assets is made by
SBMFM 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 investments are readily available and are
representative of the bid side of the market, these
investments are valued at the mean between the quoted bid
and asked prices. Investments for which, in the judgment
of the Service, there is no readily obtainable market
quotation (which may constitute a majority of the
portfolio securities) are carried at fair value as
determined by the Service. For the most part, such
investments are liquid and may be readily sold. The
Service may employ electronic data processing techniques
and/or a matrix system to determine valuations. The
procedures of the Service are reviewed periodically by
the officers of the Fund under the general supervision
and responsibility of the Board of Trustees, which may
replace any such Service at any time if it determines it
to be in the best interests of the Fund to do so.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the
Smith Barney Mutual Funds may exchange all or part
of their shares for shares of the same Class of other
Smith Barney Mutual Funds, to the extent such shares are
offered for sale in the shareholder's state of residence,
as listed in the Prospectus, on the basis of relative net
asset value per share at the time of exchange as follows:
A. Class A shares of any fund purchased with a sales
charge may be exchanged for Class A shares of any of the
other funds, and the sales charge differential, if any,
will be applied. Class A shares of any fund may be
exchanged without a sales charge for shares of the funds
that are offered without a sales charge. Class A shares
of any fund purchased without a sales charge may be
exchanged for shares sold with a sales charge, and the
appropriate sales charge differential will be applied.
B. Class A shares of any fund acquired by a previous
exchange of shares purchased with a sales charge may be
exchanged for Class A shares of any of the other funds,
and the sales charge differential, if any, will be
applied.
C. Class B shares of any fund may be exchanged without a
sales charge. Class B shares of the Fund exchanged for
Class B shares of another fund will be subject to the
higher applicable CDSC of the two funds and, for purposes
of calculating CDSC rates and conversion periods, will be
deemed to have been held since the date the shares being
exchanged were deemed to be purchased.
Dealers other than Smith Barney must notify TSSG
of the investor's prior ownership of Class A shares of
Smith Barney High Income Fund and the account
number in order to accomplish an exchange of shares of
Smith Barney High Income Fund under paragraph B
above. The exchange privilege enables shareholders to
acquire shares of the same Class in a fund with different
investment objectives when they believe that a shift
between funds is an appropriate investment decision. This
privilege is available to shareholders residing in any
state in which the fund shares being acquired may legally
be sold. Prior to any exchange, the shareholder should
obtain and review a copy of the current prospectus of
each fund into which an exchange is being considered.
Prospectuses may be obtained from a Smith Barney
Financial Consultant.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange are
redeemed at the then-current net asset value and subject
to any applicable CDSC, the proceeds are immediately
invested, at a price as described above, in shares of the
fund being acquired. Smith Barney reserves the
right to reject any exchange request. The exchange
privilege may be modified or terminated at any time after
written notice to shareholders.
<PAGE>
PERFORMANCE DATA
From time to time, the Fund may quote yield or total
return of a Class in advertisements or in reports and
other communications to shareholders. The Fund may
include comparative performance information in
advertising or marketing the Fund's shares. Such
performance information may be included in the following
industry and financial publications: Barron's, Business
Week, CDA Investment Technologies, Inc., Changing Times,
Forbes, Fortune, Institutional Investor, Investors'
Daily, Money, Morningstar Mutual Fund Values, The New
York Times, USA Today and the Wall Street Journal . To
the extent any advertisement or sales literature of the
Fund describes the expenses or performance of any Class,
it will also disclose such information for the other
Classes.
Yield
A Class' 30 day yield figure described below is
calculated according to a formula prescribed by the SEC.
The formula can be expressed as follows:
YIELD =2 [(a-b+1)6-1]
cd
Where: a =dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursement).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the
last day of the period.
For the purpose of determining the interest earned
(variable "a" in the formula) on debt obligations that
were purchased by the Fund at a discount or premium, the
formula generally calls for amortization of the discount
or premium. The amortization schedule will be adjusted
monthly to reflect
changes in the market values of the debt obligations. The
Fund's equivalent taxable 30-day yield for a Class of
shares is computed by dividing that portion of the Class'
30day yield which is tax-exempt by one minus a stated
income tax rate and adding the product to that portion,
if any, of the Class' yield that is not tax-exempt.
The yields on municipal securities are dependent upon a
variety of factors, including general economic and
monetary conditions, conditions of the municipal
securities market, size of a particular offering,
maturity of the obligation offered and rating of the
issue. Investors should recognize that in periods of
declining interest rates the Fund's yield for each Class
of shares will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates the
Fund's yield for each Class of shares will tend to be
somewhat lower. Also, when interest rates are falling,
the inflow of net new money to the Fund from the
continuous sale of its shares will likely be invested in
portfolio instruments producing lower yields than the
balance of the Fund's portfolio, thereby reducing the
current yield of the Fund. In periods of rising interest
rates, the opposite can be expected to occur.
The Fund's yield for Class A and Class B shares for the
30 day period ended April 30, 1995 (reflecting the waiver
of the investment advisory and administration fees) was
5.26% and 4.91%, respectively. Had fees not been waived
the Fund's
yield for Class A and Class B shares for the same period
would have been 3.90% and 3.49%, respectively. The
equivalent taxable yield for Class A and Class B shares
for that same period, (reflecting the waiver of the
investment advisory and administration fees) was 8.38%
and 7.82%, respectively, assuming the payment of Federal
income taxes at a rate of 31% and Oregon taxes at a rate
of 9%. Had these fees not been waived the Fund's
equivalent taxable yield for Class A and Class B shares
for the same period would have been 6.21% and 5.56%,
respectively. <PAGE>
Aggregate Total Return
Aggregate total return figures described below represent
the cumulative change in the value of an investment in
the Class for the specified period and are computed by
the following formula:
ERV-P
P
Where: P = a hypothetical initial payment of
$10,000.
ERV = Ending Redeemable Value of a hypothetical
$10,000 investment made at the
beginning of the 1-, 5- or 10-year period at the end of
the 1-, 5or 10- year
period (or fractional
portion
thereof), assuming reinvestment of all
dividends and distributions.
The aggregate total returns for Class A shares were as
follows for the period indicated (reflecting the waiver
of the investment advisory and/or administration fees):
6.67% for the fiscal period beginning May 23, 1994
through April 30, 1995, including the effect of a
voluntary cash contribution in the amount of $251,349
made by the investment adviser in October, 1994.
1.98% for the fiscal period beginning May 23, 1994
through April 30, 1995, excluding the effect of the cash
contribution.
These aggregate total return figures assume that the
maximum 4.00% sales charge assessed by the Fund has been
deducted from the investment at the time of purchase. If
the maximum sales charge had not been deducted at the
time of purchase, the Fund's aggregate total returns
reflecting the partial waiver of the investment advisory
and/or administration fees for the same period would have
been 11.12% including the effect of the cash contribution
and 6.23% excluding the effect of the cash contribution.
The Fund's aggregate total returns for Class B shares
were as follows for the period indicated:
6.12% for the fiscal period beginning May 23, 1994
through April 30, 1995, including the effect of a
voluntary cash contribution in the amount of $221,556
made by the investment adviser in October, 1994.
1.05% for the fiscal period beginning May 23, 1994
through April 30, 1995, excluding the effect of the cash
contribution.
These figures assume that the applicable maximum 4.50%
CDSC has been deducted from the investment at the time of
redemption. If the investment advisory and/or
administration fees had not been waived and the maximum
CDSC had not been deducted at the time of purchase the
Fund's aggregate total return for the same period would
have been 10.62% (including the effect of the cash
contribution described above) and 5.55% (excluding the
effect of such cash contribution).
It is important to note that the total return figures set
forth above are based on historical earnings and are not
intended to indicate future performance. Each Class' net
investment income changes in response to fluctuation in
interest rates and the expenses of the Fund. Performance
will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and
its operating expenses and the expenses exclusively
attributable to the Class. Consequently, any given
performance quotation should not be considered
representative of the Class' performance for any
specified period in the future. In addition, because the
performance will vary, it may not provide a basis for
comparing an investment in the Class with certain bank
deposits or other investments that pay a fixed yield for
a stated period of time. Investors comparing a Class'
performance with that of other mutual funds should give
consideration to the quality and maturity of the
respective investment companies' portfolio securities.
<PAGE>
TAXES
As described above and in the Prospectus, the Fund
is designed to provide investors with current income
which is excluded from gross income for Federal income
tax purposes and exempt from Oregon state personal
income taxes. The Fund is not intended to constitute a
balanced investment program and is not designed for
investors seeking capital gains or maximum tax-exempt
income irrespective of fluctuations in principal.
Investment in the Fund would not be suitable for tax-
exempt institutions, qualified retirement plans, H.R. 10
plans and individual retirement accounts because such
investors would not gain any additional tax benefit from
the receipt of tax-exempt income. Similarly, investment
in the Fund would not be appropriate for persons who are
not subject to relatively high rates of income or
franchise (excise) taxes.
