<PAGE>
SEMI-ANNUAL REPORT
SMITH BARNEY
MASSACHUSETTS
MUNICIPALS
FUND
- ----------------------------------
May 31, 1997
[LOGO] SMITH BARNEY MUTUAL FUNDS
Investing for your future.
Every day.
<PAGE>
SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND
================================================================================
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney
Massachusetts Municipals Fund ("Fund") for the period ended May 31, 1997. In
this report, we summarize the period's prevailing economic and market conditions
and outline our portfolio strategy. A detailed summary of the Fund's performance
can be found in the appropriate sections that follow.
For the six months ended May 31, 1997, the Class A shares of the Massachusetts
Municipals Fund had a total return of 1.78%. In comparison, the average for
Massachusetts tax-exempt funds was 1.42% for the same period according to Lipper
Analytical Services, Inc. (Lipper Analytical Services, Inc. is an independent
fund tracking organization.) During the six months covered by this report, the
Fund distributed income dividends totaling $0.34 per Class A share; based on its
net asset value (NAV) of $12.88 as of May 31, 1997 and a current dividend rate
of $0.056 per share, this equates to annualized distribution rate of 5.22%. For
a Massachusetts state resident in the combined federal and state tax bracket of
43.68%, the tax-free yield of 5.22% is equivalent to a taxable yield of 9.27%.
(This figure assumes an investor is in the federal tax bracket of 36%, which
constitutes 10% of all U.S. taxpayers according to the Internal Revenue
Service.)
Market and Economic Overview
During the past year, the U.S. economy has continued to grow steadily. Although
the U.S. unemployment rate is near a thirty-year low and consumer confidence is
the highest it has been in over twenty years, there has not been a substantial
increase in inflationary pressures. Nevertheless, lower unemployment and rising
production costs prompted the Federal Reserve Board ("Fed") to raise the federal
funds rate by 25 basis points, or 0.25%, in late March of this year. (The
federal funds rate is the interest rate banks charge each other for overnight
loans and a closely watched indicator of the direction of interest rates.) The
Fed has indicated that it prefers to head off any possible increase in inflation
with a preemptive action rather than wait for any inflationary pressures to
build.
While the Fed action was widely anticipated, the likelihood of a rise in
interest rates added to the significant market volatility that occurred during
the year. The potential tightening of Fed monetary policy raised investor
concerns over the U.S. equity market's ability to sustain the now seven-year
bull market. In
1
<PAGE>
our opinion, higher equity market volatility, along with continued speculation
on Fed monetary policy, led many investors to gravitate toward the relative
safety of the bond market.
At its May 20, 1997 meeting, the Fed chose not to raise interest rates further,
reflecting its view that the U.S. economy could continue to grow at its present
pace without increased inflationary pressures. Moreover, recently released
government reports revealed a dramatic decline in consumer spending in the
second quarter of this year. We believe that this economic growth with little or
no inflationary pressure should provide a positive environment for municipal
bonds over the coming months.
Massachusetts Economic Highlights
Governor William Weld believes that over the last six years his administration
has been responsible for turning the Commonwealth of Massachusetts' economy
around. When Governor Weld was first elected, Massachusetts was in very bad
shape fiscally. In July 1991, unemployment in the Commonwealth stood at nearly
9.6% and manufacturing was in a ten-year decline. Today, the state's fiscal
situation has improved dramatically. Since 1991, taxes have been cut fifteen
times and the burden on taxpayers has been reduced by more than $1 billion.
Moreover, with more than 320,000 new jobs created during the past six years, job
growth in Massachusetts remains strong. In fact, Massachusetts currently has the
lowest unemployment rate of any large industrial state. In our view, all of
these extremely positive developments underscore real progress. To his credit,
Governor Weld, has made Massachusetts a more hospitable place for both
businesses and taxpayers and the state continues to maintain relatively high
credit ratings from the major credit reporting agencies.
Looking ahead, we expect moderate economic growth in Massachusetts under
Governor Weld's administration and we remain generally positive about the
state's economic future. In recent years, the economy of Massachusetts has been
distinguished by strong growth in non-banking finance as well as continuing
strong demand for high-tech products, particularly in the communications,
software and networking industries that have historically been attracted to the
state because of its renowned research universities and educated work force.
Fund's Investment Strategy
The Smith Barney Massachusetts Municipals Fund's investment strategy continues
to emphasize higher coupon bonds in order to provide a competitive level of
income exempt from federal and Massachusetts state income taxes. In addition, we
strive to maintain a high quality portfolio. As of May 31, 1997, over 94% of the
Fund's holdings were rated investment grade or better, of
2
<PAGE>
which 57% were rated AAA/Aaa by either Standard & Poor's Ratings Service or
Moody's Investors Service Inc. (Standard & Poor's Ratings Service and Moody's
Investors Service Inc. are two major credit reporting and bond rating agencies.)
In addition, as of May 31, 1997, the Fund's top three sectors were: general
obligation bonds (20.8%), hospital bonds (19.4%) and education bonds (18.8%).
Municipal Bond Market Outlook
We remain positive on the prospects for Massachusetts municipal bonds in the
coming year. The U.S. economy appears to be continuing along its present path of
moderate growth without any meaningful rise in inflation. However, a substantial
pickup in economic activity in the third quarter of this year could trigger a
Fed response, prompting it to tighten the money supply once again. Moreover, the
Massachusetts economy appears to be recovering from the recession that has
plagued many Northeastern states. The ongoing efforts to streamline the state
government have resulted in a state budget surplus for the first time in years.
