UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4395
Smith Barney Muni Funds
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: March 31
Date of reporting period: March 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
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SMITH BARNEY
MUNI FUNDS
MASSACHUSETTS MONEY
MARKET PORTFOLIO
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ANNUAL REPORT | MARCH 31, 2004
[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
Manager Overview ........................................................... 3
Schedule of Investments .................................................... 7
Statement of Assets and Liabilities ........................................ 13
Statement of Operations .................................................... 14
Statements of Changes in Net Assets ........................................ 15
Notes to Financial Statements .............................................. 16
Financial Highlights ....................................................... 20
Independent Auditors' Report ............................................... 21
Additional Information ..................................................... 22
Tax Information ............................................................ 27
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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,
Amid uneven prospects about the economy, stock market volatility and
geopolitical concerns during the past year, many investors shifted their
hard-earned dollars into shorter-term fixed-income funds to complement their
higher-risk investments. During much of the year, interest rate concerns
remained contained due to lackluster employment data, subdued inflation and
comments from the Fed, which led many investors to believe that it would refrain
from raising its interest rate targets. However, the U.S. economy picked up over
the period, and national job growth for March significantly exceeded
estimates.(i)
Throughout the year the fund's manager anticipated that economic growth on a
national basis could improve, and a pick-up in activity, which could potentially
lead to higher inflation and interest rates. Therefore, the manager maintained a
relatively defensive posture in managing the portfolio's exposure to inflation
and interest rate risk by maintaining a relatively neutral average maturity.
Municipal money market securities provide income that is exempt from federal,
and sometimes state and local, income taxes. Your financial adviser can help you
implement a suitable asset allocation based on your investment profile to help
you pursue your long-term financial goals.
Please read on for a more detailed look at prevailing economic and market
conditions during the fund's fiscal year and to learn how those conditions and
changes made to the portfolio during this time may have affected fund
performance.
Information About Your Fund
In recent months several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. The fund's Adviser and some of
its affiliates have received requests for information from various government
regulators regarding market timing, late trading, fees and other mutual fund
issues in connection with various investigations. The regulators appear to be
examining, among other things, the fund's response to market timing and
shareholder exchange activity, including compliance with prospectus disclosure
1 Smith Barney Muni Funds | 2004 Annual Report
related to these subjects. The fund has been informed that the Adviser and its
affiliates are responding to those information requests, but are not in a
position to predict the outcome of these requests and investigations.
As always thank you for your confidence in our stewardship of your assets. We
look forward to helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
April 12, 2004
2 Smith Barney Muni Funds | 2004 Annual Report
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MANAGER OVERVIEW
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[PHOTO OMITTED] [PHOTO OMITTED]
JOSEPH P. DEANE JULIE P. CALLAHAN, CFA
Vice President and Vice President and
Investment Officer Investment Officer
Performance Review
As of March 31, 2004, the seven-day current yield for Class A shares of the
Smith Barney Muni Funds--Massachusetts Money Market Portfolio was 0.42% and its
seven-day effective yield, which reflects compounding, was 0.42%. These numbers
are the same due to rounding.
The seven-day effective yield is calculated similarly
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SMITH BARNEY MUNI FUNDS--MASSACHUSETTS
MONEY MARKET PORTFOLIO YIELDS AS OF MARCH 31, 2004
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Seven-day current yield 0.42%
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Seven-day effective yield 0.42%
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The performance shown represents past performance. Past performance is no
guarantee of future results and current performance may be higher or lower than
the performance shown above. Principal value and investment returns will
fluctuate and investors' shares, when redeemed may be worth more or less than
their original cost.
The fund's yields will vary and performance of other share classes may differ.
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 the fund.
In the cases where the current yield and effective yield are the same, it is due
to rounding. The seven-day current yield reflects the amount of income generated
by the investment during that seven-day period and assumes that the income is
generated each week over a 365-day period. The yield is shown as a percentage of
the investment. 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.
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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3 Smith Barney Muni Funds | 2004 Annual Report
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 the performance
represents past performance, which is not a guarantee of future results and
yields will vary. In addition, 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 the 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.