The following is a summary of selected Federal
income
tax considerations that may affect the Fund and its
shareholders. The summary is not intended as a
substitute for individual tax advice and investors are
urged to consult their own tax advisors as to the tax
consequences of an investment in the Fund.
The Fund intends to qualify and to continue to
qualify each year as a "regulated investment company"
under the Code. Provided that the Fund (a) qualifies as
a regulated investment company and (b) distributes at
least 90% of its taxable net investment income and net
realized short-term capital gains and 90% of its tax
exempt interest income (reduced by certain expenses),
the Fund will not be liable for Federal and Oregon state
income or franchise (excise) taxes to the extent its
taxable net investment income and its net realized
shortand longterm capital gains, if any, are
distributed to its shareholders. Any such taxes paid by
the Fund would reduce the amount of income and gains
available for distribution to shareholders.
Because the Fund will distribute exempt-interest
dividends, interest on indebtedness incurred by a
shareholder to purchase or carry Fund shares is not
deductible for Federal and Oregon state income tax
purposes except to the extent provided in the
following paragraph. If a shareholder receives exempt
interest dividends with respect to any share and if such
share is held by the shareholder for six months or less,
then for Federal and Oregon state income tax purposes,
any loss on the sale or exchange of such share, to the
extent of such exempt-interest dividend, generally is
disallowed. In addition, the Code may require a
shareholder, if he or she receives exempt-interest
dividends, to treat as taxable income a portion of
certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, that
portion of any exempt-interest dividends paid by the
Fund which represents income derived from private
activity bonds held by the Fund may not retain its
Federal tax-exempt status in the hands of a shareholder
who is a "substantial user" of a facility financed by
such bonds or a "related person" thereof. Similar
rules are applicable for Oregon state personal income
tax purposes. Moreover, as noted in the Fund's
Prospectus, (a) some or all of the Fund's dividends and
distributions may be a specific tax preference item, or
a component of an adjustment item, for purposes of the
Federal individual and corporate alternative minimum
taxes and (b) the receipt of the Fund's dividends and
distributions may affect a corporate shareholder's
Federal "environmental" tax liability. In addition,
the receipt of Fund dividends and distributions may
affect a foreign corporate shareholder's Federal
"branch profits" tax liability and the Federal and
Oregon state "excess net passive income" tax liability
of a shareholder of a Subchapter S corporation.
Moreover, tax exempt bonds may be
purchased at a price which is less than principal of
the bond and less than its adjusted issue price. This
"market discount" is taxable as ordinary income (instead
of capital gain) if the bond was acquired after April
30, 1993. Shareholders should consult their own tax
advisors as to whether they are (a) substantial users
with respect to a facility or related to such users
within the meaning of the Code and (b) subject to a
Federal alternative minimum tax, the
<PAGE>
Federal environmental tax, the Federal branch profits
tax or the Federal and Oregon state excess net passive
income tax.
In the event any interest or dividends on
obligations of Oregon counties, cities, districts,
ports or other public or municipal corporations or
political subdivisions of Oregon is included in the
federal taxable income of an individual, then such
interests or dividends nevertheless may be eliminated
for purposes of computing the amount of income subject
to Oregon's personal income tax. In such event,
however, the amount subtracted from Oregon taxable
income is reduced by any interest on indebtedness
incurred to carry such obligations or securities, and
by any expenses incurred in the production of such
interest or dividend income. With respect to Oregon
corporate franchise (excise) and income taxes, federal
taxable income is increased by the amount of interest
or dividends received during the taxable year from
obligations of a state or any political subdivision of
a state (including Oregon) that is exempt from
federal taxation under the Code. However, the amount
added to Oregon taxable income under this provision is
reduced by any interest or indebtedness incurred to
carry the obligations or securities so described, and by
any expenses incurred in the production of such interest
or dividend income. To derive Oregon taxable income of
a corporation, discount and gain or loss on
retirement or disposition of municipal obligations
excluded from federal taxable income, and
issued on or after January 1, 1985, is treated in the
same manner as under Code sections 1271 to 1283 and
other pertinent provisions of the Code and applicable
Treasury regulations as if the obligations, although
issued by a state or a political subdivision of a
state, were not tax exempt under the Code.
As described above and in the Fund's
Prospectus, the Fund may invest in exchange-traded
futures contracts and options on futures contracts. The
Fund anticipates that these investment activities will
not prevent the Fund from qualifying as a regulated
investment company. As a general rule, these
investment activities will increase or decrease the
amount of long- and shortterm capital gains or losses
realized by the Fund and, accordingly, will affect the
amount of capital gains distributed to the Fund's
shareholders.
For Federal and Oregon state income tax purposes,
gain or loss on the futures contracts and options
described above (collectively referred to herein as
"section 1256 contracts") is taxed pursuant to a
special "mark-to-market system." Under the mark-to
market system, these instruments are treated as if sold
at the Fund's fiscal year end for their fair market
value. As a result, the Fund will be recognizing gains
or losses before they are actually realized. As a
general rule, gain or loss on section 1256 contracts
is treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss, and accordingly, the
mark-to-market system generally
will affect the amount of capital gains or losses
taxable to the Fund and the amount of distributions
taxable to a shareholder. Moreover, if the Fund invests
in both section 1256 contracts and offsetting positions
in such contracts which together constitute a
straddle, then the Fund may be required to defer
certain realized losses. The Fund expects that its
activities with respect to section 1256 contracts and
offsetting positions in such contracts will not cause
it to be treated as recognizing a materially greater
amount of capital gains than actually realized and will
permit it to use substantially all of the losses of the
Fund for the fiscal years in which such losses actually
occur.
While the Fund does not expect to realize a
significant amount of net long-term capital gains, any
such gains realized by the Fund will be distributed
annually as described in the Prospectus. Such
distributions ("capital gain dividends") will be taxable
to shareholders as long-term capital gains, regardless
of how long they have held Fund shares, and will be
designated as capital gain dividends in a written
notice mailed to shareholders after the close of the
Fund's taxable year. If a shareholder receives a
capital gain dividend with respect to any share and if
the share has been held by the shareholder for six
months or less, then any loss (to the extent not
disallowed pursuant to the other six-month rule
described above relating to exemptinterest dividends)
on the sale or exchange of such share will be treated
as a long-term capital loss to the extent of the
capital gain dividend.
<PAGE>
If a shareholder incurs a sales charge when
acquiring shares of the Fund, disposes of those shares
within 90 days and then acquires shares in a mutual
fund for which the otherwise applicable sales charge
is reduced by reason of a reinvestment right (i.e.,
exchange privilege), the original sales charge will
not be taken into account when computing gain/loss
on original shares to the extent the subsequent
sales charge is reduced. Instead, it will be added to
the tax basis in the newly acquired shares. The
portion of the original sales charge that does not
increase the shareholder's tax basis in the original
shares will be treated as incurred with respect to the
second acquisition and, as a general rule, will
increase the shareholder's tax basis in the newly
acquired shares. Furthermore, the same rule also applies
to a disposition of the newly acquired or redeemed
shares made within 90
days of the second acquisition. This provision prevents
a shareholder from immediately recognizing a loss on the
sales charge by shifting his or her investment in a
family of mutual funds.
Each shareholder will receive after the close of
the calendar year an annual statement as to the
Federal income tax and Oregon state personal income tax
status of his or her dividends and distributions from
the Fund for the prior calendar year. Dividends
attributable to Oregon Municipal Securities and any
other obligations which, when held by an individual,
the interest therefrom would be exempt from taxation
by Oregon, will be exempt from Oregon state personal
income taxation ("Oregon exempt interest dividends").
Any dividends attributable to interest on municipal
obligations that are not Oregon Municipal Securities
generally will be taxable as ordinary dividends for
Oregon state personal income tax purposes even if
such dividends are excluded from gross income for
Federal income tax purposes. These statements also
will designate the amount of exempt interest
dividends that is a specific preference item for
purposes of the Federal individual and corporate
alternative minimum taxes. Each shareholder also will
receive, if appropriate, various written notices after
the close of the Fund's prior taxable year as to the
Federal income tax status of his or her dividends and
distributions which were received from the Fund during
the Fund's prior taxable year. Shareholders should
consult their tax advisors as to any other state and
local taxes that may apply to these dividends and
distributions. The dollar amount of dividends
excluded or exempt from
Federal income taxation or Oregon state personal income
taxation and the dollar amount subject to Federal income
taxation or Oregon state personal income taxation, if
any, will vary for each shareholder depending upon
the size and duration of each shareholder's investment
in the Fund. In the event the Fund earns taxable net
investment income, it intends to designate as taxable
dividends the same percentage of each day's dividend as
its actual taxable net investment income bears to its
total net investment income earned for the year.
Investors considering buying shares of the Fund
just prior to a record date for a taxable dividend or
capital gain distribution should be aware that,
regardless of whether the price of the Fund shares to
be purchased reflects the amount of the forthcoming
dividend or distribution payment, any such payment
will be a taxable dividend or distribution payment.
