<PAGE>
DESCRIPTION OF ARTWORK ON REPORT COVER
Small box above fund name showing a lighthouse.
[GRAPHIC]
SMITH BARNEY
MASSACHUSETTS
MUNICIPALS
SEMI-
ANNUAL FUND
REPORT
......................................
MAY 31, 1995
[LOGO] SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
MASSACHUSETTS MUNICIPALS FUND
DEAR SHAREHOLDER:
We are pleased to provide you with the semiannual report and portfolio
of investments for Smith Barney Massachusetts Municipals Fund for the six-month
period ended May 31, 1995. Although bond prices declined precipitously during
the first part of the Fund's fiscal year, the municipal market improved
substantially in late 1994 and into 1995, allowing the Fund to provide
investors in Class A shares with a total return of 14.76% and Class B shares
with a total return of 14.48% for the six month period ended May 31, 1995.
Investors in Class C shares, a newly-available class of shares, earned a total
return of 14.48% for the period between November 10, 1994 and May 31, 1995.
Additional performance data for each class of shares during this and previous
reporting periods is available in the "Financial Highlights" section of this
report.
ECONOMIC AND MARKET UPDATE
After implementing tighter monetary policy by raising the Federal funds
rate 300 basis points (three percentage points) over a 13-month period
beginning in February 1994, the Federal Reserve Board has succeeded in slowing
the rate of economic growth. Growth continued to slow during the second quarter
of 1995 with the decline in consumption expenditures intensifying. The retail
sector of the economy appears even softer and most retail chains seem to have
little pricing power. Even the automobile industry, which enjoyed a very strong
1994, has encountered weaker sales in 1995. Individuals financed a large
portion of their purchases with debt throughout 1994 and, as a result,
individuals' debt levels are becoming a source of concern. This is acting as a
drag on consumption expenditures and could continue to hamper consumption
trends for the rest of 1995 as consumers try to bring their debt levels down to
more manageable levels. The industrial side of the economy has benefited from
strong overseas demand but this also appears to be moderating based upon recent
economic statistics on industrial production. In summary, while we do not
anticipate a recession, we believe an economic slowdown exists that will
present more of a challenge to corporate profitability, especially in those
sectors of the economy that depend on the consumer. Although unemployment rates
are relatively low, the corporate sector continues to trim costs and cut
payrolls, which could further hinder consumer spending.
After initially rising for most of 1994 as the Federal Reserve raised
short-term interest rates, longer-term interest rates have declined since
November as it has become apparent that the Federal Reserve is successfully
slowing the rate of economic growth and keeping inflation under control. The
municipal market performed well during the first five months of 1995. New bond
issuance was at remarkably low levels both nationally and in Massachusetts,
contributing to increases in prices for tax-exempt securities. A defining moment
for the municipal market occurred when Orange County, California filed for
bankruptcy in December of
1
<PAGE>
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DIVIDEND POLICY
- --------------------------------------------------------------------------------
ALTHOUGH NOT EXPLICITLY STATED IN THE PROSPECTUS, THE FUND'S POLICY IS TO PAY A
LEVEL MONTHLY DIVIDEND BASED ON INCOME GENERATED BY THE FUND'S PORTFOLIO
HOLDINGS, OUR EXPECTATIONS REGARDING THE MUNICIPAL BOND MARKET AND THE GENERAL
DIRECTION OF INTEREST RATES. THE FUND'S INVESTMENT DECISIONS ARE
GUIDED BY MARKET CONDITIONS, AND ARE NOT MADE WITH THE INTENT OF MAINTAINING
ARTIFICIALLY HIGH DIVIDENDS. WE CONTINUALLY MONITOR BOTH THE MARKET AND THE
FUND'S INCOME STREAM TO ENSURE THAT OUR DIVIDENDS APPROXIMATE THE ACTUAL
EARNINGS OF THE FUND.
- --------------------------------------------------------------------------------
1994 and cast a pall on the entire market. Its impact on the broader market
since then has been minimal, but has strongly impacted the securities of the
County itself.
The Commonwealth's financial picture continues to be favorable. Its budget
for fiscal year 1996 includes additional funding for education and prison con-
struction, localities, and the Massachusetts Water Resources without additional
increases in state taxes. State general obligation and agency debt have formed
the bulk of the offerings in the market with only a scattering of local issues
appearing on a sporadic basis.
Some uncertainties surround the market, however. Among these are the many
flat tax proposals being championed by members of both political parties. We
believe real legislative action is several years away and must be revenue
neutral to make any economic sense -- a very difficult balancing act to
accomplish. Discussions regarding the proposals have caused periodic weakness in
the municipal market during the past months and will no doubt continue to do so
over the next few years, which may create some attractive investment
opportunities.
PORTFOLIO STRATEGY
At the end of this reporting period, 99% of the portfolio was rated
investment grade (BBB/Baa and higher) by either Standard & Poor's Corporation or
Moody's Investors Service, Inc. The Fund invests its assets primarily in
hospital, general obligation, housing, utility revenue, and education issues.
