<PAGE>
[GRAPHIC]
Smith Barney
Massachusetts
Municipals Fund
-------------
ANNUAL REPORT
-------------
November 30, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(R)
<PAGE>
Smith Barney
Massachusetts
Municipals Fund
[PHOTO]
Heath B. McLendon
Chairman
[PHOTO]
Lawrence T. McDermott
Vice President and Investment Officer
Dear Shareholder:
We are pleased to provide the annual report for the Smith Barney Massachusetts
Municipals Fund ("Fund") for the year ended November 30, 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 year ended November 30, 1998, the Class A shares of the Massachusetts
Municipals Fund returned 7.66% and outperformed the 6.82% return for
Massachusetts tax-exempt funds according to Lipper Inc. for the same period.
(Lipper is an independent fund-tracking organization.) For performance
information on the Fund's other share classes, please refer to pages four and
five.
During the period covered by this report, the Fund distributed income dividends
totaling $0.65 and a capital gain distribution of $0.20 per Class A share. Based
on its net asset value ("NAV") of $13.32 as of November 30, 1998 and current
income dividend rate of $0.054 per share, this equates to annualized
distribution rate of 4.86%. For a Massachusetts state resident in the combined
federal and state tax bracket of 39.28%, the tax-free yield of 4.86% is
equivalent to a taxable yield of 8.00%. (This figure assumes an investor is in
the federal income tax bracket of 31%.)
Market and Economic Overview
With stock market volatility on the rise and anxiety about the global economy
increasing in early fall, the Federal Reserve Board ("Fed") changed its monetary
policy from one of vigilance against inflation to one of combating deflation
during the period under review. (Deflation is when prices actually fall.
Deflation should not be confused with disinflation. Disinflation is the slowing
down of the rate at which prices increase.)
The bond markets have been impacted by numerous significant events this past
year including the turmoil in many emerging markets, Russia's default and the
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 1
<PAGE>
release of a large number of conflicting economic statistics. A key turning
point for the markets took place on October 17, 1998, when Fed Chairman
Greenspan announced that the federal-funds and discount rates would both be cut
by 25 basis points. (A basis point is a means of expressing yield as a
percentage. Each basis point is 1/100 of 1%. The federal-funds rate is an
overnight bank lending rate that is a benchmark for other short-term interest
rates.) This was the third rate cut by the Fed in recent months and the changes
in the capital markets after that rate cut were significant.
The prices of many U.S. stocks have gone up and liquidity in many sectors of the
bond market has improved dramatically. As investors turned away from U.S.
Treasuries, which are the most liquid and least risky of all bonds, their yields
went back up sharply. For example, the yield on the 30-year Treasury increased
by more than 65 basis points from October 5, 1998 through November 6, 1998. And
just as other types of bonds had underperformed as U.S. Treasury rates declined,
they outperformed as Treasury rates rebounded.
During the reporting period, municipal bond yields did not drop as quickly as
U.S. Treasury yields on the way down and they did not go up as quickly as U.S.
Treasury yields during the subsequent rebound in rates. For example, while
30-year Treasury yields went up by about 50 basis points from October 1, 1998
through November 5, 1998, long-term municipal bond yields went up by only
roughly 20-23 basis points. Despite these differences, we still believe
municipal bonds are attractively priced in comparison with taxable bonds.
Heavy new issuance of municipal bonds combined with modest demand for tax-exempt
income are the main reasons why municipal bonds are so inexpensive now on a
historical basis. New cash into bond funds has been low, the demand for
municipal bonds from property and casualty companies has been moderate and many
individual investors have remained on the sidelines because of the stock
market's recent strong rebound.
Massachusetts Economic Highlights
Although Massachusetts was negatively impacted by the last recession, the
Commonwealth's economy in recent years has grown strongly and we think its
long-term outlook remains positive. The economy of Massachusetts is well
diversified and continues to generate high personal income levels. Moreover, we
anticipate that the Commonwealth's well-established trend of strong fiscal
control and solid budget performance should hold it in good stead and solidify
its leadership position in the Northeast as we enter the next century.