If a shareholder fails to furnish the Fund with a
correct taxpayer identification number, fails to fully
report dividend or interest income or fails to certify
to
the Fund that he or she has provided a correct taxpayer
identification number and that he or she is not subject
to "backup withholding," then the shareholder may be
subject to a 31% backup withholding tax with respect to
(a) any taxable dividends and distributions and (b) the
proceeds of any redemption of Fund shares. An
individual's taxpayer identification number is his or
her social security number. The backup withholding tax
is not an additional tax and may be credited against a
shareholder's regular Federal income tax liability.
The foregoing is only a summary of certain tax
considerations generally affecting the Fund and its
shareholders, and is not intended as a substitute
for careful tax planning. Further, it should be noted
that, for Oregon state tax purposes, the portion of any
Fund dividends
<PAGE>
constituting Oregon exempt-interest dividends is exempt
from income for Oregon state personal income tax
purposes only. Dividends (including Oregon exempt
interest dividends) paid to shareholders subject to
Oregon state franchise (excise) tax or Oregon state
corporate income tax will generally be taxed as ordinary
dividends to such shareholders, notwithstanding that
all or a portion of such dividends is exempt from Oregon
state personal income tax. Potential shareholders in
the Fund, including, in particular, corporate
shareholders which may be subject to either Oregon
franchise tax or Oregon corporate income tax, should
consult their tax advisors with respect to (a) the
application of such corporate and franchise taxes to the
receipt of Fund dividends and as to their own Oregon
state tax situation in general, (b) the application of
other
state and local taxes to the receipt of Fund dividends
and distributions and (c) their own specific tax
situations.
ADDITIONAL INFORMATION
The Fund is a business trust established under the laws
of the Commonwealth of Massachusetts pursuant to a
Master Trust Agreement dated May 10, 1994. The Fund
commenced operations on May 23, 1994 under the name
Smith Barney Shearson Oregon Municipals Fund. On October
14, 1994, the Fund changed its name to Smith Barney
Oregon Municipals Fund.
PNC is located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, and effective June 19,
1995, serves as the Fund's custodian pursuant to a
custody agreement dated June , 1995. Under the custody
agreement, PNC holds the Fund's portfolio securities and
keeps all necessary accounts and records. For its
services, PNC receives a monthly fee based upon the
month-end market value of securities held in custody and
also receives securities transaction charges. The assets
of the Fund are held under bank custodianship in
compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts
02109 and serves as the Fund's transfer agent. Under the
transfer agency agreement, TSSG maintains the
shareholder account records for the Fund, handles
certain communications between shareholders and the Fund
and distributes dividends and distributions payable by
the
Fund. For these services, TSSG receives a monthly fee
computed on the basis of the number of shareholder
accounts it maintains for the Fund during the month and
is reimbursed for out-of-pocket expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal period ended
April 30, 1995, accompanies this Statement of Additional
Information and is incorporated herein by reference in
its entirety.
<PAGE>
APPENDIX
Description of S&P and Moody's ratings:
S&P Ratings for Municipal Bonds
S&P's Municipal Bond ratings cover obligations of states
and political subdivisions. Ratings are assigned to
general obligation and revenue bonds. General obligation
bonds are usually secured by all resources available to
the municipality and the factors outlined in the rating
definitions below are weighed in determining the rating.
Because revenue bonds in general are payable from
specifically pledged revenues, the essential element in
the security for a revenue bond is the quantity and
quality of the pledged revenues available to pay debt
service.
Although an appraisal of most of the same factors that
bear on the quality of general obligation bond credit is
usually appropriate in the rating analysis of a revenue
bond, other factors are important, including
particularly the
competitive position of the municipal enterprise under
review and the basic security covenants. Although a
rating reflects S&P's judgment as to the issuer's
capacity for the timely payment of debt service, in
certain instances it may also reflect a mechanism or
procedure for an assured and prompt cure of a default,
should one occur, i.e., an insurance program, Federal or
state guarantee or the automatic withholding and use of
state aid to pay the defaulted debt service.
AAA
Prime -- These are obligations of the highest quality.
They have the strongest capacity for timely payment of
debt service.
General Obligation Bonds -- In a period of economic
stress, the issuers will suffer the smallest declines in
income and will be least susceptible to autonomous
decline. Debt burden is moderate. A strong revenue
structure appears more than adequate to meet future
expenditure requirements. Quality of management appears
superior.
Revenue Bonds -- Debt service coverage has been, and is
expected to remain, substantial. Stability of the
pledged revenues is also exceptionally strong, due to
the competitive position of the municipal enterprise or
to the
nature of the revenues. Basic security provisions
(including rate covenant, earnings test for issuance of
additional bonds, and debt service reserve requirements)
are rigorous. There is evidence of superior management.
AA
High Grade -- The investment characteristics of general
obligation and revenue bonds in this group are only
slightly less marked than those of the prime quality
issues. Bonds rated AA have the second strongest
capacity for payment of debt service.
A
Good Grade -- Principal and interest payments on bonds
in this category are regarded as safe. This rating
describes the third strongest capacity for payment of
debt service. It differs from the two higher ratings
because:
General Obligation Bonds -- There is some weakness,
either in the local economic base, in debt burden, in
the balance between revenues and expenditures, or in
quality of management. Under certain adverse
circumstances, any one such weakness might impair the
ability of the issuer to meet debt obligations at some
future date.
<PAGE>
Revenue Bonds -- Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could
show some variations because of increased competition or
economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent.
Management performance appears adequate.
BBB
Medium Grade -- Of the investment grade ratings, this is
the lowest.
General Obligation Bonds -- Under certain adverse
conditions, several of the above factors could
contribute to a lesser capacity for payment of debt
service. The difference between ``A'' and ``BBB''
ratings is that the latter shows more than one
fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one
deficiency among the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability
of the pledged revenues could show substantial
variations, with the revenue flow possibly being subject
to erosion over time. Basic security provisions are no
more than adequate. Management performance could be
stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominately speculative with respect to capacity to
pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree
of speculation and CC the highest degree of speculation.
While such bonds will likely have some quality and
protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
C
The rating C is reserved for income bonds on which no
interest is being paid.
D
Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of
a plus or a minus sign, which is used to show relative
standing within the major rating categories, except in
the AAA-Prime Grade category.
S&P Ratings for Municipal Notes
Municipal notes with maturities of three years or less
are usually given note ratings (designated SP-1, -2 or -
3) by S&P to distinguish more clearly the credit quality
of notes as compared to bonds. Notes rated SP-1 have a
very strong or strong capacity to pay principal and
interest. Those issues determined to possess
overwhelming safety characteristics are given the
designation of SP-1+. Notes rated SP-2 have a
satisfactory capacity to pay principal and interest.
Moody's Ratings for Municipal Bonds
Aaa
Bonds that are Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective <PAGE>
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
sometime in the future.
Baa
Bonds that are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba
Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate and thereby not well
safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in
this class.
B
Bonds that are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Moody's applies the numerical modifiers 1, 2 and 3 in
each generic rating classification from Aa through B.
The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its
generic rating category.
Caa
Bonds that are rated Caa are of poor standing. These
issues may be in default or present elements of danger
may exist with respect to principal or interest.
Ca
Bonds that are rated Ca represent obligations that are
speculative in a high degree. These issues are often in
default or have other marked short comings.
<PAGE>
C
Bonds that are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Moody's Ratings for Municipal Notes
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade
("MIG") and for variable rate demand obligations are
designated Variable Moody's Investment Grade ("VMIG").
This distinction is in recognition of the differences
between short-term credit risk and long-term credit
risk. Loans bearing the designation MIG 1 or VMIG 1 are
of the best quality, enjoying strong protection by
established cash flows of funds for their servicing or
from established and broad-based access to the market
for refinancing, or both. Loans bearing the designation
MIG 2 or VMIG 2 are of high quality, with ample margins
of protection although not as large as the preceding
group. Loans bearing the designation MIG 3 or VMIG 3 are
of
favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow may be tight
and market access for refinancing, in particular, is
likely to be less well established.
Description of S&P A-1+ and A-1 Commercial Paper Rating
The rating A-1+ is the highest, and A-1 the second
highest, commercial paper rating assigned by S&P. Paper
rated A-1+ must have either the direct credit support of
an issuer or guarantor that possesses excellent long-
term operating and financial strengths combined with
strong liquidity characteristics (typically, such
issuers or guarantors would display credit quality
characteristics which would warrant a senior bond rating
of AA- or higher), or the direct credit support of an
issuer or guarantor that possesses above average long-
term fundamental operating and financing capabilities
combined with ongoing excellent liquidity
characteristics. Paper rated A-1 by S&P has the
following characteristics: liquidity ratios are adequate
to meet cash requirements; long-term senior debt is
rated A or better; the issuer has access to at least two
additional channels of borrowing; basic earnings and
cash flow have an upward trend with allowance made for
unusual circumstances; typically, the issuer's industry
is well established and the issuer has a strong position
within the industry; and the reliability and quality of
management are unquestioned.
