As filed with the Securities and Exchange Commission on August 28,
1998
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
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 7
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended
[ X ] Amendment No. 10
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)
(212) 816-6474
(Registrant's Telephone Number, including Area Code)
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: Continuous
It is proposed that this filing become effective (check
appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ X ] on August 28, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment
Title of Securities Being Registered: Shares of Common
Stock/Shares of Beneficial Interest
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;
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 Management of the
of Securities 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 Purchase of Shares;
Securities Being Offered Redemption of Shares;
Valuation of Shares;
Exchange Privilege;
Distributor
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data Performance
Data
23. Financial Statements Financial
Statements
SMITH BARNEY OREGON MUNICIPALS FUND
PART A
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Oregon Municipals Fund
AUGUST 28, 1998
PROSPECTUS BEGINS ON PAGE ONE
LOGO Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
PROSPECTUS
August 28, 1998
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 (the "SAI") dated August 28, 1998, as amended or supple-
mented from time to time, that is available upon request and without charge by
calling or writing the Fund at the telephone number or address set forth above
or by contacting a Smith Barney Financial Consultant. The SAI 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
MUTUAL MANAGEMENT CORP.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
1
<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 20
- -------------------------------------------------
PURCHASE OF SHARES 22
- -------------------------------------------------
EXCHANGE PRIVILEGE 29
- -------------------------------------------------
REDEMPTION OF SHARES 32
- -------------------------------------------------
MINIMUM ACCOUNT SIZE 35
- -------------------------------------------------
PERFORMANCE 35
- -------------------------------------------------
MANAGEMENT OF THE FUND 36
- -------------------------------------------------
DISTRIBUTOR 38
- -------------------------------------------------
ADDITIONAL INFORMATION 39
- -------------------------------------------------
</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 SAI. Cross references in this
summary are to headings in the Prospectus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, non-diversified, management
investment company that seeks to provide Oregon investors with as high a level
of dividend income exempt from Federal income taxes and Oregon state personal
income tax as is consistent with prudent investment management and the preser-
vation of capital. Its investments consist primarily of intermediate- and long-
term investment-grade municipal securities issued by the State of Oregon, local
governments in the State of Oregon and certain other municipal issuers such as
the Commonwealth of Puerto Rico ("Oregon Municipal Securities") that pay inter-
est which is excluded from gross income for Federal income tax purposes and
exempt from Oregon state personal income taxes. Intermediate- and long-term
securities generally have remaining maturities at the time of purchase of three
to in excess of twenty years. See "Investment Objective and Management Poli-
cies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class L
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 $15,000,000. 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 L Shares. Class L shares are sold at net asset value plus an initial
sales charge of 1.00% of the purchase price. 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 L shares within 12 months of purchase. This CDSC may be waived
for certain redemptions. The Class L 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 L 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 $15,000,000. Class Y shares are sold at net
asset value with no initial sales charge or CDSC. They are not subject to any
service or distribution fees.
In deciding which Class of Fund shares to purchase, investors should 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 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 this Class. Because the Fund's future return cannot
be predicted, however, there can be no assurance that this would be the case.
Finally, Class L shares which have a lower upfront sales charge but are sub-
ject to higher distribution fees than Class A shares, are suitable for invest-
ors who are not investing or intending to invest an amount which would receive
a substantive sales charge discount and who have a short-term or undetermined
time frame.
4
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
Finally, investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class L shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class L 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 pur-
chases which, when combined with current holdings of Class A shares offered
with a sales charge, equal or exceed $500,000 in the aggregate will be made at
net asset value with no initial sales charge, but will be subject to a CDSC of
1.00% on redemptions made within 12 months of purchase. The $500,000 aggregate
investment may be met by adding the purchase to the net asset value of all
Class A shares, offered with a sales charge, held in funds sponsored by Smith
Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Class A share
purchases may also be eligible for a reduced initial sales charge. See "Pur-
chase of Shares."
Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the pur-
pose of the CDSC on the Class B and Class L shares is the same as that of an
initial sales charge. See "Purchase of Shares" and "Management of the Fund" for
a complete description of the sales charges and service and distribution fees
for each Class of shares and "Valuation of Shares," "Dividends, Distributions
and Taxes" and "Exchange Privilege" for other differences between the Classes
of shares.
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith Barney, a broker that clears securities transactions through Smith Barney
on a fully disclosed basis (an "Introducing Broker") or an investment dealer in
the selling group. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class L 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 $15,000,000.
Subsequent investments of at least $50 may be made for all Classes. The minimum
investment for Class A, Class B and Class L shares and the subsequent invest-
ment for all Classes through the Systematic Investment Plan are described
below.
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares. The minimum initial investment
5
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
requirement for Class A, Class B and Class L 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 "Re-
demption of Shares."
MANAGEMENT OF THE FUND Mutual Management Corp. ("MMC" or the "Adviser") (for-
merly known as Smith Barney Mutual Funds Management Inc.) serves as the Fund's
investment adviser and administrator. The Adviser provides investment advisory
and management services to investment companies affiliated with Smith Barney.
The Adviser is a wholly-owned subsidiary of Salomon 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,
including Asset Management, 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 respective
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 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 distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the Fund
will achieve its investment objective. Assets of the Fund may be invested
6
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
in the municipal securities of non-Oregon municipal issuers ("Other Municipal
Securities" and together with Oregon Municipal Securities, "Municipal Securi-
ties"). Dividends paid by the Fund which are derived from interest attribut-
able 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 taxes. Dividends derived from certain municipal securi-
ties (including Oregon Municipal Securities), however, may be a specific tax
item for Federal alternative minimum tax purposes. The Fund may invest without
limit in securities subject to the Federal alternative minimum tax. See "In-
vestment 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 SAI 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 have an equivalent rating by any
nationally recognized statistical rating organization ("NRSRO") or in unrated
obligations deemed by the Adviser to be of comparable quality. Securities
rated Baa by Moody's or BBB by S&P, though considered to be investment grade,
have speculative characteristics. Securities rated as low as D are extremely
speculative and are in actual default of interest and/or 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 L* 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 1.00% 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***** 0.46 0.48 0.47 0.46
- ------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.73% 1.25% 1.29% 0.58%
- ------------------------------------------------------------------------------
</TABLE>
* Class L shares were previously named Class C shares effective June 12,
1998. For shareholders who owned Class C shares of the Fund as of June
12, 1998, Class L shares may be purchased without including the 1% ini-
tial sales charge until June 25, 1999.
** 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. Management fees were waived to a
greater extent during the last fiscal year. Absent the fee waiver, the
management fee would have been incurred at the rate of 0.50% of each
Class' average daily net assets for the current fiscal year ended April
30, 1998. Absent the fee waiver and expense reimbursement, total expenses
would have been incurred at the rates of 1.12%, 1.63%, 1.67% and 0.96%
for Class A, Class B, Class L 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 L shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class L shares may pay more
than the economic equivalent of the maximum front-end sales charge per-
mitted 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 were out-
standing as of April 30, 1998.
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 L and certain Class A shares, the length of time the
shares are held. See "Purchase of Shares" and "Redemption of Shares." Smith
Barney
8
<PAGE>
PROSPECTUS SUMMARY (CONTINUED)
receives an annual 12b-1 fee of 0.15% of the value of average daily net assets
of Class A shares. Smith Barney also receives, with respect to Class B shares,
an annual 12b-1 fee of 0.65% of the value of average daily assets of that
Class, consisting of a 0.50% distribution fee and a 0.15% service fee. For
Class L 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% distri-
bution 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 $47 $62 $79 $127
Class B 58 70 79 137
Class L 33 50 80 164
Class Y 6 19 32 73
- ------------------------------------------------------------------------------
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A $47 $62 $79 $127
Class B 13 40 69 137
Class L 23 50 80 164
Class Y 6 19 32 73
- ------------------------------------------------------------------------------
</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 three years ended April 30, 1998 has been
audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon
appears in the Fund's Annual Report dated April 30, 1998. 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 SAI. As of April 30, 1998,
no Class Y shares were outstanding and, accordingly, no comparable information
is available at this time for that class.
