<PAGE>
[LOGO]
Smith Barney
Massachusetts
Municipals Fund
------------------
SEMI-ANNUAL REPORT
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May 31, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(SM)
<PAGE>
[PHOTO] [PHOTO]
HEATH B. LAWRENCE T.
MCLENDON MCDERMOTT
Chairman Vice President and
Investment Officer
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, 1998. 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.
Performance Update
For the six months ended May 31, 1998, the Class A shares of the Fund posted a
total return of 3.81% outperforming the average for Massachusetts tax-exempt
funds according to Lipper Analytical Services, Inc. of 3.03% for the same
period. (Lipper is a major independent fund-tracking organization.) For
performance information on the Fund's other share classes, please refer to page
four.
During the six months covered by this report, the Fund distributed income
dividends totaling $0.33 and a capital gain distribution of $0.0113 per Class A
share. Based on its net asset value ("NAV") of $13.34 as of May 31, 1998 and
current monthly income dividend rate of $0.054 per share, this equates to an
annualized distribution rate of 4.86%. For a Massachusetts state resident in the
combined federal and state tax bracket of 43.68%, the tax-free yield of 4.86% is
equivalent to a taxable yield of 8.63%. (This figure assumes an investor is in
the federal income tax bracket of 36%.)
Market and Economic Overview
Interest rates continued to decline overall during the course of the reporting
period. However, the bond markets did experience volatility as investors
responded to a conflicting combination of low inflation and falling
unemployment. The Federal Reserve Board ("Fed") last raised the federal-funds
rate by 0.25% in March 1997, but has since chosen to remain on the sidelines.
(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.) However, the persistent strength of the U.S. economy heightened fears
among many investors that the Fed would raise short-term interest rates.
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Smith Barney Massachusetts Municipals Fund 1
<PAGE>
Since the end of October, the dominant theme in the financial markets has been
the Asian financial crisis and the extent of the impact it will have on the U.S.
economy. Moreover, we expect at least a modest dampening effect on growth in the
first part of the year with inflation continuing to trend lower in spite of wage
pressures resulting from an extremely tight labor market.
Since Asia's problems surfaced last summer, many investors have gravitated to
"safe" investments such as U.S. Treasurys. Foreign investors, who have nothing
to gain by investing in municipal bonds, have been big buyers of U.S. Treasury
notes and bonds lately.
Massachusetts Economic Highlights
At the end of April 1998, Moody's Investor Services, Inc. upgraded the general
obligation bonds of the Commonwealth of Massachusetts because of the State's
well-established track record of strong fiscal controls as well as the budget's
surplus. Within the Fund, we have continued to emphasize select healthcare and
education issues because we believed they represented good values during the
reporting period.
We expect these fiscal conditions to continue which have resulted in historic
budget surplus reserve levels. In addition, the recent credit quality upgrade of
Massachusetts general obligation debt reflects the State's high levels of
affluence and the fact that its diverse economy is growing more rapidly than the
rest of the Northeast.
Investment Strategy
The Fund's investment strategy continues to seek to provide Massachusetts
investors with as high a level of dividend income exempt from federal income
taxes and Massachusetts state personal income taxes as is consistent with
prudent investment management and the preservation of capital. In addition, we
strive to maintain a high-quality portfolio. As of May 31, 1998, over 94% of the
Fund's holdings were rated investment grade or better, of which approximately
53% were rated triple-A by either Standard & Poor's Ratings Service or Moody's
Investors Service Inc. (Investment-grade bonds are those rated in one of the
four highest ratings categories by any nationally recognized statistical rating
organization, or determined by the manager to be of equivalent quality.) At the
end of the reporting period, the Fund's average weighted maturity was roughly 22
years. In addition, as of May 31, 1998, the top three sectors of the Fund's
portfolio of investments consisted of general obligation bonds (21.4%), hospital
bonds (21.2%) and transportation bonds (14.2%).
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2 1998 Semi-Annual Report to Shareholders
<PAGE>
Municipal Bond Market Outlook
Municipal bond issuance in 1997 was the second largest in history and the
market's ability to absorb these securities was an indication of the healthy
investor appetite for tax-free investments. Insurance companies were among the
largest buyers of these bonds, but we believe that more and more individual
investors are beginning to recognize the attractive investment opportunities
that exist in tax-free municipal bonds. Moreover, a heavy supply of bond issues
usually depresses prices, which provide us a favorable opportunity to purchase
longer-term bonds and enhance the call protection and the relative performance
of our funds. In addition, municipal credits have improved, benefiting from the
strong economy and low inflation.