Description of Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Among the factors considered
by Moody's in assigning ratings are the following: (a)
evaluation of the management of the issuer; (b) economic
evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be
inherent in certain areas; (c) evaluation of the
issuer's products in relation to competition and
customer acceptance; (d) liquidity; (e) amount and
quality of long-term debt; (f) trend of earnings over a
period of ten years; (g) financial strength of a parent
company and the relationships which exist with the
issuer; and (h) recognition by the management of
obligations which may be present or may arise as a
result of public interest questions and preparations to
meet such obligations.
<PAGE>
Smith Barney
Oregon
Municipals
Fund
Statement of
Additional Information
June 29, 1995
Smith Barney
Oregon Municipals Fund
388 Greenwich Street
New York, NY
10013....................................Fu
nd 66, 206
SMITH BARNEY
SMITH BARNEY OREGON MUNICIPALS FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report
for
the
period
ended April 30, 1995 and the Report of
Independent Accountants dated June , 1995 are
incorporated by reference to the Definitive 30b2-
1 filed on June 27, 1995 as Accession Number
0000091155-95-000168.
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
All references are to the Registrant's registration
statement on Form N-1A as filed with the Securities
and Exchange Commission on March 11, 1994 (the
"Registration Statement") (File Nos. 33-52643 and
81107149).
(1)(a) Registrant's Master Trust Agreement,
dated March 10, 1994, is incorporated by reference
to the Registration Statement.
(b) Amendments to Master Trust Agreement dated
October 14, 1994 and November 7, 1994, respectively
, are incorporated by reference to Post-Effective
Amendment No. 3.
(2) Registrant's By-Laws, dated March 10, 1994 ,
are incorporated by reference to the Registration
Statement.
(3) Not Applicable.
(4) Registrant's forms of stock certificates are
incorporated by reference to Pre-Effective Amendment
No. 3.
(5)(a) Investment Advisory Agreement between
the
Registrant and Greenwich Street Advisors Division of
Mutual Management Corp., dated May
23, 1994, is incorporated by reference to Pre
Effective Amendment No. 3.
(b) Transfer and Assignment of Investment
Advisory Agreement between the Registrant and Smith
Barney Mutual Funds Management Inc., dated November
7, 1994, is filed herewith.
(6) Distribution Agreement between the Registrant
and Smith Barney Shearson Inc., dated May 23, 1994,
is incorporated by reference to Pre-Effective
Amendment No. 3.
(7) Not Applicable.
(8) Form of Custody Agreement between the
Registrant
and PNC Bank, National Association, dated June 19
, 1995, is filed herewith.
(9)(a) Administration Agreement between
the
Registrant and Smith, Barney Advisers, Inc.,
dated May 23, 1994, is incorporated by reference
to PreEffective Amendment No. 3.
(b) Transfer Agency Agreement between
the Registrant and The Shareholder Services
Group, Inc., dated
May 23, 1994, is incorporated by reference to Pre
Effective Amendment No. 3.
(10) Not Applicable.
(11) Consent of Independent Auditors is
filed herewith. (12) Not Applicable.
(13) Purchase Agreement between the
Registrant and Smith Barney Shearson Inc. is
incorporated by reference to Pre-Effective
Amendment No. 3.
(14) Not Applicable.
(15) Amended Services and Distribution Plan
pursuant to Rule 12b-1 between the Registrant and
Smith Barney, Inc. is incorporated by reference
to PostEffective Amendment No. 3.
(16) Performance Data is incorporated by
reference to Post-Effective Amendment No. 3.
Item 25. Persons Controlled by or Under Common
Control with
Registrant
None.
Item 26. Number of Holders of Securities
(1)
Title of Class
Beneficial Interest, par value
$.001 per share
(2)
Number of Record Holders
as of May 31, 1995
Class A
185
Class B
290
Class C
3
Item 27. Indemnification
The response to this item is incorporated by
reference to Pre-Effective Amendment No. 1.
Item 28(a). Business and Other Connections
Of
Investment Adviser
Investment Adviser--Smith Barney Mutual Funds
Management Inc., formerly known as Smith, Barney
Advisers, Inc. ("SBMFM").
SBMFM was incorporated in December 1968 under the
laws of the State of Delaware. SBMFM is a wholly
owned subsidiary of Smith Barney Holdings Inc.
(formerly known as Smith Barney Shearson Holdings
Inc.), which in turn is a wholly owned subsidiary of
Travelers Group Inc. (formerly known
as Primerica Corporation) ("Travelers"). SBMFM is
registered as an investment adviser under the
Investment Advisers Act of 1940 ("Advisers Act").
The list required by this Item 28 of officers and
directors of SBMFM together with information as to
any other business, profession, vocation or
employment of a substantial nature engaged in by
such officers and directors during the past two
years , is incorporated by reference to Schedules A
and D of Form ADV filed by SBMFM pursuant to the
Advisers Act (SEC File No. 8018314).
Prior to the close of business on November 7, 1994,
Greenwich Street Advisors served as investment
adviser. Greenwich Street Advisors, through its
predecessors, has been in the investment counseling
business since 1934 and is a division of Mutual
Management Corp. ("MMC"). MMC was incorporated in
1978 and is a wholly owned subsidiary of Smith
Barney Holdings Inc. (formerly known as Smith Barney
Shearson Holdings Inc.) ("Holdings"), which in turn
is a wholly owned subsidiary of Travelers Group
Inc. (formerly known as Primerica Corporation)
("Travelers"). The list required by this Item 28 of
officers and directors of MMC and Greenwich Street
Advisors, together with information as to any other
business, profession, vocation or employment of a
substantial nature engaged in by such officers and
directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of
Form ADV filed by MMC on behalf of Greenwich Street
Advisors pursuant to the Advisers Act (SEC File No.
801-14437).
Prior to the close of business on July 30, 1993 (the
"Closing"), Shearson Lehman Advisors, a member of
the Asset Management Group of Shearson Lehman
Brothers
Inc. ("Shearson Lehman Brothers"), served as the
Registrant's investment adviser. On the Closing,
Travelers and Smith Barney Inc. (formerly known as
Smith Barney Shearson Inc.) acquired the domestic
retail brokerage and asset management business of
Shearson Lehman Brothers, which included the
business of the Registrant's prior investment
adviser. Shearson Lehman Brothers was a wholly owned
subsidiary of Shearson Lehman Brothers Holdings Inc.
("Shearson Holdings"). All of the issued and
outstanding common stock of Shearson Holdings
(representing 92% of the voting stock) was held by
American Express Company. Information as to any past
business, vocation or employment of a substantial
nature engaged in by officers or directors of
Shearson Lehman
Advisors can be located in Schedules A and D of Form
ADV filed by Shearson Lehman Brothers on behalf of
Shearson Lehman Advisors prior to July 30, 1993 (SEC
File No. 8013701).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as
a distributor for Smith Barney Managed Municipals
Fund Inc., Smith Barney New York Municipals Fund
Inc., Smith Barney California Municipals Fund Inc.,
Smith Barney Massachusetts Municipals Fund, Smith
Barney Global Opportunities Fund, Smith Barney
Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund Inc., Smith Barney Principal Return
Fund, Smith Barney Income Funds, Smith Barney Equity
Funds, Smith Barney Investment Funds Inc., Smith
Barney Precious Metals and Minerals Fund Inc., Smith
Barney Telecommunications Trust, Smith Barney Arizona
Municipals Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., The USA High Yield Fund N.V.,
Garzarelli Sector Analysis Portfolio N.V., Smith
Barney Fundamental Value Fund Inc., Smith Barney
Series Fund, Consulting Group Capital Markets Funds,
Smith Barney Income Trust, Smith Barney Adjustable
Rate Government Income Fund, Smith Barney Florida
Municipals Fund, Smith Barney Oregon Municipals Fund,
Smith Barney Funds, Inc., Smith Barney Muni Funds,
Smith Barney World Funds, Inc., Smith Barney Money
Funds, Inc., Smith Barney Municipal Money Market
Fund, Inc., Smith Barney Variable Account Funds,
Smith Barney U.S. Dollar Reserve Fund (Cayman),
Worldwide Special Fund, N.V., Worldwide Securities
Limited (Bermuda), Smith Barney International Fund
(Luxembourg), Smith Barney Institutional Cash
Management Fund, Inc. and various series of unit
investment trusts.
Smith Barney is a wholly owned subsidiary of Smith
Barney Holdings Inc. (formerly known as Smith Barney
Shearson Holdings Inc.), which in turn is a wholly
owned subsidiary of Travelers Group Inc. (formerly
known as Primerica Corporation) ("Travelers"). On
June 1, 1994, Smith Barney changed its name from
Smith Barney Shearson Inc. to its current name. The
information required by this Item 29 with respect to
each officer, director and partner of Smith Barney is
incorporated by reference to Schedule A of Form BD
filed by Smith Barney pursuant to the Securities
Exchange Act of 1934 (SEC File No. 8128510).
