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. 5
X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
X
Amendment No. 8 X
SMITH BARNEY 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 Telephone 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:
__X__ immediately upon filing pursuant to Rule 485(b)
_____ on ______________ 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
indefinite registration of its shares pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended.
Registrant's Rule 24f-2 Notice for the fiscal year ended
April 30, 1996 was filed on June 27, 1996.
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; Additional
Information
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;
Distributor
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data
Performance Data
23. Financial Statements Financial
Statements
SMITH BARNEY OREGON MUNICIPALS FUND
PART A
<PAGE>
P R O S P E C T U S
SMITH BARNEY
OREGON
MUNICIPALS
FUND
AUGUST 19, 1996
PROSPECTUS BEGINS ON PAGE ONE
[LOGO Smith Barney Mutual Funds
Investing for your future.
Everyday.]
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS
AUGUST 19,
1996
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 August 19, 1996, as amended or
supplemented from time
to time, that is available upon request and without charge
by calling or writ-
ing the Fund at the telephone number or address set forth
above or by contact-
ing a Smith Barney Financial Consultant. The Statement of
Additional Informa-
tion 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 12
- -------------------------------------------------
OREGON MUNICIPAL SECURITIES 19
- -------------------------------------------------
VALUATION OF SHARES 20
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 20
- -------------------------------------------------
PURCHASE OF SHARES 22
- -------------------------------------------------
EXCHANGE PRIVILEGE 30
- -------------------------------------------------
REDEMPTION OF SHARES 34
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 37
- -------------------------------------------------
PERFORMANCE 37
- -------------------------------------------------
MANAGEMENT OF THE FUND 39
- -------------------------------------------------
DISTRIBUTOR 40
- -------------------------------------------------
ADDITIONAL INFORMATION 41
- -------------------------------------------------
</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 Fund
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 redemptions
made within 12 months of purchase.
Class Y Shares. Class Y shares are available only to
investors meeting an
initial investment minimum of $5,000,000. Class Y shares are
sold at net asset
value with no initial sales charge or CDSC. They are not
subject to any service
or distribution fees.
In deciding which Class of 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
duration of his or
her investment. Shareholders who are planning to establish a
program of regular
investment may wish to consider Class A shares; as the
investment accumu
4
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
lates shareholders may qualify for reduced sales charges and
the shares are
subject to lower ongoing expenses over the term of the
investment. As an alter-
native, 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 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
5
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
the Fund" for a complete description of the sales charges
and service and dis-
tribution fees for each Class of shares and "Valuation of
Shares," "Dividends,
Distributions and Taxes" and "Exchange Privilege" for other
differences between
the Classes of shares.
PURCHASE OF SHARES Shares may be purchased through the
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 "Pur-
chase 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 "Re-
demption 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 Services
and Property &
Casualty Insurance Services. See "Management of the Fund."
6
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
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 generally
paid on the last Friday of each calendar month to
shareholders of record as of
three business days prior thereto. 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
securities subject to
the Federal alternative minimum tax. See "Investment
Objective and Management
Policies" and "Dividends, Distributions and Taxes."
7
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
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 rated Baa by Moody's or BBB by S&P,
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 prin-
cipal 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) 0.30%
0.30% 0.30% 0.30%
12b-1 fees** 0.15
0.65 0.70 None
Other expenses***(net of expense
reimbursement) 0.51
0.56 0.55 0.51
- ------------------------------------------------------------
- -------------------
TOTAL FUND OPERATING EXPENSES 0.96%
1.51% 1.55% 0.81%
- ------------------------------------------------------------
- -------------------
</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 Y shares, "Other expenses" have been estimated
based on expenses
incurred by Class A shares because no Class Y shares had
been sold as of
April 30, 1996.
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.
9
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
During the fiscal year ended April 30, 1996, SBMFM waived
investment advisory
and administrative fees in an amount equal to 0.35% and
0.20%, respectively, of
the Fund's average daily net assets. 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 year ended April 30, 1996, as a percentage of its
average daily net
assets, would have been 1.75% for Class A shares, 2.29% for
Class B shares, and
2.38% for Class C 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 $49 $69
$91 $153
Class B 60 78
92 165
Class C 26 49
84 185
Class Y 8 26
45 100
- ------------------------------------------------------------
- ------------------
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A $49 $69
$91 $153
Class B 15 48
82 165
Class C 16 49
84 185
Class Y 8 26
45 100
- ------------------------------------------------------------
- ------------------
</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
The following information for the fiscal year ended April
30, 1996 has been
audited by KPMG Peat Marwick LLP, independent auditors,
whose report thereon
appears in the Fund's Annual Report dated April 30, 1996.
The information for
the fiscal period ended April 30, 1995 has been audited by
another auditor. The
information set out below 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 Informa-
tion. As of April 30, 1996, no Class Y shares had been sold
and, accordingly,
no comparable information is available at this time for that
class.
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS C
CLASS A SHARES CLASS B SHARES
SHARES
---------------- --------------
- -- ---------
1996 1995(1) 1996
1995(1) 1996(2)
- ------------------------------------------------------------
- ---------------
<S> <C> <C> <C> <C>
<C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $ 10.09 $ 9.55 $ 10.09 $
9.55 $10.28
- ------------------------------------------------------------
- ---------------
INCOME FROM OPERATIONS:
Net investment
income(3) 0.55 0.49 0.49
0.44 0.45
Net realized and
unrealized gain 0.22 0.54 0.22
0.55 0.06
- ------------------------------------------------------------
- ---------------
Total Income From Opera-
tions 0.77 1.03 0.71
0.99 0.51
- ------------------------------------------------------------
- ---------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.54) (0.49) (0.49)
(0.45) (0.47)
Overdistribution of net
investment income -- (0.00)* --
(0.00)* --
Net realized gains (0.06) -- (0.06) -
- - (0.06)
- ------------------------------------------------------------
- ---------------
Total Distributions (0.60) (0.49) (0.55)
(0.45) (0.53)
- ------------------------------------------------------------
- ---------------
NET ASSET VALUE, END OF
YEAR $ 10.26 $ 10.09 $ 10.25 $
10.09 $10.26
- ------------------------------------------------------------
- ---------------
TOTAL RETURN(4) 7.70% 11.12%++ 7.09%
10.62%++ 4.99%++
- ------------------------------------------------------------
- ---------------
NET ASSETS, END OF YEAR
(000S) $ 7,520 $ 6,323 $ 9,861 $
6,556 $ 614
- ------------------------------------------------------------
- ---------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses(3) 0.66% 0.82%+ 1.21%
1.36%+ 1.25+
Net investment income 5.21 5.28+ 4.62
4.74+ 4.81+
- ------------------------------------------------------------
- ---------------
PORTFOLIO TURNOVER RATE 75% 30% 75%
30% 75%
- ------------------------------------------------------------
- ---------------
</TABLE>
(1) For the period from May 23, 1994 (inception date) to
April 30, 1995.
(2) For the period from May 16, 1995 (inception date) to
April 30, 1996.
(3) The investment adviser and administrator waived all or
part of their fees
for the periods ended April 30, 1996 and April 30, 1995.