Market Overview
In order to help boost economic activity, last June the Fed reduced its target
for the federal funds rate,(ii) which dropped to four-decade lows. As a result,
the yields on tax-exempt money market instruments continued to fall. By August,
evidence of an improvement in the national economy emerged, and as a result
longer-term bond yields started to rise. However, many investors believed the
Fed would likely leave short-term interest rates at prevailing low levels over
the foreseeable future, and tax-exempt money market yields generally remained
near their lows.
Stronger-than-anticipated economic growth consensus estimates for the third
calendar quarter rekindled concerns about interest rates and inflation. Despite
the 8.2% annual growth in gross domestic product ("GDP")(iii) over the third
quarter of 2003, investors' concerns about the prospects of inflation and rising
rates were contained because some of this growth was attributable to one-time
factors, such as the tax cuts and the end of major combat operations in Iraq.
Furthermore, many investors felt the Fed appeared to be in a holding pattern
from adjusting its rate targets.
Investors Question the Fed's Patience
Investors spent the first quarter of 2004 dissecting language from the Fed,
which stated in late January that it "believes that it can be patient in
removing its policy accommodation."(iv) However, the fact that the Fed did not
include the phrase "considerable period" in this statement as it had before, led
many investors to question when the Fed's patience would run out.
4 Smith Barney Muni Funds | 2004 Annual Report
Estimates of calendar fourth-quarter 2003 GDP annual growth released during the
period registered at 4.1%.(iii) This rate was below third-quarter 2003 results
but exceeded levels from early last year. Furthermore, in recent testimony to
Congress, Fed Chairman, Alan Greenspan revealed that the Fed raised its
expectations for economic growth.
Although the economy has shown significant signs of improvement since early last
year, the job market has remained the weak link to a sustainable recovery.
Employment data(v) released after the first quarter of 2004 ended showed that
the unemployment rose to 5.7% in March, versus 5.6% in February. However, the
U.S. economy added 308,000 non-farm payroll jobs in March,(v) marking the
largest number since April 2000.(vi) This result raised expectations that the
strength of the economy may be improving, raising concerns that inflation could
pick up and interest rates rise sooner than previously anticipated.
Massachusetts' Economy(vii)
The Governor-proposed $23 billion fiscal 2005 budget, which was introduced to
the Massachusetts legislature in late January, eliminates a potential $1.5
billion budget gap without raising taxes or using existing reserve funds. The
budget does not rely upon a full economic recovery to maintain balance, and it
has a focus on managing costs. The revenue estimate builds in a modest economic
recovery. Standard & Poor's recent rating on the state's longer-term bond
obligations was AA+ with a stable outlook.
Investment Approach
The fund included a significant amount of municipal obligations backed by school
districts and revenue bonds. Revenue bonds are issued to finance public works
such as tunnels, sewer systems and bridges, and are supported directly by the
revenues derived from the operations of these systems. The fund maintained a
diversified mix of securities that included tax-exempt commercial paper,
fixed-rate notes and variable-rate demand obligations. During the year we
reduced the average maturity of the fund to 29 days. This was a reflection of
the belief that the short-term municipal yield curve was very flat and there was
no added benefit from purchasing securities with longer maturities.
5 Smith Barney Muni Funds | 2004 Annual Report
Thank you for your investment in the Smith Barney Muni Funds--Massachusetts
Money Market Portfolio. We appreciate that you have entrusted us to manage your
money and value our relationship with you.
Sincerely,
/s/ Joseph P. Deane /s/ Julie P. Callahan
Joseph P. Deane Julie P. Callahan, CFA
Vice President and Vice President and
Investment Officer Investment Officer
April 12, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of March 31, 2004 and are subject to
change. Please refer to pages 7 through 10 for a list of the fund's holdings.
i Based upon data released on April 1, 2004 from the U.S. Department of
Labor.
ii 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.
iii Source for GDP (gross domestic product) growth: Bureau of Labor
Statistics. Gross domestic product is a market value of goods and services
produced by labor and property in a given country.
iv Source: Federal Reserve (January 28, 2004).
v Source: U.S. Department of Labor (April 1, 2004).
vi Source: Lehman Brothers.
vii Source: Standard & Poor's (Public Finance Report Card, April 2004).
