1994
ANNUAL
REPORT
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a lighthouse.
SMITH BARNEY
MASSACHUSETTS
MUNICIPALS
FUND
NOVEMBER 30, 1994
SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERY DAY.
MASSACHUSETTS MUNICIPALS FUND
DEAR SHAREHOLDER:
We are pleased to provide the annual report and portfolio of investments
for the twelve months ended November 30, 1994 for Smith Barney Massachu-
setts Municipals Fund. Since we last reported to you six months ago,
prices for Massachusetts tax-exempt bonds continued to weaken as the Fed-
eral Reserve raised interest rates. As a result, the net asset value of
the Fund's Class A and B shares declined to $11.35 per share from $13.26
per share and resulted in a negative total return for this fiscal year --
the first such return in the Fund's history. Investors owning Class A
shares received income and capital gains distributions of $0.76 per share
and investors owning Class B shares received income and capital gains dis-
tributions of $0.70 per share. Investors owning Class C shares received
income distributions of $0.04 per share, and the net asset value of the
Fund's Class C shares increased during this period from $11.34 per share
to $11.35 per share. The total return for this fiscal period was (9.07%)
for Class A shares, (9.50%) for Class B shares and 0.40% for Class C
shares. Further information about the performance of your investment dur-
ing this and previous fiscal periods is available in this report.
ECONOMIC AND INTEREST RATE OVERVIEW
The Federal Reserve raised short-term interest rates six times in 1994
beginning in February, which is a remarkable number of increases in less
than one year. The Federal Reserve's goal was to curb any creeping infla-
tion before it actually appeared. However, the rise in short-term interest
rates also resulted in a rise in long-term interest rates and, conse-
quently, a decline in the asset value of many long-term investments. As a
result, most fixed-income investments performed poorly in 1994, especially
in comparison to the strong performance they experienced in 1993.
1994 was also a politically intriguing year. First, higher Federal income
tax rates that were retroactive to 1993 took effect. Second, Congress be-
came embroiled in controversial legislation on health care which, had it
been successful, could have led to higher taxes. Third, the NAFTA and GATT
trade agreements were successfully passed. Fourth, and perhaps most sig-
nificant, the Republicans achieved an overwhelming victory in both the
House and Senate by promising lower taxes and spending, and much less gov-
ernment. The many Republican victories at the state level -- not only in
the state legislatures but also the governorships -- are even more signif-
icant as these 30 states will have much power over the electoral process
in 1996.
For many investors this was the first glance into a new and more
challenging investment environment that tested their ability to maintain a
long-term investment focus. However, we now anticipate that interest rates
will soon stabilize as the actions of the new Congress become more appar-
ent and the results of the Federal Reserve's interest rate policy become
more positive. We expect that the recent GATT and NAFTA trade pacts will
also demonstrate that the U.S. will remain a world leader in both economic
policy and financial markets.
In 1994, Massachusetts general obligation paper was rated A and taxpayers
received a slight reduction in capital gains tax rates. Governor Weld, who
was successfully reelected in November, has promised to reduce both spend-
ing and taxes. With the renewed strength in the local economy, we are op-
timistic that he will successfully achieve his goals. Massachusetts'
financial and cash positions continue to be positive, and the New England
economy shows signs of improvement. Although Massachusetts is doing well
economically, the market for Massachusetts tax-exempt securities came to
nearly a halt during the last six months of the Fund's fiscal year as a
result of the higher interest rate environment which made issuance much
less attractive.
PORTFOLIO SUMMARY
In response to the Federal Reserve's policy of higher short-term rates and
declining prices in the Massachusetts tax-exempt market, our investment
strategy has been to keep the Fund's average maturity at approximately
21.7 years, which enables the Fund to maximize its tax-exempt income. At
the end of this reporting period, over half of the Fund's assets were
invested in municipal bonds rated AAA/Aaa and AA/Aa by Standard & Poor's
Corporation and Moody's Investors Service, Inc., respectively. These high-
quality investments should provide the portfolio with greater protection
against credit risk and should also be more liquid. The majority of the
Fund's holdings were in general obligation, hospital, housing and utility
revenue issues. We are closely watching the Fund's hospital holdings be-
cause of the increasing competition and ongoing cost-reduction efforts in
that industry which have led to a number of joint ventures and mergers be-
tween health care institutions.
L E V E L D I V I D E N D P O L I C Y
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 pro-
jections are on target. This means that we do not sacrifice the quality of
the portfolio by investing in higher yielding but lower quality bonds that
may undermine the Fund's net asset value per share in order to maintain an
unrealistically high dividend policy.
We appreciated your confidence during the difficult investment environment
of 1994, and join you in looking forward to a more benign 1995. Should you
have any questions about your investment in the Fund or how other Smith
Barney mutual funds may be useful in helping you reach your financial
goals, please speak with your Smith Barney Financial Consultant.
Sincerely,
Heath B. McLendon Lawrence T. McDermott
Heath B. McLendon Lawrence T. McDermott
Chairman of the Board Vice President and
and Investment Officer Investment Officer
January 16, 1995
HISTORICAL PERFORMANCE -- CLASS A SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
YEAR ENDED CAPITAL GAINS DIVIDENDS RETURN OF TOTAL
NOVEMBER 30 BEGINNING ENDING DISTRIBUTED PAID CAPITAL RETURN*
<S> <C> <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 $0.01 11.57
1992 12.28 12.63 0.04 0.77 0.04 10.06
1993 12.63 13.26 0.07 0.74 -- 11.74
1994 13.26 11.35 0.06 0.70 -- (9.07)
Total $0.25 $5.58 $0.05
Cumulative Total Return -- (12/21/87 through 11/30/94) 60.81%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not
assume deduction of the sales charge (maximum 4.00%).