Going forward, we remain positive on the prospects for the municipal bond
market. We expect a moderately expanding U.S. economy with the Fed maintaining
its vigilance against higher inflationary pressure. However, as previously
noted, we think that inflation should remain subdued despite rising wage
pressures from a tight U.S. labor market. Therefore, our outlook for municipal
bonds over the next six months remains optimistic.
In closing, thank you for your investment in the Smith Barney Massachusetts
Municipals Fund. We look forward to helping you pursue 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 24, 1998
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Smith Barney Massachusetts Municipals Fund 3
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Historical Performance -- Class A Shares
===========================================================================================================
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>
5/31/98 $13.18 $13.34 $0.33 $0.01 $0.00 3.81%+
- -----------------------------------------------------------------------------------------------------------
11/30/97 12.99 13.18 0.67 0.12 0.00 7.85
- -----------------------------------------------------------------------------------------------------------
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 $7.94 $0.38 $0.05
===========================================================================================================
<CAPTION>
===========================================================================================================
Historical Performance -- Class B Shares
===========================================================================================================
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>
5/31/98 $13.17 $13.33 $0.29 $0.01 $0.00 3.55%+
- -----------------------------------------------------------------------------------------------------------
11/30/97 12.99 13.17 0.61 0.12 0.00 7.25
- -----------------------------------------------------------------------------------------------------------
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 $3.51 $0.26 $0.00
===========================================================================================================
<CAPTION>
===========================================================================================================
Historical Performance -- Class C Shares
===========================================================================================================
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>
5/31/98 $13.16 $13.32 $0.29 $0.01 $0.00 3.54%+
- -----------------------------------------------------------------------------------------------------------
11/30/97 12.98 13.16 0.60 0.12 0.00 7.21
- -----------------------------------------------------------------------------------------------------------
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 $2.16 $0.13 $0.00
===========================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
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4 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Average Annual Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
----------------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Six Months Ended 5/31/98+ 3.81% 3.55% 3.54%
- --------------------------------------------------------------------------------
Year Ended 5/31/98 9.99 9.47 9.43
- --------------------------------------------------------------------------------
Five Years Ended 5/31/98 6.21 5.66 N/A
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Ten Years Ended 5/31/98 8.11 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 5/31/98 8.28 6.62 10.06
================================================================================
<CAPTION>
With Sales Charge(2)
----------------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Six Months Ended 5/31/98+ (0.35)% (0.95)% 2.54%
- --------------------------------------------------------------------------------
Year Ended 5/31/98 5.57 4.97 8.43
Five Years Ended 5/31/98 5.34 5.50 N/A
Ten Years Ended 5/31/98 7.68 N/A N/A
Inception* through 5/31/98 7.85 6.62 10.06
================================================================================
</TABLE>
================================================================================
Cumulative Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (5/31/88 through 5/31/98) 118.17%
- --------------------------------------------------------------------------------
Class B (Inception* through 5/31/98) 42.86
- --------------------------------------------------------------------------------
Class C (Inception* through 5/31/98) 40.60
================================================================================
</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 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.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B and C shares are December 21, 1987, November
6, 1992 and November 10, 1994, respectively.
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Smith Barney Massachusetts Municipals Fund 5
<PAGE>
================================================================================
Historical Performance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A Shares of
the Smith Barney Massachusetts Municipals Fund vs.