This investment allocation is very similar to the one we reported to you in the
Fund's annual report. The average maturity of the Fund was 21 years.
2
<PAGE>
We look forward to reporting to you in the Fund's annual report to
investors. 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,
/s/ Heath B. McLendon /s/ Lawrence T. McDermott
Heath B. McLendon Lawrence T. McDermott
Chairman of the Board Vice President and
Investment Officer
July 20, 1995
3
<PAGE>
Smith Barney
Massachusetts Municipals Fund
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) MAY 31, 1995
INDUSTRY BREAKDOWN
<TABLE>
DESCRIPTION OF PIE CHART IN SHAREHOLDER REPORT
Industry Breakdown
Pie Chart depicting the allocation of the Massachusetts Municipals Fund
investment securities held at May 31, 1995 by industry classification. The pie
is broken in pieces representing industries in the following percentages:
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
TRANSPORTATION 3.6%
UTILITY REVENUE 15.8%
GENERAL OBLIGATIONS 21.7%
EDUCATION 10.4%
HOUSING 17.1%
OTHER BONDS AND NOTES AND NET
OTHER ASSETS AND LIABILITIES 3.4%
HOSPITAL 23.5%
INDUSTRIAL REVENUE/POLLUTION CONTROL
REVENUE 4.5%
</TABLE>
<TABLE>
SUMMARY OF MUNICIPAL BONDS AND
NOTES BY COMBINED RATINGS
<CAPTION>
Standard & Percent
Moody's Poor's of Value
- ------------------------------------------------------------
<S> <C> <C>
Aaa OR AAA 51.1%
Aa AA 10.2
A A 25.5
Baa BBB 12.2
NR NR 1.0
-----
100.0%
-----
AVERAGE MATURITY: 21.0 years
</TABLE>
4
<PAGE>
Smith Barney
Massachusetts Municipals Fund
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PORTFOLIO OF INVESTMENTS (UNAUDITED) MAY 31, 1995
- --------------------------------------------------------------------------------
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>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES - 98.6%
MASSACHUSETTS - 93.2%
Boston, Massachusetts, Financing Authority,
Industrial Development, Massachusetts
College of Pharmacy, (CO LEE Insured):
$ 750,000 5.250% due 10/1/14 NR AAA $ 698,438
1,000,000 5.250% due 10/1/26 NR AAA 907,500
700,000 Boston, Massachusetts, General Obligation
Bonds, Series A, (AMBAC Insured),
6.500% due 7/1/12 Aaa AAA 749,000
150,000 Boston, Massachusetts, Revenue Refunding
Bonds, Series B, (FHA Insured),
5.750% due 2/15/23 Aa AA 145,687
280,000 Boston, Massachusetts, Water & Sewer
Commission Revenue, Series A,
7.750% due 11/1/06 A A 297,850
250,000 Brockton, Massachusetts, Utility,
6.125% due 6/15/18 Baa A- 248,438
1,425,000 Chelsea, Massachusetts, School Project,
(AMBAC Insured),
6.000% due 6/15/14 Aaa AAA 1,446,375
920,000 Dedham-Westwood Water District,
Massachusetts, Refunding Bonds, (MBIA Insured),
5.100% due 10/15/12 Aaa AAA 853,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- -------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MAY 31, 1995
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
MASSACHUSETTS (CONTINUED)
$ 500,000 Fall River, Massachusetts, General
Obligation Bonds, (MBIA Insured),
7.200% due 6/1/10 Aaa AAA $ 551,250
1,000,000 Framingham, Massachusetts, Housing
Authority, Mortgage Revenue, (Beaver Terrace
Apartments, Apartment A), (CO LEE Insured),
6.650% due 2/20/32 NR AAA 1,018,750
500,000 Gloucester, Massachusetts, Municipal Purpose
Loan, (FSA Insured),
5.500% due 11/15/13 Aaa AAA 480,625
250,000 Groveland, Massachusetts, General Obligation
Bonds, (AMBAC Insured),
6.850% due 6/15/06 Aaa AAA 274,687
470,000 Haverhill, Massachusetts, Revenue Bonds,
Series A, (AMBAC Insured),
6.700% due 9/1/10 Aaa AAA 504,663
500,000 Holyoke, Massachusetts, General Obligation
Bonds, Series B, (FSA Insured),
6.125% due 8/1/13 Aaa AAA 516,250
500,000 Lowell, Massachusetts, General Obligation
Bonds, Series B, (FSA Insured),
5.600% due 11/1/12 Aaa AAA 494,375
300,000 Lynn, Massachusetts, Water & Sewer
Commission, General Revenue, (FGIC Insured),
5.500% due 12/1/10 Aaa AAA 300,750
250,000 Mansfield, Massachusetts, General Obligation
Bonds, (AMBAC Insured),
6.700% due 1/15/11 Aaa AAA 267,813
1,065,000 Massachusetts Bay Transportation Authority,
6.100% due 3/1/23 A1 A+ 1,076,981
205,000 Massachusetts Educational Loan Authority,
Education Loan Revenue, Issue D, Series A,
7.650% due 1/1/07 A A 215,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MAY 31, 1995
<CAPTION>
RATINGS 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:
$2,000,000 6.125% due 7/1/19 A BBB+ $2,017,500
1,000,000 (MBIA Insured),
5.000% due 7/1/17 Aaa AAA 897,500
300,000 Massachusetts State Construction Loan,
Series C,
7.000% due 8/1/12 A A+ 340,125
500,000 Massachusetts State Convention Center
Authority, Series A,
5.375% due 9/1/13 A A+ 490,625
Massachusetts State Health & Educational
Facilities Authority Revenue:
750,000 6.300% due 8/1/18 Baa NR 660,937