</TABLE>
THE FUND'S POLICY IS 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***
WITH WITHOUT WITH WITHOUT
WAIVER AND/OR WAIVER AND/OR WAIVER AND/OR WAIVER AND/OR
EXPENSES EXPENSES EXPENSES EXPENSES
REIMBURSED REIMBURSED REIMBURSED REIMBURSED
<S> <C> <C> <C> <C>
Year Ended 11/30/94 (9.07)% (9.47)% (12.71)% (13.09)%
Five Years Ended
11/30/94 5.54% 4.99% 4.68% 4.14%
Inception 12/21/87
through 11/30/94 7.08% 6.26% 6.45% 5.64%
<FN>
** All average annual total return figures shown reflect the reinvest-
ment of dividends and capital gains distributions at net asset
value. The Fund's investment adviser, sub-investment adviser and/or
administrator waived fees and/or reimbursed expenses from December
21, 1987 to November 30, 1994. A shareholder's actual return for pe-
riods during which waivers were in effect would be the higher of the
two numbers shown.
*** Average annual total return figures shown assume the deduction of
the maximum 4.00% front-end sales charge.
NOTE: On November 6, 1992, existing shares of the Fund were desig-
nated Class A shares and were subject to a maximum 4.50% front-end
sales charge and an annual service fee of 0.15% of the value of the
average daily net assets attributable to that class. Effective No-
vember 7, 1994, the maximum front-end sales charge for Class A
shares was reduced to 4.00%. The figures in the above tables have
been re-calculated on the basis of this new sales charge. The Fund's
average annual rates of return would have been lower had service
fees been in effect prior to November 6, 1992.
</TABLE>
GROWTH OF $10,000 INVESTED IN CLASS A SHARES
OF SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND
VS. LEHMAN BROTHERS MUNICIPAL BOND INDEX AND
LIPPER MASSACHUSETTS MUNICIPAL FUND AVERAGE+
December 21, 1987 -- November 30, 1994
DESCRIPTION OF MOUNTAIN CHART IN
SMITH BARNEY COVERS (CLASS A)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Smith
Barney Massachusetts Municipals Fund Class A shares on December 21, 1987
through November 30, 1994 as compared with the growth of a $10,000 invest-
ment in the Lehman Brothers Municipal Bond Index and the Lipper Massachu-
setts Municipal Fund Average Index. 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
MONTH INVESTED IN CLASS A MUNICIPAL BOND MUNICIPAL FUND
ENDED SHARES OF THE FUND INDEX AVERAGE
<S> <C> <C> <C>
12/21/87 $ 9,600 -- --
12/87 $ 9,729 $10,000 $10,000
3/88 $ 9,999 $10,343 $10,329
6/88 $10,295 $10,543 $10,581
9/88 $10,618 $10,813 $10,848
12/88 $10,933 $11,014 $11,106
3/89 $10,947 $11,087 $11,178
6/89 $11,579 $11,744 $11,785
9/89 $11,551 $11,751 $11,739
12/89 $11,857 $12,203 $12,077
3/90 $11,920 $12,258 $12,113
6/90 $12,147 $12,544 $12,360
9/90 $12,134 $12,552 $12,275
12/90 $12,447 $13,093 $12,792
3/91 $12,762 $13,388 $13,116
6/91 $13,104 $13,674 $13,403
9/91 $13,611 $14,206 $13,923
12/91 $14,101 $14,683 $14,392
3/92 $14,192 $14,727 $14,474
6/92 $14,701 $15,286 $15,056
9/92 $15,084 $15,693 $15,427
12/92 $15,382 $15,979 $15,750
3/93 $16,033 $16,572 $16,334
6/93 $16,600 $17,114 $16,910
9/93 $17,153 $17,692 $17,504
12/93 $17,340 $17,941 $17,682
3/94 $16,101 $16,956 $16,651
6/94 $16,146 $17,144 $16,777
9/94 $16,215 $17,261 $16,844
11/94 $15,438 $16,647 $16,129
<FN>
+ Illustration of $10,000 invested in Class A shares on December 21, 1987
assuming deduction of a maximum 4.00% sales charge at the time of in-
vestment and reinvestment of dividends and capital gains at net asset
value through November 30, 1994.
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.
THE LIPPER MASSACHUSETTS MUNICIPAL FUND AVERAGE is composed of the
Fund's peer group of 44 mutual funds.
Index information is available at month-end only; therefore, the closest
month-end to inception date of the Fund has been used.
NOTE: All figures cited here represent past performance and do not
guarantee future results.
</TABLE>
HISTORICAL PERFORMANCE -- CLASS B SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
YEAR ENDED 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
1994 13.26 11.35 0.06 0.64 (9.50)
Total $0.13 $1.37
Cumulative Total Return -- (11/06/92 through 11/30/94) 1.84%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the contin-
gent deferred sales charge ("CDSC").
The Fund's policy is to distribute dividends monthly
and capital gains, if any, annually.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN -- CLASS B SHARES**
<TABLE>
<CAPTION>
WITHOUT CDSC WITH CDSC***
WITH WITHOUT WITH WITHOUT
WAIVER AND/OR WAIVER AND/OR WAIVER AND/OR WAIVER AND/OR
EXPENSES EXPENSES EXPENSES EXPENSES
REIMBURSED REIMBURSED REIMBURSED REIMBURSED
<S> <C> <C> <C> <C>
Year Ended 11/30/94 (9.50)% (9.90)% (13.36)% (13.74)%
Inception 11/06/92
through 11/30/94 0.89% 0.41% (0.43)% (0.90)%
<FN>
** All average annual total return figures shown reflect the reinvest-
ment of dividends and capital gains distributions at net asset
value. The Fund's investment adviser, sub-investment adviser and/or
administrator waived fees and/or reimbursed expenses from November
6, 1992 to November 30, 1994. A shareholder's actual return for pe-
riods during which waivers were in effect would be the higher of the
two numbers shown.
*** Average annual total return figures shown assume the deduction of
the maximum applicable CDSC which is described in the prospectus.
NOTE: The Fund began offering Class B shares on November 6, 1992.
Class B shares are subject to a maximum 4.50% CDSC and annual ser-
vice and distribution fees of 0.15% and 0.50%, respectively, of the
value of the average daily net assets attributable to that class.
