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: SEPTEMBER 30, 2003 ITEM 1. REPORT TO STOCKHOLDERS. The SEMI-ANNUAL Report to Stockholders is filed herewith. SMITH BARNEY MUNI FUNDS FLORIDA PORTFOLIO CLASSIC SERIES | SEMI-ANNUAL REPORT | SEPTEMBER 30, 2003 Logo: Smith Barney Mutual Funds Your Serious Money. Professionally Managed.(R) Your Serious Money. Professionally Managed.(R) is a registered service mark of Citigroup Global Markets Inc. NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE WHAT'S INSIDE LETTER FROM THE CHAIRMAN ................................................. 1 SCHEDULE OF INVESTMENTS .................................................. 4 STATEMENT OF ASSETS AND LIABILITIES ...................................... 13 STATEMENT OF OPERATIONS .................................................. 14 STATEMENTS OF CHANGES IN NET ASSETS ...................................... 15 NOTES TO FINANCIAL STATEMENTS ............................................ 16 FINANCIAL HIGHLIGHTS ..................................................... 23 LETTER FROM THE CHAIRMAN Photo of: R. JAY GERKEN, CFA Chairman, President and Chief Executive Officer DEAR SHAREHOLDER, In an effort to jump-start a weak economy, the Federal Reserve reduced short-term interest rates again in late June, driving the federal funds rate(i) to just 1%, its lowest level since the Eisenhower Administration. During this declining-rate environment, yields on fixed-income securities continued to drop. Meanwhile, many states, including Florida, have been grappling with budget deficits brought on by the faltering economy, layoffs and declining incomes -- all leading to lower tax revenues. Shortly after the Fed eased rates in June, the fixed-income markets experienced a sharp reversal over the summer as signs emerged that economic growth was more robust than previously thought. Interest rates moved up sharply as a result. If rates were to continue rising, that would also lead to higher levels of income from fixed-income securities. However, rising rates would also lead to declining prices on outstanding bonds because prices move in the opposite direction of interest rates. In this environment, the fund performed as follows: SMITH BARNEY MUNI FUNDS: FLORIDA PORTFOLIO'S PERFORMANCE For the six months ended September 30, 2003, Class A shares of the fund, without sales charges, returned 1.95%.(1) This compared with a return of 2.66% for the broad based, unmanaged Lehman Brothers Municipal Bond Index, and an average of 1.98% for the fund's Lipper peer group of Florida municipal debt funds, over the same period.(2) (1) Performance for the fund's other share classes can be found in the Financial Highlights section in this report. Performance for other share classes may vary. (2) Lipper is a major independent mutual-fund tracking organization. Returns are based on the six-month period ended September 30, 2003, calculated among 62 funds in the Lipper Florida municipal debt funds category with reinvestment of dividends and capital gains excluding sales charges. 1 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report At times of uncertainty such as these, it is more important than ever to develop and stick with a long-range plan. In addition to their income-producing capabilities, bonds can be effective means of diversification in an overall investment portfolio. And municipal securities can provide income free from federal, and sometimes state and local, income taxes. Certain investors will be subject to the federal Alternative Minimum Tax and state and local income taxes will apply. Capital gains, if any, are fully taxable. Consult your personal tax adviser for more details. Please work closely with your financial adviser to determine your proper allocation to fixed-income securities based on your risk/reward profile and to explore the role they can play in achieving your long-term financial goals. As always, thank you for your entrusting your assets to us. We look forward to helping you continue to meet your financial goals. Sincerely, /s/ R. Jay Gerken, CFA R. Jay Gerken, CFA Chairman, President and Chief Executive Officer October 9, 2003 The information provided in this letter by the Investment Adviser 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. Portfolio holdings and breakdowns are as of September 30, 2003 and are subject to change. Please refer to pages 4 through 10 for a list and percentage breakdown of the fund's holdings. (i) 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. 2 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report PERFORMANCE SNAPSHOT AS OF SEPTEMBER 30, 2003 (NOT INCLUDING SALES CHARGES) 6 MONTHS Class A Shares 1.95% Lehman Brothers Municipal Bond Index 2.66% Average of Lipper Florida municipal debt funds 1.98% 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. All figures represent past performance and are not a guarantee of future results. Principal value and investment returns will fluctuate and investors' shares, when redeemed may be worth more or less than their original cost. The Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond market with maturities of at least one year. Please note that an investor cannot invest directly in an index. Lipper is a major independent mutual-fund tracking organization. Returns are based on the six-month period ended September 30, 2003, calculated among 62 funds in the Lipper Florida municipal debt funds category with reinvestment of dividends and capital gains excluding sales charges. Certain investors may be subject to the federal Alternative Minimum Tax and state and local income taxes will apply. Capital gains, if any, are fully taxable. Please consult your personal tax adviser. 3 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report SCHEDULE OF INVESTMENTS (UNAUDITED) SEPTEMBER 30, 2003 FACE AMOUNT RATING(a) SECURITY VALUE ========================================================================================================= COGENERATION FACILITIES -- 0.7% $1,500,000 BBB- Martin County IDA, Indiantown, (Cogeneration Project), 7.875% due 12/15/25 (b) $ 1,554,180 - --------------------------------------------------------------------------------------------------------- EDUCATION -- 11.1% 3,000,000 NR Capital Projects Finance Authority, Student Housing Revenue, Cafra Capital Corp., Capital Projects Loan Program, Series A, 7.850% due 8/15/31 3,022,050 1,895,000 Aaa* Collier County School Board, COP, FSA-Insured, 5.375% due 2/15/20 (c) 2,057,572 4,260,000 AAA Florida State Board of Education, Cap Outlay, Public Education, Series B, FGIC-Insured, 5.000% due 7/1/15 (c) 4,528,124 Florida State Board of Education, Lottery Revenue: 4,000,000 AAA Series B, 5.250% due 7/1/15 (c) 4,429,800 5,000,000 AAA Series C, 5.000% due 7/1/16 (c) 5,373,850 2,790,000 A Virgin Islands University Refunding & Improvement, Series A, ACA-Insured, 6.250% due 12/1/29 3,030,972 Volusia County Educational Facilities Authority Revenue, Embry-Riddle Aeronautical University: 150,000 AAA 6.500% due 10/15/15 151,778 2,875,000 Baa3* Series A, 6.125% due 10/15/16 3,089,418 - --------------------------------------------------------------------------------------------------------- 25,683,564 - --------------------------------------------------------------------------------------------------------- FINANCE -- 1.9% 1,200,000 BBB+ Puerto Rico