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SMITH BARNEY ------------------------------- -------------------------------
OREGON MUNICIPALS FUND 1998 1997 1996 1995(1) 1998 1997 1996 1995(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $10.27 $10.26 $10.09 $ 9.55 $10.26 $10.25 $10.09 $ 9.55
- ---------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment
income(2) 0.53 0.54 0.55 0.49 0.48 0.48 0.49 0.44
Net realized and
unrealized gain 0.48 0.16 0.22 0.54 0.48 0.17 0.22 0.55
- ---------------------------------------------------------------------------------------------
Total Income From Oper-
ations 1.01 0.70 0.77 1.03 0.96 0.65 0.71 0.99
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
FROM:
Net investment income (0.52) (0.54) (0.54) (0.49) (0.47) (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 (0.52) (0.69) (0.60) (0.49) (0.47) (0.64) (0.55) (0.45)
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $10.76 $10.27 $10.26 $10.09 $10.75 $10.26 $10.25 $10.09
- ---------------------------------------------------------------------------------------------
TOTAL RETURN(3) 9.97% 7.01% 7.70% 11.08%++ 9.43% 6.48% 7.09% 10.59%++
- ---------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(MILLIONS) $12 $10 $8 $6 $17 $13 $10 $7
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses(2) 0.65% 0.65% 0.66% 0.82%+ 1.17% 1.17% 1.21% 1.38%+
Net investment income 4.96 5.21 5.21 5.28+ 4.44 4.69 4.62 4.74+
- ---------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 49% 37% 75% 30% 49% 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, 1998, 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
------------------------ ----------------------
1998 1997 1996 1995 1998 1997 1996 1995
------ ------ ------ ------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.05 $0.07 $0.11 $0.12 1.12% 1.41% 1.75% 2.05%+
Class B 0.05 0.07 0.11 0.11 1.63% 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 $221,558 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 L SHARES
----------------
SMITH BARNEY
OREGON MUNICIPALS FUND 1998 1997 1996(1)
- --------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.27 $10.26 $10.28
- --------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income(2) 0.47 0.47 0.45
Net realized and unrealized gain 0.48 0.17 0.06
- --------------------------------------------------------------
Total Income From Operations 0.95 0.64 0.51
- --------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.46) (0.48) (0.47)
Net realized gains -- (0.13) (0.06)
Excess of net realized gains -- (0.02) --
- --------------------------------------------------------------
Total Distributions (0.46) (0.63) (0.53)
- --------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.76 $10.27 $10.26
- --------------------------------------------------------------
TOTAL RETURN 9.38% 6.43% 4.99%++
- --------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS) $2 $1 $0.6
- --------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2) 1.21% 1.21% 1.25%+
Net investment income 4.39 4.66 4.80+
- --------------------------------------------------------------
PORTFOLIO TURNOVER RATE 49% 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, 1998, 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 invest-
ment 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
-------------------------- ---------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Class L $0.04 $0.06 $0.10 $1.67% $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 purposes (not including the
possible applicability of a Federal alternative minimum tax), but which is
subject to Oregon state personal income tax. When the Adviser believes that
market conditions warrant adoption of a temporary defensive investment pos-
ture, 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 have the equivalent rating by any
NRSRO, or in unrated obligations deemed by the Adviser to be of comparable
quality. Unrated securities will be considered to be investment grade if
deemed by the Adviser to be comparable in quality to instruments so rated, or
if other outstanding obligations of the issuers thereof are rated Baa or bet-
ter 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 have the
equivalent rating by any NRSRO, or deemed by the Adviser to be of comparable
unrated securities which 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 SAI.
The Fund's average weighted maturity will vary from time to time based on
the judgment of the Adviser. The Fund intends to focus on intermediate- and
long-term obligations, that is, obligations generally having remaining maturi-
ties at the time of purchase of three to in excess of twenty years.
The value of debt securities varies inversely to changes in the direction of
interest rates. When interest rates rise, the value of debt securities gener-
ally falls, and when interest rates fall, the value of debt securities gener-
ally rises.
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, the Adviser 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 likeli-
hood that the municipality will discontinue appropriating funding for the
leased property in the event such property is no longer considered essential
by the municipality; (e) the legal recourse of the lease obligee in the event
of such a failure to appropriate funding; (f) whether the security is backed
by a credit enhancement such as insur-ance; and (g) any limitations which are
imposed on the lease obligor's ability to utilize substitute property or serv-
ices 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 bonds. Such bonds carry an addi-
tional risk in that, unlike bonds which pay interest throughout the period to
maturity, the Fund will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, the Fund may
obtain no return at all on its investments.
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the 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 SAI.
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 Adviser to be liquid and unencumbered, and are marked to market daily,
pursuant 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 Munic-
ipal 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 the
Adviser 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 rat-
ing categories of Moody's or S&P or have the equivalent rating by any NRSRO,
or, if not rated, having an issue of outstanding debt securities rated within
the three highest rating categories of Moody's or S&P or have the equivalent
rating by any NRSRO, and certain taxable short-term instruments having quality
characteristics comparable 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 finan-
cial 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 economi-
cally 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 the Adviser to correlate with the prices of the Municipal Bonds
owned or to be purchased by the Fund.
In entering into a financial futures contract, the Fund will be required to
deposit with the broker through which it undertakes the transaction an amount
of cash or cash equivalents equal to approximately 5% of the contract amount.
This amount, which is known as "initial margin," is subject to change by the
exchange or board
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.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial organizations. Loans of portfolio securities by the Fund
will be collateralized by cash, letters of credit or obligations of the United
States government or its agen-
17
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
cies and instrumentalities ("U.S. government securities") which are maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. By lending its portfolio securities, the Fund will seek
to generate income by continuing to receive interest on the loaned securities,
by investing the cash collateral in short-term instruments or by obtaining
yield in the form of interest paid by the borrower when U.S. government securi-
ties are used as collateral. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of possible delays in receiving
additional collateral or in the recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. Loans will be
made to firms deemed by the Adviser to be of good standing and will not be made
useless, in the judgement of the Adviser, the consideration to be earned from
such loans would justify the risk.
Year 2000. The investment management services provided to the Fund by the
Adviser and the services provided to shareholders by Smith Barney depend on the
smooth functioning of their computer systems. Many computer software systems in
use today cannot recognize the year 2000, but revert to 1900 or some other
date, due to the manner in which dates were encoded and calculated. That fail-
ure could have a negative impact on the Fund's operations, including the han-
dling of securities trades, pricing and account services. The Adviser and Smith
Barney have advised the Fund that they have been reviewing all of their com-
puter systems and actively working on necessary changes to their systems to
prepare for the year 2000 and expect that their systems will be compliant
before that date. In addition, the Adviser has been advised by the Fund's cus-
todian, transfer agent and accounting service agent that they are also in the
process of modifying their systems with the same goal. There can, however, be
no assurance that the Adviser, Smith Barney or any other service provider will
be successful, or that interaction with other non-complying computer systems
will not impair Fund or shareholder services at that time.
In addition, the ability of issuers to make timely payments of interest and
principal or to continue their operations or services may be impaired by the
inadequate preparation of their computer systems for the year 2000. This may
adversely affect the market values of securities of specific issuers or of
securities generally if the inadequacy of preparation is perceived as wide-
spread or as affecting trading markets.
OREGON MUNICIPAL SECURITIES
The interest on Oregon Municipal Securities is, in the opinion of bond coun-
sel to the issuers, excluded from gross income for Federal income tax purposes
and exempt from Oregon state personal income tax, and for that reason generally
is fixed at a lower rate than it would be if it were subject to such taxes.
Interest
18
<PAGE>
OREGON MUNICIPAL SECURITIES (CONTINUED)
income on certain municipal securities (including Oregon Municipal 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.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of regu-
lar 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.
When, in the judgment of the pricing service, quoted bid prices for invest-
ments are readily available and are representative of the bid side of the mar-
ket, these investments are valued at the mean between the quoted bid and asked
prices. Investments for which, in the judgment of the pricing service, there
is no readily obtainable market quotation (which may constitute a majority of
the portfolio securities) are carried at fair value based on securities of
similar type, yield and maturity. Pricing services generally determine value
by reference to transactions in municipal obligations, quotations from munici-
pal bond dealers, market transactions in com-
19
<PAGE>
VALUATION OF SHARES (CONTINUED)
parable securities and various relationships between securities. Short-term
investments that mature in 60 days or less are valued at amortized cost when-
ever the Trustees determine that amortized cost is fair value. Amortized cost
valuation involves valuing an instrument at its cost initially and, thereafter,
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. Securities and other assets that are not priced by a pricing
service and for which market quotations are not available will be valued in
good faith at fair value by or under direction of the Fund's Board of Trustees.
Further information regarding the Fund's valuation policies is contained in the
SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to declare and pay exempt-interest dividends monthly.
Dividends from net realized capital gains, if any, will be distributed annual-
ly. The Fund may also pay additional dividends shortly before December 31 from
certain amounts of undistributed ordinary income and capital gains, in order to
avoid a Federal excise tax liability. If a shareholder does not otherwise
instruct, exempt-interest dividends and capital gain distributions will be
reinvested automatically in additional shares of the same Class at net asset
value, with no additional sales charge or CDSC.
The per share amounts of the exempt-interest dividends on Class B and Class L
shares may be lower than on Class A and Class Y shares, mainly as a result of
the distribution fees applicable to Class B and Class L shares. Similarly, the
per share amounts of exempt-interest dividends on Class A shares may be lower
than on Class Y shares, as a result of the service fee attributable to Class A
shares. Capital gain distributions, if any, will be the same across all Classes
of Fund shares (A, B, L and Y).
TAXES
The following is a summary of the material federal tax considerations affect-
ing the Fund and Fund shareholders. Please refer to the SAI for further discus-
sion. In addition to the considerations described below and in the SAI, there
may be other federal, state, local, or foreign tax applications to consider.
Because taxes are a complex matter, prospective shareholders are urged to con-
sult their tax advisors for more detailed information with respect to the tax
consequences of any investment.