In addition, the
investment adviser has reimbursed the Fund for $85,446
and $64,336 in
expenses for the periods ended April 30, 1996 and April
30, 1995, respec-
tively. If such fees
11
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
were not waived and expenses were not reimbursed, the per
share effect on
net investment income and the expense ratios would have
been as follows:
<TABLE>
<CAPTION>
EXPENSE RATIOS
PER SHARE DECREASES WITHOUT FEE WAIVERS
IN NET INVESTMENT INCOME AND REIMBURSEMENT
------------------------ -------------------
1996 1995 1996 1995
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Class A $0.11 $0.12 1.75% 2.05%+
Class B 0.11 0.11 2.29 2.59+
Class C 0.10 -- 2.38+ --
</TABLE>
(4) Total return for Class A and B shares for the period
ended April 30, 1995
includes the effect of a cash contribution from the
investment adviser.
Without this cash contribution the total returns would
have been 6.23% and
5.55%, respectively.
* Amount represents less than $0.01.
++Total return is not annualized, as it may not be
representative of the
total return for the year.
+ Annualized.
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 con-
ditions 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 investment grade
if deemed by
12
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 rated Baa by Moody's or BBB by S&P, 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. 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 long-term
obligations, that is, obligations generally having remaining
maturities 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
13
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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. 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
security, 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 Municipal leases do not constitute general
obligations of the munici-
pality for which the municipality's taxing power is pledged,
a Municipal lease
is ordinarily backed by the municipality's covenant to
budget for, appropriate
and make the payments due under the lease obligation.
However, certain Munici-
pal leases 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"
Municipal leases 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 leases. In evaluating Municipal leases, SBMFM will
consider such fac-
tors 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 under-
lying 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 abil-
14
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
ity to utilize substitute property or services rather than
those covered by the
lease obligation.
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 of the "current earnings" adjustment item
for purposes of the
Federal corporate alternative minimum tax.
The Fund may also invest in zero coupon securities. Such
bonds carry an addi-
tional 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 investments.
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
15
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 up to 10% of its total assets (including the
amount borrowed) 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 connec-
tion 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.
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.
16
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 rating cate-
gories of Moody's or S&P or, if not rated, having an issue
of outstanding debt
securities rated within the three highest rating categories
of Moody's or S&P,
and certain taxable short-term instruments having quality
characteristics com-
parable to those for tax-exempt investments. As a defensive
position only, the
Fund may enter in 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. 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 cor-
relate 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
17
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 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 poten-
tial 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
18
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
by marking to market daily) of the loaned securities. The
risks in lending
portfolio securities, as with other extensions of secured
credit, consist of
possible delays in receiving additional collateral or in the
recovery of the
securities or possible loss of rights in the collateral
should the borrower
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 considera-
tion to be earned from such loans would justify the risk.
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.
19
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund generally 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 three busi-
ness days prior thereto. Distributions of net realized long-
and short-term
capital gains, if any, are declared and paid annually after
the end of the fis-
cal 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
20
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
treated as a tax-free return of capital (up to the amount of
the shareholder'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. Pursu-
ant to the requirements of the 1940 Act and other applicable
laws, a notice
will accompany any distribution paid from sources other than
net investment
income. In the event the Fund distributes amounts in excess
of its net invest-
ment 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.
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 pro-
21
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
posed legislation will be enacted or, if enacted, will
include the provisions
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 shareholders have held their Fund shares and
whether such dividends or
distributions are received in cash or reinvested in
additional Fund shares.
Distributions of net realized long-term capital gains will
be taxable to share-
holders as long-term capital gains, regardless of how long
shareholders have
held their Fund shares and whether such distributions are
received in cash or
reinvested in additional shares. Furthermore, as a general
rule, a sharehold-
er'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.
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 (except for pur
22
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
chases of Class Y shares by Smith Barney Concert Series
Inc., for which there
is no minimum purchase amount). See "Prospectus Summary--
Alternative Purchase
Arrangements" for a discussion of factors to consider 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 Class
A shares for employees of Travelers and its subsidiaries,
including Smith Bar-
ney, 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
purchase its shares
and to suspend the offering of shares from time to time.
Shares purchased will
be held in the shareholder's account by the Fund's transfer
agent, First Data
Investor Services Group, Inc. (the "Transfer Agent"). Share
certificates are
issued only upon a shareholder's written request to the
Transfer Agent.
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"). For shares purchased through Smith
Barney or Introducing
Brokers purchasing through Smith Barney, payment for Fund
shares is due on the
third business day (the "settlement date") after the trade
date. In all other
cases, payment must be made with the purchase order.
23
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
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 the Transfer
Agent is authorized
through preauthorized 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 the
Transfer Agent. The Sys-
tematic Investment Plan also authorizes Smith Barney to
apply cash held in the
shareholder's Smith Barney brokerage account or redeem the
shareholder's shares
of a Smith Barney money market fund to make additions to the
account. Addi-
tional information is available from the Fund or a Smith
Barney Financial Con-
sultant.
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
24
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
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 to (i)
Board Members and
employees of Travelers and its subsidiaries and any of the
Smith Barney Mutual
Funds (including retired Board Members and employees); the
immediate families
of such persons (including the surviving spouse of a
deceased Board Member or
employee); and to a pension, profit sharing or other benefit
plan for such per-
sons and (ii) employees of members of the National
Association of Securities
Dealers, Inc., provided such sales are made upon the
assurance of the purchaser
that the purchase is made for investment purposes and that
the securities will
not be resold except through redemption or repurchase; (b)
offers of Class A
shares to any other investment company in connection 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 Barney), on the
condition the pur-
chase 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 redemp-
tion; (e) accounts managed by registered investment advisory
subsidiaries of
Travelers; (f) investments of distributions from a UIT
sponsored by Smith Bar-
ney. 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; (g)
purchases through
programs offered by Travelers Group Diversified Distribution
Services Inc. by
employees of participating employers; (h) purchases by
investors participating
in a Smith Barney fee based arrangement; and (i) purchases
by separate accounts
used to fund certain variable annuity contracts.
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
25
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
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
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
26
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
such reduced sales charge or to purchase at net asset value,
the purchaser must
provide sufficient information at the time of purchase to
permit verification
that the purchase qualifies for the reduced sales charge.
Approval of group
purchase reduced sales charge plans is subject to the
discretion of Smith Bar-
ney.
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 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 dur-
ing the period receives the reduced sales charge applicable
to the total amount
of the investment goal. If the goal is not achieved within
the period, the
investor must pay the difference between the sales charges
applicable to the
purchases made and the charges actually paid, or an
appropriate number 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.
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%. The Fund expects
that such a transfer will not be subject to Federal income
taxes. Please con-
tact the Transfer Agent 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 cer-
27
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
tain 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
original 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 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 aggre-
gated and deemed to have been made on the last day of the
preceding Smith Bar-
ney 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 through 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
28
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
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 appreciation
or dividend and capital gain distribution reinvestments in
such other funds.
For Federal income tax purposes, the amount of the CDSC will
reduce the gain or
increase the loss, as the case may be, on the amount
realized on redemption.
The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100
Class 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
29
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PURCHASE OF SHARES (CONTINUED)
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 otherwise. In addition, a shareholder who has
redeemed shares from
other 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
the Transfer Agent
in the case of all other shareholders) of the shareholder's
status or holdings,
as the case may be.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may
be exchanged at the
net asset value next determined for shares of the same Class
in the following
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 sub-
ject 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 Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Equity Income Portfolio
30
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
EXCHANGE PRIVILEGE (CONTINUED)
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.--Short-Term U.S. Treasury
Securities
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 Intermediate Maturity California Municipals
Fund
*Smith Barney Intermediate Maturity New York Municipals
Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
*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 York Portfolio
Smith Barney Muni Funds--Ohio Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney World Funds, Inc.--Emerging Markets
Portfolio
Smith Barney World Funds, Inc.--European Portfolio
31
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
EXCHANGE PRIVILEGE (CONTINUED)
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 Concert Series Inc.
