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. 6 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 9 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) 816-6474
Christina T. Sydor
Secretary
Smith Barney Oregon Municipals Fund
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment becomes
effective
It is proposed that this filing become effective:
____ immediately upon filing pursuant to Rule 485(b)
__XX_ on August 28, 1997 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, 1997 was filed on June 16, 1997.
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
SMITH BARNEY
OREGON
MUNICIPALS
FUND
AUGUST 28, 1997
PROSPECTUS BEGINS ON PAGE ONE
P R O S P E C T U S
[LOGO] Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERYDAY.
<PAGE>
PROSPECTUS
August 28, 1997
Smith Barney Oregon Municipals Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
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 28, 1997, 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>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
- -------------------------------------------------
FINANCIAL HIGHLIGHTS 10
- -------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 12
- -------------------------------------------------
OREGON MUNICIPAL SECURITIES 18
- -------------------------------------------------
VALUATION OF SHARES 19
- -------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 19
- -------------------------------------------------
PURCHASE OF SHARES 21
- -------------------------------------------------
EXCHANGE PRIVILEGE 28
- -------------------------------------------------
REDEMPTION OF SHARES 31
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 33
- -------------------------------------------------
PERFORMANCE 33
- -------------------------------------------------
MANAGEMENT OF THE FUND 35
- -------------------------------------------------
DISTRIBUTOR 36
- -------------------------------------------------
ADDITIONAL INFORMATION 37
- -------------------------------------------------
</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>
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 and
local governments in the State of Oregon ("Oregon Municipal Securities") that
pay interest which is excluded from gross income for Federal income tax pur-
poses and exempt from Oregon state personal income taxes. Intermediate- and
long-term securities generally have remaining maturities at the time of pur-
chase of three to in excess of twenty years. See "Investment Objective and Man-
agement Policies."
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 of $500,000 or more will be made at net asset value with no initial
sales charge, but will be subject to a contingent deferred sales charge
("CDSC") of 1.00% on redemptions made within 12 months of purchase. See "Pro-
spectus Summary--Reduced or No Initial Sales Charge."
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.
3
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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
distributions ("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 serv-
ice or distribution fees.
In deciding which Class of Fund shares to purchase, investors should con-
sider the following factors, as well as any other relevant facts and circum-
stances:
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
accumulates shareholders may qualify for reduced sales charges and the shares
are subject to lower ongoing expenses over the term of the investment. As an
alternative, Class B and Class C shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional invested amounts may partially or wholly
offset the higher annual expenses of these Classes. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion 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,
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
they do not have a conversion feature, and therefore, are subject to an ongo-
ing distribution fee. Thus, Class B shares may be more attractive than Class C
shares to investors with longer term investment outlooks.
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
purchases which, when combined with current holdings of Class A shares offered
with a sales charge, equal or exceed $500,000 in the aggregate will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment may be met by adding the purchase 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 different Classes of shares. Investors should understand that the pur-
pose 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 "Man-
agement of the Fund" for a complete description of the sales charges and serv-
ice and distribution fees for each Class of shares and "Valuation of Shares,"
"Dividends, Distributions and Taxes" and "Exchange Privilege" for other dif-
ferences 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 Bar-
ney 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 mini-
mum investment for Class A, Class B and Class C shares and the subsequent
investment for all Classes through the Systematic Investment Plan are
described below. 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 Invest-
ment Plan under which they may authorize the automatic placement of a purchase
order each month or quarter for Fund shares. The minimum initial investment
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes for shareholders purchasing shares through
the Systematic Investment Plan on a monthly basis is $25 and on a quarterly
basis is $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM")
serves as the Fund's investment adviser and administrator. SBMFM provides
investment advisory and management services to investment companies affiliated
with Smith Barney. SBMFM is a wholly-owned subsidiary of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly-owned subsidiary of Travelers Group
Inc. ("Travelers"), a diversified financial services holding company engaged
through its subsidiaries principally in four business segments: Investment
Services, Consumer Finance Services, Life Insurance Services and Property &
Casualty Insurance Services. See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respec-
tive net asset values next determined. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are paid
monthly. Distributions of net realized long- and short-term capital gains, if
any, are declared and paid annually. 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 distribu-
tion 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
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
in the municipal securities of non-Oregon municipal issuers. Dividends paid by
the Fund which are derived from interest attributable to Oregon Municipal
Securities will be excluded from gross income for Federal income tax purposes
and exempt from Oregon state personal income taxes (but not from Oregon state
franchise tax or Oregon state corporate income tax). Dividends derived from
interest on obligations of non-Oregon municipal issuers will be exempt from
Federal income taxes, but may be subject to Oregon state personal income tax-
es. Dividends derived from certain municipal securities (including Oregon
Municipal Securities), however, may be a specific tax item for Federal alter-
native minimum 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."
The Fund is more susceptible to factors adversely affecting issuers of Ore-
gon municipal securities than is a municipal bond fund that does not emphasize
these issuers. See "Oregon Municipal Securities" in the Prospectus and "Spe-
cial Considerations Relating to Oregon Municipal Securities" in the Statement
of Additional Information for further details about the risks of investing in
Oregon 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 securi-
ties rated as low as C by Moody's Investors Service, Inc. ("Moody's") or D by
Standard & Poor's Ratings Group ("S&P"), or in unrated obligations of compara-
ble 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 principal payments.
There are several risks in connection with the use of certain portfolio
strategies by the Fund, such as the use of when-issued securities, municipal
bond index futures contracts and put and call options on interest rate futures
as hedging devices, municipal leases and securities lending. See "Investment
Objective and Management Policies--Certain Portfolio Strategies."
7
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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 operat-
ing expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
SMITH BARNEY
OREGON MUNICIPALS FUND 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) 0.12% 0.12% 0.12% 0.12%
12b-1 fees*** 0.15 0.65 0.70 None
Other expenses****(net of expense
reimbursement) 0.50 0.47 0.51 0.50
- -----------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.77% 1.24% 1.33% 0.62%
- -----------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more 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 of purchase.