We expect that municipal bond issuance in Massachusetts should remain relatively
light and that should also help to support municipal bond prices.
In closing, thank you for your investment in the Smith Barney Massachusetts
Municipals Fund. We look forward to helping you achieve your investment goals.
Sincerely,
/s/ Heath B. McLendon /s/ Lawrence T. McDermott
Heath B. McLendon Lawrence T. McDermott
Chairman Vice President and
Investment Officer
June 23, 1997
3
<PAGE>
================================================================================
Historical Performance -- Class A Shares
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
5/31/97 $12.99 $12.88 $0.34 $0.00 $0.00 1.78%+
- ------------------------------------------------------------------------------------------------------------
11/30/96 12.96 12.99 0.67 0.00 0.00 5.65
- ------------------------------------------------------------------------------------------------------------
11/30/95 11.35 12.96 0.69 0.00 0.00 20.73
- ------------------------------------------------------------------------------------------------------------
11/30/94 13.26 11.35 0.70 0.06 0.00 (9.07)
- ------------------------------------------------------------------------------------------------------------
11/30/93 12.63 13.26 0.74 0.07 0.00 11.74
- ------------------------------------------------------------------------------------------------------------
11/30/92 12.28 12.63 0.77 0.04 0.04 10.06
- ------------------------------------------------------------------------------------------------------------
11/30/91 11.81 12.28 0.84 0.00 0.01 11.57
- ------------------------------------------------------------------------------------------------------------
11/30/90 12.11 11.81 0.85 0.02 0.00 4.93
- ------------------------------------------------------------------------------------------------------------
11/30/89 11.88 12.11 0.86 0.00 0.00 9.43
- ------------------------------------------------------------------------------------------------------------
Inception*-11/30/88 11.40 11.88 0.82 0.06 0.00 12.25+
============================================================================================================
Total $7.28 $0.25 $0.05
============================================================================================================
</TABLE>
================================================================================
Historical Performance -- Class B Shares
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
5/31/97 $12.99 $12.87 $0.30 $0.00 $0.00 1.46%+
- ------------------------------------------------------------------------------------------------------------
11/30/96 12.96 12.99 0.61 0.00 0.00 5.14
- ------------------------------------------------------------------------------------------------------------
11/30/95 11.35 12.96 0.63 0.00 0.00 20.15
- ------------------------------------------------------------------------------------------------------------
11/30/94 13.26 11.35 0.64 0.06 0.00 (9.50)
- ------------------------------------------------------------------------------------------------------------
11/30/93 12.63 13.26 0.68 0.07 0.00 11.09
- ------------------------------------------------------------------------------------------------------------
Inception*-11/30/92 12.52 12.63 0.05 0.00 0.00 1.29+
============================================================================================================
Total $2.91 $0.13 $0.00
============================================================================================================
</TABLE>
================================================================================
Historical Performance -- Class C Shares
================================================================================
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
5/31/97 $12.98 $12.86 $0.30 $0.00 $0.00 1.43%+
- ------------------------------------------------------------------------------------------------------------
11/30/96 12.95 12.98 0.60 0.00 0.00 5.09
- ------------------------------------------------------------------------------------------------------------
11/30/95 11.35 12.95 0.63 0.00 0.00 20.04
- ------------------------------------------------------------------------------------------------------------
Inception*-11/30/94 11.34 11.35 0.04 0.00 0.00 0.40+
============================================================================================================
Total $1.57 $0.00 $0.00
============================================================================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.
4
<PAGE>
==============================================================
Average Annual Total Return
==============================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
----------------------------
Class A Class B Class C
==============================================================
<S> <C> <C> <C>
Six Months Ended 5/31/97+ 1.78% 1.46% 1.43%
- --------------------------------------------------------------
Year Ended 5/31/97 8.60 7.99 7.86
- --------------------------------------------------------------
Five Years Ended 5/31/97 6.72 N/A N/A
- --------------------------------------------------------------
Inception* through 5/31/97 8.10 6.00 10.30
==============================================================
With Sales Charge(2)
----------------------------
Class A Class B Class C
==============================================================
Six Months Ended 5/31/97+ (2.28)% (3.00)% 0.43%
- --------------------------------------------------------------
Year Ended 5/31/97 4.26 3.49 6.86
- --------------------------------------------------------------
Five Years Ended 5/31/97 5.84 N/A N/A
- --------------------------------------------------------------
Inception* through 5/31/97 7.63 5.83 10.30
==============================================================
==============================================================
Cumulative Total Return
==============================================================
Without Sales Charge(1)
==============================================================
Class A (Inception* through 5/31/97) 108.76%
- --------------------------------------------------------------
Class B (Inception* through 5/31/97) 30.51
- --------------------------------------------------------------
Class C (Inception* through 5/31/97) 28.48
==============================================================
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the applicable
sales charges with respect to Class A shares or the applicable contingent
deferred sales charges ("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 4.00% and Class B shares reflect the
deduction of a 4.50% CDSC, which applies if shares are redeemed within one
year from initial purchase. This CDSC declines by 0.50% the first year after
purchase and thereafter by 1.00% per year until no CDSC is incurred. Class C
shares reflect the deduction of a 1.00% CDSC, which applies if shares are
redeemed within the first year of purchase.