Lehman Brothers Municipal Bond Index and
Lipper Massachusetts Municipal Fund Average+
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May 1988 -- May 1998
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Smith Barney Massachusetts Lehman Brothers Lipper Massachusetts
Municipals Fund Municipal Bond Index Municipal Fund Average
--------------- -------------------- ----------------------
<S> <C> <C> <C>
5/88 $10,100 $10,000 $10,000
11/88 $10,243 $10,493 $10,568
11/89 $11,208 $11,649 $11,572
11/90 $11,760 $12,547 $12,257
11/91 $13,121 $13,834 $13,569
11/92 $14,441 $15,221 $14,961
11/93 $16,136 $16,908 $16,708
11/94 $14,673 $16,021 $15,517
11/95 $17,714 $19,050 $18,384
11/96 $18,715 $20,169 $19,305
11/97 $20,184 $21,615 $20,576
5/98 $20,952 $22,782 $21,200
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class A shares at May 31,
1988, 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, 1998. The Lehman Brothers Municipal Bond Index
is a broad based, total return index comprised of investment grade, fixed
rate municipal bonds selected from issues larger than $50 million issued
since January 1991. 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, 1998). 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 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Portfolio Highlights (unaudited) May 31, 1998
================================================================================
Industry Breakdown
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<S> <C>
Pollution Control 2.6%
General Obligation 21.4%
Water & Sewer 4.2%
Housing: Multi-Family 3.5%
Housing: Single-Family 6.2%
Hospitals 21.2%
Miscellaneous 2.4%
Life Care Systems 5.7%
Education 10.5%
Utilities 5.2%
Industrial Development 2.9%
Transportation 14.2%
</TABLE>
Summary of Investments by Combined Ratings
<TABLE>
<CAPTION>
Standard & Percentage of
Moody's and/or Poor's Total Investments
- --------------------------------------------------------------------------------
<S> <C> <C>
Aaa AAA 53.0%
Aa AA 16.5
A A 10.7
Baa BBB 13.4
Ba BB 1.2
B B 1.9
VMIG 1 A-1 0.8
NR NR 2.5
-----
100.0%
=====
</TABLE>
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Smith Barney Massachusetts Municipals Fund 7
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) May 31, 1998
===========================================================================================================
FACE
AMOUNT RATINGS SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- 100%
Education -- 10.5%
$ 155,000 A Massachusetts Educational Loan Authority, Issue D,
Series A, 7.650% due 1/1/07(a) $ 160,106
1,500,000 AAA Massachusetts State Health & Educational Facilities
Authority Revenue, Northeastern University, Series G,
5.000% due 10/1/28 1,460,625
Massachusetts State Industrial Finance Agency Revenue:
1,000,000 AAA Assumption College Issue, CONNIE LEE-Insured,
6.000% due 7/1/26 1,076,250
750,000 A- Clark University, Series E, 7.000% due 7/1/12 813,750
500,000 Baa1* Concord Academy, 5.450% due 9/1/17 504,375
1,000,000 BBB- Dana Hall School Issue, 5.900% due 7/1/27 1,032,500
1,000,000 AAA Simons Rock College, AMBAC-Insured, 5.500% due 6/1/27 1,023,750
500,000 AAA Southeastern Massachusetts University, Series A,
AMBAC-Insured, 5.900% due 5/1/12 541,250
- -----------------------------------------------------------------------------------------------------------
6,612,606
- -----------------------------------------------------------------------------------------------------------
General Obligation -- 21.4%
250,000 A Brockton Utility GO, 6.125% due 6/15/18 265,312
1,320,000 Aaa* Easton GO, MBIA-Insured, 5.000% due 10/1/17 1,313,400
250,000 AAA Groveland GO, AMBAC-Insured, 6.850% due 6/15/06 272,500
1,000,000 AAA Haverhill Revenue Bonds, Series A, AMBAC-Insured,
6.700% due 9/1/10 1,091,250
Holyoke GO, FSA-Insured:
1,330,000 AAA 5.200% due 8/1/17 1,348,288
500,000 AAA Series B, 6.125% due 8/1/13 542,500
500,000 AAA Lowell GO, AMBAC-Insured, 6.000% due 8/1/14 543,125
1,250,000 Aaa* Lynn GO, MBIA-Insured, 5.000% due 2/15/17 1,243,750
750,000 Aaa* Nantucket GO, MBIA-Insured, 5.125% due 7/15/12 767,812
610,000 AAA New Bedford Municipal Purpose Loan, FSA-Insured,
5.625% due 10/1/16 642,788
1,500,000 AAA North Andover Municipal Purpose Loan, FGIC-Insured,
4.750% due 1/15/18 1,443,750
250,000 AAA North Reading GO, MBIA-Insured, 6.875% due 6/15/07 272,500
795,000 AA- Plymouth County GO, COP, Series A, 6.750% due 10/1/04(b) 881,456
200,000 A Puerto Rico Commonwealth GO, 8.000% due 7/1/08 204,594
Revere GO, Series A, FSA-Insured:
300,000 AAA 5.400% due 6/15/15 311,250
265,000 AAA 5.400% due 6/15/16 273,613
500,000 AAA Revere Municipal Purpose Loan, Bank Qualified, FSA-Insured,
6.125% due 6/15/13 545,000
500,000 AAA Salem GO, AMBAC-Insured, 6.800% due 8/15/10(b) 546,875
1,000,000 AAA Worcester GO, MBIA-Insured, 5.000% due 8/1/14 1,005,000
- -----------------------------------------------------------------------------------------------------------
13,514,763
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
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8 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) May 31, 1998
===========================================================================================================
FACE
AMOUNT RATINGS SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Hospitals -- 21.2%
Massachusetts State Health & Educational Facilities
Authority Revenue:
$ 750,000 A3* Addison Gilbert Hospital, Series C, 5.750% due 7/1/23 $ 771,562
250,000 A Beth Israel Hospital, Series E, 7.000% due 7/1/14 261,908
1,000,000 A Brockton Hospital, Series B, 8.100% due 7/1/13(b) 1,012,830
2,000,000 AAA Catholic Health East, Series A, AMBAC-Insured,
5.000% due 11/15/28 1,932,500
750,000 Ba1* Central New England Health Systems, Series A,
6.300% due 8/1/18 785,625
1,000,000 Baa1* Faulkner Hospital, Series C, 6.000% due 7/1/13 1,056,250
1,500,000 BBB+ Jordan Hospital, Series D, 5.375% due 10/1/28 1,471,875
1,000,000 AAA Massachusetts General Hospital, Series F,
AMBAC-Insured, 6.250% due 7/1/20 1,083,750
1,000,000 AAA Medical Center of Central Massachusetts,
AMBAC-Insured, 6.550% due 6/23/22(b) 1,146,250
