S E M I - A N N U A L R E P O R T
SMITH BARNEY
OREGON
MUNICIPALS
FUND
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October 31, 1995
SMITH BARNEY MUTUAL FUNDS
[LOGO} INVESTING FOR YOUR FUTURE
EVERY DAY.
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SMITH BARNEY OREGON MUNICIPALS FUND
DEAR SHAREHOLDER:
We are pleased to provide you with this semi-annual report, which includes
unaudited financial statements, for the Smith Barney Oregon Muncipals Fund. This
report covers the six-month period ended October 31, 1995. The Fund posted a
cumulative total return of 6.85% for the six-month period ended October 31,
1995. For your convenience, we have summarized this period's prevailing economic
and market conditions below and outlined our portfolio strategy during this
time. A more detailed summary of performance and current holdings can be found
in the appropriate sections that follow in the semi-annual report. The Oregon
Municipals Fund had a one-year total return at net asset value (NAV) of 16.03%
for the period ended October 31, 1995. This compared favorably to the Lipper
peer group total average return of 10.14% for the same period.
MARKET & ECONOMIC OVERVIEW
Over the past six months, the fixed income markets have been characterized by
generally lower interest rates, as measured by the decline of the 30-year
Treasury bond from 7.43% on March 31, 1995 to 6.50% on September 30, 1995, a
drop of nearly 100 basis points. We believe that this decline is due primarily
to tax reform concerns. Interestingly, over the same period, long-term municipal
bond yields barely budged, starting out on March 30, 1995 at 6.29% as
represented by Bond Buyer's 25-Year Revenue Bond Index and finishing at 6.27% on
September 28, 1995.
Although some analysts have been forecasting a slight pick-up in economic
activity during the final quarter of 1995, it now appears that the Federal
Reserve Board (the Fed) has been successful in controlling inflation and
encouraging a sustainable and slower rate of economic growth this year. The Fed
declined to alter the federal funds rate (an important indicator of the
direction of short-term interest rates) in September, leaving it unchanged at
5.75%, reflecting its confidence in the current rate of economic growth.
Consumer spending is rising at an annual pace of 2.5% to 3%, a relatively
neutral rate further tempered by recent indications that consumer households are
growing more cautious.
In response to these conditions, the municipal bond market continued to lag
somewhat relative to Treasuries. The big uncertainty over the municipal market
continues to be tax reform. The current budget, which is currently in a
stalemate between the President and Congress, contains a capital gains cut, but
does not address broader tax reform. Flat tax proposals are still being
discussed, but a number of alternate reform measures are on the table as well.
We expect this issue to emerge as the centerpiece of the 1996 Presidential
elections.
In short, until a more definite consensus emerges from Washington, D.C., we
cannot be certain of the impact on municipal bonds and are holding fast on our
relatively cautious investment approach. Looking forward -- and absent radical
tax reform -- we expect municipal bonds to perform well relative to taxable
investments, due primarily to diminishing supply. There continues to be little
1
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refinancing or new issue activity. New issue activity is increasing toward
year-end, but remains well below the levels seen in previous years. The Public
Securities Association now predicts approximately $140 billion in new issues by
the end of 1995, less than half the record amount that came to market in 1993.
This reduction in supply has helped to support underlying values. If the supply
situation continues into 1996 as we expect, stronger appreciation opportunities
could develop, particularly for bonds with long maturities.
OREGON ECONOMIC HIGHLIGHTS
Oregon's general obligation debt holds a "AA" rating from both Standard & Poor's
Corporation ("Standard and Poor's") and Fitch Investors Service, Inc. ("Fitch").
According to Fitch, Oregon has a stable outlook and S&P's outlook for the state
is positive. Oregon has experienced strong economic growth in recent years.
There has been significant growth in Oregon's state and local tax revenues,
generally effective management of state expenditures, and the state lottery has
been a big revenue generator. In addition, Oregon's economy continues to expand
and diversify. Recent growth trends in Oregon have significantly outpaced the
national average but may moderate as the California economy improves.