* Inception dates for Class A, B and C shares are December 21, 1987, November
6, 1992 and November 10, 1994, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
5
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
GROWTH OF $10,000 INVESTED IN CLASS A SHARES OF
THE SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND VS.
LEHMAN MUNICIPAL BOND FUND INDEX AND
LIPPER MASSACHUSETTS MUNICIPAL FUND AVERAGE+
- --------------------------------------------------------------------------------
December 1987 -- May 1997
[GRAPHIC]
<TABLE>
<CAPTION>
Smith Barney Massachusetts Lehman Municipal Lipper Massachusetts
Municipals Fund Bond Fund Index Municipal Fund Average
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12/21/87 $ 9,596 $10,000 $10,000
11/88 10,772 10,904 10,969
11/89 11,787 12,106 12,011
11/90 12,368 13,038 12,722
11/91 13,799 14,376 14,083
11/92 15,187 15,818 15,528
11/93 16,970 17,571 17,341
11/94 15,431 16,649 16,105
11/95 18,629 19,797 19,081
11/96 19,682 20,959 20,045
5/31/97 20,032 20,838 19,855
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares at inception
on December 21, 1987, assuming deduction of the maximum 4.00% sales charge at
the time of investment and reinvestment of dividends and capital gains, if
any, at net asset value through May 31, 1997. The Lehman Municipal Bond Fund
Index is a broad based, total return index comprised of 8,000 actual bonds
which are all investment grade, fixed rate, long term maturities (greater than
two years) and are selected from issues larger than $50 million dated since
January 1984. The index is unmanaged and is not subject to the same management
and trading expenses as a mutual fund. The Lipper Massachusetts Municipal Fund
Average is composed of the Fund's peer group of mutual funds (50 funds as of
May 31, 1997). The performance of the Fund's other classes may be greater or
less than the Class A shares' performance indicated on this chart, depending
on whether greater or lesser sales charges and fees were incurred by
shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
values may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.
6
<PAGE>
================================================================================
Portfolio Highlights (unaudited) May 31, 1997
================================================================================
Industry Breakdown
[PIE CHART]
Water and Sewer 8.6%
Housing: Multi-Family 7.0%
Housing: Single-Family 6.6%
Hospitals 19.4%
Short-Term 0.7%
Miscellaneous 2.2%
Education 18.8%
Utilities 3.5%
Industrial Development 4.7%
Transportation 3.2%
Pollution Control 4.5%
General Obligation 20.8%
Summary of Investments by Combined Ratings
Standard & Percentage of
Moody's and/or Poor's Total Investments
- ------------------------------------------------------------------------
Aaa AAA 57.0%
Aa AA 9.9
A A 17.5
Baa BBB 10.3
Ba BB 2.1
B B 1.5
VMIG 1 A-1 0.7
NR NR 1.0
-----
100.0%
=====
7
<PAGE>
================================================================================
Schedule of Investments (unaudited) May 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
===================================================================================================
<S> <C> <C> <C>
Education -- 18.8%
Boston Financing Authority, IDR, College of Pharmacy,
Project A, CONNIE LEE-Insured:
$ 750,000 AAA 5.250% due 10/1/14 $ 715,313
1,000,000 AAA 5.250% due 10/1/26 926,250
1,425,000 AAA Chelsea (School Project), AMBAC-Insured,
6.000% due 6/15/14 1,485,563
175,000 A Massachusetts Educational Loan Authority, Issue D,
Series A, 7.650% due 1/1/07 (a) 183,094
Massachusetts State Health & Educational Facilities
Authority Revenue:
430,000 AAA Community College Program, Series A,
CONNIE LEE-Insured, 6.600% due 10/1/22 442,900
400,000 AAA Lowell General Hospital, Series B, FSA-Insured,
5.250% due 6/1/16 377,500
1,000,000 AAA Series G, MBIA-Insured, 5.375% due 7/1/24 955,000
Suffolk University, Series B, CONNIE LEE-Insured:
200,000 AAA 6.250% due 7/1/12 206,250
1,850,000 AAA 6.350% due 7/1/22 1,898,563
Youville House, FHA-Insured, Project A:
500,000 Aa2* 5.950% due 2/15/17 506,250
750,000 Aa2* 6.050% due 2/15/29 759,375
Massachusetts State Industrial Finance Agency Revenue:
1,000,000 AAA Assumption College Issue, MBIA-Insured,
6.000% due 7/1/26 1,008,750
750,000 A* Clark University, Series E, 7.000% due 7/1/12 803,438
500,000 AAA Southeastern Massachusetts University, Series A,
