<PAGE>
ANNUAL REPORT NOVEMBER 30, 1993
[GRAPHIC]
SMALL BOX ABOVE FUND NAME
SHOWING A MAP, SIGN,
NEWSPAPER AND A WRENCH.
SMITH BARNEY SHEARSON
MASSACHUSETTS
MUNICIPALS
FUND
[LOGO]
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
DEAR SHAREHOLDER:
We are pleased to provide the annual report for Smith Barney Shearson
Massachusetts Municipals Fund for the fiscal year ended November 30, 1993. In
this report we will provide you with a review of the Fund's performance, the
market environment and portfolio activities during the past twelve months.
THE MUNICIPAL MARKET AND THE ECONOMIC ENVIRONMENT
In 1993, the tax-exempt market set a record for bond issuance of
approximately $300 billion. Municipalities, like individuals, took advantage of
the low level of interest rates and used it as an opportunity to refinance
higher interest rate debt. About 75% of these new issues will be used to retire
the higher interest rate debt that was issued in the early 1980s. Investors
consequently have faced a high rate of bond calls during the past year, and we
anticipate that this is something they will have to contend with in 1994 as
well. We expect that in 1994 the volume of new issuance will once again be in
the more traditional range of $150 to $175 billion. Although the supply of
municipal securities was very high during the Fund's fiscal year, demand was
equally high. Investors whose bonds were called or retired sought to replace
them with new issues, and the passage of a retroactive tax increase in August
buoyed demand for tax-exempt issues.
The market suffered from some periodic weakness throughout the year, and
especially at the end of the year, but we are optimistic that it will regain its
strength in early 1994. We think this will likely begin in earnest once the
higher withholding rates go into effect, and again when people begin preparing
their 1993 income taxes. We don't anticipate a surge in the inflation rate
because the increase in economic growth and consumer confidence will be offset
by higher Federal tax rates and uncertainty over the cost of health care reform.
The credit rating of the Commonwealth of Massachusetts was upgraded to A+ by
Standard & Poor's Corporation during the Fund's fiscal year. This was a major
vote of confidence for the governor, legislature and taxpayer and for the
Massachusetts economy. Although the Massachusetts economy is showing some signs
of a recovery, employment and job creation still lag the rest of the country.
And because of the state's high number of hospital and health care institutions,
its economy very likely will be impacted by health
CONTINUED
1
<PAGE>
care reform. The merger in December 1993 of Massachusetts General and Brigham &
Women's Hospitals in anticipation of further health care reform strikingly
illustrates our point. We suspect that this trend will continue not only in
Massachusetts, but throughout the rest of the country. Projects such as the
Boston Central Artery/Harbor Tunnel Project, the cleanup of Boston Harbor, and
the expansion of Logan Airport should boost the economy and offset some of the
potential negative effects of health care reform.
PORTFOLIO STRATEGY
As investment managers, our goal is to provide investors with tax-free income
and stability of principal through investments in securities exempt from Federal
and Massachusetts income taxes. Rather than attempting to time the market, we,
like most investors, take a longer-term approach to tax-exempt investing.
Consequently, we have not changed our strategy significantly to accommodate the
temporary market blips of the past twelve months; instead, we remained fully
invested in longer-term issues and simply rode out the market fluctuations.
To help us achieve our goal, we continue to invest the Fund's holdings in
high quality investments. The additional yield available from lower-rated
securities is simply not sufficient to justify their additional risk. At the end
of its fiscal year, 97% of the Fund was invested in issues rated BBB or higher
(investment grade) by either Standard & Poor's Corporation or Moody's Investors
Service, Inc. We have concentrated the Fund's investments in general obligation
issues, hospital issues which are secured by additional insurance, and utility
issues. The average maturity of the issues in the portfolio is 21.6 years. It is
our opinion that this diversified, high quality approach to the long-term
municipal market best serves the interests of the Fund's investors.
INVESTMENT PERFORMANCE
The Fund has performed quite well during this past fiscal year and provided
investors with returns on Class A and Class B shares of 11.74% and 11.09%,
respectively. We have included more specific information about the Fund's
performance on the inside front cover of this report. In addition, we have
included a chart showing the value of $10,000 invested in the Fund since its
inception as well as the value of that same amount invested in the Lehman
Brothers Municipal Bond Index. This allows you to compare the performance of
your investment to that of the general market. The Lehman Brothers Municipal
Bond Index is an unmanaged, broad-based index which
CONTINUED
2
<PAGE>
includes about 21,000 tax-free bonds and reflects approximately $350 billion of
market capitalization. The average maturity of the bonds in this Index is
approximately 14 years; in comparison, the average maturity of the bonds in the
Fund is 22 years. Like the Fund, the index includes bonds drawn from a diverse
range of market sectors, including general obligation, revenue and insured bonds
that are rated investment grade (AAA to BAA). Because it is unmanaged, the
Lehman Brothers Municipal Bond Index is not subject to the same management and
trading expenses of a mutual fund. In addition, the Index does not fully reflect
the performance of Massachusetts securities which are in high demand because of
the state's high personal income tax rates.
LEVEL DIVIDEND POLICY
Although not explicitly stated in the Prospectus, the Fund's policy is to pay
a level monthly dividend based on our projections for the municipal market and
the general direction of interest rates. This policy has no appreciable affect
on the Fund's investment strategies or net asset value per share since it is
guided by market conditions. We continually monitor both the market and the
Fund's income stream to see that our dividend projections are on target.
We would like to extend to you our sincere appreciation for your investment
in the Fund. We will continue to strive to maintain your trust.
Sincerely,
Heath B. McLendon Lawrence T. McDermott
CHAIRMAN OF THE BOARD AND VICE PRESIDENT AND
INVESTMENT OFFICER INVESTMENT OFFICER
January 24, 1994
3
<PAGE>
HISTORICAL PERFORMANCE -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED NET ASSET VALUE CAPITAL GAINS DIVIDENDS TOTAL
NOVEMBER 30 BEGINNING ENDING DISTRIBUTED PAID RETURN*
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
12/21/87 - 11/30/88 $11.40 $11.88 $0.06 $0.82 12.25%
-------------------------------------------------------------------------------------
1989 11.88 12.11 -- 0.86 9.43
-------------------------------------------------------------------------------------
1990 12.11 11.81 0.02 0.85 4.93
-------------------------------------------------------------------------------------
1991 11.81 12.28 -- 0.84 11.57
-------------------------------------------------------------------------------------
1992 12.28 12.63 0.04 0.77 10.06
-------------------------------------------------------------------------------------
1993 12.63 13.26 0.07 0.74 11.74
-------------------------------------------------------------------------------------
TOTAL $0.19 TOTAL $4.88
-------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN FROM 12/21/87 THROUGH 11/30/93 76.85%
-------------------------------------------------------------------------------------
<FN>
*Figures assume reinvestment of all dividends and capital gains distributions at
net asset value and do not assume deduction of the sales charge (maximum 4.5% as
of November 6, 1992).