At this time, we would like to thank you for your continued participation in the
Smith Barney Oregon Municipals Fund and your ongoing confidence in our
investment management approach.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman and Vice President and
Chief Executive Officer Investment Officer
December l, 1995
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DIVIDEND POLICY
Although not explicitly stated in the Prospectus, the Fund's policy is to pay a
level monthly dividend based on the income generated by the Fund's portfolio
holdings, our expectations regarding the municipal bond market and the general
direction of interest rates. The Fund's investment decisions are guided by
market conditions, and are not made with the intent of maintaining artificially
high dividends. We continually monitor both the market and the Fund's income
stream to ensure that our dividends approximate the actual earnings of the Fund.
Smith Barney Oregon Municipals Fund
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2
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SMITH BARNEY
OREGON MUNICIPALS FUND
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HISTORICAL PERFORMANCE -- CLASS A SHARES
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Net Asset Value
----------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
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10/31/95 $10.09 $10.50 $0.27 6.85%+
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Inception*- 10/30/95 9.55 10.09 0.49 11.12+
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Total $0.76
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HISTORICAL PERFORMANCE -- CLASS B SHARES
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Net Asset Value
----------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
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10/31/95 $10.09 $10.50 $0.25 6.60%+
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Inception*- 10/30/95 9.55 10.09 0.45 10.62+
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Total $0.70
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HISTORICAL PERFORMANCE -- CLASS C SHARES
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Net Asset Value
--------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
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Inception*- 10/31/95 $10.34 $10.50 $0.25 4.41%+
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IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.
3
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SMITH BARNEY
OREGON MUNICIPALS FUND
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Average Annual Total Return
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Without Sales Charge(1)
--------------------------------
Class A Class B Class C
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Six Months Ended 10/31/95+ 6.85% 6.60% N/A
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Year Ended 10/31/95 16.03 15.47 N/A
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Inception* through 10/31/95 12.65 12.12 4.41%
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With Sales Charge(2)
--------------------------------
Class A Class B Class C
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Six Months Ended 10/31/95+ 2.58% 2.10% N/A
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Year Ended 10/31/95 11.39 10.97 N/A
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Inception* through 10/31/95 9.51 9.47 3.41%
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Cumulative Total Return
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Without Sales Charge(1)
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Class A (Inception* through 10/31/95) 2.58%
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Class B (Inception* through 10/31/95) 2.10
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Class C (Inception* through 10/31/95) 3.41
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(1) Assumes reinvestment of all dividends and capital gain distributions at net
asset value and does not reflect deduction of the applicable sales charge
with respect to Class A shares or the applicable contingent deferred sales
charges ("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions at net
asset value. In addition, Class A shares reflect the deduction of the
maximum initial sales charge of 4.00% and Class B shares reflect the
deduction of a 4.50% CDSC, which applies if shares are redeemed less than
one year from initial purchase. This CDSC declines by 0.50% the first year
after purchase and thereafter by 1.00% per year until no CDSC is incurred.
Class C shares reflect the deduction of a 1.00% CDSC, which applies if
shares are redeemed within the first year of purchase.
* Inception date for Class A and B shares is May 23, 1994 and for Class C
shares is May 16, 1995.
+ Total return is not annualized, as it may not be representative of the total
return for the year.
4
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SMITH BARNEY
OREGON MUNICIPALS FUND
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HISTORICAL PERFORMANCE
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GROWTH OF $10,000 INVESTED IN CLASS A SHARES OF
SMITH BARNEY OREGON MUNICIPALS FUND VS.