</TABLE>
GROWTH OF $10,000 INVESTED IN CLASS B SHARES
OF SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND
VS. LEHMAN BROTHERS MUNICIPAL BOND INDEX AND
LIPPER MASSACHUSETTS MUNICIPAL FUND AVERAGE+
November 6, 1992 -- November 30, 1994
DESCRIPTION OF MOUNTAIN CHART IN
SMITH BARNEY COVERS (CLASS B)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Smith
Barney Massachusetts Municipals Fund Class B shares on November 6, 1992
through November 30, 1994 as compared with the growth of a $10,000 invest-
ment in the Lehman Brothers Municipal Bond Index and the Lipper Massachu-
setts Municipal Fund Average Index. 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
MONTH INVESTED IN CLASS B MUNICIPAL BOND MUNICIPAL FUND
ENDED SHARES OF THE FUND INDEX AVERAGE
<S> <C> <C> <C>
10/30/92 -- $10,000 $10,000
11/06/92 $10,000 -- --
11/92 $10,129 $10,179 $10,252
12/92 $10,252 $10,283 $10,384
3/93 $10,673 $10,664 $10,769
6/93 $11,038 $11,013 $11,149
9/93 $11,377 $11,385 $11,540
12/93 $11,489 $11,545 $11,658
3/94 $10,656 $10,911 $10,978
6/94 $10,673 $11,032 $11,061
9/94 $10,706 $11,108 $11,105
11/94 $10,184 $10,713 $10,634
<FN>
+ Illustration of $10,000 invested in Class B shares on November 6, 1992,
assuming deduction of the maximum CDSC at the time of redemption and
reinvestment of dividends and capital gains at net asset value through
November 30, 1994.
+ Value does not assume deduction of applicable CDSC.
++ Value assumes deduction of applicable CDSC (assuming redemption on No-
vember 30, 1994).
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.
THE LIPPER MASSACHUSETTS MUNICIPAL FUND AVERAGE is composed of the
Fund's peer group of 44 mutual funds.
Index information is available at month-end only; therefore, the clos-
est month-end to inception date of the Fund has been used.
NOTE: All figures cited here represent past performance and do not
guarantee future results.
</TABLE>
HISTORICAL PERFORMANCE -- CLASS C SHARES
<TABLE>
<CAPTION>
NET ASSET VALUE
YEAR ENDED CAPITAL GAINS DIVIDENDS TOTAL
NOVEMBER 30 BEGINNING ENDING DISTRIBUTED PAID RETURN*
11/10/94-11/30/94 $11.34 $11.35 -- $0.04 0.40%
<S> <C> <C> <C> <C> <C>
Total -- $0.04
Cumulative Total Return -- (11/10/94 through 11/30/94) 0.40%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the CDSC.
The Fund's policy is to distribute dividends monthly
and capital gains, if any, annually.
</TABLE>
CUMULATIVE TOTAL RETURN -- CLASS C SHARES**
<TABLE>
<CAPTION>
WITHOUT CDSC WITH CDSC***
WITH WITHOUT WITH WITHOUT
WAIVER WAIVER WAIVER WAIVER
<S> <C> <C> <C> <C>
Inception 11/10/94
through 11/30/94 0.40% 0.37% (0.60)% (0.63)%
<FN>
** All average annual total return figures shown reflect the reinvest-
ment of dividends and capital gains distributions at net asset
value.
*** Average annual total return figures shown assume the deduction of
the maximum applicable CDSC which is described in the prospectus.
NOTE: The Fund began offering Class C shares on November 7, 1994.
Class C shares are subject to a maximum 1.00% CDSC and annual ser-
vice and distribution fees of 0.15% and 0.55%, respectively, of the
value of the average daily net assets attributable to that class.
</TABLE>
PORTFOLIO HIGHLIGHTS (UNAUDITED) NOVEMBER 30, 1994
INDUSTRY BREAKDOWN
DESCRIPTION OF PIE CHART IN SHAREHOLDER REPORT
Pie chart depicting the allocation of the Massachusetts Municipals Fund
investment securities held at November 30, 1994 by industry classifica-
tion. The pie is broken in pieces representing industries in the following
percentages:
<TABLE>
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
TRANSPORTATION 3.8%
UTILITY REVENUE 12.3%
GENERAL OBLIGATIONS 25.4%
OTHER BONDS AND NOTES AND NET OTHER ASSETS AND LIABILITIES 1.6%
EDUCATION 9.8%
HOUSING 17.1%
HOSPITAL 22.5%
INDUSTRIAL REVENUE/POLLUTION CONTROL REVENUE 7.5%
</TABLE>
SUMMARY OF MUNICIPAL BONDS AND
NOTES BY COMBINED RATINGS
<TABLE>
<CAPTION>
STANDARD & PERCENT OF
MOODY'S POOR'S VALUE
<S> <C> <C> <C>
Aaa or AAA 51.9%
Aa AA 6.4
A A 29.7
Baa BBB 9.7
Ba BB 1.2
NR NR 1.1
100%
</TABLE>
AVERAGE MATURITY: 21.7 years
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1994
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 -- Federal Security Assurance
MBIA -- Municipal Bond Investors Assurance
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
<S> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 101.6%
MASSACHUSETTS -- 96.2%
Boston, Massachusetts, Financing
Authority, Industrial Develop-
ment, Massachusetts College of
Pharmacy, (Co Lee Insured):
$ 750,000 5.250% due 10/1/14 NR AAA $ 585,937
1,000,000 5.250% due 10/1/26 NR AAA 731,250
700,000 Boston, Massachusetts, General
Obligation Bonds, Series A,
(AMBAC Insured),
6.500% due 7/1/12 Aaa AAA 687,750
150,000 Boston, Massachusetts, Revenue
