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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4395
Smith Barney Muni Funds
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 451-2010
Date of fiscal year end: March 31
Date of reporting period: March 31, 2005
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ITEM 1. | REPORT TO STOCKHOLDERS. | |
The Annual Report to Stockholders is filed herewith. |
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SMITH BARNEY
MUNI FUNDS
NATIONAL PORTFOLIO
CLASSIC SERIES | ANNUAL REPORT | MARCH 31, 2005
NOT FDIC INSURED • NOT BANK GUARANTEED • MAY LOSE VALUE
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PETER M. COFFEY PORTFOLIO MANAGER |
Classic Series
Annual Report • March 31, 2005
NATIONAL PORTFOLIO
PETER M. COFFEY
Peter M. Coffey has 35 years of securities business experience and has been managing the Fund since 1987.
FUND OBJECTIVE
The Fund seeks as high a level of income exempt from federal income taxes* as is consistent with prudent investing. The Fund invests at least 80% of its net assets in “municipal securities,” which are debt obligations issued by any of the 50 states and their political subdivisions, agencies and public authorities.
* | Certain investors may be subject to the federal Alternative Minimum Tax, and state and local taxes will apply. Capital gains, if any, are fully taxable. Please consult your personal tax adviser. |
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R. JAY GERKEN, CFA
Chairman, President and Chief Executive Officer
Dear Shareholder,
Despite rising interest rates, continued high oil prices, geopolitical concerns and uncertainties surrounding the U.S. Presidential election, the U.S. economy continued to expand during the period. Following a 3.3% gain in the second quarter of 2004, gross domestic product (“GDP”)i growth was a robust 4.0% in the third quarter and 3.8% in the fourth quarter. On April 28, after the reporting period ended, first quarter 2005 GDP growth estimate came in at 3.1%.
Given the overall strength of the economy, Federal Reserve Board (“Fed”)ii moved to raise interest rates in an attempt to ward off inflation. As expected, the Fed increased its target for the federal funds rateiii by 0.25% to 1.25% on June 30, 2004 — the first rate hike in four years. The Fed again raised rates in 0.25% increments during its next six meetings, bringing the target for the federal funds rate to 2.75% by the end of March. The Fed raised its target rate by an additional 0.25% to 3.00% at its May meeting, after the Fund’s reporting period.
For much of the reporting period, the fixed-income market confounded many investors as short-term interest rates rose in concert with the Fed rate tightening, while longer-term rates, surprisingly, remained fairly steady. However, this changed late in the period, coinciding with the Fed’s official statement accompanying its March rate hike. While the Fed continued to say it expected to raise rates at a “measured” pace, it made several adjustments to its statement, which many investors interpreted to mean larger rate hikes could be possible in the future.
The municipal bond market, represented by the Lehman Brothers Municipal Bond Index,iv rose 2.67% for the year. Like the other fixed-income markets, longer maturity munis performed better than their shorter-term counterparts.
Please read on for a more detailed look at prevailing economic and market conditions during the Fund’s fiscal year and to learn how those conditions have affected Fund performance.
Information About Your Fund
As you may be aware, several issues in the mutual fund industry have recently come under the scrutiny of federal and state regulators. The Fund’s Adviser and some of its affiliates have received requests for information from various government regulators regarding market timing, late trading, fees, and other mutual fund issues in connection with various investigations. The regulators appear to be examining, among other things, the Fund’s response to market timing and shareholder exchange activity, including compliance with prospectus disclosure related to these subjects. The Fund has been informed that the Adviser and its affiliates are responding to those information requests, but are not in a position to predict the outcome of these requests and investigations.
Important information concerning the Fund and its Adviser with regard to recent regulatory developments is contained in the “Additional Information” note in the Notes to the Financial Statements included in this report.
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As always, thank you for your confidence in our stewardship of your assets. We look forward to helping you continue to meet your financial goals.
Sincerely,
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
May 3, 2005
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Although labor market growthv languished throughout 2003 into the first quarter of 2004, it rose significantly and remained strong in the early spring, and inflation picked up as well.vi
After an extended period of monetary easing, the Fed’s monetary policymaking committeevii raised its federal funds rate target from a four-decade low of 1.00% to 1.25% at the end of June — the Fed’s first hike in four years. The increase marked a significant reversal from the Fed’s monetary policy position from June 2003, when it last slashed its rate target following a long series of accommodative rate cuts. The rate hike was widely anticipated due to comments from the Fed regarding the momentum behind the economy and signals that it was prepared to push rates higher from their near-historic lows. As a result, bond prices declined and yields rose sharply in April before prices stabilized somewhat in the early summer.
The Fed once again raised its federal funds target by 0.25% in August and September, bringing the rate to 1.75%. Given that bond prices had already factored in rate hikes to a significant extent, and coupling this with a lack of inflationary pressures, bond prices held up and actually rose over the third quarter. In September and October, the bond market benefited from falling stock and rising oil prices, which encouraged investors to reallocate capital into fixed-income securities.
Yields on bonds rose as their prices dropped in reaction to an employment report issued in November that yielded surprisingly robust labor market results.v The Fed subsequently raised its federal funds rate target by 25 basis pointsviii at its meetings in November, December, February and March, bringing the rate target to 2.75% at the end of the reporting period. The Fed raised its target rate by an additional 0.25% to 3.00% at its May meeting, after the Fund’s reporting period.
Regardless of the economic expansion and higher interest rates, the overall bond market posted a modest gain during the period. Municipal bond credit quality continued to improve, as municipalities benefited from higher tax revenues, driven by improving economic growth and fiscal discipline. This caused municipal credit quality spreads to tighten.
Over the 12-month period, municipal bonds outperformed maturity equivalent U.S. Treasuries.ix Compelling taxable equivalent yieldsx for investors in
PERFORMANCE SNAPSHOT
AS OF MARCH 31, 2005
(excluding sales charges)
(unaudited)
6 Months | 12 Months | |||||
National Portfolio — Class A Shares | 2.68 | % | 4.57 | % | ||
Lehman Brothers Municipal Bond Index | 1.21 | % | 2.67 | % | ||
Lipper General Municipal Debt Funds Category Average | 0.91 | % | 2.03 | % |
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.citigroupam.com.
Performance figures may reflect reimbursements and/or fee waivers, without which the performance would have been lower.
Class A share returns assume the reinvestment of income dividends and capital gains distributions at net asset value and the deduction of all fund expenses. Returns have not been adjusted to include sales charges that may apply when shares are purchased or the deduction of taxes that a shareholder would pay on fund distributions. Excluding sales charges, Class B shares returned 2.42% and Class C shares returned 2.45% over the six months ended March 31, 2005. Excluding sales charges, Class B shares returned 4.12% and Class C shares returned 4.03% over the 12 months ended March 31, 2005.
Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended March 31, 2005, including the reinvestment of dividends and capital gains distributions, if any, calculated among the 289 funds for the six-month period and among the 284 funds for the 12-month period in the Fund’s Lipper category and excluding sales charges.
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middle- and higher- federal income tax brackets and low default rates continued to attract investors to municipal bond funds.
Performance Review
For the 12 months ended March 31, 2005, Class A shares of the Smith Barney Muni Funds — National Portfolio, excluding sales charges, returned 4.57%. These shares outperformed the Lipper General Municipal Debt Funds Category Average,1 which was 2.03%. The Fund’s unmanaged benchmark, the Lehman Brothers Municipal Bond Index, returned 2.67% for the same period.
Certain investors may be subject to the federal Alternative Minimum Tax, and state and local taxes may apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.
Factors that Influenced Fund Performance
Over the period, the Fund’s toll road and hospital issues were among the strongest performers. In addition, various corporate-backed and tobacco related securities contributed positively to results as market perceptions of credit quality improved.
Conversely, our positioning strategy in long-term Treasury futures detracted from performance. While we believe strategy reduced the portfolio’s overall volatility and may have helped to offset price declines when yields rose sharply from April through mid-June, overall it was a drag on performance during the reporting period. In addition, the Fund’s multi-family and student housing issues detracted from performance. Other detractors included special facility bonds for airlines in the transportation sector, hotel development and lifecare issues. A number of the Fund’s higher coupon securities were called at their first permissible opportunity, thus eroding some of the income the portfolio generates. Finally, our escrowed to maturity and pre-refunded issues, as well as other premium bonds with short calls, experienced modest price declines and also detracted from performance.
We have begun to pare some of our medium and lower grade holdings where risk elements are beginning to outweigh our assessment of reward potential as credit quality spreads have continued to narrow.
During the period we maintained a conservative posture in terms of overall duration,xi or price sensitivity to interest rate movements. This low-duration approach to managing interest rate risk limited the Fund’s ability to completely participate in upside market movements during intervals when bond prices rose, such as last summer. However, the Fund benefited from this approach in absolute terms when bond prices dropped, particularly in the spring and fall. Given the current market environment, we believe this approach to reducing potential volatility is more prudent than a longer-duration strategy.
Thank you for your investment in the Smith Barney Muni Funds — National Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.
Sincerely,
Peter M. Coffey
Vice President and Investment Officer
May 3, 2005
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The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
RISKS: Keep in mind, the Fund’s investments are subject to interest rate and credit risks. As interest rates rise, bond prices fall, reducing the value of the Fund’s share price. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance.
All index performance reflects no deduction for fees, expenses or taxes. Please note an investor cannot invest directly in an index.
i | Gross domestic product is a market value of goods and services produced by labor and property in a given country. |
ii | The Federal Reserve Board is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
iii | The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. |
iv | The Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond market with maturities of at least one year. |
v | Source: Bureau of Labor Statistics based upon the growth of non-farm payroll jobs. |
vi | Sources: Lehman Brothers. Inflation data based upon Consumer Price Index/deflation data. |
vii | Source: U.S. Federal Reserve Board. |
viii | A basis point is one-hundredth (1/100 or 0.01) of one percent. |
ix | Source: Lehman Brothers Indices. Note: This not a complete discussion of all differences between two investments being shown. An investor should consider all risks and differences between these investments before choosing to invest in either. U.S. Treasury notes are backed by the full faith and credit of the United States government and offer a return of principal value if held to maturity. |
x | The yield needed on a taxable investment in order to match the tax-free return offered on a municipal bond; calculated by dividing the tax-exempt yield by (1 minus the investor's marginal tax rate). |
xi | Duration is a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates. |
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Fund Expenses (unaudited) |
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on October 1, 2004 and held for the six months ended March 31, 2005.
Actual Expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.