1,000,000 (AMBAC Insured),
6.550% due 6/23/22 Aaa AAA 1,075,000
(CO LEE Insured):
700,000 7.000% due 7/1/06 NR AAA 794,500
500,000 5.750% due 7/1/14 NR AAA 490,625
1,000,000 (MBIA Insured),
5.375% due 7/1/24 Aaa AAA 946,250
750,000 Addison Hospital, (MBIA Insured),
5.750% due 7/1/23 A NR 659,063
250,000 Beth Israel Hospital, Series E,
7.000% due 7/1/14 A1 A+ 266,250
1,000,000 Brockton Hospital, Series B,
8.100% due 7/1/13 A A 1,068,750
500,000 Capital Asset Program, Series F, (MBIA Insured),
7.300% due 10/1/18 Aaa AAA 543,750
430,000 Community College Project, Series A,
(CO LEE Insured),
6.600% due 10/1/22 NR AAA 447,738
1,000,000 Faulkner Hospital, Series C,
6.000% due 7/1/13 Baa1 BBB+ 937,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- -------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MAY 31, 1995
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
MASSACHUSETTS (CONTINUED)
Massachusetts State Health & Educational
Facilities Authority Revenue (continued):
$1,000,000 Massachusetts General Hospital, Series F,
(AMBAC Insured),
6.250% due 7/1/20 Aaa AAA $1,028,750
750,000 Medical Center, Lahey Clinic, Series B,
(MBIA Insured),
5.375% due 7/1/23 Aaa AAA 705,937
Morton Hospital & Medical Center, Series B,
(CO LEE Insured):
1,000,000 5.250% due 7/1/14 NR AAA 930,000
500,000 5.500% due 7/1/23 NR AAA 471,250
1,000,000 Saint Memorial Medical Center, Series A,
6.000% due 10/1/23 Baa NR 660,000
750,000 South Shore Hospital, Series E, (MBIA Insured),
5.500% due 7/1/20 Aaa AAA 724,688
Suffolk University, Series B, (CO LEE Insured):
200,000 6.250% due 7/1/12 Baa AAA 205,000
1,575,000 6.350% due 7/1/22 Baa AAA 1,602,562
600,000 University of Massachusetts Medical Center,
(CO LEE Insured),
6.000% due 7/1/23 NR AAA 600,750
345,000 Youville Hospital, Series A, (FHA Insured),
9.100% due 8/1/15 Aa NR 362,681
Massachusetts State Housing Finance Agency,
Housing Revenue:
500,000 6.300% due 12/1/14 Aa A+ 508,125
1,000,000 7.200% due 12/1/26 Aa A+ 1,063,750
1,000,000 (MBIA Insured),
5.950% due 12/1/14 Aaa AAA 1,001,250
2,150,000 Housing Project, Series A,
6.375% due 4/1/21 A1 A+ 2,171,500
1,000,000 Series 15, (FHA Insured),
7.700% due 12/1/14 Aaa AAA 1,053,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- -------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MAY 31, 1995
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
MASSACHUSETTS (CONTINUED)
Massachusetts State Housing Finance Agency,
Housing Revenue (continued):
$ 600,000 Series 18,
7.350% due 12/1/16 Aa A+ $ 642,000
1,000,000 Series 31,
6.450% due 12/1/16 Aa A+ 1,020,000
100,000 Single Family Mortgage, Series 5,
8.375% due 6/1/15 Aa A+ 105,500
Massachusetts State Industrial Finance
Agency Revenue:
250,000 6.300% due 7/1/05 Baa1 BBB 258,438
750,000 (Clark University), Series E,
7.000% due 7/1/12 A A- 810,000
250,000 Concord Academy, (FSA Insured),
6.900% due 9/1/21 Baa BBB 268,437
1,000,000 Edison, Series E,
5.875% due 8/1/08 NR BBB- 968,750
100,000 Guaranteed Loan, Series A,
7.875% due 5/1/07 NR AAA 102,250
500,000 (S.E. Massachusetts Project), Recovery
Revenue, Series A,
9.000% due 7/1/15 NR NR 550,625
130,000 Massachusetts State Port Authority Revenue,
7.750% due 7/1/18 Aa AA- 132,925
1,500,000 Massachusetts State Water Pollution,
6.375% due 2/1/15 Aa AA- 1,569,375
Massachusetts State Water Resource
Authority, Series A:
1,420,000 6.250% due 11/1/10 A A 1,492,775
1,000,000 5.500% due 3/1/17 A A 958,750
250,000 North Reading, Massachusetts, General
Obligation Bonds, (MBIA Insured),
6.875% due 6/15/07 Aaa AAA 272,187
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- -------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MAY 31, 1995
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
MASSACHUSETTS (CONTINUED)
$ 795,000 Plymouth County, Massachusetts, Certificates
of Participation, Series A,
6.750% due 10/1/04 NR A $ 869,531
500,000 Revere, Massachusetts, Municipal Purpose
Loan, (FSA Insured),
6.125% due 6/15/13 Aaa AAA 515,000
500,000 Salem, Massachusetts, General Obligation
Bonds, (AMBAC Insured),
6.800% due 8/15/10 Aaa AAA 543,750
500,000 Southeastern Massachusetts University,
Series A, (AMBAC Insured),
5.900 due 5/1/12 Aaa AAA 508,750
1,500,000 South Essex, Massachusetts, Sewer District,
Series B, (MBIA Insured),
7.000% due 6/1/24 Aaa AAA 1,646,250
30,000 Springfield, Massachusetts, Industrial
Development Finance Authority, Pollution
Control Revenue, (Monsanto Company Project),
9.100% due 11/1/04 A1 A 34,688
750,000 Springfield, Massachusetts, (School Project
Loan), Series B,
7.100% due 9/1/11 Baa NR 792,187
250,000 University of Massachusetts, Building
Authority Revenue, Series A,
7.500% due 5/1/14 A A+ 269,375
485,000 Webster, Massachusetts, General Obligation
Bonds, (AMBAC Insured),