** "Management fees" have been restated to reflect the management fee waiver
currently in effect for the Fund. Absent the fee waiver, the management
fee would be incurred at the rate of 0.50% of each Class' average daily
net assets for the current fiscal period. Absent the fee waiver and
expense reimbursement, total expenses would be at the rates of 1.41%,
1.93%, 1.96% and 1.26% for Class A, Class B, Class C and Class Y shares,
respectively.
*** 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 permit-
ted 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, 1997.
Class A shares of the Fund purchased through the Smith Barney AssetOne Pro-
gram will be subject to an annual asset-based fee, payable quarterly, in lieu
of the initial sales charge. The fee will vary to a maximum of 1.50%, depending
on the amount of assets held through the Program. For more information, please
call your Smith Barney Financial Consultant.
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
8
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
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.
EXAMPLE
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>
SMITH BARNEY
OREGON MUNICIPALS FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS*
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A $48 $64 $81 $132
Class B 58 69 78 137
Class C 24 42 73 160
Class Y 6 20 35 77
- ------------------------------------------------------------------------------
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A $48 $64 $81 $132
Class B 13 39 68 137
Class C 14 42 73 160
Class Y 6 20 35 77
- ------------------------------------------------------------------------------
</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 REPRESEN-
TATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the two years ended April 30, 1997 has been
audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon
appears in the Fund's Annual Report dated April 30, 1997. The information for
the fiscal period ended April 30, 1995 has been audited by another independent
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
Information. As of April 30, 1997, no Class Y shares had been sold and, accord-
ingly, 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 A SHARES CLASS B SHARES
SMITH BARNEY ----------------------- ------------------------
OREGON MUNICIPALS FUND 1997 1996 1995(1) 1997 1996 1995(1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $10.26 $10.09 $ 9.55 $10.25 $10.09 $ 9.55
- ------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment
income(2) 0.54 0.55 0.49 0.48 0.49 0.44
Net realized and
unrealized gain 0.16 0.22 0.54 0.17 0.22 0.55
- ------------------------------------------------------------------------------
Total Income From Oper-
ations 0.70 0.77 1.03 0.65 0.71 0.99
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS
FROM:
Net investment income (0.54) (0.54) (0.49) (0.49) (0.49) (0.45)
Net realized gains (0.13) (0.06) -- (0.13) (0.06) --
Excess of net realized
gains (0.02) -- -- (0.02) -- --
- ------------------------------------------------------------------------------
Total Distributions (0.69) (0.60) (0.49) (0.64) (0.55) (0.45)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $10.27 $10.26 $10.09 $10.26 $10.25 $10.09
- ------------------------------------------------------------------------------
TOTAL RETURN(3) 7.01% 7.70% 11.08%++ 6.48% 7.09% 10.59%++
- ------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(000S) $9,769 $7,520 $6,323 $13,184 $9,861 $6,556
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses(2) 0.65% 0.66% 0.82%+ 1.17% 1.21% 1.36%+
Net investment income 5.21 5.21 5.28+ 4.69 4.62 4.74+
- ------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 37% 75% 30% 37% 75% 30%
- ------------------------------------------------------------------------------
</TABLE>
(1) For the period from May 23, 1994 (inception date) to April 30, 1995.
(2) The investment adviser and administrator waived all or part of their fees
for the years ended April 30, 1997 and April 30, 1996 and the period ended
April 30, 1995. In addition, the investment adviser has reimbursed the Fund
for $53,166, $85,446 and $64,336 in expenses for the years ended April 30,
1997 and April 30, 1996 and the period ended April 30, 1995, respectively.
If such fees 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
------------------------ ----------------------
1997 1996 1995 1997 1996 1995
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Class A $0.07 $0.11 $0.12 1.41% 1.75% 2.05%+
Class B 0.07 0.11 0.11 1.93 2.29 2.59+
</TABLE>
(3) 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
which was made on October 24, 1994. The total amount of this contribution
was $251,349 and $221,556 for Class A and B Shares, respectively. Without
this cash contribution the total returns would have been 6.23% and 5.55%,
respectively.
++Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS C SHARES
----------------
SMITH BARNEY
OREGON MUNICIPALS FUND 1997 1996(1)
- ------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.26 $10.28
- ------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(2) 0.47 0.45
Net realized and unrealized gain 0.17 0.06
- ------------------------------------------------------
Total Income From Operations 0.64 0.51
- ------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.48) (0.47)
Net realized gains (0.13) (0.06)
Excess of net realized gains (0.02) --
- ------------------------------------------------------
Total Distributions (0.63) (0.53)
- ------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.27 $10.26
- ------------------------------------------------------
TOTAL RETURN 6.43% 4.99%++
- ------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $913 $614
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2) 1.21% 1.25%+
Net investment income 4.66 4.80+
- ------------------------------------------------------
PORTFOLIO TURNOVER RATE 37% 75%
- ------------------------------------------------------
</TABLE>
(1) For the period from May 16, 1995 (inception date) to April 30, 1996.
(2) The investment adviser and administrator waived all or part of their fees
for the year ended April 30, 1997 and the period ended April 30, 1996. In
addition, the investment adviser has reimbursed the Fund for $53,166 and
$85,446 in expenses for the year ended April 30, 1997 and the period ended
April 30, 1996, respectively. If such fees were not waived and expenses
were not reimbursed, the per share effect on the net investment income and
the expense ratios would have been as follows:
<TABLE>
<CAPTION>
EXPENSE RATIOS
PER SHARE DECREASES WITHOUT FEE WAIVERS
TO NET INVESTMENT INCOME AND REIMBURSEMENT
------------------------ -------------------
1997 1996 1997 1996
------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
Class C $0.06 $0.10 $1.96 2.38%+
</TABLE>
++Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
11
<PAGE>
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 Municipal Securities, and at least 65% of the aggregate principal amount of
the Fund's investments 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 Other Municipal Securities, the
interest on which is excluded from gross income for Federal income tax pur-
poses (not including the possible applicability of a Federal alternative mini-
mum tax), but which is subject to Oregon state personal income tax. When SBMFM
believes that market conditions warrant adoption of a temporary defensive
investment posture, the Fund may invest without limit in Other Municipal
Securities and in "Temporary Investments" as described below.