500,000 AAA Morton Hospital & Medical Center, Series B,
CONNIE LEE-Insured, 5.500% due 7/1/23 508,750
1,185,000 B1* Saint Memorial Medical Center, Series A,
6.000% due 10/1/23 1,189,444
700,000 AAA Valley Regional Health System, Series C,
CONNIE LEE-Insured, 7.000% due 7/1/06 812,875
Youville House, FHA-Insured, Project A:
500,000 Aa2* 5.950% due 2/15/17 531,250
750,000 Aa2* 6.050% due 2/15/29 796,875
- -----------------------------------------------------------------------------------------------------------
13,361,744
- -----------------------------------------------------------------------------------------------------------
Housing: Multi-Family -- 3.5%
1,000,000 AAA Framingham Housing Authority Mortgage Revenue,
Beaver Terrace Apartments, Series A,
GNMA-Collateralized, 6.650% due 2/20/32 1,048,750
1,120,000 A+ Massachusetts State HFA, Housing Project, Series A,
6.375% due 4/1/21(b) 1,188,600
- -----------------------------------------------------------------------------------------------------------
2,237,350
- -----------------------------------------------------------------------------------------------------------
Housing: Single-Family -- 6.2%
Massachusetts State HFA, Housing Revenue,
Single-Family Housing:
100,000 Aa3* Series 5, 8.375% due 6/1/15 101,000
945,000 AAA Series 14, FHA-Insured, 7.700% due 12/1/14 988,706
600,000 Aa3* Series 18, 7.350% due 12/1/16 637,500
1,000,000 Aa3* Series 31, 6.450% due 12/1/16(b) 1,071,250
1,000,000 Aa3* Series 38, 7.200% due 12/1/26(a)(b) 1,096,250
- -----------------------------------------------------------------------------------------------------------
3,894,706
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 9
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) May 31, 1998
===========================================================================================================
FACE
AMOUNT RATINGS SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Industrial Development -- 2.9%
Massachusetts State Industrial Finance Agency,
Resource Recovery Revenue, Series A:
$ 250,000 Baa1* Refusetech Inc. Project, 6.300% due 7/1/05 $ 268,125
500,000 NR S.E. Massachusetts Project, 9.000% due 7/1/15(b) 565,000
1,000,000 NR Massachusetts State Industrial Finance Agency Revenue,
(Chestnut Knoll Project A), 5.625% due 2/15/25 997,500
- -----------------------------------------------------------------------------------------------------------
1,830,625
- -----------------------------------------------------------------------------------------------------------
Life Care Systems -- 5.7%
Massachusetts Industrial Finance Agency
Health Care Facilities:
1,450,000 AAA Arbors at Amherst Project, Assisted Living Facilities
Revenue, GNMA-Collateralized, 5.750% due 6/20/17 1,540,625
2,000,000 A Jewish Geriatric Services, Series B, 5.500% due 5/15/27 2,040,000
- -----------------------------------------------------------------------------------------------------------
3,580,625
- -----------------------------------------------------------------------------------------------------------
Miscellaneous -- 1.6%
1,000,000 AAA Martha's Vineyard Loaned Bank Revenue, Series A, FSA-Insured,
5.125% due 5/1/18 1,002,500
- -----------------------------------------------------------------------------------------------------------
Pollution Control -- 2.6%
1,500,000 AA+ Massachusetts State Water Pollution, Series A,
6.375% due 2/1/15(b) 1,646,250
- -----------------------------------------------------------------------------------------------------------
Short-Term(c) -- 0.8%
500,000 A-1+ Puerto Rico Commonwealth Government Development Bank,
MBIA-Insured, 3.700% due 12/1/15 500,000
- -----------------------------------------------------------------------------------------------------------
Transportation -- 14.2%
750,000 BBB Guam Airport Authority Revenue, Series A,
6.500% due 10/1/23 813,750
2,000,000 AA- Massachusetts Bay Transportation Authority Revenue,
General Transportation Systems, Series C,
5.000% due 3/1/24 1,952,500
Massachusetts State Port Authority Revenue, Series A:
1,750,000 AA- 5.000% due 7/1/27 1,695,312
1,900,000 AAA Special Facilities, (U.S. Air Project), MBIA-Insured,
5.875% due 9/1/23(a) 1,999,750
6,000,000 Aaa* Massachusetts State Turnpike Authority, Metropolitan
Highway System Revenue, Capital Appreciation,
Series C, MBIA-Insured, zero coupon due 1/1/16 2,475,000
- -----------------------------------------------------------------------------------------------------------
8,936,312
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Schedule of Investments (unaudited) (continued) May 31, 1998
===========================================================================================================
FACE
AMOUNT RATINGS SECURITY VALUE
===========================================================================================================
<S> <C> <C> <C>
Utilities -- 5.2%
$ 2,000,000 BBB+ Massachusetts Municipal Wholesale Electric Co., Power
Supply Revenue, Series D, 6.125% due 7/1/19(b) $ 2,087,500
1,250,000 BBB+ Puerto Rico Electric Power Authority Revenue,
Series DD, 5.000% due 7/1/28 1,220,312
- -----------------------------------------------------------------------------------------------------------
3,307,812
- -----------------------------------------------------------------------------------------------------------
Water & Sewer -- 4.2%
Massachusetts State Water Resource Authority:
1,750,000 AAA Series A, FSA-Insured, 4.750% due 8/1/37 1,618,750
1,000,000 AAA Series B, MBIA-Insured, 5.500% due 3/1/17 1,027,500
- -----------------------------------------------------------------------------------------------------------
2,646,250
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $60,216,408**) $63,071,543
===========================================================================================================
</TABLE>
(a) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Security is segregated by Custodian for open purchase commitment.
(c) 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.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 11
<PAGE>
================================================================================