The Fund intends to qualify, as it has in prior years, under Subchapter M of
the Code, for tax treatment as a regulated investment company. In each taxable
year
20
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
that the Fund qualifies, so long as such qualification is in the best inter-
ests of its shareholders, the Fund will pay no federal income tax on its net
investment income and long-term capital gain that is distributed to sharehold-
ers. The Fund also intends to satisfy conditions that will enable it to pay
"exempt-interest dividends" to shareholders. Exempt-interest dividends are
generally not subject to regular federal income taxes, although they may be
considered taxable for certain state and local income (or intangible) tax pur-
poses. Oregon resident shareholders will not be subject to Oregon personal
income tax on exempt-interest dividends attributable to municipal obligations
of Oregon and its political subdivisions, as well as certain other Federal
obligations considered exempt for Oregon purposes. Exempt-interest dividends
are not excluded in determining Oregon State income and franchise (excise)
taxes on corporations and financial institutions.
Exempt-interest dividends attributable to interest received by the Fund on
certain "private-activity" bonds will be treated as a specific tax preference
item to be included in a shareholder's alternative minimum tax computation.
All exempt-interest dividends will be a component of the "current earnings"
adjustment item for purposes of the Federal corporate alternative minimum tax.
Exempt-interest dividends derived from the interest earned on private activity
bonds will not be exempt from federal income tax for those shareholders who
are "substantial users" (or persons related to "substantial users") of the
facilities financed by these bonds.
Shareholders who receive social security or equivalent railroad retirement
benefits should note that exempt-interest dividends are one of the items taken
into consideration in determining the amount of these benefits that may be
subject to federal income tax.
The interest expense incurred by a shareholder on borrowing made to purchase
or carry Fund shares are not deductible for federal income tax purposes to the
extent related to the exempt-interest received on such shares.
Dividends, if any, paid by the Fund from interest income on taxable invest-
ments, net realized short-term securities gains, and all or a portion of any
gains realized from the sale or other disposition of certain market discount
bonds are subject to federal income tax as ordinary income. Distributions, if
any, from net realized long-term securities gains, derived from the sale of
bonds held by the Fund for more than one year, are taxable as long-term capi-
tal gains, regardless of the length of time a shareholder has owned Fund
shares.
Shareholders are required to pay tax on all taxable distributions even if
those distributions are automatically reinvested in additional Fund shares.
None of the dividends paid by the Fund will qualify for the corporate divi-
dends received deduc-
21
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
tion. The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year.
A shareholder's gain or loss on the disposition of Fund shares (whether by
redemption, sale or exchange), generally will be a long-term or short-term
gain or loss depending on the length of time the shares had been owned at dis-
position. Losses realized by a shareholder on the disposition of Fund shares
owned for six months or less will be treated as a long-term capital loss to
the extent a capital gain dividend had been distributed on such shares.
The Fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for share-
holders who do not provide the Fund with a correct taxpayer identification
number (social security or employer identification number). Withholding from
taxable dividends and capital gain distributions also is required for share-
holders who otherwise are subject to backup withholding. Any tax withheld as a
result of backup withholding does not constitute an additional tax, and may be
claimed as a credit on the shareholders' federal income return.
PURCHASE OF SHARES
SALES CHARGE ALTERNATIVES
The following Classes of shares are available for purchase through this Pro-
spectus. See "Prospectus Summary--Alternative Purchase Arrangements" for a
discussion of factors to consider in selecting which Class of shares to pur-
chase.
CLASS A SHARES. Class A shares are sold to investors at the public offering
price, which is the net asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
DEALER'S
SALES CHARGE AS SALES CHARGE AS A % REALLOWANCE AS
AMOUNT OF INVESTMENT A % OF TRANSACTION OF AMOUNT INVESTED % OF OFFERING PRICE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than - $ 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 L shares is waived. See "Deferred Sales
Charge Provisions" and "Waivers of CDSC."
22
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 "1933 Act"). 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.
CLASS B SHARES. Class B shares are sold without an initial sales charge but
are subject to a CDSC payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
CLASS L SHARES. Class L shares are sold with an initial sales charge of 1%
(which is equal to 1.01% of the amount invested) and are subject to a CDSC pay-
able upon certain redemptions. See "Deferred Sales Charge Provisions" below.
Until June 25, 1999 purchases of Class L shares by investors who were holders
of Class C shares of the Fund on June 12, 1998 will not be subject to the 1%
front-end sales charge
CLASS Y SHARES. Class Y shares are sold without an initial sales charge or
CDSC and are available only to investors investing a minimum of $15,000,000
(except purchase of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount).
GENERAL
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or 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 L 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 transfer agent, First
Data Investor Services Group, Inc. ("First Data" or the "Transfer Agent") are
not subject to a maintenance fee.
Investors in Class A, Class B and Class L 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 $15,000,000. Sub-
sequent investments of at least $50 may be made for all Classes. For sharehold-
ers purchasing shares of the Fund through the Systematic Investment Plan on a
monthly basis, the minimum initial investment requirement for Class A, Class B
and Class L shares and the subsequent investment requirement for all Classes is
$50. There are no minimum investment requirements for Class A shares for
employees of Travel-
23
<PAGE>
PURCHASE OF SHARES (CONTINUED)
ers and its subsidiaries, including Smith Barney, and Directors/Trustees of any
of the Smith Barney Mutual Funds and their spouses and children. The Fund
reserves the right to waive or change minimums, to decline any order to pur-
chase its shares and to suspend the offering of shares from time to time.
Shares purchased will be held in the shareholder's account by the Transfer
Agent. Share certificates are issued only upon a shareholder's written request
to the Transfer Agent. It is not recommended that the Fund be used as a vehicle
for Keogh, IRA or other qualified retirement plans.
Purchase orders received by the Fund of 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 (the
"trade date"). Orders received by dealers or Introducing Brokers prior to the
close of regular trading 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. For shares purchased through Smith Barney or Intro-
ducing Brokers purchasing through Smith Barney, payment for Fund shares is due
on the third business day 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 the shareholder's account held 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 shareholders' Fund
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or the Transfer Agent. The Sys-
tematic Investment Plan also authorizes Smith Barney to apply cash held in the
shareholder's Smith Barney brokerage account or redeem the shareholder's shares
of a Smith Barney money market fund to make additions to the account. Addi-
tional information is available from the Fund or a Smith Barney Financial Con-
sultant.
SALES CHARGE WAIVERS AND REDUCTIONS
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 Travelers Affiliated Funds
including
24
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 Securities Dealers, Inc., provided such sales are made upon the
assurance of the purchaser that the purchase is made for investment purposes
and that the securities will not be resold except through redemption or repur-
chase, (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 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 Smith Barney Mutual Fund that is offered with a sales charge) and
who wish to reinvest their redemption proceeds in the Fund, provided the rein-
vestment is made within 60 calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory subsidiaries of Travelers;
(f) purchases by separated account used to fund certain unregistered variable
annuity contracts; and (g) purchases by investors participating in a Smith
Barney fee-based arrangement. In order to obtain such discounts, the purchaser
must provide sufficient information at the time of purchase to permit verifi-
cation 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 as currently 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 suffi-
cient information at the time of purchase to permit verification that the pur-
chase 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
25
<PAGE>
PURCHASE OF SHARES (CONTINUED)
same employer purchasing as a group, provided each participant makes the mini-
mum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Sales Charge Alternatives--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 employee or partnership sanctioned plan meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions. Smith
Barney may also offer a reduced sales charge or net asset value purchase for
aggregating related fiduciary accounts under such conditions that Smith Barney
will realize economies of sales efforts and sales related expenses. An individ-
ual who is a member of a qualified group may also purchase Class A shares of
the Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Fund shares at a discount and (c) satisfies uniform crite-
ria 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 discre-
tion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for an amount 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
26
<PAGE>
PURCHASE OF SHARES (CONTINUED)
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 pre-
viously 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. Please contact a Smith
Barney Financial Consultant or the Transfer Agent to obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may also be used as a way for investors to
meet the minimum investment requirement for Class Y shares (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for which there
is no minimum purchase amount). Such investors must make an initial minimum
purchase of $5,000,000 in Class Y shares of the Fund and agree to purchase a
total of $15,000,000 of Class Y shares of the Fund within 13 months from the
date of the Letter. If a total investment of $15,000,000 is not made within the
13 month period, all Class Y shares purchased to date will be transferred to
Class A shares, where they will be subject to all fees (including a service fee
of 0.15%) and expenses applicable to the Fund's Class A shares, which may
include a CDSC of 1.00%. Please contact a Smith Barney Financial Consultant or
the Transfer Agent for further information.
DEFERRED SALES CHARGE PROVISIONS
"CDSC Shares" are: (a) Class B shares; (b) Class L shares; and (c) Class A
shares that were purchased without an initial sales charge but are subject to a
CDSC. A CDSC may be imposed on certain redemptions of these shares.
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;
(c) with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class L shares and Class A shares that
are CDSC Shares, shares redeemed more than 12 months after their purchase.
