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
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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