6 Smith Barney Muni Funds | 2004 Annual Report
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Schedule of Investments March 31, 2004
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FACE
AMOUNT RATING(a) SECURITY VALUE
==========================================================================================================
$ 2,496,000 Aaa* Beverly GO MBIA-Insured 3.00% due 11/1/04 $ 2,523,479
1,110,000 AAA Boston Special Obligation Boston City Hospital
MBIA-Insured 3.00% due 8/1/04 1,117,153
400,000 A-1+ Boston Water and Sewer Commission Series A
0.95% VRDO 400,000
1,153,000 AAA Bourne GO MBIA-Insured 5.00% due 7/15/04 1,166,263
2,000,000 AAA Canton Housing Authority MFH Canton Arboretum Apts.
1.03% VRDO AMT 2,000,000
Clipper Tax Exempt Trust PART:
4,259,000 VMIG 1* CTFS 2000-2 MBIA-Insured 1.05% due 8/12/04 4,259,000
4,892,000 VMIG 1* Series 1998-8 AMBAC-Insured 1.07% VRDO 4,892,000
330,000 AAA Freetown GO FGIC-Insured 3.00% due 7/15/04 331,793
260,000 AAA Harwich GO MBIA-Insured 5.00% due 12/1/04 266,616
767,000 AAA Holbrook GO FSA-Insured 3.00% due 6/15/04 770,197
250,000 MIG 1* Leominster GO BAN Series B 4.00% due 11/15/04 254,402
500,000 NR+ Martha's Vineyard Regional Transportation Authority RAN
1.75% due 5/7/04 500,338
10,260,000 A-1+ Massachusetts Bay Transportation Authority 1.03% VRDO 10,260,000
Massachusetts DFA:
1,221,000 A-1 0.95% due 5/3/04 TECP 1,221,000
3,000,000 A-1 0.95% due 8/20/04 TECP 3,000,000
2,750,000 A-1 Assisted Living Facilities Whalers Cove Project Series A
1.08% VRDO AMT 2,750,000
Boston University XLCA-Insured:
2,750,000 A-1+ Series R-1 1.03% VRDO 2,750,000
7,250,000 A-1+ Series R-3 1.03% VRDO 7,250,000
3,300,000 A-1 Carleton Williard Village 1.01% VRDO 3,300,000
1,500,000 A-1+ Clark University Series A AMBAC-Insured 1.02% VRDO 1,500,000
2,260,000 A-1 Decas Cranberry 1.08% VRDO AMT 2,260,000
500,000 A-1+ Draper Laboratory Issue MBIA-Insured 1.03% VRDO 500,000
3,385,000 NR+ Epichem Inc. Project 1.18% VRDO AMT 3,385,000
10,738,000 A-1+ Higher Education Smith College 1.01% VRDO 10,738,000
2,880,000 A-1 Horner Millwork Corp. 1.06% VRDO AMT 2,880,000
1,445,000 A-1 Metalcrafters Inc. Series 1999 1.19% VRDO AMT 1,445,000
10,250,000 VMIG 1* Notre Dame Health Care Center 1.10% VRDO 10,250,000
500,000 A-1 Ocean Spray Cranberries 0.98% VRDO 500,000
2,000,000 A-1+ Phillips Academy 1.02% VRDO 2,000,000
3,500,000 VMIG 1* Resource Recovery Semass System Series 563
MBIA-Insured PART 1.02% VRDO 3,500,000
Solid Waste Disposal Newark Group Project:
1,500,000 A-1+ Series A 1.04% VRDO AMT 1,500,000
6,000,000 A-1+ Series C 1.05% VRDO AMT 6,000,000
Massachusetts HEFA:
2,000,000 AAA Amherst College Series H 0.88% due 6/9/04 2,000,000
2,500,000 AAA Baystate Medical Center Series 834 FGIC-Insured
PART 1.07% VRDO 2,500,000
See Notes to Financial Statements.