Class A shares and Class L 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 aggregated and deemed to have been made on the last day of the preceding
Smith
27
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Barney statement month. The following table sets forth the rates of the charge
for redemptions of Class B shares by shareholders.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
- --------------------------------
<S> <C>
First 4.50%
Second 4.00
Third 3.00
Fourth 2.00
Fifth 1.00
Sixth and thereafter 0.00
- --------------------------------
</TABLE>
Class B shares will convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fees. There will also be converted at that time such pro-
portion of Class B Dividend Shares owned by the shareholders as the total num-
ber of his or her Class B shares converting at the time bears to the total num-
ber 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.
28
<PAGE>
PURCHASE OF SHARES (CONTINUED)
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b) au-
tomatic 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.
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 L
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
Concert Peachtree Growth Fund
Concert Social Awareness Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Balanced Fund
Smith Barney Contrarian Fund
Smith Barney Convertible Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.--Large Cap Value Fund
Smith Barney Large Cap Blend Fund
29
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Mid Cap Blend Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Premium Total Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
++Smith Barney Funds, Inc.--Short-Term High Grade Bond Fund
Smith Barney Funds, Inc.--U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
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 Municipal High Income 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.
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
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
30
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
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.--Global 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 B 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 L SHARES OF THE FUND.
++AVAILABLE FOR EXCHANGE WITH CLASS A AND CLASS Y SHARES OF THE FUND.
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 L Exchanges. Upon an exchange, the new Class L shares will be deemed to
have been purchased on the same date as the Class L 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 respec-
tive Class in any of the funds identified above may do so without imposition of
any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. The Adviser 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 Adviser
may, at its discretion, decide to limit additional purchases and/or exchanges
by a shareholder.
31
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Upon such a determination, the Fund will provide notice in writing or by tele-
phone to the shareholder at least 15 days prior to suspending the exchange
privilege and during the 15 day period the shareholder will be required to (a)
redeem his or her shares in the Fund or (b) remain invested in the Fund or
exchange into any of the Smith Barney Mutual Funds ordinarily available, which
position the shareholder would be expected to maintain for a significant
period of time. All relevant factors will be considered in 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.
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
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, 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 redemp-
tion 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 proceeds are remitted to a Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit without specific
instruction and Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted upon clearance of
the check, which may take up to ten days or more.
32
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
Smith Barney Oregon Municipals Fund
Class A, B, L 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 $10,000 must be guaranteed by an eligi-
ble guarantor institution such as a domestic bank, savings and loan institu-
tion, domestic credit union, member bank of the Federal Reserve System or mem-
ber firm of a national securities exchange. Written redemption requests of
$10,000 or less do not require a signature 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 record. The Transfer Agent may require addi-
tional supporting documents for redemptions 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
Shareholders who do not have a Smith Barney brokerage account 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 Trans-
fer Agent at (800) 451-2010. Once eligibility is confirmed, the shareholder
must complete and return a Telephone Wire Authorization Form, including a sig-
nature 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
33
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
Agent at (800) 451-2010. Such requests may be made between 9:00 a.m. and 4:00
p.m. (New York 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 program.
A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent relationship with
a member bank. The Fund reserves the right to charge shareholders a nominal
fee for each wire redemption. Such charges, if any, will be assessed against
the shareholder's account from which shares were redeemed. In order to change
the bank account designated to receive redemption proceeds, a shareholder must
complete a new Telephone/Wire Authorization Form and, for the protection of
the shareholder's assets, will be required to provide a signature guarantee
and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the fund being acquired is identical to the registra-
tion of the shares of the fund exchanged. Such exchange requests may be made
by calling the Transfer Agent at (800) 451-2010 between 9:00 a.m. and 4:00
p.m. (New York 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
34
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
the time the withdrawal plan commences. (With respect to withdrawal plans in
effect prior to November 7, 1994, any applicable CDSC will be waived on amounts
withdrawn that do not exceed 2.00% per month of the shareholder's shares sub-
ject to the CDSC.) For further information regarding the automatic cash with-
drawal plan, shareholders should contact a Smith Barney Financial Consultant or
their financial consultant, Introducing Broker or dealer in the selling group.
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 an investment in those shares over the 30-day period identified in the
advertisement and is computed by dividing the net investment income per share
earned by the Class during the period by the maximum public offering price per
share on the last day of the period. This income is "annualized" by assuming
that the amount of income is generated each month over a one-year period and is
compounded semi-annually. The annualized income is then shown as a percentage
of the net asset value.
The equivalent taxable yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to the Fund's tax-exempt yield
for each Class. It is calculated by increasing the yield shown for the Class to
the extent necessary to reflect the payment of taxes at specified tax rates.
Thus, the equivalent taxable yield always will exceed the Fund's yield.
TOTAL RETURN
From time to time, the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A, Class
B, Class L and
35
<PAGE>
PERFORMANCE (CONTINUED)
Class Y shares of the Fund. These figures are based on historical 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 presented. The current dividend return for
each Class may vary from time to time depending on market conditions, the com-
position 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 information may include data from Lipper Analytical
Services, Inc. or similar independent services that monitor the performance of
mutual funds or other industry publications.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Trustees. The Trustees approve all significant agreements
between the Fund and the companies that furnish services to the Fund, including
agreements with its distributor, investment adviser, administrator, custodian
and transfer agent. The day-to-day operations of the Fund are delegated by the
Board to the Fund's investment adviser and administrator. The SAI contains
background information regarding each Trustee and executive officer of the
Fund.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's investment adviser, MMC, is a registered investment adviser whose
principal executive offices are located at 388 Greenwich Street, New York, New
York 10013. MMC was incorporated in March, 1968 under the laws of Delaware
36
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
and renders investment advice to a wide variety of individual, institutional
and investment company clients that had aggregate assets under management as of
July 31, 1998 in excess of $100 billion.
Subject to the supervision and direction of the Fund's Board of Trustees, the
Adviser 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 the Adviser a fee at
an annual rate of 0.30% of the value of the Fund's average daily net assets.
This fee is computed daily and paid monthly. For the fiscal year ended April
30, 1998, the Adviser waived a portion of the investment advisory fees equal to
0.28% of the value of the average daily net assets of the Fund.
MMC also serves as the Fund's administrator and oversees all aspects of the
Fund's administration. For administration services rendered, the Fund pays MMC
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. This fee is computed daily and paid monthly. For the fiscal year
ended April 30, 1998, MMC waived a portion of the administration fees equal to
0.18% of the value of the average daily net assets of the Fund.
PORTFOLIO MANAGEMENT
Peter M. Coffey, an Investment Officer of MMC and a Managing Director of
Smith Barney, has served as Vice President and Investment Officer of the Fund
since it commenced operations, and manages 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, 1998 is included in
the Annual Report dated April 30, 1998. A copy of the Annual Report may be
obtained upon request and without charge from a Smith Barney Financial Consul-
tant or by writing or calling the Fund at the address or phone number listed on
page one of this Prospectus.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction has been
approved by the stockholders of each of the Travelers and Citicorp. Upon con-
summation of the merger, the surviving corporation would be a bank holding com-
pany subject to regulation under
37
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
the Bank Holding Company Act of 1956 (the "BHCA"), the requirements of the
Glass-Steagall Act and certain other laws and regulations. Although the effects
of the merger of Travelers and Citicorp and compliance with the requirements of
the BHCA and the Glass-Steagall Act are still under review, the Adviser does
not believe that its compliance with applicable law following the merger of
Travelers and Citicorp will have a material adverse effect on its ability to
continue to provide the Fund with the same level of investment advisory serv-
ices that it currently receives.
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 L 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 L
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 L 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 L 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
38
<PAGE>
DISTRIBUTOR (CONTINUED)
exceed distribution expenses actually incurred. The Fund's Trustees will evalu-
ate 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.
The Glass-Steagall Act currently prohibits certain financial institutions
from underwriting securities of open-end investment companies, such as the
Fund. Therefore, in connection with the anticipated merger of Travelers and
Citicorp and as a consequence of the anticipated applicability of the BHCA and
the Glass-Steagall Act, the Fund plans to retain the services of a new entity
(which is not otherwise affiliated with Travelers) to act as distributor of the
Fund's shares.
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.
39
<PAGE>
ADDITIONAL INFORMATION (CONTINUED)
First Data, 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.
40
<PAGE>
SMITH BARNEY
--------------------------------
A Member of TravelersGroup[LOGO]
SMITH BARNEY OREGON MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013
FD0543 8/98
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, 1998
This Statement of Additional Information ("SAI") expands
upon and supplements the information contained in the current
Prospectus of Smith Barney Oregon Municipals Fund (the "Fund"),
dated August 28, 1998, 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 SAI,
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 SAI, except where shown below:
Management of the Fund 1
Investment Objective and Management Policies 6
Municipal Bonds (See in the Prospectus "Oregon Municipal
Securities") 13
Purchase of Shares 19
Redemption of Shares 19
Distributor 20
Valuation of Shares 22
Exchange Privilege 22
Performance Data (See in the Prospectus "Performance") 23
Taxes (See in the Prospectus "Dividends, Distributions and Taxes")
25
Additional Information 29
Financial Statements 29
Appendix A-1
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" or "Distributor") Distributor
Mutual Management Corp. (formerly known as
Smith Barney Mutual Funds Management Inc.)