Item 30. Location of Accountants
and
Records
(1) Smith Barney Oregon Municipals Fund
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Mutual Funds
Management Inc. 388
Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania
19103
(4) The Shareholder Services Group, Inc. One
Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
The Registrant undertakes to call a meeting of
shareholders for the purpose of voting upon the
question of removal of a trustee or trustees of the
Registrant when requested in writing to do so by the
holders of at least 10% of the Registrant's
outstanding shares and, in connection with the
meeting, to comply with the provisions of Section
16(c) of the 1940 Act relating to communications
with the shareholders of certain commonlaw trusts.
485(b) Certification
The Registrant hereby certifies that it
meets all the requirements for effectiveness
pursuant to Rule 485(b)(1)(ix) under the Securities
Act or 1933, as amended.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940,
the Registrant, SMITH BARNEY OREGON MUNICIPALS FUND,
has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the
City of New York, State of New York on the 23rd day
of June, 1995.
SMITH BARNEY
OREGON MUNICIPALS FUND
By: /s/ Heath B. McLendon
Heath B. McLendon,
Chairman of the Board
Pursuant to the requirements of the
Securities Act of 1933, as amended, this Amendment
to the Registration Statement has been signed
below 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
(Chief Executive
Officer)
6/23/95
/s/ Lewis E.
Daidone
Lewis E. Daidone
Treasurer (Chief
Financial
and Accounting
Officer)
6/23/95
/s/ Herbert Barg
Herbert Barg
Trustee
6/23/95
/s/ Alfred J.
Bianchetti
Alfred J.
Bianchetti
Trustee
6/23/95
/s/ Martin Brody
Martin Brody
Trustee
6/23/95
/s/ Dwight B. Crane
Dwight B. Crane
Trustee
6/23/95
/s/ Burt N. Dorsett
Burt N. Dorsett
Trustee
6/23/95
/s/ Elliot S. Jaffe
Elliot S. Jaffe
Trustee
6/23/95
/s/ Stephen E.
Kaufman
Stephen E. Kaufman
Trustee
6/23/95
/s/ Joseph J.
McCann
Joseph J. McCann
Trustee
6/23/95
/s/ Cornelius C.
Rose
Cornelius C. Rose
Trustee
6/23/95
FORM OF TRANSFER AND ASSUMPTION OF
INVESTMENT ADVISORY AGREEMENT
for
SMITH BARNEY OREGON MUNICIPALS FUND
TRANSFER AND ASSUMPTION OF INVESTMENT ADVISORY AGREEMENT, made as of
the 7th day of November, 1994, by and among Smith Barney Oregon Municipals Fund
, a Massachusetts business trust (the "Fund"), Mutual Management Corp., a New
York corporation ("MMC"), and Smith Barney Mutual Funds Management Inc.
("SBMFM") a Delaware corporation.
WHEREAS, the Fund is registered with the Securities and Exchange
Commission as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Fund and MMC entered into an
Investment Advisory Agreement on July 30, 1993, under which MMC serves as
the investment adviser (the "Investment Adviser") for the Fund; and
WHEREAS, MMC desires that its interest, rights, responsibilities and
obligations in and under the Investment Advisory Agreement be transferred
to SBMFM and SBMFM desires to assume MMC's interest, rights,
responsibilities and obligations in and under the Investment Advisory
Agreement; and
WHEREAS, this Agreement does not result in a change of actual control
or management of the Investment Adviser to the Fund and, therefore, is not
an "assignment" as defined in Section 2(a)(4) of the Act nor an
"assignment" for the purposes of Section 15(a)(4) of the Act.
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Assignment. Effective as of November 7, 1994 (the "Effective
Date"), MMC hereby transfers to SBMFM all of MMC's interest, rights,
responsibilities and obligations in and under the Investment Advisory
Agreement dated May 23, 1994, to which MMC is a party with the Fund.
2. Assumption and Performance of Duties. As of the Effective
Date, SBMFM hereby accepts all of MMC's interest and rights, and assumes
and agrees to perform all of MMC's responsibilities and obligations in, and
under the Investment Advisory Agreement; SBMFM agrees to subject to all of
the terms and conditions of said Agreement; and SBMFM shall indemnify and
hold harmless MMC from any claim or demand made thereunder arising or
incurred after the Effective Date.
3. Representation of SBMFM. SBMFM represents and warrants that:
(1) it is registered as an investment adviser under the Investment Advisers
Act of 1940, as amended; and (2) Smith Barney Holdings Inc. is its sole
shareholder.
4. Consent. The Fund hereby consents to this transfer by MMC to
SBMFM of MMC's interest, rights, responsibilities and obligations in and
under the Investment Advisory Agreement and to the acceptance and
assumption by SBMFM of the same. The Fund agrees, subject to the terms
and conditions of said Agreement, to look solely to SBMFM for the
performance of the Investment Adviser's responsibilities and obligations
under said Agreement from and after the Effective Date, and to recognize as
inuring solely to SBMFM the interest and rights heretofore held by MMC
thereunder.
5. Limitation of Liability of Trustees, Officers and Shareholders.
It is expressly agreed that the obligations of the Fund hereunder shall
not be binding upon any of the Trustees, shareholders, nominees, officers,
agents, or employees of the Fund, personally, but shall bind only the
trust property of the Fund, as provided in the Declaration of Trust of the
Fund. The execution and delivery of this Agreement have been authorized
by the Trustees of the Fund and signed by the President of the Fund,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually of to impose any liability on any of them,
personally, but shall bond only the trust property of the Fund as provided
in its Declaration of Trust.
6. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers hereunto duly attested.
Attest:
By:
Secretary Smith Barney Oregon Municipals Fund
Attest:
By:
Secretary Mutual Management Corp.
Attest:
By:
Secretary Smith Barney Mutual Funds
Management Inc.
shared/domestic/clients/shearosn/fund/slit/imca
CUSTODIAN SERVICES AGREEMENT
This Agreement is made as of June 19, 1995 by and
between SMITH BARNEY OREGON MUNICIPALS FUND, a Massachusetts
business trust (the "Fund") and PNC BANK, NATIONAL
ASSOCIATION, a national banking association ("PNC Bank").
The Fund is registered as an open-end investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Fund wishes to retain PNC Bank to
provide custodian services and PNC Bank wishes to furnish
such services, either directly or through an affiliate or
affiliates, as more fully described herein. In
consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person." The term "Authorized
Person" shall mean any officer of the Fund and any other
person, who is duly authorized by the Fund's Governing
Board, to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate
attached hereto as the Authorized Persons Appendix, as such
Appendix may be amended in writing by the Fund's Governing
Board from time to time.
(b) "Book-Entry System." The term "Book-Entry
System" means Federal Reserve Treasury book-entry system for
United States and federal agency securities, its successor
or successors, and its nominee or nominees and any book-
entry system maintained by an exchange registered with the
SEC under the 1934 Act.
(c) "CFTC." The term "CFTC" shall mean the
Commodities Futures Trading Commission.
(d) "Governing Board." The term "Governing
Board" shall mean the Fund's Board of Directors if the Fund
is a corporation or the Fund's Board of Trustees if the Fund
is a trust, or, where duly authorized, a competent committee
thereof.
(e) "Oral Instructions." The term "Oral
Instructions" shall mean oral instructions received by PNC
Bank from an Authorized Person or from a person reasonably
believed by PNC Bank to be an Authorized Person.
(f) "SEC." The term "SEC" shall mean the
Securities and Exchange Commission.
(g) "Securities and Commodities Laws." The term
"Securities and Commodities Laws" shall mean the "1933 Act"
which shall mean the Securities Act of 1933, the "1934 Act"
which shall mean the Securities Exchange Act of 1934, the
1940 Act, and the "CEA" which shall mean the Commodities
Exchange Act, as amended.
(h) "Shares." The term "Shares" shall mean the
shares of stock of any series or class of the Fund, or,
where appropriate, units of beneficial interest in a trust
where the Fund is organized as a Trust.
(i) "Property." The term "Property" shall mean:
(i) any and all securities and other
investment items which the Fund may from time to time
deposit, or cause to be deposited, with PNC Bank or which
PNC Bank may from time to time hold for the Fund;
(ii) all income in respect of any of such
securities or other investment items;
(iii) all proceeds of the sale of any of such
securities or investment items; and
(iv) all proceeds of the sale of securities
issued by the Fund, which are received by PNC Bank from
time to time, from or on behalf of the Fund.
(j) "Written Instructions." The term "Written
Instructions" shall mean written instructions signed by one
Authorized Person and received by PNC Bank. The
instructions may be delivered by hand, mail, tested
telegram, cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to
provide custodian services to the Fund, and PNC Bank accepts
such appointment and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or,
where applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the
resolutions of the Fund's Governing Board, approving the
appointment of PNC Bank or its affiliates to provide
services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory agreement or
agreements;
(d) a copy of the Fund's distribution agreement
or agreements;
(e) a copy of the Fund's administration
agreements if PNC Bank is not providing the Fund with such
services; (f) copies of any shareholder
servicing agreements made in respect of the Fund; and
(g) certified or authenticated copies of any and
all amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations.