THE LEHMAN MUNICIPAL BOND FUND INDEX+
(UNAUDITED)
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May 1994 - October 1995
[CHART]
+ Hypothetical illustration of $10,000 invested in Class A shares at inception
on May 23, 1994, assuming deduction of the maximum 4.00% sales charge at the
time of investment and reinvestment of dividends and capital gains at net
asset value through October 31, 1995. The Lehman Municipal Bond Fund Index
is a weighted composite which is comprised of more than 15,000 bonds issued
within the last 5 years, having a minimum credit rating of at least Baa and
a maturity of at least 2 years, excluding all bonds subject to the
Alternative Minimum Tax and bonds with floating or zero coupons. The index
is unmanaged and is not subject to the same management and trading expenses
as a mutual fund. The performance of the Fund's other classes may be greater
or less than the Class A shares' performance indicated on this chart,
depending on whether greater or lesser sales charges and fees were incurred
by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
5
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SMITH BARNEY
OREGON MUNICIPALS FUND
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PORTFOLIO HIGHLIGHTS (UNAUDITED) OCTOBER 31, 1995
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INDUSTRY BREAKDOWN
Short-Term 3.2%
General Obligation 6.1%
Utilities 5.3%
Water and Sewer 18.0%
Hospital 13.1%
Government Facility 3.5%
Transportation 4.1%
Housing 19.3%
Miscellaneous 6.1%
Education 21.3%
SUMMARY OF INVESTMENTS BY COMBINED RATINGS
STANDARD & PERCENTAGE OF
MOODY'S AND/OR POOR'S TOTAL INVESTMENTS
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Aaa AAA 35.7%
Aa AA 16.6
A A 28.3
Baa BBB 12.3
VMIG 1/P-1 A-1+ 3.2
NR NR 3.9
-----
100.0%
=====
6
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SMITH BARNEY
OREGON MUNICIPALS FUND
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SCHEDULE OF INVESTMENTS (UNAUDITED) OCTOBER 31, 1995
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FACE
AMOUNT RATING SECURITY VALUE
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EDUCATION -- 21.3%
$ 500,000 AAA Lane County (Bethel) GO, School District No. 052,
FGIC-Insured, 6.400% due 12/1/09 $ 548,750
250,000 Aa* Lane County (Eugene) GO, School District No. 4J,
Series A, 5.375% due 6/1/15 247,500
500,000 AAA Lincoln County School District, Series 95,
FGIC-Insured, 5.250% due 6/15/12 489,375
1,500,000 AAA Marion County School District, 103C Woodburn,
Series B, FGIC-Insured, zero coupon due 11/1/12 579,375
500,000 A- Multnomah County Educational Facilities, University
Revenue, (University of Portland Project),
6.000% due 4/1/14 516,875
430,000 A1* Oregon State Health Housing, Educational & Cultural
Facility Authority, Oak Tree Foundation, Series A,
6.100% due 5/1/15 438,600
500,000 AAA Washington County Sherwood, School District
No. 088J, FSA-Insured, 6.100% due 6/1/12 530,000
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3,350,475
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GENERAL OBLIGATION -- 6.1%
500,000 BBB Guam Government GO, Series A, 5.375% due 11/15/13 453,125
500,000 Aa* Oregon State GO, Veterans Welfare, Series 75,
5.850% due 10/1/15 510,625
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963,750
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GOVERNMENT FACILITY -- 3.5%
500,000 AAA Puerto Rico Public Buildings Authority Revenue,
Government Facility, Series A, AMBAC-Insured,
6.250% due 7/1/14 547,500
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HOSPITAL -- 13.1%
450,000 AAA Douglas County Hospital Revenue, (Catholic Health
Corporation), Series B, MBIA-Insured,
6.000% due 11/15/15 466,312
595,000 BBB+ Klamath Falls Intercommunity Hospital Authority,
Hospital Revenue, (Gross-Merle West Medical
Center), 7.100% due 9/1/24 635,162
500,000 BBB Puerto Rico Industrial Tourist Education, Medical &
Environmental, Ryder Memorial, Series A,
6.700% due 5/1/24 511,250
SEE NOTES TO FINANCIAL STATEMENTS.