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 and
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2 1998 Annual Report to Shareholders
<PAGE>
Massachusetts 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 November 30, 1998, over 91% of the Fund's holdings
were rated investment grade or better, of which approximately 48% were rated
triple-A by either Standard & Poor's Ratings Service or Moody's Investors
Service Inc. At the end of the reporting period, the Fund's average weighted
maturity was roughly 21 years. In addition, as of November 30, 1998, the Fund's
top three sectors were general obligation bonds (21.9%), hospital bonds (21.4%)
and transportation (18.2%).
Municipal Bond Market Outlook
During 1998, the performance of the U.S. economy has helped propel state tax
collections higher and add to their strong fiscal positions. As previously
noted, the volume of new municipal issues remains heavy as attractive low
interest rates continue to provide an incentive for state and local governments
to refinance older, high interest rate debt. On the other hand, demand for
tax-exempt income remains modest. Given this strong supply and moderate demand,
it is not surprising that municipal bonds are inexpensive by historical
standards. At current yield levels, we believe municipal bonds make sense for
many investors.
Going forward, we are optimistic about the attractiveness of the tax-exempt bond
market. And while we expect no more Fed policy moves for the remainder of the
year, we believe that the Fed may lower rates again in the first half of 1999 if
the U.S. economy remains sluggish.
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
December 17, 1998
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Smith Barney Massachusetts Municipals Fund 3
<PAGE>
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Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
Net Asset Value
------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
================================================================================
11/30/98 $13.18 $13.32 $0.65 $0.20 $0.00 7.66%
- --------------------------------------------------------------------------------
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
================================================================================
Total $7.44 $0.51 $0.05
================================================================================
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Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
Net Asset Value
------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
================================================================================
11/30/98 $13.17 $13.30 $0.58 $0.20 $0.00 7.05%
- --------------------------------------------------------------------------------
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 $3.80 $0.45 $0.00
================================================================================
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Historical Performance -- Class L Shares(2)
- --------------------------------------------------------------------------------
Net Asset Value
------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
================================================================================
11/30/98 $13.16 $13.30 $0.58 $0.20 $0.00 7.11%
- --------------------------------------------------------------------------------
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 $2.45 $0.32 $0.00
================================================================================
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
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4 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
----------------------------------
Class A Class B Class L(2)
================================================================================
Year Ended 11/30/98 7.66% 7.05% 7.11%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/98 6.13 5.59 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/98 7.81 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 11/30/98 8.25 6.64 9.67
================================================================================
With Sales Charges(3)
----------------------------------
Class A Class B Class L(2)
================================================================================
Year Ended 11/30/98 3.35% 2.55% 5.06%
- --------------------------------------------------------------------------------
Five Years Ended 11/30/98 5.27 5.43 N/A
- --------------------------------------------------------------------------------
Ten Years Ended 11/30/98 7.37 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 11/30/98 7.84 6.64 9.41
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (11/30/88 through 11/30/98) 112.16%
- --------------------------------------------------------------------------------
Class B (Inception* through 11/30/98) 47.70
- --------------------------------------------------------------------------------
Class L (Inception* through 11/30/98)(2) 45.45
================================================================================
(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 and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 4.00% and 1.00%,
respectively; 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 L 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 L shares are December 21, 1987,
November 6, 1992 and November 10, 1994, respectively.
