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.
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SMITH BARNEY
MUNI FUNDS
MASSACHUSETTS MONEY
MARKET PORTFOLIO
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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.
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NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
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WHAT'S INSIDE
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Letter from the Chairman .................................................. 1
Schedule of Investments ................................................... 3
Statement of Assets and Liabilities ....................................... 8
Statement of Operations ................................................... 9
Statements of Changes in Net Assets ....................................... 10
Notes to Financial Statements ............................................. 11
Financial Highlights ...................................................... 15
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LETTER FROM THE CHAIRMAN
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[PHOTO OMITTED]
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 Massachusetts, 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, long-term bond yields experienced a
sharp reversal over the summer. However, the yields on shorter-term municipal
fixed-income securities continued to fall and eventually stabilized throughout
the remainder of the period.
In this environment, the fund performed as follows:
Smith Barney Muni Funds:
Massachusetts Money Market Portfolio's Performance
As of September 30, 2003, the seven-day current yield and seven-day effective
yield, which reflects compounding, of Class A shares of the fund were both
0.49%. These numbers are the same due to rounding. The seven-day effective yield
is calculated similarly to the seven-day current yield but, when annualized, the
income earned by an investment in the fund is assumed to be reinvested. The
effective yield typically will be slightly higher than the current yield because
of the compounding effect of the assumed reinvestment. Please note that your
investment is neither insured nor guaranteed by the Federal Deposit Insurance
Corporation ("FDIC") or any other government agency. Although the fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in a money market fund. Certain investors may be subject to
the federal Alternative Minimum Tax, and state and local taxes may apply.
Capital gains, if any, are fully taxable. Please consult your personal tax
adviser.
1 Smith Barney Muni Funds | 2003 Semi-Annual Report
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CLASS A SHARES' YIELDS AS OF SEPTEMBER 30, 2003
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Seven-day current yield 0.49%
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Seven-day effective yield 0.49%
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These numbers are the same due to rounding. The seven-day effective yield is
calculated similarly to the seven-day current yield but, when annualized, the
income earned by an investment in the fund is assumed to be reinvested. The
effective yield typically will be slightly higher than the current yield because
of the compounding effect of the assumed reinvestment. Please note that your
investment is neither insured nor guaranteed by the Federal Deposit Insurance
Corporation ("FDIC") or any other government agency. Although the fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in a money market fund.
Certain investors may be subject to the federal Alternative Minimum Tax, and
state and local taxes may apply. Capital gains, if any, are fully taxable.
Please consult your personal tax adviser.
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At times of uncertainty such as these, investments in short-term fixed-income
securities can be an effective means of diversification in an overall investment
portfolio. And municipal securities can provide income free from federal, and
sometimes state and local, income taxes. Accordingly, we believe it is important
to develop and stick with a long-range plan. Please work closely with your
financial adviser to determine your proper asset allocation based on your
risk/reward profile to help you pursue your long-term financial goals.
As always, thank you for entrusting your assets to us. We look forward to
helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
October 9, 2003
The information provided in this letter by the Investment Adviser is not
intended to be a forecast of future events, a guarantee of future results or
investment advice. Views expressed may differ from those of the firm as a whole.
Portfolio holdings are as of September 30, 2003 and are subject to change.
Please refer to pages 3 through 5 for a list of the fund's holdings.
(i) The federal funds rate is the interest rate that banks with excess
reserves at a Federal Reserve district bank charge other banks that need
overnight loans.