Housing Bank & Finance Agency, 7.500% due 12/1/06 1,317,324 Virgin Islands Public Finance Authority Revenue: 2,000,000 A Series A, ACA-Insured, 5.500% due 10/1/18 2,147,240 1,000,000 NR Series E, 5.750% due 10/1/13 1,020,740 - --------------------------------------------------------------------------------------------------------- 4,485,304 - --------------------------------------------------------------------------------------------------------- GENERAL OBLIGATION -- 2.7% 3,220,000 AA+ Florida State Board of Education GO, Public Education, Series C, 5.250% due 6/1/19 (c) 3,510,154 2,000,000 AAA Puerto Rico Commonwealth GO, XLCA-Insured, 9.032% due 7/1/17 2,638,600 - --------------------------------------------------------------------------------------------------------- 6,148,754 - --------------------------------------------------------------------------------------------------------- GOVERNMENT FACILITIES -- 1.4% 750,000 AAA Florida State Department of Corrections, COP, Okeechobee Correctional, AMBAC-Insured, 6.250% due 3/1/15 812,565 1,810,000 AAA Lee County Justice Center Complex Inc., Improvement Revenue, Series A, MBIA-Insured, 11.125% due 1/1/11 (d)(e) 2,413,943 - --------------------------------------------------------------------------------------------------------- 3,226,508 - --------------------------------------------------------------------------------------------------------- HOSPITAL -- 25.8% 1,275,000 Aaa* Bay County Hospital Revenue, (Bay Medical Center Project), (Call 10/1/04 @ 102), 8.000% due 10/1/12 (f) 1,363,370 See Notes to Financial Statements. 4 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) SEPTEMBER 30, 2003 FACE AMOUNT RATING(a) SECURITY VALUE ========================================================================================================= HOSPITAL -- 25.8% (CONTINUED) $ 860,000 AAA Bradford County Health Facilities Authority Revenue, (Santa Fe Health Care Facilities Project), 6.050% due 11/15/16 (d) $1,031,321 705,000 AAA Cape Coral Health Facilities Authority, Hospital Revenue, (Cape Coral Medical Center Project), 8.125% due 11/1/08 (d) 817,997 595,000 Aaa* Collier County Health Facilities Authority Revenue, 11.000% due 12/1/10 (d) 797,264 Dade County IDR: 3,030,000 NR Miami Cerebral Palsy Services Project, 8.000% due 12/1/07 (c) 3,096,963 2,355,000 AAA Susanna Wesley Health Center, Series A, FHA-Insured, 6.625% due 7/1/30 (c) 2,479,391 995,000 AAA Dunedin Health Facilities Authority Revenue, Mease Hospital Inc., 7.600% due 10/1/08 (d) 1,139,275 2,000,000 Aaa* Escambia County Health Facilities Authority Revenue, Florida Health Care Facility Loan, VHA Program, AMBAC-Insured, 5.950% due 7/1/20 (c) 2,242,740 3,000,000 A Highlands County Health Facilities Authority Revenue, Hospital-Adventis, (Sunbelt-Inc. Project), Series A, 6.000% due 11/15/31 3,170,730 1,775,000 NR Homestead IDR, Community Rehabilitation Providers Program, Series A, 7.950% due 11/1/18 1,812,559 3,000,000 AA Jacksonville Economic Development Health Care Facilities Revenue, Mayo Clinic Jacksonville, Series A, 5.500% due 11/15/36 3,133,140 310,000 AAA Jacksonville Health Facilities Authority, Hospital Revenue, (University Medical Center Inc. Project), CONNIE LEE-Insured, 6.600% due 2/1/21 313,798 2,490,000 NR Lee Memorial Health System Board of Directors, Florida Hospital Revenue, FSA-Insured, 10.140% due 4/1/10 (g) 3,283,414 45,000 AAA Martin Memorial Hospital Association Inc., Stuart Revenue, 8.000% due 10/1/08 (d) 51,960 1,000,000 BB Miami Beach Health Facilities Authority, Hospital Revenue, (Mt. Sinai Medical Center Project), Series A, 6.800% due 11/15/31 937,140 Orange County Florida Health Facilities Authority Revenue Bonds: 3,000,000 A Adventist Health Systems, 6.500% due 11/15/30 3,289,500 2,000,000 NR First Mortgage Healthcare Facilities, 9.000% due 7/1/31 2,011,080 Orlando Regional Healthcare System: 2,000,000 A2* 5.750% due 12/1/32 2,054,260 1,000,000 A2* Series E, 6.000% due 10/1/26 1,041,810 3,495,000 AAA Southern Adventist Hospital, 8.750% due 10/1/09 (d) 4,191,868 2,990,000 AAA Palm Beach County Health Facilities Authority Revenue, (John F. Kennedy Memorial Hospital Inc. Project), Series C, 9.500% due 8/1/13 (d) 4,030,490 2,000,000 A1* Pinellas County Health Facilities Authority Revenue, Baycare Health System, 5.500% due 11/15/33 2,034,220 See Notes to Financial Statements. 5 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) SEPTEMBER 30, 2003 FACE AMOUNT RATING(a) SECURITY VALUE ========================================================================================================= HOSPITAL -- 25.8% (CONTINUED) Sarasota County Public Hospital Board Revenue, Sarasota Memorial Hospital, Series B, MBIA-Insured: $5,000,000 AAA 5.250% due 7/1/24 $ 5,354,650 3,485,000 AAA 5.500% due 7/1/28 3,835,800 2,000,000 A2* South Lake County Hospital District Revenue, South Lake Hospital Inc., Orlando Regional Healthcare, 6.000% due 10/1/22 2,079,740 West Orange Healthcare District Revenue, Series A: 2,000,000 A- 5.650% due 2/1/22 2,039,720 2,000,000 A- 5.800% due 2/1/31 2,023,500 - --------------------------------------------------------------------------------------------------------- 59,657,700 - --------------------------------------------------------------------------------------------------------- HOUSING: MULTI-FAMILY -- 6.9% 355,000 AAA Clearwater MFH Revenue, (Drew Gardens Project), Series A, FHA-Insured, 6.500% due 10/1/25 360,205 Florida HFA: 1,085,000 AAA Antigue Club Apartments, Series A-1, AMBAC-Insured, 6.750% due 8/1/14 1,135,920 2,900,000 BBB+ Sr. Lien, Series I-1, 6.625% due 7/1/28 (b)(c) 2,990,277 2,400,000 A Sunset Place, Series K-1, 6.000% due 10/1/19 (c) 2,500,392 1,000,000 BBB The Vineyards Project, Series H, 6.500% due 11/1/25 (c) 1,042,810 Florida Housing Finance Corporate Revenue: 1,500,000 NR Augustine Club Apartment, Series D, MBIA-Insured, 5.750% due 10/1/30 (c) 1,566,330 980,000 Ba2* Series D-2, 8.250% due 10/1/30 952,000 1,495,000 AAA Lee County HFA, MFH Revenue, (Brittany Phase II Project), Series A, FNMA-Collateralized, 6.100% due 12/1/32 1,598,708 1,000,000 AAA Oceanside Housing Development Corp., MFH Mortgage Revenue, FHA-Insured, 6.875% due 2/1/20 1,001,550 2,065,000 Aaa* Orange County HFA, MFH Revenue, RHA/Affordable Housing III, Series A, MBIA-Insured, 6.200% due 7/1/20 2,251,098 500,000 A Pasco County HFA, Multi-Family Revenue, (Pasco Woods Apartments Project), Series A, 5.700% due 8/1/19 (b) 522,150 - --------------------------------------------------------------------------------------------------------- 15,921,440 - --------------------------------------------------------------------------------------------------------- HOUSING: SINGLE-FAMILY -- 2.2% 855,000 Aaa* Brevard County HFA, Single-Family Mortgage Revenue, FNMA/GNMA-Collateralized, 6.400% due 9/1/23 (b) 884,882 Dade County HFA, Series A, FNMA/GNMA-Collateralized: 570,000 Aaa* Home Ownership Mortage Revenue, 6.375% due 4/13/33 (b) 594,350 1,255,000 AAA Single-Family Mortgage Revenue, 6.700% due 4/1/28 (b) 1,304,234 295,000 Aaa* Duval County HFA, Single-Family Mortgage Revenue, GNMA-Collateralized, 6.700% due 10/1/26 (b)(c) 304,317 540,000 AAA Florida HFA, Single-Family Mortgage, Series B, FNMA/GNMA-Collateralized, 6.650% due 7/1/26 (b)(c) 555,503 See Notes to Financial Statements. 