AMBAC-Insured, 5.900% due 5/1/12 516,250
- ---------------------------------------------------------------------------------------------------
10,784,496
- ---------------------------------------------------------------------------------------------------
General Obligation -- 20.8%
700,000 AAA Boston GO, Series A, AMBAC-Insured, 6.500% due 7/1/12 752,500
250,000 A- Brockton Utility GO, 6.125% due 6/15/18 255,625
250,000 AAA Groveland GO, AMBAC-Insured, 6.850% due 6/15/06 273,125
1,000,000 AAA Haverhill Revenue Bonds, Series A, AMBAC-Insured,
6.700% due 9/1/10 1,073,750
500,000 AAA Holyoke GO, Series B, FSA-Insured, 6.125% due 8/1/13 525,000
Lowell GO, AMBAC-Insured:
500,000 AAA 6.000% due 8/1/13 519,375
500,000 AAA 6.000% due 8/1/14 517,500
1,000,000 AAA 5.500% due 12/15/15 982,500
250,000 AAA Mansfield GO, AMBAC-Insured, 6.700% due 1/15/11 270,000
500,000 AAA Massachusetts State Health & Educational Facilities
Authority Revenue, Capital Asset Program, Series F,
MBIA-Insured, 7.300% due 10/1/18 547,500
610,000 AAA New Bedford Municipal Purpose Loan, FSA-Insured,
5.625% due 10/1/16 607,713
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) May 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
===================================================================================================
<S> <C> <C> <C>
General Obligation -- 20.8% (continued)
$ 250,000 AAA North Reading GO, MBIA-Insured, 6.875% due 6/15/07 $ 270,931
1,000,000 AAA Northhampton GO, MBIA-Insured, 5.750% due 5/15/16 1,011,250
795,000 A- Plymouth County GO, COP, Series A, 6.750% due 10/1/04 868,538
200,000 A Puerto Rico Commonwealth GO, 8.000% due 7/1/08 210,872
500,000 AAA Revere Municipal Purpose Loan, FSA-Insured,
6.125% due 6/15/13 521,875
500,000 AAA Salem GO, AMBAC-Insured, 6.800% due 8/15/10 547,500
1,570,000 AAA Uxbridge Municipal Purpose Loan, MBIA-Insured,
5.400% due 11/15/16 1,538,600
Virgin Islands Public Finance Authority Revenue, Series A:
15,000 AAA Escrowed to Maturity with U.S. Government
Securities, 7.300% due 10/1/18 (b) 18,356
110,000 AAA Pre-refunded--Escrowed with U.S. Government
Securities to 10/1/00, Call @ 101, 7.300% due 10/1/18 (b) 121,000
485,000 AAA Webster GO, AMBAC-Insured, 6.700% due 9/1/10 520,163
- ---------------------------------------------------------------------------------------------------
11,953,673
- ---------------------------------------------------------------------------------------------------
Hospitals -- 19.4%
Massachusetts State Health & Educational Facilities
Authority Revenue:
750,000 A* Addison Gilbert Hospital, Series C,
5.750% due 7/1/23 728,438
250,000 A Beth Israel Hospital, Series E, 7.000% due 7/1/14 263,125
1,000,000 A Brockton Hospital, Series B, 8.100% due 7/1/13 1,021,970
750,000 Ba1* Central New England Health Systems, Series A,
6.300% due 8/1/18 713,438
1,000,000 BBB+ Faulkner Hospital, Series C, 6.000% due 7/1/13 995,000
1,000,000 AAA Massachusetts General Hospital, Series F,
AMBAC-Insured, 6.250% due 7/1/20 1,023,750
500,000 A- Melrose-Wakefield Healthcare, Series C,
6.000% due 7/1/12 504,375
Morton Hospital & Medical Center, Series B,
CONNIE LEE-Insured:
1,500,000 AAA 5.250% due 7/1/14 1,428,750
500,000 AAA 5.500% due 7/1/23 470,625
1,000,000 AAA Regular Linked Stars & Cars, AMBAC-Insured,
6.550% due 6/23/22 1,070,000
1,000,000 B1* Saints Memorial Medical Center, Series A,
6.000% due 10/1/23 886,250
750,000 AAA South Shore Hospital, Series E, MBIA-Insured,
5.500% due 7/1/20 725,625
700,000 AAA Valley Regional Health System, Series C, CONNIE LEE-
Insured, 7.000% due 7/1/06 804,125
500,000 AAA Winchester Hospital, Series D, CONNIE LEE-Insured,
5.750% due 7/1/14 500,000
- ---------------------------------------------------------------------------------------------------
11,135,471
- ---------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) May 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
===================================================================================================
<S> <C> <C> <C>
Housing: Multi-Family -- 7.0%
$1,000,000 AAA Framingham Housing Authority Mortgage Revenue, Beaver
Terrace Apartments, Series A, GNMA-Collateralized,
6.650% due 2/20/32 $1,023,750
Massachusetts State HFA:
1,120,000 A+ Housing Project, Series A, 6.375% due 4/1/21 1,156,400
1,000,000 AAA Rental Mortgage, Series E, AMBAC-Insured,
6.000% due 7/1/37 (a) 987,500
795,000 BBB Puerto Rico Commonwealth, Urban Renewal & Housing Corp.