2 Smith Barney Muni Funds | 2003 Semi-Annual Report
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Schedule of Investments (unaudited) September 30, 2003
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FACE
AMOUNT RATING(a) SECURITY VALUE
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$ 500,000 AAA Belchertown GO MBIA-Insured 5.00% due 1/15/04 $ 505,767
500,000 Aa2* Boston GO Series C 4.00% due 2/1/04 504,970
1,110,000 AAA Boston Special Obligation Boston City Hospital MBIA-Insured
3.00% due 8/1/04 1,127,881
1,000,000 A-1+ Boston Water and Sewer Commission Series A 1.00% VRDO 1,000,000
1,153,000 AAA Bourne GO MBIA-Insured 5.00% due 7/15/04 1,189,379
Clipper Tax Exempt Trust PART:
4,520,000 VMIG 1* CTFS 00-2 MBIA-Insured 1.15% due 2/12/04 4,520,000
5,485,000 VMIG 1* Series 98-8 AMBAC-Insured 1.13% VRDO 5,485,000
1,000,000 MIG 1* Concord BAN 2.00% due 2/26/04 1,003,507
760,000 MIG 1* Dover-Sherborn Regional School District BAN
1.25% due 11/14/03 760,317
767,000 AAA Holbrook GO FSA-Insured 3.00% due 6/15/04 777,998
200,000 AAA Lowell GO AMBAC-Insured 5.50% due 12/15/03 201,786
Massachusetts Bay Transportation Authority:
2,500,000 A-1+ 1.05% VRDO 2,500,000
8,630,000 A-1+ 1.07% VRDO 8,630,000
500,000 AA Series A 4.90% due 3/1/04 508,053
Massachusetts DFA:
5,000,000 A-1 1.00% due 3/11/04 TECP 5,000,000
2,750,000 A-1 Assisted Living Facilities Whalers Cove Project Series A
1.11% VRDO AMT 2,750,000
Boston University XLCA-Insured:
4,500,000 A-1+ Series R-1 1.07% VRDO 4,500,000
8,000,000 A-1+ Series R-3 1.07% VRDO 8,000,000
3,000,000 A-1 Carleton Williard Village 1.10% VRDO 3,000,000
2,040,000 A-1 Cider Mills Farms Co. Inc. 1.10% VRDO 2,040,000
2,260,000 A-1 Decas Cranberry 1.15% VRDO AMT 2,260,000
5,000,000 A-1+ Draper Laboratory Issue MBIA-Insured 1.10% VRDO 5,000,000
1,195,000 A-1 Edgewood Retirement Community Series B 1.12% VRDO 1,195,000
3,385,000 NR+ Epichem Inc. Project 1.21% VRDO AMT 3,385,000
11,588,000 A-1+ Higher Education Smith College 1.05% VRDO 11,588,000
3,090,000 A-1 Horner Millwork Corp. 1.10% VRDO 3,090,000
3,195,000 A-1 Kayem Foods Inc. 1.10% VRDO AMT 3,195,000
1,700,000 A-1 Leaktite Corp. 1.15% VRDO AMT 1,700,000
1,655,000 A-1 Metalcrafters Inc. Series 99 1.20% VRDO AMT 1,655,000
15,000,000 VMIG 1* Notre Dame Health Care Center 1.16% VRDO 15,000,000
500,000 A-1 Ocean Spray Cranberries 1.01% VRDO 500,000
2,000,000 A-1+ Phillips Academy 1.05% VRDO 2,000,000
Resource Recovery Revenue MBIA-Insured:
500,000 AAA Semass Systems Series B 5.00% due 1/1/04 AMT 504,730
3,745,000 VMIG 1* Series 563 PART 1.08% VRDO 3,745,000
Solid Waste Disposal Newark Group Project:
2,500,000 A-1+ Series A 1.10% VRDO AMT 2,500,000
7,300,000 A-1+ Series C 1.10% VRDO AMT 7,300,000
See Notes to Financial Statements.