Smith Barney Concert Series Inc.--Balanced Portfolio
Smith Barney Concert Series Inc.--Conservative Portfolio
Smith Barney Concert Series Inc.--Growth Portfolio
Smith Barney Concert Series Inc.--High Growth Portfolio
Smith Barney Concert Series Inc.--Income Portfolio
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 sales charges applicable to the shares on which the
dividends or distribu-
tions were paid; however, if no sales charge was imposed
upon the initial pur-
chase of shares, any shares obtained through automatic
reinvestment will be
subject to a sales charge differential upon exchange.
32
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
EXCHANGE PRIVILEGE (CONTINUED)
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,
the Fund may, at its
discretion, decide to limit additional purchases and/or
exchanges by a share-
holder. Upon such a determination, the Fund 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 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 deter-
mining what constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by
telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange
Program." Exchanges will
be processed at the net asset value next determined, plus
any applicable sales
charge differential. Redemption procedures discussed below
are also applicable
for exchanging shares, and exchanges will be made upon
receipt of all support-
ing 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
33
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
EXCHANGE PRIVILEGE (CONTINUED)
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 privileges 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
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
permitted under
the 1940 Act in extraordinary circumstances. Generally, if
the redemption pro-
ceeds 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.
34
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
REDEMPTION OF SHARES (CONTINUED)
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 Finan-
cial Consultant, Introducing Broker or dealer in the selling
group or by sub-
mitting a written request for redemption to:
Smith Barney Oregon Municipals Fund
Class A, B, C or Y (please specify)
c/o First Data Investor 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 the Transfer Agent together
with the redemption
request. Any signature appearing on a share certificate,
stock power or on a
written redemption request in excess of $20,000 must be
guaranteed by an eligi-
ble guarantor institution such as a domestic bank, savings
and loan institu-
tion, domestic credit union, member bank of the Federal
Reserve System or mem-
ber firm of a national securities exchange. The Transfer
Agent may require
additional supporting documents for redemptions made by
corporations, execu-
tors, administrators, trustees or guardians. A redemption
request will not be
deemed properly received until the Transfer Agent receives
all required docu-
ments in proper form.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM FOR SHAREHOLDERS
WHO DO NOT HAVE A
SMITH BARNEY BROKERAGE ACCOUNT
Certain shareholders may be eligible to redeem and
exchange Fund shares by
telephone. To determine if a shareholder is entitled to
participate in this
program, he or she should contact the Transfer Agent at
(800) 451-2010. Once
eligibility is confirmed, the shareholder must complete and
return a Telephone
Wire Authorization Form, including a signature guarantee,
that will be provided
by the Transfer Agent upon request. (Alternatively, an
investor may authorize
telephone redemptions on the new account application with a
signature guarantee
when making his/her initial investment in the Fund.)
35
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
REDEMPTION OF SHARES (CONTINUED)
Redemptions. Redemption requests of up to $10,000 of any
class or classes of
the Fund's shares may be made by eligible shareholders by
calling the Transfer
Agent at (800) 451-2010. Such requests may be made between
9:00 a.m. and 4:00
p.m. (New York City time) on any day the NYSE is open.
Redemptions of shares
(i) by retirement plans or (ii) for which certificates have
been issued are not
permitted under this program.
A shareholder will have the option of having the
redemption proceeds mailed
to his/her address of record or wired to a bank account
predesignated by the
shareholder. Generally, redemption proceeds will be mailed
or wired, as the
case may be, on the next business day following the
redemption request. In
order to use the wire procedures, the bank receiving the
proceeds must be a
member of the Federal Reserve System or have a correspondent
relationship with
a member bank. The Fund reserves the right to charge
shareholders a nominal fee
for each wire redemption. Such charges, if any, will be
assessed against the
shareholder's account from which shares were redeemed. In
order to change the
bank account designated to receive redemption proceeds, a
shareholder must com-
plete a new Telephone/Wire Authorization Form and, for the
protection of the
shareholder's assets, will be required to provide a
signature guarantee and
certain other documentation.
Exchanges. Eligible shareholders may make exchanges by
telephone if the
account registration of the fund being acquired is identical
to the registra-
tion of the shares of the fund exchanged. Such exchange
requests may be made by
calling the Transfer Agent at (800) 451-2010 between 9:00
a.m. and 4:00 p.m.
(New York City time) on any day the NYSE is open.
Additional Information regarding Telephone Redemption and
Exchange Program.
Neither the Fund nor its agents will be liable for following
instructions com-
municated by telephone that are reasonably believed to be
genuine. The Fund and
its agents will employ procedures designed to verify the
identity of the caller
and legitimacy of instructions (for example, a shareholder's
name and account
number will be required and phone calls may be recorded).
The Fund reserves the
right to suspend, modify or discontinue the telephone
redemption and exchange
program or to impose a charge for this service at any time
following at least
seven (7) days' prior notice to shareholders.
36
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
REDEMPTION OF SHARES (CONTINUED)
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.
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.
37
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
PERFORMANCE (CONTINUED)
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
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.
38
<PAGE>
SMITH BARNEY
Oregon Municipals 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.
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 July 31, 1996 in excess of $76
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 an annual
rate of 0.30% of the value of its average daily net assets.
Prior to November
17, 1995, the Fund paid SBMFM an investment advisory fee at
the following
annual rates of average daily net assets: 0.35% up to $500
million and 0.32% of
the value of its average daily net assets in excess of $500
million. For the
fiscal year ended April 30, 1996, SBMFM waived 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
39
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
MANAGEMENT OF THE FUND (CONTINUED)
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 million. For the period ended April 30, 1996, SBMFM
was paid adminis-
tration 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.
Management's discussion and analysis, and additional
performance information
regarding the Fund during the fiscal period ended April 30,
1996 is included in
the Annual Report dated April 30, 1996. A copy of the Annual
Report may be
obtained upon request and without charge from a Smith Barney
Financial Consul-
tant 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 connec-
40
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
DISTRIBUTOR (CONTINUED)
tion with the sale of Fund shares, including lease, utility,
communications and
sales promotion expenses.
The payments to Smith Barney Financial Consultants for
selling shares of a
Class include a commission or fee paid by the investor or
Smith Barney at the
time of sale and, with respect to Class A, 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.
Payments under the Plan with respect to Class B and Class
C shares 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 Trustees 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
41
<PAGE>
SMITH BARNEY
Oregon Municipals Fund
ADDITIONAL INFORMATION (CONTINUED)
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 out-
standing shares, and the Fund will assist shareholders in
calling such a meet-
ing 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.
PNC Bank, National Association, located at 17th and
Chestnut Streets, Phila-
delphia, Pennsylvania 19103, serves as custodian of the
Fund's investments.
First Data Investor Services Group, Inc., 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 Transfer Agent.
42
<PAGE>
(This page intentionally left blank)
<PAGE>
SMITH BARNEY
- ------------
[A Member of
TravelersGroup LOGO]
SMITH BARNEY
OREGON
MUNICIPALS
FUND
388 Greenwich Street
New
York, New York 10013
FD 0209 F5
SMITH BARNEY OREGON MUNICIPALS FUND
PART B
Smith Barney
Oregon Municipals Fund
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information
August 19, 1996
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
August 19, 1996
, 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>
<S> <C>
Management of the
Fund........................................................