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
AVERAGE ANNUAL TOTAL RETURN -- CLASS A SHARES**
<TABLE>
<CAPTION>
WITHOUT SALES CHARGE WITH SALES CHARGE
WITHOUT WITHOUT
ACTUAL FEE WAIVER ACTUAL FEE WAIVER
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
YEAR ENDED 11/30/93 11.74% 11.32% 6.72% 6.32%
- ------------------------------------------------------------------------------------
FIVE YEARS ENDED 11/30/93 9.52 8.88 8.51 7.88
- ------------------------------------------------------------------------------------
INCEPTION 12/21/87 THROUGH 11/30/93 10.07 9.30 9.22 8.46
- ------------------------------------------------------------------------------------
<FN>
**All average annual total return figures shown reflect the reinvestment of
dividends and capital gains at net asset value. Average annual total return
figures shown assume the deduction of the maximum 4.5% sales charge. The Fund
commenced operations on December 21, 1987. The Fund waived fees and reimbursed
expenses from January 1988 to the present. A shareholder's actual return for
periods during which waivers and reimbursements were in effect would be the
higher of the two numbers shown.
NOTE: As of November 6, 1992, shares of the Fund were designated as Class A --
subject to a maximum 4.5% front-end sales charge and an annual service fee of
0.15% of average daily net assets attributable to that class. The Fund's average
annual rates of return would have been lower had the service fee been in effect
prior to November 6, 1992.
</TABLE>
4
<PAGE>
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Massachusetts
Municipals Fund's Class A shares on December 31, 1987 through November 30, 1993
as compared with the growth of a $10,000 investment in Lehman Brothers Municipal
Bond Index and Lipper Massachusetts Municipal Fund Average. The plot points used
to draw the line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000
GROWTH OF $10,000 INVESTMENT IN THE INVESTMENT IN THE
INVESTED IN CLASS LEHMAN BROTHERS LIPPER MASSACHUSETTS
A SHARES OF THE MUNICIPAL BOND MUNICIPAL FUND
MONTH ENDED FUND INDEX AVERAGE
<S> <C> <C> <C>
12/31/87 $ 9,678 $10,000 $10,000
01/88 $10,073 $10,356 $10,396
03/88 $ 9,947 $10,343 $10,325
06/88 $10,241 $10,544 $10,581
09/88 $10,562 $10,814 $10,849
12/88 $10,876 $11,016 $11,106
03/89 $10,890 $11,089 $11,179
06/89 $11,518 $11,745 $11,786
09/89 $11,491 $11,753 $11,740
12/89 $11,795 $12,204 $12,078
03/90 $11,858 $12,259 $12,112
06/90 $12,083 $12,545 $12,360
09/90 $12,071 $12,552 $12,274
12/90 $12,382 $13,094 $12,792
03/91 $12,696 $13,390 $13,111
06/91 $13,036 $13,676 $13,398
09/91 $13,540 $14,208 $13,919
12/91 $14,027 $14,684 $14,394
03/92 $14,118 $14,728 $14,475
06/92 $14,625 $15,286 $15,057
09/92 $15,005 $15,693 $15,428
12/92 $15,302 $15,978 $15,570
03/93 $15,950 $16,572 $16,335
06/93 $16,513 $17,114 $16,911
09/93 $17,064 $17,693 $17,506
11/93 $16,889 $17,570 $17,359
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares on December
21, 1987 assuming deduction of the maximum 4.5% sales charge at the time of
investment and reinvestment of dividends and capital gains at net asset value
through November 30, 1993.
The Lehman Brothers Municipal Bond Index is comprised of approximately 21,000
bonds. The bonds are all investment grade, fixed rate, long term (greater than
two years) and are selected from issues larger than $50 million dated since
January 1984. Index information available at month-end only; therefore, the
closest month-end to inception date of the Fund has been used.
The Lipper Massachusetts Municipal Fund Average is composed of the Fund's peer
group of mutual funds.
This period was one in which municipal bond prices fluctuated and the results
should not be considered as a representation of the dividend income or capital
gain or loss which may be realized from an investment in the Fund today. No
adjustment has been made for shareholder tax liability on dividends or capital
gains.
NOTE: All figures cited here and on the following pages represent past
performance of the Fund and do not guarantee future results of Class A shares.
FOR A GLOSSARY OF TERMS, PLEASE TURN TO THE END OF THIS REPORT.
5
<PAGE>
HISTORICAL PERFORMANCE -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED NET ASSET VALUE CAPITAL GAINS DIVIDENDS TOTAL
NOVEMBER 30 BEGINNING ENDING DISTRIBUTED PAID RETURN*
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
11/06/92 - 11/30/92 $12.52 $12.63 -- $0.05 1.29%
--------------------------------------------------------------------------------------
1993 12.63 13.26 $0.07 0.68 11.09
--------------------------------------------------------------------------------------
TOTAL $0.07 TOTAL $0.73
--------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN FROM 11/06/92 THROUGH 11/30/93 12.53%
--------------------------------------------------------------------------------------
<FN>
*Figures assume reinvestment of all dividends and capital gains distributions at
net asset value and do not assume deduction of the contingent deferred sales
charge ("CDSC").
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
AVERAGE ANNUAL TOTAL RETURN -- CLASS B SHARES**
<TABLE>
<CAPTION>
WITHOUT CDSC WITH CDSC
WITHOUT WITHOUT
ACTUAL FEE WAIVER ACTUAL FEE WAIVER
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
YEAR ENDED 11/30/93 11.09% 10.67% 6.59% 6.19%
- -------------------------------------------------------------------------------
INCEPTION 11/06/92 THROUGH 11/30/93 11.70 11.28 7.98 7.56
- -------------------------------------------------------------------------------
<FN>
**All average annual total return figures shown reflect the reinvestment of
dividends and capital gains at net asset value. Average annual total return
figures shown assume the deduction of the maximum 4.5% CDSC. The Fund waived
fees and reimbursed expenses from November 6, 1992 to the present. A
shareholder's actual return for periods during which waivers and reimbursements
were in effect would be the higher of the two numbers shown.
NOTE: The Fund began offering Class B shares on November 6, 1992 subject to a
maximum 4.5% CDSC and annual service and distribution fees of 0.15% and 0.50%,
respectively, of average daily net assets attributable to that class.
</TABLE>
6
<PAGE>
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in Massachusetts
Municipals Fund's Class B shares on November 6, 1992 through November 30, 1993
as compared with the growth of a $10,000 investment in Lehman Brothers Municipal
Bond Index and Lipper Massachusetts Municipal Fund Average. The plot points used
to draw the line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000
INVESTMENT IN THE INVESTMENT IN THE
GROWTH OF $10,000 LEHMAN BROTHERS LIPPER MASSACHUSETTS
INVESTED IN CLASS B MUNICIPAL BOND MUNICIPAL FUND
MONTH ENDED SHARES OF THE FUND INDEX AVERAGE
<S> <C> <C> <C>
10/31/92 -- $10,000 $10,000
11/06/92 $10,000 -- --
11/92 $10,129 $10,179 $10,253
12/92 $10,252 $10,283 $10,385
03/93 $10,673 $10,665 $10,771
06/93 $11,038 $11,014 $11,151
09/93 $11,377 $11,386 $11,543
11/93 $10,803 $11,307 $11,466
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class B shares on November 6,
1992 assuming deduction of the maximum 4.5% CDSC at the time of redemption and
reinvestment of dividends and capital gains at net asset value through
November 30, 1993.