Based on Actual Total Return(1)
Actual Total Return Without Sales Charges(2) | Beginning Account Value | Ending Account Value | Annualized Expense Ratio | Expenses Paid During the Period(3) | |||||||||||
Class A | 2.68 | % | $ | 1,000.00 | $ | 1,026.80 | 0.67 | % | $ | 3.39 | |||||
Class B | 2.42 | 1,000.00 | 1,024.20 | 1.18 | 5.96 | ||||||||||
Class C(4) | 2.45 | 1,000.00 | 1,024.50 | 1.24 | 6.26 | ||||||||||
(1) | For the six months ended March 31, 2005. |
(2) | 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 charge with respect to Class A shares or the applicable contingent deferred sales charges (“CDSC”) with respect to Class B and C shares. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. |
(3) | Expenses (net of voluntary fee waiver) are equal to each Fund’s respective annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. |
(4) | On April 29, 2004, Class L shares were renamed as Class C shares. |
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Fund Expenses (unaudited) (continued) |
Hypothetical Example for Comparison Purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Based on Hypothetical Total Return(1)
Hypothetical Annualized Total Return | Beginning Account Value | Ending Account Value | Annualized Expense Ratio | Expenses Paid During the Period(2) | |||||||||||
Class A | 5.00 | % | $ | 1,000.00 | $ | 1,021.59 | 0.67 | % | $ | 3.38 | |||||
Class B | 5.00 | 1,000.00 | 1,019.05 | 1.18 | 5.94 | ||||||||||
Class C(3) | 5.00 | 1,000.00 | 1,018.75 | 1.24 | 6.24 | ||||||||||
(1) | For the six months ended March 31, 2005. |
(2) | Expenses (net of voluntary fee waiver) are equal to each Fund’s respective annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. |
(3) | On April 29, 2004, Class L shares were renamed as Class C shares. |
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Average Annual Total Returns(1) (unaudited) |
Without Sales Charges(2) | |||||||||
Class A | Class B | Class C(3) | |||||||
Twelve Months Ended 3/31/05 | 4.57 | % | 4.12 | % | 4.03 | % | |||
Five Years Ended 3/31/05 | 6.05 | 5.53 | 5.46 | ||||||
Ten Years Ended 3/31/05 | 5.89 | 5.35 | 5.28 | ||||||
Inception* through 3/31/05 | 6.91 | 6.12 | 5.31 | ||||||
With Sales Charges(4) | |||||||||
Class A | Class B | Class C(3) | |||||||
Twelve Months Ended 3/31/05 | 0.40 | % | (0.33 | )% | 3.04 | % | |||
Five Years Ended 3/31/05 | 5.18 | 5.36 | 5.46 | ||||||
Ten Years Ended 3/31/05 | 5.46 | 5.35 | 5.28 | ||||||
Inception* through 3/31/05 | 6.68 | 6.12 | 5.31 | ||||||
Cumulative Total Returns(1) (unaudited) |
|
Without Sales Charges(2) | |||||
Class A (3/31/95 through 3/31/05) | 77.27 | % | |||
Class B (3/31/95 through 3/31/05) | 68.41 | ||||
Class C(3) (3/31/95 through 3/31/05) | 67.21 | ||||
(1) | All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. |
(2) | 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 charge with respect to Class A shares or the applicable contingent deferred sales charges (“CDSC”) with respect to Class B and C shares. |
(3) | On April 29, 2004, Class L shares were renamed as Class C shares. |
(4) | 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%; Class B shares reflect the deduction of a 4.50% CDSC, which applies if shares are redeemed within one year from purchase payment. This CDSC declines by 0.50% the first year after purchase payment and thereafter by 1.00% per year until no CDSC is incurred. Class C shares also reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed within one year from purchase payment. |
* | Inception dates for Class A, B and C shares are August 20, 1986, November 7, 1994 and January 5, 1993, respectively. |
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Historical Performance (unaudited)
Value of $10,000 Invested in Class A Shares of the National Portfolio vs. Lehman Brothers Municipal Bond Index and Lipper General Municipal Debt Funds Average†
March 1995 — March 2005
† | Hypothetical illustration of $10,000 invested in Class A shares on March 31, 1995, assuming deduction of the 4.00% maximum initial sales charge at the time of investment and reinvestment of dividends and capital gains through March 31, 2005. 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 1984. The Index is unmanaged and is not subject to the same management and trading expenses as a mutual fund. Please note that an investor cannot invest directly in an index. The Lipper General Municipal Debt Funds Average is composed of an average of the Fund’s peer group of 284 mutual funds investing in municipal securities as of March 31, 2005. 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 return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
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Schedule of Investments | March 31, 2005 |
FACE AMOUNT | RATING(a) | SECURITY | VALUE | ||||
Alabama — 0.3% | |||||||
$1,000,000 | BBB | Mobile, AL IDB, Environmental Improvement Revenue, (International Paper Co. Project), | $ | 1,078,080 | |||
Alaska — 0.6% | |||||||
2,500,000 | NR | Alaska Industrial Development & Export Authority Revenue, Williams Lynxs Alaska Cargoport, 8.125% due 5/1/31 (b)(c) | 2,626,425 | ||||
Arizona — 2.0% | |||||||
3,000,000 | A- | Arizona Health Facilities Authority Revenue, Catholic Healthcare West, Series A, 6.625% due 7/1/20 | 3,406,740 | ||||
2,450,000 | AAA | Maricopa County, AZ IDA, MFH Revenue Refunding, FHA-Insured, GNMA-Collateralized, 6.000% due 10/20/31 | 2,627,233 | ||||
215,000 | AAA | Pima County, AZ Single-Family Mortgage Revenue, Series A, FHLMC/FNMA/GNMA-Collateralized, 7.100% due 11/1/29 (b)(d) | 222,523 | ||||
1,875,000 | AAA | Yuma, AZ IDA, Mortgage, MFH Revenue Refunding, Series A, GNMA-Collateralized, 6.100% due 9/20/34 (b) | 2,041,144 | ||||
8,297,640 | |||||||
Arkansas — 0.5% | |||||||
2,000,000 | BBB- | Arkansas State Development Finance Authority, Hospital Revenue, Washington Regional | 2,221,900 | ||||
California — 4.5% | |||||||
5,000,000 | NR | Barona Band of Mission Indians, CA, 8.250% due 1/1/20 (e) | 5,229,150 | ||||
10,600,000 | A-1+ | California Pollution Control Financing Authority, (Pacific Gas & Electric Project), LOC Bank One N.A., Series F, 2.290% due 4/1/05 (f) | 10,600,000 | ||||
1,900,000 | AAA | Dixon Unified School District, MBIA-Insured, (Call 8/1/12 @ 100), 5.200% due 8/1/44 | 1,970,072 | ||||
1,000,000 | A-1+ | Metropolitan Water District of Southern California, Series B1, 2.230% due 4/7/05 (f) | 1,000,000 | ||||
18,799,222 | |||||||
Colorado — 3.0% | |||||||
1,000,000 | Ba1* | Colorado Educational & Cultural Facilities Authority Revenue, Charter School, (Bromley East Project), Series A, 7.250% due 9/15/30 | 1,007,590 | ||||
1,000,000 | Baa1* | Colorado Health Facilities Authority Revenue Bonds, (Parkview Medical Center Project), | 1,103,750 | ||||
2,180,000 | AAA | Colorado Water Resource & Power Authority, Small Water Resources Revenue, Series A, | 2,356,340 | ||||
7,000,000 | AAA | E-470 Public Highway Authority Colorado Revenue, Capital Appreciation, Series A, | 1,460,900 | ||||
10,000,000 | AAA | Northwest Parkway, Public Highway Authority, CO Revenue, Capital Appreciation, Sr. Bonds, Series B, AMBAC-Insured, zero coupon bond to yield 6.300% due 6/15/31 | 2,155,000 | ||||
1,000,000 | A-1+ | Pitkin County, CO IDR, (Aspen Skiing Co. Project), LOC JP Morgan Chase Bank, Series A, 2.300% due 4/1/05 (f) | 1,000,000 | ||||
2,500,000 | AAA | Summit County, CO Sports Facilities Refunding Revenue, (Keystone Resorts Management Inc. Project), Ralston Purina Co. Guaranteed, 7.750% due 9/1/06 | 2,671,100 | ||||
1,000,000 | A3* | University of Colorado Hospital Authority Revenue, Series A, 5.600% due 11/15/21 | 1,041,360 | ||||
12,796,040 | |||||||
Connecticut — 0.5% | |||||||
2,010,000 | NR | Connecticut Development Authority, Airport Facilities Revenue, (Signature Flight Co. Project), Guaranty Agreement, Series A, 6.625% due 12/1/14 (b) | 2,026,502 | ||||
See Notes to Financial Statements.
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Schedule of Investments (continued) | March 31, 2005 |
FACE AMOUNT | RATING(a) | SECURITY | VALUE | ||||
Florida — 7.2% | |||||||
$2,265,000 | NR | Bonnet Creek Resort Community Development District, Special Assessment, 7.375% due 5/1/34 | $ | 2,422,032 | |||
1,100,000 | Aa2* | Brevard County, FL Health Facilities Authority, Health Care Facilities Revenue, (Obligated Group Project), LOC Suntrust Bank, 2.290% due 4/1/05 (f) | 1,100,000 | ||||
3,000,000 | NR | Capital Projects Finance Authority, Student Housing Revenue, CAFRA Capital Corp., Florida Universities, Series A, 7.850% due 8/15/31 | 2,763,390 | ||||
2,000,000 | NR | Capital Trust Agency Revenue, Seminole Tribe Convention-A, 8.950% due 10/1/33 | 2,234,280 | ||||
1,920,000 | NR | Century Parc Community Development District, FL Special Assessment, 7.000% due 11/1/31 | 2,017,843 | ||||
Highlands County, FL Health Facilities Authority Revenue, Hospital-Adventist Health Systems, Series D: | |||||||
1,750,000 | A | 6.000% due 11/15/25 | 1,912,785 | ||||
2,750,000 | A | 5.875% due 11/15/29 | 2,966,425 | ||||
Hillsborough County, FL: | |||||||
2,000,000 | NR | IDA Exempt Facility Revenue, National Gypsum, Series A, 7.125% due 4/1/30 (b) | 2,186,420 | ||||
1,215,000 | AAA | Utility Refunding Revenue, 9.875% due 12/1/11 (g) | 1,471,936 | ||||
2,000,000 | AAA | Miami-Dade County, FL Expressway Authority Toll System Revenue, Series B, FGIC-Insured, 5.000% due 7/1/29 | 2,074,780 | ||||
2,000,000 | NR | Orange County, FL Health Facilities Authority Revenue, First Mortgage, Health Care Facilities, 9.000% due 7/1/31 | 2,047,240 | ||||
2,000,000 | A1* | Pinellas County, FL Health Facilities Authority Revenue, Baycare Health System, 5.500% due 11/15/33 | 2,083,480 | ||||
3,500,000 | NR | Reunion East Community Development District, FL Special Assessment, Series A, 7.375% due 5/1/33 (c) | 3,765,475 | ||||
1,000,000 | AAA | Tampa, FL Sales Tax Revenue, Series A, AMBAC-Insured, 5.375% due 10/1/21 | 1,090,420 | ||||
30,136,506 | |||||||
Georgia — 3.0% | |||||||
1,000,000 | A | Atlanta, GA Development Authority Student Housing Revenue, (ADA/CAU Partners Inc.), Series A, ACA-Insured, 6.250% due 7/1/24 | 1,091,700 | ||||
1,000,000 | Aaa* | Bulloch County, GA Development Authority, Student Housing Lease Revenue, (Georgia Southern University Project), AMBAC-Insured, 5.000% due 8/1/22 | 1,044,790 | ||||
1,000,000 | AA | Clayton County & Clayton County, GA Water Authority, Water & Sewage Revenue, (Call 5/1/15 @ 100), 5.000% due 5/1/23 | 1,047,530 | ||||
1,000,000 | Aaa* | De Kalb County, GA Housing Authority, MFH Revenue, (Snapwoods Project), Series A, GNMA-Collateralized, 5.500% due 12/20/32 | 1,028,720 | ||||
1,500,000 | A | Georgia Municipal Electric Authority Power Revenue, Series X, 6.500% due 1/1/12 | 1,686,015 | ||||
1,000,000 | A-1+ | Monroe County, GA Development Authority PCR, (Oglethorpe Power Corp Project), Series B, AMBAC-Insured, 2.290% due 4/1/05 (f) | 1,000,000 | ||||
1,500,000 | AAA | Municipal Electric Authority, GA, (Combustion Turbine Project), Series A, MBIA-Insured, 5.250% due 11/1/22 | 1,603,215 | ||||
3,000,000 | NR | Rockdale County, GA Solid Waste Authority Revenue, (Visy Paper Inc. Project), 7.500% due 1/1/26 (b) | 3,054,900 | ||||
1,000,000 | NR | Savannah, GA EDA Revenue, (College of Art & Design Inc. Project), (Call 10/1/09 @ 102), 6.900% due 10/1/29 (h) | 1,150,440 | ||||
12,707,310 | |||||||
Hawaii — 0.2% | |||||||
960,000 | AAA | Hawaii State Department Budget & Finance, Hawaiian Electric Co., Inc., Series A, MBIA-Insured, 5.650% due 10/1/27 (b) | 1,037,040 | ||||
Illinois — 6.1% | |||||||
1,000,000 | AAA | Chicago, IL Board of Education, School Reform, Series A MBIA-Insured, 5.500% due 12/1/28 | 1,072,940 | ||||
2,385,000 | AAA | Chicago, IL Series A, (Call 1/1/15 @ 100), 5.000%, due 1/1/20 | 2,512,669 |
See Notes to Financial Statements.