PNC Bank undertakes to comply with all applicable
requirements of the Securities and Commodities Laws and any
laws, rules and regulations of governmental authorities
having jurisdiction with respect to all duties to be
performed by PNC Bank hereunder. Except as specifically set
forth herein, PNC Bank assumes no responsibility for such
compliance by the Fund.
5. Instructions. Unless otherwise provided in this
Agreement, PNC Bank shall act only upon Oral and Written
Instructions. PNC Bank shall be entitled to rely upon any
Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to
be an Authorized Person) pursuant to this Agreement. PNC
Bank may assume that any Oral or Written Instructions
received hereunder are not in any way inconsistent with the
provisions of organizational documents or this Agreement or
of any vote, resolution or proceeding of the Fund's
Governing Board or of the Fund's shareholders.
The Fund agrees to forward to PNC Bank Written
Instructions confirming Oral Instructions so that PNC Bank
receives the Written Instructions by the close of business
on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not
received by PNC Bank shall in no way invalidate the
transactions or enforceability of the transactions
authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no
liability to the Fund in acting upon Oral or Written
Instructions provided such instructions reasonably appear to
have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt
as to any action it should or should not take, PNC Bank may
request directions or advice, including Oral or Written
Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in
doubt as to any questions of law pertaining to any action it
should or should not take, PNC Bank may request advice at
its own cost from such counsel of its own choosing (who may
be counsel for the Fund, the Fund's advisor or PNC Bank, at
the option of PNC Bank).
(c) Conflicting Advice. In the event of a
conflict between directions, advice or Oral or Written
Instructions PNC Bank receives from the Fund, and the advice
it receives from counsel, PNC Bank shall be entitled to rely
upon and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be
protected in any action it takes or does not take in
reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and
which PNC Bank believes, in good faith, to be consistent
with those directions, advice or Oral or Written
Instructions.
Nothing in this paragraph shall be construed so as to
impose an obligation upon PNC Bank (i) to seek such
directions, advice or Oral or Written Instructions, or (ii)
to act in accordance with such directions, advice or Oral or
Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PNC
Bank's properly taking or not taking such action.
7. Records. The books and records pertaining to the
Fund which are in the possession of PNC Bank, shall be the
property of the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and
other applicable securities laws, rules and regulations.
The Fund, or the Fund's Authorized Persons, shall have
access to such books and records at all time during PNC
Bank's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be
provided by PNC Bank to the Fund or to an Authorized Person
of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep
confidential all records of the Fund and information
relative to the Fund and its shareholders (past, present and
potential), unless the release of such records or
information is otherwise consented to, in writing, by the
Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PNC Bank
may be exposed to civil or criminal contempt proceedings or
when required to divulge. The Fund further agrees that,
should PNC Bank be required to provide such information or
records to duly constituted authorities (who may institute
civil or criminal contempt proceedings for failure to
comply), PNC Bank shall not be required to seek the Fund's
consent prior to disclosing such information.
9. Cooperation with Accountants. PNC Bank shall
cooperate with the Fund's independent public accountants and
shall take all reasonable action in the performance of its
obligations under this Agreement to ensure that the
necessary information is made available to such accountants
for the expression of their opinion, as required by the
Fund.
10. Disaster Recovery. PNC Bank shall enter into and
shall maintain in effect with appropriate parties one or
more agreements making reasonable provision for emergency
use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of
equipment failures, PNC Bank shall, at no additional expense
to the Fund, take reasonable steps to minimize service
interruptions but shall have no liability with respect
thereto.
11. Compensation. As compensation for custody
services rendered by PNC Bank during the term of this
Agreement, the Fund will pay to PNC Bank a fee or fees as
may be agreed to in writing from time to time by the Fund
and PNC Bank.
12. Indemnification. The Fund agrees to indemnify and
hold harmless PNC Bank and its nominees from all taxes,
charges, expenses, assessment, claims and liabilities
(including, without limitation, liabilities arising under
the Securities and Commodities Laws and any state and
foreign securities and blue sky laws, and amendments
thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or
indirectly from any action which PNC Bank takes or does not
take (i) at the request or on the direction of or in
reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its
nominees, shall be indemnified against any liability to the
Fund or to its shareholders (or any expenses incident to
such liability) arising out of PNC Bank's own willful
misfeasance, bad faith, negligence or reckless disregard of
its duties and obligations under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be
under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as may be
specifically agreed to by PNC Bank, in writing. PNC Bank
shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith
and to use its best effort, within reasonable limits, in
performing services provided for under this Agreement. PNC
Bank shall be responsible for its own negligent failure to
perform its duties under this Agreement. Notwithstanding the
foregoing, PNC Bank shall not be responsible for losses
beyond its control, provided that PNC Bank has acted in
accordance with the standard of care set forth above; and
provided further that PNC Bank shall only be responsible for
that portion of losses or damages suffered by the Fund that
are attributable to the negligence of PNC Bank.
Without limiting the generality of the foregoing or of
any other provision of this Agreement, PNC Bank, in
connection with its duties under this Agreement, shall not
be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or
authority or lack thereof of any Oral or Written
Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PNC
Bank reasonably believes to be genuine; or (b) delays or
errors or loss of data occurring by reason of circumstances
beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, labor
difficulties, fire, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
Notwithstanding anything in this Agreement to the
contrary, PNC Bank shall have no liability to the Fund for
any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of
PNC Bank's performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was
known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund will
deliver or arrange for delivery to PNC Bank, all the
property owned by the Fund, including cash received as a
result of the distribution of its Shares, during the period
that is set forth in this Agreement. PNC Bank will not be
responsible for such property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank,
acting upon Written Instructions, shall open and maintain
separate account(s) in the Fund's name using all cash
received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial
accounts for each separate series, class or portfolio of the
Fund and shall hold in such account(s) all cash received
from or for the accounts of the Fund specifically designated
to each separate series, class or portfolio. PNC Bank shall
make cash payments from or for the account of the Fund only
for:
(i) purchases of securities in the name of
the Fund or PNC Bank or PNC Bank's nominee as provided in
sub-paragraph j and for which PNC Bank has received a copy
of the broker's or dealer's confirmation or payee's invoice,
as appropriate;
(ii) purchase or redemption of Shares of the
Fund delivered to PNC Bank;
(iii) payment of, subject to Written
Instructions, interest, taxes, administration, accounting,
distribution, advisory, management fees or similar expenses
which are to be borne by the Fund;
(iv) payment to, subject to receipt of
Written Instructions, the Fund's transfer agent, as agent
for the shareholders, an amount equal to the amount of
dividends and distributions stated in the Written
Instructions to be distributed in cash by the transfer agent
to shareholders, or, in lieu of paying the Fund's transfer
agent, PNC Bank may arrange for the direct payment of cash
dividends and distributions to shareholders in accordance
with procedures mutually agreed upon from time to time by
and among the Fund, PNC Bank and the Fund's transfer agent;
(v) payments, upon receipt of Written
Instructions, in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund
and held by or delivered to PNC Bank;
(vi) payments of the amounts of dividends
received with respect to securities sold short; payments
made to a sub-custodian pursuant to provisions in sub-
paragraph c of this Paragraph; and
(viii) payments, upon Written Instructions made
for other proper Fund purposes. PNC Bank is hereby
authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian
for the account of the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all securities
received by it for the account of the Fund in a separate
account that physically segregates such securities from
those of any other persons, firms or corporations, except
for securities held in a Book-Entry System. All such
securities shall be held or disposed of only upon Written
Instructions of the Fund pursuant to the terms of this
Agreement. PNC Bank shall have no power or authority to
assign, hypothecate, pledge or otherwise dispose of any such
securities or investment, except upon the express terms of
this Agreement and upon Written Instructions, accompanied by
a certified resolution of the Fund's Governing Board,
authorizing the transaction. In no case may any member of
the Fund's Governing Board, or any officer, employee or
agent of the Fund withdraw any securities. At PNC Bank's
own expense and for its own convenience, PNC Bank may enter
into sub-custodian agreements with other banks or trust
companies to perform duties described in this sub-paragraph
c. Such bank or trust company shall have an aggregate
capital, surplus and undivided profits, according to its
last published report, of at least one million dollars
($1,000,000), if it is a subsidiary or affiliate of PNC
Bank, or at least twenty million dollars ($20,000,000) if
such bank or trust company is not a subsidiary or
affiliate of PNC Bank. In addition, such bank or trust
company must agree to comply with the relevant provisions of
the 1940 Act and other applicable rules and regulations.
PNC Bank shall remain responsible for the performance of all
of its duties as described in this Agreement and shall hold
the Fund harmless from PNC Bank's own (or any sub-custodian
chosen by PNC Bank under the terms of this sub-paragraph c)
acts or omissions, under the standards of care provided for
herein.