The Lehman Brothers Municipal Bond Index is comprised of approximately 21,000
bonds. The bonds are all investment grade, fixed rate, long term (greater than
two years) and are selected from issues larger than $50 million dated since
January 1984. Index information available at month-end only; therefore, the
closest month-end to inception date of the Fund has been used.
The Lipper Massachusetts Municipal Fund Average is composed of the Fund's peer
group of mutual funds.
This period was one in which municipal bond prices fluctuated and the results
should not be considered as a representation of the dividend income or capital
gain or loss which may be realized from an investment in the Fund today. No
adjustment has been made for shareholder tax liability on dividends or capital
gains.
NOTE: All figures cited here and on the following pages represent past
performance of the Fund and do not guarantee future results of Class B shares.
* Value does not assume deduction of applicable CDSC.
** Value assumes deduction of applicable CDSC (assuming redemption on November
30, 1993).
FOR A GLOSSARY OF TERMS, PLEASE TURN TO THE END OF THIS REPORT.
7
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS November 30, 1993 (unaudited)
INDUSTRY BREAKDOWN
Pie chart depicting the allocation of the Massachusetts Municipals Fund's
investment securities held at November 30, 1993 by industry classification. The
pie is broken in pieces representing industries in the following percentages:
<TABLE>
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Transportation 2.4%
Education 6.2%
Industrial Revenue/Pollution General
Revenue 6.1%
Utility Revenue 12.2%
Housing 12.6%
General Obligations 26.8%
Short Term Investment and Net Other Assets
and Liabilities 2.9%
Other 4.4%
Hospital 26.4%
</TABLE>
SUMMARY OF MUNICIPAL BONDS AND NOTES AND SHORT-TERM
INVESTMENTS BY COMBINED RATINGS.
<TABLE>
<CAPTION>
Standard & Percent
Moody's Poor's of Value
<S> <C> <C> <C>
-------------------------------------------
Aaa OR AAA 43%
-------------------------------------------
Aa AA 7
-------------------------------------------
A A 23
-------------------------------------------
Baa BBB 20
-------------------------------------------
Ba BB 1
-------------------------------------------
NR NR 2
-------------------------------------------
VMIG-1 A1+ 4
-------------------------------------------
100%
----------------
</TABLE>
AVERAGE MATURITY: 21.6 years
8
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------
PORTFOLIO OF INVESTMENTS November 30, 1993
<TABLE>
<S> <C> <C>
KEY TO INSURANCE ABBREVIATIONS
AMBAC -- American Municipal Bond Assurance Corporation
CO LEE -- College Construction Loan Association
FGIC -- Federal Guaranty Insurance Corporation
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
</TABLE>
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED) MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
<C> <S> <C> <C> <C>
-------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES -- 97.1%
MASSACHUSETTS -- 88.8%
$ 700,000 Boston, Massachusetts, General Obligation
Bonds, Series A, (AMBAC Insured),
6.500% due 7/1/12 Aaa AAA $ 772,625
150,000 Boston, Massachusetts, Revenue Refunding
Bonds, (FHA Insured),
5.750% due 2/15/23 Aa AA- 148,313
Boston, Massachusetts, Water & Sewer
Commission Revenue,
Series A:
280,000 7.750% due 11/1/06 A A- 312,900
Prerefunded,
165,000 7.750% due 11/1/06 A A 185,419
250,000 Brockton, Massachusetts, Utility,
6.125% due 6/15/18 Baa A- 253,438
Dedham-Westwood Water District,
Massachusetts, Refunding Bonds (MBIA
Insured),
450,000 5.000% due 10/15/08 Aaa AAA 433,687
920,000 5.100% due 10/15/12 Aaa AAA 869,400
500,000 Fall River, Massachusetts, General
Obligation Bonds, (MBIA Insured),
7.200% due 6/1/10 Aaa AAA 570,625
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) November 30, 1993
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED) MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MASSACHUSETTS -- (CONTINUED)
$1,000,000 Framingham, Massachusetts, Housing
Authority, Mortgage Revenue, (Beaver Terrace
Apartments, Apartment A),
6.650% due 2/20/32 NR AAA $ 1,057,500
250,000 Groveland, Massachusetts, General Obligation
Bonds, (AMBAC Insured),
6.850% due 6/15/06 Aaa AAA 280,312
470,000 Haverhill, Massachusetts, Revenue Bond
Series A, (AMBAC Insured),
6.700% due 9/1/10 Aaa AAA 523,463
500,000 Holyoke, Massachusetts, General Obligation
Bonds, Series B, (FSA Insured),
6.125% due 8/1/13 Aaa AAA 523,750
Lakeville, Massachusetts, (Lot B School
Project Loan) Prerefunded:
75,000 7.700% due 1/1/07 NR NR 86,250
55,000 7.700% due 1/1/08 NR NR 63,250
1,075,000 Lowell, Massachusetts, General Obligation
Bonds, Series B, (FSA Insured),
5.600% due 11/1/12 Aaa AAA 1,066,937
Lynn, Massachusetts, Water & Sewer
Commission, General Revenue:
155,000 7.250% due 12/1/10 (MBIA Insured) Aaa AAA 182,125
300,000 5.500% due 12/1/10 (FGIC Insured) Aaa AAA 301,125
250,000 Mansfield, Massachusetts, General Obligation
Bonds, (AMBAC Insured),
6.700% due 1/15/11 Aaa AAA 275,000
975,000 Massachusetts Bay Transportation Authority,
6.200% due 3/1/16 A A 1,056,656
225,000 Massachusetts Educational Loan Authority,
Education Loan Revenue, Issue D, Series A,
7.650% due 1/1/07 A A 246,094
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) November 30, 1993
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED) MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MASSACHUSETTS -- (CONTINUED)
Massachusetts Municipal Wholesale Electric
Company, Power Supply Revenue,
Series A:
$1,000,000 6.500% due 7/1/02 Baa-1 BBB+ $ 1,087,500
2,000,000 6.125% due 7/1/19 Baa-1 BBB+ 2,037,500
325,000 Massachusetts State College Building
Authority Project Revenue, Series A,
7.250% due 5/1/16 A A 350,187
Massachusetts State Construction Loan:
Series A, (FGIC Insured):
65,000 7.250% due 3/1/09 Aaa AAA 73,694
1,000,000 5.500% due 2/1/11 A A+ 990,000
1,000,000 5.500% due 11/1/12 A A+ 990,000
300,000 Series C,
7.000% due 8/1/12 A A 333,750
500,000 Massachusetts State Convention Center
Authority, Series A,
5.375% due 9/1/13 A A+ 488,750
Massachusetts State Health & Educational
Facilities Authority Revenue:
750,000 6.300% due 8/1/18 Baa NR 751,875
750,000 Addison Hospital,
6.000% due 7/1/23 A NR 741,563
100,000 Bentley College, Series G,
8.125% due 7/1/17 A A 109,000
Beth Israel Hospital:
250,000 Series E,
7.000% due 7/1/14 A1 A+ 277,500
1,000,000 Series G-4, Inverse Floater, (AMBAC
Insured),
6.000% due 7/1/25 Aaa AAA 1,093,750
1,000,000 Brockton Hospital, Series B,
8.100% due 7/1/13 A A 1,110,000
500,000 Capital Asset Program, Series F, (MBIA
Insured),
7.300% due 10/1/18 Aaa AAA 571,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) November 30, 1993
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED) MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MASSACHUSETTS -- (CONTINUED)
$ 430,000 Community College Project, Series A, (Co Lee
Insured),
6.600% due 10/1/22 NR AAA $ 464,938
1,000,000 Faulkner Hospital, Series C,