Refunding Bonds, Series B, (FHA
Insured),
5.750% due 2/15/23 Aa AA 122,812
280,000 Boston, Massachusetts, Water &
Sewer Commission Revenue, Series
A,
7.750% due 11/1/06 A A 296,800
250,000 Brockton, Massachusetts, Utility,
6.125% due 6/15/18 Baa A- 216,562
1,425,000 Chelsea, Massachusetts, School
Project, (AMBAC Insured),
6.000% due 6/15/14 Aaa AAA 1,289,625
Dedham-Westwood Water District,
Massachusetts, Refunding Bonds,
(MBIA Insured):
450,000 5.000% due 10/15/08 Aaa AAA 382,500
920,000 5.100% due 10/15/12 Aaa AAA 748,650
500,000 Fall River, Massachusetts, Gen-
eral Obligation Bonds, (MBIA In-
sured),
7.200% due 6/1/10 Aaa AAA 518,750
1,000,000 Framingham, Massachusetts, Hous-
ing Authority, Mortgage Revenue,
(Beaver Terrace Apartments,
Apartment A), (Co Lee Insured),
6.650% due 2/20/32 NR AAA 895,000
500,000 Gloucester, Massachusetts, Munic-
ipal Purpose Loan, (FSA Insured),
5.500% due 11/15/13 Aaa AAA 418,750
250,000 Groveland, Massachusetts, General
Obligation Bonds, (AMBAC In-
sured),
6.850% due 6/15/06 Aaa AAA 256,875
470,000 Haverhill, Massachusetts, Revenue
Bonds, Series A, (AMBAC Insured),
6.700% due 9/1/10 Aaa AAA 468,825
500,000 Holyoke, Massachusetts, General
Obligation Bonds, Series B, (FSA
Insured),
6.125% due 8/1/13 Aaa AAA 458,750
500,000 Lowell, Massachusetts, General
Obligation Bonds,
Series B, (FSA Insured),
5.600% due 11/1/12 Aaa AAA 428,125
300,000 Lynn, Massachusetts, Water &
Sewer Commission, General Reve-
nue, (FGIC Insured),
5.500% due 12/1/10 Aaa AAA 260,625
250,000 Mansfield, Massachusetts, General
Obligation Bonds, (AMBAC In-
sured),
6.700% due 1/15/11 Aaa AAA 247,187
2,065,000 Massachusetts Bay Transportation
Authority,
6.100% due 3/1/23 A1 A+ 1,804,294
220,000 Massachusetts Educational Loan
Authority, Education Loan Reve-
nue, Issue D, Series A,
7.650% due 1/1/07 A A 218,350
Massachusetts Municipal Wholesale
Electric Company, Power Supply
Revenue, Series A, (MBIA In-
sured):
1,000,000 5.000% due 7/1/17 Aaa AAA 751,250
2,000,000 6.125% due 7/1/19 A BBB+ 1,750,000
325,000 Massachusetts State College
Building Authority Project Reve-
nue, Series A,
7.250% due 5/1/16 A1 A+ 340,844
300,000 Massachusetts State Construction
Loan,
Series C,
7.000% due 8/1/12 A1 A+ 303,375
500,000 Massachusetts State Convention
Center Authority, Series A,
5.375% due 9/1/13 A1 A+ 424,375
Massachusetts State Health & Edu-
cational Facilities Authority
Revenue:
750,000 6.300% due 8/1/18 Baa NR 600,000
1,000,000 (AMBAC Insured),
6.550% due 6/23/22 Aaa AAA 946,250
(Co Lee Insured):
700,000 7.000% due 7/1/06 NR AAA 725,375
500,000 5.750% due 7/1/14 NR AAA 416,875
1,000,000 (MBIA Insured),
5.375% due 7/1/24 Aaa AAA 786,250
750,000 Addison Hospital, (MBIA Insured),
6.000% due 7/1/23 Baa1 NR 557,812
250,000 Beth Israel Hospital, Series E,
7.000% due 7/1/14 A1 A+ 249,062
1,000,000 Brockton Hospital, Series B,
8.100% due 7/1/13 A A 1,048,750
500,000 Capital Asset Program, Series F,
(MBIA Insured),
7.300% due 10/1/18 Aaa AAA 511,250
430,000 Community College Project, Series
A,
(Co Lee Insured),
6.600% due 10/1/22 NR AAA 392,375
1,000,000 Faulkner Hospital, Series C,
6.000% due 7/1/13 Baa1 BBB+ 813,750
1,000,000 Massachusetts General Hospital,
Series F, (AMBAC Insured),
6.250% due 7/1/20 Aaa AAA 901,250
750,000 Medical Center, Lahey Clinic, Se-
ries B,
(MBIA Insured),
5.375% due 7/1/23 Aaa AAA 591,562
Morton Hospital & Medical Center,
Series B, (Co Lee Insured):
1,000,000 5.250% due 7/1/14 NR AAA 786,250
500,000 5.500% due 7/1/23 NR AAA 386,875
1,000,000 Saint Memorial Medical Center,
Series A,
6.000% due 10/1/23 B NR 626,250
750,000 South Shore Hospital, Series E,
(MBIA Insured),
5.500% due 7/1/20 Aaa AAA 607,500
Suffolk University, Series B, (Co
Lee Insured):
200,000 6.250% due 7/1/12 Baa AAA 180,750
1,575,000 6.350% due 7/1/22 Baa AAA 1,386,000
600,000 University of Massachusetts Medi-
cal Center, (Co Lee Insured),
6.000% due 7/1/23 NR AAA 526,500
345,000 Youville Hospital, Series A, (FHA
Insured),
9.100% due 8/1/15 Aa NR 367,425
Massachusetts State Housing Fi-
nance Agency, Housing Revenue:
1,000,000 7.200% due 12/1/26 A1 A+ 970,000
1,000,000 (MBIA Insured),
5.950% due 12/1/14 Aaa AAA 868,750
2,150,000 Housing Project, Series A,
6.375% due 4/1/21 Aa A+ 1,918,875
1,000,000 Series 15,
7.700% due 12/1/14 Aaa AAA 1,006,250
600,000 Series 18,
7.350% due 12/1/16 Aa A+ 609,750
1,000,000 Series 31,
6.450% due 12/1/16 Aa A+ 912,500
100,000 Single Family Mortgage, Series 5,
8.375% due 6/1/15 Aa A+ 102,875
Massachusetts State Industrial
Finance Agency Revenue:
250,000 6.300% due 7/1/05 Baa1 BBB 231,563
750,000 (Clark University), Series E,
7.000% due 7/1/12 A A- 762,188
250,000 Concord Academy, (FSA Insured),
6.900% due 9/1/12 Aaa AAA 246,562
1,000,000 Edison, Series E,
5.875% due 8/1/08 NR BBB- 880,000