(d) Transactions Requiring Instructions. Upon
receipt of Oral or Written Instructions and not otherwise,
PNC Bank, directly or through the use of the Book-Entry
System, shall:
(i) deliver any securities held for the Fund
against the receipt of payment for the sale of such
securities;
(ii) execute and deliver to such persons as
may be designated in such Oral or Written Instructions,
proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any
securities may be exercised;
(iii) deliver any securities to the issuer
thereof, or its agent, when such securities are called,
redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is
to be delivered to PNC Bank;
(iv) deliver any securities held for the Fund
against receipt of other securities or cash issued or paid
in connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of any
conversion privilege;
(v) deliver any securities held for the Fund
to any protective committee, reorganization committee or
other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale
of assets of any corporation, and receive and hold under the
terms of this Agreement such certificates of deposit,
interim receipts or other instruments or documents as may be
issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the
assets of the Fund and take such other steps as shall be
stated in said Oral or Written Instructions to be for the
purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to the Fund
to any bank or trust company for the purpose of a pledge or
hypothecation to secure any loan incurred by the Fund;
provided, however, that securities shall be released only
upon payment to PNC Bank of the monies borrowed, except that
in cases where additional collateral is required to secure a
borrowing already made subject to proper prior
authorization, further securities may be released for that
purpose; and repay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing the loan;
(viii) release and deliver securities owned by
the Fund in connection with any repurchase agreement entered
into on behalf of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund in connection with
such repurchase agreements, but only upon the delivery of
the securities;
(ix) release and deliver or exchange
securities owned by the Fund in connection with any
conversion of such securities, pursuant to their terms, into
other securities;
(x) release and deliver securities owned by
the Fund for the purpose of redeeming in kind shares of the
Fund upon delivery thereof to PNC Bank; and
(xi) release and deliver or exchange
securities owned by the Fund for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address
of the person(s) to whom delivery shall be made when such
action is pursuant to sub-paragraph d above.
(e) Use of Book-Entry System. The Fund shall deliver
to PNC Bank certified resolutions of the Fund's Governing
Board approving, authorizing and instructing PNC Bank on a
continuous and on-going basis, to deposit in the Book-Entry
System all securities belonging to the Fund eligible for
deposit therein and to utilize the Book-Entry System to the
extent possible in connection with settlements of purchases
and sales of securities by the Fund, and deliveries and
returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with
borrowings. PNC Bank shall continue to perform such duties
until it receives Written or Oral Instructions authorizing
contrary actions(s).
To administer the Book-Entry System properly, the
following provisions shall apply:
(i) With respect to securities of the Fund
which are maintained in the Book-Entry system, established
pursuant to this sub-paragraph e hereof, the records of PNC
Bank shall identify by Book-Entry or otherwise those
securities belonging to the Fund. PNC Bank shall furnish
the Fund a detailed statement of the Property held for the
Fund under this Agreement at least monthly and from time to
time and upon written request.
(ii) Securities and any cash of the Fund
deposited in the Book-Entry System will at all times be
segregated from any assets and cash controlled by PNC Bank
in other than a fiduciary or custodian capacity but may be
commingled with other assets held in such capacities. PNC
Bank and its sub-custodian, if any, will pay out money only
upon receipt of securities and will deliver securities only
upon the receipt of money.
(iii) All books and records maintained by PNC
Bank which relate to the Fund's participation in the Book-
Entry System will at all times during PNC Bank's regular
business hours be open to the inspection of the Fund's duly
authorized employees or agents, and the Fund will be
furnished with all information in respect of the services
rendered to it as it may require.
(iv) PNC Bank will provide the Fund with
copies of any report obtained by PNC Bank on the system of
internal accounting control of the Book-Entry System
promptly after receipt of such a report by PNC Bank. PNC
Bank will also provide the Fund with such reports on its own
system of internal control as the Fund may reasonably
request from time to time.
(f) Registration of Securities. All Securities
held for the Fund which are issued or issuable only in
bearer form, except such securities held in the Book-Entry
System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name
of the Fund; PNC Bank; the Book-Entry System; a sub-
custodian; or any duly appointed nominee(s) of the Fund, PNC
Bank, Book-Entry system or sub-custodian. The Fund reserves
the right to instruct PNC Bank as to the method of
registration and safekeeping of the securities of the Fund.
The Fund agrees to furnish to PNC Bank appropriate
instruments to enable PNC Bank to hold or deliver in proper
form for transfer, or to register its registered nominee or
in the name of the Book-Entry System, any securities which
it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund. PNC
Bank shall hold all such securities which are not held in
the Book-Entry System in a separate account for the Fund in
the name of the Fund physically segregated at all times from
those of any other person or persons.
(g) Voting and Other Action. Neither PNC Bank
nor its nominee shall vote any of the securities held
pursuant to this Agreement by or for the account of the
Fund, except in accordance with Written Instructions. PNC
Bank, directly or through the use of the Book-Entry System,
shall execute in blank and promptly deliver all notice,
proxies, and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not
the Fund then Written or Oral Instructions must designate
the person(s) who owns such securities.
(h) Transactions Not Requiring Instructions. In
the absence of contrary Written Instructions, PNC Bank is
authorized to take the following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account
of the Fund, all income, dividends, distributions, coupons,
option premiums, other payments and similar items, included
or to be included in the Property, and, in addition,
promptly advise the Fund of such receipt and credit such
income, as collected, to the Fund's custodian account;
(B) endorse and deposit for collection,
in the name of the Fund, checks, drafts, or other orders for
the payment of money;
(C) receive and hold for the account of
the Fund all securities received as a distribution on the
Fund's portfolio securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
portfolio securities belonging to the Fund held by PNC Bank
hereunder;
(D) present for payment and collect the
amount payable upon all securities which may mature or be
called, redeemed, or retired, or otherwise become payable on
the date such securities become payable; and
(E) take any action which may be
necessary and proper in connection with the collection and
receipt of such income and other payments and the
endorsement for collection of checks, drafts, and other
negotiable instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver
or cause to be delivered Property against payment or other
consideration or written receipt therefor in the following
cases:
(1) for examination by a broker or
dealer selling for the account of the Fund in accordance
with street delivery custom;
(2) for the exchange of interim
receipts or temporary securities for definitive securities;
and
(3) for transfer of securities
into the name of the Fund or PNC Bank or nominee of either,
or for exchange of securities for a different number of
bonds,certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the same
interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to
be delivered to PNC Bank.
(B) Unless and until PNC Bank receives
Oral or Written Instructions to the contrary, PNC Bank
shall:
(1) pay all income items held by
it which call for payment upon presentation and hold the
cash received by it upon such payment for the account of the
Fund;
(2) collect interest and cash
dividends received, with notice to the Fund, to the Fund's
account;
(3) hold for the account of the
Fund all stock dividends, rights and similar securities
issued with respect to any securities held by PNC Bank; and
(4) execute as agent on behalf of
the Fund all necessary ownership certificates required by
the Internal Revenue Code or the Income Tax Regulations of
the United States Treasury Department or under the laws of
any State now or hereafter in effect, inserting the Fund's
name, on such certificate as the owner of the securities
covered thereby, to the extent it may lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written
or Oral Instructions establish and maintain segregated
account(s) on its records for and on behalf of the Fund.
Such account(s) may be used to transfer cash and securities,
including securities in the Book-Entry System:
(A) for the purposes of compliance by
the Fund with the procedures required by a securities or
option exchange, providing such procedures comply with the
1940 Act and any releases of the SEC relating to the
maintenance of segregated accounts by registered investment
companies; and
(B) Upon receipt of Written
Instructions, for other proper corporate purposes.
(ii) PNC Bank may enter into separate
custodial agreements with various futures commission
merchants ("FCMs") that the Fund uses ("FCM Agreement").
Pursuant to an FCM Agreement, the Fund's margin deposits in
any transactions involving futures contracts and options on
futures contracts will be held by PNC Bank in accounts ("FCM
Account") subject to the disposition by the FCM involved in
such contracts and in accordance with the customer contract
between FCM and the Fund ("FCM Contract"), SEC rules and the
rules of the applicable commodities exchange. Such FCM
Agreements shall only be entered into upon receipt of
Written Instructions from the Fund which state that:
(A) a customer agreement between the
FCM and the Fund has been entered into; and
(B) the Fund is in compliance with all
the rules and regulations of the CFTC. Transfers of initial
margin shall be made into a FCM Account only upon Written
Instructions; transfers of premium and variation margin may
be made into a FCM Account pursuant to Oral Instructions.
Transfers of funds from a FCM
Account to the FCM for which PNC Bank holds such an account
may only occur upon certification by the FCM to PNC Bank
that pursuant to the FCM Agreement and the FCM Contract, all
conditions precedent to its right to give PNC Bank such
instructions have been satisfied.