7 Smith Barney Muni Funds | 2004 Annual Report
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Schedule of Investments (continued) March 31, 2004
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FACE
AMOUNT RATING(a) SECURITY VALUE
==========================================================================================================
$ 2,500,000 AAA Berklee College of Music Series 385 MBIA-Insured PART
1.05% due 7/8/04 $ 2,500,000
2,800,000 VMIG 1* Capital Asset Program Series E MBIA-Insured
1.08% VRDO 2,800,000
4,525,000 VMIG 1* CIL Realty of Massachusetts Inc. Series 1999
1.03% VRDO 4,525,000
1,500,000 A-1 Hallmark Health Systems Series B FSA-Insured
1.02% VRDO 1,500,000
Harvard University:
Series EE TECP:
1,500,000 A-1+ 0.98% due 8/5/04 1,500,000
4,000,000 A-1+ 0.98% due 8/6/04 4,000,000
1,000,000 A-1+ Series R PART 0.94% VRDO 1,000,000
Partners Healthcare:
6,050,000 A-1+ Series C FSA-Insured 1.03% VRDO 6,050,000
750,000 A-1+ Series D-3 1.00% VRDO 750,000
1,000,000 A-1 Series D-4 1.00% VRDO 1,000,000
2,000,000 AA- Series E 2.00% due 7/1/04 2,005,033
Simmons College AMBAC-Insured:
4,390,000 VMIG 1* MERLOT Series D PART 1.07% VRDO 4,390,000
1,000,000 VMIG 1* Series E 1.03% VRDO 1,000,000
2,500,000 A-1+ University of Massachusetts Series A 1.00% VRDO 2,500,000
10,050,000 A-1+ Wellesley College Issue Series E 1.00% VRDO 10,050,000
Williams College Issue:
5,605,000 A-1+ Series E 1.00% VRDO 5,605,000
4,000,000 A-1+ Series I 1.10% due 4/1/04 4,000,000
Massachusetts HFA:
5,400,000 VMIG 1* MFH Princeton Crossings 1.08% VRDO AMT 5,400,000
4,050,000 A-1+ Series F FSA-Insured 1.03% VRDO 4,050,000
1,400,000 A-1+ Series I FSA-Insured 3.25% due 6/1/04 AMT 1,404,944
Massachusetts IFA:
1,000,000 A-1 420 Newburyport Turnpike Series 1998 1.05% VRDO 1,000,000
1,400,000 VMIG 1* Buckingham Browne Nichols 0.97% VRDO 1,400,000
600,000 NR+ Peterson American Corp. Project 1.27% VRDO AMT 600,000
1,500,000 VMIG 1* Whitehead Institute for Biomed Research 1.00% VRDO 1,500,000
650,000 AAA Massachusetts Municipal Wholesale Electric Co. Power
Supply Nuclear Mix 1-A MBIA-Insured 4.00% due 7/1/04 654,805
Massachusetts Port Authority Series 2003 TECP:
4,000,000 A-1+ 0.92% due 5/4/04 4,000,000
1,000,000 A-1+ 0.95% due 5/4/04 AMT 1,000,000
2,000,000 A-1+ 0.95% due 5/6/04 2,000,000
2,000,000 A-1+ 0.95% due 5/7/04 AMT 2,000,000
5,150,000 VMIG 1* Massachusetts State College Building Authority MERLOT
Series B-11 AMBAC-Insured PART 1.07% VRDO 5,150,000
See Notes to Financial Statements.