6.000% due 7/1/13 Baa1 BBB 993,750
Massachusetts General Hospital:
1,000,000 Series F, (AMBAC Insured),
6.250% due 7/1/20 Aaa AAA 1,057,500
Medical Center:
750,000 Lahey Clinic, Series B, (MBIA Insured),
5.375% due 7/1/23 Aaa AAA 724,688
500,000 Series B, (AMBAC Insured),
9.920% due 6/23/22 Aaa AAA 635,000
100,000 Series E, Prerefunded
7.875% due 7/1/11 A1 NR 112,500
Morton Hospital & Medical Center:
370,000 Series A,
8.750% due 7/1/11 NR NR 445,388
Series B:
1,000,000 5.250% due 7/1/14 NR AAA 956,250
500,000 5.500% due 7/1/23 NR AAA 480,000
545,000 New England Memorial Hospital, Series A,
8.875% due 7/1/13 Baa NR 657,406
100,000 St. Elizabeth's Hospital, Boston, Series B,
(FHA Insured),
7.750% due 8/1/27 NR AA 114,000
1,000,000 Saint Memorial Medical Center, Series A,
6.000% due 10/1/23 Baa NR 918,750
750,000 South Shore Hospital, Series E, (MBIA
Insured),
5.500% due 7/1/20 Aaa AAA 733,125
Suffolk University, Series B, (Co Lee
Insured),
200,000 6.250% due 7/1/12 Baa AAA 210,500
1,575,000 6.350% due 7/1/22 Baa AAA 1,649,812
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) November 30, 1993
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED) MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MASSACHUSETTS -- (CONTINUED)
$ 600,000 University of Massachusetts Medical Center,
(Co Lee Insured),
6.000% due 7/1/23 NR AAA $ 619,500
345,000 Youville Hospital, Series A, (FHA Insured),
9.100% due 8/1/15 Aa AA- 381,225
Massachusetts State Housing Finance Agency:
1,000,000 5.300% due 12/1/12 Aa A+ 958,750
1,150,000 6.375% due 4/1/21 A1 A+ 1,196,000
100,000 Housing Revenue, Single Family Mortgage,
Series 5,
8.375% due 6/1/15 Aa A+ 105,750
1,000,000 Series 14,
7.700% due 12/1/14 Aa A+ 1,046,250
600,000 Series 18,
7.350% due 12/1/16 Aa A+ 636,750
95,000 Single Family Mortgage, Series A,
11.000% due 12/1/09 Aa A+ 98,800
Massachusetts State Industrial Finance
Agency Revenue:
250,000 6.300% due 7/1/05 Baa1 BBB 265,937
500,000 Series A, (Babson College), (MBIA Insured),
6.500% due 10/1/22 Aaa AAA 539,375
750,000 Series E, (Clark University),
7.000% due 7/1/12 A A- 842,812
250,000 Concord Academy, (FSA Insured),
6.900% due 9/1/21 Aaa AAA 278,125
1,000,000 Edison, Series E,
5.875% due 8/1/08 Baa2 BBB 1,011,250
100,000 Guaranteed Loan, Series A,
7.875% due 5/1/07 NR AAA 103,000
125,000 (Museum of Science Project), (FSA Insured),
7.300% due 11/1/09 Aaa AAA 141,719
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) November 30, 1993
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED) MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MASSACHUSETTS -- (CONTINUED)
Massachusetts State Industrial Finance
Agency Revenue (continued):
$ 500,000 (S.E. Massachusetts Project), Recovery
Revenue, Series A,
9.000% due 7/1/15 NR NR $ 570,625
Massachusetts State Port Authority Revenue:
130,000 7.750% due 7/1/18 Aa AA- 139,912
Prerefunded,
120,000 7.750% due 7/1/18 AAA AA- 130,200
Massachusetts State Water Resource
Authority, Series A:
1,000,000 6.250% due 11/1/10 A A- 1,047,500
1,000,000 5.500% due 3/1/17 A A- 961,250
750,000 Monson, Massachusetts, General Obligation
Bonds, (MBIA Insured),
5.500% due 10/15/10 Aaa AAA 756,563
250,000 North Reading, Massachusetts, General
Obligation Bonds, (MBIA Insured),
6.875% due 6/15/07 Aaa AAA 276,250
795,000 Plymouth County, Massachusetts, Certificates
of Participation, Series A,
6.750% due 10/1/04 NR A 866,550
Quincy, Massachusetts, Quincy City Hospital,
(Project A), (FHA Insured):
425,000 7.750% due 1/15/06 NR AAA 460,594
275,000 7.875% due 1/15/16 NR AAA 298,031
500,000 Salem, Massachusetts, General Obligation
Bonds, (AMBAC Insured),
6.800% due 8/15/10 Aaa AAA 559,375
500,000 Sandwich, Massachusetts, General Obligation
Bonds, (AMBAC Insured),
5.400% due 11/1/08 Aaa AAA 503,750
30,000 Springfield, Massachusetts, Industrial
Development Finance Authority, Pollution
Control Revenue, (Monsanto Company Project),
9.100% due 11/1/04 A1 A 36,413
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) November 30, 1993
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED) MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MASSACHUSETTS -- (CONTINUED)
$ 750,000 Springfield, Massachusetts, (School Project
Loan), Series B,
7.100% due 9/1/11 Baa NR $ 816,562
500,000 Springfield, Massachusetts, Series B, (MBIA
Insured),
6.000% due 1/15/13 Aaa AAA 520,000
250,000 University of Massachusetts, Building
Authority Revenue, Series A,
7.500% due 5/1/14 A A+ 280,000
485,000 Webster, Massachusetts, General Obligation
Bonds, (AMBAC Insured),
6.700% due 9/1/10 Aaa AAA 536,531
250,000 Westfield, Massachusetts, General Obligation
Bonds, (AMBAC Insured),
7.100% due 12/15/08 Aaa AAA 280,938
Worcester, Massachusetts, Refunding &
Construction, Series A, (MBIA Insured),
700,000 6.400% due 1/1/05 Aaa AAA 761,250
330,000 6.450% due 1/1/06 Aaa AAA 358,875
-------------------------------------------------------------------------------------
48,755,207
-------------------------------------------------------------------------------------
PUERTO RICO -- 6.6%
200,000 Commonwealth of Puerto Rico, General
Obligation Bonds,
8.000% due 7/1/08 Baa1 A 232,500
750,000 Commonwealth of Puerto Rico, Registered
Yield Curve, (AMBAC Insured),
8.900% due 7/1/15 Aaa AAA 817,500
795,000 Commonwealth of Puerto Rico, Urban Renewal
Housing Revenue Bonds,
7.875% due 10/1/04 Baa BBB 922,200
415,000 Puerto Rico Industrial, Medical &
Environmental Pollution Control Facilities
Finance Authority Revenue Bonds, Special
Facilities, (American Airlines), Series A,
8.750% due 12/1/25 Baa1 BB+ 453,906
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) November 30, 1993
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED) MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
PUERTO RICO -- (CONTINUED)
$ 175,000 Puerto Rico Housing Finance Agency, Special
Obligation Refunding Bonds, Series H, (FSA
Insured),
5.950% due 10/1/01 Aaa AAA $ 182,875
500,000 Puerto Rico Port Authority Revenue,
6.300% due 6/1/23 Baa3 BB+ 507,500
500,000 Puerto Rico Public Buildings Authority,
5.750% due 7/1/15 Baa1 A 500,625
-------------------------------------------------------------------------------------
3,617,106
-------------------------------------------------------------------------------------
GUAM -- 1.4%
750,000 Guam, Apartment Authority Revenue, Series A,
6.500% due 10/1/23 NR BBB 795,937
-------------------------------------------------------------------------------------
VIRGIN ISLANDS -- 0.3%
Virgin Islands Public Finance Authority
Revenue, Matching Funds Loan Note, (Marine
Midland), Series A:
15,000 7.300% due 10/1/18 Aaa AAA 18,169
110,000 Pre-refunded,
7.300% due 10/1/18 Aaa AAA 129,112
-------------------------------------------------------------------------------------
147,281
-------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS AND NOTES
(Cost $50,609,007) 53,315,531
-------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.0% (Cost $2,200,000)
2,200,000 Commonwealth of Puerto Rico, Government