Refunding Bonds, 7.875% due 10/1/04 860,588
- ---------------------------------------------------------------------------------------------------
4,028,238
- ---------------------------------------------------------------------------------------------------
Housing: Single-Family -- 6.6%
Massachusetts State HFA, Housing Revenue,
Single-Family Housing:
100,000 Aa* Series 5, 8.375% due 6/1/15 102,648
945,000 AAA Series 14, FHA-Insured, 7.700% due 12/1/14 985,163
600,000 Aa* Series 18, 7.350% due 12/1/16 633,750
1,000,000 Aa* Series 31, 6.450% due 12/1/16 (c) 1,031,250
1,000,000 Aa* Series 38, 7.200% due 12/1/26 (a) 1,061,250
- ---------------------------------------------------------------------------------------------------
3,814,061
- ---------------------------------------------------------------------------------------------------
Industrial Development -- 4.7%
Massachusetts State Industrial Finance Agency, Resource
Recovery Revenue, Series A:
250,000 Baa1* Refusetech Inc. Project, 6.300% due 7/1/05 261,875
500,000 NR S.E. Massachusetts Project, 9.000% due 7/1/15 (c) 563,750
1,900,000 AAA Massachusetts State Port Authority Revenue, (U.S. Air Project),
Series A, MBIA-Insured, 5.875% due 9/1/23 1,883,375
- ---------------------------------------------------------------------------------------------------
2,709,000
- ---------------------------------------------------------------------------------------------------
Miscellaneous -- 2.2%
500,000 A+ Massachusetts State Convention Center Authority, Boston
Common Parking Garage, Series A, 5.375% due 9/1/13 481,250
250,000 AAA Massachusetts State Industrial Finance Agency Revenue,
Concord Academy, FSA-Insured, 6.900% due 9/1/21 270,625
500,000 BB+ Puerto Rico Port Authority Revenue, Special Facilities,
American Airlines, Series A, 6.300% due 6/1/23 (a) 508,750
- ---------------------------------------------------------------------------------------------------
1,260,625
- ---------------------------------------------------------------------------------------------------
Pollution Control -- 4.5%
1,000,000 Baa2* Massachusetts State Industrial Finance Agency,
PCR, (Eastern Edison Co. Project), Series E,
5.875% due 8/1/08 983,750
1,500,000 Aa* Massachusetts State Water Pollution, Series A,
6.375% due 2/1/15 1,580,625
30,000 A1* Springfield Industrial Development Finance Authority, PCR,
(Monsanto Co. Project), 9.100% due 11/1/04 33,038
- ---------------------------------------------------------------------------------------------------
2,597,413
- ---------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) May 31, 1997
================================================================================
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
===================================================================================================
<S> <C> <C> <C>
Short-Term (d) -- 0.7%
$ 200,000 VMIG1* Massachusetts State Health & Educational Facilities Authority
Revenue, (Capital Assets Program), Series D,
MBIA-Insured, 4.000% due 1/1/35 $ 200,000
200,000 VMIG1* Massachusetts State Updates GO, Series B,
4.000% due 12/1/97 200,000
- ---------------------------------------------------------------------------------------------------
400,000
- ---------------------------------------------------------------------------------------------------
Transportation -- 3.2%
750,000 BBB Guam Airport Authority Revenue, Series A,
6.500% due 10/1/23 775,313
1,065,000 A+ Massachusetts Bay Transportation Authority, Series C,
6.100% due 3/1/23 1,091,625
- ---------------------------------------------------------------------------------------------------
1,866,938
- ---------------------------------------------------------------------------------------------------
Utilities -- 3.5%
2,000,000 BBB+ Massachusetts Municipal Wholesale Electric Co.,
Power Supply Revenue, Series D, 6.125% due 7/1/19 2,027,500
- ---------------------------------------------------------------------------------------------------
Water & Sewer -- 8.6%
Massachusetts State Water Resource Authority:
1,000,000 AAA Series A, FGIC-Insured, 5.500% due 11/1/21 978,750
Series B:
1,420,000 A 6.250% due 11/1/10 1,501,650
1,000,000 A 5.500% due 3/1/17 978,750
1,000,000 AAA MBIA-Insured, 5.500% due 3/1/17 976,250
500,000 AAA South Essex Sewer District, Series B, MBIA-Insured,
5.250% due 6/15/24 475,000
- ---------------------------------------------------------------------------------------------------
4,910,400
- ---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $56,050,132**) $57,487,815
===================================================================================================
</TABLE>
(a) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Pre-refunded bond escrowed by U.S. government securities and bond escrowed
to maturity by U.S. government securities are considered by the investment
adviser to be triple-A rated even if the issuer has not applied for new
ratings.
(c) Security segregated by Custodian for open purchase commitment.
(d) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 12 and 13 for definitions of ratings and certain security
descriptions.
See Notes to Financial Statements.
11
<PAGE>
================================================================================
Bond Ratings
================================================================================
All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's"),
except those identified by an asterisk (*) are rated by Moody's Investors
Service, Inc. ("Moody's"). The definitions of the applicable rating symbols are
set forth below:
Standard & Poor's -- Ratings from "AA" to "B" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standings within the major rating
categories.
<TABLE>
<S> <C>
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differs from the highest rated issue only in a
small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
bonds in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet
timely interest and principal payments.
B -- Bonds rated "B" have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
payments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.
Moody's -- Numerical modifiers 1, 2 and 3 may be applied to each generic
rating from "Aa" to "Ba," where 1 is the highest and 3 the lowest ranking within
its generic category.
Aaa -- Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa -- Bonds that are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba -- Bonds that are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
</TABLE>
12
<PAGE>
================================================================================
Short-Term Security Ratings
================================================================================
SP-1 -- Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to
possess overwhelming safety characteristics are denoted with a plus
(+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong;
those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to
the advent of the VMIG 1 rating.