("MMC" or "Adviser" or "Administrator") Investment Adviser
and Administrator
PNC Bank, National Association
("PNC" or the "Custodian") Custodian
First Data Investor Services Group, Inc.
("First Data" or the "Transfer Agent") Transfer Agent
These organizations and the functions they perform for the
Fund are discussed in the Prospectus and in this SAI.
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 75). Private Investor. His address
is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Trustee (Age 75). Retired; formerly
Senior Consultant to Dean Witter Reynolds Inc. His address is 19
Circle End Drive, Ramsey, New Jersey 07466.
Martin Brody, Trustee (Age 77). Consultant, HMK Associates;
Retired 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 60). Professor, Harvard Business
School. His address is Harvard Business School, Soldiers Field
Road, Boston, Massachusetts 02163.
Burt N. Dorsett, Trustee (Age 67). Managing Partner of Dorsett
McCabe Management, Inc., an investment counseling firm; Trustee of
Research Corporation Technologies, Inc., a non-profit patent-
clearing and licensing firm. His address is 45 Rockefeller Plaza,
New York, New York 10111.
Elliot S. Jaffe, Trustee (Age 72). Chairman of the Board and
President of The Dress Barn, Inc. His address is 30 Dunnigan
Drive, Suffern, New York 10901.
Stephen E. Kaufman, Trustee (Age 66). Attorney. His address
is 277 Park Avenue, New York, New York 10172.
Joseph J. McCann, Trustee (Age 68). Financial Consultant.
Retired Financial Executive, Ryan Homes, Inc. His address is 200
Oak Park Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment
Officer (Age 65). Managing Director of Smith Barney, Chairman of
the Board of Smith Barney Strategy Advisors Inc. and President of
MMC and Travelers Investment Adviser, Inc. ("TIA"). Mr. McLendon
is Chairman or Co-Chairman of the Board and Director of 58
investment companies associated with Salomon Smith Barney Holdings
Inc. Prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc., Vice Chairman of Shearson Asset
Management, Director of PanAgora Asset Management, Inc. and
PanAgora Asset Management Limited. His address is 388 Greenwich
Street, New York, New York 10013.
Cornelius C. Rose, Jr., Trustee (Age 64). President, Cornelius
C. Rose Associates, Inc., financial consultants, and Chairman and
Trustee of Performance Learning Systems, an educational
consultant. His address is Meadowbrook Village, Building 4, West
Lebanon, New Hampshire 03784.
Lewis E. Daidone, Senior Vice President and Treasurer (Age 41).
Managing Director of Smith Barney; Chief Financial Officer of the
Smith Barney Mutual Funds; Director and Senior Vice President of
MMC and TIA. Mr. Daidone serves as Senior Vice President and
Treasurer of 42 Smith Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
Peter M. Coffey, Vice President and Investment Officer (Age
54). Managing Director of MMC; Mr. Coffey also serves as
Investment Officer of 8 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 47). Managing Director of
Smith Barney; General Counsel and Secretary of MMC and TIA. Ms.
Sydor serves as Secretary of 42 Smith Barney Mutual Funds. Her
address is 388 Greenwich Street, New York, NY 10013.
Each Trustee also serves as a director, trustee and/or
general partner of certain other mutual funds for which Smith
Barney serves as distributor. As of August 3, 1998, 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 3, 1998, 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 L Shares (effective June 12, 1998 the former Class C shares
were renamed Class L shares)
John S. Caughell and
V. Ronene Caughell JTWROS
1365 Heath Lane SE
Salem, OR 97302
owned 23,645.37 (11.82%) 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 14,366.83 (7.18%) shares
Roy E. Holbrook & Luanna
Holbrook Trustee FBO Roy E. &
Luanna Holbrook Rev Liv Trust
U/A/D/ 10/11/90
Box 42
Mehama, OR 97384
owned 10,175.44 (5.08%) 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. As of January 1,
1998, the Fund pays each Trustee who is not an officer, director
or employee of Smith Barney or any of its affiliates a fee of
$1,000 per annum plus $100 per in-person meeting and $100 per
telephonic meeting. (Prior to January 1, 1998 the Fund paid each
Trustee who was 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.) Upon attainment of age 80, Trustees
are required to change to emeritus status. Trustees Emeritus are
entitled to serve in emeritus status for a maximum of 10 years
during which time they are paid 50% of the annual retainer fee and
meeting fees otherwise applicable to the Fund Trustees, together
with reasonable out-of-pocket expenses for each meeting attended.
During the Fund's last fiscal year aggregate compensation paid by
the Fund to Trustees achieving emeritus status totaled $1,275.
All Trustees are reimbursed for travel and out-of-pocket expenses
incurred to attend such meetings. For the fiscal year ended April
30, 1998, such fees and expenses totaled $11,420.
For the fiscal year ended April 30, 1998, the Trustees of
the Fund were paid the following compensation:
Compensation Table
Name of
Trustee
Aggregate
Compensation
from the Fund
Pension or
Retirement
Benefits
Accrued as Part
of Fund's
Expenses
Total
Compensation
from Fund
Complex*
Total Number
of Funds for
Which Trustee
Serves within
Fund Complex
Herbert Barg
$2,700
$0
$101,600
16
Alfred J. Bianchetti
2,700
0
49,600
11
Martin Brody
2,350
0
119,814
19
Dwight B. Crane
2,500
0
133,850
22
Burt N. Dorsett
2,700
0
49,600
11
Elliot S. Jaffe
2,600
0
48,500
11
Stephen E. Kaufman
2,700
0
91,964
13
Joseph J. McCann
2,700
0
49,600
11
Heath B. McLendon**
0
0
0
58
Cornelius C. Rose, Jr.
2,700
0
49,600
11
________________________________________
* Reflects compensation paid during the calendar year ended
December 31, 1997.
** Designates a director who is an "interested person" of the Fund.
Investment Adviser and Administrator-MMC
MMC serves as investment adviser to the Fund. MMC is a
wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of Travelers
Group Inc. ("Travelers"). The advisory agreement (the "Advisory
Agreement") was approved by the Board of Trustees, including a
majority of those Trustees who are not "interested persons'' of
the Fund or the Adviser ("Independent Trustees"). The services
provided by the Adviser under the Advisory Agreement are described
in the Prospectus under "Management of the Fund."
The Fund pays MMC an investment advisory fee at an annual
rate of 0.30% of the value of its average daily net assets. This
fee is calculated daily and paid monthly. For the fiscal year
ended April 30, 1998, the Fund incurred investment advisory fees
of $84,322, of which a portion was waived. For the fiscal years
ended April 30, 1997 and 1996, the Fund incurred investment
advisory fees in the amount of $63,124 and $ 50,010, respectively,
all of which were waived.
MMC also serves as administrator to the Fund pursuant to a
written agreement (the "Administration Agreement"), which was
recently approved by the Fund's Board of Trustees, including a
majority of the Independent Trustees. The services provided by
MMC under the Administration Agreement are described in the
Prospectus under "Management of the Fund." MMC 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, MMC 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. This fee is
computed daily and paid monthly. For the fiscal year ended 1998,
the Fund incurred administration fees in the amount of $56,221, of
which a portion was waived. For the fiscal years ended 1997 and
1996, the Fund incurred administration fees in the amount of
$42,083 and $30,605, respectively, all of which were waived. For
the fiscal year ended 1997, MMC had agreed to reimburse the Fund
for certain expenses totaling $53,166.
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 MMC; Securities and
Exchange Commission ("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.
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, 1999.
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 SAI, 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"), Standard & Poor's Ratings Group ("S&P") and other
nationally recognized statistical ratings organizations ("NRSROs")
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 the Adviser 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 the Adviser'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 the Adviser 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 or any
NRSROs, 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 the
equivalent rating from any NRSRO, 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 the equivalent rating from any
NRSRO 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 or the equivalent rating from any NRSRO, 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 the Adviser 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 the Adviser'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.
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
the Adviser, which could prove to be inaccurate. Even if the
Adviser'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, MMC, 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 6 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 the
rules, regulations and orders thereunder, except as permitted
under the 1940 Act and the rules, regulations and orders
thereunder
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 (a) 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, and
(b) the Fund may, to the extent consistent with its
investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment
strategies and techniques. To the extent that it engages in
transactions described in (a) and (b), the Fund will be
limited so that no more than 33 1/3% of the value of its
total assets (including the amount borrowed), valued at the
lesser of cost or market, less liabilities (not including the
amount borrowed) valued at the time the borrowing is made, is
derived from such transactions.
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 objectives and policies; (b)
repurchase agreements; and (c) loans of its portfolio
securities, to the fullest extent permitted under the 1940
Act.
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,
commodities or commodity contracts, but this restriction
shall not prevent the Fund from (a) investing in securities
of issuers engaged in the real estate business or the
business of investing in real estate (including interests in
limited partnerships owning or otherwise engaging in the real
estate business or the business of investing in real estate)
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 held; (c) trading in
futures contracts and options on futures contracts (including
options on currencies to the extent consistent with the
Funds' investment objective and policies); or (d) investing
in real estate investment trust securities.