Bond Ratings (unaudited)
================================================================================
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 -- 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.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's to a debt obligation. 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 -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating
from "Aa" to "B," where 1 is the highest and 3 the lowest ranking within its
generic category.
Aaa -- Bonds 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 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 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 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 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.
- --------------------------------------------------------------------------------
12 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Bond Ratings (unaudited) (continued)
================================================================================
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
================================================================================
Short-Term Security Ratings (unaudited)
================================================================================
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 (unaudited)
================================================================================
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 -- College Construction Loan
LEE Insurance Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FLAIRS -- Floating Adjustable Interest Rate Securities
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Federal Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National
Mortgage Association
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
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax-Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWD -- Variable Rate Wednesday Demand
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 13
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) May 31, 1998
================================================================================
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost-- $60,216,408) $63,071,543
Cash 37,844
Interest receivable 1,079,915
Receivable for Fund shares sold 165,000
- -------------------------------------------------------------------------------
Total Assets 64,354,302
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 1,464,671
Dividends payable 293,986
Investment advisory fees payable 14,201
Administration fees payable 4,493
Distribution fees payable 4,392
Accrued expenses 162,005
- -------------------------------------------------------------------------------
Total Liabilities 1,943,748
- -------------------------------------------------------------------------------
Total Net Assets $62,410,554
===============================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 4,681
Capital paid in excess of par value 58,998,427
Overdistributed net investment income (72,861)
Accumulated net realized gain on security transactions 625,172
Net unrealized appreciation of investments 2,855,135
===============================================================================
Total Net Assets $62,410,554
===============================================================================
Shares Outstanding:
Class A 2,486,906
----------------------------------------------------------------------------
Class B 2,110,274
----------------------------------------------------------------------------
Class C 83,913
----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $13.34
----------------------------------------------------------------------------
Class B* $13.33
----------------------------------------------------------------------------
Class C** $13.32
----------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.17% of net asset value per share) $13.90
===============================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed within one year from 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 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statement of Operations (unaudited)
================================================================================
For the Six Months Ended May 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 1,717,737
- -----------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 4) 118,511
Investment advisory fees (Note 4) 92,725
Administration fees (Note 4) 61,817
Audit and legal 21,100
Shareholder communications 21,000
Shareholder and system servicing fees 17,000
Trustees' fees 7,500
Pricing service fees 5,300
Registration fees 4,000
Custody 2,000
Other 4,000
- -----------------------------------------------------------------------------------
Total Expenses 354,953
Less: Investment advisory and administration fees waiver (Note 4) (46,362)
- -----------------------------------------------------------------------------------
Net Expenses 308,591
- -----------------------------------------------------------------------------------
Net Investment Income 1,409,146
- -----------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 5):
Net Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 17,836,877
Cost of securities sold 17,211,901
- -----------------------------------------------------------------------------------
Net Realized Gain 624,976
Change in Net Unrealized Appreciation of Investments:
Beginning of period 2,660,948
End of period 2,855,135
- -----------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 194,187
- -----------------------------------------------------------------------------------
Net Gain on Investments 819,163
- -----------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 2,228,309
===================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 15
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended May 31, 1998 (unaudited)
and the Year Ended November 30, 1997
<TABLE>
<CAPTION>
1998 1997
===================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,409,146 $ 2,855,723