The Fund generally will invest at least 75% of its total assets in invest-
ment 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 SBMFM to be comparable in quality to instruments so rated, or if
other outstanding 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.") 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
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.
12
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Low and Comparable Unrated Securities. While the market values of low-rated
and comparable unrated securities tend to react less to fluctuations in inter-
est rate levels than the market values of higher-rated securities, the market
values of certain low-rated and comparable unrated municipal securities also
tend to be more sensitive than higher-rated securities to short-term corporate
and industry developments and changes in economic conditions (including reces-
sion) in specific regions or localities or among specific types of issuers. In
addition, low-rated securities and comparable unrated securities generally
present a higher degree of credit risk. During an economic downturn or a pro-
longed period of rising interest rates, the ability of issuers of low-rated and
comparable unrated securities to service their payment obligations, meet pro-
jected goals or obtain additional financing may be impaired. The risk of loss
due to default by such issuers is significantly greater because low-rated and
comparable unrated securities generally are unsecured and frequently are subor-
dinated to the prior payment of senior indebtedness. The Fund may incur addi-
tional expenses to the extent it is required to seek recovery upon a default in
payment of principal or interest on its portfolio holdings.
While the market for municipal securities is considered to be generally ade-
quate, the existence of limited markets for particular low-rated and comparable
unrated securities may diminish the Fund's ability to (a) obtain accurate mar-
ket quotations for purposes of valuing such securities and calculating its net
asset value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in the financial markets.
The market for certain low-rated and comparable unrated securities is rela-
tively new and has not fully weathered a major economic recession. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
Fixed-income securities, including low-rated securities and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as the
Fund. 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-
13
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
appropriation" clauses which provide that the municipality 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 relatively new type of
financing that has not yet developed the depth of marketability 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 factors as it deems
appropriate, which may include: (a) whether the lease can be canceled; (b) the
ability of the lease obligee to direct the sale of the underlying assets; (c)
the general creditworthiness of the lease obligor; (d) the likelihood that the
municipality will discontinue appropriating funding for the leased property in
the event such property is no longer considered essential by the municipality;
(e) the legal recourse of the lease obligee in the event of such a failure to
appropriate funding; (f) whether the security is backed by a credit enhance-
ment such as insur-ance; and (g) any limitations which are imposed on the
lease obligor's ability to utilize substitute property or services rather than
those covered by the lease 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 min-
imum 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
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 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 pro-
portion of its assets that it may invest in the obligations of a single issu-
er. 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 earn-
ings are distributed to shareholders.
14
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 securi-
ties 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 securities of a single issuer. The Fund's
assumption of large positions in the obligations of a small number of issuers
may cause the Fund's share price to fluctuate to a greater extent than that of
a diversified company as a result of changes in the financial condition or in
the market's assessment of the issuers.
The Fund may invest without limit in debt obligations that are repayable out
of revenue streams generated from economically-related projects or facilities.
Sizable investments in such obligations could involve an increased risk to the
Fund should any of the related projects or facilities experience financial dif-
ficulties. In addition, the Fund may invest up to an aggregate of 15% of its
total assets in securities with contractual or other restrictions on resale and
other instruments which are not readily marketable. The Fund also is authorized
to borrow 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, debt securities of
15
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
any grade or equity securities, having a value equal to or greater than the
Fund's purchase commitments, provided such securities have been determined by
the SBMFM to be liquid and unencumbered, and are marked to market daily, pursu-
ant to guidelines established by the Trustees. 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 Municipal
Securities (and other tax-exempt obligations) on a when-issued basis only with
the intention of actually acquiring the securities, but the Fund may sell such
securities before the delivery date if it is deemed advisable.
Temporary Investments. Under normal market conditions, the Fund may hold up
to 20% of its total assets in cash or money market instruments, including tax-
able money market instruments ("Temporary Investments"). In addition, when
SBMFM believes that market conditions warrant, including when acceptable Oregon
Municipal Securities are not available, the Fund may take a temporary defensive
posture and invest without limitation in Temporary Investments. Tax-exempt
securities eligible for short-term investment by the Fund are municipal notes
having, at the time of purchase, a rating within the three highest 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
contracts 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
16
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 per-
formance bond or good faith deposit on the contract that is returned to the
Fund upon termination of the futures contract, assuming all contractual obli-
gations have been satisfied. In accordance with a process known as "marking-
to-market," subsequent payments known as "variation margin," to and from the
broker will be made daily as the price of the index or securities underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable. At any time prior to the expiration 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 pur-
chaser the right, in return for the premium paid, to assume a position in the
financial 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 potential loss related to the purchase of an option on financial futures
contracts is limited to the premium paid for the option (plus transaction
costs). The value of the option may change daily and that change would be
reflected in the net asset value of the Fund.
Regulations of the Commodity Futures Trading Commission applicable to the
Fund require that its transactions in financial futures contracts and options
on financial futures contracts engaged in for other than bona fide hedging
purposes 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 segre-
gated 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
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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, let-
ters 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 (determined by
marking to market daily) of the loaned securities. The risks in lending port-
folio securities, as with other extensions of secured credit, consist of pos-
sible 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 gener-
ally is fixed at a lower rate than it would be if it were subject to such tax-
es. Interest income on certain municipal securities (including Oregon Munici-
pal Securities) is a specific tax preference item for purposes of the Federal
individual and corporate alternative minimum taxes.