6 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) SEPTEMBER 30, 2003 FACE AMOUNT RATING(a) SECURITY VALUE ========================================================================================================= HOUSING: SINGLE-FAMILY -- 2.2% (CONTINUED) $200,000 AAA Leon County HFA, Single-Family Mortgage Revenue, Multi-County Program, Series B, FHLMC/GNMA-Collateralized, 7.300% due 1/1/28 (b) $ 218,588 870,000 Aaa* Pinnellas County HFA, Single-Family Mortgage Revenue, FNMA/GNMA-Collateralized, 6.550% due 8/1/27 (b) 895,778 285,000 AAA Virgin Islands HFA, Single-Family Mortgage Revenue, Series A, GNMA-Collateralized, 6.500% due 3/1/25 (b) 294,870 - --------------------------------------------------------------------------------------------------------- 5,052,522 - --------------------------------------------------------------------------------------------------------- INDUSTRIAL DEVELOPMENT -- 2.5% 4,000,000 NR Hillsborough County IDA, Exempt Facility Revenue, National Gypsum, Series A, 7.125% due 4/1/30 4,121,800 1,000,000 NR Orlando Florida Urban Community Development District, Series A, 6.950% due 5/1/33 1,042,430 551,000 AAA Osceola County IDA Revenue, Community Provider Pooled Loan Program, Series A, FSA-Insured, 7.750% due 7/1/10 552,813 - --------------------------------------------------------------------------------------------------------- 5,717,043 - --------------------------------------------------------------------------------------------------------- LIFECARE SYSTEMS -- 0.4% Jacksonville Health Facilities Authority, Hospital Revenue, National Benevolent Association, IDR, Cypress Hill Village Program: 495,000 B3* 6.250% due 12/1/26 298,510 1,175,000 B3* 7.100% due 3/1/30 708,525 - --------------------------------------------------------------------------------------------------------- 1,007,035 - --------------------------------------------------------------------------------------------------------- MISCELLANEOUS -- 11.3% 1,970,000 NR Bonita Springs Vasari Capital Improvement, Series A, 6.950% due 5/1/32 2,051,203 2,000,000 NR Bonnet Creek Resort Community Development District, Florida Special Assessment, 7.375% due 5/1/34 2,076,980 Capital Region Community Development District Revenue, Capital Improvement, Series A-2: 980,000 NR 6.850% due 5/1/31 1,018,524 990,000 NR 6.700% due 5/1/32 1,024,561 2,000,000 NR Century Parc Community Development District, Florida Special Assessment, 7.000% due 11/1/31 2,057,340 2,000,000 NR Colonial Country Club Community Development District, Capital Improvement Revenue, 6.400% due 5/1/33 (c) 2,030,560 595,000 AAA Escambia County Capital Improvement Revenue, MBIA-Insured, 11.000% due 1/1/07 (d) 695,186 225,000 AAA Fort Myers Improvement Revenue, AMBAC-Insured, 10.375% due 10/1/13 (d) 316,510 1,000,000 NR Islands at Doral Community Development, Florida Special Assessment, 6.375% due 5/1/35 1,018,410 350,000 AAA Lee County Capital Bonds, MBIA-Insured, 9.500% due 10/1/05 (d) 377,507 See Notes to Financial Statements. 7 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) SEPTEMBER 30, 2003 FACE AMOUNT RATING(a) SECURITY VALUE ========================================================================================================= MISCELLANEOUS -- 11.3% (CONTINUED) $3,615,000 NR Mediterra North Community Development District, Capital Improvement Revenue, 6.800% due 5/1/31 $ 3,721,570 1,200,000 AAA North Springs Improvement District, MBIA-Insured, 7.000% due 10/1/09 1,489,824 2,490,000 NR Panther Trace Florida Community Development District, Special Assessment, Series A, 7.250% due 5/1/33 2,553,644 2,500,000 AAA Port Palm Beach District Revenue, Capital Appreciation, Series A, MBIA-Insured, zero coupon due 9/1/21 926,775 1,000,000 NR Renaissance Community Development District, Florida Capital Improvement Revenue, Series A, 7.000% due 5/1/33 1,049,150 2,455,000 NR Reunion East Community Development District, Florida Special Assessment, Series A, 7.375% due 5/1/33 2,544,239 25,000 AAA Tallahassee Capital Improvement Revenue, AMBAC-Insured, 9.250% due 11/15/07 29,320 1,135,000 NR Waterchase Community Development District, Capital Improvement Revenue, 6.700% due 5/1/32 1,162,388 - --------------------------------------------------------------------------------------------------------- 26,143,691 - --------------------------------------------------------------------------------------------------------- POLLUTION CONTROL -- 2.4% Escambia County PCR, (Champion International Corp. Project): 500,000 BBB 6.950% due 11/1/07 (c) 506,600 3,500,000 BBB 6.900% due 8/1/22 (b)(c) 3,651,375 1,390,000 BB+ Putnam County Development Authority, PCR, Georgia Pacific Corp. 1984, 7.000% due 12/1/05 1,403,872 - --------------------------------------------------------------------------------------------------------- 5,561,847 - --------------------------------------------------------------------------------------------------------- PUBLIC FACILITIES -- 2.4% 85,000 AAA Dade County Special Obligation, (Miami Beach Convention Center Project), 8.625% due 12/1/07 (c) 99,232 Florida Municipal Loan Council Revenue, MBIA-Insured: 1,625,000 AAA 5.250% due 11/1/18 1,792,261 1,805,000 AAA Series C, 5.250% due 11/1/20 1,963,425 Tampa Sports Authority Revenue, (Tampa Bay Arena Project), MBIA-Insured: 500,000 AAA 6.050% due 10/1/20 609,505 1,000,000 AAA 6.100% due 10/1/26 1,198,690 - --------------------------------------------------------------------------------------------------------- 5,663,113 - --------------------------------------------------------------------------------------------------------- TAX ALLOCATION -- 3.9% 15,000 AAA Lauderhill Florida Sales Tax Revenue, AMBAC-Insured, 9.500% due 10/1/04 15,608 1,000,000 BBB Miami Beach Redevelopment Agency Tax Increment Revenue, City Center-Historic Convention, Series B, 6.350% due 12/1/22 1,072,780 1,000,000 AAA Orlando Florida Community Redevelopment Agency, Tax Increment Revenue, 5.125% due 4/1/21 1,055,270 See Notes to Financial Statements. 8 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) SEPTEMBER 30, 2003 FACE AMOUNT RATING(a) SECURITY VALUE ========================================================================================================= TAX ALLOCATION -- 3.9% (continued) $1,505,000 NR Rivercrest Community Development District, Special Assessment Revenue, 7.000% due 5/1/32 $ 1,573,177 1,000,000 NR Sumter Landing Community Development District, Florida Special Assessment Revenue, 6.875% due 5/1/23 1,016,440 Tampa Utility Tax & Special Revenue, Series A, AMBAC-Insured: 2,990,000 AAA 5.250% due 10/1/19 3,267,233 1,000,000 AAA 5.250% due 10/1/21 1,076,520 - --------------------------------------------------------------------------------------------------------- 9,077,028 - --------------------------------------------------------------------------------------------------------- TOBACCO -- 1.2% 2,365,000 AAA Tampa Guaranteed Entitlement Revenue, MBIA-Insured, 9.750% due 10/1/08 (d) 2,847,034 - --------------------------------------------------------------------------------------------------------- TRANSPORTATION -- 6.4% 2,000,000 NR Capital Travel Agency Revenue, Seminole Tribe Convention, Series A, 8.950% due 10/1/33 2,221,800 1,050,000 AAA Florida State Broward County, 10.000% due 7/1/14 (c) 1,550,052 Guam Airport Authority Revenue: 750,000 BBB- Series A, 6.500% due 10/1/23 768,975 1,000,000 BBB- Series B, 6.600% due 10/1/10 (b) 1,025,500 500,000 B Hillsborough