12 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Schedule of Investments (continued) | March 31, 2005 |
FACE AMOUNT | RATING(a) | SECURITY | VALUE | ||||
Illinois — 6.1% (continued) | |||||||
Chicago, IL Single-Family Mortgage Revenue: | |||||||
$ 375,000 | Aaa* | Series A, FNMA/GNMA-Collateralized, 6.350% due 10/1/30 (b) | $ | 390,405 | |||
105,000 | AAA | Series C, FHLMC/FNMA/GNMA-Collateralized, 7.000% due 3/1/32 (b) | 106,288 | ||||
3,000,000 | AAA | Chicago, IL Skyway Toll Bridge Revenue, AMBAC-Insured, 5.500% due 1/1/31 (c)(h) | 3,343,860 | ||||
3,000,000 | AAA | Chicago O’Hare International Airport, Gen-Airport, 3rd Lein-B2, 6.000% due 1/1/29 (b)(c) | 3,324,240 | ||||
680,000 | A | Illinois Development Finance Authority Revenue, City of East St. Louis, 7.250% due 11/15/09 (h) | 688,269 | ||||
Illinois Health Facilities Authority Revenue: | |||||||
1,540,000 | CCC | Mercy Hospital & Medical Center, 7.000% due 1/1/07 | 1,436,327 | ||||
680,000 | AAA | Methodist Medical Center Project, 9.000% due 10/1/10 (g) | 784,421 | ||||
3,000,000 | A | Order of Saint Francis Healthcare Systems, 6.250% due 11/15/29 (c) | 3,195,540 | ||||
1,500,000 | A | Passavant Memorial Area Hospital, 6.000% due 10/1/24 | 1,626,180 | ||||
Illinois Housing Development Authority, MFH Revenue: | |||||||
705,000 | A+ | Series 1991A, 8.125% due 7/1/10 | 710,548 | ||||
1,830,000 | AAA | Series A-1, GNMA-Collateralized, 5.750% due 12/20/32 | 1,967,195 | ||||
1,000,000 | AAA | Metropolitan Pier & Exposition Authority, IL Dedicated State Tax Revenue, Capital Appreciation, McCormick Place Expansion, Series A, MBIA-Insured, 5.500% due 6/15/23 | 1,093,210 | ||||
1,045,000 | AAA | Regional Transit Authority, IL, Series C, FGIC-Insured, 7.750% due 6/1/20 | 1,417,365 | ||||
2,000,000 | A+ | West Chicago, IL IDR, (Leggett & Platt Inc. Project), 6.900% due 9/1/24 (b) | 2,053,920 | ||||
25,723,377 | |||||||
Indiana — 3.1% | |||||||
3,080,000 | AAA | Indiana Bond Bank Revenue, Special Program, Series A, AMBAC-Insured, 9.750% due 8/1/09 (c)(g) | 3,509,044 | ||||
3,000,000 | BBB- | Indiana Health Facility Financing Authority, Hospital Revenue, Community Foundation Northwest, IN, Series A, 6.375% due 8/1/31 (c) | 3,128,670 | ||||
3,685,000 | AA | Indianapolis, IN Local Public Improvement Bond Bank, Series D, 6.750% due 2/1/14 (c)(g) | 4,351,027 | ||||
2,000,000 | NR | North Manchester, Industrial Revenue, (Peabody Retirement Community Project), Series A, 7.125% due 7/1/22 | 2,071,300 | ||||
13,060,041 | |||||||
Iowa — 1.6% | |||||||
Iowa Finance Authority Revenue: | |||||||
3,000,000 | AA | Catholic Health Initiatives, Series A, 6.000% due 12/1/18 (c) | 3,319,020 | ||||
3,000,000 | A1* | Health Care Facilities Revenue, Genesis Medical Center, 6.250% due 7/1/25 (c) | 3,236,550 | ||||
6,555,570 | |||||||
Kansas — 0.4% | |||||||
480,000 | AAA | Cowley & Shawnee Counties, KS Mortgage Revenue, Series B, AMBAC-Insured, GNMA-Collateralized, zero coupon bond to yield 5.553% due 6/1/22 (b) | 127,051 | ||||
1,000,000 | BBB-‡ | Overland Park, KS Development Corp. Revenue, First Tier, Overland Park, Series A, 7.375% due 1/1/32 | 1,086,600 | ||||
615,000 | Aaa* | Sedgwick & Shawnee Counties, KS Single-Family Mortgage Revenue, Series A-1, GNMA-Collateralized, 6.875% due 12/1/26 (b)(d) | 636,039 | ||||
1,849,690 | |||||||
Kentucky — 0.6% | |||||||
2,000,000 | NR | Kenton County, KY Airport Board, Special Facilities Revenue, (Mesaba Aviation Inc. Project), Series A, 6.700% due 7/1/29 (b) | 1,615,180 | ||||
800,000 | A-1+ | Louisville & Jefferson County, KY Metropolitan Sewer District & Drain System, Series B, 2.250% due 4/6/05 (f) | 800,000 | ||||
2,415,180 | |||||||
See Notes to Financial Statements.
13 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Schedule of Investments (continued) | March 31, 2005 |
FACE AMOUNT | RATING(a) | SECURITY | VALUE | ||||
Louisiana — 1.0% | |||||||
$1,000,000 | Aaa* | Louisiana Local Government Environmental Facilities and Community Development Authority Revenue, Mortgage, Sharlo Apartments, Series A, GNMA-Collateralized, 6.500% due 6/20/37 | $ | 1,095,220 | |||
1,000,000 | BBB | Rapides, LA Finance Authority, Environmental Improvement Revenue, (International Paper Co. Project), Series A, 6.550% due 11/15/23 (b) | 1,058,750 | ||||
1,945,000 | BBB- | Saint Charles Parish, LA PCR, (Union Carbide Project), 7.350% due 11/1/22 (b) | 1,945,214 | ||||
4,099,184 | |||||||
Maryland — 0.6% | |||||||
2,350,000 | NR | Maryland State Economic Development Corp. Revenue, Health & Mental Hygiene Program, Series A, 7.750% due 3/1/25 | 2,487,076 | ||||
Massachusetts — 3.6% | |||||||
2,500,000 | Ba3* | Boston, MA Industrial Development Financing Authority, (Crosstown Center Project), 6.500% due 9/1/35 (b) | 2,413,250 | ||||
1,135,000 | AAA | Boston, MA Water & Sewer Revenue, 10.875% due 1/1/09 (e)(g) | 1,328,597 | ||||
2,000,000 | AAA | Massachusetts State, RITES, Series PA 993-R, MBIA-Insured, 9.081% due 11/1/15 (i) | 2,414,080 | ||||
1,000,000 | AA | Massachusetts State Development Finance Agency Revenue, May Institute Issue, Radian-Insured, 5.750% due 9/1/29 | 1,060,470 | ||||
Massachusetts State Health & Educational Facilities Authority Revenue: | |||||||
1,000,000 | AA | Berkshire Health System, Series E, Radian-Insured, 5.700% due 10/1/25 | 1,086,710 | ||||
3,000,000 | BBB | Caritas Christi Obligation, Series B, 6.750% due 7/1/16 (c) | 3,369,300 | ||||
1,250,000 | BBB | University of Massachusetts, Memorial Healthcare Inc., Series C, 6.625% due 7/1/32 | 1,347,875 | ||||
910,000 | AAA | Massachusetts State Industrial Finance Agency Revenue Refunding, Chelsea Jewish, Series A, FHA-Insured, 6.500% due 8/1/37 | 994,730 | ||||
1,000,000 | AAA | Massachusetts Water Pollution Abatement Trust, Series 9, 5.250% due 8/1/28 | 1,062,930 | ||||
15,077,942 | |||||||
Michigan — 1.3% | |||||||
1,000,000 | AAA | Lake Superior, MI State University Revenue, AMBAC-Insured, 5.500% due 11/15/21 | 1,086,340 | ||||
2,000,000 | A | Saginaw, MI Hospital Finance Authority, Covenant Medical Center, Series F, 6.500% due 7/1/30 | 2,193,640 | ||||
2,470,000 | NR | Wenonah Park Properties Inc., Bay City Hotel Revenue Bond, 7.500% due 4/1/33 | 2,390,194 | ||||
5,670,174 | |||||||
Minnesota — 0.6% | |||||||
1,500,000 | Aaa* | Columbia Heights, MN MFH Revenue, Crest View, Series A-1, GNMA-Collateralized, 6.625% due 4/20/43 | 1,657,755 | ||||
605,000 | AAA | Minneapolis, MN Hospital Revenue, St. Mary's Hospital & Rehabilitation, 10.000% due 6/1/13 (g) | 762,445 | ||||
2,420,200 | |||||||
Mississippi — 1.3% | |||||||
1,700,000 | BBB | Adams County, MS Environmental Improvement Revenue Refunding, (International Paper Co. Project), Series A, 6.800% due 8/1/24 (b) | 1,817,317 | ||||
3,000,000 | BBB | Lowndes County, MS Solid Waste Disposal & PCR Refunding, (Weyerhaeuser Co. Project), Series A, 6.800% due 4/1/22 (c) | 3,601,710 | ||||
5,419,027 | |||||||
See Notes to Financial Statements.
14 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Schedule of Investments (continued) | March 31, 2005 |
FACE AMOUNT | RATING(a) | SECURITY | VALUE | ||||
Missouri — 0.3% | |||||||
$ 110,000 | AAA | Missouri State Housing Development Community Mortgage Revenue, Series C, FNMA/GNMA-Collateralized, 7.450% due 9/1/27 (b) | $ | 112,687 | |||
1,000,000 | NR | St. Joseph, MO IDA, Healthcare Revenue, (Living Community St. Joseph Project), 7.000% due 8/15/32 | 1,047,390 | ||||
1,160,077 | |||||||
Montana — 0.1% | |||||||
295,000 | AAA | Montana State Board of Regents Revenue, 10.000% due 11/15/08 (g) | 337,120 | ||||
Nebraska — 0.2% | |||||||
750,000 | NR | Douglas County, NE Hospital Authority No. 2, Bergan Mercy, 9.500% due 7/1/10 (g) | 878,272 | ||||
Nevada — 2.2% | |||||||
3,000,000 | A- | Henderson, NV Health Care Facility Revenue, Catholic Healthcare West, Series A, 6.750% due 7/1/20 (c) | 3,409,080 | ||||
5,000,000 | AAA | Washoe County, NV GO, Reno-Sparks Convention, Series A, FSA-Insured, | 5,679,200 | ||||
9,088,280 | |||||||
New Hampshire — 1.4% | |||||||
New Hampshire Health & Education Facilities Authority Revenue: | |||||||
1,000,000 | A- | Healthcare System, Covenant Health, 6.125% due 7/1/31 | 1,055,500 | ||||
1,000,000 | BBB- | New Hampshire College, 7.500% due 1/1/31 | 1,089,110 | ||||
New Hampshire State Turnpike Systems Revenue Refunding, FGIC-Insured: | |||||||
2,500,000 | AAA | Series A, 6.750% due 11/1/11 | 2,698,650 | ||||
1,000,000 | AAA | Series C, RIBS, 12.364% due 11/1/17 (j) | 1,159,130 | ||||
6,002,390 | |||||||
New Jersey — 3.8% | |||||||
1,500,000 | AAA | Casino Reinvestment Development Authority, NJ Hotel Room Fee Revenue, AMBAC-Insured, 5.000% due 1/1/25 | 1,578,915 | ||||
1,000,000 | AAA | New Jersey EDA, Motor Vehicle Revenue, Series A, MBIA-Insured, 5.250% due 7/1/31 | 1,061,550 | ||||
2,000,000 | BBB- | New Jersey Health Care Facilities Financing Authority Revenue, Trinitas Hospital Obligation Group, 7.400% due 7/1/20 | 2,266,760 | ||||
New Jersey State Transportation Trust Fund Authority, MBIA-Insured, RITES: | |||||||
2,500,000 | AAA | Series-PA 958R, 6.000% due 12/15/09 (c)(i) | 3,204,750 | ||||
1,000,000 | AAA | Series-PA 958R-B, 6.000% due 12/15/09 (i) | 1,281,900 | ||||
1,250,000 | NR | Port Authority, NY & NJ Special Obligation Revenue, (5th Installment Special Project), Series 4, 6.750% due 10/1/19 (b) | 1,322,588 | ||||
5,000,000 | BBB | Tobacco Settlement Financing Corp., NJ, 6.750% due 6/1/39 (c) | 5,255,000 | ||||
15,971,463 | |||||||
New York — 7.2% | |||||||
1,250,000 | BBB+ | Brookhaven, NY IDA, Civic Facility Revenue, St. Joseph’s College, 6.000% due 12/1/20 | 1,329,750 | ||||
2,000,000 | BBB‡ | Chautauqua, NY Tobacco, Asset Securitization Corp., 6.750% due 7/1/40 | 2,082,840 | ||||
2,500,000 | AAA | New York City Municipal Water Finance Authority, Water and Sewer System Revenue, Series C, MBIA-Insured, (Call 6/15/05 @ 100), 5.000% due 6/15/27 | 2,601,150 | ||||
New York State Dormitory Authority Lease Revenue: | |||||||
5,000,000 | AAA | Mental Health Services Facilities, Series D, FGIC-Insured, (Call 2/15/15 @ 100), 5.000% due 8/15/18 (c) | 5,328,300 | ||||
3,500,000 | AAA | School Districts Financing Program, Series E, 5.750% due 10/1/22 (c) | 3,914,575 | ||||
486,000 | AA- | Series B, (Call 5/15/05 @ 100), 7.500% due 5/15/11 (h) | 571,191 | ||||
2,000,000 | AA- | State University Dormitory Facilities, (Call 7/1/12 @ 100), 5.375% due 7/1/18 (h) | 2,218,960 | ||||
1,014,000 | AA- | Unrefunded Balance, Series B, 7.500% due 5/15/11 | 1,149,075 |
See Notes to Financial Statements.