CLASSIFICATIONS
The two principal classifications of Oregon Municipal Securities are "gen-
eral 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 rev-
enues 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 facilities experience financial difficulties. In addition, cer-
tain types of private activity bonds issued by or on behalf of public authori-
ties to obtain funds for privately operated facilities are included in the
term Oregon Municipal Securities, 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.
18
<PAGE>
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 Boardof Trustees. Short-term investments that mature in 60 days
or less are valued at amortized cost whenever the Trustees determine that amor-
tized cost is fair value. Amortized cost valuation involves valuing an instru-
ment at its cost initially and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. Further information
regarding the Fund's valuation policies is contained in the Statement of Addi-
tional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its net investment income (that is, income
other than its net realized long- and short-term capital gains) monthly. Dis-
tributions of net realized long- and short-term capital gains, if any, are
declared and paid annually.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 of each year of any undistributed ordi-
nary income or capital gains and expects to pay any other distributions as are
necessary to avoid the application of this tax.
If, for any full fiscal year, the Fund's total distributions exceed net
investment income and net realized capital gains, the excess distributions may
be treated as a tax-free return of capital (up to the amount of the sharehold-
er's tax basis in his or her shares). The amount treated as a tax-free return
of capital will reduce a shareholder's adjusted basis in his or her shares.
Pursuant to the requirements of the 1940 Act and other applicable laws, a
notice will accompany any distribution paid from sources other than net invest-
ment income. In the event the Fund distributes
19
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
amounts in excess of its net investment income and net realized capital gains,
such distributions may have the effect of decreasing the Fund's total assets,
which may increase the Fund's expense ratio.
The per share dividends on Class B and Class C shares may be lower than the
per share dividends on Class A and Class Y shares principally as a result of
the distribution fee applicable with respect to Class B and Class C shares. The
per share dividends on Class A shares of the Fund may be lower than the per
share dividends on Class Y shares principally as a result of the service fee
applicable to Class A shares. Distributions of capital gains, if any, will be
in the same amount for Class A, B, C and Y shares.
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.
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.
20
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Statements as to the tax status of each shareholder's dividends and distribu-
tions are mailed annually. Each shareholder will also receive, if appropriate,
various written notices after the close of the Fund's prior taxable year as to
the Federal income tax status of his or her dividends and distributions which
were received from the Fund during the Fund's prior taxable year. These state-
ments set forth the dollar amount of income excluded from Federal income taxes
or Oregon state personal income taxes and the dollar amount, if any, subject to
Federal income taxes. Moreover, these statements will designate the amount of
exempt-interest dividends that is a specific preference item for purposes of
the Federal individual and corporate alternative minimum taxes. Shareholders
should consult their tax advisors with specific reference to their own tax
situations.
PURCHASE OF SHARES
GENERAL
The Fund offers four classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without an
initial sales charge but are subject to a CDSC payable upon certain redemp-
tions. Class Y shares are sold without an initial sales charge or CDSC and are
available only to investors investing a minimum of $5,000,000. See "Prospectus
Summary-- Alternative Purchase Arrangements" for a discussion of factors to
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. Smith
Barney and other broker/dealers may charge their customers an annual account
maintenance fee in connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly at the Fund's trans-
fer agent, First Data Investor Services Group Inc. (the "Transfer Agent") are
not subject to a maintenance fee.
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 sharehold-
ers purchasing shares of the Fund through the Fund's Systematic Investment Plan
on a monthly basis, the minimum initial investment requirement for Class A,
Class B and Class C shares and the subsequent investment requirement for all
Classes is $25. For shareholders purchasing shares of the Fund through the Sys-
tematic Invest -
21
<PAGE>
PURCHASE OF SHARES (CONTINUED)
ment Plan on a quarterly basis, 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 Transfer Agent. Share certificates
are issued only upon a shareholder's written request to the Transfer Agent.
The minimum initial and subsequent investment requirements in the Fund for an
account established under the Uniform Gift to Minors Act is $250 and the subse-
quent investment requirement is $50.
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.
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 at least $25 on a monthly basis or at least
$50 on a quarterly basis 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 share-
holder 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 Systematic Invest-
ment Plan also authorizes Smith Barney to apply cash held in the shareholder's
Smith Barney brokerage account or redeem the shareholder's shares of a Smith
Barney money market fund to make additions to the account. Additional informa-
tion is available from the Fund or a Smith Barney Financial Consultant.
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
as follows:
<TABLE>
<CAPTION>
DEALERS
SALES CHARGE AS % SALES CHARGE AS % REALLOWANCE AS
AMOUNT OF INVESTMENT OF TRANSACTION OF AMOUNT INVESTED % OF OFFERING PRICE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $ 25,000 4.00% 4.17% 3.60%
$ 25,000 - $ 49,999 3.50 3.63 3.15
$ 50,000 - $ 99,999 3.00 3.09 2.70
$100,000 - $249,999 2.50 2.56 2.25
$250,000 - $499,999 1.50 1.52 1.35
$500,000 and over * * *
- ---------------------------------------------------------------------------------
</TABLE>
* Purchases of Class A shares of $500,000 or more 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 and his or her immediate family, or a trustee or other fiduciary of
a single trust estate or single fiduciary account.