County Aviation Authority Revenue, Special Purpose, (Delta Airlines Project), 6.800% due 1/1/24 412,230 Lee County Southwest Regional Airport Revenue, MBIA-Insured: 900,000 AAA 8.625% due 10/1/09 (d) 1,077,039 1,025,000 AAA 9.625% due 10/1/09 (d) 1,261,775 1,000,000 Aaa* Polk County Transportation Improvement Revenue, 5.250% due 12/1/22 1,057,690 Sanford Airport Authority, IDR, (Central Florida Terminals Inc. Project): Series A: 1,000,000 NR 7.500% due 5/1/15 (b) 930,600 2,000,000 NR 7.750% due 5/1/21 (b) 1,847,100 645,000 NR Series C, 7.500% due 5/1/21 (b) 581,210 Santa Rosa Bay Bridge Authority Revenue: 1,085,000 B1* 6.250% due 7/1/28 662,761 5,000,000 B1* Capital Appreciation, zero coupon due 7/1/17 1,012,950 220,000 AAA West Palm Beach IDR, AMBAC-Insured, 11.375% due 6/1/11 (d) 302,982 - --------------------------------------------------------------------------------------------------------- 14,712,664 - --------------------------------------------------------------------------------------------------------- UTILITIES -- 10.9% 3,000,000 AAA Escambia County Utility System Authority, Revenue Bonds, Series B, FGIC-Insured, 6.250% due 1/1/15 (c) 3,673,470 Gainesville Utilities System Revenue: 2,025,000 AAA 8.125% due 10/1/14 (d) 2,563,792 1,075,000 AA 5.250% due 10/1/22 1,148,250 1,350,000 AAA Guam Power Authority Revenue, Series A, (Call 1/1/04 @ 102), 6.750% due 10/1/24 (f) 1,454,774 1,125,000 AAA Hillsborough County Utility Revenue, 9.875% due 12/1/11 (d) 1,482,446 See Notes to Financial Statements. 9 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) SEPTEMBER 30, 2003 FACE AMOUNT RATING(a) SECURITY VALUE ========================================================================================================= UTILITIES -- 10.9% (continued) $ 285,000 AAA Key West Utility Board Electric Revenue, 9.750% due 10/1/13 (d) $ 387,192 2,500,000 Aa1* Orlando Utilities Community Water & Electricity Revenue, 5.250% due 10/1/19 2,712,350 2,025,000 Aaa* Polk County Utilities System Revenue, FGIC-Insured, 5.000% due 10/1/24 2,076,253 3,000,000 AAA Puerto Rico Electric Power Authority Revenue, 5.375% due 7/1/19 3,336,990 Sunrise Utility System Revenue Refunding: 2,000,000 AAA 5.000% due 10/1/28 2,061,860 3,000,000 AAA AMBAC-Insured, 5.200% due 10/1/22 3,244,260 1,000,000 AAA Village Center Community Development, Utility Revenue Bonds, MBIA-Insured, 5.250% due 10/1/23 1,055,600 - --------------------------------------------------------------------------------------------------------- 25,197,237 - --------------------------------------------------------------------------------------------------------- WATER & SEWER -- 5.9% 130,000 AAA Collier County Water Revenue, AMBAC-Insured, 8.875% due 5/1/12 (c)(d) 168,540 640,000 AAA Miramar Wastewater Improvement Authority, FGIC-Insured, (Call 10/1/04 @ 101), 6.750% due 10/1/16 (f) 683,328 500,000 NR Northern Palm Beach County Water Control District, Unit Development No. 31, Program 1, 6.750% due 11/1/07 510,530 1,285,000 AAA Palm Beach County Solid Waste Authority Revenue, MBIA-Insured, 10.000% due 12/1/04 (d)(e) 1,357,268 2,320,000 NR Port St. Lucia Special Assesment Revenue, South Lennard, Series A, 7.125% due 9/1/21 2,368,024 1,385,000 AAA Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue, 10.250% due 7/1/09 (d) 1,740,100 120,000 AAA Tamarac Water & Sewer Utility Revenue, AMBAC-Insured, 9.250% due 10/1/10 (d) 150,799 2,000,000 AAA Tampa Water & Sewer System Revenue Refunding, (Call 10/1/10 @ 100), 6.900% due 10/1/16 2,485,920 3,070,000 AAA West Coast Regional Water Supply Authority, Capital Improvement Revenue, 10.400% due 10/1/13 (c)(f) 4,238,750 - --------------------------------------------------------------------------------------------------------- 13,703,259 - --------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 100.0% (Cost -- $221,674,045**) $231,359,923 ========================================================================================================= (a) All ratings are by Standard & Poor's Ratings Service, except for those which are identified by an asterisk (*), are rated by Moody's Investors Service. (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 is segregated for open futures contracts commitments (Note 6). (d) Bonds are escrowed to maturity with U.S. government securities and are considered by the manager to be triple-A rated even if issuer has not applied for new ratings. (e) All or a portion of this security is held as collateral for open futures contracts commitments (Note 6). (f) Pre-Refunded bonds are escrowed with U.S. government securities and are considered by the manager to be triple-A rated even if issuer has not applied for new ratings. (g) Residual interest bonds - coupon varies inversely with level of short-term tax-exempt interest rates. ** Aggregate cost for Federal income tax purposes is substantially the same. See pages 11 and 12 for definitions of ratings and certain abbreviations. See Notes to Financial Statements. 10 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report 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 "B" may be modified by the addition of a plus (+) or minus (-) sign to show relative standings within the major rating categories. AAA -- Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. 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 bonds in higher rated categories. BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories. BB -- Bonds rated "BB" and "B" are regarded, on balance, as predominantly and B speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" indicates the lowest degree of speculation and "B" 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 "B", where 1 is the highest and 3 the lowest-rating 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 as in "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in "Aaa" securities. A -- Bonds rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Baa -- Bonds rated "Baa" are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds rated "Ba" are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes in this class. B -- Bonds rated "B" generally lack characteristics of desirable investments. Assurance of interest and principal payment or of maintenance of other terms of the contract over any long period of time may be small. 11 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report BOND RATINGS (UNAUDITED) (CONTINUED) Fitch Ratings ("Fitch") -- Ratings from "AA" to "BBB" may be modified by the addition of a plus (+) sign or minus (-) sign to show relative standings within the major ratings categories. AA -- Bonds rated "AA" are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and/or dividends and repay principal is very strong. A -- Bonds rated "A" are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and/or dividends and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt or preferred securities with higher ratings. BBB -- Bonds rated "BBB" are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings. 