3 Smith Barney Muni Funds | 2003 Semi-Annual Report
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Schedule of Investments (unaudited) (continued) September 30, 2003
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FACE
AMOUNT RATING(a) SECURITY VALUE
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Massachusetts HEFA:
$ 2,000,000 A-1+ Amherst College Series H 0.88% due 6/9/04 $ 2,000,000
2,500,000 A-1 Baystate Medical Center Series 834 FGIC-Insured PART
1.13% VRDO 2,500,000
2,990,000 A-1+ Bentley College Series K 1.02% VRDO 2,990,000
2,500,000 A-1 Berklee College of Music Series 385 MBIA-Insured PART
1.05% due 7/8/04 2,500,000
Capital Asset Program MBIA-Insured:
375,000 A-1+ Series B 1.18% VRDO 375,000
300,000 A-1+ Series C 1.18% VRDO 300,000
3,625,000 VMIG 1* CIL Realty of Massachusetts Inc. Series 99 1.05% VRDO 3,625,000
6,000,000 A-1 Hallmark Health Systems Series B FSA-Insured
1.15% VRDO 6,000,000
Harvard University Series EE:
3,000,000 A-1+ 0.85% due 10/15/03 TECP 3,000,000
2,500,000 A-1+ 0.85% due 10/16/03 TECP 2,500,000
2,989,000 A-1+ 0.85% due 10/28/03 TECP 2,989,000
2,000,000 A-1+ 0.85% due 11/13/03 TECP 2,000,000
Partners Healthcare:
6,000,000 A-1+ Series C FSA-Insured 1.05% VRDO 6,000,000
1,000,000 A-1 Series D-4 1.05% VRDO 1,000,000
3,400,000 A-1+ Series D-6 1.20% VRDO 3,400,000
2,000,000 AA- Series E 2.00% due 7/1/04 2,015,155
4,390,000 VMIG 1* Simmons College MERLOT Series D AMBAC-Insured PART
1.11% VRDO 4,390,000
2,500,000 A-1+ University of Massachusetts Series A 1.05% VRDO 2,500,000
7,500,000 A-1+ Wellesley College Issue Series E 1.00% VRDO 7,500,000
4,000,000 A-1+ Williams College Series I 1.10% due 4/1/04 4,000,000
Massachusetts HFA:
6,600,000 VMIG 1* MFH Princeton Crossings 1.05% VRDO 6,600,000
6,000,000 A-1+ Series F FSA-Insured 1.05% VRDO 6,000,000
Massachusetts IFA:
1,000,000 A-1 420 Newburyport Turnpike Series 98 1.10% VRDO 1,000,000
6,700,000 VMIG 1* Buckingham Browne Nichols 1.05% VRDO 6,700,000
600,000 NR+ Peterson American Corp. Project 1.35% VRDO AMT 600,000
4,700,000 VMIG 1* Whitehead Institute for Biomed Research 1.05% VRDO 4,700,000
650,000 AAA Massachusetts Municipal Wholesale Electric Co. Power Supply
Nuclear Mix 1-A MBIA-Insured 4.00% due 7/1/04 664,469
2,000,000 A-1+ Massachusetts Port Authority Series 03
0.85% due 10/9/03 TECP AMT 2,000,000
5,160,000 VMIG 1* Massachusetts State College Building Authority MERLOT
Series B11 AMBAC-Insured PART 1.11% VRDO 5,160,000
Massachusetts State GO:
5,000,000 A-1 MSTC Series 02-209 FSA-Insured PART 1.50% due 12/9/03 5,000,000
1,000,000 A-1+ Series 97 B 1.05% VRDO 1,000,000
See Notes to Financial Statements.
4 Smith Barney Muni Funds | 2003 Semi-Annual Report
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Schedule of Investments (unaudited) (continued) September 30, 2003
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FACE
AMOUNT RATING(a) SECURITY VALUE
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$ 1,415,000 AA- Series 314 PART 1.13% VRDO $ 1,415,000
Series B:
1,500,000 A-1 1.05% VRDO 1,500,000
1,500,000 A-1+ 1.12% VRDO 1,500,000
500,000 AA- 5.00% due 5/1/04 511,272
2,500,000 A-1+ Series C 1.12% VRDO 2,500,000
Massachusetts State Turnpike Authority PART:
3,010,000 VMIG 1* Series 334 MBIA-Insured 1.08% VRDO 3,010,000
3,300,000 VMIG 1* Series 335 AMBAC-Insured 1.08% VRDO 3,300,000
Massachusetts State Water Authority:
2,500,000 A-1+ Series 94 0.85% due 12/12/03 TECP 2,500,000
Series 95:
1,500,000 A-1+ 0.90% due 10/1/03 TECP 1,500,000
2,000,000 A-1+ 0.80% due 10/6/03 TECP 2,000,000
2,000,000 A-1+ 0.80% due 10/10/03 TECP 2,000,000
1,500,000 A-1 Series A AMBAC-Insured 1.05% VRDO 1,500,000
Series B:
1,300,000 A-1+ 1.05% VRDO 1,300,000
500,000 A-1+ FGIC-Insured 1.05% VRDO 500,000
2,000,000 A-1+ Series D FGIC-Insured 1.05% VRDO 2,000,000
Massachusetts State Water Pollution Abatement Trust:
400,000 AAA Series 2 5.15% due 2/1/04 405,500
500,000 AAA Series 8 3.00% due 8/1/04 507,833
250,000 AAA Series A 6.00% due 8/1/04 260,227
250,000 Aaa* Newburyport GO MBIA-Insured 5.50% due 5/1/04 256,490
Newton GO:
320,000 Aaa* 2.00% due 8/15/04 322,765
7,015,000 MIG 1* BAN 1.50% due 8/27/04 7,047,775
500,000 MIG 1* Old Rochester Regional School District BAN
2.00% due 4/30/04 502,868