8 Smith Barney Muni Funds | 2004 Annual Report
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Schedule of Investments (continued) March 31, 2004
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
==========================================================================================================
Massachusetts State GO:
$ 1,050,000 A-1+ Central Artery GO Series A 1.12% VRDO $ 1,050,000
5,000,000 A-1 MSTC Series 2002-209 FSA-Insured PART 1.09% VRDO 5,000,000
500,000 A-1+ Series 1997-B 1.02% VRDO 500,000
Series B:
1,000,000 A-1+ 1.01% VRDO 1,000,000
500,000 AA- 5.00% due 5/1/04 501,588
2,500,000 A-1+ Series C 1.06% VRDO 2,500,000
Massachusetts State Turnpike Authority PART:
1,500,000 VMIG 1* Series 334 MBIA-Insured 1.02% VRDO 1,500,000
2,000,000 VMIG 1* Series 335 AMBAC-Insured 1.02% VRDO 2,000,000
Massachusetts State Water Authority:
2,500,000 A-1+ Series 1994 1.05% due 4/8/04 TECP 2,500,000
200,000 AAA Series A MBIA-Insured 6.00% due 8/1/04 206,285
Series C:
250,000 AA 5.25% due 12/1/04 261,895
1,000,000 AAA AMBAC-Insured 5.10% due 12/1/04 1,025,774
1,800,000 A-1+ FGIC-Insured 1.03% VRDO 1,800,000
5,250,000 A-1+ Series D FGIC-Insured 1.03% VRDO 5,250,000
Massachusetts State Water Pollution Abatement Trust:
500,000 AAA Series 8 3.00% due 8/1/04 503,133
2,315,000 AAA Series 9 2.00% due 8/1/04 2,322,665
250,000 AAA Series A 6.00% due 8/1/04 254,091
250,000 Aaa* Newburyport GO MBIA-Insured 5.50% due 5/1/04 250,914
Newton GO:
320,000 Aaa* 2.00% due 8/15/04 321,179
7,015,000 MIG 1* BAN 1.50% due 8/27/04 7,029,655
500,000 MIG 1* Old Rochester Regional School District BAN
2.00% due 4/30/04 500,392
1,345,000 Aaa* Puerto Rico PFC Series 520 MBIA-Insured PART
1.15% due 8/12/04 1,345,000
259,000 Aaa* Tewksbury GO AMBAC-Insured 3.50% due 2/15/05 264,388
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TOTAL INVESTMENTS -- 100.0%
(Cost -- $223,191,982**) $223,191,982
==========================================================================================================
(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 11 and 12 for definitions of ratings and certain abbreviations.
See Notes to Financial Statements.
9 Smith Barney Muni Funds | 2004 Annual Report
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Summary of Investments by Industry*
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Education 31.8%
Hospital 14.5
Transportation 12.3
General Obligation 10.9
Housing 7.9
Water and Sewer 6.5
Industrial Development 3.6
Solid Waste 3.4
Other 9.1
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100.0%
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* As a percentage of total investments. Please note that Fund holdings are
as of March 31, 2004 and are subject to change.
10 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Bond Ratings (unaudited)
================================================================================
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.
================================================================================
Short-Term Security Ratings (unaudited)
================================================================================
SP-1 -- Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to
possess overwhelming safety characteristics are denoted with a plus
(+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong; those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+)sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
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.
11 Smith Barney Muni Funds | 2004 Annual Report
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Abbreviations* (unaudited)
================================================================================
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- Ambac Assurance Corporation
AMT -- Alternative Minimum Tax
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CDA -- Community Development Authority
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility Construction Loan Insurance
CONNIE LEE -- College Construction Loan Insurance Association
COP -- Certificate of Participation
CSD -- Central School District
CTFS -- Certificates
DFA -- Development Finance Agency
EDA -- Economic Development Authority
EFA -- Educational Facilities 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
IBC -- Insured Bond Certificates
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
IFA -- Industrial Finance Agency
Inflos -- Inverse Floaters
ISD -- Independent School District
ISO -- Independent System Operator
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
PCFA -- Pollution Control Finance Authority
PCR -- Pollution Control Revenue
PFA -- Public Finance Authority
PFC -- Public Finance Corporation
PSFG -- Permanent School Fund Guaranty
Q-SBLF -- Qualified School Bond Loan Fund
Radian -- Radian Asset Assurrance
RAN -- Revenue Anticipation Notes
RAW -- Revenue Anticipation Warrants
RDA -- Redevelopment Agency
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
SPA -- Standby Bond Purchase Agreement
SWAP -- Swap Structure
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TCRS -- Transferable Custodial Receipts
TECP -- Tax Exempt Commercial Paper
TFA -- Transitional Finance Authority
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
VRDD -- Variable Rate Daily Demand
VRDO -- Variable Rate Demand Obligation
VRWE -- Variable Rate Wednesday Demand
XLCA -- XL Capital Assurance
- --------------
* Abbreviations may or may not appear on the schedule of investments.