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 safely regarding timely payment is either overwhelming or very strong; those issues determined to possess overwhelming safety characteristics are denoted with a (+) sign. VMIG 1 -- Moody's highest rating for issues having demand feature -- VRDO. P-1 -- Moody's highest rating for commercial paper and for VRDO prior to the advent of the VMIG 1 rating. ABBREVIATIONS* (UNAUDITED) ACA -- American Capital Assurance AIG -- American International Guaranty AMBAC -- American Municipal Bond Assurance Corporation CONNIE -- College Construction Loan LEE Insurance Association COP -- Certificate of Participation FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Administration FHLMC -- Federal Home Loan Mortgage Corporation FNMA -- Federal National Mortgage Association FSA -- Financial Security Assurance GEMICO -- General Electric Mortgage Insurance Company GIC -- Guaranteed Investment Contract GNMA -- Government National Mortgage Association GO -- General Obligation HFA -- Housing Finance Authority IDA -- Industrial Development Agency IDR -- Industrial Development Revenue INFLOS -- Inverse Floaters LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance Corporation MFH -- Multi-Family Housing PCFA -- Pollution Control Financing Authority PCR -- Pollution Control Revenue RIBS -- Residual Interest Bonds VRDD -- Variable Rate Demand Note VRWE -- Variable Rate Wednesday Demand XLCA -- XLCapital Assurance - ------------ * Abbreviations may or may not appear on the schedule of investments. 12 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) SEPTEMBER 30, 2003 ASSETS: Investments, at value (Cost -- $221,674,045) $ 231,359,923 Cash 285,115 Interest receivable 5,294,401 Receivable for securities sold 3,112,500 Receivable for Fund shares sold 431,757 - -------------------------------------------------------------------------------- TOTAL ASSETS 240,483,696 - -------------------------------------------------------------------------------- LIABILITIES: Payable for securities purchased 1,085,552 Payable to broker-- variation margin 860,938 Management fee payable 97,649 Payable for Fund shares reacquired 65,141 Distribution plan fees payable 23,379 Accrued expenses 109,790 - -------------------------------------------------------------------------------- TOTAL LIABILITIES 2,242,449 - -------------------------------------------------------------------------------- TOTAL NET ASSETS $238,241,247 ================================================================================ NET ASSETS: Par value of shares of beneficial interest $ 17,961 Capital paid in excess of par value 232,481,815 Undistributed net investment income 130,011 Accumulated net realized loss from investment transactions and futures contracts (1,743,950) Net unrealized appreciation of investments and futures contracts 7,355,410 - -------------------------------------------------------------------------------- TOTAL NET ASSETS $238,241,247 ================================================================================ SHARES OUTSTANDING: Class A 12,756,245 ------------------------------------------------------------------------------ Class B 3,702,526 ------------------------------------------------------------------------------ Class L 1,501,872 ------------------------------------------------------------------------------ NET ASSET VALUE: Class A (and redemption price) $13.27 ------------------------------------------------------------------------------ Class B * $13.24 ------------------------------------------------------------------------------ Class L * $13.24 ------------------------------------------------------------------------------ MAXIMUM PUBLIC OFFERING PRICE PER SHARE: Class A (net asset value plus 4.17% of net asset value per share) $13.82 ------------------------------------------------------------------------------ Class L (net asset value plus 1.01% of net asset value per share) $13.37 ================================================================================ *Redemption price is NAV of Class B and L shares reduced by a 4.50% and 1.00% contingent deferred sales charge, respectively, if shares are redeemed within one year from purchase payment (See Note 4). See Notes to Financial Statements. 13 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2003 INVESTMENT INCOME: Interest $ 7,007,979 - -------------------------------------------------------------------------------- EXPENSES: Management fee (Note 4) 602,359 Distribution plan fees (Note 7) 364,020 Shareholder servicing fees (Note 7) 37,149 Custody 36,966 Audit and legal 27,450 Shareholder communications (Note 7) 17,202 Registration fees 11,895 Trustees' fees 915 Other 6,588 - -------------------------------------------------------------------------------- TOTAL EXPENSES 1,104,544 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 5,903,435 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS (NOTES 5 AND 6): Realized Gain (Loss) From: Investment transactions (554,382) Futures contracts 2,128,730 - -------------------------------------------------------------------------------- NET REALIZED GAIN 1,574,348 - -------------------------------------------------------------------------------- Change in Net Unrealized Appreciation of Investments and Futures Contracts: Beginning of period 10,292,876 End of period 7,355,410 DECREASE IN NET UNREALIZED APPRECIATION (2,937,466) - -------------------------------------------------------------------------------- NET LOSS ON INVESTMENTS AND FUTURES CONTRACTS (1,363,118) - -------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS $ 4,540,317 ================================================================================ See Notes to Financial Statements. 14 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED) AND THE YEAR ENDED MARCH 31, 2003 SEPTEMBER 30 MARCH 31 ================================================================================ OPERATIONS: Net investment income $ 5,903,435 $ 12,294,800 Net realized gain (loss) 1,574,348 (2,274,196) Increase (decrease) in net unrealized appreciation (2,937,466) 7,248,193 - -------------------------------------------------------------------------------- INCREASE IN NET ASSETS FROM OPERATIONS 4,540,317 17,268,797 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTES 3 AND 8): Net investment income (6,115,845) (12,093,772) - -------------------------------------------------------------------------------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS (6,115,845) (12,093,772) - -------------------------------------------------------------------------------- FUND SHARE TRANSACTIONS (NOTE 9): Net proceeds from sale of shares 21,283,257 45,972,267 Net asset value of shares issued for reinvestment of dividends 2,241,224 4,953,617 Cost of shares reacquired (23,677,223) (49,610,782) - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (152,742) 1,315,102 - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS (1,728,270) 6,490,127 NET ASSETS: Beginning of period 239,969,517 233,479,390 - -------------------------------------------------------------------------------- END OF PERIOD* $238,241,247 $239,969,517 ================================================================================ * Includes undistributed net investment income of: $130,011 $342,421 ================================================================================ See Notes to Financial Statements. 