6.700% due 9/1/10 Aaa AAA 521,981
Worcester, Massachusetts, Refunding &
Construction, Series A, (MBIA Insured):
700,000 6.400% due 1/1/05 Aaa AAA 747,250
330,000 6.450% due 1/1/06 Aaa AAA 352,275
- -------------------------------------------------------------------------------------------
51,727,137
- -------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- --------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) MAY 31, 1995
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (CONTINUED)
PUERTO RICO - 3.7%
$ 200,000 Commonwealth of Puerto Rico, General
Obligation Bonds,
8.000% due 7/1/08 Baa1 A $ 221,750
795,000 Commonwealth of Puerto Rico, Urban Renewal
Housing Revenue Bonds,
7.875% due 10/1/04 Baa BBB 892,388
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 A+ 431,081
500,000 Puerto Rico, Port Authority Revenue,
6.300% due 6/1/23 Baa3 BB+ 493,750
- --------------------------------------------------------------------------------------------
2,038,969
- --------------------------------------------------------------------------------------------
GUAM - 1.4%
750,000 Guam, Apartment Authority Revenue, Series A,
6.500% due 10/1/23 NR BBB 760,312
- --------------------------------------------------------------------------------------------
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 18,413
110,000 Pre-refunded,
7.300% due 10/1/18 Aaa AAA 125,262
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143,675
- --------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $53,744,020*) 98.6% 54,670,093
OTHER ASSETS AND LIABILITIES (NET) 1.4 754,239
- --------------------------------------------------------------------------------------------
NET ASSETS 100.0% $55,424,332
- --------------------------------------------------------------------------------------------
<FN>
* Aggregate cost for Federal tax purposes.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- ----------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) MAY 31, 1995
<S> <C> <C>
ASSETS:
Investments, at value (Cost $53,744,020) (Note 1)
See accompanying schedule $54,670,093
Interest receivable 1,172,102
Receivable for Fund shares sold 114,982
- ----------------------------------------------------------------------------------------
TOTAL ASSETS 55,957,177
- ----------------------------------------------------------------------------------------
LIABILITIES:
Notes payable (Note 8) $286,631
Due to custodian 85,987
Dividends payable 34,449
Investment advisory fee payable (Note 2) 28,138
Administration fee payable (Note 2) 16,092
Payable for Fund shares redeemed 15,193
Distribution fee payable (Note 3) 11,226
Service fee payable (Note 3) 6,975
Custodian fees payable (Note 2) 4,000
Transfer agent fees payable (Note 2) 2,005
Accrued expenses and other payables 42,149
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES 532,845
- ----------------------------------------------------------------------------------------
NET ASSETS $55,424,332
- ----------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Distributions in excess of net investment income earned to
date $ (65,625)
Accumulated net realized loss on investments sold (627,591)
Unrealized appreciation of investments 926,073
Par value 4,379
Paid-in capital in excess of par value 55,187,096
- ----------------------------------------------------------------------------------------
TOTAL NET ASSETS $55,424,332
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- -------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (continued) MAY 31, 1995
<S> <C>
NET ASSETS:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($28,543,338 / 2,255,147 shares of beneficial interest
outstanding) $12.66
- -------------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE per share ($12.66 / .960) (based on
sales charge of 4.00% of the offering price on May 31, 1995) $13.19
- -------------------------------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($26,866,038 / 2,122,956 shares of beneficial interest
outstanding) $12.66
- -------------------------------------------------------------------------------------
CLASS C SHARES:
NET ASSET VALUE and offering price per share+
($14,956 / 1,181 shares of beneficial interest outstanding) $12.66
- -------------------------------------------------------------------------------------
<FN>
+ Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- -----------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED MAY 31, 1995
<S> <C> <C>
INVESTMENT INCOME:
Interest $1,727,437
- -----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $ 93,327
Distribution fee (Note 3) 62,684
Administration fee (Note 2) 53,330
Service fee (Note 3) 39,996
Legal and audit fees 27,207
Shareholder reports expense 17,875