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
persons and (ii) employees of members of the National Association of Securi-
ties Dealers, Inc., provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes and that the secu-
rities will not be resold except through redemption or repurchase; (b) offers
of Class A shares to any other investment company to effect 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
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
90 days from the commencement of the Financial Consultant's employment with
Smith Barney), on the condition the purchase of Class A shares is made with the
proceeds of the redemption of shares of a mutual fund which (i) was sponsored
by the Financial Consultant's prior employer, (ii) was sold to the client by
the Financial Consultant and (iii) was subject to a sales charge; (d) purchases
by 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) and who wish to reinvest their redemption proceeds in the Fund, pro-
vided the reinvestment is made within 60 calendar days of the redemption; (e)
purchases by accounts managed by registered investment advisory subsidiaries of
Travelers; (f) investments of distributions from a UIT sponsored by Smith Bar-
ney; and (g) purchases by investors participating in a Smith Barney fee based
arrangement. In order to obtain such discounts, the purchaser must provide suf-
ficient information at the time of purchase to permit verification that the
purchase would qualify for the elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of funds sponsored by Smith Barney which are
offered with a sales charge listed under "Exchange Privilege" then held by such
person and applying the sales charge applicable to such aggregate. In order to
obtain such discount, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase qualifies for the
reduced sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth under
"Initial Sales Charge Alternative--Class A Shares," and will be based upon the
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
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 individual 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 uni-
form criteria which enable Smith Barney to realize economies of scale in its
costs of distributing shares. A qualified group must have more than 10 members,
must be available to arrange for group meetings between representatives of the
Fund and the members, and must agree to include sales and other materials
related to the Fund in its publications and mailings to members at no cost to
Smith Barney. In order to obtain such reduced sales charge or to purchase at
net asset value, the 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 Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes (i) all
Class A shares of the Fund and other 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
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
within the six month period, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject to all fees (includ-
ing 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 trans-
fer will not be subject to Federal income taxes. Please contact 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 certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class C
shares; and (c) Class A shares that were purchased without an initial sales
charge but subject to a CDSC.
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>
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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. 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 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 to effect 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.
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Disciplined Small Cap Fund, Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Growth and Income Funds
Concert Social Awareness Fund
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Equity Income Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return 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.--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.
28
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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 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--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
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 Allocation Series Inc.
Smith Barney Concert Allocation Series Inc.--Balanced Portfolio
Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
Smith Barney Concert Allocation Series Inc.--Growth Portfolio
Smith Barney Concert Allocation Series Inc.--High Growth Portfolio
Smith Barney Concert Allocation 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 and Class B 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.
29
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Class B Exchanges. In the event a Class B shareholder 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 A and Class Y Exchanges. Class A and Class Y shareholders of the Fund
who wish to exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without impo-
sition 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
determine 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 shareholder. Upon such a determination, the Fund will provide notice in
writing or by telephone to the shareholder at least 15 days prior to sus-
pending 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 con-
sidered in determining 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 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.
30
<PAGE>
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.
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 5128
Westborough, Massachusetts 01581-5128
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
31
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
exchange. Written redemption requests of $2,000 or less do not require a signa-
ture guarantee unless more than one such redemption request is made in any 10-
day period. Redemption proceeds will be mailed to an investor's address of rec-
ord. The Transfer Agent may require additional supporting documents for redemp-
tions made by corporations, executors, administrators, trustees or guardians. A
redemption request will not be deemed properly received until the Transfer
Agent receives all required documents 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.)
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 5:00
p.m. (New York City time) on any day the NYSE is open. Redemption requests
received after the close of regular trading on the NYSE are priced at the net
asset value next determined. Redemptions of shares (i) by retirement plans or
(ii) for which certificates have been issued are not permitted under this pro-
gram.
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
32
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
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 5:00 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 instruc-
tions communicated 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.
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 with-
drawal 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 share-
holder's shares subject to the CDSC.) For further information regarding the
automatic cash withdrawal plan, shareholders should contact a Smith Barney
Financial Consultant.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account 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 involuntary liquidation.
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
33
<PAGE>
PERFORMANCE (CONTINUED)
an investment in those shares over the 30-day period identified in the adver-
tisement 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 com-
pounded semi-annually. The annualized income is then shown as a percentage of
the net asset value.
The equivalent taxable yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to the Fund's tax-exempt yield
for each Class. It is calculated by increasing the yield shown for the Class to
the extent necessary to reflect the payment of taxes at specified tax rates.
Thus, the equivalent taxable yield always will exceed the Fund's yield.
TOTAL RETURN
From time to time, the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A, Class
B, Class C and Class Y shares of the Fund. These figures are based on histori-
cal earnings and are not intended to indicate future performance. Total return
is computed for a specific period of time assuming deduction of the maximum
sales charge, if any, from the initial amount invested and reinvestment of all
income dividends and capital gain distributions on the reinvestment dates at
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.
34
<PAGE>
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, includ-
ing agreements with its distributor, investment adviser, administrator, custo-
dian 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. SBMFM (through predecessor entities) has been
in the investment counseling business since 1934 and is a registered invest-
ment adviser. SBMFM renders investment advice to investment companies that had
aggregate assets under management as of July 31, 1997 in excess of $81 bil-
lion.
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
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities and employs professional portfo-
lio managers 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. For the
fiscal year ended April 30, 1997, SBMFM waived investment advisory fees equal
to 0.30% of the value of the average daily net assets of the Fund.
SBMFM also serves as the Fund's administrator and oversees all aspects of
the Fund's administration. For administration services rendered, the Fund pays
SBMFM a fee at the following annual rates of average daily net assets: 0.20%
to $500 million and 0.18% of the value of its average daily net assets in
excess of $500 million. For the period ended April 30, 1997, SBMFM waived
administration fees equal to 0.20% of the value of the average daily net
assets of the Fund.
PORTFOLIO MANAGEMENT
Peter M. Coffey, Vice President and Investment Officer of the Fund since
May 10, 1994 and a Managing Director of SBMFM, is responsible for managing the
day-to-day operations of the Fund including making all investment decisions.