.......................1
Investment Objective and Management
Policies.............................................5
Municipal Bonds (See in the Prospectus "Oregon Municipal
Securities").......13
Purchase of
Shares......................................................
..................................17
Redemption of
Shares......................................................
.............................18
Distributor.................................................
...................................................19
Valuation of
Shares......................................................
.................................20
Exchange
Privilege...................................................
.....................................21
Performance Data (See in the Prospectus
"Performance")..............................22
Taxes (See in the Prospectus "Dividends, Distributions and
Taxes")..............26
Additional
Information.................................................
.................................29
Financial
Statements..................................................
...................................30
Appendix....................................................
..................................................31
</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 Service
<S> <C>
Smith Barney Inc.
("Smith
Barney")....................................................
..Distributor
Smith Barney Mutual Funds Management Inc.
("SBMFM")...................................................
...........Investment Adviser and Administrator
PNC Bank, National Association
("PNC").....................................................
...............Custodian
First Data Investor Services Group, Inc.
(the "Transfer
Agent")...............................................Transf
er Agent
</TABLE>
These organizations and the functions they perform for
the Fund are discussed in the Prospectus and in this
Statement of Additional Information.
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 73). Retired; formerly
Senior Consultant to Dean Witter Reynolds Inc. His address
is 19 Circle End Drive, Ramsey, New Jersey 07466.
Martin Brody, Trustee (Age 74). Vice Chairman of the Board
of Restaurant Associates Corp. His address is HMK
Associates, 30 Columbia Turpike, Florham Park, New Jersey
07932.
Dwight B. Crane, Trustee (Age 58). Professor, Graduate
School of Business Administration, Harvard University;
Business Consultant. His address is Graduate School of
Business Administration, Harvard University, Boston,
Massachusetts 02163.
Burt N. Dorsett, Trustee (Age 65). Managing Partner of
Dorsett McCabe Management, Inc., an investment counseling
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 70). Chairman of the Board
and Chief Executive Officer of The Dress Barn, Inc. His
address is 30 Dunnigan Drive, Suffern, New York 10901.
Stephen E. Kaufman, Trustee (Age 64). Attorney. His address
is 277 Park Avenue, New York, New York 10172.
Joseph J. McCann, Trustee (Age 65). Financial Consultant.
His address is 200 Oak Park Place, Pittsburgh, Pennsylvania
15243.
*Heath B. McLendon, Chairman of the Board and Investment
Officer (Age 63). Managing Director of Smith Barney and
Chairman of Smith Barney Strategy Advisers Inc.; prior to
July 1993, Senior Executive Vice President of Shearson
Lehman Brothers Inc. ("Shearson Lehman Brothers"), Vice
Chairman of Shearson Asset Management, a Director of
PanAgora Asset Management, Inc. and PanAgora Asset
Management Limited. Mr. McLendon is Chairman of the Board
and Investment Officer of 42 Smith Barney Mutual Funds. His
address is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr., Trustee (Age 62). Chairman of the
Board, Cornelius C. Rose Associates, Inc., financial
consultants, and Chairman of Performance Learning Systems,
an educational consultant. His address is P.O. Box 335,
Enfield, New Hampshire 03748.
Jessica M. Bibliowicz, President (Age 36). 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 serves as President of 40
Smith Barney Mutual Funds. Her address is 388 Greenwich
Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer (Age
38). Managing Director of Smith Barney; Director and Senior
Vice President of SBMFM. Mr. Daidone serves as Senior Vice
President and Treasurer of 42 Smith Barney Mutual Funds.
His address is 388 Greenwich Street, New York, New York
10013.
Peter M. Coffey, Vice President and Investment Officer (Age
52). 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.
Christina T. Sydor, Secretary (Age 45). Managing Director of
Smith Barney; General Counsel and Secretary of SBMFM. Ms.
Sydor serves as Secretary of 42 Smith Barney Mutual Funds.
Her address is 388 Greenwich Street, New York, NY 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 August 1, 1996,
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 August 1, 1996, 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.
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 in-person meeting and $100
per telephonic meeting 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 in-
person meeting and $50 per telephonic meeting. The Fund
reimburses all Trustees for travel and out-of-pocket
expenses.
For the fiscal year ended April 30, 1996 , the
Trustees of the Fund were paid the following compensation:
<TABLE>
<CAPTION>
Aggregate
Compensation
Aggregate Compensation from the
Smith Barney
Trustee (*) from the Fund
Mutual Funds***
<S> <C> <C>
Herbert Barg (18).................................
$3,600 $85,200
Alfred J. Bianchetti (13).........................
3,600 40,850
Martin Brody (20)................................ 3,500
97,550
Dwight B. Crane (24)........................... 3,600
122,600
Burt N. Dorsett (13)*.............................
3,600 54,000
Elliot S. Jaffe (13)................................
3,600 53,250
Stephen E. Kaufman (14)..................... 3,600
59,350
Joseph J. McCann (13)........................ 3,600
40,750
Heath B. McLendon (42)..................... -------
- -------
Cornelius C. Rose (13)........................ 3,600
54,100
James J. Crisona** (10)...................... 1,800
26,400
</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.
*** Reflects compensation paid during the calendar year
ended December 31, 1995.
* Pursuant to the Fund's deferred compensation plan, Mr.
Dorsett has elected to defer some or all of the compensation
due to him from the Fund for the 1996 calendar year.
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
most recently approved by the Board of Trustees,
including a majority of those Trustees who are not
"interested persons" of the Fund or SBMFM ("Independent
Trustees"), on July 17, 1996 . The services provided by
SBMFM under the Advisory Agreement are described in the
Prospectus under "Management of the Fund."
Prior to November 17, 1995, as compensation for
investment advisory services, the Fund paid 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. Effective
November 17, 1995, the Fund pays SBMFM an investment
advisory fee at an annual rate of 0.30% of the value of its
average daily net assets. For the fiscal year ended April
30, 1996, the Fund incurred investment advisory fees in the
amount of $50,013, all of which were waived.
SBMFM also serves as administrator to the Fund pursuant
to a written agreement dated May 23, 1994 (the
"Administration Agreement"), which was most recently
approved by the Fund's Board of Trustees, including a
majority of the Independent Trustees, on July 17, 1996 .
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 year ended April 30, 1996, the
Fund incurred administration fees in the amount of $28,579,
all of which were waived.
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 year ended April 30,
1996, no such fee reduction was required.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel to the
Fund. The Independent Trustees of the Fund have selected
Stroock & Stroock & Lavan as their legal counsel.
KPMG Peat Marwick LLP, 345 Park Avenue, New York,
New York 10154, has been selected as the Fund's independent
auditor to examine and report on the Fund's financial
statements and highlights for the fiscal year ending April
30, 1997.
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
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 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.
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 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) tax-exempt
notes of municipal issuers having, at the time of
purchase, a rating within the three highest rating
categories of Moody's or S&P or, if not rated, having
an issue of outstanding Municipal Bonds rated within the
three highest rating categories 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 rating categories by Moody's or S&P, commercial
paper rated in the highest rating categories 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 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 well-conceived 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 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 when-
issued 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.
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 short-
term 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
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
fiscal year ended April 30, 1996.
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 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 years ended April 30, 1995 and
1996, the Fund's portfolio turnover rate was 30% and 74%,
respectively.
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 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 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 are the
Official Statements 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.