================================================================================
Security Descriptions
================================================================================
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance
CONNIE LEE -- College Construction Loan Insurance Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
ETM -- Escrowed To Maturity
FLAIRS -- Floating Adjustable Interest Rate Securities
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Federal Security Assurance
GNMA -- Government National
Mortgage Association
GIC -- Guaranteed Investment Contract
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters Company
ISD -- Independent School District
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate lnverse Coupon Security
PCR -- Pollution Control Revenue
PSF -- Permanent School Fund
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
TAN -- Tax Anticipation Notes
TECP -- Tax-Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
SYCC -- Structured Yield Curve Certificate
GNMA -- Government National Mortgage Association
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
13
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) May 31, 1997
================================================================================
ASSETS:
Investments, at value (Cost -- $56,050,132) $57,487,815
Cash 33,479
Interest receivable 1,104,402
Receivable for Fund shares sold 93,112
- -------------------------------------------------------------------------------
Total Assets 58,718,808
- -------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 242,341
Investment advisory fees payable 9,835
Administration fees payable 5,966
Distribution fees payable 5,732
Accrued expenses 78,474
- -------------------------------------------------------------------------------
Total Liabilities 342,348
- -------------------------------------------------------------------------------
Total Net Assets $58,376,460
===============================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 4,534
Capital paid in excess of par value 57,048,599
Undistributed net investment income 19,219
Accumulated net realized loss on security transactions (133,575)
Net unrealized appreciation of investments 1,437,683
- -------------------------------------------------------------------------------
Total Net Assets $58,376,460
===============================================================================
Shares Outstanding:
Class A 2,351,445
-----------------------------------------------------------------------------
Class B 2,157,660
-----------------------------------------------------------------------------
Class C 25,153
-----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $12.88
-----------------------------------------------------------------------------
Class B* $12.87
-----------------------------------------------------------------------------
Class C** $12.86
-----------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.17% of net asset value per share) $13.42
===============================================================================
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed within one year from initial purchase (See Note 4).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
14
<PAGE>
================================================================================
Statement of Operations (unaudited)
================================================================================
For the Six Months Ended May 31, 1997
INVESTMENT INCOME:
Interest $1,759,119
- -------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 4) 114,474
Investment advisory fees (Note 4) 87,481
Administration fees (Note 4) 58,321
Audit and legal 20,100
Shareholder and system servicing fees 15,323
Shareholder communications 15,000
Registration fees 8,500
Trustees' fees 7,000
Pricing service fees 5,400
Custody 1,650
Other 1,800
- -------------------------------------------------------------------------------
Total Expenses 335,049
Less: Investment advisory and administration fee waiver (Note 4) (30,522)
- -------------------------------------------------------------------------------
Net Expenses 304,527
- -------------------------------------------------------------------------------
Net Investment Income 1,454,592
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 5):
Net Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 8,198,657
Cost of securities sold 8,075,239
- -------------------------------------------------------------------------------
Net Realized Gain 123,418
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 2,092,347
End of period 1,437,683
- -------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (654,664)
- -------------------------------------------------------------------------------
Net Loss on Investments (531,246)
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 923,346
===============================================================================
See Notes to Financial Statements.
15
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended May 31, 1997 (unaudited)
and the Year Ended November 30, 1996
<TABLE>
<CAPTION>
1997 1996
=============================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,454,592 $ 2,877,527
Net realized gain 123,418 334,288
Decrease in net unrealized appreciation (654,664) (190,582)
- -----------------------------------------------------------------------------
Increase in Net Assets From Operations 923,346 3,021,233
- -----------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE 3):
Net investment income (1,458,875) (2,854,025)
- -----------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,458,875) (2,854,025)
- -----------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 2,919,922 7,320,630
Net asset value of shares issued
for reinvestment of dividends 703,981 1,741,106
Cost of shares reacquired (3,874,401) (8,097,290)
- -----------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Fund Share Transactions (250,498) 964,446
- -----------------------------------------------------------------------------
Increase (Decrease) in Net Assets (786,027) 1,131,654
NET ASSETS:
Beginning of period 59,162,487 58,030,833
- -----------------------------------------------------------------------------
End of period* $58,376,460 $59,162,487
=============================================================================
* Includes undistributed net investment income of: $ 19,219 $ 23,502
=============================================================================
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
Smith Barney Massachusetts Municipals Fund ("Fund"), a Massachusetts
business trust, is registered under the Investment Company Act of 1940, as
amended, as a non-diversified, open-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between the quoted bid and ask prices by an independent
pricing service; (c) securities maturing within 60 days are valued at cost plus
accreted discount or minus amortized premium, which approximates value; (d)
gains or losses on the sale of securities are calculated by using the specific
identification method; (e) interest income, adjusted for amortization of premium
and accretion of original issue discount, is recorded on an accrual basis;
market discount is recognized upon the disposition of the security; (f) direct
expenses are charged to each class; management fees and general fund expenses
are allocated on the basis of relative net assets; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) the Fund
intends to comply with the applicable provisions of the Internal Revenue Code of
1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; and (i) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. Fund Concentration
Since the Fund invests primarily in obligations of issuers within the
Commonwealth of Massachusetts, it is subject to possible concentration risks
associated with economic, political or legal developments or industrial or
regional matters specifically affecting Massachusetts.
3. Exempt-Interest Dividends and Other Distributions
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax, to retain
such tax-exempt status when distributed to the shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
17
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
4. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment adviser to the Fund. The Fund
pays SBMFM a fee calculated at an annual rate of 0.30% of its average daily net
assets. This fee is calculated daily and paid monthly. For the six months ended
May 31, 1997, the Fund waived $18,313 of its investment advisory fees.
SBMFM also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets up to $500
million and 0.18% of the average daily net assets in excess of $500 million.