Management's discussion and analysis, and additional performance information
regarding the Fund during the fiscal period ended April 30, 1997 is included
in the
35
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
Annual Report dated April 30, 1997. A copy of the Annual Report may be obtained
upon request and without charge from a Smith Barney Financial Consultant or by
writing or calling the Fund at the address or phone number listed on page one
of this Prospectus.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee
with respect to Class A, Class B and Class C shares of the Fund at the annual
rate of 0.15% of the average daily net assets of the respective Class. Smith
Barney is also paid a distribution fee with respect to Class B and Class C
shares at the rate of 0.50% and 0.55%, respectively, of the average daily net
assets attributable to those Classes. Class B shares which automatically con-
vert to Class A shares eight years after the date of original purchase will no
longer be subject to a distribution fee. The fees are used by Smith Barney to
pay its Financial Consultants for servicing shareholder accounts and, in the
case of Class B and Class C shares, to cover expenses primarily intended to
result in the sale of those shares. These expenses include: advertising
expenses; the cost of printing and mailing prospectuses to potential investors;
payments to and expenses of Smith Barney Financial Consultants and other per-
sons who provide support services in connection with the distribution of
shares; interest and/or carrying charges; and indirect and overhead costs of
Smith Barney in connection with the sale of Fund shares, including lease, util-
ity, communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Fund's 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.
36
<PAGE>
ADDITIONAL INFORMATION
The Fund was organized on March 10, 1994 under the laws of the Commonwealth
of Massachusetts and is a business entity commonly known as a "Massachusetts
business trust." The Fund is registered with the SEC as a non-diversified,
open-end management investment company.
Each Class of the Fund represents an identical interest in the Fund's invest-
ment portfolio. As a result, the Classes have the same rights, privileges and
preferences, except with respect to: (a) the designation of each Class; (b) the
effect of the respective sales charges for each Class; (c) the distribution
and/or service fees borne by each Class; (d) the expenses allocable exclusively
to each Class; (e) voting rights on matters exclusively affecting a single
Class; (f) the exchange privilege of each Class; and (g) the conversion feature
of the Class B shares. The Board of Trustees does not anticipate that there
will be any conflicts among the interests of the holders of the different Clas-
ses. The Trustees, on an ongoing basis, will consider whether any such conflict
exists and, if so, take appropriate action.
The Fund does not hold annual shareholder meetings. There normally will be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders. The Trustees will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Fund's outstanding
shares, and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full share owned and a
proportionate, fractional vote for any fractional share held of that Class.
Generally, shares of the Fund will be voted on a Fund-wide basis on all matters
except matters affecting only the interests of one Class.
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.
37
<PAGE>
SMITH BARNEY
---------------------------------
A Member of TravelersGroup [LOGO]
SMITH BARNEY
OREGON
MUNICIPALS
FUND
388 Greenwich Street
New York, New York 10013
FD0543 8/97
SMITH BARNEY OREGON MUNICIPALS FUND
PART B
Smith Barney
Oregon Municipals Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Statement of Additional Information
August 28, 1997
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 28, 1997, 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 this Statement of Additional Information, except where
shown below:
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") 21
Taxes (See in the Prospectus "Dividends, Distributions and Taxes")
25
Additional Information 29
Financial Statements 29
Appendix 30
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:
Name Service
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") Transfer Agent
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 74). Private Investor. His address is
273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Trustee (Age 74). Retired; formerly Senior
Consultant to Dean Witter Reynolds Inc. His address is 19 Circle End
Drive, Ramsey, New Jersey 07466.
Martin Brody, Trustee (Age 76). Priave Investor. Formerly, Vice
Chairman of the Board of Restaurant Associates Corp. His address is HMK
Associates, 30 Columbia Turnpike, Florham Park, New Jersey 07932.
Dwight B. Crane, Trustee (Age 59). 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 66). 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 45 Rockefeller Plaza, New York, New
York 10021.
Elliot S. Jaffe, Trustee (Age 71). 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 65). Attorney. His address is 277
Park Avenue, New York, New York 10172.
Joseph J. McCann, Trustee (Age 67). Financial Consultant. His
address is 200 Oak Park Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer (Age
64). Managing Director of Smith Barney and Chairman of Smith Barney
Strategy Advisers Inc.; President of SBMFM and Travelers Investment
Adviser, Inc. ("TIA"); 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 41 Smith Barney Mutual
Funds. His address is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr., Trustee (Age 63). 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.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 40).
Managing Director of Smith Barney; Director and Senior Vice President of
SBMFM and TIA. Mr. Daidone serves as Senior Vice President and
Treasurer of 41 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; 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 46). Managing Director of Smith
Barney; General Counsel and Secretary of SBMFM and TIA. Ms. Sydor
serves as Secretary of 41 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 15, 1997, 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 15, 1997, to the knowledge of the Fund and the
Board, the following shareholders 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:
Class C Shares
Dennis William Rohling
Rebecca Rohling Co-TTEES
U/A/D 5/17/90
FBO The Rohling Family Trust
1260 Flintridge
Eugene, OR 97401
owned 16,546.591 (14.08%) shares
Nell V. Piper
1446 N. 14th Street
Cods Bay, OR 97420
owned 7,207.99 (6.14%) shares
Gregory Peterson
3410 NW Raven Pl.
Corvallis, OR 97330
owned 6,9998.769 (5.96%) shares
Mahlon P. Goodwin & N Ruth
Goodwin TTEE Mahlon P. Goodwin
& N. Ruth Goodwin Family Trust
U/A/D 10/03/91
2010 Manorview Circle
Salem, OR 97304
owned 6,372.982 (5.42%) shares
Roy E. Holbrook & Luanna
Holbrook Trustee FBO Roy E
& Luanna Holbrook Rev Liv Trust
U/A/D
Box 42
Mehama, OR 97484
owned 6,285.384 (5.35%) shares
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. Upon attainment of age 80 Trustees are
required to change to emeritus status. Trustees Emeritus are entitled
to serve in emeritus status for ten years. Each Trustee emeritus who is
not an officer, director or employee of Smith Barney or any of its
affiliates is paid a fee of $1,250 per annum plus $125 per in-person
meeting and $50 per telephonic meeting. During the Fund's last fiscal
year aggregate compensation paid by the Fund to Trustees achieving
emeritus status totaled $1,800. The Fund reimburses all Trustees for
travel and out-of-pocket expenses.