Custodian fees (Note 2) 11,211
Transfer agent fees (Notes 2 and 4) 10,908
Trustees' fees and expenses (Note 2) 6,668
Other 19,122
Fees waived by investment adviser and administrator (Note 2) (64,561)
- -----------------------------------------------------------------------------------------
Total expenses before interest expense 277,767
Interest expense (Note 8) 13,424
- -----------------------------------------------------------------------------------------
TOTAL EXPENSES 291,191
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,436,246
- -----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 5):
Net realized loss on investments during the period (181,354)
Net unrealized appreciation of investments during the period 5,983,143
- -----------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 5,801,789
- -----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,238,035
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- ----------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED YEAR
5/31/95 ENDED
(UNAUDITED) 11/30/94
<S> <C> <C>
Net investment income $ 1,436,246 $ 2,912,123
Net realized loss on investments sold during the period (181,354) (446,237)
Net unrealized appreciation/(depreciation) of investments
during the period 5,983,143 (7,763,594)
- ----------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
operations 7,238,035 (5,297,708)
Distributions to shareholders from net investment income:
Class A (810,890) (1,704,179)
Class B (655,378) (1,207,860)
Class C (1,203) (84)
Distributions to shareholders in excess of net investment
income:
Class A -- (16,228)
Class B -- (11,502)
Class C -- (1)
Distributions to shareholders from net realized gain on
investments:
Class A -- (148,111)
Class B -- (103,685)
Class C -- --
Net increase/(decrease) in net assets from Fund share
transactions (Note 6):
Class A (2,166,927) (202,074)
Class B 898,341 4,695,844
Class C (65,645) 75,038
- ----------------------------------------------------------------------------------------
Net increase/(decrease) in net assets 4,436,333 (3,920,550)
NET ASSETS:
Beginning of period 50,987,999 54,908,549
- ----------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $65,625 and $34,400, respectively) $55,424,332 $50,987,999
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- --------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR YEAR
5/31/95# ENDED ENDED ENDED
(UNAUDITED) 11/30/94 11/30/93# 11/30/92
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.35 $ 13.26 $ 12.63 $ 12.28
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income** 0.34 0.70 0.72 0.77
Net realized and unrealized gain/(loss) on
investments 1.32 (1.85) 0.72 0.43
- --------------------------------------------------------------------------------------------------
Total from investment operations 1.66 (1.15) 1.44 1.20
Less Distributions:
Distributions from net investment income (0.35) (0.69) (0.73) (0.77)
Distributions in excess of net investment income -- (0.01) (0.01) --
Distributions from net realized capital gains -- (0.06) (0.07) (0.04)
Distributions from capital -- -- -- (0.04)
- --------------------------------------------------------------------------------------------------
Total distributions (0.35) (0.76) (0.81) (0.85)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.66 $ 11.35 $ 13.26 $ 12.63
- --------------------------------------------------------------------------------------------------
Total return+ 14.76% (9.07)% 11.74% 10.06%
- --------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $28,543 $27,634 $32,592 $27,354
Ratio of operating expenses to average net
assets*** 0.80%(a)++ 0.81% 0.82% 0.71%
Ratio of net investment income to average net
assets 5.62%++ 5.55% 5.49% 6.12%
Portfolio turnover rate 3% 37% 10% 73%
- --------------------------------------------------------------------------------------------------
<FN>
* The Fund commenced operations on December 21, 1987. Any shares outstanding
prior to November 6, 1992 were designated as Class A shares.
** Net investment income before voluntary waiver of fees and/or reimbursement
of expenses by investment adviser and/or sub-investment adviser and/or
administrator for the six months ended May 31, 1995, for the years ended
November 30, 1994, 1993, 1992, 1991, 1990, 1989, and the period ended
November 30, 1988 were $0.33, $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
reimbursement of expenses by investment adviser and/or sub-investment
adviser and/or administrator for the six months ended May 31, 1995, for the
year ended November 30, 1994, 1993, 1992, 1991, 1990, 1989, and the period
ended November 30, 1988 were 1.10%, 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 indicated and
does not reflect any applicable sales charge.