1,345,000 SP-1+ Puerto Rico PFC Series 520 MBIA-Insured PART
1.15% due 8/12/04 1,345,000
5,000,000 SP-1+ Watertown BAN 2.50% due 11/14/03 5,005,515
5,000,000 MIG 1* Westborough BAN 2.50% due 11/21/03 5,006,393
125,000 AAA Westfield GO MBIA-Insured 4.50% due 12/15/03 125,892
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TOTAL INVESTMENTS -- 100.0%
(Cost -- $267,453,542**) $267,453,542
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(a) All ratings are by Standard & Poor's Ratings Service ("Standard &
Poor's"), except for those which are identified by an asterisk (*), are
rated by Moody's Investors Service ("Moody's").
+ Security has not been rated by either Standard & Poor's or Moody's.
However, the Board of Trustees had determined this security to be
considered a first tier quality issue due to enhancement features, such as
insurance and/or irrevocable letters of credit.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 6 and 7 for definitions of ratings and certain abbreviations.
See Notes to Financial Statements.
5 Smith Barney Muni Funds | 2003 Semi-Annual Report
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Bond Ratings (unaudited)
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The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Rating "AA" 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 issue only in a small
degree.
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2 and 3 may be
applied to generic rating "Aa", where 1 is the highest and 3 the lowest ranking
within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large 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.
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Short-Term Security Ratings (unaudited)
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SP-1 -- Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to
possess overwhelming safety characteristics are denoted with a plus
(+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong; those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+)sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
MIG 1 -- Moody's highest rate for short-term municipal obligations.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
6 Smith Barney Muni Funds | 2003 Semi-Annual Report
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Abbreviations* (unaudited)
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ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- American Municipal Bond Assurance Corporation
AMT -- Alternative Minimum Tax
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility Construction Loan Insurance
CONNIE -- College Construction Loan
LEE Insurance Association
COP -- Certificate of Participation
CSD -- Central School District
CTFS -- Certificates
DFA -- Development Finance Agency
EDA -- Economic Development Authority
ETM -- Escrowed To Maturity
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FLAIRS -- Floating Adjustable Interest Rate Securities
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Federal Savings Association
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDC -- Housing Development Corporation
HEFA -- Health & Educational Facilities Authority
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
IFA -- Industrial Finance Agency
Inflos -- Inverse Floaters
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MERLOT -- Municipal Exempt Receipts Liquidity Optional Tender
MFH -- Multi-Family Housing
MSTC -- Municipal Securities Trust Certificates
MUD -- Municipal Utilities District
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PART -- Partnership Structure
PCR -- Pollution Control Revenue
PFC -- Public Finance Corporation
RAN -- Revenue Anticipation Notes
RAW -- Revenue Anticipation Warrants
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
SWAP -- Swap Structure
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bond Structure
TRAN -- Tax and Revenue Anticipation Notes
UFSD -- Unified Free School District
UHSD -- Unified High School District
USD -- Unified School District
VA -- Veterans Administration
VRDO -- Variable Rate Demand Obligation
XLCA -- XL Capital Assurance
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* Abbreviations may or may not appear on the schedule of investments.