7
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SMITH BARNEY
OREGON MUNICIPALS FUND
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SCHEDULE OF INVESTMENTS (UNAUDITED) (continued) OCTOBER 31, 1995
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FACE
AMOUNT RATING SECURITY VALUE
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HOSPITAL -- 13.1% (CONTINUED)
$445,000 AAA Western Lane Hospital District, Hospital Facilities
Revenue, (Sisters of St. Joseph Peace),
MBIA-Insured, 5.750% due 8/1/19 $ 446,112
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2,058,836
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HOUSING: MULTI-FAMILY -- 7.6%
215,000 A+ Oregon State Housing & Community Services,
Refunding Bonds Housing and Finance Revenue
Bonds, Assisted or Insured Multi-Unit Mortgages,
Series A, FHA-Insured, 6.800% due 7/1/13 224,944
Portland Housing Authority:
650,000 A1* Multi-Family Revenue, (Cherry Ridge Project),
6.250% due 5/1/12 658,938
300,000 NR Senior Lien Revenue, (Fairview Woods Project),
Series A, 6.875% due 8/1/14 303,375
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1,187,257
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HOUSING: SINGLE-FAMILY -- 11.7%
Mortgage Revenue Bonds, Single-Family Mortgage
Program:
650,000 Aa* Series B, 6.875% due 7/1/28 688,188
500,000 Aa* Series D, 6.500% due 7/1/24 521,250
620,000 AAA Virgin Islands Housing Finance Authority,
Single-Family Revenue, Project A,
GNMA-Collateralized, 6.450% due 3/1/16 630,075
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1,839,513
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MISCELLANEOUS -- 6.1%
600,000 A* Oregon State Economic Development Department,
Bond Bank Revenue, Series I, 6.700% due 1/1/15 638,250
300,000 NR Western Generation Agency, Multiple Utility Revenue,
James River Corporation, (Wauna Cogeneration
Project), Series B, 7.250% due 1/1/09 314,625
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952,875
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SHORT-TERM(A) -- 3.2%
100,000 P-1 Port Portland Refunding Bonds, PCR, Reynolds
Metals, 3.900% due 12/1/09 100,000
400,000 P-1 Puerto Rico Government Development Bank,
3.650% due 12/1/15 400,000
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500,000
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SEE NOTES TO FINANCIAL STATEMENTS.
8
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SMITH BARNEY
OREGON MUNICIPALS FUND
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SCHEDULE OF INVESTMENTS (UNAUDITED) (continued) OCTOBER 31, 1995
- --------------------------------------------------------------------------------
FACE
AMOUNT RATING SECURITY VALUE
- --------------------------------------------------------------------------------
TRANSPORTATION -- 4.1%
$400,000 AAA Port Portland Airport Revenue, Portland
International Airport, Series 10, FGIC-Insured,
5.750% due 7/1/25 $ 401,000
250,000 A Commonwealth of Puerto Rico, Highway &
Transportation Authority, Fuel Sales Tax Revenue,
Series W, 5.500% due 7/1/15 244,063
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645,063
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UTILITIES -- 5.3%
400,000 BBB Guam Power Authority Revenue, Electric Revenue,
Series A, 5.250% due 10/1/23 344,000
500,000 AAA Northern Wasco County Peoples Utility District,
Electric Revenue, FGIC-Insured,
5.625% due 12/1/22 497,500
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841,500
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WATER AND SEWER -- 18.0%
250,000 A+ Beavertown Water Revenue, Series 1994,
6.125% due 6/1/14 262,500
360,000 A+ Clackamas County Service District, Sewer Revenue,
6.375% due 10/1/14 384,750
400,000 A+ Gresham Refunding Bonds, Water Revenue,
Series B, 5.300% due 11/1/15 392,500
500,000 AAA McMinnville Sewer System Revenue,
Series A, FGIC-Insured, 5.000% due 2/1/14 473,125
600,000 Aa1* Port Umatilla GO, Water Revenue,
6.650% due 8/1/22 635,250
650,000 A+ Portland Sewer System Revenue, Series A,
6.250% due 6/1/15 685,750
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2,833,875
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TOTAL INVESTMENTS -- 100%
(Cost-- $15,122,033*) $15,720,644
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(a) Variable rate obligations payable at par on demand on the date indicated.
* Aggregate cost for Federal income tax purposes is substantially the same.
See pages 10 and 11 for definition of ratings and certain security
descriptions.
SEE NOTES TO FINANCIAL STATEMENTS.