15 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Schedule of Investments (continued) | March 31, 2005 |
FACE AMOUNT | RATING(a) | SECURITY | VALUE | ||||
New York — 7.2% (continued) | |||||||
$3,000,000 | AAA | New York State Urban Development Corp. Revenue, Personal Income Tax Series C-1, FGIC-Insured, (Call 3/15/13 @ 100), 5.500% due 3/15/21 (c)(h) | $ | 3,377,490 | |||
Orange County, NY IDA, Civic Facilities Revenue, (Arden Hill Life Care Center Project), Series A: | |||||||
1,000,000 | NR | 7.000% due 8/1/21 | 1,039,430 | ||||
1,000,000 | NR | 7.000% due 8/1/31 | 1,034,870 | ||||
1,000,000 | AA | Rensselaer County, NY IDA, Albany International Corp., LOC Fleet Bank, 7.550% due 7/15/07 | 1,077,700 | ||||
970,000 | NR | Suffolk County, NY IDA, Civic Facilities Revenue, Eastern Long Island Hospital Association, Series A, 7.750% due 1/1/22 | 999,915 | ||||
1,600,000 | AAA | Tobacco Settlement Financing Corp., Series A1, Callable Asset-Backed, 5.250% due 6/1/22 | 1,700,144 | ||||
1,525,000 | AA- | Triborough Bridge & Tunnel Authority, NY Revenue, (Convention Center Project), Series E, 7.250% due 1/1/10 | 1,683,265 | ||||
30,108,655 | |||||||
North Carolina — 1.9% | |||||||
North Carolina Eastern Municipal Power Agency, Power System Revenue Refunding: | |||||||
1,310,000 | BBB | Series A, (Call 1/1/22 @ 100), 6.000% due 1/1/26 (h) | 1,568,489 | ||||
1,700,000 | A | Series B, ACA-Insured, 5.750% due 1/1/24 | 1,791,392 | ||||
2,500,000 | BBB | Series D, 6.700% due 1/1/19 | 2,773,850 | ||||
1,500,000 | AAA | North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue, MBIA-Insured, 5.250% due 1/1/11 (d) | 1,836,825 | ||||
7,970,556 | |||||||
Ohio — 4.4% | |||||||
3,130,000 | AAA | Cincinnati, OH City School District, School Improvement, FSA-Insured, 5.250% due 6/1/16 (c) | 3,396,394 | ||||
Cuyahoga County, OH: | |||||||
3,000,000 | BBB | Hospital Facilities Revenue, (Canton Inc. Project), 7.500% due 1/1/30 (c) | 3,351,540 | ||||
250,000 | Aaa* | MFH, Dalebridge Apartments, FHA-Insured, GNMA-Collateralized, 6.500% due 10/20/20 (b) | 256,935 | ||||
1,000,000 | Aaa* | Franklin County, OH Mortgage Revenue, Villas at St. Therese, Series E, GNMA-Collateralized, 5.900% due 6/20/39 | 1,064,090 | ||||
350,000 | BB- | Green Springs, OH Health Care Facilities Revenue, (St. Francis Health Care Center Project), Series A, 7.125% due 5/15/25 | 301,857 | ||||
2,925,000 | Aa2* | Hamilton County, OH Mortgage Revenue, Judson Care Center, Series A, FHA-Insured, 6.500% due 8/1/26 (c) | 3,120,653 | ||||
500,000 | NR | Ohio State Solid Waste Revenue, 9.000% due 6/1/21 (b)(k)(l) | 0 | ||||
6,055,000 | AAA | Ohio State Water Development Authority Revenue, Safe Water, Series 2, 9.375% due 12/1/10 (c)(g) | 6,952,169 | ||||
18,443,638 | |||||||
Oklahoma — 1.6% | |||||||
1,640,000 | AA- | Oklahoma City, OK Industrial & Cultural Facilities, Trigen Energy Corp., 6.750% due 9/15/17 (b) | 1,645,986 | ||||
405,000 | AAA | Rogers County, OK HFA, MFH Revenue Refunding, Series A, FHA-Insured, FNMA-Collateralized, 7.750% due 8/1/23 | 407,183 | ||||
3,960,000 | AA- | Tulsa, OK Public Facilities Authority, Lease Payment Revenue Refunding, Assembly Center, 6.600% due 7/1/14 (c) | 4,626,785 | ||||
6,679,954 | |||||||
Oregon — 1.4% | |||||||
1,000,000 | BBB | Klamath Falls, OR Inter-Community Hospital Authority Revenue, (Merle West Medical Center Project), 6.250% due 9/1/31 | 1,056,070 | ||||
3,285,000 | Aa1* | Port of Umatilla, OR Water Revenue, LOC Bank of America, 6.650% due 8/1/22 (b)(c) | 3,329,873 |
See Notes to Financial Statements.
16 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Schedule of Investments (continued) | March 31, 2005 |
FACE AMOUNT | RATING(a) | SECURITY | VALUE | ||||
Oregon — 1.4% (continued) | |||||||
$ 500,000 | Aa1* | Portland, OR MFH Revenue, (Cherry Ridge Project), LOC U.S. National Bank of Oregon, 6.250% due 5/1/12 (b) | $ | 500,575 | |||
1,000,000 | NR | Wasco County, OR Solid Waste Disposal Revenue, (Waste Connections Inc. Project), 7.250% due 3/1/21 (b) | 1,073,760 | ||||
5,960,278 | |||||||
Pennsylvania — 4.5% | |||||||
Dauphin County, PA: | |||||||
1,500,000 | NR | General Authority Revenue, Office and Packaging, 6.000% due 1/1/25 | 1,339,155 | ||||
2,400,000 | A- | IDA, General Water Supply, Series A, 6.900% due 6/1/24 (b) | 2,998,728 | ||||
3,335,000 | AAA | Delaware River Port Authority PA & NJ, R-B RITES, Series PA 964, 9.070% due 1/1/15 (c)(h)(i) | 4,053,292 | ||||
2,200,000 | NR | Harrisburg, PA Redevelopment Authority, First Mortgage Office Building, (Call 5/15/12 @ 100), 6.750% due 5/15/25 (h) | 2,548,480 | ||||
1,150,000 | NR | Lancaster, PA IDA Revenue, (Garden Spot Village Project), Series A, 7.625% due 5/1/31 | 1,247,509 | ||||
1,000,000 | A- | Lancaster County, PA Hospital Authority Revenue, Health Center, (Willow Valley Retirement Project), 5.875% due 6/1/31 | 1,039,200 | ||||
1,000,000 | NR | Montgomery County, PA Higher Education & Health Authority Revenue, Temple Continuing Care Center, 6.750% due 7/1/29 (k) | 30,000 | ||||
1,000,000 | NR | New Morgan, PA Municipal Authority Office Revenue, (Commonwealth Office Project), Series A, 6.500% due 6/1/25 | 1,016,580 | ||||
Pennsylvania State Higher Educational Facilities Authority Revenue: | |||||||
985,000 | Baa3* | Student Housing Revenue, (Student Association Inc. Project), Series A, 6.750% due 9/1/32 | 1,030,369 | ||||
1,000,000 | A+ | University of Pennsylvania Medical Center Health System, Series A, 6.000% due 1/15/31 | 1,091,760 | ||||
1,025,000 | AAA | Philadelphia Hospitals & Higher Education Facilities Authority, Hospital Revenue, Presbyterian Medical Center, 6.650% due 12/1/19 (g) | 1,244,904 | ||||
1,000,000 | AAA | Philadelphia Municipal Authority, Series B, 5.250% due 11/15/17 | 1,076,670 | ||||
18,716,647 | |||||||
Puerto Rico — 0.5% | |||||||
2,000,000 | AAA | Puerto Rico Electric Power Authority Revenue, Series RR, (Call 7/1/15 @ 100), 5.000% due 7/1/25 | 2,097,940 | ||||
Rhode Island — 2.9% | |||||||
3,270,000 | AAA | Providence, RI Redevelopment Agency Revenue, Series A, AMBAC-Insured, (Call 4/1/15 @ 100), 5.000% due 4/1/24 (c) | 3,400,375 | ||||
1,000,000 | BBB- | Providence, RI Special Obligation, Tax Increment, Series D, 6.650% due 6/1/16 | 1,037,970 | ||||
3,900,000 | Aa3* | Rhode Island Health & Educational Building Corp., Refunding Revenue, Health Facilities, St. Antoine Residence, Series A, 6.125% due 11/15/18 (c) | 4,126,005 | ||||
3,400,000 | AA | Rhode Island State Economic Development Corp. Revenue, Providence Plaza Mall, Sr. Notes, Radian-Insured, 6.125% due 7/1/20 (c) | 3,795,658 | ||||
12,360,008 | |||||||
South Carolina — 0.6% | |||||||
Piedmont, SC Municipal Power Agency, Electric Revenue, FGIC-Insured: | |||||||
565,000 | AAA | 6.750% due 1/1/20 (g) | 718,290 | ||||
670,000 | AAA | Unrefunded Balance, 6.750% due 1/1/20 | 849,466 | ||||
1,000,000 | BBB | Richland County, SC Environmental Improvement Revenue, (International Paper Co. Project), 6.100% due 4/1/23 (b) | 1,051,510 | ||||
2,619,266 | |||||||
See Notes to Financial Statements.
17 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Schedule of Investments (continued) | March 31, 2005 |
FACE AMOUNT | RATING(a) | SECURITY | VALUE | ||||
Texas — 15.9% | |||||||
$3,000,000 | CCC | Alliance Airport Authority Inc., TX Special Facilities Revenue, (American Airlines Inc. Project), 7.500% due 12/1/29 (b) | $ | 2,082,180 | |||
2,250,000 | BBB- | Austin, TX Convention Enterprises Inc., Convention Center, First Tier, Series A, 6.700% due 1/1/32 | 2,408,467 | ||||
1,500,000 | BBB- | Bexar County, TX Health Facilities Development Corp. Revenue, (Army Retirement Residence Project), 6.300% due 7/1/32 | 1,586,625 | ||||
Bexar County, TX Housing Finance Corp., MFH Revenue: | |||||||
1,450,000 | Aaa* | New Light Village, Series A1, GNMA-Collateralized, 5.900% due 2/20/38 | 1,531,258 | ||||
5,000,000 | Baa1* | Nob Hill Apartments, Refunding, Series A, 6.000% due 6/1/31 (c) | 4,937,150 | ||||
1,000,000 | Aaa* | Waters at Northern Hills Apartments, Series A, MBIA-Insured, 6.050% due 8/1/36 | 1,057,440 | ||||
5,000,000 | A- | Brazos River, TX Harbor Navigation District, Brazoria County Environmental, (Dow Chemical Co. Project), Series A-7, 6.625% due 5/15/33 (b)(c) | 5,573,250 | ||||
5,000,000 | Aa3* | Brazos River, TX Navigation District, (BASF Corp. Project), 6.750% due 2/1/10 (c) | 5,705,450 | ||||
3,500,000 | CCC | Dallas-Fort Worth, TX International Airport Revenue, Facility Improvement Corp. Revenue, American Airlines Inc., 6.375% due 5/1/35 (b) | 2,121,840 | ||||
El Paso County, TX Housing Finance Corp., MFH Revenue, Series A: | |||||||
3,000,000 | A3* | American Village Communities, 6.375% due 12/1/32 | 3,039,510 | ||||
2,390,000 | A3* | La Plaza Apartments, 6.750% due 7/1/30 | 2,627,901 | ||||
1,000,000 | Baa2* | Las Lomas Apartments, 6.375% due 12/1/29 | 979,820 | ||||
Fort Worth, TX Housing Finance Corp.: | |||||||
3,985,000 | Aaa* | MFH, Villas Eastwood Terrace, GNMA-Collateralized, 6.000% due 8/20/43 (c) | 4,308,622 | ||||
30,000 | AAA | Single-Family Mortgage Revenue, Capital Appreciation, Series A, GNMA-Collateralized, zero coupon bond to yield 5.491% due 6/1/21 (b) | 8,139 | ||||
1,775,000 | NR | Galveston, TX Special Contract Revenue Refunding, (Farmland Industries Inc. Project), 5.500% due 5/1/15 | 1,863,111 | ||||
1,000,000 | AAA | Grand Prairie, TX Housing Finance Corp., MFH Revenue, (Landings of Carrier Project), Series A, GNMA-Collateralized, 6.750% due 9/20/32 | 1,118,790 | ||||
5,000,000 | Ba2* | Gulf Coast IDA, TX Solid Waste Disposal Revenue, (Citgo Petroleum Project), 8.000% due 4/1/28 (b)(c) | 5,624,650 | ||||
1,000,000 | A-1+ | Harris County, TX Health Facilities Development Authority, (Texas Medical Center Project), Series B, 2.300% due 4/1/05 (f) | 1,000,000 | ||||
2,000,000 | A+ | Houston, TX Participation Interest, 6.400% due 6/1/27 | 2,166,300 | ||||
Midlothian, TX Development Authority, Tax Increment Contract Revenue: | |||||||
1,880,000 | NR | 6.700% due 11/15/23 | 1,906,809 | ||||
2,000,000 | NR | 7.875% due 11/15/26 | 2,174,300 | ||||
994,000 | Aaa* | Panhandle, TX Regional Housing Finance Corp., Series A, GNMA-Collateralized, 6.650% due 7/20/42 | 1,094,116 | ||||
1,550,000 | Aaa* | Paris, TX Water & Sewer Revenue, FGIC-Insured, 5.375% due 6/15/20 | 1,641,528 | ||||
1,000,000 | Baa3* | Student Housing Corp., TX Student Housing Revenue, (Midwestern State University Project), 6.500% due 9/1/34 | 1,039,330 | ||||
2,500,000 | A | Tarrant County, TX Health Facilities Development Corp., Hospital Revenue, 6.700% due 11/15/30 | 2,739,900 | ||||
Texas State Affordable Housing Corp., MFH Revenue: | |||||||
2,000,000 | Baa3* | Ashton Place & Woodstock Apartments, Series A, 6.300% due 8/1/33 | 1,785,140 | ||||
3,870,000 | Ba3* | Sub-HIC Arbrostone/Baybrook, Series C, 7.250% due 11/1/31 (c) | 3,331,954 | ||||
1,000,000 | AA | Texas State GO, Veterans Housing Assistance, Series D, 6.450% due 12/1/20 (b) | 1,029,870 | ||||
Weatherford, TX ISD, Capital Appreciation, PSFG: | |||||||
1,490,000 | AAA | Call 2/15/10 @ 48.281, zero coupon bond to yield 6.275% due 2/15/21 (h) | 606,877 | ||||
10,000 | AAA | Unrefunded Balance, zero coupon bond to yield 6.275% due 2/15/21 | 3,928 | ||||
67,094,255 | |||||||
See Notes to Financial Statements.