- --------------------------------------------------------------------------------
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+
- --------------------------------------------------------------------------------
November 1988 -- November 1998
[GRAPHIC]
Smith Barney Lehman Brothers Lipper Massachusetts
Massachusetts Municipal Bond Municipal Fund
Municipals Fund Index Average
- --------------------------------------------------------------------------------
11/88 9596 10000 10000
11/89 10501 11102 10950
11/90 11018 11957 11598
11/91 12293 13184 12839
11/92 13529 14506 14157
11/93 15118 16114 15810
11/94 13747 15268 14683
11/95 16596 18155 17396
11/96 17534 19221 18268
11/97 18910 20599 19470
11/98 20359 22545 20706
+ Hypothetical illustration of $10,000 invested in Class A shares at
November 30, 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 November 30, 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 (58 funds as of November 30, 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 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Highlights (unaudited) November 30, 1998
- --------------------------------------------------------------------------------
Industry Breakdown
[PIE CHART]
General Obligation 21.9%
Water & Sewer 2.3%
Housing: Multi-Family 3.0%
Housing: Single-Family 5.1%
Hospitals 21.4%
Miscellaneous 6.0%
Life Care Systems 4.9%
Education 7.0%
Utilities 2.8%
Industrial Development 3.8%
Transportation 18.2%
Pollution Control 3.6%
Summary of Investments by Combined Ratings
Standard & Percentage of
Moody's and/or Poor's Total Investments
- --------------------------------------------------------------------------------
Aaa AAA 47.7%
Aa AA 22.4
A A 8.8
Baa BBB 12.6
B B 1.8
VMIG 1 A-1 3.3
NR NR 3.4
-----
100.0%
=====
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Smith Barney Massachusetts Municipals Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES-- 100%
Education -- 7.0%
$ 145,000 A Massachusetts Educational Loan Authority, Issue D,
Series A, 7.650% due 1/1/07(b) $ 148,133
Massachusetts State Industrial Finance Agency Revenue:
1,000,000 AAA Assumption College Issue, CONNIE LEE-Insured,
6.000% due 7/1/26 1,088,750
750,000 A- Clark University, Series E, 7.000% due 7/1/12 810,000
500,000 Baa1* Concord Academy, 5.450% due 9/1/17 506,875
1,000,000 BBB- Dana Hall School Issue, 5.900% due 7/1/27 1,038,750
1,000,000 AAA Simons Rock College, AMBAC-Insured,
5.500% due 6/1/27 1,040,000
500,000 AAA Southeastern Massachusetts University, Series A,
AMBAC-Insured, 5.900% due 5/1/12 550,000
- --------------------------------------------------------------------------------------------
5,182,508
- --------------------------------------------------------------------------------------------
General Obligation -- 21.9%
250,000 A Brockton Utility GO, 6.125% due 6/15/18 268,750
250,000 AAA Groveland GO, AMBAC-Insured, 6.850% due 6/15/06 272,187
1,000,000 AAA Haverhill Revenue Bonds, Series A, AMBAC-Insured,
6.700% due 9/1/10 1,088,750
Holyoke GO, FSA-Insured:
1,330,000 AAA 5.200% due 8/1/17 1,363,250
500,000 AAA Series B, 6.125% due 8/1/13 548,125
500,000 AAA Lowell GO, AMBAC-Insured, 6.000% due 8/1/14 550,625
1,250,000 Aaa* Lynn GO, MBIA-Insured, 5.000% due 2/15/17 1,257,812
5,000,000 AA- Massachusetts State GO, Series C,
zero coupon due 8/1/18 1,925,000
2,335,000 Aaa* Methuen GO, FGIC-Insured, 4.875% due 5/15/17 2,323,325
750,000 Aaa* Nantucket GO, MBIA-Insured, 5.125% due 7/15/12 781,875
1,500,000 AAA North Andover Municipal Purpose Loan, FGIC-Insured,
4.750% due 1/15/18 1,458,750
250,000 AAA North Reading GO, MBIA-Insured, 6.875% due 6/15/07 272,188
795,000 AA- Plymouth County GO, COP, Series A,
6.750% due 10/1/04(c) 881,456 Revere GO, Series A,
FSA-Insured:
300,000 AAA 5.400% due 6/15/15 314,625
265,000 AAA 5.400% due 6/15/16 276,925
500,000 AAA Revere Municipal Purpose Loan, Bank Qualified,
FSA-Insured, 6.125% due 6/15/13 550,625
500,000 AAA Salem GO, AMBAC-Insured, 6.800% due 8/15/10(c) 545,000
1,500,000 AAA Springfield GO, Municipal Purpose Loan, FSA-Insured,
5.000% due 11/15/18 1,503,750
- --------------------------------------------------------------------------------------------
16,183,018
- --------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
Hospitals -- 21.4%
Massachusetts State Health & Educational Facilities
Authority Revenue:
$ 750,000 A3* Addison Gilbert Hospital, Series C,
5.750% due 7/1/23 $ 775,313
250,000 A Beth Israel Hospital, Series E, 7.000% due 7/1/14 258,898
1,000,000 A Brockton Hospital, Series B, 8.100% due 7/1/13(c) 1,016,250
1,250,000 BBB+ Cape Cod Healthcare, Series B, 5.450% due 11/15/23 1,253,125
Central New England Health Systems:
750,000 Baa3* Series A, 6.300% due 8/1/18 783,750
1,500,000 Aaa* Series B, AMBAC-Insured, 5.200% due 8/1/28 1,500,000
1,000,000 Baa1* Faulkner Hospital, Series C, 6.000% due 7/1/13 1,058,750
1,500,000 BBB+ Jordan Hospital, Series D, 5.375% due 10/1/28 1,479,375
1,000,000 AAA Massachusetts General Hospital, Series F,