12 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Statement of Assets and Liabilities March 31, 2004
================================================================================
ASSETS:
Investments, at amortized cost $223,191,982
Cash 75,207
Receivable for securities sold 1,000,864
Receivable for Fund shares sold 533,715
Interest receivable 495,009
Prepaid expenses 3,371
Other assets 1,165
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Total Assets 225,301,313
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares reacquired 2,493,670
Management fee payable 92,355
Dividends payable 41,864
Distribution plan fees payable 6,849
Deferred compensation payable 1,165
Accrued expenses 55,637
- --------------------------------------------------------------------------------
Total Liabilities 2,691,540
- --------------------------------------------------------------------------------
Total Net Assets $222,609,773
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 222,487
Capital paid in excess of par value 222,387,286
- --------------------------------------------------------------------------------
Total Net Assets $222,609,773
================================================================================
Shares Outstanding 222,487,164
- --------------------------------------------------------------------------------
Net Asset Value (and redemption price) $ 1.00
================================================================================
See Notes to Financial Statements.
13 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Statement of Operations For the Year Ended March 31, 2004
================================================================================
INVESTMENT INCOME:
Interest $2,821,619
- --------------------------------------------------------------------------------
EXPENSES:
Management fee (Note 4) 1,296,927
Distribution plan fees (Note 4) 269,617
Transfer agency services 24,003
Audit and legal 23,289
Custody 16,608
Shareholder communications 14,042
Registration fees 2,741
Trustees' fees 1,497
Other 8,091
- --------------------------------------------------------------------------------
Total Expenses 1,656,815
- --------------------------------------------------------------------------------
Net Investment Income $1,164,804
================================================================================
See Notes to Financial Statements.
14 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Statements of Changes in Net Assets For the Years Ended March 31,
================================================================================
2004 2003
=============================================================================================
OPERATIONS:
Net investment income $ 1,164,804 $ 2,113,825
Net realized gain -- 123,089
- ---------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 1,164,804 2,236,914
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 3):
Net investment income (1,164,804) (2,113,825)
- ---------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distribution to Shareholders (1,164,804) (2,113,825)
- ---------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 1,122,099,513 950,510,458
Net asset value of shares issued for
reinvestment of dividends 1,160,548 2,195,084
Cost of shares reacquired (1,154,786,703) (998,623,569)
- ---------------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (31,526,642) (45,918,027)
- ---------------------------------------------------------------------------------------------
Decrease in Net Assets (31,526,642) (45,794,938)
NET ASSETS:
Beginning of year 254,136,415 299,931,353
- ---------------------------------------------------------------------------------------------
End of year $ 222,609,773 $ 254,136,415
=============================================================================================
See Notes to Financial Statements.
15 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Notes to Financial Statements
================================================================================
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 following are significant accounting policies consistently followed by the
Fund and are in conformity with generally accepted accounting principles
("GAAP"): (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. Fund 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.
16 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Notes to Financial Statements (continued)
================================================================================
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; 0.450% on the next $1 billion; 0.425% on the next $3 billion; 0.400% 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 0.500% on the first $2.5 billion of the Fund's average daily net
assets; 0.475% on the next $2.5 billion and 0.450% 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. PFPC is responsible for shareholder recordkeeping and
financial processing for all shareholder accounts and is paid by CTB. For the
year ended March 31, 2004, the Fund paid transfer agent fees of $39,132 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
17 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Notes to Financial Statements (continued)
================================================================================
daily net assets of that class. For the year ended March 31, 2004, total Rule
12b-1 Distribution Plan fees, which are accrued daily and paid monthly, were
$269,617.
All officers and one Trustee of the Trust are employees of Citigroup or its
affiliates.