18 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Schedule of Investments (continued) | March 31, 2005 |
FACE AMOUNT | RATING(a) | SECURITY | VALUE | ||||
Utah — 1.6% | |||||||
$ 975,000 | AAA | Provo, UT Electric Revenue, 10.125% due 4/1/15 (g) | $ | 1,296,116 | |||
3,780,000 | AAA | Utah State Board of Regents Revenue, (Hospital – University of Utah), 5.000% due 8/1/20 (c) | 3,931,276 | ||||
1,365,000 | AAA | Weber County, UT Hospital Revenue, St. Benedict’s Hospital, 10.000% due 3/1/10 (e)(g) | 1,626,534 | ||||
6,853,926 | |||||||
Virginia — 2.9% | |||||||
Pocahontas Parkway Association, VA Toll Road Revenue, Capital Appreciation, Sr. Bonds, Series B: | |||||||
25,000,000 | BB | Zero coupon bond to yield 7.440% due 8/15/34 (c) | 4,228,250 | ||||
35,000,000 | BB | Zero coupon bond to yield 7.440% due 8/15/35 (c) | 5,593,350 | ||||
1,000,000 | B2* | Rockbridge County, VA IDA Revenue, Virginia Horse Center, Series C, 6.850% due 7/15/21 | 934,080 | ||||
1,460,000 | AA | Virginia State Resources Authority Infrastructure Revenue, (Pooled Loan Bond Project), Series A, 5.100% due 5/1/25 | 1,526,547 | ||||
12,282,227 | |||||||
Washington — 1.6% | |||||||
1,000,000 | A+ | King County, WA Housing Authority Revenue Refunding, Sr. Bonds, Series A, 6.800% due 3/1/26 | 1,016,540 | ||||
2,865,000 | A3* | Port Longview, WA Revenue Refunding, Series A, 6.250% due 12/1/18 (b)(c) | 3,161,757 | ||||
2,347,000 | AAA | Seattle, WA Housing Authority, Low Income Housing Revenue, GNMA-Collateralized, 7.400% due 11/20/36 | 2,584,939 | ||||
6,763,236 | |||||||
West Virginia — 0.3% | |||||||
1,125,000 | AAA | Fairmont, WV Water & Sewer Revenue, AMBAC-Insured, 9.250% due 11/1/11 (g) | 1,357,504 | ||||
Wisconsin — 1.7% | |||||||
3,275,000 | BBB | La Crosse, WI Resource Recovery Revenue Refunding, (Northern States Power Co. Project), 6.000% due 11/1/21 (b)(c) | 3,447,756 | ||||
Wisconsin State Health & Educational Facilities Authority Revenue: | |||||||
1,000,000 | A- | Agnesian Healthcare Inc., 6.000% due 7/1/30 | 1,046,400 | ||||
1,750,000 | BBB+ | Aurora Health Care, 6.400% due 4/15/33 | 1,912,750 | ||||
875,000 | A | Kenosha Hospital & Medical Center Project, 5.700% due 5/15/20 | 915,513 | ||||
7,322,419 | |||||||
Wyoming — 0.5% | |||||||
2,200,000 | BB+ | Sweetwater County, WY Solid Waste Disposal Revenue, (FMC Corp. Project), Series A, 7.000% due 6/1/24 (b) | 2,225,476 | ||||
TOTAL INVESTMENTS — 99.5% (Cost — $396,792,968**) | 418,797,713 | ||||||
Other Assets in Excess of Liabilities — 0.5% | 2,012,046 | ||||||
TOTAL NET ASSETS — 100.0% | $ | 420,809,759 | |||||
(a) | All ratings are by Standard & Poor's Ratings Service, except for those identified by an asterisk (*) or a double dagger (‡), which are rated by Moody's Investors Service and Fitch Ratings, respectively. |
(b) | Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax. |
(c) | All or a portion of this security has been segregated for open futures contracts. |
(d) | Variable interest rate — subject to periodic change. |
(e) | All or a portion of this security is held as collateral for open futures contracts and/or extended settlements. |
(f) | Variable rate obligation payable at par on demand at any time on no more than seven days notice. The coupon rate listed represents the current rate at the period end. The due dates on these securities reflect the next interest rate reset date or, when applicable, the maturity date. |
(g) | Bonds are escrowed to maturity with government securities and are considered by the Manager to be triple-A rated even if issuer has not applied for new ratings. |
(h) | Pre-Refunded bonds are escrowed with government securities and are considered by the Manager to be triple-A rated even if issuer has not applied for new ratings. |
(i) | Residual interest tax-exempt securities — coupon varies inversely with level of short-term tax exempt interest rates. |
(j) | Residual interest bonds — coupon varies inversely with level of short-term tax-exempt interest rates. |
(k) | Security is currently in default. |
(l) | Security is valued in good faith at fair value by or under the direction of the Board of Trustees. |
** | Aggregate cost for federal income tax purposes is $396,576,347. |
See pages 21 through 23 for definitions of ratings and certain abbreviations.
See Notes to Financial Statements.
19 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Summary of Investments by Industry† | March 31, 2005 |
Hospitals | 18.2 | % | |
Housing: Multi-Family | 10.5 | ||
Transportation | 10.1 | ||
Pollution Control | 8.7 | ||
Miscellaneous | 8.5 | ||
Pre-Refunded | 6.8 | ||
Escrowed to Maturity | 6.4 | ||
Industrial Development | 6.2 | ||
Education | 4.4 | ||
Utilities | 4.3 | ||
Lifecare Systems | 3.2 | ||
Water & Sewer | 3.1 | ||
Public Facilities | 2.6 | ||
Other | 7.0 | ||
100.0 | % | ||
† | As a percentage of total investments. Please note that Fund holdings are subject to change. |
20 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Bond Ratings (unaudited)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor’s Ratings Service (“Standard & Poor’s”) — Ratings from “AA” to “CCC” 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 differ from the highest rated issues only in a small degree. | |
A | — Bonds rated “A” have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt 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 for bonds in higher rated categories. | |
BB, B, CCC and CC | — Bonds rated “BB”, “B”, “CCC” and “CC” 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 lowest degree of speculation than “B”, “CCC” and “CC”, the highest degree of speculation. 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 (“Moody’s”) — Numerical modifiers 1, 2 and 3 may be applied to each generic rating from “Aa” to “Caa,” 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 to be 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. |
21 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Bond Ratings (unaudited) (continued)
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 and 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. | |
Caa | — Bonds rated “Caa” are of poor standing. These issues may be in default, or present elements of danger may exist with respect to principal or interest. | |
Fitch Ratings (“Fitch”) — Ratings from “A” to “CCC” may be modified by the addition of a plus (+) or minus (–) sign to show relative standings with the major ratings categories. | ||
A | — Bonds rated “A” are considered to have a low expectation of credit risk. The capacity for timely payment of financial commitments is considered to be strong, but may be more vulnerable to changes in economic conditions and circumstances than bonds with higher ratings. | |
BBB | — Bonds rated “BBB” currently have a low expectation of credit risk. The capacity for timely payment of financial commitments is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to impair this capacity. This is the lowest investment-grade category assigned by Fitch. | |
BB | — Bonds rated “BB” indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business of financial alternatives may be available to allow financial commitments to be met. | |
B | — Bonds rated “B” indicate that significant credit risk is present, but a limited margin of safety remains. Financial Commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. | |
CCC, CC and C | — Bonds rated “CCC”, “CC” and “C” carry the real possibility of defaulting. The capacity to meet financial commitments depends solely on a sustained, favorable business and economic environment. Default of some kind on bonds rated “CC” appears probable, a “C” rating indicates imminent default. | |
NR | — Indicates that the bond is not rated by Standard & Poor’s, Moody’s or Fitch. |
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. |
22 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Abbreviations* (unaudited)
ABAG | — Association of Bay Area Governors | |
ACA | — American Capital Assurance | |
AIG | — American International Guaranty | |
AMBAC | — Ambac Assurance Corporation | |
BAN | — Bond Anticipation Notes | |
BIG | — Bond Investors Guaranty | |
CGIC | — Capital Guaranty Insurance Company | |
CHFCLI | — California Health Facility Construction Loan Insurance | |
CONNIE LEE | — College Construction Loan Insurance Association | |
COP | — Certificate of Participation | |
EDA | — Economic Development Authority | |
EDR | — Economic Development Revenue | |
ETM | — Escrowed To Maturity | |
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 | — Financial 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 | |
ISD | — Independent School District | |
LEVRRS | — Leveraged Reverse Rate Securities | |
LOC | — Letter of Credit | |
MBIA | — Municipal Bond Investors Assurance Corporation | |
MFH | — Multi-Family Housing | |
MVRICS | — Municipal Variable Rate Inverse Coupon Security | |
PCR | — Pollution Control Revenue | |
PSFG | — Permanent School Fund Guaranty | |
Radian | — Radian Asset Assurance | |
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 |
* | Abbreviations may or may not appear in the Schedule of Investments. |
23 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Statement of Assets and Liabilities | March 31, 2005 |
ASSETS: | ||||
Investments, at value (Cost — $396,792,968) | $ | 418,797,713 | ||
Cash | 40,174 | |||
Interest receivable | 7,014,703 | |||
Receivable for Fund shares sold | 363,243 | |||
Receivable for securities sold | 240,000 | |||
Prepaid expenses | 29,848 | |||
Total Assets | 426,485,681 | |||
LIABILITIES: | ||||
Payable for securities purchased | 4,052,932 | |||
Payable to broker — variation margin on open futures contracts | 962,500 | |||
Payable for Fund shares reacquired | 380,767 | |||
Management fee payable | 162,434 | |||
Distribution plan fees payable | 40,658 | |||
Transfer agency service fees payable | 16,436 | |||
Trustees’ fees payable | 11,872 | |||
Accrued expenses | 48,323 | |||
Total Liabilities | 5,675,922 | |||
Total Net Assets | $ | 420,809,759 | ||
NET ASSETS: | ||||
Par value of shares of beneficial interest (Note 6) | $ | 32,137 | ||
Capital paid in excess of par value | 422,015,782 | |||
Undistributed net investment income | 1,192,793 | |||
Accumulated net realized loss from investment transactions and futures contracts | (25,042,888 | ) | ||
Net unrealized appreciation of investments and futures contracts | 22,611,935 | |||
Total Net Assets | $ | 420,809,759 | ||
Shares Outstanding: | ||||
Class A | 25,950,374 | |||
Class B | 3,780,455 | |||
Class C | 2,405,820 | |||
Net Asset Value: | ||||
Class A (and redemption price) | $13.09 | |||
Class B * | $13.07 | |||
Class C * | $13.13 | |||
Maximum Public Offering Price Per Share: | ||||
Class A (based on a maximum sales charge of 4.00%) | $13.64 | |||
* | Redemption price is NAV of Class B and C shares reduced by a 4.50% and 1.00% CDSC, respectively, if shares are redeemed within one year from purchase payment (See Note 2). |
See Notes to Financial Statements.