AMBAC-Insured, 6.250% due 7/1/20 1,090,000
1,000,000 AAA Medical Center of Central Massachusetts,
AMBAC-Insured, 6.550% due 6/23/22(c) 1,153,750
500,000 AAA Morton Hospital & Medical Center, Series B,
CONNIE LEE-Insured, 5.500% due 7/1/23 513,750
1,310,000 B1* Saint Memorial Medical Center, Series A,
6.000% due 10/1/23 1,313,275
1,500,000 AAA University of Massachusetts Memorial Issue,
Series A, AMBAC-Insured, 5.000% due 7/1/28 1,468,125
700,000 AAA Valley Regional Health System, Series C,
CONNIE LEE-Insured, 7.000% due 7/1/06 825,125
Youville House, FHA Insured, Project A:
500,000 Aa2* 5.950% due 2/15/17 534,375
750,000 Aa2* 6.050% due 2/15/29 801,562
- --------------------------------------------------------------------------------------------
15,825,423
- --------------------------------------------------------------------------------------------
Housing: Multi-Family -- 3.0%
1,000,000 AAA Framingham Housing Authority Mortgage Revenue,
Beaver Terrace Apartments, Series A,
GNMA-Collateralized, 6.650% due 2/20/32 1,053,750
1,120,000 A+ Massachusetts State HFA, Housing Project, Series A,
6.375% due 4/1/21(c) 1,195,600
- --------------------------------------------------------------------------------------------
2,249,350
- --------------------------------------------------------------------------------------------
Housing: Single-Family -- 5.1%
Massachusetts State HFA, Housing Revenue,
Single-Family Housing:
945,000 AAA Series 14, FHA-Insured, 7.700% due 12/1/14 982,800
600,000 Aa3* Series 18, 7.350% due 12/1/16 633,750
1,000,000 Aa3* Series 31, 6.450% due 12/1/16(c) 1,066,250
1,000,000 Aa3* Series 38, 7.200% due 12/1/26(b)(c) 1,086,250
- --------------------------------------------------------------------------------------------
3,769,050
- --------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
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Smith Barney Massachusetts Municipals Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
Industrial Development -- 3.8%
$ 1,000,000 NR Boston Industrial Development Financing Authority
Revenue, First Mortgage, Springhouse Inc.,
5.875% due 7/1/18 $ 1,001,250
Massachusetts State Industrial Finance Agency,
Resource Recovery Revenue, Series A:
250,000 Baa1* Refusetech Inc. Project, 6.300% due 7/1/05 267,500
500,000 NR S.E. Massachusetts Project, 9.000% due 7/1/15(c) 557,500
1,000,000 NR Massachusetts State Industrial Finance Agency Revenue,
(Chestnut Knoll Project A), 5.625% due 2/15/25 971,250
- --------------------------------------------------------------------------------------------
2,797,500
- --------------------------------------------------------------------------------------------
Life Care Systems -- 4.9%
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 1,547,875
2,000,000 A Jewish Geriatric Services, Series B, 5.500% due
5/15/27 2,055,000
- --------------------------------------------------------------------------------------------
3,602,875
- --------------------------------------------------------------------------------------------
Miscellaneous -- 2.7%
1,000,000 AAA Martha's Vineyard Loaned Bank Revenue, Series A,
FSA-Insured, 5.125% due 5/1/18 1,013,750
1,000,000 AAA Nantucket Island Loaned Bank, Series E, MBIA-Insured,
5.000% due 7/1/19 998,750
- --------------------------------------------------------------------------------------------
2,012,500
- --------------------------------------------------------------------------------------------
Pollution Control -- 3.6%
Massachusetts State Water Pollution:
1,000,000 AAA Abatement Treatment Pool Lining Program, Series 4,
5.000% due 8/1/18 1,007,500
1,500,000 AA+ Series A, 6.375% due 2/1/15(c) 1,657,500
- --------------------------------------------------------------------------------------------
2,665,000
- --------------------------------------------------------------------------------------------
Short-Term (d) -- 3.3%
450,000 VMIG 1* Massachusetts State Health & Educational Facilities
Authority Revenue, Capital Asset Program, Series B,
2.700% due 7/1/05 450,000
2,000,000 A-1+ Puerto Rico Commonwealth Government
Development Bank, MBIA-Insured, 2.750% due 12/1/15 2,000,000
- --------------------------------------------------------------------------------------------
2,450,000
- --------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
Transportation -- 18.2%
$ 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 1,997,500
3,750,000 Aa3* Massachusetts State Capital Appreciation,
Federal Highway, zero coupon due 6/15/15 1,710,938
Massachusetts State Port Authority Revenue:
1,000,000 AA- Series A, 5.000% due 7/1/27 1,001,250
1,000,000 AA- Series B, 5.000% due 7/1/18 978,750
2,300,000 AA- Series D, 5.000% due 7/1/28 2,302,875
1,900,000 AAA Special Facilities, (U.S. Air Project),
MBIA-Insured, 5.875% due 9/1/23(b) 2,033,000
6,000,000 Aaa* Massachusetts State Turnpike Authority, Metropolitan
Highway System Revenue, Capital Appreciation,