9
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SMITH BARNEY
OREGON MUNICIPALS FUND
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BOND RATINGS
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All ratings are by Standard & Poor's Corporation ("Standard & Poor's"), except
those identified by an asterisk (*) are rated by Moody's Investors Services
("Moody's"). The definitions of the applicable rating symbols are set forth
below:
Standard & Poor's -- Rating from "AA" to "BBB" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differs from the highest rated issue only in a
small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than in
higher rated categories.
Moody's -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating
from "Aa" to "Baa," where 1 is the highest and 3 the lowest ranking
within its generic category.
Aaa -- Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa -- Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
10
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SMITH BARNEY
OREGON MUNICIPALS FUND
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SHORT-TERM SECURITIES RATINGS
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SP-1 -- Standard & Poor's highest rate rating indicating very strong or
strong capacity to pay principal and interest; those issues
determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate
demand obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong; those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- (VRDO).
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to the
advent of the VMIG 1 rating.
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SHORT-TERM SECURITIES RATINGS
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ABAG -- Association of Bay Area Governors
AIG -- American International Guaranty
AMBAC -- American Municipal Bond
Assurance Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance
Company
CHFCLI -- California Health Facility
Construction Loan Insurance
CONNIE LEE-- College Construction Loan
Insurance Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
ETM -- Escrowed To Maturity
FLAIRS -- Floating Adjustable Interest
Rate Securities
FGIC -- Financial Guaranty Insurance
Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage
Corporation
FNMA -- Federal National Mortgage
Association
FRTC -- Floating Rate Trust Certificates
FSA -- Federal Savings Association
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage
Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
ISD -- Independent School District
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PCR -- Pollution Control Revenue
PSF -- Permanent School Fund
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
TAN -- Tax Anticipation Notes
TECP -- Tax-Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
SYCC -- Structured Yield Curve Certificate
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
11
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SMITH BARNEY
OREGON MUNICIPALS FUND
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STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) OCTOBER 31,1995
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ASSETS:
Investments, at value (Cost-- $15,122,033) $15,720,644
Cash 132,987
Interest receivable 290,473
Receivable for Fund shares sold 108,365
Receivable from investment adviser 55,463
Deferred organization costs 23,705
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TOTAL ASSETS 16,331,637
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LIABILITIES:
Payable for securities purchased 1,074,759
Distribution fees payable 8,250
Accrued expenses and other payables 50,693
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TOTAL LIABILITIES 1,133,702
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TOTAL NET ASSETS $15,197,935
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NET ASSETS:
Par value of shares of beneficial interest $ 1,448
Capital paid in excess of par value 14,510,505
Overdistributed net investment income (1,214)
Accumulated net realized gain on security transactions 88,585
Net unrealized appreciation of investments 598,611
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TOTAL NET ASSETS $15,197,935
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SHARES OUTSTANDING:
Class A 615,973
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Class B 791,887
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Class C 39,795
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NET ASSET VALUE:
Class A (and redemption price) $10.50
-----------------------------------------------------------------------------
Class B * $10.50
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Class C ** $10.50
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CLASS A MAXIMUM PUBLIC OFFERING PRICE PER SHARE
(net asset value plus 4.17% of net asset value per share) $10.94
- --------------------------------------------------------------------------------
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed less than one year from initial purchase
(See Note 3).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
SEE NOTES TO FINANCIAL STATEMENTS
12
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SMITH BARNEY
OREGON MUNICIPALS FUND
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STATEMENTS OF OPERATIONS (UNAUDITED)
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FOR THE SIX MONTHS ENDED OCTOBER 31, 1995
INVESTMENT INCOME:
Interest $ 407,899
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EXPENSES:
Distribution fees (Note 3) 29,754
Investment advisory fees (Note 3) 24,263
Administration fees (Note 3) 13,865
Audit and legal 18,500
Trustees' fees 8,500
Shareholder and system servicing fees 8,400