Developmental Bank,
2.250% due 12/1/15+ VMIG-1 A1+ 2,200,000
-------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $52,809,007*) 101.1% 55,515,531
OTHER ASSETS AND LIABILITIES (NET) (1.1) (606,982)
-------------------------------------------------------------------------------------
NET ASSETS 100.0% $ 54,908,549
-------------------------------------------------------------------------------------
<FN>
*Aggregate cost for Federal tax purposes.
+Put bonds and notes have demand features to mature within one year.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES November 30, 1993
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $52,809,007) (Note 1)
See accompanying schedule $55,515,531
Cash 24,578
Interest receivable 1,063,431
Receivable for Fund shares sold 547,806
- -------------------------------------------------------------------------------------
TOTAL ASSETS 57,151,346
- -------------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased $2,081,146
Investment advisory fee payable (Note 2) 34,639
Dividends payable 27,141
Administration fee payable (Note 2) 19,794
Distribution fee payable (Note 3) 8,982
Custodian fees payable (Note 2) 7,500
Service fees payable (Note 3) 6,686
Payable for Fund shares redeemed 5,000
Transfer agent fees payable (Notes 2 and 4) 2,499
Accrued expenses and other payables 49,410
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,242,797
- -------------------------------------------------------------------------------------
NET ASSETS $54,908,549
- -------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Distributions in excess of net investment income earned
to date $ (27,141)
Accumulated net realized gain on investments sold 251,796
Unrealized appreciation of investments 2,706,524
Par value 4,140
Paid-in capital in excess of par value 51,973,230
- -------------------------------------------------------------------------------------
TOTAL NET ASSETS $54,908,549
- -------------------------------------------------------------------------------------
NET ASSETS:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($32,592,020 DIVIDED BY 2,457,288 shares of beneficial interest
outstanding) $13.26
- -------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE ($13.26 DIVIDED BY .955)
(based on sales charge of 4.5% of the offering price on November 30,
1993) $13.88
- -------------------------------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and redemption price per share+
($22,316,529 DIVIDED BY 1,682,618 shares of beneficial interest
outstanding) $13.26
- -------------------------------------------------------------------------------------
<FN>
+Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1993
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $2,760,882
- -------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $ 153,301
Administration fee (Note 2) 87,601
Distribution fee (Note 3) 66,117
Service fees (Note 3) 65,700
Shareholder reports expense 54,802
Legal and audit fees 44,458
Custodian fees (Note 2) 26,423
Transfer agent fees (Notes 2 and 4) 19,705
Trustees' fees and expenses (Note 2) 17,437
Registration and filing fees 16,387
Other 30,966
Fees waived by investment adviser and administrator
(Note 2) (159,977)
- -------------------------------------------------------------------------------------
TOTAL EXPENSES 422,920
- -------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,337,962
- -------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain on investments sold during the year 312,979
Net unrealized appreciation of investments during the
year 1,619,280
- -------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1,932,259
- -------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,270,221
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
11/30/93 11/30/92
<S> <C> <C>
Net investment income $ 2,337,962 $ 1,452,608
Net realized gain on investments sold during the year 312,979 164,806
Net unrealized appreciation of investments during the
year 1,619,280 614,570
- -------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,270,221 2,231,984
Distributions to shareholders from net investment
income:
Class A (1,684,213) (1,447,647)
Class B (649,337) (4,961)
Distributions in excess of income:
Class A (24,485) --
Class B (9,440) --
Distributions to shareholders from net realized gain on
investments:
Class A (140,498) (58,207)
Class B (21,375) --
Distributions from capital:
Class A -- (73,029)
Class B -- (250)
Net increase in net assets from:
Class A share transactions (Note 6) 3,828,288 7,098,743
Class B share transactions (Note 6) 19,047,087 2,924,491
- -------------------------------------------------------------------------------------
Net increase in net assets 24,616,248 10,671,124
NET ASSETS:
Beginning of year 30,292,301 19,621,177
- -------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of $27,141 at November 30, 1993) $54,908,549 $30,292,301
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
11/30/93# 11/30/92 11/30/91 11/30/90 11/30/89 11/30/88*
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 12.63 $ 12.28 $ 11.81 $ 12.11 $ 11.88 $ 11.40
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income*** 0.72 0.77 0.84 0.84 0.88 0.82
Net realized and unrealized gain/
(loss) on investments 0.72 0.43 0.48 (0.27) 0.21 0.54
- -------------------------------------------------------------------------------------
Total from investment operations 1.44 1.20 1.32 0.57 1.09 1.36
- -------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income (0.73) (0.77) (0.84) (0.85) (0.86) (0.82)
Distributions in excess of net investment
income (.01) -- -- -- -- --
Distributions from net realized
capital gains (0.07) (0.04) -- (0.02) -- (0.06)
Distributions from capital -- (0.04) (0.01) -- -- --
- -------------------------------------------------------------------------------------
Total Distributions (0.81) (0.85) (0.85) (0.87) (0.86) (0.88)
- -------------------------------------------------------------------------------------
Net Asset Value, end of year $ 13.26 $ 12.63 $ 12.28 $ 11.81 $ 12.11 $ 11.88
- -------------------------------------------------------------------------------------
Total return++ 11.74% 10.06% 11.57% 4.93% 9.43% 12.25%
- -------------------------------------------------------------------------------------
Ratios to average net assets/
supplemental data:
Net assets, end of year (000's) $32,592 $27,354 $19,621 $18,036 $20,375 $14,548
Ratio of operating expenses to
average net assets** 0.82% 0.71% 0.66% 0.74% 0.58% 0.67%+
Ratio of net investment income to
average net assets 5.49% 6.12% 6.89% 7.00% 7.24% 7.00%+
Portfolio turnover rate 10% 73% 87% 51% 28% 128%
- -------------------------------------------------------------------------------------
<FN>
*The Fund commenced operations on December 21, 1987. On November 6, 1992 the
Fund commenced selling Class B shares. Any shares outstanding prior to
November 6, 1992 were designated as Class A shares.