24 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Statement of Operations | For the Year Ended March 31, 2005 |
INVESTMENT INCOME: | ||||
Interest | $ | 26,527,826 | ||
EXPENSES: | ||||
Management fee (Note 2) | 1,931,890 | |||
Distribution plan fees (Notes 2 and 4) | 1,076,122 | |||
Transfer agency service fees (Notes 2 and 4) | 96,046 | |||
Shareholder communications (Note 4) | 45,136 | |||
Custody | 44,396 | |||
Audit and legal | 43,843 | |||
Registration fees | 34,320 | |||
Trustees’ fees | 6,998 | |||
Other | 15,471 | |||
Total Expenses | 3,294,222 | |||
Less: Management fee waiver (Notes 2 and 8) | (31,896 | ) | ||
Net Expenses | 3,262,326 | |||
Net Investment Income | 23,265,500 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS (NOTES 1 AND 3): | ||||
Realized Loss From: | ||||
Investment transactions | (5,514,038 | ) | ||
Futures contracts | (6,652,744 | ) | ||
Net Realized Loss | (12,166,782 | ) | ||
Net Change in Unrealized Appreciation/Depreciation of Investments | 7,692,902 | |||
Increase from Payment by Affiliate (Note 2) | 100,000 | |||
Net Loss on Investments and Futures Contracts | (4,373,880 | ) | ||
Increase in Net Assets From Operations | $ | 18,891,620 | ||
See Notes to Financial Statements.
25 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Statements of Changes in Net Assets | For the Years Ended March 31, |
2005 | 2004 | |||||||
OPERATIONS: | ||||||||
Net investment income | $ | 23,265,500 | $ | 25,678,063 | ||||
Net realized loss | (12,166,782 | ) | (4,550,450 | ) | ||||
Net change in unrealized appreciation/depreciation | 7,692,902 | 5,931,673 | ||||||
Increase from payment by affiliate | 100,000 | — | ||||||
Increase in Net Assets From Operations | 18,891,620 | 27,059,286 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTES 1 AND 5): | ||||||||
Net investment income | (23,577,110 | ) | (24,754,798 | ) | ||||
Decrease in Net Assets From Distributions to Shareholders | (23,577,110 | ) | (24,754,798 | ) | ||||
FUND SHARE TRANSACTIONS (NOTE 6): | ||||||||
Net proceeds from sale of shares | 43,183,930 | 39,588,040 | ||||||
Net asset value of shares issued for reinvestment of distributions | 10,789,112 | 11,762,674 | ||||||
Cost of shares reacquired | (74,181,371 | ) | (71,655,351 | ) | ||||
Decrease in Net Assets From Fund Share Transactions | (20,208,329 | ) | (20,304,637 | ) | ||||
Decrease in Net Assets | (24,893,819 | ) | (18,000,149 | ) | ||||
NET ASSETS: | ||||||||
Beginning of year | 445,703,578 | 463,703,727 | ||||||
End of year* | $ | 420,809,759 | $ | 445,703,578 | ||||
* Includes undistributed net investment income of: | $1,192,793 | $2,019,540 | ||||||
See Notes to Financial Statements.
26 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
For a share of each class of beneficial interest outstanding throughout each year ended March 31:
Class A Shares(1) | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||
Net Asset Value, Beginning of Year | $13.24 | $13.17 | $13.18 | $13.58 | $12.94 | ||||||||||
Income (Loss) From Operations: | |||||||||||||||
Net investment income | 0.73 | 0.76 | 0.77 | 0.77 | (2) | 0.76 | |||||||||
Net realized and unrealized gain (loss) | (0.14 | ) | 0.05 | (0.02 | ) | (0.41 | )(2) | 0.64 | |||||||
Total Income From Operations | 0.59 | 0.81 | 0.75 | 0.36 | 1.40 | ||||||||||
Less Distributions From: | |||||||||||||||
Net investment income | (0.74 | ) | (0.74 | ) | (0.76 | ) | (0.76 | ) | (0.76 | ) | |||||
Total Distributions | (0.74 | ) | (0.74 | ) | (0.76 | ) | (0.76 | ) | (0.76 | ) | |||||
Net Asset Value, End of Year | $13.09 | $13.24 | $13.17 | $13.18 | $13.58 | ||||||||||
Total Return(3) | 4.57 | %(4) | 6.28 | % | 5.74 | % | 2.67 | % | 11.16 | % | |||||
Net Assets, End of Year (000s) | $339,818 | $356,627 | $368,188 | $404,803 | $388,838 | ||||||||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses | 0.66 | %(5) | 0.64 | % | 0.67 | % | 0.66 | % | 0.68 | % | |||||
Net investment income | 5.52 | 5.76 | 5.76 | 5.67 | (2) | 5.75 | |||||||||
Portfolio Turnover Rate | 20 | % | 31 | % | 43 | % | 52 | % | 52 | % | |||||
Class B Shares(1) | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||
Net Asset Value, Beginning of Year | $13.21 | $13.15 | $13.16 | $13.57 | $12.93 | ||||||||||
Income (Loss) From Operations: | |||||||||||||||
Net investment income | 0.66 | 0.69 | 0.70 | 0.70 | (6) | 0.69 | |||||||||
Net realized and unrealized gain (loss) | (0.13 | ) | 0.04 | (0.02 | ) | (0.41 | )(6) | 0.64 | |||||||
Total Income From Operations | 0.53 | 0.73 | 0.68 | 0.29 | 1.33 | ||||||||||
Less Distributions From: | |||||||||||||||
Net investment income | (0.67 | ) | (0.67 | ) | (0.69 | ) | (0.70 | ) | (0.69 | ) | |||||
Total Distributions | (0.67 | ) | (0.67 | ) | (0.69 | ) | (0.70 | ) | (0.69 | ) | |||||
Net Asset Value, End of Year | $13.07 | $13.21 | $13.15 | $13.16 | $13.57 | ||||||||||
Total Return(3) | 4.12 | %(4) | 5.68 | % | 5.25 | % | 2.13 | % | 10.64 | % | |||||
Net Assets, End of Year (000s) | $49,411 | $57,978 | $64,348 | $57,661 | $46,534 | ||||||||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses | 1.17 | %(5) | 1.15 | % | 1.18 | % | 1.17 | % | 1.18 | % | |||||
Net investment income | 5.01 | 5.25 | 5.25 | 5.17 | (6) | 5.26 | |||||||||
Portfolio Turnover Rate | 20 | % | 31 | % | 43 | % | 52 | % | 52 | % | |||||
(1) | Per share amounts have been calculated using the monthly average shares method. |
(2) | Effective April 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended March 31, 2002, the ratio of net investment income to average net assets would have been 5.64%. Per share information, ratios and supplemental data for the periods prior to April 1, 2001 have not been restated to reflect this change in presentation. In addition, the impact of this change to net investment income and net realized and unrealized loss was less than $0.01 per share. |
(3) | Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. |
(4) | The investment manager fully reimbursed the Fund for losses incurred resulting from an investment transaction error. Without this reimbursement, the total return would not have changed. |
(5) | The investment manager voluntarily waived a portion of its fee for the year ended March 31, 2005. If such fees were not voluntarily waived, the actual expense ratios for Class A would have been the same and Class B shares would have been 1.18%. |
(6) | Effective April 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended March 31, 2002, net investment income, net realized and unrealized loss and the ratio of net investment income to average net assets would have been $0.69, $(0.40) and 5.14%, respectively. Per share information, ratios and supplemental data for the periods prior to April 1, 2001 have not been restated to reflect this change in presentation. |
See Notes to Financial Statements.
27 Smith Barney Muni Funds | 2005 Annual Report
Table of Contents
Financial Highlights (continued)
For a share of each class of beneficial interest outstanding throughout each year ended March 31:
Class C Shares(1)(2) | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||
Net Asset Value, Beginning of Year | $13.27 | $13.20 | $13.20 | $13.59 | $12.95 | ||||||||||
Income (Loss) From Operations: | |||||||||||||||
Net investment income | 0.65 | 0.69 | 0.69 | 0.70 | (3) | 0.68 | |||||||||
Net realized and unrealized gain (loss) | (0.13 | ) | 0.04 | (0.01 | ) | (0.41 | )(3) | 0.64 | |||||||
Total Income From Operations | 0.52 | 0.73 | 0.68 | 0.29 | 1.32 | ||||||||||
Less Distributions From: | |||||||||||||||
Net investment income | (0.66 | ) | (0.66 | ) | (0.68 | ) | (0.68 | ) | (0.68 | ) | |||||
Total Distributions | (0.66 | ) | (0.66 | ) | (0.68 | ) | (0.68 | ) | (0.68 | ) | |||||
Net Asset Value, End of Year | $13.13 | $13.27 | $13.20 | $13.20 | $13.59 | ||||||||||
Total Return(4) | 4.03 | %(5) | 5.66 | % | 5.18 | % | 2.13 | % | 10.46 | % | |||||
Net Assets, End of Year (000s) | $31,581 | $31,099 | $31,168 | $29,777 | $23,294 | ||||||||||
Ratios to Average Net Assets: | |||||||||||||||
Expenses | 1.23 | %(6) | 1.22 | % | 1.24 | % | 1.23 | % | 1.25 | % | |||||
Net investment income | 4.95 | 5.18 | 5.19 | 5.11 | (3) | 5.19 | |||||||||
Portfolio Turnover Rate | 20 | % | 31 | % | 43 | % | 52 | % | 52 | % | |||||
(1) | Per share amounts have been calculated using the monthly average shares method. |
(2) | Effective April 29, 2004, Class L shares were renamed as Class C shares. |
(3) | Effective April 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended March 31, 2002, net investment income, net realized and unrealized loss and the ratio of net investment income to average net assets would have been $0.69, $(0.40) and 5.08%, respectively. Per share information, ratios and supplemental data for the periods prior to April 1, 2001 have not been restated to reflect this change in presentation. |
(4) | Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower. |
(5) | The investment manager fully reimbursed the Fund for losses incurred resulting from an investment transaction error. Without this reimbursement, the total return would have been 3.95%. |
(6) | The investment manager voluntarily waived a portion of its fee for the year ended March 31, 2005. If such fees were not voluntarily waived, the actual expense ratio for Class C shares would have been 1.24%. |
See Notes to Financial Statements.
28 Smith Barney Muni Funds | 2005 Annual Report
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1. | Organization and Significant Accounting Policies |
The National Portfolio (“Fund”), a separate diversified investment fund of the Smith Barney Muni Funds (“Trust”), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements were prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ.
(a) Investment Valuation. Securities are valued at the mean between the bid and asked prices provided by an independent pricing service that are based on transactions in municipal obligations, quotations from municipal bond dealers, market transactions in comparable securities and various relationships between securities. Securities for which market quotations are not readily available or where market quotations are determined not to reflect fair value, will be valued in good faith by or under the direction of the Fund’s Board of Trustees. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates value.
(b) Financial Futures Contracts. The Fund may enter into futures contracts to the extent permitted by its investment policies and objectives. Upon entering into a futures contract, the Fund is required to deposit cash or securities as initial margin. Additional securities are also segregated up to the current market value of the futures contracts. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying financial instrument, are made or received by the Fund each day (daily variation margin) and are recorded as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Fund’s basis in the contracts. The Fund enters into such contracts typically to hedge a portion of the portfolio. The risks associated with entering into futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying financial instruments. In addition, investing in futures contracts involves the risk that the Fund could lose more than the original margin deposit and subsequent payments required for a futures transaction.
(c) Security Transactions and Investment Income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. The cost of investments sold is determined by use of the specific identification method.
(d) Distributions to Shareholders. Dividends from net investment income for the Fund, if any, are declared and paid on a monthly basis. The Fund intends to satisfy conditions that will enable interest from municipal securities, which is exempt from federal income tax and from designated state income taxes, to retain such tax-exempt status when distributed to the shareholders of the Fund. Distributions of net realized gains to shareholders of the Fund, if any, are taxable and are declared at least annually. Dividends and distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(e) Class Accounting. Investment income, common expenses and realized/unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution, transfer agency services and shareholder communications fees relating to a specific class are charged directly to that class.
(f) Federal and Other Taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute substantially all of its taxable income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal tax provision is required.
29 Smith Barney Muni Funds | 2005 Annual Report
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Notes to Financial Statements (continued)
(g) Reclassifications. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. During the year ended March 31, 2005, the following reclassifications have been made:
Undistributed Net Investment Income | Accumulated Net Realized Loss | ||||||
$(515,137) | $ | 515,137 | |||||
These reclassifications are primarily due to differences between book and tax accretion of market discount on fixed income securities.
2. | Management Agreement and Other Transactions with Affiliates |
Smith Barney Fund Management LLC (“SBFM”), an indirect wholly-owned subsidiary of Citigroup Inc. (“Citigroup”), acts as investment manager to the Fund. The Fund pays SBFM a management fee calculated at the annual rate of 0.45% of the Fund’s average daily net assets. This fee is calculated daily and paid monthly.
During the year ended March 31, 2005, SBFM reimbursed the Fund in the amount of $100,000 for losses incurred from an investment transaction error.
During the year ended March 31, 2005, SBFM waived a portion of its management fee amounting to $31,896.
Citicorp Trust Bank, fsb. (“CTB”), another subsidiary of Citigroup, acts as the Fund’s transfer agent. PFPC Inc. (“PFPC”) acts as the Fund’s sub-transfer agent. CTB receives account fees and asset-based fees that vary according to the size and type of account. PFPC is responsible for shareholder recordkeeping and financial processing for all shareholder accounts and is paid by CTB. For the year ended March 31, 2005, the Fund paid transfer agent fees of $76,088 to CTB.