Series C, MBIA-Insured, zero coupon due 1/1/16 2,617,500
- --------------------------------------------------------------------------------------------
13,455,563
- --------------------------------------------------------------------------------------------
Utilities -- 2.8%
2,000,000 BBB+ Massachusetts Municipal Wholesale Electric Co., Power
Supply Revenue, Series D, 6.125% due 7/1/19(c) 2,095,000
- --------------------------------------------------------------------------------------------
Water & Sewer -- 2.3%
1,750,000 AAA Massachusetts State Water Resource Authority,
Series A, FSA-Insured, 4.750% due 8/1/37 1,658,125
- --------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost-- $70,615,005**) $73,945,912
============================================================================================
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Services, except those
identified by an asterisk (*) are rated by Moody's Investors Service Inc.
(b) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) Security is 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.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited)
- --------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Services ("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.
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 and B -- Bonds rated "BB" and "B" are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB"
represents a lower degree of speculation than "B". While such bonds
will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to
adverse conditions.
Moody's Investors Service Inc. ("Moody's") -- 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.
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.
- --------------------------------------------------------------------------------
12 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities November 30, 1998
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost-- $70,615,005) $73,945,912
Cash 65,014
Interest receivable 1,102,677
Receivable for Fund shares sold 175,150
- --------------------------------------------------------------------------------
Total Assets 75,288,753
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 5,443,916
Administration fees payable 85,236
Payable for Fund shares redeemed 24,303
Investment advisory fees payable 23,224
Distribution fees payable 6,334
Accrued expenses 74,645
- --------------------------------------------------------------------------------
Total Liabilities 5,657,658
- --------------------------------------------------------------------------------
Total Net Assets $69,631,095
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 5,231
Capital paid in excess of par value 66,298,255
Overdistributed net investment income (3,298)
Net unrealized appreciation of investments 3,330,907
- --------------------------------------------------------------------------------
Total Net Assets $69,631,095
================================================================================
Shares Outstanding:
Class A 2,812,286
------------------------------------------------------------------------------
Class B 2,276,436
------------------------------------------------------------------------------
Class L 142,480
------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $13.32
------------------------------------------------------------------------------
Class B* $13.30
------------------------------------------------------------------------------
Class L** $13.30
------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.17% of net asset value per share) $13.88
------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $13.43
================================================================================
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if
shares are redeemed less than one year from initial purchase (See Note 4).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if
shares are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended November 30, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $3,543,586
- --------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 4) 245,255
Investment advisory fees (Note 4) 189,712
Administration fees (Note 4) 126,474
Shareholder and system servicing fees 23,966
Shareholder communications 17,976
Audit and legal 17,764
Trustees' fees 5,822
Pricing service fees 2,951
Registration fees 1,647
Custody 1,150
Other 3,625
- --------------------------------------------------------------------------------
Total Expenses 636,342
- --------------------------------------------------------------------------------
Net Investment Income 2,907,244
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 5):
Net Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 32,471,474
Cost of securities sold 31,554,848
- --------------------------------------------------------------------------------
Net Realized Gain 916,626
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 2,660,948