This fee is calculated daily and paid monthly. For the six months ended May 31,
1997, the Fund waived $12,209 of its administration fees.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
the Fund's shares. For the six months ended May 31, 1997, SB received sales
charges of approximately $28,000 on sales of the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B
shares, which applies if redemption occurs less than one year from initial
purchase. This CDSC declines by 0.50% the first year after purchase and
thereafter by 1.00% per year until no CDSC is incurred. Class C shares have a
1.00% CDSC, which applies if redemption occurs within the first year of
purchase. For the six months ended May 31, 1997, CDSCs paid to SB for Class B
shares were approximately $30,000.
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
its Class A, B and C shares calculated at an annual rate of 0.15% of the average
daily net assets of each respective class. In addition, the Fund pays a
distribution fee with respect to its Class B and C shares calculated at an
annual rates of 0.50% and 0.55%, respectively, of the average daily net assets
of each class, respectively. For the six months ended May 31, 1997, total
Distribution Plan fees incurred were:
Class A Class B Class C
===============================================================================
Distribution Plan Fees $22,541 $90,962 $971
===============================================================================
All officers and one Trustee of the Fund are employees of SB.
18
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
5. Investments
For the six months ended May 31, 1997, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
===============================================================================
Purchases $7,953,826
- -------------------------------------------------------------------------------
Sales 8,198,657
===============================================================================
At May 31, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
===============================================================================
Gross unrealized appreciation $1,769,844
- -------------------------------------------------------------------------------
Gross unrealized depreciation (332,161)
- -------------------------------------------------------------------------------
Net unrealized appreciation $1,437,683
===============================================================================
6. Capital Loss Carryforwards
At November 30, 1996, the Fund had, for Federal income tax purposes,
approximately $257,000 of capital loss carryforwards available to offset future
capital gains. To the extent that these carryforward losses are used to offset
capital gains, it is probable that the gains so offset will not be distributed.
The amount and expiration of the carryforwards are indicated below.
Expiration occurs on November 30 of the year indicated:
2002 2003
===============================================================================
Carryforward Amounts $112,000 $145,000
===============================================================================
7. Shares of Beneficial Interest
As of May 31, 1997, the Fund had an unlimited number of shares of beneficial
interest authorized with a par value of $0.001 per share. The Fund has
the ability to issue multiple classes of shares. Each share of a class
represents an identical interest and has the same rights, except that each class
bears certain direct expenses, including those specifically related to the
distribution of its shares.
At May 31, 1997, total paid-in capital amounted to the following for each
class:
Class A Class B Class C
===============================================================================
Total Paid-in Capital $28,770,132 $27,967,826 $315,175
===============================================================================
19
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
May 31, 1997 November 30, 1996
------------------- --------------------
Shares Amount Shares Amount
===================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 121,606 $ 1,566,967 317,805 $ 4,035,583
Shares issued on reinvestment 28,706 367,672 71,804 914,776
Shares redeemed (115,938) (1,488,083) (322,075) (4,102,582)
- -----------------------------------------------------------------------------------
Net Increase 34,374 $ 446,556 67,534 $ 847,777
===================================================================================
Class B
Shares sold 90,317 $ 1,158,305 244,909 $ 3,128,220
Shares issued on reinvestment 25,860 331,024 64,621 823,030
Shares redeemed (181,544) (2,332,012) (303,544) (3,868,914)
- -----------------------------------------------------------------------------------
Net Increase (Decrease) (65,367) $ (842,683) 5,986 $ 82,336
===================================================================================
Class C
Shares sold 15,109 $ 194,650 12,355 $ 156,827
Shares issued on reinvestment 414 5,285 260 3,300
Shares redeemed (4,197) (54,306) (10,031) (125,794)
- -----------------------------------------------------------------------------------
Net Increase 11,326 $ 145,629 2,584 $ 34,333
===================================================================================
</TABLE>
20
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares 1997(1) 1996 1995 1994 1993(2) 1992
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 12.99 $ 12.96 $ 11.35 $ 13.26 $ 12.63 $ 12.28
- -------------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income (3) 0.34 0.68 0.69 0.70 0.72 0.77
Net realized and unrealized
gain (loss) (0.11) 0.02 1.61 (1.85) 0.72 0.43
- -------------------------------------------------------------------------------------------------------
Total Income (Loss) From
Operations 0.23 0.70 2.30 (1.15) 1.44 1.20
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.34) (0.67) (0.69) (0.70) (0.74) (0.77)
Net realized gains -- -- -- (0.06) (0.07) (0.04)
Capital -- -- -- -- -- (0.04)
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.67) (0.69) (0.76) (0.81) (0.85)
- -------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 12.88 $ 12.99 $ 12.96 $ 11.35 $ 13.26 $ 12.63
- -------------------------------------------------------------------------------------------------------
Total Return 1.78%++ 5.65% 20.73% (9.07)% 11.74% 10.06%
- -------------------------------------------------------------------------------------------------------
Net Assets, End of
Period (000s) $ 30,282 $30,109 $29,159 $27,634 $32,592 $27,354
- -------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses (3) 0.80%+ 0.80% 0.83% 0.81% 0.82% 0.71%
Net investment income 5.24+ 5.32 5.42 5.55 5.49 6.12
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 14% 23% 10% 37% 10% 73%