For the fiscal year ended April 30, 1997, the Trustees of the Fund
were paid the following compensation:
Total
Pension or Compensation Number of
Retirement from Fund Funds for
Aggregate Benefits Accrued and Fund Which
director
Compensation as part of Complex Serves Within
Name of Person from Fund Fund Expenses Paid to Directors Fund
Complex
Herbert Barg $3,700 $0 $105,175 16
Alfred Bianchetti 3,600 0 51,500 11
Martin Brody 3,250 0 124,285 19
Dwight Crane 3,600 0 140,675 22
Burt Dorsett+ 3,450 0 47,400 11
Elliot Jaffe 3,350 0 47,300 11
Stephen Kaufman 3,700 0 92,335 13
Joseph McCann 3,700 0 52,700 11
Heath McLendon++ 0 0 0 41
Cornelius Rose 3,700 0 51,400 11
+ 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: $1,600. As of January 1, 1997, Mr. Dorsett has elected not to
defer his future compensation.
++ Desigantes an "interested" Trustee.
Investment Adviser and Administrator-SBMFM
SBMFM serves as investment adviser to the Fund. SBMFM is a wholly
owned subsidiary 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 16, 1997. The services
provided by SBMFM under the Advisory Agreement are described in the
Prospectus under "Management of the Fund."
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, 1997, the Fund incurred investment advisory fees of
$63,124, all of which were waived. 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 16, 1997. 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. For the fiscal year ended April 30,
1997, the Fund incurred administration fees in the amount of $42,083,
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
LLP 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, 1998.
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 Ratings Group ("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
commissions for the fiscal year ended April 30, 1997.
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, 1996 and 1997, the Fund's portfolio turnover rate
was 30%, 75% and 37%, 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, debt
securities of any grade or equity securities, having a value equal to or
greater than the Fund's purchase commitments, provided such securities
have been determined by SBMFM to be liquid and unencumbered, and are
marked to market daily, pursuant to guidelines established by the Board
of Trustees. 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
sources 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 and 3.9% in 1996.
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 1996. 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. The faint signs of a slowing
economy, which appeared in the first three months of 1997, are expected
to become more visible in the quarters ahead. The short-term forecast
calls for lower growth rates in Oregon's construction and manufacturing
sectors. State 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 6.9% in 1997 and 5.6% in 1998. Job growth is
expected to grow 2.3% in 1998.
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
1990, the State's population has increased by almost 12% and some have
estimated it to be approximately 3.2 million.
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 State's population is
expected to grow 1.7% in both 1997 and 1998.
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.
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. During the last six years, Measure Five
has transferred to local schools $3.27 billion formerly allocated to
human resources, natural resources and higher education programs..
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.
Financial operations continue to be very positive. The March
forecast increased revenue for the 1995-97 biennium by $61.7 million,
bringing the estimate to about $500 million or 7.2% above the original
level. While personal income taxes are expected to be 5% above the
estimate, corporate income taxes are up approximately 30%. The general
fund is now expected to close at June 30, 1997 with a balance of $600
million, which together with estimated revenues, provides nearly $8.8
billion for the 1997-99 biennium. Revenues in 1997-99 are expected to
rise 9.5% from the prior period. The slower growth, down from 13% in
1995-97, reflects the 2% kicker which is triggered by revenues in excess
of estimates aand mandates tax rebates. The lottery forecast is up a
little but is still 7% below original expectations, due to competition
from Indian tribal casinos. The proposed budget for 1997-99 is in
balance and includes a recommendation that the 2% kicker be diverted to
education.
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.
The State's debt burden is manageable even though growth measures
have brought about significant capital needs, specifically in the area
of prison construction given voter-mandated sentencing guidelines. The
State's outstanding general obligation debt is $3.3 billion of which
only $117 million is supported by general fund revenues. The State's
overall gross debt per capita, including revenue debt, presently, is
$1,416 per capita.
Additional Considerations. Several general fund commitments
reduce the State's ability to allocate money as the needs arise, such
as: (a) the "kicker law" ( this law states that if actual income taxes
exceed state predictions by more than two percent, all the funds above
the projection must be rebated to personal and corporate taxpayers);
(b)Measure Five which diverts general fund money to replace reduced
property taxes for local schools and community colleges; (c) Measure
Eleven which increased criminal sentences, ultimately requiring more
than $1 billion for the general fund to build prisons and fund
operations; and (d) Measure 47 which is the property tax cut anc cap
(this measure will reduce revenues to schools, citiies and counties by
as much as $1 billion.)
Although Oregon is facing many restrictions on its ability to
raise property tax revenues or keep revenues in the general fund which
are above forecasted levels, the State's economy is well diversified and
expanding.
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, equaling 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
16, 1997. For the 1995, 1996 and 1997 fiscal years, Smith Barney
received approximately $158,000, $59,000 and $43,000, 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, 1996 and 1997
fiscal years, the Fund's distributor received approximately $11,000,
$13,000, $25,000 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, 1997, Smith Barney incurred
distribution expenses totaling approximately $226,900, consisting of
approximately $10,100 for advertising, $1,100 for printing and mailing
of Prospectuses, $67,000 for support services, $142,000 to Smith Barney
Financial Consultants, and $6,600 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, 1997, the Fund's Class A,
Class B and Class C shares paid $13,359, $73,866 and $5,286,
respectively, in service and 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 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.
B. 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.
C. Class Y and Class A shareholders of the Fund who wish to exchange
all or a portion of their shares of the respective Class in any of
the Smith Barney Mutual Funds listed in the "Exchange Privilege"
section of the Fund's Prospectus may do so without the imposition
of any charge.
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):
2.70% for the one year period from May 1, 1996 through April 30,
1997.
7.26% per annum during the period from May 23, 1994 (commencement
of operations) through April 30, 1997, including the effect of a
voluntary cash contribution.