5. Shares of Beneficial Interest
At March 31, 2004, 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:
Year Ended Year Ended
March 31, 2004 March 31, 2003
================================================================================
Class A
Shares sold 1,122,099,513 950,510,458
Shares issued on reinvestment 1,160,548 2,195,084
Shares reacquired (1,154,786,703) (998,623,569)
- --------------------------------------------------------------------------------
Net Decrease (31,526,642) (45,918,027)
================================================================================
6. Income Tax Information and Distribution to Shareholders
At March 31, 2004, the tax basis components of distributable earnings were:
================================================================================
Undistributed tax-exempt income $43,029
================================================================================
The tax character of distributions paid during the year ended March 31 was:
2004 2003
================================================================================
Tax-exempt income $1,164,804 $2,113,825
================================================================================
7. Additional Information
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
18 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Notes to Financial Statements (continued)
================================================================================
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.
CAM has begun to take corrective actions. CAM will pay to the applicable funds
approximately $17 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.
19 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Financial Highlights
================================================================================
For a share of beneficial interest outstanding throughout each year ended March
31, unless otherwise noted:
Class A Shares 2004 2003 2002 2001 2000(1)
==========================================================================================================
Net Asset Value,
Beginning of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------
Net investment income(2) 0.004 0.008 0.018 0.034 0.016
Dividends from net
investment income (0.004) (0.008) (0.018) (0.034) (0.016)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------
Total Return(3) 0.44% 0.78% 1.81% 3.46% 1.66%++
- ----------------------------------------------------------------------------------------------------------
Net Assets,
End of Year (millions) $ 223 $ 254 $ 300 $ 336 $ 260
- ----------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses(2)(4) 0.61% 0.65% 0.65% 0.65% 0.65%+
Net investment income 0.43 0.78 1.80 3.36 3.05+
==========================================================================================================
(1) For the period September 14, 1999 (commencement of operations) to March
31, 2000.
(2) 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+
(3) 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.
(4) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.80%.
* 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.
20 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Independent Auditors' Report
================================================================================
To the Shareholders and Board of Trustees of
Smith Barney Muni Funds:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Massachusetts Money Market Portfolio
("Fund") of the Smith Barney Muni Funds ("Trust") as of March 31, 2004, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended
and the financial highlights for each of the years in the four-year period then
ended and for the period from September 14, 1999 (commencement of operations) to
March 31, 2000. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2004, by correspondence with the custodian. As
to securities sold but not yet delivered, we performed other appropiate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of March 31, 2004, and the results of its operations for the year then
ended, and the changes in its net assets for each of the years in the two-year
period then ended, and its financial highlights for each the years in the
four-year period then ended and for the period from September 14, 1999 to March
31, 2000, in conformity with accounting principles generally accepted in the
United States of America.
/s/ KPMP LLP
New York, New York
May 12, 2004
21 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Additional Information (unaudited)
================================================================================
Information about Trustees and Officers
The business and affairs of the Massachusetts Money Market Portfolio ("Fund")
are managed under the direction of the Smith Barney Muni Funds' ("Trust") Board
of Trustees. Information pertaining to the Trustees and Officers of the Trust is
set forth below. The Statement of Additional Information includes additional
information about Trustees and is available, without charge, upon request by
calling the Trust's transfer agent (Citicorp Trust Bank, fsb. at
1-800-451-2010).
Number of
Term of Portfolios
Office* and Principal in Fund Other Board
Position(s) Length Occupation(s) Complex Memberships
Name, Address Held with of Time During Past Overseen Held by
and Age Fund Served Five Years by Trustee Trustee
===============================================================================================================================
Non-Interested Trustees:
Lee Abraham Trustee Since Retired; Former Director 27 None
13732 LeHavre Drive 1999 of Signet Group PLC
Frenchman's Creek
Palm Beach Gardens,
FL 33410
Age 76
Allan J. Bloostein Trustee Since President of Allan 34 Taubman
27 West 67th Street 1999 Bloostein Associates, a Realty Corp.
New York, NY 10023 consulting firm; Former
Age 74 Director of CVS Corp.