The following summary is qualified by reference to the
information from such documents.
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 experienced an
employment growth rate of 4.0% 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 1995, 12,500 fewer individuals worked in
lumber and wood products manufacturing than had in 1986.
During the same period, the number of jobs in the high
technology sectors of electrical and nonelectrical machinery
had grown by 17,000. Oregon's other basic industries,
agriculture and tourism, continue to provide strong,
diversified support for the State's economy.
Most of the State's job gains over the last decade have
come from the nonmanufacturing sectors. Since 1986,
nonmanufacturing employment has increased by 38%, led by
trade (up 32%), services (up 58%) and construction (up 97%).
The nonmanufacturing sectors now provide approximately 84%
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, as of May
1996, at about 94% of the national average.
State Forecast. Oregon's economy maintained its momentum
through the end of 1995. Oregon remains one of the fastest
growing states in the country. High technology manufacturing
and the service sector are the primary engines driving the
State economy. Despite the positive overall tone of the
fourth quarter numbers, however, there were definite signs
of slowing in construction and manufacturing outside the
electronics industry. State authorities anticipate that the
Oregon economy will continue to grow through 1997, though at
a slower pace than the previous two-year period. These
authorities believe that future economic growth will come
largely from expansion in the State's semiconductor industry
and its suppliers and in the State's service and trade
sectors as a result of a continuing inflow of new residents
to the State.
Oregon's income and employment are expected to increase
faster than the country as a whole, as they have since 1987.
Personal income is projected to increase 6.1% in 1996 and
5.8% in 1997. Job growth is expected to slow is expected to
grow 3.2% in 1996 and 2.5% in 1997.
Population. Oregon's July 1, 1995 population was estimated
to be 3,132,000 by Portland State University's Center for
Population Research and Census, the State's official bureau
for population data. Since 1960, the State's population has
increased by almost 72%.
There are four major urban population areas in Oregon.
The city of Portland, located at the northern end of the
Willamette Valley, is the state's largest city with a
population, as of July 1, 1995, of 497,600. The
metropolitan area of Eugene, located in Lane County at the
southern end of Willamette Valley, is the second largest
urban center in the State with a population of 121,905 as of
July 1, 1995. Salem, the state capital, had a population of
118,355 as of July 1, 1995, making it the third largest city
in Oregon. The fourth largest city in Oregon, Medford, is
located in Jackson County and has a population of 55,090 as
of July 1, 1995.
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 Willamette 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 1995, over 84
commodities with sales of $1,000,000 or more, and over 38
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 Willamette
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, 225
state parks and a national park in Oregon. Research
conducted for the Tourism Division indicates that visitor
expenditures amounted to over $4 billion in 1995, a 51%
increase over 1990.
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 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, the 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.
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) tax-
exempt 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 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 of 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.
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 the Transfer Agent 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 the Transfer Agent
prior to November 7, 1994 may continue to do so and
applications for participation in the Withdrawal Plan must
be received by the Transfer Agent 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 most recently
approved by the Fund's Board of Trustees on July 17, 1996.
For the 1995 and 1996 fiscal years, Smith Barney received
approximately $158,000 and $59,000, respectively, in sales
charges from the sale of the Fund's Class A shares, and did
not reallow any portion thereof to dealers. For the 1995 and
1996 fiscal years, the Fund's distributor received
approximately $11,000 and $13,000, respectively,
representing CDSC on redemptions of the Fund's Class B
shares.
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.
For the fiscal year ended April 30, 1996, Smith
Barney incurred distribution expenses totaling approximately
$217,000, consisting of approximately $10,200 for
advertising, $1,000 for printing and mailing of
Prospectuses, $70,000 for support services, $132,000 to
Smith Barney Financial Consultants, and $4,300 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.
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 year ended April 30, 1996, the Fund's
Class A, Class B and Class C shares paid $9,912, $12,597 and
$524, respectively, in service fees. For the same period,
the Fund's Class B and Class C shares paid $41,989 and
$1,920, respectively, in distribution fees.
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
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 Class-specific 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.
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 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 the
Transfer Agent 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.
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 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.
Average Annual Total Return
"Average annual total return" figures are computed according
to a formula prescribed by the SEC. The formula can be
expressed as follows:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of
$1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a
hypothetical $1,000 investment
made at the beginning of a 1-, 5- or 10-
year period at the end
of the 1-, 5- or 10-year period (or
fractional portion thereof),
assuming reinvestment of all dividends
and distributions.
Class A's average annual total return was as follows
for the periods indicated (reflecting the waiver of the
investment advisory and/or administration fees):
3.40% for the one year period from May 1, 1995 through
April 30, 1996, including the effect of a voluntary cash
contribution in the amount of $251,349 made by the
investment adviser in October, 1994.
(0.88)% for the one year period from May 1, 1995 through
April 30, 1996, excluding the effect of the cash
contribution.
7.39% per annum during the period from May 23, 1994
(commencement of operations) through April 30, 1996,
including the effect of the cash contribution.
5.16% per annum during the period from May 23, 1994
through April 30, 1996, excluding the effect of the cash
contribution.
The Class A average annual total return figures assume that
the maximum 4.00% sales charge 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, Class
A's average annual total return would have been as follows
for the periods indicated:
7.70% for the one year period from May 1, 1995 through
April 30, 1996, including the effect of the cash
contribution.
3.25% for the one year period from May 1, 1995 through
April 30, 1996, excluding the effect of the cash
contribution.
9.68% per annum during the period from May 23, 1994
through April 30, 1996, including the effect of the cash
contribution.
7.41% per annum during the period from May 23, 1994
through April 30, 1996, excluding the effect of the cash
contribution.
Class B's average annual total return was as follows
for the periods indicated (reflecting the waiver of
investment advisory and/or administration fees):
2.59% for the one year period from May 1, 1995 through
April 30, 1996, including the effect of a voluntary cash
contribution in the amount of $221,556 made by the
investment adviser in October, 1994.
(2.12)% for the one year period from May 1, 1995 through
April 30, 1996, excluding the effect of the cash
contribution.
7.19% per annum during the period from May 23, 1994
(commencement of operations) through April 30, 1996,
including the effect of the cash contribution.
4.66% per annum during the period from May 23, 1994
through April 30, 1996, excluding the effect of the cash
contribution.
The Class B average annual total return figures assume that
the maximum applicable CDSC has been deducted from the
investment. If the maximum CDSC had not been deducted, Class
B's average annual total return would have been as follows
for the periods indicated:
7.09% for the one year period from May 1, 1995 through
April 30, 1996, including the effect of the cash
contribution.
2.23% for the one year period from May 1, 1995 through
April 30, 1996, excluding the effect of the cash
contribution.
9.11% per annum during the period from May 23, 1994
through April 30, 1996, including the effect of the cash
contribution.
6.61% per annum during the period from May 23, 1994
through April 30, 1996, excluding the effect of the cash
contribution.
Class C's average annual total return was as follows
for the period indicated (reflecting the waiver of
investment advisory and/or administration fees):
3.99% for the period from May 16, 1995 (commencement of
operations) through April 30, 1996.
The Class C average annual total return figure assumes that
the maximum applicable CDSC has been deducted from the
investment at the time of redemption. If the maximum CDSC
had not been deducted, Class C's average annual total return
would have been as follows for the period indicated:
4.99% for the period from May 16, 1995 through April 30,
1996.