**Expense ratios before voluntary waiver of fees and/or reimbursement of
expenses by investment adviser and/or sub-investment adviser and
administrator for the fiscal years ended November 30, 1993, 1992, 1991, 1990,
1989 and the fiscal period ended November 30, 1988 were 1.18%, 1.32%, 1.28%,
1.09%, 1.72% and 2.00%, respectively.
***Net investment income before waiver of fees and reimbursement of expenses by
investment adviser and/or sub-investment adviser and administrator for the
fiscal years ended November 30, 1993, 1992, 1991, 1990, 1989 and the fiscal
period ended November 30, 1988 were $0.67, $0.69, $0.77, $0.80, $0.74, and
$0.66.
+Annualized.
++Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charge.
#Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data as the
undistributed method does not accord with results of operations for this
period.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
11/30/93# 11/30/92*
<S> <C> <C>
Net Asset Value, beginning of year $ 12.63 $12.52
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income*** 0.66 0.06
Net realized and unrealized gain on investments 0.72 0.10
- -------------------------------------------------------------------------------
Total from investment operations 1.38 0.16
- -------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income (0.67) (0.05)
Distributions in excess of net investment income (.01) --
Distributions from net realized capital gains (0.07) --
- -------------------------------------------------------------------------------
Total Distributions (0.75) (0.05)
- -------------------------------------------------------------------------------
Net Asset Value, end of year $ 13.26 $12.63
- -------------------------------------------------------------------------------
Total return+ 11.09% 1.29%
- -------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $22,317 $2,938
Ratio of operating expenses to average net assets** 1.31% 1.34%++
Ratio of net investment income to average net assets 4.99% 5.49%++
Portfolio turnover rate 10% 73%
- -------------------------------------------------------------------------------
<FN>
*The Fund commenced selling Class B shares on November 6, 1992.
**Expense ratios before voluntary waiver of fees and/or reimbursement of
expenses by investment adviser and/or administrator for the fiscal year ended
November 30, 1993, and the fiscal period ended November 30, 1992 were 1.68%
and 1.94%, respectively.
***Net investment income before voluntary waiver of fees and/or reimbursement of
expenses by investment adviser and/or administrator for the fiscal year ended
November 30, 1993, and the fiscal period ended November 30, 1992 were $0.61
and $0.05, respectively.
+Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charge.
++Annualized.
#Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data as the
undistributed method does not accord with results of operations for this
period.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Massachusetts Municipals Fund (the "Fund") was
organized on January 13, 1987 under the laws of the Commonwealth of
Massachusetts as a "Massachusetts business trust." The Fund is a non-
diversified, open-end management investment company registered with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"). As of November 6, 1992, the Fund offered two classes
of shares to the general public: Class A shares and Class B shares. Class A
shares are sold with a front-end sales charge. Class B shares may be subject to
a contingent deferred sales charge ("CDSC"). Both classes of shares have
identical rights and privileges except with respect to the effect of the
respective sales charges, the distribution and/or service fees borne by each
class, expenses allocable exclusively to each class, voting rights on matters
affecting a single class, the exchange privilege of each class and the
conversion feature of Class B shares. The following is a summary of significant
accounting policies followed by the Fund in the preparation of its financial
statements.
PORTFOLIO VALUATION: Securities are valued by The Boston Company Advisors,
Inc. ("Boston Advisors") after consultation with an independent pricing service
(the "Service") approved by the Fund's Board of Trustees. When, in the judgement
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 prices and asked prices. Investments for which,
in the judgement of the Service, there are no readily obtainable market
quotations (which may constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of municipal securities of comparable
quality, coupon, maturity and type; indications as to values from dealers; and
general market conditions. Short-term investments that mature in 60 days or less
are valued at amortized cost whenever the Fund's Board of Trustees determines
that amortized cost reflects the fair value of those investments.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Interest income is recorded on the accrual basis.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date. Realized gains and losses from
securities sold are recorded on the identified cost basis. Investment income and
realized and unrealized gains and losses are allocated based upon relative net
assets of each class.
22
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS: During the current period, the Fund adopted Statement of
Position 93-2 "Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies." Accordingly, certain reclassifications have been made to the
components of capital in the Statement of Net Assets to conform with the
accounting and reporting guidelines of this statement. Distributions in excess
of book basis accumulated realized gains or undistributed net investment income
that were the result of permanent book and tax accounting differences have been
reclassified to paid-in capital. In addition, amounts distributed in excess of
undistributed net investment income as determined for financial statement
purposes but as distributions from net investment income or net realized gains
for tax purposes, previously having been reported as distributions from paid-in
capital, have been reclassified to reflect the tax characterization.
Accordingly, amounts as of November 30, 1992 have been restated to reflect an
increase in paid-in capital of $89,357 and a decrease in accumulated net
realized gains of $84,945, and a decrease in undistributed net investment income
of $4,412. The Statement of Changes in Net Assets and Financial Highlights for
prior periods have not been restated to reflect this change in presentation. Net
investment income, net realized gains, and net assets on a book and tax basis
were not affected by this change.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income are determined on a class level. It is the policy of the Fund to declare
dividends from net investment income daily and to pay such dividends on the last
business day of the Smith Barney Shearson Inc. ("Smith Barney Shearson")
statement month. Distributions from net realized capital gains are declared and
paid annually, after the end of the fiscal year in which earned. Additional
distributions of net investment income and capital gains for the Fund may be
made at the discretion of the Board of Trustees in order to avoid the
application of a 4% nondeductible excise tax on certain undistributed amounts of
net investment income and capital gains. To the extent net realized capital
gains can be offset by capital losses and carryforwards, it is the policy of the
Fund not to distribute such gains. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. The differences are
primarily due to differing treatments of income and gains on various investment
securities held by the Fund, timing differences and differing characterization
of distributions made by the Fund as a whole.
FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a regulated
investment company which distributes exempt-interest dividends by complying
23
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
with the requirements of the Internal Revenue Code applicable to regulated
investment companies and by distributing substantially all of its earnings to
its shareholders. Therefore, no Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER RELATED PARTY
TRANSACTIONS
Up to the close of business on July 30, 1993, the Fund had entered into an
investment advisory agreement with Shearson Lehman Brothers Inc. ("Shearson
Lehman Brothers") on behalf of Shearson Lehman Advisors, a member of the Asset
Management Group of Shearson Lehman Brothers. Under the investment advisory
agreement, the Fund paid a monthly fee based on the following annual rates: .35%
of the value of the Fund's average daily net assets up to $500 million and .32%
of the value of its average daily net assets in excess of $500 million.
As of the close of business on July 30, 1993, The Travelers, Inc. (which at
the time was known as Primerica Corporation) ("Travelers") and Smith Barney,
Harris Upham & Co. Incorporated ("SBS") completed the acquisition of
substantially all of the domestic retail brokerage and asset management
businesses of Shearson Lehman Brothers and SBS was renamed Smith Barney Shearson
Inc.
As of the close of business on July 30, 1993, Greenwich Street Advisors, a
division of Mutual Management Corp., which is controlled by Smith Barney
Shearson Holdings Inc. ("Holdings"), succeeded Shearson Lehman Advisors as the
Fund's investment adviser. Holdings is a wholly owned subsidiary of Travelers.
The new investment advisory agreement with Greenwich Street Advisors (the
"Advisory Agreement") contains terms and conditions substantially similar to the
investment advisory agreement with the predecessor investment adviser and
provides for payment of fees at the same rates as were paid to such predecessor
investment adviser.
The Fund has also entered into an administration agreement (the
"Administration Agreement"), dated May 21, 1993, with Boston Advisors, an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Under
the Administration Agreement, the Fund pays a monthly fee based on the following
annual rates: .20% of the value of the Fund's average daily net assets up to
24
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
$500 million and .18% of the value of its average daily net assets in excess of
$500 million. Prior to the close of business on May 21, 1993, Boston Advisors
served as sub-investment adviser and administrator to the Fund.
From time to time, Smith Barney Shearson and Boston Advisors may voluntarily
waive a portion or all of their respective fees otherwise payable to them and
reimburse expenses. For the year ended November 30, 1993, Greenwich Street
Advisers, voluntarily waived fees of $101,803. For the year ended November 30,
1993, Boston Advisors voluntarily waived fees of $58,174.
Smith Barney Shearson acts as exclusive distributor of the Fund's shares.
For the year ended November 30, 1993, Smith Barney Shearson received $161,493
from investors representing commissions (sales charges) on sales of Class A
shares.
A CDSC is generally payable by a shareholder in connection with the
redemption of Class B shares within five years after the date of purchase. In
circumstances in which the CDSC is imposed, the amount of the charge ranges
between 4.50% and 1% of net asset value depending on the number of years since
the date of purchase. For the year ended November 30, 1993, Smith Barney
Shearson received $11,913 from investors in CDSCs on the redemption of Class B
shares.
No officer, director or employee of Smith Barney Shearson, or Boston
Advisors or of any parent or subsidiary of those corporations receives any
compensation from the Fund for serving as a Trustee or officer of the Fund. The
Fund pays each Trustee who is not an officer, director or employee of Smith
Barney Shearson, or Boston Advisors or any of their affiliates $1,000 per annum
plus $100 per meeting attended and reimburses each such Trustee for travel and
out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of Mellon, serves as the Fund's custodian. The Shareholder Services Group, Inc.,
a subsidiary of First Data Corporation, serves as the Fund's transfer agent.
25
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Fund's shares pursuant to a
distribution agreement with the Fund, and sells shares of the Fund through Smith
Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, as amended, the Fund has adopted
a Services and Distribution Plan (the "Plan"). Under this Plan, the Fund
compensates Smith Barney Shearson for servicing shareholder accounts for both
Class A and Class B shareholders, and covers expenses incurred in distributing
Class B shares. Smith Barney Shearson is paid an annual service fee with respect
to Class A and Class B shares of the Fund at the rate of .15% of the value of
the average daily net assets of each respective class of shares. Smith Barney
Shearson is also paid an annual distribution fee with respect to Class B shares
at the rate of .50% of the value of the average daily net assets attributable to
those shares. During the year ended November 30, 1993, the Fund incurred $45,865
in service fees for Class A shares. During the year ended November 30, 1993, the
Fund incurred $19,835 and $66,117 in service fees and distribution fees,
respectively, for Class B shares.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any
class of shares are prorated between the classes based upon the relative net
assets of each class. Operating expenses directly attributable to a class of
shares are charged to that class' operations. In addition to the above servicing
and distribution fees, class specific operating expenses include transfer agent
fees of $14,319 and $5,386, for Class A and Class B shares, respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investment securities,
excluding short-term investments, for the year ended November 30, 1993 amounted
to $27,119,102 and $4,142,910, respectively.
At November 30, 1993, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost amounted to
$2,910,605, and the aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value amounted to $204,081.
26
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHARES OF BENEFICIAL INTEREST
At November 30, 1993, an unlimited number of shares of beneficial interest
divided into two classes (Class A and Class B), with a par value of $.001 per
share were authorized. Changes in shares of beneficial interest for the Fund
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
11/30/93 11/30/92*
CLASS A SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Sold 493,233 $ 6,501,607 765,112 $9,563,580
Issued as reinvestment of dividends 93,256 1,223,534 82,022 1,026,162
Redeemed (295,101) (3,896,853) (279,616) (3,490,999)
- -------------------------------------------------------------------------------------
Net increase 291,388 $ 3,828,288 567,518 $7,098,743
- -------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
11/30/93 11/30/92*
CLASS B SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Sold 1,458,949 $19,170,821 232,361 $2,921,592
Issued as reinvestment of dividends 33,642 444,988 229 2,899
Redeemed (42,563) (568,722) -- --
- -------------------------------------------------------------------------------------
Net increase 1,450,028 $19,047,087 232,590 $2,924,491
- -------------------------------------------------------------------------------------
<FN>
*On November 6, 1992 the Fund commenced selling Class B shares. Any shares
outstanding prior to November 6, 1992 were designated as Class A shares.
</TABLE>
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the Commonwealth of
Massachusetts and its political subdivisions, agencies and public authorities to
obtain funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issuers of Massachusetts municipal securities than
is a municipal bond fund that is not concentrated in these issuers to the same
extent. Uncertain economic conditions may affect the ability of Massachusetts
municipal securities to meet their financial obligations.