End of year 3,330,907
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 669,959
- --------------------------------------------------------------------------------
Net Gain on Investments 1,586,585
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $4,493,829
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets Years Ended November 30,
- --------------------------------------------------------------------------------
1998 1997
================================================================================
OPERATIONS:
Net investment income $ 2,907,244 $ 2,855,723
Net realized gain 916,626 880,377
Increase in net unrealized appreciation 669,959 568,601
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 4,493,829 4,304,701
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM (NOTE 3):
Net investment income (2,875,741) (2,914,026)
In excess of net investment income (62,219) --
Net realized gains (969,819) (570,191)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (3,907,779) (3,484,217)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 15,295,105 6,670,106
Net asset value of shares issued
for reinvestment of dividends 2,377,234 2,041,608
Cost of shares reacquired (9,379,926) (7,942,053)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 8,292,413 769,661
- --------------------------------------------------------------------------------
Increase in Net Assets 8,878,463 1,590,145
NET ASSETS:
Beginning of year 60,752,632 59,162,487
- --------------------------------------------------------------------------------
End of year* $69,631,095 $60,752,632
================================================================================
* Includes overdistributed net investment income of: $(3,298) $(34,801)
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 for which market quotations are not available
will be valued in good faith at fair value by or under the direction of the
Board of Trustees; (d) securities maturing within 60 days are valued at cost
plus accreted discount or minus amortized premium, which approximates value; (e)
gains or losses on the sale of securities are calculated by using the specific
identification method; (f) 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; (g) direct
expenses are charged to each class; management fees and general fund expenses
are allocated on the basis of relative net assets; (h) dividends and
distributions to shareholders are recorded on the ex-dividend date; (i) 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; (j) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At November 30, 1998,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Accordingly, a portion of overdistributed net investment
income amounting to $62,219 was reclassified to paid-in capital. Net investment
income, net realized gains and net assets were not affected by this adjustment;
and (k) 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.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
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.
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.
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.
On October 8, 1998, CFBDS, Inc., became the Fund's distributor. Prior to that
date, Salomon Smith Barney Inc. ("SSB"), another subsidiary of SSBH, was the
Fund's distributor. SSB, as well as certain other broker-dealers, continues to
sell Fund shares to the public as a member of the selling group.
On June 12, 1998, the Fund's existing Class C shares were renamed Class L
shares. Effective June 15, 1998, Class L shares are being sold at net asset
value plus a maximum initial sales charge of 1.00%. Class L shares also have a
1.00% contingent deferred sales charge ("CDSC"), which applies if redemption
occurs within the first year of purchase.
There is also a CDSC of 4.50% on Class B shares, which applies if redemption
occurs 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.
For the year ended November 30, 1998, SSB received sales charges of $103,000 and
$3,000 on sales of the Fund's Class A and Class L shares, respectively. In
addition, CDSC's paid to SSB were approximately:
Class B Class L
================================================================================
CDSCs $39,000 $1,000
================================================================================
- --------------------------------------------------------------------------------
18 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to its
Class A, B and L 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 L shares calculated at an
annual rate of 0.50% and 0.55%, respectively, of the average daily net assets of
each class. For the year ended November 30, 1998, total Distribution Plan fees
incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $50,498 $186,823 $7,934
================================================================================
All officers and one Trustee of the Fund are employees of SSB.