(iii) PNC Bank shall arrange for the
establishment of IRA custodian accounts for such share-
holders holding Shares through IRA accounts, in accordance
with the Fund's prospectuses, the Internal Revenue Code
(including regulations), and with such other procedures as
are mutually agreed upon from time to time by and among the
Fund, PNC Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall
settle purchased securities upon receipt of Oral or Written
Instructions from the Fund or its investment advisor(s) that
specify:
(i) the name of the issuer and the title of
the securities, including CUSIP number if applicable;
(ii) the number of shares or the principal
amount purchased and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such
purchase; and
(vi) the name of the person from whom or the
broker through whom the purchase was made. PNC Bank shall
upon receipt of securities purchased by or for the Fund pay
out of the moneys held for the account of the Fund the total
amount payable to the person from whom or the broker through
whom the purchase was made, provided that the same conforms
to the total amount payable as set forth in such Oral or
Written Instructions.
(k) Sales of Securities. PNC Bank shall settle
sold securities upon receipt of Oral or Written Instructions
from the Fund that specify:
(i) the name of the issuer and the title of
the security, including CUSIP number if applicable;
(ii) the number of shares or principal amount
sold, and accrued interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund
upon such sale;
(vi) the name of the broker through whom or
the person to whom the sale was made; and
(vii) the location to which the security must
be delivered and delivery deadline, if any. PNC Bank shall
deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the total
amount payable is the same as was set forth in the Oral or
Written Instructions. Subject to the foregoing, PNC Bank
may accept payment in such form as shall be satisfactory to
it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in
securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the
following reports:
(A) such periodic and special reports
as the Fund may reasonably request;
(B) a monthly statement summarizing all
transactions and entries for the account of the Fund,
listing the portfolio securities belonging to the Fund with
the adjusted average cost of each issue and the market value
at the end of such month, and stating the cash account of
the Fund including disbursement;
(C) the reports to be furnished to the
Fund pursuant to Rule 17f-4; and
(D) such other information as may be
agreed upon from time to time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the
Fund any proxy statement, proxy material, notice of a call
or conversion or similar communication received by it as
custodian of the Property. PNC Bank shall be under no other
obligation to inform the Fund as to such actions or events.
(m) Collections. All collections of monies or
other property, in respect, or which are to become part of
the Property (but not the safekeeping thereof upon receipt
by PNC Bank) shall be at the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time
after proper demands have been made, PNC Bank shall notify
the Fund in writing, including copies of all demand letters,
any written responses, memoranda of all oral responses and
telephonic demands thereto, and await instructions from the
Fund. PNC Bank shall not be obliged to take legal action
for collection unless and until reasonably indemnified to
its satisfaction. PNC Bank shall also notify the Fund as
soon as reasonably practicable whenever income due on
securities is not collected in due course.
15. Duration and Termination. This Agreement shall
continue until terminated by the Fund or by PNC Bank on
sixty (60) days' prior written notice to the other party.
In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the
shareholders of the Fund to dissolve or to function without
a custodian of its cash, securities or other property), PNC
Bank shall not deliver cash, securities or other property of
the Fund to the Fund. It may deliver them to a bank or
trust company of PNC Bank's choice, having an aggregate
capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under
terms similar to those of this Agreement. PNC Bank shall
not be required to make any such delivery or payment until
full payment shall have been made to PNC Bank of all of its
fees, compensation, costs and expenses. PNC Bank shall have
a security interest in and shall have a right of setoff
against Property in the Fund's possession as security for
the payment of such fees, compensation, costs and expenses.
16. Notices. All notices and other communications,
including Written Instructions, shall be in writing or by
confirming telegram, cable, telex or facsimile sending
device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address: Airport Business Center, International Court
2, 200 Stevens Drive, Lester, Pennsylvania 19113, marked for
the attention of the Custodian Services Department (or its
successor) (b) if to the Fund, at the address of the Fund;
or (c) if to neither of the foregoing, at such other address
as shall have been notified to the sender of any such notice
or other communication. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall
be deemed to have been given immediately. If notice is sent
by first-class mail, it shall be deemed to have been given
five days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day
it is delivered.
17. Amendments. This Agreement, or any term hereof,
may be changed or waived only by a written amendment, signed
by the party against whom enforcement of such change or
waiver is sought. 18. Delegation. PNC Bank may
assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i)
PNC Bank gives the Fund thirty (30) days prior written
notice; (ii) the delegate agrees with PNC Bank to comply
with all relevant provisions of the 1940 Act; and (iii) PNC
Bank and such delegate promptly provide such information as
the Fund may request, and respond to such questions as the
Fund may ask, relative to the assignment, including (without
limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument. 20. Further Actions. Each party
agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes
hereof.
21. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties and
supersedes all prior agreements and understandings relating
to the subject matter hereof, provided that the parties may
embody in one or more separate documents their agreement, if
any, with respect to delegated duties and/or Oral
Instructions. The captions in this Agreement are included
for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect
their construction or effect.
This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law, without
regard to principles of conflicts of law. If any provision
of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below
on the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
SMITH BARNEY OREGON MUNICIPALS
FUND
By:
Title:
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
21U:\CUNNINGHAM\ORMUCUST.DOC
Independent Auditors' Consent
To the Shareholders and Directors of the
Smith Barney Oregon Municipals Fund Inc.:
We consent to the reference to our Firm under the heading "Counsel and Auditors"
in the Statement of Additional Information.
KPMG Peat Marwick LLP
New York, New York
June 27, 1995
REPORT OF THE INDEPENDENT ACCOUNTANTS
To the Shareholders and Board Of Trustees of
Smith Barney Oregon Municipals Fund:
We have audited the accompanying statement of assets and liabilities of Smith
Barney Oregon Municipals Fund (formerly Smith Barney Shearson Oregon
Municipals Fund), including the schedule of portfolio investments, as
of April 30, 1995, and the related statements of operations and
changes in net assets and the financial highlights for the period from May 23,
1994 (commencement of operations) to April 30, 1995. The financial statements
and the financial highlights are the responsibility of the Fund's manageme
We concluded our audit in accordance with generally acccepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included conformation of securities
owned as of April 30, 1995 by correspondence with the custodian and
g the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights refered to
above present fairly, in all material respects, the financial position of
Smith Barney Oregon Municipals Fund (formerly Smith Barney Shearson
Oregon Municipals Fund) as of April 30, 1995, and the result of its
operations, the changes in its net assets and the financial highlights for
the period from May 23, 1994 (commencement of operations) to April 30, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 27, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>0
<NAME>Smith Barney Oregon Municipals Fund Class A
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 12873441
<INVESTMENTS-AT-VALUE> 13024725
<RECEIVABLES> 426353
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 27092
<TOTAL-ASSETS> 13478170
<PAYABLE-FOR-SECURITIES> 498299
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 100305
<TOTAL-LIABILITIES> 598604
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12745646
<SHARES-COMMON-STOCK> 626807
<SHARES-COMMON-PRIOR> 209423
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3823
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 13541
<ACCUM-APPREC-OR-DEPREC> 151,284
<NET-ASSETS> 12879566
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 572799
<OTHER-INCOME> 0
<EXPENSES-NET> 100161
<NET-INVESTMENT-INCOME> 472,638
<REALIZED-GAINS-CURRENT> (13,541)
<APPREC-INCREASE-CURRENT> 151,284
<NET-CHANGE-FROM-OPS> 610,381
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 268,949
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 510557
<NUMBER-OF-SHARES-REDEEMED> 116563
<SHARES-REINVESTED> 23390
<NET-CHANGE-IN-ASSETS> 10,879,566
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32860
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 216134
<AVERAGE-NET-ASSETS> 9990762
<PER-SHARE-NAV-BEGIN> 9.55
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> 0.54
<PER-SHARE-DIVIDEND> 0.49
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.09
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<ARTICLE> 6
<SERIES>
[NUMBER]0
<NAME>Smith Barney Oregon Municipals Fund Class B
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> APR-30-1995
[INVESTMENTS-AT-COST] 12873441
[INVESTMENTS-AT-VALUE] 13024725
[RECEIVABLES] 426353
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 27092
[TOTAL-ASSETS] 13478170
[PAYABLE-FOR-SECURITIES] 498299
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 100305
[TOTAL-LIABILITIES] 598604
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 12745646
[SHARES-COMMON-STOCK] 649941
[SHARES-COMMON-PRIOR] 1
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 3823
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 13541
[ACCUM-APPREC-OR-DEPREC] 151,284
[NET-ASSETS] 12879566
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 572799
[OTHER-INCOME] 0
[EXPENSES-NET] 100161
[NET-INVESTMENT-INCOME] 472,638
[REALIZED-GAINS-CURRENT] (13,541)
[APPREC-INCREASE-CURRENT] 151,284
[NET-CHANGE-FROM-OPS] 610,381
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 207,512
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 706972
[NUMBER-OF-SHARES-REDEEMED] 72913
[SHARES-REINVESTED] 15881
[NET-CHANGE-IN-ASSETS] 10,879,566
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 32860
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 216134
[AVERAGE-NET-ASSETS] 9990762
[PER-SHARE-NAV-BEGIN] 9.55
[PER-SHARE-NII] 0.44
[PER-SHARE-GAIN-APPREC] 0.55
[PER-SHARE-DIVIDEND] 0.45
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 10.09
[EXPENSE-RATIO] 1.36
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