100,000 Guaranteed Loan, Series A,
7.875% due 5/1/07 NR AAA 101,875
535,000 New England Memorial Hospital,
Series A,
8.875% due 7/1/13 Aaa NR 599,869
500,000 (S.E. Massachusetts Project), Re-
covery Revenue, Series A,
9.000% due 7/1/15 NR NR 539,375
130,000 Massachusetts Port Authority Rev-
enue,
7.750% due 7/1/18 Aa AA- 134,225
1,500,000 Massachusetts State Special
Obligation Revenue,
5.800% due 6/1/14 A1 AA- 1,276,875
1,500,000 Massachusetts State Water Pollu-
tion,
6.375% due 2/1/15 Aa AA- 1,402,500
Massachusetts Water Resource
Authority, Series A:
1,000,000 6.250% due 11/1/10 A A 936,250
1,000,000 5.500% due 3/1/17 A A 815,000
250,000 North Reading, Massachusetts,
General Obligation Bonds, (MBIA
Insured),
6.875% due 6/15/07 Aaa AAA 255,625
795,000 Plymouth County, Massachusetts,
Certificates of Participation,
Series A,
6.750% due 10/1/04 NR A- 784,069
500,000 Revere, Massachusetts, Municipal
Purpose Loan,
6.125% due 6/15/13 Aaa AAA 458,750
500,000 Salem, Massachusetts, General Ob-
ligation Bonds, (AMBAC Insured),
6.800% due 8/15/10 Aaa AAA $ 507,500
1,500,000 South Essex, Massachusetts, Sewer
District, Series B,
7.000% due 6/1/24 Aaa AAA 1,503,750
30,000 Springfield, Massachusetts, In-
dustrial Development Finance Au-
thority, Pollution Control Reve-
nue, (Monsanto Company Project),
9.100% due 11/1/04 A1 A 33,412
750,000 Springfield, Massachusetts,
(School
Project Loan) Series B,
7.100% due 9/1/11 Aaa AAA 726,563
500,000 Springfield, Massachusetts, Se-
ries B,
(MBIA Insured),
6.000% due 1/15/13 Aaa AAA 453,125
250,000 University of Massachusetts,
Building Authority Revenue, Se-
ries A,
7.500% due 5/1/14 A1 A+ 255,625
485,000 Webster, Massachusetts, General
Obligation Bonds, (AMBAC In-
sured),
6.700% due 9/1/10 Aaa AAA 485,606
250,000 Westfield, Massachusetts, General
Obligation Bonds, (AMBAC In-
sured),
7.100% due 12/15/08 Aaa AAA 270,000
Worcester, Massachusetts, Refund-
ing & Construction, Series A,
(MBIA Insured):
700,000 6.400% due 1/1/05 Aaa AAA 691,250
330,000 6.450% due 1/1/06 Aaa AAA 325,463
49,081,392
PUERTO RICO -- 3.8%
200,000 Commonwealth of Puerto Rico, Gen-
eral Obligation Bonds,
8.000% due 7/1/08 Baa1 A 216,750
795,000 Commonwealth of Puerto Rico,
Urban Renewal Housing Revenue
Bonds,
7.875% due 10/1/04 Baa BBB 856,613
415,000 Puerto Rico Industrial, Medical &
Environmental Pollution Control
Facilities, Finance Authority
Revenue Bonds, Special Facili-
ties, (American Airlines), Series
A,
8.750% due 12/1/25 Baa1 A+ 434,194
500,000 Puerto Rico, Port Authority Reve-
nue,
6.300% due 6/1/23 Baa3 BB+ 424,375
1,931,932
GUAM -- 1.3%
750,000 Guam, Apartment Authority Reve-
nue, Series A,
6.500% due 10/1/23 NR BBB 670,313
VIRGIN ISLANDS -- 0.3%
Virgin Islands Public Finance Au-
thority Revenue, Matching Funds
Loan Note,
(Marine Midland), Series A:
15,000 7.300% due 10/1/18 Aaa AAA 15,975
110,000 Pre-refunded,
7.300% due 10/1/18 Aaa AAA 119,350
135,325
TOTAL INVESTMENTS (Cost $56,876,032*) 101.6% 51,818,962
OTHER ASSETS AND LIABILITIES (NET) (1.6) (830,963)
NET ASSETS 100.0% $50,987,999
<FN>
* Aggregate cost for Federal tax purposes.
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $56,876,032) (Note 1)
See accompanying schedule $51,818,962
Interest receivable 1,177,305
Receivable for Fund shares sold 171,982
TOTAL ASSETS 53,168,249
LIABILITIES:
Payable for investment securities purchased $1,009,000
Due to custodian 962,432
Payable for Fund shares redeemed 51,223
Dividends payable 34,400
Investment advisory fee payable (Note 2) 22,302
Administration fee payable (Note 2) 11,160
Distribution fee payable (Note 3) 9,541
Service fee payable (Note 3) 6,265
Custodian fees payable (Note 2) 4,500
Transfer agent fees payable (Note 2) 2,300
Accrued expenses and other payables 67,127
TOTAL LIABILITIES 2,180,250
NET ASSETS $50,987,999
NET ASSETS CONSIST OF:
Distributions in excess of net investment income $(34,400)
Accumulated net realized loss on investment sold (446,237)
Unrealized depreciation of investments (5,057,070)
Par value 4,493
Paid-in capital in excess of par value 56,521,213
TOTAL NET ASSETS $50,987,999
NET ASSETS:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($27,634,266 / 2,435,104 shares of beneficial in-
terest outstanding) $11.35
Maximum offering price per share($11.35 / .960)
(based on sales
charge of 4.00% of the offering price on November
30, 1994) $11.82
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($23,278,647 / 2,051,567 shares of beneficial in-
terest outstanding) $11.35
CLASS C SHARES:
NET ASSET VALUE and offering price per share+
($75,086 / 6,617 shares of beneficial interest out-
standing) $11.35
<FN>
+ Redemption price per share is equal to Net Asset Value less any applica-
ble contingent deferred sales charge.