Citigroup Global Markets Inc. (“CGM”), another indirect wholly-owned subsidiary of Citigroup, acts as the Fund’s distributor.
Effective April 29, 2004, Class L shares were renamed Class C Shares.
There is a maximum sales charge of 4.00% for Class A shares. There is a contingent deferred sales charge (“CDSC”) of 4.50% on Class B shares, which applies if redemption occurs within one year from purchase payment. This CDSC declines by 0.50% the first year after purchase payment 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 one year from purchase payment. In certain cases, Class A shares have a 1.00% CDSC, which applies if redemption occurs within one year from purchase payment. This CDSC only applies to those purchases of Class A shares, which when combined with current holdings of Class A shares, equal or exceed $500,000 in the aggregate. These purchases do not incur an initial sales charge.
For the year ended March 31, 2005, CGM received sales charges of approximately $286,000 on sales of the Fund’s Class A shares. In addition, for the year ended March 31, 2005, CDSCs paid to CGM were approximately:
Class A | Class B | Class C | |||||||
CDSCs | $ | 0* | $ | 80,000 | $ | 1,000 | |||
* | Amount represents less than $1,000. |
All officers and one Trustee of the Trust are employees of Citigroup or its affiliates and do not receive compensation from the Trust.
30 Smith Barney Muni Funds | 2005 Annual Report
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Notes to Financial Statements (continued)
3. | Investments |
During the year ended March 31, 2005, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
Purchases | $ | 81,709,185 | |
Sales | 108,842,360 | ||
At March 31, 2005, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
Gross unrealized appreciation | $ | 27,468,805 | ||
Gross unrealized depreciation | (5,247,439 | ) | ||
Net unrealized appreciation | $ | 22,221,366 | ||
At March 31, 2005, the Fund had the following open futures contracts:
Number of Contracts | Expiration Date | Basis Value | Market Value | Unrealized Gain | |||||||||
Contracts to Sell: | |||||||||||||
20 Year, 6.000% U.S. Treasury Bond | 1,400 | 6/05 | $ | 156,532,190 | $ | 155,925,000 | $ | 607,190 | |||||
4. | Class Specific Expenses |
Pursuant to a Rule 12b-1 Distribution Plan (the “Plan”), the Fund pays a service fee with respect to its Class A, B and C shares calculated at the 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 the annual rates of 0.50% and 0.55% of the average daily net assets of each class, respectively. For the year ended March 31, 2005, total Plan fees, which are accrued daily and paid monthly, were as follows:
Class A | Class B | Class C | ||||
Rule 12b-1 Distribution Plan Fees | $518,892 | $343,663 | $213,567 | |||
CGM has agreed to reimburse the Fund for any amount which exceeds the payments made by the Fund with respect to the Plan for Class A shares over the cumulative unreimbursed amounts spent by CGM in performing its services under the Plan. During the year ended March 31, 2005, no reimbursement was required.
For the year ended March 31, 2005, total Transfer Agency Service expenses were as follows:
| ||||||
Class A | Class B | Class C | ||||
Transfer Agency Service Expenses | $72,207 | $14,077 | $9,762 | |||
For the year ended March 31, 2005, total Shareholder Communication expenses were as follows:
| ||||||
Class A | Class B | Class C | ||||
Shareholder Communication Expenses | $30,291 | $9,108 | $5,737 |
5. | Distributions Paid to Shareholders by Class |
Year Ended March 31, 2005 | Year Ended March 31, 2004 | |||||
Net Investment Income | ||||||
Class A | $ | 19,360,775 | $ | 20,052,748 | ||
Class B | 2,689,154 | 3,122,092 | ||||
Class C† | 1,527,181 | 1,579,958 | ||||
Total | $ | 23,577,110 | $ | 24,754,798 | ||
† | Effective April 29, 2004, Class L shares were renamed as Class C shares. |
31 Smith Barney Muni Funds | 2005 Annual Report
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Notes to Financial Statements (continued)
6. | Shares of Beneficial Interest |
At March 31, 2005, the Trust 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 in the Fund and has the same rights, except that each class bears certain expenses specifically related to the distribution of its shares. Effective April 29, 2004, Class L shares were renamed as Class C shares.
Transactions in shares of each class were as follows:
Year Ended March 31, 2005 | Year Ended March 31, 2004 | |||||||||||||
Shares | Amount | Shares | Amount | |||||||||||
Class A | ||||||||||||||
Shares sold | 2,618,632 | $ | 34,469,963 | 2,100,036 | $ | 27,824,667 | ||||||||
Shares issued on reinvestment | 693,786 | 9,114,360 | 735,527 | 9,734,119 | ||||||||||
Shares reacquired | (4,303,143 | ) | (56,628,614 | ) | (3,850,223 | ) | (50,955,239 | ) | ||||||
Net Decrease | (990,725 | ) | $ | (13,044,291 | ) | (1,014,660 | ) | $ | (13,396,453 | ) | ||||
Class B | ||||||||||||||
Shares sold | 215,573 | $ | 2,833,673 | 496,663 | $ | 6,570,481 | ||||||||
Shares issued on reinvestment | 72,609 | 952,125 | 90,299 | 1,192,753 | ||||||||||
Shares reacquired | (895,384 | ) | (11,761,191 | ) | (1,093,192 | ) | (14,442,133 | ) | ||||||
Net Decrease | (607,202 | ) | $ | (7,975,393 | ) | (506,230 | ) | $ | (6,678,899 | ) | ||||
Class C† | ||||||||||||||
Shares sold | 445,771 | $ | 5,880,294 | 391,316 | $ | 5,192,892 | ||||||||
Shares issued on reinvestment | 54,876 | 722,627 | 63,030 | 835,802 | ||||||||||
Shares reacquired | (439,017 | ) | (5,791,566 | ) | (471,708 | ) | (6,257,979 | ) | ||||||
Net Increase (Decrease) | 61,630 | $ | 811,355 | (17,362 | ) | $ | (229,285 | ) | ||||||
† | Effective April 29, 2004, Class L shares were renamed as Class C shares. |
7. | Income Tax Information and Distributions to Shareholders |
Subsequent to the fiscal year end, the Fund has made the following distributions:
Declaration Date | Record Date | Payable Date | Class A | Class B | Class C | |||||||
3/23/05 | 4/26/05 | 4/29/05 | $0.0615 | $ | 0.0559 | $ | 0.0551 | |||||
The tax character of distributions paid during the fiscal years ended March 31, was as follows:
2005 | 2004 | |||||
Distributions paid from: | ||||||
Tax Exempt Income | $ | 23,533,227 | $ | 24,702,128 | ||
Ordinary Income | 43,883 | 52,670 | ||||
Total Distributions Paid | $ | 23,577,110 | $ | 24,754,798 | ||
As of March 31, 2005, the components of accumulated earnings/(losses) on a tax basis were as follows:
Undistributed tax-exempt income — net | $ | 1,094,797 | ||
Undistributed ordinary income — net | 109,868 | |||
Total Undistributed earnings | 1,204,665 | |||
Capital loss carryforward (a) | (22,819,816 | ) | ||
Other book/tax temporary differences (b) | (2,451,565 | ) | ||
Unrealized appreciation/(depreciation) (c) | 22,828,556 | |||
Total accumulated earnings/(losses) — net | $ | (1,238,160 | ) | |
32 Smith Barney Muni Funds | 2005 Annual Report
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Notes to Financial Statements (continued)
(a) As of March 31, 2005, the Fund had the following net capital loss carryforwards remaining:
Year of Expiration | Amount | |||
3/31/2008 | $ | (684,820 | ) | |
3/31/2009 | (3,676,518 | ) | ||
3/31/2012 | (2,206,821 | ) | ||
3/31/2013 | (16,251,657 | ) | ||
$ | (22,819,816 | ) | ||
These amounts will be available to offset any future taxable capital gains.
(b) Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized gains on certain futures, the deferral of post-October capital losses for tax purposes and differences in the book/tax treatment of various items.
(c) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales and the difference between book and tax accretion methods for market discount on fixed income securities.
8. | Additional Information |
Smith Barney Fund Management LLC (“SBFM”) and Citigroup Global Markets Inc. (“CGMI”) have submitted an Offer of Settlement of an administrative proceeding to the U.S. Securities and Exchange Commission (“SEC”) in connection with an investigation into the 1999 appointment of an affiliated transfer agent for the Smith Barney family of mutual funds (the “Funds”). SBFM and CGMI understand that the SEC has accepted the Offer of Settlement, but has not yet issued the administrative order.
The SEC order will find that SBFM and CGMI willfully violated Section 206(1) of the Investment Advisers Act of 1940 (“Advisers Act”). Specifically, the order will find that SBFM and CGMI knowingly or recklessly failed to disclose to the boards of the Funds in 1999 when proposing a new transfer agent arrangement with an affiliated transfer agent that: First Data Investors Services Group (“First Data”), the Funds’ then-existing transfer agent, had offered to continue as transfer agent and do the same work for substantially less money than before; and that Citigroup Asset Management (“CAM”) had entered into a side letter with First Data under which CAM agreed to recommend the appointment of First Data as sub-transfer agent to the affiliated transfer agent in exchange, among other things, for a guarantee by First Data of specified amounts of asset management and investment banking fees to CAM and CGMI. The order also will find that SBFM and CGMI willfully violated Section 206(2) of the Advisers Act by virtue of the omissions discussed above and other misrepresentations and omissions in the materials provided to the Funds’ boards, including the failure to make clear that the affiliated transfer agent would earn a high profit for performing limited functions while First Data continued to perform almost all of the transfer agent functions, and the suggestion that the proposed arrangement was in the Funds’ best interests and that no viable alternatives existed. SBFM and CGMI do not admit or deny any wrongdoing or liability. The settlement will not establish wrongdoing or liability for purposes of any other proceeding.
The SEC will censure SBFM and CGMI and order them to cease and desist from violations of Sections 206(1) and 206(2) of the Advisers Act. The order will require Citigroup to pay $208.1 million, including $109 million in disgorgement of profits, $19.1 million in interest, and a civil money penalty of $80 million. Approximately $24.4 million has already been paid to the Funds, primarily through fee waivers. The remaining $183.7 million, including the penalty, will be paid to the U.S. Treasury and then distributed pursuant to a plan to be prepared by Citigroup and submitted within 90 days of the entry of the order for approval by the SEC. The distribution plan may also include a portion of certain escrowed transfer agency fees, in accordance with the terms of the order.
The order will require SBFM to recommend a new transfer agent contract to the Fund boards within 180 days of the entry of the order; if a Citigroup affiliate submits a proposal to serve as transfer agent or sub-transfer agent, an independent monitor must be engaged at the expense of SBFM and CGMI to oversee a competitive bidding process. Under the order,
33 Smith Barney Muni Funds | 2005 Annual Report
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Notes to Financial Statements (continued) |
Citigroup also will be required to comply with an amended version of a vendor policy that Citigroup instituted in August 2004. That policy, as amended, among other things, requires that when requested by a Fund board, CAM will retain at its own expense an independent consulting expert to advise and assist the board on the selection of certain service providers affiliated with Citigroup.
At this time, there is no certainty as to how the proceeds of the settlement will be distributed, to whom such distributions will be made, the methodology by which such distributions will be allocated, and when such distributions will be made. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the Funds.
9. | Legal Matters |
Beginning in June 2004, class action lawsuits alleging violations of the federal securities laws were filed against Citigroup Global Markets Inc. (the “Distributor”) and a number of its affiliates, including Smith Barney Fund Management LLC and Salomon Brothers Asset Management Inc (the “Advisers”), substantially all of the mutual funds managed by the Advisers, including the Fund (the “Funds”), and directors or trustees of the Funds (collectively, the “Defendants”). The complaints alleged, among other things, that the Distributor created various undisclosed incentives for its brokers to sell Smith Barney and Salomon Brothers funds. In addition, according to the complaints, the Advisers caused the Funds to pay excessive brokerage commissions to the Distributor for steering clients towards proprietary funds. The complaints also alleged that the defendants breached their fiduciary duty to the Funds by improperly charging Rule 12b-1 fees and by drawing on fund assets to make undisclosed payments of soft dollars and excessive brokerage commissions. The complaints also alleged that the Funds failed to adequately disclose certain of the allegedly wrongful conduct. The complaints sought injunctive relief and compensatory and punitive damages, rescission of the Funds’ contracts with the Advisers, recovery of all fees paid to the Advisers pursuant to such contracts and an award of attorneys’ fees and litigation expenses.
On December 15, 2004, a consolidated amended complaint (the “Complaint”) was filed alleging substantially similar causes of action. While the lawsuit is in its earliest stages, to the extent that the Complaint purports to state causes of action against the Funds, Citigroup Asset Management believes the Funds have significant defenses to such allegations, which the Funds intend to vigorously assert in responding to the Complaint.
Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Defendants in the future.