Shareholder communications 4,000
Registration fees 3,700
Amortization of deferred organization costs 3,387
Custody 3,250
Pricing service fees 2,000
Other 3,188
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TOTAL EXPENSES 122,807
Less: Investment advisory and administration fee waiver
and expense reimbursement (55,941)
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NET EXPENSES 66,866
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NET INVESTMENT INCOME 341,033
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REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Realized Gain From Security
Transactions (excluding short-term securities):
Proceeds from sales 3,718,396
Cost of securities sold 3,616,270
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NET REALIZED GAIN 102,126
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Change in Net Unrealized Appreciation of Investments:
Beginning of period 151,284
End of period 598,611
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INCREASE IN NET UNREALIZED APPRECIATION 447,327
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NET GAIN ON INVESTMENTS 549,453
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INCREASE IN NET ASSETS FROM OPERATIONS $ 890,486
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SEE NOTES TO FINANCIAL STATEMENTS
13
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SMITH BARNEY
OREGON MUNICIPALS FUND
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STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED OCTOBER 31, 1995 (UNAUDITED)
AND THE PERIOD ENDED APRIL 30, 1995
OCTOBER 31 APRIL 30(A)
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OPERATIONS:
Net investment income $ 341,033 $ 472,638
Net realized gain (loss) 102,126 (13,541)
Increase in net unrealized appreciation 447,327 151,284
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INCREASE IN NET ASSETS FROM OPERATIONS 890,486 610,381
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DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE 2):
Net investment income (338,424) (472,638)
Net realized gains+ -- (3,823)
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DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (338,424) (476,461)
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FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 3,412,392 11,759,339
Cash contribution -- 472,905
Net asset value of shares issued for
reinvestment of dividends 253,094 380,937
Cost of shares reacquired (1,899,179) (1,867,535)
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INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 1,766,307 10,745,646
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INCREASE IN NET ASSETS 2,318,369 10,879,566
NET ASSETS:
Beginning of period 12,879,566 2,000,000
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END OF PERIOD* $15,197,935 $12,879,566
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*Includes overdistributed net investment income: $(1,214) $(3,823)
- --------------------------------------------------------------------------------
(a) For the period from May 23, 1994 (inception date) to April 30, 1995.
+ For the year ended April 30, 1995, the amount represents less than $0.01
per share.
14
<PAGE>
SMITH BARNEY
OREGON MUNICIPALS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Oregon Municipals Fund ("Fund"), a Massachusetts business
trust, is registered under the Investment Company Act of 1940, as amended, as a
non-diversified, open-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on the trade date; (b) securities
are valued at the mean between the quoted bid and asked prices by an independent
pricing service; (c) short-term securities and securities maturing within 60
days are valued at cost plus accreted discount or minus amortized premium, as
applicable; (d) gains or losses on the sale of securities are calculated by
using the specific identification method; (e) interest income, adjusted for
amortization of premiums and accretion of original issue discount, is recorded
on the accrual basis; (f) market discount is recognized upon the disposition of
the security; (g) direct expenses are charged to the Fund and each class;
management fees and general fund expenses are allocated on the basis of relative
net assets; and (h) the Fund intends to comply with the applicable provisions of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes. Net
investment income, net realized gains, and net assets were not affected by this
change.
In addition, organization and initial offering expenses have been deferred
and are being amortized on a straight-line method over a five-year period,
beginning with the commencement of the Fund's operations in May, 1994.
2. EXEMPT-INTEREST DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
15
<PAGE>
SMITH BARNEY
OREGON MUNICIPALS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
3. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND AFFILIATED
TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment adviser to the Fund. The Fund
pays SBMFM an advisory fee calculated at an annual rate of 0.35% of average
daily net assets up to $500 million; and 0.32% of average daily net assets in
excess of $500 million. This fee is calculated daily and paid monthly. For the
six months ended October 31, 1995, SBMFM waived all of the management fees for
this Fund.
SBMFM also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets up to $500
million and 0.18% of the average daily net assets in excess of $500 million.
This fee is calculated daily and paid monthly. For the six months ended October
31, 1995, SBMFM waived all of its administration fees for the period ended
October 31, 1995.