Aggregate Total Return
"Aggregate total return" figures 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 a 1-, 5- or 10-
year period at the end
of the 1-, 5- or 10-year period (or
fractional portion thereof),
assuming reinvestment of all dividends
and distributions.
Class A's aggregate total return was as follows for the
periods indicated (reflecting the waiver of the investment
advisory and/or administration fees):
3.40% for the one year period from May 1, 1995 through
April 30, 1996, including the effect of a voluntary cash
contribution in the amount of $251,349 made by the
investment adviser in October, 1994.
(0.88)% for the one year period from May 1, 1995 through
April 30, 1996, excluding the effect of the voluntary cash
contribution.
14.83% for the period from May 23, 1994 through April 30,
1996, including the effect of the cash contribution.
10.25% for the period from May 23, 1994 through April 30,
1996, excluding the effect of the cash contribution.
The Class A aggregate total return figures assume that the
maximum 4.00% sales charge 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, Class
A's aggregate total return would have been as follows for
the periods indicated:
7.70% for the one year period from May 1, 1995 through
April 30, 1996, including the effect of the cash
contribution.
3.25% for the one year period from May 1, 1995 through
April 30, 1996, excluding the effect of the cash
contribution.
19.64% for the period from May 23, 1994 through April 30,
1996, including the effect of the cash contribution.
14.87% for the period from May 23, 1994 through April 30,
1996, excluding the effect of the cash contribution.
Class B's aggregate total return was as follows for the
periods indicated (reflecting the waiver of investment
advisory and/or administration fees):
2.59% for the one year period from May 1, 1995 through
April 30, 1996, including the effect of a voluntary cash
contribution in the amount of $221,556 made by the
investment adviser in October, 1994.
(2.12)% for the one year period from May 1, 1995 through
April 30, 1996, excluding the effect of the cash
contribution.
14.42% for the period from May 23, 1994 through April 30,
1996, including the effect of the cash contribution.
9.23% for the period from May 23, 1994 through April 30,
1996, excluding the effect of the cash contribution.
The Class B aggregate total return figures assume that the
maximum applicable CDSC has been deducted from the
investment. If the maximum CDSC had not been deducted,
Class B's aggregate total return would have been as follows
for the periods indicated:
7.09% for the one year period from May 1, 1995 through
April 30, 1996, including the effect of the cash
contribution.
2.23% for the one year period from May 1, 1995 through
April 30, 1996, excluding the effect of the cash
contribution.
18.42% for the period from May 23, 1994 through April 30,
1996, including the effect of the cash contribution.
13.23% for the period from May 23, 1994 through April 30,
1996, excluding the effect of the cash contribution.
Class C's aggretate total return was as follows for the
period indicated:
3.99% for the period from May 16, 1995 through April 30,
1996
The Class C aggretate total return figures assume that the
maximum applicable CDSC has been deducted from the
investment at the time of redemption. If the maximum CDSC
had not been deducted, Class C's aggregate total return
would have been as follows for the periods indicated:
4.99% for the period from May 16, 1995 through April 30,
1996
Performance will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio
and 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. 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.
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.
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 to its
shareholders 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. 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 the 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 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 short-
term 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 capital gains 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 exempt-interest 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.
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 or loss on the 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 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, located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, effective June 19, 1995,
serves as the Fund's custodian. 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.
First Data Investor Services, Inc., located at Exchange
Place, Boston, Massachusetts 02109, serves as the Fund's
transfer agent. Under the transfer agency agreement, the
Transfer Agent 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, the
Transfer Agent receives a monthly fee computed on the basis
of the assets of the Fund during the month and is reimbursed
for out-of-pocket expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended
April 30, 1996 is incorporated herein by reference in its
entirety.
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.
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
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.
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.
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 year
ended April 30, 1996 and the Report of Independent
Accountants dated June 14, 1996 are incorporated by
reference to the Definitive 30b2-1 filed on August 8, 1996
as Accession Number 91155-96-000317.
Included in Part C:
Consent of Independent Accountants is filed
herein.
(b) Exhibits
All references are to the Registrant's registration
statement on Form N-1A as filed with the Securities and
Exchange Commission ("SEC") on March 11, 1994 (the
"Registration Statement") (File Nos. 33-52643 and 811-
07149).
(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
as filed with the SEC on November 23, 1994 ("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
as filed with the SEC on May 23, 1994 ("Pre-Effective
Amendment No. 3").
(5)(a) Investment Advisory Agreement between the
Registrant and Greenwich Street Advisors, 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
incorporated by reference to Post-Effective Amendment No. 4
as filed with the SEC on July 6, 1995 ("Post-Effective
Amendment No. 4").
(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, is incorporated by
reference to Post-Effective Amendment No. 4.
(9)(a) Administration Agreement between the
Registrant and Smith, Barney Advisers, Inc., dated May 23,
1994, is incorporated by reference to Pre-Effective
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 herein.
(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 Post-Effective Amendment No.
3.
(16) Performance Data is incorporated by reference to
Post-Effective Amendment No. 3.
(17) Financial Data Schedule is filed herein.
(18) Form of Registrant's Rule 18f-3(d) Multiple Class
Plan is filed herein.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Title of Class Number of Record Holders
Beneficial Interest, par value as of August 1, 1996
$.001 per share
Class A 230
Class B 361
Class C 22
Class Y 0
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 (the "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. 801-8314).
Prior to the close of business on November 7, 1994,
Greenwich Street Advisors served as investment adviser.
Greenwich Street Advisors, through its predecessors, had
been in the investment counseling business since 1934 and
was 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 is in turn a
wholly owned subsidiary of 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).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as a
distributor for Smith Barney Managed Municipals Fund Inc.,
Smith Barney California Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Managed
Government Fund Inc., 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 Natural Resources 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., Smith Barney/Travelers Series
Fund, Smith Barney Fundamental Value Fund Inc., Smith Barney
Series Fund, Consulting Group Capital Markets Funds, Smith
Barney Investment Trust, Smith Barney Adjustable Rate
Government Income 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., Smith Barney Concert Series Inc. and
various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith
Barney Holdings Inc., which in turn is a wholly owned
subsidiary of 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 director, officer 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. 812-8510).
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) First Data Investor 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 common-law 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, as amended, the
Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New
York and State of New York, on the 14th day of August, 1996.
SMITH BARNEY OREGON MUNICIPALS FUND
By:/s/Heath B. McLendon___
Health B. McLendon
Chairman of the Board
We, the undersigned, hereby severally constitute and
appoint Heath B. McLendon, Christina T. Sydor and Caren
Cunningham and each of them singly, our true and lawful
attorneys, with full power to them and each of them to sign
for us, and in our hands and in the capacities indicated
below, any and all Amendments to this Registration Statement
and to file the same, with all exhibits thereto, and other
documents therewith, with the Securities and Exchange
Commission, granting unto said attorneys and each of them,
acting alone, full authority and power to do and perform
each and every act and thing requisite or necessary to be
done in the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and
confirming all that said attorneys or any of them may
lawfully do or cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of
1933, as amended, this Amendment to the Registration
Statement and the above Power of Attorney has been signed
below by the following persons in the capacities and as of
the dates indicated.
Signature: Title: Date:
/s/Heath B. Chairman of the August 14, 1996
McLendon Board
Heath B. McLendon (Chief Executive
Officer)
/s/Lewis E. Senior Vice August 14, 1996
Daidone President and
Lewis E. Daidone Treasurer (Chief
Financial
and Accounting
Officer)
/s/Herbert Barg Director/Trustee August 14, 1996
Herbert Barg
/s/Alfred J. Director/Trustee August 14, 1996
Bianchetti
Alfred J.