As of the date of this report, Citigroup Asset Management and the Funds believe that the resolution of the pending lawsuit will not have a material effect on the financial position or results of operations of the Funds or the ability of the Advisers and their affiliates to continue to render services to the Funds under their respective contracts.
34 Smith Barney Muni Funds | 2005 Annual Report
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Report of Independent Registered Public Accounting Firm |
To the Board of Trustees and Shareholders of
Smith Barney Muni Funds:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of National Portfolio (“Fund”) of Smith Barney Muni Funds as of March 31, 2005, and 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 five-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.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 March 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles 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 National Portfolio of Smith Barney Muni Funds as of March 31, 2005, and 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 five-year period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
May 27, 2005
35 Smith Barney Muni Funds | 2005 Annual Report
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Additional Information (unaudited) |
Information about Trustees and Officers
The business and affairs of the Smith Barney Muni Funds (“Trust”) — National Portfolio (“Fund”) are managed under the direction of the Fund’s Board of Trustees. Information pertaining to the Trustees and Officers of the Fund is set forth below. The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling the Fund’s transfer agent (Citicorp Trust Bank, fsb. at 1-800-451-2010) or sub-transfer agent (PFPC Inc. at 1-800-451-2010).
Name, Address and Birth Year | Position(s) Held with Fund | Term of Office* and Length of Time Served | Principal During Past | Number of Portfolios in Fund Complex Overseen by Trustee | Other Board Memberships Held by Trustee | |||||
Non-Interested Trustees: | ||||||||||
Lee Abraham 13732 LeHavre Drive Frenchman’s Creek Palm Beach Gardens, FL 33410 Birth Year: 1927 | Trustee | Since 1999 | Retired; Former Director of Signet Group PLC | 27 | None | |||||
Jane F. Dasher Korsant Partners 283 Greenwich Avenue 3rd Floor Greenwich, CT 06830 Birth Year: 1949 | Trustee | Since 1999 | Controller of PBK Holdings Inc., a family investment company | 27 | None | |||||
Donald R. Foley 3668 Freshwater Drive Jupiter, FL 33477 Birth Year: 1922 | Trustee | Since 1982 | Retired | 18 | None | |||||
Richard E. Hanson, Jr. 2751 Vermont Route 140 Poultney, VT 05764 Birth Year: 1941 | Trustee | Since 1999 | Retired; Former Head of the New Atlanta Jewish Community High School | 27 | None | |||||
Paul Hardin 12083 Morehead Chapel Hill, NC 27514-8426 Birth Year: 1931 | Trustee | Since 1994 | Professor of Law & Chancellor Emeritus at the University of North Carolina | 34 | None | |||||
Roderick C. Rasmussen 9 Cadence Court Morristown, NJ 07960 Birth Year: 1926 | Trustee | Since 1982 | Investment Counselor | 27 | None | |||||
John P. Toolan 13 Chadwell Place Morristown, NJ 07960 Birth Year: 1930 | Trustee | Since 1992 | Retired | 27 | John Hancock Funds |
36 Smith Barney Muni Funds | 2005 Annual Report
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Additional Information (unaudited) (continued) |
Name, Address and Birth Year | Position(s) Held with Fund | Term of Office* and Length of Time Served | Principal During Past | Number of Portfolios in Fund Complex Overseen by Trustee | Other Board Memberships Held by Trustee | |||||
Interested Trustee: | ||||||||||
R. Jay Gerken, CFA** Citigroup Asset Management (“CAM”) 399 Park Avenue, 4th Floor New York, NY 10022 Birth Year: 1951 | Chairman, President and Chief Executive Officer | Since 2002 | Managing Director of Citigroup Global Markets Inc. (“CGM”); Chairman, President and Chief Executive Officer of Smith Barney Fund Management LLC (“SBFM”), Travelers Investment Adviser, Inc. (“TIA”) and Citi Fund Management Inc. (“CFM”); President and Chief Executive Officer of certain mutual funds associated with Citigroup Inc. (“Citigroup”); Formerly Portfolio Manager of Smith Barney Allocation Series Inc. (from 1996 to 2001) and Smith Barney Growth and Income Fund (from 1996 to 2000) | 219 | None | |||||
Officers: | ||||||||||
Andrew B. Shoup CAM 125 Broad Street, 11th Floor New York, NY 10004 Birth Year: 1956 | Senior Vice President and Chief Administrative Officer | Since 2003 | Director of CAM; Senior Vice President and Chief Administrative Officer of mutual funds associated with Citigroup; Head of International Funds Administration of CAM (from 2001 to 2003); Director of Global Funds Administration of CAM (from 2000 to 2001); Head of U.S. Citibank Funds Administration of CAM (from 1998 to 2000) | N/A | N/A | |||||
Robert J. Brault CAM 125 Broad Street 11th Floor New York, NY 10004 Birth Year: 1965 | Chief Financial Officer and Treasurer | Since 2004 | Director of CGM; Chief Financial Officer and Treasurer of certain mutual funds associated with Citigroup; Director of Internal Control for CAM U.S. Mutual Fund Administration (from 2002 to 2004); Director of Project Management & Information Systems for CAM U.S. Mutual Fund Administration (from 2000 to 2002); Vice President, of Mutual Fund Administration at Investors Capital Services (from 1999 to 2000) | N/A | N/A | |||||
Peter M. Coffey CAM 399 Park Avenue, 4th Floor New York, NY 10022 Birth Year: 1944 | Vice President and Investment Officer | Since 1999 | Managing Director of CGM; Investment Officer of SBFM | N/A | N/A |
37 Smith Barney Muni Funds | 2005 Annual Report
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Additional Information (unaudited) (continued) |
Name, Address and Birth Year | Position(s) Held with Fund | Term of Office* and Length of Time Served | Principal During Past | Number of Portfolios in Fund Complex Overseen by Trustee | Other Board Memberships Held by Trustee | |||||
Andrew Beagley CAM 399 Park Avenue, 4th Floor New York, NY 10022 Birth Year: 1962 | Chief Anti-Money
Chief Compliance Officer | Since
Since | Director of CGM (since 2000); Director of Compliance, North America, CAM (since 2000); Chief Anti-Money Laundering Compliance Officer and Chief Compliance Officer of certain mutual funds associated with Citigroup; Director of Compliance, Europe, the Middle East and Africa, CAM (from 1999 to 2000); Chief Compliance Officer, SBFM, CFM, TIA | N/A | N/A | |||||
Robert I. Frenkel CAM 300 First Stamford Place 4th Floor Stamford, CT 06902 Birth Year: 1954 | Secretary and Chief Legal Officer | Since 2003 | Managing Director and General Counsel of Global Mutual Funds for CAM and its predecessor (since 1994); Secretary and Chief Legal Officer of mutual funds associated with Citigroup | N/A | N/A |
* | Each Trustee and Officer serves until his or her successors has been duly elected and qualified. |
** | Mr. Gerken is an “interested person” of the Fund as defined in the Investment Company Act of 1940, as amended, because Mr. Gerken is an officer of SBFM and certain of its affiliates. |
38 Smith Barney Muni Funds | 2005 Annual Report
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Important Tax Information (unaudited) |
The following information is provided with respect to the distributions paid during the taxable year ended March 31, 2005:
All of the net investment income distributions paid to shareholders during the months of April 2004 through October 2004 and December 2004 through March 2005 qualify as tax-exempt interest dividends for federal income tax purposes for the National Portfolio.
Additionally, 97.76% of the distributions paid to shareholders during the month of November 2004 qualify as tax-exempt interest dividends for federal income tax purposes for the National Portfolio.
Please retain this information for your records.
39 Smith Barney Muni Funds | 2005 Annual Report
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SMITH BARNEY
MUNI FUNDS
TRUSTEES Lee Abraham Jane F. Dasher Donald R. Foley R. Jay Gerken, CFA Chairman Richard E. Hanson, Jr. Paul Hardin Roderick C. Rasmussen John P. Toolan
OFFICERS R. Jay Gerken, CFA President and Chief Executive Officer
Andrew B. Shoup Senior Vice President and Chief Administrative Officer
Robert J. Brault Chief Financial Officer and Treasurer
Peter M. Coffey Vice President and Investment Officer
Andrew Beagley Chief Anti-Money Laundering Compliance Officer and Chief Compliance Officer
Robert I. Frenkel Secretary and Chief Legal Officer |
INVESTMENT MANAGER Smith Barney Fund Management LLC
DISTRIBUTOR Citigroup Global Markets Inc.
CUSTODIAN State Street Bank and
TRANSFER AGENT Citicorp Trust Bank, fsb. 125 Broad Street, 11th Floor New York, New York 10004
SUB-TRANSFER AGENT PFPC Inc. P.O. Box 9699 Providence, Rhode Island 02940-9699 |
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Smith Barney Muni Funds
National Portfolio
The Fund is a separate investment fund of the Smith Barney Muni Funds, a Massachusetts business trust.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call 1-800-451-2010.
Information on how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004 and a description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling 1-800-451-2010, (2) on the Fund’s website at www.citigroupam.com and (3) on the SEC’s website at www.sec.gov.
This report is submitted for the general information of the shareholders of Smith Barney Muni Funds —National Portfolio, but it may also be used as sales literature when preceded or accompanied by the current Prospectus.
SMITH BARNEY MUNI FUNDS
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004
This document must be preceded or accompanied by a free prospectus. Investors should consider the fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before investing.
www.citigroupam.com
©2005 Citigroup Global Markets Inc.
Member NASD, SIPC
FD02304 05/05 05-8556
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ITEM 2. | CODE OF ETHICS. | |
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller. | ||
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. | |
The Board of Trustees of the registrant has determined that Jane Dasher, Chairman of the Board’s Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert,” and has designated Ms. Dasher as the Audit Committee’s financial expert. Ms. Dasher is an “independent” Trustee pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. | ||
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. | |
(a) Audit Fees for the Smith Barney Muni Funds were $170,500 and $170,500 for the years ended 3/31/05 and 3/31/04. | ||
(b) Audit-Related Fees for the Smith Barney Muni Funds were $0 and $0 for the years ended 3/31/05 and 3/31/04. | ||
(c) Tax Fees for Smith Barney Muni Funds were $38,600 and $18,500 for the years ended 3/31/05 and 3/31/04. These amounts represent aggregate fees paid for tax compliance, tax advice and tax planning services, which include (the filing and amendment of federal, state and local income tax returns, timely RIC qualification review and tax distribution and analysis planning) rendered by the Accountant to Smith Barney Muni Funds. | ||
(d) All Other Fees for Smith Barney Muni Funds were $0 and $0 for the years ended 3/31/05 and 3/31/04. | ||
(e) (1) Audit Committee’s pre–approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X. | ||
The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by Smith Barney Fund Management LLC or Salomon Brothers Asset Management Inc or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent registered public accounting firm to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee. | ||
The Committee shall not approve non-audit services that the Committee believes may impair the independence of the independent registered public accounting firm. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent registered public accounting firm, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible. | ||
Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent registered public accounting firm during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit. | ||
(2) For the Smith Barney Muni Funds, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for the years ended 3/31/05 and 3/31/04; Tax Fees were 100% and 100% for the years ended 3/31/05 and 3/31/04; and Other Fees were 100% and 100% for the years ended 3/31/05 and 3/31/04. | ||
(f) N/A | ||
(g) Non-audit fees billed by the Accountant for services rendered to Smith Barney Muni Funds and CAM and any entity controlling, controlled by, or under common control with CAM that provides ongoing services to Smith Barney Muni Funds. Fees billed to and paid by Citigroup Global Markets Inc. related to transfer agent matter as fully described in the notes to the financial statements titled “Additional Information” were $75,000 and $0 for the years ended 3/31/05 and 3/31/04. | ||
(h) Yes. The Smith Barney Muni Funds’ Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates which were not pre-approved (not requiring pre-approval) is compatible with maintaining the Accountant’s independence. All services provided by the Accountant to the Smith Barney Muni Funds or to Service Affiliates which were required to be pre-approved were pre-approved as required. | ||
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. | |
Not applicable. | ||
ITEM 6. | [RESERVED] | |
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. | |
Not applicable. | ||
ITEM 8. | [RESERVED] | |
ITEM 9. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. | |
Not applicable. | ||
ITEM 10. | CONTROLS AND PROCEDURES. | |
(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. | ||
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting. | ||
ITEM 11. | EXHIBITS. | |
(a) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(b) Attached hereto. |
Exhibit 99.CERT | Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit 99.906CERT | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.
Smith Barney Muni Funds | ||
By: | /s/ R. Jay Gerken | |
R. Jay Gerken Chief Executive Officer of Smith Barney Muni Funds |
Date: June 9, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ R. Jay Gerken | |
R. Jay Gerken Chief Executive Officer of Smith Barney Muni Funds |
Date: June 9, 2005
By: | /s/ Robert J. Brault | |
Robert J. Brault Chief Financial Officer of Smith Barney Muni Funds |
Date: June 9, 2005