++ Annualized.
# Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for these
periods since the use of the undistributed net investment income method does
not accord with results of operations for this period.
(a) The operating expense ratio excludes interest expense. The operating expense
ratio including interest expense was 0.85% for the six months ended May 31, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- ----------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
11/30/91 11/30/90 11/30/89 11/30/88*
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.81 $ 12.11 $ 11.88 $ 11.40
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income** 0.84 0.84 0.88 0.82
Net realized and unrealized gain/(loss) on
investments 0.48 (0.27) 0.21 0.54
- ----------------------------------------------------------------------------------------------
Total from investment operations 1.32 0.57 1.09 1.36
Less Distributions:
Distributions from net investment income (0.84) (0.85) (0.86) (0.82)
Distributions in excess of net investment income -- -- -- --
Distributions from net realized capital gains -- (0.02) -- (0.06)
Distributions from capital (0.01) -- -- --
- ----------------------------------------------------------------------------------------------
Total distributions (0.85) (0.87) (0.86) (0.88)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.28 $ 11.81 $ 12.11 $ 11.88
- ----------------------------------------------------------------------------------------------
Total return+ 11.57% 4.93% 9.43% 12.25%
- ----------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $19,621 $18,036 $20,375 $14,548
Ratio of operating expenses to average net
assets*** 0.66% 0.74% 0.58% 0.67%++
Ratio of net investment income to average net
assets 6.89% 7.00% 7.24% 7.00%++
Portfolio turnover rate 87% 51% 28% 128%
- ----------------------------------------------------------------------------------------------
<FN>
* The Fund commenced operations on December 21, 1987. Any shares outstanding
prior to November 6, 1992 were designated as Class A shares.
** Net investment income before voluntary waiver of fees and/or reimbursement
of expenses by investment adviser and/or sub-investment adviser and/or
administrator for the six months ended May 31, 1995, for the years ended
November 30, 1994, 1993, 1992, 1991, 1990, 1989, and the period ended
November 30, 1988 were $0.33, $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
reimbursement of expenses by investment adviser and/or sub-investment
adviser and/or administrator for the six months ended May 31, 1995, for the
year ended November 30, 1994, 1993, 1992, 1991, 1990, 1989, and the period
ended November 30, 1988 were 1.10%, 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 indicated and
does not reflect any applicable sales charge.
++ Annualized.
# Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for these
periods since the use of the undistributed net investment income method does
not accord with results of operations for this period.
(a) The operating expense ratio excludes interest expense. The operating expense
ratio including interest expense was 0.85% for the six months ended May 31, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- --------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR PERIOD
5/31/95# ENDED ENDED ENDED
(UNAUDITED) 11/30/94 11/30/93# 11/30/92*
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.35 $ 13.26 $ 12.63 $12.52
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income** 0.31 0.63 0.66 0.06
Net realized and unrealized gain/(loss)
on investments 1.32 (1.84) 0.72 0.10
- --------------------------------------------------------------------------------------------------
Total from investment operations 1.63 (1.21) 1.38 0.16
Less Distributions:
Distributions from net investment income (0.32) (0.63) (0.67) (0.05)
Distributions in excess of net investment income -- (0.01) (0.01) --
Distributions from net realized capital gains -- (0.06) (0.07) --
- --------------------------------------------------------------------------------------------------
Total distributions (0.32) (0.70) (0.75) (0.05)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.66 $ 11.35 $ 13.26 $12.63
- --------------------------------------------------------------------------------------------------
Total return+ 14.48% (9.50)% 11.09% 1.29%
- --------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $26,866 $23,279 $22,317 $2,938
Ratio of operating expenses to average
net assets*** 1.31%(a)++ 1.32% 1.31% 1.34%++
Ratio of net investment income to average
net assets 5.12%++ 5.04% 4.99% 5.49%++
Portfolio turnover rate 3% 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 reimbursement
of expenses by investment adviser and/or sub-investment adviser and/or
administrator for the six months ended May 31, 1995, for the years ended
November 30, 1994, 1993, and the period ended November 30, 1992 were $0.30,
$0.60, $0.61 and $0.05, respectively.
*** Annualized expense ratios before voluntary waiver of fees and/or
reimbursement of expenses by investment adviser and/or sub-investment
adviser and/or administrator for the six months ended May 31, 1995, for the
years ended November 30, 1994, 1993, and the period ended November 30, 1992
were 1.60%, 1.60%, 1.68% and 1.94%, 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 share
method, which more appropriately presents the per share data for these
periods since the use of the undistributed net investment income method does
not accord with results of operations for this period.