5. Investments
For the year ended November 30, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $42,233,906
- --------------------------------------------------------------------------------
Sales 32,471,474
================================================================================
At November 30, 1998, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $3,371,898
Gross unrealized depreciation (40,991)
- --------------------------------------------------------------------------------
Net unrealized appreciation $3,330,907
================================================================================
6. Shares of Beneficial Interest
At November 30, 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. Effective June 12, 1998, the Fund adopted the renaming of existing Class
C shares as Class L shares.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
At November 30, 1998, total paid-in capital amounted to the following for each
class:
Class A Class B Class L
==============================================================================
Total Paid-in Capital $34,866,632 $29,554,904 $1,881,950
==============================================================================
Transactions in shares of each class were as follows:
Year Ended Year Ended
November 30, 1998 November 30, 1997
---------------------- ----------------------
Shares Amount Shares Amount
==============================================================================
Class A
Shares sold 526,237 $ 7,028,660 328,135 $ 4,290,143
Shares issued on reinvestment 97,541 1,300,205 82,883 1,079,455
Shares redeemed (295,379) (3,944,654) (244,202) (3,177,789)
- ------------------------------------------------------------------------------
Net Increase 328,399 $ 4,384,211 166,816 $ 2,191,809
==============================================================================
Class B
Shares sold 498,735 $ 6,683,489 161,821 $ 2,099,145
Shares issued on reinvestment 75,997 1,011,915 72,576 944,328
Shares redeemed (393,228) (5,258,008) (362,492) (4,708,332)
- ------------------------------------------------------------------------------
Net Increase (Decrease) 181,504 $ 2,437,396 (128,095) $(1,664,859)
==============================================================================
Class L+
Shares sold 118,353 $ 1,582,956 21,630 $ 280,818
Shares issued on reinvestment 4,895 65,114 1,369 17,825
Shares redeemed (13,273) (177,264) (4,321) (55,932)
- ------------------------------------------------------------------------------
Net Increase 109,975 $ 1,470,806 18,678 $ 242,711
==============================================================================
+ On June 12, 1998, Class C shares were renamed Class L shares.
- --------------------------------------------------------------------------------
20 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended November 30:
<TABLE>
<CAPTION>
Class A Shares 1998 1997 1996 1995 1994
==============================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.18 $ 12.99 $ 12.96 $ 11.35 $ 13.26
- ----------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (1) 0.65 0.66 0.68 0.69 0.70
Net realized and unrealized
gain (loss) 0.34 0.32 0.02 1.61 (1.85)
- ----------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.99 0.98 0.70 2.30 (1.15)
- ----------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.64) (0.67) (0.67) (0.69) (0.70)
In excess of net investment income (0.01) -- -- -- --
Net realized gains (0.20) (0.12) -- -- (0.06)
- ----------------------------------------------------------------------------------------------
Total Distributions (0.85) (0.79) (0.67) (0.69) (0.76)
- ----------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 13.32 $ 13.18 $ 12.99 $ 12.96 $ 11.35
- ----------------------------------------------------------------------------------------------
Total Return 7.66% 7.85% 5.65% 20.73% (9.07)%
- ----------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $37,451 $32,736 $30,109 $29,159 $27,634
- ----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (1) 0.76% 0.80% 0.80% 0.83% 0.81%
Net investment income 4.84 5.07 5.32 5.42 5.55
- ----------------------------------------------------------------------------------------------
Portfolio Turnover Rate 51% 58% 23% 10% 37%
==============================================================================================
</TABLE>
(1) The investment adviser waived all or part of its fees for the four 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:
Per Share Decreases Expense Ratios
to Net Investment Income Without Fee Waivers
------------------------- -------------------------
1997 1996 1995 1994 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
Class A $0.01 $0.01 $0.03 $0.04 0.88% 0.91% 1.07% 1.09%
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 21
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended November 30:
<TABLE>
<CAPTION>
Class B Shares 1998 1997 1996 1995 1994
==============================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 13.17 $ 12.99 $ 12.96 $ 11.35 $ 13.26
- ----------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (1) 0.58 0.60 0.61 0.63 0.63
Net realized and unrealized
gain (loss) 0.33 0.31 0.03 1.61 (1.84)
- ----------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.91 0.91 0.64 2.24 (1.21)
- ----------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.57) (0.61) (0.61) (0.63) (0.64)
In excess of net investment income (0.01) -- -- -- --
Net realized gains (0.20) (0.12) -- -- (0.06)
- ----------------------------------------------------------------------------------------------
Total Distributions (0.78) (0.73) (0.61) (0.63) (0.70)
- ----------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 13.30 $ 13.17 $ 12.99 $ 12.96 $ 11.35