5.89% per annum during the period from May 23, 1994 through April
30, 1997, 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:
7.01% for the one year period from May 1, 1996 through April 30,
1997.
8.77% per annum during the period from May 23, 1994 through April
30, 1997, including the effect of the cash contribution.
7.38% per annum during the period from May 23, 1994 through April
30, 1997, 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):
1.98% for the one year period from May 1, 1996 through April 30,
1997.
7.33% per annum during the period from May 23, 1994 (commencement
of operations) 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.
5.77% per annum during the period from May 23, 1994 through April
30, 1997, 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:
6.48% for the one year period from May 1, 1996 through April 30,
1997.
8.21% per annum during the period from May 23, 1994 through April
30, 1997, including the effect of the cash contribution.
6.68% per annum during the period from May 23, 1994 through April
30, 1997, 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):
5.43% for one year period from May 1, 1996 through April 30, 1997.
5.83% for the period from May 16, 1995 (commencement of operations)
through April 30, 1997.
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:
6.43% for the one year period from May 1, 1996 through April 30, 1997.
5.83% for the period from May 16, 1995 through April 30, 1997.
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, 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 Group, 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, 1997
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, 1997 and the Report of Independent Accountants dated June 12,
1997 are incorporated by reference to the Definitive 30b2-1 filed on
July 7, 1997 as Accession Number 91155-97-000311.
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
incorporated
by reference to Post-Effective Amendment No. 5.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
(1)
Title of Class
Beneficial Interest, par value $.001
per share
(2)
Number of Record Holders
as of August 15, 1997
Class A
256
Class B
384
Class C
38
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.,
("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., which in turn is a wholly owned subsidiary of Travelers Group Inc.
("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).
Item 29. Principal Underwriters
(a) Smith Barney Inc. ("Smith Barney") also acts as principal
underwriter for Consulting Group Capital Markets Funds;
Global Horizons Investment Series (Cayman Islands);
Greenwich Street California Municipal Fund Inc.; Greenwich Street
Municipal Fund Inc.;
High Income Opportunity Fund Inc.; The Italy Fund Inc.;
Managed High Income Portfolio Inc.;
Managed Municipals Portfolio II Inc.; Managed Municipals Portfolio
Inc.;
Municipal High Income Fund Inc.; Puerto Rico Daily Liquidity Fund Inc.;
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 Inc.;
Smith Barney Concert Allocation Series Inc.;
Smith Barney Disciplined Small Cap Fund, Inc.;
Smith Barney Equity Funds; Smith Barney Fundamental Value Fund Inc.;
Smith Barney Funds, Inc.; Smith Barney Income Funds; Smith Barney Income
Trust;
Smith Barney Institutional Cash Management Fund, Inc.;
Smith Barney Intermediate Municipal Fund, Inc.; Smith Barney Investment
Funds Inc.;
Smith Barney Investment Trust; Smith Barney Managed Governments Fund
Inc.;
Smith Barney Managed Municipals Fund Inc.;
Smith Barney Massachusetts Municipals Fund;
Smith Barney Money Funds, Inc.; Smith Barney Muni Funds;
Smith Barney Municipal Fund, Inc.;
Smith Barney Municipal Money Market Fund, Inc.;
Smith Barney Natural Resources Fund Inc.;
Smith Barney New Jersey Municipals Fund Inc.;
Smith Barney Oregon Municipals Fund ;
Smith Barney Principal Return Fund; Greenwich Street Series Fund;
Smith Barney Telecommunications Trust; Smith Barney Variable Account
Funds;
Smith Barney World Funds, Inc.; Smith Barney Worldwide Special Fund N.V.
(Netherlands Antilles); Travelers Series Fund Inc.; The USA High Yield
Fund N.V.; Worldwide Securities Limited (Bermuda); Zenix Income Fund
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. 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 Accounts 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.
The Registrant undertakes to furnish each person to whom a
prospectus
is delivered with a copy of Registrant's latest annual report to
shareholders,
upon request and without charge.
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 26th day of August, 1997.
SMITH BARNEY OREGON MUNICIPALS FUND
By:/s/Heath B. McLendon___
Health B. McLendon
Chairman of the Board
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. McLendon
Chairman of the
Board (Chief Executive
Officer)
August 26, 1997
Heath B. McLendon
/s/Lewis E. Daidone
August 26, 1997
Lewis E. Daidone
Senior Vice
President and
Treasurer (Chief
Financial
and Accounting
Officer)
/s/Herbert Barg*
Trustee
August 26, 1997
Herbert Barg
/s/Alfred J.
Bianchetti*
Trustee
August 26, 1997
Alfred J. Bianchetti
/s/Martin Brody*
Trustee
August 26, 1997
Martin Brody
/s/Dwight B. Crane*
Trustee
August 26, 1997
Dwight B. Crane
/s/Burt N. Dorsett*
Trustee
August 26, 1997
Burt N. Dorsett
/s/Elliot S. Jaffe*
Trustee
August 26, 1997
Elliot S. Jaffe
/s/Stephen E.
Kaufman*
Trustee
August 26, 1997
Stephen E. Kaufman
/s/Joseph J. McCann*
Trustee
August 26, 1997
Joseph J. McCann
/s/Cornelius C. Rose,
Jr.*
Trustee
August 26, 1997
Cornelius C. Rose,
Jr.
* Signed by Heath B. McLendon, their duly authorized attorney-in-fact,
pursuant to power of attorney dated August 14, 1996.
/s/ Heath B. McLendon
Heath B. McLendon
EXHIBIT INDEX
Exhibit No. Exhibit
11 Auditor's Consent
Independent Auditors' Consent
To the Shareholders and Board of Trustees of
Smith Barney Oregon Municipals Fund:
We consent to the use of our report dated June 12, 1997 for the Smith
Barney Oregon Municipals Fund 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
New York, New York
August 26, 1997
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</TABLE>