Bianchetti
/s/Martin Brody Director/Trustee August 14, 1996
Martin Brody
/s/Dwight B. Crane Director/Trustee August 14, 1996
Dwight B. Crane
/s/Burt N. Dorsett Director/Trustee August 14, 1996
Burt N. Dorsett
/s/Elliot S. Jaffe Director/Trustee August 14, 1996
Elliot S. Jaffe
/s/Stephen E. Director/Trustee August 14, 1996
Kaufman
Stephen E. Kaufman
/s/Joseph J. Director/Trustee August 14, 1996
McCann
Joseph J. McCann
/s/Cornelius C. Director/Trustee August 14, 1996
Rose, Jr.
Cornelius C. Rose,
Jr.
Independent Auditors' Consent
To the Trustees and Shareholders of
the Smith Barney Oregon Municipals Fund:
We consent to the use of our report dated June 14, 1996
incorporated herein by reference and to the references to
our Firm under the headings "Financial Highlights" in the
Prospectus and "Counsel and Auditors" in the Statement of
Additional Information.
KPMG PEAT MARWICK LLP
July 25, 1996
New York, New York
[ARTICLE] 6
[CIK] 0000920058
[NAME] SMITH BARNEY OREGON MUNICIPALS FUND-CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] APR-30-1996
[PERIOD-END] APR-30-1996
[INVESTMENTS-AT-COST] 17,005,605
[INVESTMENTS-AT-VALUE] 17,253,244
[RECEIVABLES] 665,126
[ASSETS-OTHER] 65,715
[OTHER-ITEMS-ASSETS] 597,051
[TOTAL-ASSETS] 18,581,136
[PAYABLE-FOR-SECURITIES] 496,344
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 89,868
[TOTAL-LIABILITIES] 586,212
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 17,754,003
[SHARES-COMMON-STOCK] 733,200
[SHARES-COMMON-PRIOR] 626,807
[ACCUMULATED-NII-CURRENT] 472,638
[OVERDISTRIBUTION-NII] 6,797
[ACCUMULATED-NET-GAINS] (20)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 247,639
[NET-ASSETS] 17,994,924
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 895,076
[OTHER-INCOME] 0
[EXPENSES-NET] 149,110
[NET-INVESTMENT-INCOME] 745,966
[REALIZED-GAINS-CURRENT] 102,274
[APPREC-INCREASE-CURRENT] 96,355
[NET-CHANGE-FROM-OPS] 944,595
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 338,287
[DISTRIBUTIONS-OF-GAINS] 38,545
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 240,150
[NUMBER-OF-SHARES-REDEEMED] 157,979
[SHARES-REINVESTED] 24,222
[NET-CHANGE-IN-ASSETS] 5,115,358
[ACCUMULATED-NII-PRIOR] 472,638
[ACCUMULATED-GAINS-PRIOR] (13,541)
[OVERDISTRIB-NII-PRIOR] 3,823
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 50,110
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 315,271
[AVERAGE-NET-ASSETS] 15,302,627
[PER-SHARE-NAV-BEGIN] 10.09
[PER-SHARE-NII] 0.55
[PER-SHARE-GAIN-APPREC] 0.22
[PER-SHARE-DIVIDEND] 0.54
[PER-SHARE-DISTRIBUTIONS] 0.06
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.26
[EXPENSE-RATIO] 0.66
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000920058
[NAME] SMITH BARNEY OREGON MUNICIPALS FUND-CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] APR-30-1996
[PERIOD-END] APR-30-1996
[INVESTMENTS-AT-COST] 17,005,605
[INVESTMENTS-AT-VALUE] 17,253,244
[RECEIVABLES] 665,126
[ASSETS-OTHER] 65,715
[OTHER-ITEMS-ASSETS] 597,051
[TOTAL-ASSETS] 18,581,136
[PAYABLE-FOR-SECURITIES] 496,344
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 89,868
[TOTAL-LIABILITIES] 586,212
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 17,754,003
[SHARES-COMMON-STOCK] 962,062
[SHARES-COMMON-PRIOR] 649,941
[ACCUMULATED-NII-CURRENT] 472,638
[OVERDISTRIBUTION-NII] 6,797
[ACCUMULATED-NET-GAINS] (20)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 247,639
[NET-ASSETS] 17,994,924
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 895,076
[OTHER-INCOME] 0
[EXPENSES-NET] 149,110
[NET-INVESTMENT-INCOME] 745,966
[REALIZED-GAINS-CURRENT] 102,274
[APPREC-INCREASE-CURRENT] 96,355
[NET-CHANGE-FROM-OPS] 944,595
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 390,803
[DISTRIBUTIONS-OF-GAINS] 50,529
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 376,867
[NUMBER-OF-SHARES-REDEEMED] 92,345
[SHARES-REINVESTED] 27,599
[NET-CHANGE-IN-ASSETS] 5,115,358
[ACCUMULATED-NII-PRIOR] 472,638
[ACCUMULATED-GAINS-PRIOR] (13,541)
[OVERDISTRIB-NII-PRIOR] 3,823
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 50,110
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 315,271
[AVERAGE-NET-ASSETS] 15,302,627
[PER-SHARE-NAV-BEGIN] 10.09
[PER-SHARE-NII] 0.49
[PER-SHARE-GAIN-APPREC] 0.22
[PER-SHARE-DIVIDEND] 0.49
[PER-SHARE-DISTRIBUTIONS] 0.06
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.25
[EXPENSE-RATIO] 1.21
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000920058
[NAME] SMITH BARNEY OREGON MUNICIPALS FUND-CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] APR-30-1996
[PERIOD-END] APR-30-1996
[INVESTMENTS-AT-COST] 17,005,605
[INVESTMENTS-AT-VALUE] 17,253,244
[RECEIVABLES] 665,126
[ASSETS-OTHER] 65,715
[OTHER-ITEMS-ASSETS] 597,051
[TOTAL-ASSETS] 18,581,136
[PAYABLE-FOR-SECURITIES] 496,344
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 89,868
[TOTAL-LIABILITIES] 586,212
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 17,754,003
[SHARES-COMMON-STOCK] 59,822
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 472,638
[OVERDISTRIBUTION-NII] 6,797
[ACCUMULATED-NET-GAINS] (20)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 247,639
[NET-ASSETS] 17,994,924
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 895,076
[OTHER-INCOME] 0
[EXPENSES-NET] 149,110
[NET-INVESTMENT-INCOME] 745,966
[REALIZED-GAINS-CURRENT] 102,274
[APPREC-INCREASE-CURRENT] 96,355
[NET-CHANGE-FROM-OPS] 944,595
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 16,870
[DISTRIBUTIONS-OF-GAINS] 2,580
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 59,834
[NUMBER-OF-SHARES-REDEEMED] 1,340
[SHARES-REINVESTED] 1,328
[NET-CHANGE-IN-ASSETS] 5,115,358
[ACCUMULATED-NII-PRIOR] 472,638
[ACCUMULATED-GAINS-PRIOR] (13,541)
[OVERDISTRIB-NII-PRIOR] 3,823
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 50,110
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 315,271
[AVERAGE-NET-ASSETS] 15,302,627
[PER-SHARE-NAV-BEGIN] 10.28
[PER-SHARE-NII] 0.45
[PER-SHARE-GAIN-APPREC] 0.06
[PER-SHARE-DIVIDEND] 0.47
[PER-SHARE-DISTRIBUTIONS] 0.06
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.26
[EXPENSE-RATIO] 1.25
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
EXHIBIT 18
Rule 18f-3 (d) Multiple Class Plan
for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d)
of
the Investment Company Act of 1940, as amended (the "1940
Act").