- ----------------------------------------------------------------------------------------------
Total Return 7.05% 7.25% 5.14% 20.15% (9.50)%
- ----------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $30,285 $27,589 $28,874 $28,726 $23,279
- ----------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (1) 1.28% 1.31% 1.31% 1.35% 1.32%
Net investment income 4.32 4.57 4.81 4.94 5.04
- ----------------------------------------------------------------------------------------------
Portfolio Turnover Rate 51% 58% 23% 10% 37%
==============================================================================================
</TABLE>
(1) The investment adviser has waived all or part of its fees for the four
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:
Per Share Decreases Expense Ratios
to Net Investment Income Without Fee Waivers
------------------------- -------------------------
1997 1996 1995 1994 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
Class B $0.01 $0.01 $0.04 $0.03 1.39% 1.42% 1.59% 1.60%
- --------------------------------------------------------------------------------
22 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended November 30:
<TABLE>
<CAPTION>
Class L Shares(1) 1998 1997 1996 1995 1994(2)
=========================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.16 $12.98 $12.95 $11.35 $11.34
- -----------------------------------------------------------------------------------------
Income From Operations:
Net investment income (3) 0.58 0.59 0.60 0.63 0.05
Net realized and unrealized gain 0.34 0.31 0.03 1.60 --
- -----------------------------------------------------------------------------------------
Total Income From Operations 0.92 0.90 0.63 2.23 0.05
- -----------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.57) (0.60) (0.60) (0.63) (0.04)
In excess of net investment income (0.01) -- -- -- --
Net realized gains (0.20) (0.12) -- -- --
- -----------------------------------------------------------------------------------------
Total Distributions (0.78) (0.72) (0.60) (0.63) (0.04)
- -----------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.30 $13.16 $12.98 $12.95 $11.35
- -----------------------------------------------------------------------------------------
Total Return 7.11% 7.21% 5.09% 20.04% 0.40%++
- -----------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $1,895 $ 428 $ 179 $ 146 $ 75
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (3) 1.31% 1.34% 1.34% 1.35% 1.36%+
Net investment income 4.25 4.51 4.77 4.65 5.00+
- -----------------------------------------------------------------------------------------
Portfolio Turnover Rate 51% 58% 23% 10% 37%
=========================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class L shares.
(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 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:
Per Share Decreases Expense Ratios
to Net Investment Income Without Fee Waivers
------------------------- -------------------------
1997 1996 1995 1994 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
Class L $0.01 $0.01 $0.04 $0.00* 1.42% 1.44% 1.58% 1.63%+
* 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>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees of
Smith Barney Massachusetts Municipals Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Smith Barney Massachusetts Municipals Fund
as of November 30, 1998, the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the four-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the year ended November 30,
1994, were audited by other auditors whose report thereon, dated January 12,
1995, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1998, by correspondence with the custodian. As to securities
purchased but not yet received, we performed other appropriate auditing
procedures. An audit also includes assessing the accounting principals used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Smith Barney Massachusetts Municipals Fund as of November 30, 1998, the results
of its operations for the year then ended, the changes in its net assets for
each of the years in the two-year period then ended and the financial highlights
for each of the years in the four-year period then ended, in conformity with
generally accepted accounting principles.
KPMG LLP
New York, New York
January 15, 1999
- --------------------------------------------------------------------------------
24 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year ended
November 30, 1998:
-- 100% of the dividends paid by the Fund from net investment income as
tax-exempt for regular Federal income tax purposes.
-- Long-term capital gain distributions paid of $732,226.
- --------------------------------------------------------------------------------
Smith Barney Massachusetts Municipals Fund 25
<PAGE>
SalomonSmithBarney
---------------------------
A member of citigroup[LOGO]
Trustees
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Cornelius C. Rose, Jr.
Heath B. McLendon, Chairman
James Crisona, Emeritus
Officers
Heath B. McLendon
President and 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
Investment Adviser
Mutual Management Corp.
Distributor
CFBDS, 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 the
Smith Barney Massachusetts Municipals Fund. It is not authorized for
distribution to prospective investors unless accompanied or preceded by a
current Prospectus for the Fund, which contains information concerning the
Fund's investment policies and expenses as well as other pertinent information.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney
Massachusetts
Municipals Fund
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com
FD0302 1/99