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $3,477,690
EXPENSES:
Investment advisory fee (Note 2) $ 191,322
Distribution fee (Note 3) 119,315
Administration fee (Note 2) 109,327
Service fee (Note 3) 81,995
Legal and audit fees 67,149
Shareholder reports expense 49,435
Custodian fees (Note 2) 23,768
Transfer agent fees (Notes 2 and 4) 22,657
Trustees' fees and expenses (Note 2) 15,726
Other 36,072
Fees waived by investment adviser and administrator
(Note 2) (151,199)
TOTAL EXPENSES 565,567
NET INVESTMENT INCOME 2,912,123
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(NOTES 1 AND 5):
Net realized loss on investments during the year (446,237)
Net unrealized depreciation of investments during
the year (7,763,594)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (8,209,831)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(5,297,708)
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
11/30/94 11/30/93
<S> <C> <C>
Net investment income $ 2,912,123 $2,337,962
Net realized gain/(loss) on investments sold
during the year (446,237) 312,979
Net unrealized appreciation/(depreciation) of
investments during the year (7,763,594) 1,619,280
Net increase/(decrease) in net assets resulting
from operations (5,297,708) 4,270,221
Distributions to shareholders from net invest-
ment income:
Class A (1,704,179) (1,684,213)
Class B (1,207,860) (649,337)
Class C (84) --
Distributions to shareholders in excess of net
investment income:
Class A (16,228) (24,485)
Class B (11,502) (9,440)
Class C (1) --
Distribution to shareholders from net realized
gains on investments:
Class A (148,111) (140,498)
Class B (103,685) (21,375)
Net increase/(decrease) in net assets from Fund
share transactions (Note 6):
Class A (202,074) 3,828,288
Class B 4,695,844 19,047,087
Class C 75,038 --
Net increase/(decrease) in net assets (3,920,550) 24,616,248
NET ASSETS:
Beginning of year 54,908,549 30,292,301
End of year (including distributions in excess
of net investment income $34,400 and $27,141,
respectively) $50,987,999 $54,908,549
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
11/30/94 11/30/93#
<S> <C> <C>
Net Asset Value, beginning of year $13.26 $12.63
Income from investment operations:
Net investment income** 0.70 0.72
Net realized and unrealized gain/(loss)
on investments (1.85) 0.72
Total from investment operations (1.15) 1.44
Less distributions:
Dividends from net investment income (0.69) (0.73)
Distributions in excess of net invest-
ment income (0.01) (0.01)
Distributions from net realized capital
gains (0.06) (0.07)
Distributions from capital -- --
Total distributions (0.76) (0.81)
Net Asset Value, end of year $11.35 $13.26
Total return+ (9.07%) 11.74%
Ratios to average net assets/supplemen-
tal data:
Net assets, end of year (000's) $27,634 $32,592
Ratio of operating expenses to average
net assets*** 0.81% 0.82%
Ratio of net investment income to aver-
age net assets 5.55% 5.49%
Portfolio turnover rate 37% 10%
<FN>
* The Fund commenced operations on December 21, 1987. Any shares out-
standing prior to November 6, 1992, were designated as Class A shares.
** Net investment income before voluntary waiver of fees and/or reim-
bursement of expenses by
investment adviser and sub-investment adviser and/or administrator for
the years ended November 30, 1994, 1993, 1992, 1991, 1990, 1989, and
the period ended November 30, 1988 were $0.66, $0.67, $0.69, $0.77,
$0.80, $0.74 and $0.66, respectively.
*** Annualized expense ratios before voluntary waiver of fees and/or reim-
bursement of expenses by
investment adviser and sub-investment adviser and/or administrator for
the years ended November 30, 1994, 1993, 1992, 1991, 1990, 1989, and
the period ended November 30, 1988 were 1.09%,1.18%,1.32%,1.28%,
1.09%, 1.72% and 2.00%, respectively.
+ Total return represents aggregate total return for the periods indi-
cated 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 for this
year since use of the undistributed method does not accord with the re-
sults of operations.
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
11/30/92 11/30/91 11/30/90 11/30/89 11/30/88*
<S> <C> <C> <C> <C>
$12.28 $11.81 $12.11 $11.88 $11.40
0.77 0.84 0.84 0.88 0.82
0.43 0.48 (0.27) 0.21 0.54
1.20 1.32 0.57 1.09 1.36
(0.77) (0.84) (0.85) (0.86) (0.82)
-- -- -- -- --
(0.04) -- (0.02) -- (0.06)
(0.04) (0.01) -- -- --
(0.85) (0.85) (0.87) (0.86) (0.88)
$12.63 $12.28 $11.81 $12.11 $11.88
10.06% 11.57% 4.93% 9.43% 12.25%
$27,354 $19,621 $18,036 $20,375 $14,548
0.71% 0.66% 0.74% 0.58% 0.67%++
6.12% 6.89% 7.00% 7.24% 7.00%++
73% 87% 51% 28% 128%
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
11/30/94 11/30/93# 11/30/92*
<S> <C> <C> <C>
Net Asset Value, beginning of year $13.26 $12.63 $12.52
Income from investment operations:
Net investment income** 0.63 0.66 0.06
Net realized and unrealized gain/(loss) on in-
vestments (1.84) 0.72 0.10
Total from investment operations (1.21) 1.38 0.16
Less distributions:
Dividends from net investment income (0.63) (0.67) (0.05)
Distributions in excess of net investment in-
come (0.01) (0.01) --
Distributions from net realized capital gains (0.06) (0.07) --
Total distributions (0.70) (0.75) (0.05)
Net Asset Value, end of year $11.35 $13.26 $12.63
Total return+ (9.50)% 11.09% 1.29%
Ratios to average net assets/supplemental
data:
Net assets, end of year (000's) $23,279 $22,317 $2,938
Ratio of operating expenses to average net as-
sets*** 1.32% 1.31% 1.34%++
Ratio of net investment income to average net
assets 5.04% 4.99% 5.49%++
Portfolio turnover rate 37% 10% 73%
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** Net investment income before voluntary waiver of fees and/or reim-
bursement of expenses by investment adviser and sub-investment adviser
and/or administrator for the years ended ended November 30, 1994,
1993, and the period ended November 30, 1992 were $0.60, $0.61 and
$0.05, respectively.