The purpose of the Plan is to restate the existing
arrangements
previously approved by the Boards of Directors and Trustees
of
certain of the open-end investment companies set forth on
Schedule A (the "Funds" and each a "Fund") distributed by
Smith
Barney Inc. ("Smith Barney") under the Funds' existing order
of
exemption (Investment Company Act Release Nos. 20042
(January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of
the
Funds are distributed pursuant to a system (the "Multiple
Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent
outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load
structure.
In addition, pursuant to Rule 12b-1 under the 1940 Act (the
"Rule"), the Funds have each adopted a plan (the "Services
and
Distribution Plan") under which shares of the Classes are
subject
to the services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and
under
the Services and Distribution Plan are subject to a service
fee
of up to 0.25% of average daily net assets. In addition,
the
Funds are permitted to asses a contingent deferred sales
charge
("CDSC") on certain redemptions of Class A shares sold
pursuant
to a complete waiver of front-end sales loads applicable to
large
purchases, if the shares are redeemed within one year of the
date
of purchase. This waiver applies to sales of Class A shares
where the amount of purchase is equal to or exceeds $500,000
although this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load,
but
are subject to a five-year declining CDSC and under the
Services
and Distribution Plan are subject to a service fee at an
annual
rate of up to 0.25% of average daily net assets and a
distribution fee at an annual rate of up to 0.75% of average
daily net assets.
3. Class C Shares
Class C shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual
rate
of up to 0.25% of average daily net assets and a
distribution fee
at an annual rate of up to 0.75% of average daily net
assets.
Unlike Class B shares, Class C shares do not have the
conversion
feature as discussed below and accordingly, these shares are
subject to a distribution fee for an indefinite period of
time.
The Funds reserve the right to impose these fees at such
higher
rates as may be determined.
4. Class Y Shares
Class Y shares are offered without impositions of either a
sales
charge or a service or distribution fee for investments
where the
amount of purchase is equal to or exceeds $5 million.
5. Class Z Shares
Class Z shares are offered without imposition of either a
sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Smith Barney and
its
affiliates, (ii) by certain unit investment trusts sponsored
by
Smith Barney and its affiliates, and (iii) although not
currently
authorized by the governing boards of the Funds, when and if
authorized, (x) by employees of Smith Barney and its
affiliates
and (y) by directors, general partners or trustees of any
investment company for which Smith Barney serves as a
distributor
and, for each of (x) and (y), their spouses and minor
children.
6. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of
the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a
Fund
are allocated among the various Classes of shares based on
the
net assets of the Fund attributable to each Class, except
that
each Class's net assets value and expenses reflect the
expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with
obtaining
shareholder approval of the Services and Distribution Plan
(or an
amendment thereto) and any expenses specific to that Class.
Such
expenses are limited to the following:
(I) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to
preparing and
distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class
of
shares;
(iv) Securities and Exchange Commission registration
fees
incurred by a Class of shares;
(v) the expense of administrative personnel and
services as
required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating
solely to
one Class of shares; and
(vii) fees of members of the governing boards of the
funds
incurred as a result of issues relating to one Class of
shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are
borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert
to
Class A shares after a certain holding period, expected to
be, in
most cases, approximately eight years but may be shorter.
Upon
the expiration of the holding period, Class B shares (except
those purchases through the reinvestment of dividends and
other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will,
as a
result, thereafter be subject to the lower fee under the
Services
and Distribution Plan. For purposes of calculating the
holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple
Class
System are deemed to have been issued on (i) the date on
which
the issuance of the Class B shares occurred or (ii) for
Class B
shares obtained through an exchange, or a series of
exchanges,
the date on which the issuance of the original Class B
shares
occurred.
Shares purchased through the reinvestment of dividends and
other
distributions paid in respect of Class B shares are also
Class B
shares. However, for purposes of conversion to Class A, all
Class B shares in a shareholder's Fund account that were
purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares (and that
have
not converted to Class A shares as provided in the following
sentence) are considered to be held in a separate sub-
account.
Each time any Class B shares in the shareholder's Fund
account
(other than those in the sub-account referred to in the
preceding
sentence) convert to Class A, a pro rata portion of the
Class B
shares then in the sub-account also converts to Class A.
The
portion is determined by the ratio that the shareholder's
Class B
shares converting to Class A bears to the shareholder's
total
Class B shares not acquired through dividends and
distributions.
The conversion of Class B shares to Class A shares is
subject to
the continuing availability of a ruling of the Internal
Revenue
Service that payment of different dividends on Class A and
Class
B shares does not result in the Fund's dividends or
distributions
constituting "preferential dividends" under the Internal
Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event
under
the Code. The conversion of Class B shares to Class A
shares may
be suspended if this opinion is no longer available, In the
event that conversion of Class B shares of not occur, Class
B
shares would continue to be subject to the distribution fee
and
any incrementally higher transfer agency costs attending the
Class B shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net
asset
value for shares of the same Class in certain other of the
Smith
Barney Mutual Funds as set forth in the prospectus for such
Fund.
Class A shareholders who wish to exchange all or part of
their
shares for Class A shares of a Fund sold subject to a sales
charge equal to or lower that that assessed with respect to
the
shares of the Fund being exchanged may do so without paying
a
sales charge. Class A shareholders of a Fund who wish to
exchange all or part of their shares for Class A shares of a
Fund
sold subject to a sales charge higher than that assessed
with
respect to the shares of the Fund being exchanged are
charged the
appropriate "sales charge differential." Funds only permit
exchanges into shares of money market funds having a plan
under
the Rule if, as permitted by paragraph (b) (5) of Rule 11a-3
under the 1940 Act, either (i) the time period during which
the
shares of the money market funds are held is included in the
calculations of the CDSC or (ii) the time period is not
included
but the amount of the CDSC is reduced by the amount of any
payments made under a plan adopted pursuant to the Rule by
the
money market funds with respects to those shares.
Currently, the
Funds include the time period during which shares of the
money
market fund are held in the CDSC period. The exchange
privileges
applicable to all Classes of shares must comply with Rule
11a-3
under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of August 25, 1995)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Equity Funds -
Smith Barney Strategic Investors Fund
Smith Barney Growth and Income Fund
Smith Barney Florida Municipals Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Income and Growth Portfolio
Utilities Portfolio
Income Return Account Portfolio
Monthly Payment Government Portfolio
Short-Term U.S. Treasury Securities Portfolio
U.S. Government Securities Portfolio
Smith Barney Income Funds -
Smith Barney Premium Total Return Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney High Income Fund
Smith Barney Tax-Exempt Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney Utilities Fund
Smith Barney Income Trust -
Smith Barney Limited Maturity Municipals Fund
Smith Barney Limited Maturity Treasury Fund
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity
New York Municipals Fund
Smith Barney Investment Funds Inc. -
Smith Barney Special Equities Fund
Smith Barney Government Securities Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Institutional Cash Management Fund Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Portfolio
California Limited Portfolio
California Money Market Portfolio
Florida Portfolio
Florida Limited Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New Jersey Portfolio
New York Portfolio
New York Money Market Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Growth Fund
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
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