=======================================================================================================
</TABLE>
(1) For the six months ended May 31, 1997 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) The investment adviser waived all or part of its fees for the six months
ended May 31, 1997 and the five years ended November 30, 1996. If such fees
were not waived, the per share effect on net investment income and the
expense ratios would have been as follows:
<TABLE>
<CAPTION>
Per Share Decreases Expense Ratios
to Net Investment Income Without Fee Waivers
--------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1997 1996 1995 1994 1993 1992
----- ----- ----- ----- ----- ----- ----- ---- ---- ---- ---- ----
Class A $0.01 $0.01 $0.03 $0.04 $0.05 $0.08 0.90%+ 0.91% 1.07% 1.09% 1.18% 1.32%
</TABLE>
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
21
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares 1997(1) 1996 1995 1994 1993(2) 1992(3)
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $12.99 $12.96 $11.35 $13.26 $12.63 $12.52
- --------------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income (4) 0.30 0.61 0.63 0.63 0.66 0.06
Net realized and unrealized
gain (loss) (0.12) 0.03 1.61 (1.84) 0.72 0.10
- --------------------------------------------------------------------------------------------------------
Total Income (Loss) From
Operations 0.18 0.64 2.24 (1.21) 1.38 0.16
- --------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.30) (0.61) (0.63) (0.64) (0.68) (0.05)
Net realized gains -- -- -- (0.06) (0.07) --
- --------------------------------------------------------------------------------------------------------
Total Distributions (0.30) (0.61) (0.63) (0.70) (0.75) (0.05)
- --------------------------------------------------------------------------------------------------------
Net Asset Value, End
of Period $12.87 $12.99 $12.96 $11.35 $13.26 $12.63
- --------------------------------------------------------------------------------------------------------
Total Return 1.46%++ 5.14% 20.15% (9.50)% 11.09% 1.29%++
- --------------------------------------------------------------------------------------------------------
Net Assets, End
of Period (000s) $27,771 $28,874 $28,726 $23,279 $22,317 $2,938
- --------------------------------------------------------------------------------------------------------
Ratios to Average Net
Assets:
Expenses (4) 1.31%+ 1.31% 1.35% 1.32% 1.31% 1.34%+
Net investment income 4.73+ 4.81 4.94 5.04 4.99 5.49+
- --------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 14% 23% 10% 37% 10% 73%
========================================================================================================
</TABLE>
(1) For the six months ended May 31, 1997 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from November 6, 1992 (inception date) to November 30, 1992.
(4) The investment adviser has waived all or part of its fees for the six
months ended May 31, 1997, the four years ended November 30, 1996 and the
period ended November 30, 1992. If such fees were not waived, the per share
effect on net investment income and the expense ratios would have been as
follows:
<TABLE>
<CAPTION>
Per Share Decreases Expense Ratios
to Net Investment Income Without Fee Waivers
------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992 1997 1996 1995 1994 1993 1992
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Class B $0.01 $0.01 $0.04 $0.03 $0.05 $0.01 1.40%+ 1.42% 1.59% 1.60% 1.68% 1.94%
</TABLE>
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
22
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class C Shares 1997(1) 1996 1995 1994(2)
========================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.98 $12.95 $11.35 $ 11.34
- ---------------------------------------------------------------------------------------
Income From Operations:
Net investment income (3) 0.30 0.60 0.63 0.05
Net realized and unrealized gain (loss) (0.12) 0.03 1.60 --
- ---------------------------------------------------------------------------------------
Total Income From Operations 0.18 0.63 2.23 0.05
- ---------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.30) (0.60) (0.63) (0.04)
- ---------------------------------------------------------------------------------------
Total Distributions (0.30) (0.60) (0.63) (0.04)
- ---------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.86 $12.98 $12.95 $ 11.35
- ---------------------------------------------------------------------------------------
Total Return 1.43%++ 5.09% 20.04% 0.40%++
- ---------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 323 $ 179 $ 146 $ 75
- ---------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3) 1.34%+ 1.34% 1.35% 1.36%+
Net investment income 4.70+ 4.77 4.65 5.00+
- ---------------------------------------------------------------------------------------
Portfolio Turnover Rate 14% 23% 10% 37%
=======================================================================================
</TABLE>
(1) For the six months ended May 31, 1997 (unaudited).
(2) For the period from November 10, 1994 (inception date) to November 30,
1994.
(3) The investment adviser has waived all or part of its fees for the six
months ended May 31, 1997, the two years ended November 30, 1996 and the
period ended November 30, 1994. If such fees were not waived, the per share
effect on net investment income and the expense ratios would have been as
follows:
<TABLE>
<CAPTION>
Per Share Decreases Expense Ratios
to Net Investment Income Without Fee Waivers
-------------------------------- -------------------------
1997 1996 1995 1994 1997 1996 1995 1994
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class C $0.01 $0.01 $0.04 $0.00* 1.44%+ 1.44% 1.58% 1.63%+
</TABLE>
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
23
<PAGE>
[This page intentionally left blank]
<PAGE>
SMITH BARNEY
MASSACHUSETTS
MUNICIPALS
FUND
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, Chairman
Cornelius C. Rose, Jr.
James J. Crisona, Emeritus
Officers
Heath B. McLendon
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Lawrence T. McDermott
Vice President and
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- ---------------------------------
A Member of TravelersGroup [LOGO]
Investment Adviser
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank, N.A.
Shareholder
Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
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 current
Prospectus for the Fund, which contains information concerning the Fund's
investment policies and expenses as well as other pertinent information.
SMITH BARNEY MASSACHUSETTS
MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013
FD2227 7/97