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 underlying
securities and other assets in escrow and collateral
agreements with respect to initial or maintenance margin in
connection with futures contracts and related options and
options on securities, indexes or similar items 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 SAI 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, 1998.
Allocation of transactions, including their frequency, to
various dealers is determined by the Adviser 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 the Adviser may receive orders
for portfolio transactions by the Fund. Information so received
enables the Adviser to supplement its own research and analysis
with the views and information of other securities firms. Such
information may be useful to the Adviser 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 the Adviser 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 Smith Barney 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 the
Adviser, 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 the Adviser 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 the Adviser 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, 1996,
1997 and 1998, the Fund's portfolio turnover rate was 75%, 37% and
49%, 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 the Adviser 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. The economy continues to grow rapidly, although some
slowing is now in evidence. Employment increased approximately 4%
annually in each year from 1994-1996, and the official estimate
for 1997 is 3.5%, slowing to 2.6% in 1998. In November 1997,
compared with the same month one year earlier, employment rose
2.3%, with gains of 4.2% in construction; 2.9% in services; 3.1%
in finance, insurance, and real estate; 4.1% in manufacturing; and
2.7% in trade; while government was down 0.9%. The October
unemployment rate was 5.1% somewhat above the U.S. level of 4.6%.
In 1996, personal income was up 7.1% or 132% of the U.S. rate. On
a per capita basis, the state outperformed the nation as well,
with a 5.6% increase, compared with 4.6%. State per capita
personal income was $23,074, or 94% of the U.S. figure, ranking
Oregon 24th. The outlook is for gradual slowing of growth, with
increases of 6.0% in 1999 and 5.0% in 1999 projected, compared
with 7.6% in 1997. In third-quarter 1997, the state gain was
7.2%, or 133% of the U.S. rate of 5.4%.
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. Presently, high-
technology, services and international trade sectors lead the
state's diversification from its historical timber and agriculture
base. Services represent 26% of non-farming employment, trade
represents 25%, government 17%, and manufacturing 16%. Oregon's
other basic industries, agriculture and tourism, continue to
provide strong, diversified support for the State's economy.
State Forecast. The latest forecast expects some adverse impact on
Oregon from instability in Asia, as exports to East Asia account
for 4.4% of gross state product. However, the extent of this
impact will depend on a variety of factors, such as the duration
and ultimate severity of the region's problems as well as their
potential spread to Japan, Taiwan, Singapore, and Hong Kong,
which, together with already affected Korea, account for about 47%
of Oregon's exports. Japan at 21%, is the largest partner.
Overall revenue performance continues to be strong and the March
1998 state revenue forecast for the 1999 biennium indicates
general fund revenues of $8.5 billion or $279 million above the
close of session forecast. The state is anticipating some minor
effects from the Asian economic situation, with corporate income
tax projections for the 1997-1999 biennium revised downward $22.9
million to reflect lower export earnings from Asia. However,
personal income tax projections have been revised upward by $48.8
million, reflecting higher collections and capital gains.
Population. Oregon's population was estimated to be 3.2 million
and continues to benefit from strong revenue performance resulting
from its expanding economy and its expanding population and labor
force. Growth trends continue to outpace national rates.
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.
The State has a history of conservative revenue forecasting
and legislative oversight through the biennial budget period, and
actual balances at the end of the biennium have comfortably
exceeded estimates at the time of budget adoption. However, voter
initiatives have placed constraints on financial operations, and
also inject an element of uncertainty into future operations. In
particular, the "2% kicker" requirement that rebates be provided
to individual or corporate income taxpayers whenever revenue
growth is more than two percent above budget levels makes it
difficult for the State to apply any of the dividend from economic
growth towards building budgetary cushions.
The full impact of Measure Five, property tax rate
limitation initiative, has been absorbed successfully as a result
of the robust economic growth of the last several years. But
Measure 50 ("Measure 50"), an amendment approved by the voters in
May 1997 that further limits the revenue raising flexibility of
local governments, has begun to place some strain on the State
budget. It is currently estimated that Measure 50 will result in
a reduction of $389 million in property tax revenue collections by
local governments in fiscal 1998. This will necessarily lead to
increased pressure on the Legislative Assembly to use State funds
to replace revenues lost by the localities. For school districts,
the aggregate 1997-1999 property tax cut has been estimated at
$428 million, which represents the additional support the State
must extend.
The State is required to indemnify school district from the
impact of the property tax cuts. State funding for K-12 education
now represents over 40% of the General Fund budget, up from about
one-third prior to Measure Five. The state has subsumed these
costs by cutting programs, dedicating revenue growth, and relying
on lottery funds. This challenge has been met while maintaining
positive financial performance and strong General Fund balance
levels.
Measure 50 has no short-term impact on the State's credit
quality, given the current State economy and fiscal position. But
the measure's requirements reduce budgetary flexibility and make
the State more vulnerable to economic softening.
The State adopted a balanced $8.76 billion general fund
budget for the current biennium, spanning fiscal years 1998 and
1999. Strong economic performance during the last biennium has
brought in more revenues than expected, enabling the State to
return the entire "2% kicker" to taxpayers and also readily
accommodate the additional costs of funding education associated
with ballot initiatives. The kicker mechanism returned much of
this unexpected revenue to the voters by December 1 after the
close of the 1995-97 biennium.
The State's ending unreserved, undesignated balance for
fiscal 1997 totaled $307 million. While lower than the amount
recorded in 1996, the amount still represents a continuation of a
solid trend of substantial available balances.
The March 1997-99 revenue estimate is $279 million higher
than the 1997 close of legislative session forecast. As a result
of the positive revenue results, a surplus kicker credit is
projected for both personal and corporate income taxpayers for the
current biennium.
Financial operations continue to be very positive. Revenues
for the 1995-1997 biennium amounted to $7.7 billion, up 18% from
the previous biennium, compared with an original budgeted increase
of 6.5%. There was an operating surplus of almost $300 million,
and the general fund closed at June 30, 1997, with a balance of
$794 million. Personal income taxes were 6% over the original
projections and corporate taxes 60%. The adopted budget for 1997-
1999 expected surplus to be drawn down to $68 million. However,
with the higher beginning balance and re-estimates of revenues,
the June 30, 1999 balance is now set at $535 million. Currently,
it is projected that revenues will be 3.4% over the budgeted
level. The March 1998 forecast increased biennial revenue by
$26.6 million, but appropriations are up $75 million, lowering the
December projected balance by the difference. Revenue growth for
the period is estimated at 10%, lower than in 1995-1997,
reflecting in part the 2% kicker that is triggered by revenues in
excess of estimates and mandates tax rebates.
Oregon has made a concerted effort to restrict its issuance
of new debt, especially for higher education, as it adjusted to
the increased demands of financing Measure Five. A significant
proportion of outstanding debt is general obligation debt issued
for various programs which provide self-support for debt service,
especially the veterans' welfare bonds. As a result, Oregon's
debt per capita and the ratio of debt to personal income, at $309
and 1.4%, respectively, remain comfortably below state medians of
$422 and 2.1%. New capital programs, especially for correction
facilities, have become a priority and financing these facilities
is beginning to increase debt burdens slightly. Some relief in
the pace of prison construction is indicated by the latest
forecasts of slower than anticipated growth in prison inmate
populations, although the state still expects to build seven new
prisons over the next nine years.
Additional Considerations. Growth has been vibrant which has
helped the State to accommodate a mandated shift in school
funding. Passage of ballot Measure 47, now replaced by a similar
but corrective ballot Measure 50, further limits local taxation
and the state is again mandated to absorb the cost of the new
limits for school districts. While the state will still be
challenged to maintain the school funding and to meet prison
costs, financial management has so far achieved successful
implementation.
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 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 L 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
plus for Class L shares an initial sales charge of 1% at the time
of purchase. A contingent deferred sales charge ("CDSC"),
however, is imposed on certain redemptions of Class B and Class L
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 SAI.
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, or their financial consultant,
Introducing Broker or dealer in the selling group.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best
efforts basis pursuant to a written agreement (the "Distribution
Agreement") which was approved by the Fund's Board of Trustees.
For the 1996, 1997 and 1998 fiscal years, Smith Barney received
approximately $59,000, $43,000 and $37,000 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 1996, 1997 and
1998 fiscal years, the Fund's distributor received approximately
$13,000, $25,000 and $23,000, 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 calendar year ended December 31, 1997, Smith Barney
incurred distribution expenses totaling approximately $256,936,
consisting of approximately $11,602 for advertising, $1,019 for
printing and mailing of Prospectuses, $73,399 for support
services, $164,399 to Smith Barney Financial Consultants, and
$6,577 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 L 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 L 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.
The following service and distribution fees were incurred
during the fiscal years ended as indicated:
Distribution
Plan Fees
4/30/98
4/30/97
4/30/96
Class A...............
$16,841
$13,359
$9,912
Class B...............
99,462
73,866
54,586
Class L ................
10,930
5,286
2,444
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, Martin Luther King Jr. 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 the Adviser
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 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 of the Smith Barney
Mutual Fund Complex may do so without imposition of any
charge.
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. 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.