In addition, The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank, acted as sub-administrator to
the Fund. SBMFM paid Boston Advisors a portion of its administration fee at a
rate agreed upon from time to time between SBMFM and Boston Advisors. As of June
19, 1995 this relationship was terminated.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
the Fund's shares. For the six months ended October 31, 1995, SB received sales
charges of approximately $29,000 on sales of the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B
shares if redemption occurs less than one year from initial purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00% per year
until no CDSC is incurred. Class C shares have a 1.00% CDSC if redemption occurs
within the first year from the date such investment was made. For the six months
ended October 31, 1995, CDSCs of approximately $7,000 were paid to SB.
Pursuant to a Distribution Plan, the Fund pays a service fee with respect
to Class A, B and C shares calculated at the annual rate of 0.15% of the average
daily net assets for each class. In addition, the Fund pays a distribution fee
with respect to its Class B and C shares calculated at the annual rate of 0.50%
and 0.55%, respectively, of the average daily net assets for each class. For the
six months ended October 31, 1995, total Distribution Plan fees for Class A, B
and C shares were $4,687, $24,514 and $553, respectively.
16
<PAGE>
SMITH BARNEY
OREGON MUNICIPALS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
All officers and one Trustee of the Fund are employees of SB.
4. INVESTMENTS
During the six months ended October 31, 1995, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
- --------------------------------------------------------------------------------
Purchases $5,864,648
- --------------------------------------------------------------------------------
Sales 3,718,396
- --------------------------------------------------------------------------------
At October 31, 1995, the net unrealized appreciation of investments for
Federal income tax purposes consisted of the following:
- --------------------------------------------------------------------------------
Gross unrealized appreciation $598,611
Gross unrealized depreciation --
- --------------------------------------------------------------------------------
Net unrealized appreciation $598,611
- --------------------------------------------------------------------------------
5. CAPITAL LOSS CARRYFORWARDS
At April 30, 1995, the Fund had for Federal income tax purposes
approximately $13,541 of unused capital loss carryforwards available to offset
future capital gains expiring April 30, 2003. To the extent that these
carryforward losses are used to offset capital gains, it is probable that the
gains so offset will not be distributed.
6. SHARES OF BENEFICIAL INTEREST
As of October 31, 1995, the Fund has an unlimited number of shares of
beneficial interest with par value of $0.001 per share authorized. The Fund has
the ability to issue multiple classes of shares. Each share of a class
represents an identical interest and has the same rights, except that each class
bears certain direct expenses, including those specifically related to the
distribution of its shares. At October 31, 1995, total paid-in capital amounted
to the following for each class:
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Total Paid-in Capital $6,137,003 $7,962,490 $412,460
- --------------------------------------------------------------------------------
17
<PAGE>
SMITH BARNEY
OREGON MUNICIPALS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1995* APRIL 31, 1995**
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
CLASS A
Shares sold 116,159 $1,201,002 510,557 $4,937,232
Shares issued on reinvestment 11,718 120,752 23,390 226,604
Shares redeemed (138,711) (1,430,736) (116,563) (1,169,190)
- --------------------------------------------------------------------------------
Net Increase (Decrease) (10,834) $ (108,982) 417,384 $3,994,646
- --------------------------------------------------------------------------------
CLASS B
Shares sold 174,070 $1,797,495 706,972 $6,822,107
Shares issued on reinvestment 12,471 128,490 15,881 154,333
Shares redeemed (44,595) (463,156) (72,913) (698,345)
- --------------------------------------------------------------------------------
Net Increase 141,946 $1,462,829 649,940 $6,278,095
- --------------------------------------------------------------------------------
CLASS C
Shares sold 39,927 $ 413,895 -- --
Shares issued on reinvestment 372 3,852 -- --
Shares redeemed (504) (5,287) -- --
- --------------------------------------------------------------------------------
Net Increase 39,795 $ 412,460 -- --
- --------------------------------------------------------------------------------
* For Class C shares, transactions are for the period from May 16, 1995
(inception date) to October 31, 1995.
**For the period from May 23, 1994 (inception date) to April 30, 1995.
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of
Oregon and its political subdivisions, agencies and public authorities to obtain
funds for various public purposes. The Fund is more susceptible to factors
adversely affecting issuers of the Oregon municipal securities than is a
municipal bond fund that is not concentrated in these issuers to the same
extent.