Net realized gain 624,976 880,377
Increase in net unrealized appreciation 194,187 568,601
- -----------------------------------------------------------------------------------
Increase in Net Assets From Operations 2,228,309 4,304,701
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE 3):
Net investment income (1,447,206) (2,914,026)
Net realized gains (52,997) (570,191)
- -----------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,500,203) (3,484,217)
- -----------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 5,252,915 6,670,106
Net asset value of shares issued
for reinvestment of dividends 689,783 2,041,608
Cost of shares reacquired (5,012,882) (7,942,053)
- -----------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 929,816 769,661
- -----------------------------------------------------------------------------------
Increase in Net Assets 1,657,922 1,590,145
NET ASSETS:
Beginning of period 60,752,632 59,162,487
- -----------------------------------------------------------------------------------
End of period* $62,410,554 $60,752,632
===================================================================================
* Includes overdistributed net investment income of: $(72,861) $(34,801)
===================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 1998 Semi-Annual Report to Shareholders
<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 provided 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.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 17
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
4. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Mutual Management Corp. ("MMC"), a subsidiary of Salomon Smith Barney Holdings
Inc. ("SSBH"), acts as investment adviser to the Fund. The Fund pays MMC 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, 1998, the
Fund waived $19,472 of its investment advisory fees.
MMC 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,
1998, the Fund waived $26,890 of its administration fees.
Smith Barney Inc. ("SB"), another subsidiary of SSBH, acts as distributor of the
Fund's shares. For the six months ended May 31, 1998, SB received sales charges
of approximately $43,000 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, 1998, CDSCs paid to SB for Class B shares were
approximately $23,000.
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 rate of 0.50% and 0.55%, respectively, of the average daily net assets of
each class. For the six months ended May 31, 1998, total Distribution Plan fees
incurred were:
<TABLE>
<CAPTION>
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Distribution Plan Fees $24,771 $91,274 $2,466
================================================================================
</TABLE>
All officers and one Trustee of the Fund are employees of SB.
- --------------------------------------------------------------------------------
18 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
5. INVESTMENTS
For the six months ended May 31, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $19,561,182
- --------------------------------------------------------------------------------
Sales 17,836,877
================================================================================
</TABLE>
At May 31, 1998, the aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
<TABLE>
================================================================================
<S> <C>
Gross unrealized appreciation $2,916,007
Gross unrealized depreciation (60,872)
- --------------------------------------------------------------------------------
Net unrealized appreciation $2,855,135
================================================================================
</TABLE>
6. SHARES OF BENEFICIAL INTEREST
At May 31, 1998, 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, 1998, total paid-in capital amounted to the following for each class:
<TABLE>
<CAPTION>
Class A Class B Class C
===============================================================================
<S> <C> <C> <C>
Total Paid-in Capital $30,555,195 $27,351,781 $1,096,132
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 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, 1998 November 30, 1997
----------------------- ------------------------
Shares Amount Shares Amount
========================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 143,419 $ 1,908,278 328,135 $ 4,290,143
Shares issued on reinvestment 28,438 378,317 82,883 1,079,455
Shares redeemed (168,838) (2,246,785) (244,202) (3,177,789)
- ----------------------------------------------------------------------------------------
Net Increase 3,019 $ 39,810 166,816 $ 2,191,809
========================================================================================
Class B
Shares sold 198,094 $ 2,635,210 161,821 $ 2,099,145
Shares issued on reinvestment 22,672 301,407 72,576 944,328
Shares redeemed (205,424) (2,730,487) (362,492) (4,708,332)
- ----------------------------------------------------------------------------------------
Net Increase (Decrease) 15,342 $ 206,130 (128,095) $(1,664,859)
========================================================================================
Class C
Shares sold 53,319 $ 709,427 21,630 $ 280,818
Shares issued on reinvestment 759 10,059 1,369 17,825
Shares redeemed (2,670) (35,610) (4,321) (55,932)
- ----------------------------------------------------------------------------------------
Net Increase 51,408 $ 683,876 18,678 $ 242,711
========================================================================================
</TABLE>
7. SUBSEQUENT EVENT
The Board of Directors of the Fund approved the renaming of Class C shares to
Class L which became effective on June 12, 1998. In addition, effective June 15,
1998 Class L shares were to be sold at net asset value per share plus a maximum
initial sales charge of 1.00%. Class L shares also have a 1.00% CDSC if
redemptions occur within one year from initial purchase. Until June 25, 1999,
purchases of Class L shares by investors who were holders of Class C shares of
the Fund on June 12, 1998 will not be subject to the 1.00% front-end sales
charge.