*** Annualized expense ratios before voluntary waiver of fees and/or reim-
bursement of expenses by
investment adviser and sub-investment adviser and/or administrator for
the years ended November 30, 1994, 1993, and the period ended November
30, 1992 were 1.60%, 1.68% and 1.94%,
respectively.
+ Total return represents aggregate total return for the periods indi-
cated 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 for this
year since use of the undistributed method does not accord with the re-
sults of operations.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
11/30/94*
<S> <C>
Net Asset Value, beginning of period $11.34
Income from investment operations:
Net investment income** 0.05
Net realized and unrealized gain on investments 0.00
Total from investment operations 0.05
Less distributions:
Dividends from net investment income (0.04)
Distributions in excess of net investment income (0.00)#
Total distributions (0.04)
Net Asset Value, end of period $11.35
Total return+ 0.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $75
Ratio of operating expenses to average net assets*** 1.36%++
Ratio of net investment income to average net assets 5.00%++
Portfolio turnover rate 37%
<FN>
* The Fund began selling Class C shares on November 10, 1994.
** Net investment income before voluntary waiver of fees and/or reim-
bursement of expenses by
investment adviser and/or administrator for the period ended November
30, 1994 was $0.05.
*** Annualized expense ratios before voluntary waiver of fees and/or reim-
bursement of expenses by
investment adviser and/or administrator for the period ended November
30, 1994 was 1.63%.
+ Total return represents aggregate total return for the period indi-
cated and does not reflect any
applicable sales charge.
++ Annualized.
# Amount represents less than $0.01.
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Massachusetts Municipals Fund (the "Fund") (formerly known as
Smith Barney Shearson Massachusetts Municipals Fund) was organized on Jan-
uary 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"). Effective November 7, 1994, the Fund began offering Class C and
Class Y shares and continued to offer Class A and Class B shares. As of
November 30, 1994, no Class Y shares had been sold. Class A shares are
sold with a front-end sales charge. Class B and Class C shares may be sub-
ject to a CDSC. Class Y shares are available to investors making an ini-
tial investment of at least $5 million and are not subject to any sales
charges, distribution or service fees. All classes of shares have identi-
cal rights and privileges except with respect to the effect of the respec-
tive sales charges, the distribution and/or service fees borne by each
class, expenses allocable exclusively to each class, voting rights on mat-
ters 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 Advi-
sors, 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 mar-
ket, these investments are valued at the mean between the quoted bid
prices and asked prices. Investments for which, in the judgment of the
Service, there are no readily obtainable market quotations (which may con-
stitute 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, cou-
pon, 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 deter-
mines 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 ac-
crual basis. Securities purchased or sold on a when-issued or delayed-
delivery basis may be settled a month or more after the trade date. Real-
ized 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.
Dividends and distributions to shareholders: Dividends from net invest-
ment 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 div-
idends on the last business day of the Smith Barney Inc. ("Smith Barney")
statement month. Distributions from net realized capital gains are de-
clared 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 cer-
tain 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 ac-
cordance with income tax regulations which may differ from generally ac-
cepted accounting principles. The differences are primarily due to differ-
ing treatments of income and gains on various investment securities held
by the Fund, timing differences and differing characterization of distri-
butions made by the Fund as a whole. Permanent differences incurred during
the Fund's fiscal year resulting from overdistributions of income are re-
classified to paid-in capital at year-end.
Federal income taxes: It is the policy of the Fund to qualify as a regu-
lated investment company, which distributes exempt-interest dividends by
complying 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 provi-
sion is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND
OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, formerly a division of Mutual
Management Corp., which has been transferred effective November 7, 1994 to
Smith Barney Mutual Funds Management Inc. ("SBMFM"). Mutual Management
Corp. and SBMFM are both wholly owned subsidiaries of Smith Barney Hold-
ings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The Trav-
elers Inc. Under the Advisory Agreement, the Fund pays a monthly fee at
the annual rate of 0.35% of the value of the Fund's average daily net as-
sets up to $500 million and 0.32% of the value of its average daily net
assets in excess of $500 million.
Prior to April 20, 1994, the Fund was a party to an administration agree-
ment with Boston Advisors, an indirect wholly owned subsidiary of Mellon
Bank Corporation ("Mellon"). Under this agreement, the Fund paid a monthly
fee based on the following annual rates: 0.20% of the value of the Fund's
average daily net assets up to $500 million and 0.18% of the value of its
average daily net assets in excess of $500 million.
As of the close of business on April 20, 1994, SBMFM (formerly known as
Smith, Barney Advisers, Inc.) succeeded Boston Advisors as the Fund's ad-
ministrator. The new administration agreement contains substantially the
same terms and conditions, including the level of fees, as the predecessor
agreement.
As of the close of business on April 20, 1994, the Fund and SBMFM entered
into a sub-administration agreement (the "Sub-Administration Agreement")
with Boston Advisors. Under the Sub-Administration Agreement, SBMFM pays
Boston Advisors a portion of its administration fee at a rate agreed upon
from time to time between SBMFM and Boston Advisors.
From time to time, the investment adviser and administrator may voluntar-
ily waive a portion or all of their respective fees otherwise payable to
them. For the year ended November 30, 1994, the investment adviser and ad-
ministrator voluntarily waived fees in the amounts of $95,209 and $55,990,
respectively.
For the year ended November 30, 1994, Smith Barney received $93,015 from
investors representing commissions (sales charges) on sales of Class A
shares.
A CDSC is generally payable by a shareholder in connection with the re-
demption of Class B shares within five years after the date of purchase.