18
<PAGE>
SMITH BARNEY
OREGON MUNICIPALS FUND
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD:
CLASS C
CLASS A SHARES CLASS B SHARES SHARES
-------------- -------------- -------
1995(1) 1995(2) 1995(1) 1995(2) 1995(3)
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $10.09 $9.55 $10.09 $9.55 $10.34
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(4) 0.28 0.49 0.24 0.44 0.22
Net realized and unrealized gain 0.40 0.54 0.42 0.55 0.19
- --------------------------------------------------------------------------------
Total Income From Operations 0.68 1.03 0.66 0.99 0.41
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.27) (0.49) (0.25) (0.45) (0.25)
- --------------------------------------------------------------------------------
Total Distributions (0.27) (0.49) (0.25) (0.45) (0.25)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.50 $10.09 $10.50 $10.09 $10.50
- --------------------------------------------------------------------------------
TOTAL RETURN++ 6.85% 11.12% 6.60% 10.62% 4.41%
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $6,468 $6,323 $8,312 $6,556 $418
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS+:
Expenses(4) 0.66% 0.82% 1.21% 1.36% 1.20%
Net investment income 5.26 5.28 4.62 4.74 4.66
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 27% 30% 27% 30% 27%
- --------------------------------------------------------------------------------
(1) For the six months ended October 31, 1995 (unaudited).
(2) For the period from May 23, 1994 (inception date) to April 30, 1995.
(3) For the period from May 16, 1995 (inception date) to October 31, 1995
(unaudited).
(4) The investment adviser and administrator waived all or part of their fees
for the periods ended October 31, 1995 and April 30, 1995. In addition, the
investment adviser has reimbursed the Fund for $17,813 and $64,336 in
expenses for the periods ended October 31, 1995 and April 30, 1995,
respectively. If such fees were not waived, the per share decreases in net
investment income and the ratios of expenses to average net assets would
have been as follows:
Expense Ratios
Per Share Decreases Without Fee Waivers
in Net Investment Income and Reimbursement
--------------------- ------------------
1995 1995(2) 1995 1995(2)
------ ------ ------ ------
Class A $0.10 $0.12 1.46%+ 2.05%+
Class B 0.10 0.11 2.02+ 2.59+
Class C 0.10 -- 2.00+ --
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized .
19
<PAGE>
SMITH BARNEY
OREGON MUNICIPALS FUND
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Change in Independent Auditor: On April 19, 1995, based upon the
recommendation of the Audit Committee of the Fund, the Board of Trustees
determined not to retain Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as the
Fund's independent auditor and voted to appoint KPMG Peat Marwick LLP. During
the Fund's two most recent fiscal years, Coopers & Lybrand's audit reports
contained no adverse opinion or disclaimer of opinion; nor were the reports
qualified or modified as to uncertainty, audit scope, or accounting principles.
Further, during this same period there were no disagreements with Coopers &
Lybrand on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have caused it to make
references to the subject matter of such disagreements in connection with its
audit reports. The Fund has requested Coopers & Lybrand to provide a letter to
the Securities & Exchange Commission stating whether Coopers & Lybrand agrees
with the foregoing statements, and to provide the Fund with a copy of such
letter. A copy of this letter is available upon request by calling the Fund at
(212) 723-9218.
20
<PAGE>
SMITH BARNEY
OREGON MUNICPALS
FUND
TRUSTEES
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliott S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
Cornelius C. Rose, Jr.
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Peter M. Coffey
Vice President and
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
A MEMBER OF TRAVELERS GROUP
INVESTMENT ADVISER
Smith Barney Mutual Funds
Management Inc.
DISTRIBUTOR
Smith Barney Inc.
CUSTODIAN
PNC Bank
TRANSFER AGENT
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the shareholders of
Smith Barney Oregon Municipals Fund. It is not authorized for distribution to
prospective investors unless accompanied or preceded by a current Prospectus for
the Fund, which contains information concerning the Fund's investment policies
and expenses as well as other pertinent information.
SMITH BARNEY OREGON MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013
FD0820 12/95 82107
<PAGE>