- --------------------------------------------------------------------------------
20 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares 1998(1) 1997 1996 1995 1994 1993(2)
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $13.18 $12.99 $12.96 $11.35 $13.26 $12.63
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (3) 0.32 0.66 0.68 0.69 0.70 0.72
Net realized and unrealized
gain (loss) 0.18 0.32 0.02 1.61 (1.85) 0.72
- ------------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.50 0.98 0.70 2.30 (1.15) 1.44
- ------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.33) (0.67) (0.67) (0.69) (0.70) (0.74)
Net realized gains (0.01) (0.12) -- -- (0.06) (0.07)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.79) (0.67) (0.69) (0.76) (0.81)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $13.34 $13.18 $12.99 $12.96 $11.35 $13.26
- ------------------------------------------------------------------------------------------------------------------------
Total Return 3.81%++ 7.85% 5.65% 20.73% (9.07)% 11.74%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $33,170 $32,736 $30,109 $29,159 $27,634 $32,592
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses (3) 0.84%+ 0.80% 0.80% 0.83% 0.81% 0.82%
Net investment income 4.80+ 5.07 5.32 5.42 5.55 5.49
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 29% 58% 23% 10% 37% 10%
========================================================================================================================
</TABLE>
(1) For the six months ended May 31, 1998 (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, 1998 and the five years ended November 30, 1997. 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
---------------------------------------- ----------------------------------------
1998 1997 1996 1995 1994 1993 1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.01 $0.01 $0.01 $0.03 $0.04 $0.05 0.99%+ 0.88% 0.91% 1.07% 1.09% 1.18%
</TABLE>
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 21
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares 1998(1) 1997 1996 1995 1994 1993(2)
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $13.17 $12.99 $12.96 $11.35 $13.26 $12.63
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (3) 0.28 0.60 0.61 0.63 0.63 0.66
Net realized and unrealized
gain (loss) 0.18 0.31 0.03 1.61 (1.84) 0.72
- ------------------------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.46 0.91 0.64 2.24 (1.21) 1.38
- ------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.29) (0.61) (0.61) (0.63) (0.64) (0.68)
Net realized gains (0.01) (0.12) -- -- (0.06) (0.07)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.30) (0.73) (0.61) (0.63) (0.70) (0.75)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $13.33 $13.17 $12.99 $12.96 $11.35 $13.26
- ------------------------------------------------------------------------------------------------------------------------
Total Return 3.55%++ 7.25% 5.14% 20.15% (9.50)% 11.09%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $28,123 $27,589 $28,874 $28,726 $23,279 $22,317
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses (3) 1.35%+ 1.31% 1.31% 1.35% 1.32% 1.31%
Net investment income 4.28+ 4.57 4.81 4.94 5.04 4.99
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 29% 58% 23% 10% 37% 10%
========================================================================================================================
</TABLE>
(1) For the six months ended May 31, 1998 (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 has waived all or part of its fees for the six
months ended May 31, 1998 and the five years ended November 30, 1997. 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
---------------------------------------- ----------------------------------------
1998 1997 1996 1995 1994 1993 1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B $0.01 $0.01 $0.01 $0.04 $0.03 $0.05 1.50%+ 1.39% 1.42% 1.59% 1.60% 1.68%
</TABLE>
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
22 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class C Shares 1998(1) 1997 1996 1995 1994(2)
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.16 $12.98 $12.95 $11.35 $11.34
- -------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (3) 0.29 0.59 0.60 0.63 0.05
Net realized and unrealized gain 0.17 0.31 0.03 1.60 --
- -------------------------------------------------------------------------------------------------------
Total Income From Operations 0.46 0.90 0.63 2.23 0.05
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.29) (0.60) (0.60) (0.63) (0.04)
Net realized gains (0.01) (0.12) -- -- --
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.30) (0.72) (0.60) (0.63) (0.04)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.32 $13.16 $12.98 $12.95 $11.35
- -------------------------------------------------------------------------------------------------------
Total Return 3.54%++ 7.21% 5.09% 20.04% 0.40%++
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $1,118 $428 $179 $146 $75