15 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. Significant Accounting Policies The Florida Portfolio ("Fund"), a separate 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, non-diversified management investment company. The Trust consists of this Fund and eight other separate investment funds: Georgia, Limited Term, National, New York, Pennsylvania, New York Money Market, California Money Market and Massachusetts Money Market Portfolios. The financial statements and financial highlights for the other funds are presented in separate shareholder reports. The significant accounting policies consistently followed by the Fund are: (a) security transactions are accounted for on trade date; (b) securities are valued at the mean between the quoted bid and 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; (c) securities for which market quotations are not available will be valued in good faith at fair market value by or under the direction of the Board of Trustees; (d) securities maturing within 60 days are valued at cost plus accreted discount, or minus amortized premium, which approximates value; (e) gains or losses on the sale of securities are calculated by using the specific identification method; (f) interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis; (g) class specific expenses are charged to each class; management fees and general fund expenses are allocated on the basis of relative net assets of each class or on another reasonable basis; (h) dividends and distributions to shareholders are recorded on the ex-dividend date; (i) the Fund intends to comply with the applicable provisions of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all Federal Income and excise taxes; (j) the character of income and gains to be distributed is determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America; and (k) estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic 16 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. 2. Fund Concentration Since the Fund invests primarily in obligations of issuers within Florida, it is subject to possible concentration risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Florida. 3. Exempt-Interest Dividends and Other Distributions The Fund intends to satisfy conditions that will enable interest from municipal securities, which is exempt from regular Federal income tax and from designated state income taxes, to retain such tax-exempt status when distributed to the shareholders of the Fund. It is the Fund's policy to distribute dividends monthly. Capital gain distributions, if any, are taxable to shareholders, and are declared and paid at least annually. 4. Management Agreement and Other Transactions 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 an annual rate of 0.50% of the Fund's average daily net assets. This fee is calculated daily and paid monthly. 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 six months ended September 30, 2003, the Fund paid transfer agent fees of $20,562 to CTB. Citigroup Global Markets Inc. ("CGM"), another indirect wholly-owned subsidiary of Citigroup, acts as the Fund's distributor. 17 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) There are maximum initial sales charges of 4.00% and 1.00% for Class A and L shares, respectively. 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 L shares also have a 1.00% CDSC, which applies if redemption occurs within one year from purchase payment. In addition, Class A shares also 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 six months ended September 30, 2003, CGM received sales charges of approximately $103,000 and $8,000 on sales of the Fund's Class A and L shares, respectively. In addition, for the six months ended September 30, 2003, CDSCs paid to CGM were approximately: Class B Class L ================================================================================ CDSCs $28,000 $1,000 ================================================================================ All officers and one Trustee of the Trust are employees of Citigroup or its affiliates. 5. Investments During the six months ended September 30, 2003, the aggregate cost of purchases and proceeds from sales of investments (including maturities of long-term investments, but excluding short-term investments) were as follows: ================================================================================ Purchases $37,540,932 - -------------------------------------------------------------------------------- Sales 39,081,557 ================================================================================ At September 30, 2003, the aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows: ================================================================================ Gross unrealized appreciation $12,065,464 Gross unrealized depreciation (2,379,586) - -------------------------------------------------------------------------------- Net unrealized appreciation $ 9,685,878 ================================================================================ 18 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. Futures Contracts Securities or cash equal to the initial margin amount are either deposited with the broker or segregated by the custodian upon entering into the futures contract. Additional securities are also segregated up to the current market value of the futures contract. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are received or made and recognized as assets due from or liabilities due to broker, depending upon whether unrealized gains or losses are incurred. When the contract is 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 contract. The Fund enters into such contracts typically to hedge a portion of its portfolio. The Fund bears the market risk that arises from changes in the value of the financial instruments and securities indices. At September 30, 2003, the Fund had the following open futures contracts: NUMBER OF BASIS MARKET UNREALIZED CONTRACTS EXPIRATION VALUE VALUE LOSS ======================================================================================= CONTRACTS TO SELL: 20 Year, 6.000% U.S. Treasury Bond 475 12/03 $50,943,750 $53,274,218 $(2,330,468) ======================================================================================= 7. Class Specific Expenses Pursuant to a Rule 12b-1 Distribution Plan, the Fund pays a service fee with respect to its Class A, B and L shares calculated at the annual rate of 0.15% of the average daily net assets of each respective class. The Fund also pays a distribution fee with respect to its Class B and L shares calculated at the annual rates of 0.50% and 0.55% of the average daily net assets of each class, respectively. For the six months ended September 30, 2003, total Rule 12b-1 Distribution Plan fees, which are accrued daily and paid monthly, were as follows: CLASS A CLASS B CLASS L ================================================================================ Rule 12b-1 Distribution Plan Fees $127,209 $167,031 $69,780 ================================================================================ 19 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) For the six months ended September 30, 2003, total Shareholder Servicing fees were as follows: CLASS A CLASS B CLASS L ================================================================================ Shareholder Servicing Fees $18,300 $9,150 $9,699 ================================================================================ For the six months ended September 30, 2003, total Shareholder Communication expenses were as follows: CLASS A CLASS B CLASS L ================================================================================ Shareholder Communication Expenses $10,431 $4,758 $2,013 ================================================================================ 8. Distributions Paid to Shareholders by Class SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2003 MARCH 31, 2003 ================================================================================ NET INVESTMENT INCOME Class A $4,423,247 $ 8,689,550 Class B 1,222,202 2,512,386 Class L 470,396 891,836 - -------------------------------------------------------------------------------- Total $6,115,845 $12,093,772 ================================================================================ 9. Shares of Beneficial Interest At September 30, 2003, the Trust had an unlimited amount 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 related to the distribution of its shares. Transactions in shares of each class were as follows: SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2003 MARCH 31, 2003 ------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ================================================================================ CLASS A Shares sold 1,199,865 $ 16,027,251 2,349,032 $ 31,446,574 Shares issued on reinvestment 115,395 1,537,498 259,757 3,468,197 Shares reacquired (1,078,634) (14,405,324) (2,646,431) (35,343,749) - -------------------------------------------------------------------------------- Net Increase (Decrease) 236,626 $ 3,159,425 (37,642) $ (428,978) ================================================================================ 20 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2003 MARCH 31, 2003 ------------------------- -------------------------- SHARES AMOUNT SHARES AMOUNT ================================================================================ CLASS B Shares sold 314,340 $ 4,199,451 750,719 $ 10,037,350 Shares issued on reinvestment 35,352 470,023 78,035 1,039,809 Shares reacquired (623,432) (8,291,149) (856,835) (11,407,392) - -------------------------------------------------------------------------------- Net Decrease (273,740) $(3,621,675) (28,081) $ (330,233) ================================================================================ CLASS L Shares sold 79,264 $1,056,555 334,559 $ 4,488,343 Shares issued on reinvestment 17,590 233,703 33,436 445,611 Shares reacquired (73,958) (980,750) (214,363) (2,859,641) - -------------------------------------------------------------------------------- Net Increase 22,896 $ 309,508 153,632 $ 2,074,313 ================================================================================ 10. Subsequent Event The Fund has received the following information from Citigroup Asset Management ("CAM"), the Citigroup business unit which includes the Fund's Investment Manager and other investment advisory companies, all of which are indirect, wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an affiliate, into the transfer agent business in the period 1997-1999. As CAM currently understands the facts, at the time CAM decided to enter the transfer agent business, CAM sub-contracted for a period of five years certain of the transfer agency services to a third party and also concluded a revenue guarantee agreement with this sub-contractor providing that the sub-contractor would guarantee certain benefits to CAM or its affiliates (the "Revenue Guarantee Agreement"). In connection with the subsequent purchase of the sub-contractor's business by an affiliate of the current sub-transfer agent (PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee Agreement was amended eliminating those benefits in exchange for arrangements that included a one-time payment from the sub-contractor. The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue Guarantee Agreement with the sub-contractor at the time the Boards considered and approved the transfer agent arrangements. Nor were the Boards informed of the subsequent amendment to the Revenue Guarantee Agreement when that occurred. 21 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) CAM has begun to take corrective actions. CAM will pay to the applicable funds $16 million (plus interest) that CAM and its affiliates received from the Revenue Guarantee Agreement and its amendment. CAM also plans an independent review to verify that the transfer agency fees charged by CAM were fairly priced as compared to competitive alternatives. CAM is instituting new procedures and making changes designed to ensure no similar arrangements are entered into in the future. CAM has briefed the SEC, the New York State Attorney General and other regulators with respect to this matter, as well as the U.S. Attorney who is investigating the matter. CAM is cooperating with governmental authorities on this matter, the ultimate outcome of which is not yet determinable. 22 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report FINANCIAL HIGHLIGHTS For a share of each class of beneficial interest outstanding throughout each year ended March 31, unless otherwise noted: CLASS A SHARES 2003(1)(2) 2003(2) 2002(2) 2001(2) 2000(2) 1999(2) =================================================================================================== NET ASSET VALUE, BEGINNING OF PERIOD $13.36 $13.06 $13.34 $12.70 $13.70 $13.74 - --------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income(3) 0.34 0.71 0.71 0.69 0.69 0.69 Net realized and unrealized gain (loss)(3) (0.08) 0.29 (0.29) 0.65 (1.01) 0.06 - --------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations 0.26 1.00 0.42 1.34 (0.32) 0.75 - --------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income (0.35) (0.70) (0.70) (0.70) (0.68) (0.69) In excess of net investment income -- -- -- -- -- (0.01) Net realized gains -- -- -- -- -- (0.09) - --------------------------------------------------------------------------------------------------- Total Distributions (0.35) (0.70) (0.70) (0.70) (0.68) (0.79) - --------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $13.27 $13.36 $13.06 $13.34 $12.70 $13.70 - --------------------------------------------------------------------------------------------------- TOTAL RETURN 1.95%++ 7.76% 3.15% 10.83% (2.25)% 5.56% - --------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (MILLIONS) $169 $167 $164 $162 $151 $160 - --------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4) 0.75%+ 0.72% 0.72% 0.73% 0.74% 0.73% Net investment income(3) 5.04+ 5.30 5.27 5.36 5.32 4.99 - --------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 16% 45% 41% 27% 56% 43% =================================================================================================== (1) For the six months ended September 30, 2003 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (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, the change to net investment income, net realized and unrealized loss and the ratio of net investment income to average net assets was less than $0.01, $0.01 and 0.01%, respectively. Per share information, ratios and supplemental data for periods prior to April 1, 2001 have not been restated to reflect this change in presentation. (4) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.85%. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 23 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report FINANCIAL HIGHLIGHTS (CONTINUED) For a share of each class of beneficial interest outstanding throughout each year ended March 31, unless otherwise noted: CLASS B SHARES 2003(1)(2) 2003(2) 2002(2) 2001(2) 2000(2) 1999(2) =================================================================================================== NET ASSET VALUE, BEGINNING OF PERIOD $13.33 $13.04 $13.32 $12.70 $13.69 $13.73 - --------------------------------------------------------------------------------------------------- Income (Loss) From Operations: Net investment income(3) 0.30 0.64 0.64 0.62 0.62 0.62 Net realized and unrealized gain (loss)(3) (0.07) 0.28 (0.29) 0.63 (1.00) 0.06 - --------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations 0.23 0.92 0.35 1.25 (0.38) 0.68 - --------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income (0.32) (0.63) (0.63) (0.63) (0.61) (0.62) In excess of net investment income -- -- -- -- -- (0.01) Net realized gains -- -- -- -- -- (0.09) - --------------------------------------------------------------------------------------------------- Total Distributions (0.32) (0.63) (0.63) (0.63) (0.61) (0.72) - --------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $13.24 $13.33 $13.04 $13.32 $12.70 $13.69 - --------------------------------------------------------------------------------------------------- TOTAL RETURN 1.72%++ 7.19% 2.67% 10.14% (2.70)% 5.01% - --------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (MILLIONS) $49 $53 $52 $53 $59 $66 - --------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(4) 1.27%+ 1.24% 1.22% 1.25% 1.26% 1.24% Net investment income(3) 4.52+ 4.79 4.76 4.84 4.80 4.48 - --------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 16% 45% 41% 27% 56% 43% =================================================================================================== (1) For the six months ended September 30, 2003 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (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, the ratio of net investment income to average net assets would have been 4.77%. 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. (4) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 1.35%. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 24 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report FINANCIAL HIGHLIGHTS (CONTINUED) For a share of each class of beneficial interest outstanding throughout each year ended March 31, unless otherwise noted: CLASS L SHARES 2003(1)(2) 2003(2) 2002(2) 2001(2) 2000(2) 1999(2)(3) =================================================================================================== NET ASSET VALUE, BEGINNING OF PERIOD $13.33 $13.04 $13.33 $12.70 $13.69 $13.74 - --------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS: Net investment income(4) 0.29 0.63 0.63 0.61 0.61 0.61 Net realized and unrealized gain (loss)(4) (0.07) 0.29 (0.29) 0.65 (1.00) 0.05 - --------------------------------------------------------------------------------------------------- Total Income (Loss) From Operations 0.22 0.92 0.34 1.26 (0.39) 0.66 - --------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income (0.31) (0.63) (0.63) (0.63) (0.60) (0.61) In excess of net investment income -- -- -- -- -- (0.01) Net realized gains -- -- -- -- -- (0.09) - --------------------------------------------------------------------------------------------------- Total Distributions (0.31) (0.63) (0.63) (0.63) (0.60) (0.71) - --------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $13.24 $13.33 $13.04 $13.33 $12.70 $13.69 - --------------------------------------------------------------------------------------------------- TOTAL RETURN 1.69%++ 7.14% 2.55% 10.16% (2.78)% 4.87% - --------------------------------------------------------------------------------------------------- NET ASSETS, END OF PERIOD (MILLIONS) $20 $20 $17 $14 $13 $12 - --------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS: Expenses(5) 1.38%+ 1.30% 1.28% 1.31% 1.32% 1.31% Net investment income(4) 4.41+ 4.73 4.72 4.78 4.74 4.41 - --------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 16% 45% 41% 27% 56% 43% =================================================================================================== (1) For the six months ended September 30, 2003 (unaudited). (2) Per share amounts have been calculated using the monthly average shares method. (3) On June 12, 1998, Class C shares were renamed as Class L shares. (4) 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 change to net investment income, net realized and unrealized loss and the ratio of net investment income to average net assets was less than $0.01, $0.01 and 0.01%, respectively. Per share information, ratios and supplemental data for periods prior to April 1, 2001 have not been restated to reflect this change in presentation. (5) As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 1.40%. ++ Total return is not annualized, as it may not be representative of the total return for the year. + Annualized. 25 SMITH BARNEY MUNI FUNDS | 2003 Semi-Annual Report (This page intentionally left blank.) (This page intentionally left blank.) (This page intentionally left blank.) SMITH BARNEY MUNI FUNDS TRUSTEES Lee Abraham Allan J. Bloostein 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 Richard L. Peteka Chief Financial Officer and Treasurer Peter M. Coffey Vice President and Investment Officer Kaprel Ozsolak Controller Robert I. Frenkel* Secretary and Chief Legal Officer *As of November 25, 2003. INVESTMENT MANAGER Smith Barney Fund Management LLC DISTRIBUTOR Citigroup Global Markets Inc. CUSTODIAN State Street Bank and Trust Company 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 SMITH BARNEY MUNI FUNDS - -------------------------------------------------------------------------------- Florida Portfolio The Fund is a separate investment fund of the Smith Barney Muni Funds, a Massachusetts business trust. This report is submitted for the general information of the shareholders of Smith Barney Muni Funds -- Florida Portfolio, but it may also be used as sales literature when preceded or accompanied by the current Prospectus, which gives details about charges, expenses, investment objectives and operating policies of the Fund. If used as sales material after December 31, 2003, this report must be accompanied by performance information for the most recently completed calendar quarter. SMITH BARNEY MUNI FUNDS Smith Barney Mutual Funds 125 Broad Street 10th Floor, MF-2 New York, New York 10004 For complete information on any Smith Barney Mutual Funds, including management fees and expenses, call or write your financial professional for a free prospectus. Read it carefully before you invest or send money. www.smithbarneymutualfunds.com (C)2003 Citigroup Global Markets Inc. Member NASD, SIPC FD0787 11/03 03-5678 ITEM 2. CODE OF ETHICS. Not Applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not Applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. 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. 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 10. EXHIBITS. (a) Not applicable. (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 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: December 12, 2003 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: December 12, 2003 By: /s/ Richard L. Peteka Richard L. Peteka Chief Financial Officer of SMITH BARNEY MUNI FUNDS Date: December 12, 2003