27
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line
of credit provided by Continental Bank N.A. under an Amended and Restated Line
of Credit Agreement (the "Agreement") dated April 30, 1992, primarily for
temporary or emergency purposes, including the meeting of redemption requests
that otherwise might require the untimely disposition of securities. Under this
Agreement, the Fund may borrow up to the lesser of $25 million or 10% of its net
assets. Interest is payable either at the bank's Money Market Rate or the London
Interbank Offered Rate (LIBOR) plus .375% on an annualized basis. The Fund and
the other affiliated entities are charged an aggregate commitment fee of
$125,000 which is allocated equally among each of the participants. The
Agreement requires, among other provisions, each participating fund to maintain
a ratio of net assets (not including funds borrowed pursuant to the Agreement)
to aggregate amount of indebtedness pursuant to the Agreement of no less than 5
to 1. At November 30, 1993 the Fund had no outstanding borrowings under this
Agreement. During the year ended November 30, 1993, the Fund had an average
outstanding daily balance of $7,945 with interest rates ranging from 3.563% to
3.375%. Interest expense totalled $543 for the year ended November 30, 1993 and
is included in other expenses in the Statement of Operations.
28
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND:
We have audited the accompanying statement of assets and liabilities,
including the schedule of portfolio investments, of the Smith Barney Shearson
Massachusetts Municipals Fund as of November 30, 1993, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended and for the period from
December 21, 1987 (commencement of operations) to November 30, 1988. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1993, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Smith Barney Shearson Massachusetts Municipals Fund as of November 30, 1993, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended and for the period from
December 21, 1987 (commencement of operations) to November 30, 1988, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND
Boston, Massachusetts
January 12, 1994
29
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------
TAX INFORMATION
YEAR ENDED NOVEMBER 30, 1993 (UNAUDITED)
Of the dividends paid by the Fund from net investment income for the year
ended November 30, 1993, 100% is tax-exempt for regular Federal and
Massachusetts state income tax purposes.
30
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
GLOSSARY OF COMMONLY USED MUTUAL FUND TERMS
CAPITAL GAIN (OR LOSS): This is the increase (or decrease) in the market value
(price) of a security in your fund. If a stock or bond appreciates in price,
there is a capital gain; if it depreciates there is a capital loss. A capital
gain or loss is "realized" upon the sale of a security; if net capital gains
exceed net capital losses, there may be a capital gain distribution to
shareholders.
CONTINGENT DEFERRED SALES CHARGE (CDSC): A back-end load, a CDSC is imposed if
shares are redeemed during the first few years of ownership. The CDSC may be
expressed as a percentage of either the original purchase price or the
redemption proceeds. Most CDSCs decline over time, and some will not be charged
if shares are redeemed under certain conditions.
DISTRIBUTION RATE: This is the rate at which a mutual fund pays out (or
distributes) interest, dividends and realized capital gains to shareholders. A
fund's distribution rate is usually expressed as an annualized percent of the
fund's offering price.
DIVIDEND: This is income generated by securities in a portfolio and distributed
after expenses to shareholders.
FRONT-END SALES CHARGE: This is the sales charge applied to an investment at the
time of initial purchase.
NET ASSET VALUE (NAV): Net asset value is the total market value of all
securities held by a fund, minus any liabilities, divided by the number of
shares outstanding. It is the value of a single share of a mutual fund on a
given day. The total value of your investment would be the NAV multiplied by the
number of shares you own.
SEC YIELD: This standardized calculation of a mutual fund's yield is based on a
formula developed by the Securities and Exchange Commission (SEC) to allow funds
to be compared on an equal basis. It is an annualized yield based on the fund's
potential earnings from dividends, interest and yield to maturity of its
holdings, and it reflects the payments of all portfolio expenses for the most
recent 30-day period. Mutual funds are required to use this figure when stating
yield.
TOTAL RETURN: Total return measures a fund's performance, taking into account
the combination of dividends paid and the gain or loss in the value of the
securities held in the fund. It may be expressed on an AVERAGE ANNUAL basis or
CUMULATIVE basis (total change over a given period). In addition, total return
may be expressed with or without the effects of sales charges or the
reinvestment of dividends and capital gains.
Whenever a fund reports any type of performance, it must also report the average
annual total return according to the standardized calculation developed by the
SEC. The SEC AVERAGE ANNUAL TOTAL RETURN calculation includes the effects of all
fees and sales charges and assumes the reinvestment of all dividends and capital
gains.
31
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
TRUSTEES
Herbert Barg
Alfred J. Bianchetti
Robert E. Borgesen
Martin Brody
Dwight B. Crane
James J. Crisona
Robert A. Frankel
Peter H. Gallary
Dr. Paul Hardin
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD AND
INVESTMENT OFFICER
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
Lawrence T. McDermott
VICE PRESIDENT AND
INVESTMENT OFFICER
Karen L. Mahoney-Malcomson
INVESTMENT OFFICER
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
32
<PAGE>
INVESTOR BENEFITS MONTHLY DISTRIBUTIONS It's your fund's
policy to distribute dividend income monthly.
AUTOMATIC REINVESTMENT You may reinvest your
dividends and/or capital gains automatically in
additional shares of your fund at the current net
asset value.
UNLIMITED EXCHANGES If your investment goals
change, you may exchange into another Smith Barney
Shearson mutual fund with the same sales charge
structure without incurring a sales charge.*
SYSTEMATIC INVESTMENT PLAN This program
allows you to invest equal dollar amounts
automatically on a regular basis, monthly or
quarterly.
AUTOMATIC CASH WITHDRAWAL PLAN With this
plan, you may withdraw money on a regular basis
while maintaining your investment.
MUTUAL FUND EVALUATION SERVICE Through your
Financial Consultant, you may obtain a free
personalized analysis of how your fund has
performed for you, taking into account the effect
of every transaction. The analysis is based upon
month-end data from CDA Investment Technologies,
Inc., a widely recognized mutual fund information
service. An evaluation also gives you other
important facts and figures about your investment.
FOR MORE INFORMATION ABOUT THESE BENEFITS, OR IF
YOU HAVE ANY OTHER QUESTIONS, PLEASE CALL YOUR
FINANCIAL CONSULTANT OR WRITE:
MUTUAL FUND POLICY GROUP
SMITH BARNEY SHEARSON
388 GREENWICH STREET 37TH FLOOR
NEW YORK, NY 10013
*AFTER WRITTEN NOTIFICATION, EXCHANGE
PRIVILEGE MAY BE MODIFIED OR TERMINATED
AT ANY TIME.
<PAGE>
THIS REPORT IS SUBMITTED FOR THE
GENERAL INFORMATION OF THE SHAREHOLDERS OF
SMITH BARNEY SHEARSON MASSACHUSETTS
MUNICIPALS FUND. IT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS
ACCOMPANIED OR PRECEDED BY AN EFFECTIVE
PROSPECTUS FOR THE FUND, WHICH CONTAINS
INFORMATION CONCERNING THE FUND'S INVESTMENT
POLICIES AND APPLICABLE SALES CHARGES, FEES
AND EXPENSES AS WELL AS OTHER PERTINENT
INFORMATION.
SMITH BARNEY SHEARSON
MASSACHUSETTS
MUNICIPALS
FUND
Two World Trade Center
New York, New York 10048
Fund 41, 209
FD0302 A4