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3) 1.36%+ 1.34% 1.34% 1.35% 1.36%+
Net investment income 4.22+ 4.51 4.77 4.65 5.00+
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 29% 58% 23% 10% 37%
=======================================================================================================
</TABLE>
(1) For the six months ended May 31, 1998 (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 1998, and the three years ended November 30, 1997 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
--------------------------------- ---------------------------------
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class C $0.01 $0.01 $0.01 $0.04 $0.00* 1.51%+ 1.42% 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.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 23
<PAGE>
================================================================================
Additional Shareholder Information (unaudited)
================================================================================
On February 6, 1998, a special meeting of shareholders of the Trust was held for
the purpose of voting on the following matters:
1. To elect Trustees of the Trust; and
2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Voted Percentage Shares Voted Percentage
Name of Trustees For Shares Voted Against Shares Voted
=======================================================================================================
<S> <C> <C> <C> <C>
Herbert Barg 2,400,608.892 98.891% 26,930.332 1.109%
Alfred J. Bianchetti 2,400,608.892 98.891 26,930.332 1.109
Martin Brody 2,400,608.892 98.891 26,930.332 1.109
Dwight B. Crane 2,402,966.650 98.988 24,572.574 1.012
Burt N. Dorsett 2,402,966.650 98.988 24,572.574 1.012
Elliot S. Jaffe 2,402,966.650 98.988 24,572.574 1.012
Stephen E. Kaufman 2,402,541.851 98.970 24,997.373 1.030
Joseph J. McCann 2,402,966.650 98.988 24,572.574 1.012
Heath B. McLendon 2,402,966.650 98.988 24,572.574 1.012
Cornelius C. Rose, Jr. 2,402,966.650 98.988 24,572.574 1.012
=======================================================================================================
</TABLE>
Proposal 2 requested that shareholders approve certain modifications to the
fundamental policies of the Fund in order to modernize them in view of certain
regulatory, business or industry developments that have occurred since original
adoption of these policies by the Fund. The following chart demonstrates that
all proposals were approved by shareholders.
<TABLE>
<CAPTION>
================================================================================
<S> <C>
Issuance of Senior Securities Approved
- --------------------------------------------------------------------------------
Borrowing Approved
- --------------------------------------------------------------------------------
Lending by the Fund Approved
- --------------------------------------------------------------------------------
Margin and the Short Sales Approved
- --------------------------------------------------------------------------------
Real Estate Approved
================================================================================
</TABLE>
The information below reports the lowest percentage of shares voting for the
proposals, the highest percentage of shares voting against and abstaining by
shareholders of the Fund on all proposals.
<TABLE>
<CAPTION>
Percentage Percentage Percentage
Shares Voted of Shares Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Abstained
==========================================================================================================
<S> <C> <C> <C> <C> <C>
2,268,190.326 93.980% 31,365.268 1.299% 113,936.630 4.721%
==========================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
24 1998 Semi-Annual Report to Shareholders
<PAGE>
Smith Barney SMITH BARNEY
Massachusetts ------------
Municipals Fund A Member of TravelersGroup[LOGO]
Trustees Investment Adviser
Herbert Barg Mutual Management Corp.
Alfred J. Bianchetti
Martin Brody Distributor
Dwight B. Crane Smith Barney Inc.
Burt N. Dorsett
Elliot S. Jaffe Custodian
Stephen E. Kaufman PNC Bank, N.A.
Joseph J. McCann
Heath B. McLendon, Chairman Shareholder
Servicing Agent
Cornelius C. Rose, Jr., Emeritus First Data Investor Services Group, Inc.
P.O. Box 9134
Officers Boston, MA 02205-9134
Heath B. McLendon
President and This report is submitted for the general
Chief Executive Officer information of the shareholders of the
Smith Barney Massachusetts Municipals
Lewis E. Daidone Fund. It is not authorized for
Senior Vice President distribution to prospective investors
and Treasurer unless accompanied or preceded by a
current Prospectus for the Fund, which
Lawrence T. McDermott contains information concerning the
Vice President and Fund's investment policies and expenses
Investment Officer as well as other pertinent information.
Thomas M. Reynolds Smith Barney
Controller Massachusetts
Municipals Fund
Christina T. Sydor 388 Greenwich Street
Secretary New York, New York 10013
www.smithbarney.com
FD2227 7/98