7 Smith Barney Muni Funds | 2003 Semi-Annual Report
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Statement of Assets and Liabilities (unaudited) September 30, 2003
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ASSETS:
Investments, at amortized cost $267,453,542
Cash 87,786
Receivable for securities sold 1,658,939
Receivable for Fund shares sold 1,295,177
Interest receivable 624,138
Prepaid expenses 2,812
Other assets 858
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Total Assets 271,123,252
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LIABILITIES:
Payable for Fund shares reacquired 3,785,901
Payable for securities purchased 917,237
Management fee payable 106,428
Dividends payable 52,961
Distribution plan fees payable 7,481
Deferred compensation payable 858
Accrued expenses 68,621
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Total Liabilities 4,939,487
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Total Net Assets $266,183,765
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NET ASSETS:
Par value of shares of beneficial interest $ 266,061
Capital paid in excess of par value 265,917,704
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Total Net Assets $266,183,765
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Shares Outstanding 266,061,157
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Net Asset Value, Per Share (and redemption price) $ 1.00
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See Notes to Financial Statements.
8 Smith Barney Muni Funds | 2003 Semi-Annual Report
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Statement of Operations (unaudited)
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For the Six Months Ended September 30, 2003
INVESTMENT INCOME:
Interest $1,475,546
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EXPENSES:
Management fee (Note 4) 675,223
Distribution plan fees (Note 4) 138,732
Shareholder servicing fees 15,490
Audit and legal 10,966
Shareholder communications 10,627
Custody 10,097
Registration fees 2,531
Insurance 2,389
Trustees' fees 1,407
Other 1,072
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Total Expenses 868,534
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Net Investment Income $ 607,012
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See Notes to Financial Statements.
9 Smith Barney Muni Funds | 2003 Semi-Annual Report
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Statements of Changes in Net Assets
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For the Six Months Ended September 30, 2003 (unaudited)
and the Year Ended March 31, 2003
September 30 March 31
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OPERATIONS:
Net investment income $ 607,012 $ 2,113,825
Net realized gain -- 123,089
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Increase in Net Assets From Operations 607,012 2,236,914
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DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 3):
Net investment income (607,012) (2,113,825)
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Decrease in Net Assets From
Distributions to Shareholders (607,012) (2,113,825)
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FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 675,290,943 950,510,458
Net asset value of shares issued for
reinvestment of dividends 596,763 2,195,084
Cost of shares reacquired (663,840,356) (998,623,569)
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Increase (Decrease) in Net Assets From
Fund Share Transactions 12,047,350 (45,918,027)
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Increase (Decrease) in Net Assets 12,047,350 (45,794,938)
NET ASSETS:
Beginning of period 254,136,415 299,931,353
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End of period $ 266,183,765 $ 254,136,415
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See Notes to Financial Statements.
10 Smith Barney Muni Funds | 2003 Semi-Annual Report
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Notes to Financial Statements (unaudited)
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1. Significant Accounting Policies
The Massachusetts Money Market 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
management investment company. The Trust consists of this Fund and eight other
separate investment funds: Florida, Georgia, Limited Term, National, New York,
Pennsylvania, California Money Market and New York 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) the Fund uses the
amortized cost method for valuing investments; accordingly, the cost of
securities plus accreted discount, or minus amortized premium, approximates
value; (c) gains or losses on the sale of securities are calculated by using the
specific identification method; (d) interest income, adjusted for amortization
of premium and accretion of discount, is recorded on an accrual basis; (e)
dividends and distributions to shareholders are recorded on ex-dividend date;
(f) 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; (g) 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 (h) estimates and assumptions are required to
be made regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. Portfolio Concentration
Since the Fund invests primarily in obligations of issuers within Massachusetts,
it is subject to possible concentration risks associated with economic,
political, or legal developments or industrial or regional matters specifically
affecting Massachusetts.
11 Smith Barney Muni Funds | 2003 Semi-Annual Report
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Notes to Financial Statements (unaudited) (continued)
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3. Exempt-Interest Dividends and Other Distributions
The Fund declares and records a dividend of substantially all its net investment
income on each business day. Such dividends are paid or reinvested monthly in
fund shares on the payable date. Furthermore, 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.
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.
Effective July 1, 2003, the Fund pays SBFM a management fee calculated at an
annual rate of 0.475% on the first $1 billion of the Fund's average daily net
assets; 0.45% on the next $1 billion; 0.425% on the next $3 billion; 0.40% on
the next $5 billion and 0.375% on the Fund's average daily net assets in excess
of $10 billion. This fee is calculated daily and paid monthly.