(a) The operating expense ratio excludes interest expense. The operating expense
ratio including interest expense was 1.36% for the six months ended May 31, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Smith Barney
Massachusetts Municipals Fund
<TABLE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
SIX MONTHS
ENDED PERIOD
5/31/95# ENDED
(UNAUDITED) 11/30/94*
<S> <C> <C>
Net asset value, beginning of period $11.35 $11.34
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income** 0.29 0.05
Net realized and unrealized gain on investments 1.34 0.00
- -------------------------------------------------------------------------------------
Total from investment operations 1.63 0.05
Less Distributions:
Distributions from net investment income (0.32) (0.04)
Distributions in excess of net investment income -- (0.00)##
- -------------------------------------------------------------------------------------
Total distributions (0.32) (0.04)
- -------------------------------------------------------------------------------------
Net asset value, end of period $12.66 $11.35
- -------------------------------------------------------------------------------------
Total return+ 14.48% 1.12%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 15 $ 75
Ratio of operating expenses to average net assets*** 1.40%(a)++ 1.36%++
Ratio of net investment income to average net assets 5.03%++ 5.00%++
Portfolio turnover rate 3% 37%
- -------------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class C shares on November 10, 1994.
** Net investment income before voluntary waiver of fees and/or reimbursement
of expenses by investment adviser and/or sub-investment adviser and/or
administrator for the six months ended May 31, 1995, and period ended
November 30, 1994 were $0.28 and $0.05, respectively.
*** Annualized expense ratios before voluntary waiver of fees and/or
reimbursement of expenses by investment adviser and/or sub-investment
adviser and/or administrator for the six months ended May 31, 1995, and for
the period ended November 30, 1994 were 1.69% and 1.63%, 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 share
method, which more appropriately presents the per share data for these
periods since the use of the undistributed net investment income method does
not accord with results of operations for this period.
## Amount represents less than $0.01.
(a) The operating expense ratio excludes interest expense. The operating expense
ratio including interest expense was 1.45% for the six months ended May 31, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Smith Barney
Massachusetts Municipals Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney 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"). 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 May 31, 1995, no Class Y shares have
been sold. Class A shares are sold with a front-end sales charge. Class B and
Class C shares may be subject to a contingent deferred sales charge ("CDSC")
upon redemption. Class B shares will convert automatically to Class A shares
eight years after the date of original purchase. Class Y shares are available to
investors making an initial investment of at least $5 million and are not
subject to any sales charges, distribution or service fees. All 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 consistently 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 Board of Trustees. When, in the judgment of the
Service, quoted bid prices for investments are readily available and are
representative of the bid side of the market, these investments are valued at
the mean of the quoted bid prices and asked prices. Investments for which, in
the judgment of the Service, there are no readily available 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 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.
Realized gains and losses from securities sold are recorded on the identified
cost
20
<PAGE>
Smith Barney
Massachusetts Municipals Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
basis. Investment income and realized and unrealized gains and losses are
allocated based upon the relative net assets of each class.
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 monthly.
Distributions of any net realized capital gains are declared and paid annually,
after the end of the fiscal year. 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 4.00% 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
loss carryforwards, it is the policy of the Fund not to distribute such gains.
Income distributions and capital gain distributions on a Fund level are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These 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
with the requirements of the Internal Revenue Code of 1986, as amended,
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 TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Smith Barney Mutual Funds Management Inc. ("SBMFM") (formerly
known as Smith, Barney Advisers, Inc.). SBMFM is a wholly owned subsidiary of
Smith Barney Holdings Inc. ("Holdings") which, in turn, is a wholly owned
subsidiary of Travelers Group 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 assets up to $500 million and 0.32% of the value of its average daily net
assets in excess of $500 million.
21
<PAGE>
Smith Barney
Massachusetts Municipals Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
The Fund has also entered into an administration agreement (the "Administration
Agreement") with SBMFM, under which the Fund pays SBMFM a fee computed daily and
paid monthly 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 the
Fund's average daily net assets in excess of $500 million.
The Fund and SBMFM have also entered into a sub-administration agreement (the
"Sub-Administration Agreement") with Boston Advisors, an indirect wholly owned
subsidiary of Mellon Bank Corporation ("Mellon"). 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, SBMFM may voluntarily waive a portion or all of its advisory
and/or administration fees otherwise payable to it. For the six months ended May
31, 1995, SBMFM voluntarily waived investment advisory fees of $41,085 and
administration fees of $23,476.
For the six months ended May 31, 1995, Smith Barney Inc. ("Smith Barney")
received $16,088 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 certain Class A, Class B and Class C shares. In circumstances in which the
charge is imposed, the amount will vary depending on the number of years since
the date of purchase. For the six months ended May 31, 1995, Smith Barney
received $37,716 from investors in CDSC on the redemption 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 officer of
the Fund. The Fund pays each Trustee who is not an officer, director or employee
of Smith Barney or any of its affiliates $1,000 per annum plus $100 per meeting
attended and each Trustee emeritus who is not an officer, director or employee
of Smith Barney or any of its affiliates $500 per annum plus $50 per meeting
attended. The Fund reimburses each such Trustee for travel and out-of-pocket
expenses incurred to attend such meetings.