C. Upon exchange, the new Class L shares will be deemed to have
been purchased on the same date as the Class L shares of the
fund that have been exchanged.
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):
5.55% for the one year period from May 1, 1997 through April
30, 1998.
7.94% per annum during the period from May 23, 1994
(commencement of operations) through April 30, 1998,
including the effect of a voluntary cash contribution in the
amount of $251,349 made by the investment adviser in October
1994.
5.89% per annum during the period from May 23, 1994 through
April 30, 1998, 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:
9.97% for the one year period from May 1, 1997 through April
30, 1998.
9.07% per annum during the period from May 23, 1994 through
April 30, 1998, including the effect of the cash
contribution.
7.38% per annum during the period from May 23, 1994 through
April 30, 1998, 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):
4.93% for the one year period from May 1, 1997 through April
30, 1998.
8.12% per annum during the period from May 23, 1994
(commencement of operations) through April 30, 1998,
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, 1998, 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:
9.43% for the one year period from May 1, 1997 through April
30, 1998.
8.52% per annum during the period from May 23, 1994 through
April 30, 1998, including the effect of the cash
contribution.
6.68% per annum during the period from May 23, 1994 through
April 30, 1998, excluding the effect of the cash
contribution.
Class L's average annual total return was as follows for the
period indicated (reflecting the waiver of investment advisory
and/or administration fees):
8.38% for one year period from May 1, 1997 through April 30, 1998.
7.02% for the period from May 16, 1995 (commencement of
operations) through April 30, 1998.
The Class L 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 L's average annual total return would have been as
follows for the period indicated:
9.38% for the one year period from May 1, 1997 through April 30,
1998.
7.02% for the period from May 16, 1995 through April 30, 1998.
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
The following is a summary of selected Federal income tax
considerations that may affect the Fund and its shareholders.
This 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.
As described above and in the Prospectus, the Fund is
designed to provide shareholders 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 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.
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, (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 if
such tax is reinstated as proposed by President Clinton. 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 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 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 (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.
Long-term capital gains, if any, 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, written notice
after the close of the Fund's taxable year as to the Federal
income tax status of his or her dividends and distributions.
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.
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,
1998 is incorporated herein by reference in its entirety.
APPENDIX A
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.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
AAA - This is the highest rating assigned by Standard & Poor's
to a debt obligation and indicates an extremely strong capacity to
pay interest and repay principal.
AA - Bonds rated AA have a very strong capacity to pay interest
and repay principal, and in the majority of instances they differ
from AAA issues only in small degrees.
A - Bonds rated A have a strong capacity to pay interest and
repay principal, although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than bonds in higher-rated categories.
BBB - Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for bonds in
this category than for bonds in the higher-rated categories.
BB - An obligation rated BB is less vulnerable to nonpayment
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B - An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity
to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the
obligor's capacity or willingness to meet its financial commitment
on the obligation.
CCC - An obligation rated CCC is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the
obligation.
CC - An obligation rated CC is currently highly vulnerable to
nonpayment.
C - The C rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued.
D - An obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poor's believes that such payments will be made
during such grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
Plus(+) or minus(-) - The ratings from AA to CCC may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
P - The letter P following a rating indicates the rating is
provisional. A provisional rating assumes the successful
completion of the project being financed by the issuance of the
bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no
comment on the likelihood of, or the risk of default upon failure
of, such completion. Accordingly, the investor should exercise
his own judgment with respect to such likelihood and risk.
L - The letter L indicates that the rating pertains to the
principal amount of those bonds to the extent that the underlying
deposit collateral is federally insured, and interest is
adequately collateralized. In the case of certificates of deposit,
the letter L indicates that the deposit, combined with other
deposits being held in the same right and capacity, will be
honored for principal and pre-default interest up to federal
insurance limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
Conditional rating(s), indicated by "Con" are given to bonds
for which the continuance of the security rating is contingent
upon Standard & Poor's receipt of an executed copy of the escrow
agreement or closing documentation confirming investments and cash
flows and/or the security rating is conditional upon the issuance
of insurance by the respective insurance company.
NR - Not rated.
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 strong capacity to pay principal
and interest. An issue determined to possess a very strong
capacity to pay debt service is given a plus(+) designation. Notes
rated SP-2 have a satisfactory capacity to pay principal and
interest, with some vulnerability to adverse financial and
economic changes over the term of the notes. Notes rated SP-3 have
speculative capacity to pay principal and interest.
Commercial Paper Ratings
A-1 - This designation indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with a
plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated A-1.
A-3 - Issues carrying this designation have an adequate
capacity for timely payment. They are, however, more vulnerable to
the adverse effects of changes in circumstances than obligations
carrying the higher designations.
B - Issues rated B are regarded as having only speculative
capacity for timely payment.
C - This rating is assigned to short-term debt obligations with
a doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made
on the due date, even if the applicable grace period has not
expired, unless Standard & Poor's believes such payments will be
made during such grace period.
Moody's Ratings for Municipal Bonds
Aaa - Bonds which 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 which 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 which 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 which 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 which 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 which 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.
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.
Rating symbols may include numerical modifiers "1," "2", or
"3". The numerical modifier "1" indicates that the security ranks
at the high end, "2" in the mid-range, and "3" nearer the low end
of the generic category. These modifiers of rating symbols "Aa",
"A" and "Baa" are to give investors a more precise indication of
relative debt quality in each of the historically defined
categories.
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 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, superior liquidity support 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 narrow and market access for
refinancing is likely to be less well established.
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.
u:\legal\funds\ormu\1998\secdocs\sai98.doc 32
u:\legal\funds\ormu\1998\secdocs\sai98.doc A-4
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, 1998
and the Report of Independent Accountants dated June 12, 1998 are
incorporated by reference to the Definitive 30b2-1 filed on July
16, 1998 as Accession Number 0000091155-98-000459.
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").
(c) Amendment to Registrant's Master Trust Agreement dated
June 12, 1998 filed herein.
(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
First Data Investor Services Group, Inc. (formerly known as 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 Amended Rule 18f-3(d) Multiple Class
Plan is filed herein.
Item 25. Persons Controlled by or Under Common Control with
Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Title of Class Number of Record Holders
By Class as of August 3, 1998
Class A 273
Class B 415
Class L* 56
Class Y 0
* Effective June 12, 1998 the former Class C shares were renamed
Class L shares.
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 - - Mutual Management Corp. ("MMC") (formerly
known as Smith Barney Mutual Funds Management Inc.)
MMC was incorporated in December 1968 under the laws of the State
of Delaware. MMC is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"), which in turn is a wholly owned
subsidiary of Travelers Group Inc. ("Travelers"). MMC 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 MMC
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 MMC pursuant
to the Advisers Act (SEC File No. 801-8314).
Item 29. Principal Underwriters
(a) Smith Barney Inc. ("Smith Barney") currently acts as a
distributor for
Concert Investment Series
Consulting Group Capital Markets Funds
Global Horizons Investment Series (Cayman Islands)
Global Horizons Investment Series (Ireland)
Greenwich Street California Municipal Fund Inc.
Greenwich Street Municipal Fund Inc.
Greenwich Street Series Fund
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.
Puerto Rico Equity Index & Income 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 Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Global Enhanced Income Fund
Smith Barney Income Funds
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 Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc.
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. (Netherlands Antilles)
Worldwide Securities Limited (Bermuda)
Zenix Income Fund Inc.
and various series of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Holdings. 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) Mutual Management Corp.
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
(a) Not applicable.
(b) Not applicable
(c) Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of
Registrant's latest 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
28th day of August, 1998.
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, August 28,
1998
Heath B. McLendon President and Chief
Executive Officer
/s/Lewis E. Daidone Senior Vice President and August 28,
1998
Lewis E. Daidone Treasurer, Chief Financial
and Accounting Officer
/s/Herbert Barg* Trustee August 28, 1998
Herbert Barg
/s/Alfred J. Bianchetti* Trustee August
28, 1998
Alfred J. Bianchetti
/s/Martin Brody* Trustee August
28, 1998
Martin Brody
/s/Dwight B. Crane* Trustee August
28, 1998
Dwight B. Crane
/s/Burt N. Dorsett* Trustee August 28, 1998
Burt N. Dorsett
/s/Elliot S. Jaffe* Trustee August 28, 1998
Elliot S. Jaffe
/s/Stephen E. Kaufman* Trustee August 28, 1998
Stephen E. Kaufman
/s/Joseph J. McCann* Trustee August 28, 1998
Joseph J. McCann
/s/Cornelius C. Rose, Jr.* Trustee August
28, 1998
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
(1)(c) Amendment to Master Trust Agreement
(11)(a) Consent of KPMG Peat Markwick LLP
(17) Financial Data Schedule
(18) Rule 18f-3(d) Multiple Class Plan
Cover page
SMITH BARNEY OREGON MUNICIPALS FUND
AMENDMENT NO. 3
TO
THE MASTER TRUST AGREEMEMT
AMENDMENT NO. 3 to the Master Trust Agreement dated as of
March 10, 1994 (the "Agreement") of Smith Barney Oregon
Municipals Fund (the "Trust"), made as of the 12th day of June,
1998.