Prior to July 1, 2003, the Fund paid SBFM a management fee calculated at an
annual rate of 0.50% on the first $2.5 billion of the Fund's average daily net
assets; 0.475% on the next $2.5 billion and 0.45% on the Fund's average daily
net assets in excess of $5 billion. This fee was 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. PFPCis 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
$19,835 to CTB.
Citigroup Global Markets Inc. ("CGM"), another indirect wholly-owned subsidiary
of Citigroup, acts as the Fund's distributor.
Pursuant to a Rule 12b-1 Distribution Plan, the Fund pays a distribution fee
with respect to its Class A shares calculated at the annual rate of 0.10% of the
average
12 Smith Barney Muni Funds | 2003 Semi-Annual Report
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
daily net assets of that class. For the six months ended September 30, 2003,
total Rule 12b-1 Distribution Plan fees, which are accrued daily and paid
monthly, were $138,732.
All officers and one Trustee of the Trust are employees of Citigroup or its
affiliates.
5. 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.
Transactions in shares of the Fund were as follows:
Six Months Ended Year Ended
September 30, 2003 March 31, 2003
================================================================================
Class A
Shares sold 675,290,943 950,510,458
Shares issued on reinvestment 596,763 2,195,084
Shares reacquired (663,840,356) (998,623,569)
- --------------------------------------------------------------------------------
Net Increase (Decrease) 12,047,350 (45,918,027)
================================================================================
6. 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
13 Smith Barney Muni Funds | 2003 Semi-Annual Report
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
considered and approved the transfer agent arrangements. Nor were the Boards
informed of the subsequent amendment to the Revenue Guarantee Agreement when
that occurred.
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.
14 Smith Barney Muni Funds | 2003 Semi-Annual Report
================================================================================
Financial Highlights
================================================================================
For a share of beneficial interest outstanding throughout each year ended March
31, unless otherwise noted:
Class A Shares 2003(1) 2003 2002 2001 2000(2)
==========================================================================================================
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------
Net investment income(3) 0.002 0.008 0.018 0.034 0.016
Dividends from net investment income (0.002) (0.008) (0.018) (0.034) (0.016)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------
Total Return(4) 0.22%++ 0.78% 1.81% 3.46% 1.66%++
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 266 $ 254 $ 300 $ 336 $ 260
- ----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(3)(5) 0.62%+ 0.65% 0.65% 0.65% 0.65%+
Net investment income 0.44+ 0.78 1.80 3.36 3.05+
==========================================================================================================
(1) For the six months ended September 30, 2003 (unaudited).
(2) For the period September 14, 1999 (commencement of operations) to March
31, 2000.
(3) The manager waived a portion of its fees for the years ended March 31,
2002, March 31, 2001, and the period ended March 31, 2000. If such fees
were not waived, the per share decreases to net investment income and the
actual expense ratios would have been as follows:
Per Share Decreases to Expense Ratios
Net Investment Income Without Fee Waiver
---------------------- ------------------
2002 $0.000* 0.66%
2001 0.000* 0.66
2000 0.001 0.76+
(4) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
(5) As a result of voluntary expense limitations, the expense ratio will not
exceed 0.70%.
* Amount represents less than $0.001 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
15 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
Julie P. Callahan, CFA
Vice President and
Investment Officer
Joseph P. Deane
Vice President and
Investment Officer
Kaprel Ozsolak
Controller
Robert I. Frenkel*
Secretary and
Chief Legal Officer
INVESTMENT MANAGER
Smith Barney Fund
Management LLC
DISTRIBUTOR
Citigroup Global Markets Inc.
CUSTODIAN
State Street Bank and
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
* As of November 25, 2003
- --------------------------------------------------------------------------------
Smith Barney Muni Funds
- --------------------------------------------------------------------------------
Massachusetts Money
Market Portfolio
The Fund is a separate investment fund of the Smith Barney Muni Funds, a
Massachusetts business trust.
This report is submitted for general information of the shareholders of Smith
Barney Muni Funds -- Massachusetts Money Market 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.
(C)2003 Citigroup Global Markets Inc.
Member NASD, SIPC
FD01736 11/03 03-5649
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