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.
22
<PAGE>
Smith Barney
Massachusetts Municipals Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
3. DISTRIBUTION PLAN
Smith Barney 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 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 respect 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%, respectively, of the value of the average daily
net assets attributable to those shares. During the six months ended May 31,
1995, the Fund incurred $21,195, $18,766 and $35 in service fees for Class A,
Class B and Class C shares, respectively. For the six months ended May 31, 1995,
the Fund incurred $62,557 and $127 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 $5,323, $5,567 and $18, for Class A, Class B and Class C shares,
respectively.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the six months ended May 31, 1995 amounted to
$1,413,683 and $4,368,449, respectively.
At May 31, 1995, the aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost amounted to $1,853,068 and
the aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value amounted to $926,995.
23
<PAGE>
Smith Barney
Massachusetts Municipals Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
<TABLE>
6. SHARES OF BENEFICIAL INTEREST
At May 31, 1995, 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 beneficial interest for
the Fund were as follows:
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
5/31/95 11/30/94
CLASS A SHARES: Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 99,386 $ 1,211,430 354,792 $ 4,489,952
Issued as reinvestment of dividends 43,704 532,516 102,427 1,278,000
Redeemed (323,047) (3,910,873) (479,403) (5,970,026)
- ---------------------------------------------------------------------------------------------
Net decrease (179,957) $(2,166,927) (22,184) $ (202,074)
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
5/31/95 11/30/94
CLASS B SHARES: Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 257,625 $ 3,124,182 577,550 $ 7,273,945
Issued as reinvestment of dividends 32,498 396,573 66,328 826,518
Redeemed (218,734) (2,622,414) (274,929) (3,404,619)
- ---------------------------------------------------------------------------------------------
Net increase 71,389 $ 898,341 368,949 $ 4,695,844
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
5/31/95 11/30/94*
CLASS C SHARES: Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 1,156 $ 13,339 6,614 $75,000
Issued as reinvestment of dividends 100 1,223 3 38
Redeemed (6,692) (80,207) -- --
- ---------------------------------------------------------------------------------------------
Net increase/(decrease) (5,436) $(65,645) 6,617 $75,038
- ---------------------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class C shares on November 10, 1994.
</TABLE>
As of May 31, 1995, no Class Y shares had been sold.
24
<PAGE>
Smith Barney
Massachusetts Municipals Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
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.
8. NOTES PAYABLE
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Bank of America, N.A. (formerly known as 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 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 25% of its net
assets. However, pursuant to the Fund's prospectus, the Fund may only borrow up
to 10% of its total net assets. 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 Agreement of no less than 5
to 1. At May 31, 1995, the Fund had borrowings of $286,631 outstanding under
this Agreement. During the six months ended May 31, 1995, the Fund had an
average outstanding daily balance of $430,220 with interest rates ranging from
5.875% to 7.125%. Interest expense totalled $13,424 for the six months ended May
31, 1995.
9. CAPITAL LOSS CARRYFORWARD
At November 30, 1994 the Fund had available for Federal income tax purposes an
unused capital loss carryforward of $446,237 expiring in 2002.
25
<PAGE>
Smith Barney
Massachusetts Municipals Fund Inc.
- --------------------------------------------------------------------------------
PARTICIPANTS
DISTRIBUTOR
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER AND ADMINISTRATOR
Smith Barney Mutual Funds
Management Inc.
388 Greenwich Street
New York, New York 10013
SUB-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
26
<PAGE>
Smith Barney
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 portfolio. 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.
CDSC (CONTINGENT DEFERRED SALES CHARGE) One kind of 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 CDSC's decline over time, and some will not be charged
if shares are redeemed after a certain period of time.
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 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.
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.
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
portfolio'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 portfolio. 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.
27
<PAGE>
MASSACHUSETTS SMITH BARNEY
MUNICIPALS ------------
FUND
A Member of TravelersGroup [LOGO]
TRUSTEES
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
Cornelius C. Rose, Jr.
SEMI-
OFFICERS ANNUAL
Heath B. McLendon REPORT
Chairman of the Board
and Investment Officer
Jessica M. Bibliowicz This report is submitted for the
President general information of the
shareholders of Smith Barney
Lewis E. Daidone Massachusetts Municipals Fund.
Senior Vice President It is not authorized for
and Treasurer distribution to prospective
investors unless accompanied
Lawrence T. McDermott or proceded by an effective
Vice President and Prospectus for the Fund, which
Investment Officer contains information concerning
the Fund's investment policies,
Karen L. Mahoney-Malcomson fees and expenses as well as
Investment Officer other pertinent information.
Christina T. Sydor
Secretary SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
[LOGO] Recycled Fund 41, 209, 484, 466
Recyclable FD2227 7/95