In circumstances in which the charge is imposed, the amount of the charge
ranges between 4.50% and 1.00% of net asset value depending on the number
of years since the date of purchase. A CDSC may be payable by a share-
holder in connection with the redemption of Class C shares within one year
after the date of purchase. In circumstances in which the charge is im-
posed, the amount of the charge is 1.00%. For the year ended November 30,
1994, Smith Barney received $58,056 from investors in CDSCs on the redemp-
tion of Class B shares.
No officer, director or employee of Smith Barney or any of its affiliates
receives any compensation from the Fund for serving as a Trustee or of-
ficer of the Fund. The Fund pays each Trustee who is not an officer, di-
rector or employee of Smith Barney or any of its 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 trans-
fer agent.
3. DISTRIBUTION PLAN
Smith Barney acts as distributor of the Fund's shares pursuant to a dis-
tribution agreement with the Fund, and sells shares of the Fund through
Smith Barney or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a services
and distribution plan (the "Plan"). Under this Plan, the Fund compensates
Smith Barney for servicing shareholder accounts for Class A, Class B and
Class C shareholders, and covers expenses incurred in distributing Class B
and Class C shares. Smith Barney is paid an annual service fee with re-
spect to Class A, Class B and Class C shares of the Fund at the rate of
0.15% of the value of the average daily net assets of each respective
class of shares. Smith Barney is also paid an annual distribution fee with
respect to Class B and Class C shares at the rate of 0.50% and 0.55%, re-
spectively, of the value of the average daily net assets attributable to
those classes. For the year ended November 30, 1994, the Fund incurred
$46,201, $35,788 and $6 in service fees for Class A, Class B and Class C
shares, respectively. For the year ended November 30, 1994, the Fund in-
curred $119,293 and $22 in distribution fees for Class B and Class C
shares, respectively.
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 $10,951, $11,706 and $0 for Class A, Class
B and Class C shares, respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investment securities, ex-
cluding short-term investments, for the year ended November 30, 1994
amounted to $26,606,764 and $19,902,034, respectively.
At November 30, 1994, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost amounted to
$363,143, and the aggregate gross unrealized depreciation for all securi-
ties in which there was an excess of tax cost over value amounted to
$5,420,213.
6. SHARES OF BENEFICIAL INTEREST
At November 30, 1994, an unlimited number of shares of beneficial interest
divided into four classes (Class A, Class B, Class C and Class Y),with a
par value of $.001 per share, were authorized. Changes in shares of bene-
ficial interest for the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
11/30/94 11/30/93
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Sold 354,792 $ 4,489,952 493,233 $6,501,607
Issued as reinvestment of
dividends 102,427 1,278,000 93,256 1,223,534
Redeemed (479,403) (5,970,026) (295,101) (3,896,853)
Net increase/(decrease) (22,184) $(202,074) 291,388 $3,828,288
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
11/30/94 11/30/93
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Sold 577,550 $7,273,945 1,458,949 $19,170,821
Issued as reinvestment of
dividends 66,328 826,518 33,642 444,988
Redeemed (274,929) (3,404,619) (42,563) (568,722)
Net increase 368,949 $4,695,844 1,450,028 $19,047,087
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
11/30/94*
CLASS C SHARES: SHARES AMOUNT
<S> <C> <C> <C>
Sold 6,614 $ 75,000
Issued as reinvestment of
dividends 3 38
Net increase 6,617 $75,038
<FN>
* The Fund commenced selling Class C shares on November 10, 1994.
As of November 30, 1994, no Class Y shares had been sold.
</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 au-
thorities to obtain funds for various public purposes. The Fund is more
susceptible to factors adversely affecting issuers of Massachusetts munic-
ipal 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.
8. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line
of credit provided by Bank of America (formerly Continental Bank N.A.)
under an Amended and Restated Line of Credit Agreement (the "Agreement")
dated April 30, 1992, and renewed effective May 31, 1994, primarily for
temporary or emergency purposes, including the meeting of redemption re-
quests that otherwise might require the untimely disposition of securi-
ties. 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. Under the terms of the Agreement, as amended, the Fund and the
other affiliated entities are charged an aggregate commitment fee of
$100,000 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 Agree-
ment of no less than 5 to 1. During the year ended November 30, 1994, the
Fund did not borrow under the Agreement.
9. CAPITAL LOSS CARRYFORWARD
At October 31, 1994, the Fund had available for Federal income tax pur-
poses an unused capital loss carryforward of $446,237 expiring in 2002.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND:
We have audited the accompanying statement of assets and liabilities, in-
cluding the schedule of portfolio investments, of Smith Barney Massachu-
setts Municipals Fund (formerly Smith Barney Shearson Massachusetts Munic-
ipals Fund) as of November 30, 1994, and the related statement of opera-
tions 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 high-
lights for each of the six years in the period then ended and for the pe-
riod from December 21, 1987 (commencement of operations) to November 30,
1988. These financial statements and financial highlights are the respon-
sibility 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 fi-
nancial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclo-
sures in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 1994 by correspondence with the custo-
dian and brokers. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well as evalu-
ating 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 Smith Barney Massachusetts Municipals Fund as of November 30, 1994, 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 finan-
cial highlights for each of the six 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 L.L.P.
Boston, Massachusetts
January 12, 1995
TAX INFORMATION (UNAUDITED)
FISCAL YEAR ENDED NOVEMBER 30, 1994
During the fiscal year ended November 30, 1994, the Fund paid $234,147 of
long-term capital gains to its shareholders.
Of the dividends paid from net investment income for the year ended
November 30, 1994, 99.3% is tax-exempt for regular Federal income tax pur-
poses.
MASSACHUSETTS
MUNICIPALS
FUND
TRUSTEES
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
James J. Crisona*
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
Cornelius C. Rose, Jr.
* Trustee Emeritus
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Stephen J. Treadway
President
Lawrence T. McDermott
Vice President and
Investment Officer
Karen L. Mahoney-Malcomson
Investment Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Christina T. Sydor
Secretary
Recycled and
Recyclable
SMITH BARNEY
A Member of Travelers Group
This report is submitted for the
general information of the
shareholders of Smith Barney
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, fees
and expenses as well as other
pertinent information.
SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
Fund 41, 209, 484, 466
FD0302 A5