WITNESSETH:
WHEREAS, Article VII, Section 7.3 of the Agreement provides
that the Agreement may be amended at any time, so long as such
amendment does not materially adversely affect the rights of any
shareholder and so long as such amendment is not in contravention
of applicable law, including the Investment Company Act of 1940,
as amended, by an instrument in writing signed by an officer of
the Trust pursuant to a vote of a majority of the Trustees; and
WHEREAS, the Trustees have the authority under Section 4.1
of the Agreement to issue classes of shares (as defined in the
Agreement) of any Sub-Trust (as defined in the Agreement) or
divide the shares of any Sub-Trust into classes, each class
having such different dividend, liquidation, voting and other
rights as the Trustees may determine, and to establish and
designate the specific classes of shares of each Sub-Trust; and
WHEREAS, on April 15, 1998, a majority of the Trustees
voted to redesignate the "Class C" shares of each Sub-Trust as
"Class L" shares; and
WHEREAS, the undersigned has been duly authorized by the
Trustees to execute and file this Amendment No. 1 to the
Agreement; and
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. The first paragraph of Article IV, Section 4.2 of the
Agreement is hereby amended to read in pertinent part as follows:
"Section 4.2 Establishment and Designation of Sub-Trusts.
Without limiting the authority of the Trustees set forth in
Section 4.1 to establish and designate any further Sub-Trusts and
classes, the Trustees hereby establish and designate the
following Sub-Trusts and classes thereof: "Smith Barney Oregon
Municipals Fund", which shall consist of five classes designated
as Class A, Class B, Class L, Class Y and Class Z shares. The
shares of such Sub-Trusts and classes thereof and any shares of
any further Sub-Trusts or classes that may from time to time be
established and designated by the Trustees shall (unless the
Trustees otherwise determine with respect to some further Sub-
Trust or class at the time of establishing and designating the
same) have the following relative rights and preferences:"
The undersigned hereby certifies that the Amendment set
forth above has been duly adopted in accordance with the
provisions of the Agreement.
IN WITHNESS WHEREOF, the undersigned has hereto set his
hands as of the day and year first above written.
SMITH BARNEY OREGON MUNICIPALS
FUND
By: /s/Michael Kocur
Name: Michael Kocur
Title: Assistant Secretary
u:\legal\funds\ormu\1998\secdocs\pea7art
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Oregon Municipals Fund:
We consent to the use of our report dated June 12, 1998 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 21, 1998
Rule 18f-3 (d) Multiple Class Plan for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of
the Investment Company Act of 1940, as amended (the "1940 Act").
The purpose of the Plan is to restate the existing arrangements
previously approved by the Boards of Directors and Trustees of
certain of the open-end investment companies set forth on Schedule
A (the "Funds" and each a "Fund") distributed by Smith Barney Inc.
("Smith Barney") under the Funds' existing order of exemption
(Investment Company Act Release Nos. 20042 (January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of the
Funds are distributed pursuant to a system (the "Multiple Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load structure. In
addition, pursuant to Rule 12b-1 under the 1940 Act (the "Rule"),
the Funds have each adopted a plan (the "Services and Distribution
Plan") under which shares of the Classes are subject to the
services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and under
the Services and Distribution Plan are subject to a service fee of
up to 0.25% of average daily net assets. In addition, the Funds
are permitted to assess a contingent deferred sales charge
("CDSC") on certain redemptions of Class A shares sold pursuant to
a complete waiver of front-end sales loads applicable to large
purchases, if the shares are redeemed within one year of the date
of purchase. This waiver applies to sales of Class A shares where
the amount of purchase is equal to or exceeds $500,000 although
this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but are
subject to a five-year declining CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate
of up to 0.25% of average daily net assets and a distribution fee
at an annual rate of up to 0.75% of average daily net assets.
3. Class D Shares
Class D shares are offered without a front-end sales load, CDSC,
service fee or distribution fee.
4. Class L Shares
Class L shares are offered with a front-end load, are subject to a
one-year CDSC and under the Services and Distribution Plan are
subject to a service fee at an annual rate of up to 0.25% of
average daily net assets and a distribution fee at an annual rate
of up to 0.75% of average daily net assets. Unlike Class B
shares, Class L shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
5. Class I Shares
Class I shares are offered without a front-end sales load, but are
subject under the Services and Distribution Plan to a service fee
at an annual rate of up to 0.25% of average daily net assets.
6. Class O Shares
Class O shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and Distribution
Plan are subject to a service fee at an annual rate of up to 0.25%
of average daily net assets and a distribution fee at an annual
rate of up to 0.50% of average daily net assets. Unlike Class B
shares, Class O shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
Effective June 28, 1999, Class O shares will be offered with a
front-end load and will continue to be subject to a one year CDSC,
a service fee at an annual rate of up to 0.25% of average daily
net assets and a distribution fee at an annual rate of up to 0.50%
of average daily net assets.
7. Class Y Shares
Class Y shares are offered without imposition of either a sales
charge or a service or distribution fee for investments where the
amount of purchase is equal to or exceeds a specific amount as
specified in each Fund's prospectus.
8. Class Z Shares
Class Z shares are offered without imposition of either a sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Smith Barney and its
affiliates, (ii) by certain unit investment trusts sponsored by
Smith Barney and its affiliates, and (iii) although not currently
authorized by the governing boards of the Funds, when and if
authorized, (x) by employees of Smith Barney and its affiliates
and (y) by directors, general partners or trustees of any
investment company for which Smith Barney serves as a distributor
and, for each of (x) and (y), their spouses and minor children.
9. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a Fund
are allocated among the various Classes of shares based on the net
assets of the Fund attributable to each Class, except that each
Class's net asset value and expenses reflect the expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with obtaining
shareholder approval of the Services and Distribution Plan (or an
amendment thereto) and any expenses specific to that Class. Such
expenses are limited to the following:
(i) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of
shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services
as required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to
one Class of shares; and
(vii) fees of members of the governing boards of the funds
incurred as a result of issues relating to one Class of shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to
Class A shares after a certain holding period, expected to be, in
most cases, approximately eight years but may be shorter. Upon
the expiration of the holding period, Class B shares (except those
purchases through the reinvestment of dividends and other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will, as a
result, thereafter be subject to the lower fee under the Services
and Distribution Plan. For purposes of calculating the holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple Class
System are deemed to have been issued on (i) the date on which the
issuance of the Class B shares occurred or (ii) for Class B shares
obtained through an exchange, or a series of exchanges, the date
on which the issuance of the original Class B shares occurred.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B
shares. However, for purposes of conversion to Class A, all Class
B shares in a shareholder's Fund account that were purchased
through the reinvestment of dividends and other distributions paid
in respect of Class B shares (and that have not converted to Class
A shares as provided in the following sentence) are considered to
be held in a separate sub-account. Each time any Class B shares
in the shareholder's Fund account (other than those in the sub-
account referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's Class B
shares converting to Class A bears to the shareholder's total
Class B shares not acquired through dividends and distributions.
The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling of the Internal Revenue
Service that payment of different dividends on Class A and Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event under the
Code. The conversion of Class B shares to Class A shares may be
suspended if this opinion is no longer available, In the event
that conversion of Class B shares does not occur, Class B shares
would continue to be subject to the distribution fee and any
incrementally higher transfer agency costs attending the Class B
shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset
value for shares of the same Class in certain other of the Smith
Barney Mutual Funds as set forth in the prospectus for such Fund.
Funds only permit exchanges into shares of money market funds
having a plan under the Rule if, as permitted by paragraph (b) (5)
of Rule 11a-3 under the 1940 Act, either (i) the time period
during which the shares of the money market funds are held is
included in the calculations of the CDSC or (ii) the time period
is not included but the amount of the CDSC is reduced by the
amount of any payments made under a plan adopted pursuant to the
Rule by the money market funds with respects to those shares.
Currently, the Funds include the time period during which shares
of the money market fund are held in the CDSC period. The
exchange privileges applicable to all Classes of shares must
comply with Rule 11a-3 under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of June 30, 1998)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Concert Allocation Series Inc.
Conservative Portfolio
Balanced Portfolio
Global Portfolio
Growth Portfolio
Income Portfolio
High Growth Portfolio
Smith Barney Equity Funds -
Concert Social Awareness Fund
Smith Barney Large Cap Blend Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Large Cap Value Fund
Short-Term High Grade Bond Fund
U.S. Government Securities Fund
Smith Barney Income Funds -
Smith Barney Balanced Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney High Income Fund
Smith Barney Municipal High Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Total Return Bond Fund
Smith Barney Investment Trust -
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney S&P 500 Index Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Investment Funds Inc. -
Concert Peachtree Growth Fund
Smith Barney Contrarian Fund
Smith Barney Government Securities Fund
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Special Equities Fund
Smith Barney Institutional Cash Management Fund, Inc.
Cash Portfolio
Government Portfolio
Municipal Portfolio
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Money Market Portfolio
Florida Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New York Portfolio
New York Money Market
Pennsylvania Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
Emerging Markets Portfolio
U:\legal\funds\ormu\1998\secdocs\pea718f
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