Jane F. Dasher Trustee Since Controller of PBK 27 None
Korsant Partners 1999 Holdings Inc., a family
283 Greenwich Avenue investment company
3rd Floor
Greenwich, CT 06830
Age 54
Donald R. Foley Trustee Since Retired 19 None
3668 Freshwater Drive 1985
Jupiter, FL 33477
Age 81
Richard E. Hanson, Jr. Trustee Since Retired; Former Head of 27 None
2751 Vermont 1999 the New Atlanta Jewish
Route 140 Community High School
Poultney, VT 05764
Age 62
Paul Hardin Trustee Since Professor of Law & 34 None
12083 Morehead 1994 Chancellor Emeritus
Chapel Hill, NC at the University of
27514-8426 North Carolina
Age 72
22 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Additional Information (unaudited) (continued)
================================================================================
Number of
Term of Portfolios
Office* and Principal in Fund Other Board
Position(s) Length Occupation(s) Complex Memberships
Name, Address Held with of Time During Past Overseen Held by
and Age Fund Served Five Years by Trustee Trustee
===============================================================================================================================
Roderick C. Rasmussen Trustee Since Investment Counselor 27 None
9 Cadence Court 1982
Morristown, NJ 07960
Age 77
John P. Toolan Trustee Since Retired 27 John Hancock
13 Chadwell Place 1992 Funds
Morristown, NJ 07960
Age 73
Interested Trustee:
R. Jay Gerken** Chairman, Since Managing Director of 221 None
Citigroup Asset President 2002 Citigroup Global Markets
Management ("CAM") and Chief Inc. ("CGM"); Chairman,
399 Park Avenue Executive President and Chief
4th Floor Officer Executive Officer of Smith
New York, NY 10022 Barney Fund Management LLC
Age 52 ("SBFM"), Travelers Investment
Adviser, Inc. ("TIA") and
Citi Fund Management Inc.
("CFM"); President and Chief
Executive Officer of certain
mutual funds associated with
Citigroup Inc. ("Citigroup");
Formerly Portfolio Manager
of Smith Barney Allocation
Series Inc. (from 1996 to
2001) and Smith Barney
Growth and Income Fund
(from 1996 to 2000)
23 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Additional Information (unaudited) (continued)
================================================================================
Number of
Term of Portfolios
Office* and Principal in Fund Other Board
Position(s) Length Occupation(s) Complex Memberships
Name, Address Held with of Time During Past Overseen Held by
and Age Fund Served Five Years by Trustee Trustee
===============================================================================================================================
Officers:
Andrew B. Shoup Senior Vice Since Director of CAM; Senior N/A N/A
CAM President 2003 Vice President and Chief
125 Broad Street and Chief Administrative Officer of
11th Floor Administrative mutual funds associated
New York, NY 10004 Officer with Citigroup; Treasurer
Age 47 of certain mutual funds
associated with Citigroup;
Head of International Funds
Administration of CAM
(from 2001 to 2003);
Director of Global Funds
Administration of CAM
(from 2000 to 2001); Head
of U.S. Citibank Funds
Administration of CAM
(from 1998 to 2000)
Richard L. Peteka Chief Since Director of CGM; Chief N/A N/A
CAM Financial 2002 Financial Officer and
125 Broad Street Officer and Treasurer of certain mutual
11th Floor Treasurer funds affiliated with
New York, NY 10004 Citigroup; Director and
Age 42 Head of Internal Control
for CAM U.S. Mutual Fund
Administration (from 1999
to 2002); Vice President,
Head of Mutual Fund
Administration and Treasurer
at Oppenheimer Capital
(from 1996 to 1999)
Julie P. Callahan, CFA Vice Since Vice President of CGM N/A N/A
CAM President 2002
399 Park Avenue and
4th Floor Investment
New York, NY 10022 Officer
Age 31
24 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Additional Information (unaudited) (continued)
================================================================================
Number of
Term of Portfolios
Office* and Principal in Fund Other Board
Position(s) Length Occupation(s) Complex Memberships
Name, Address Held with of Time During Past Overseen Held by
and Age Fund Served Five Years by Trustee Trustee
===============================================================================================================================
Joseph P. Deane Vice Since Managing Director N/A N/A
CAM President 1999 of CGM; Investment
399 Park Avenue and Officer of SBFM
4th Floor Investment
New York, NY 10022 Officer
Age 56
Andrew Beagley Chief Since Director of CGM (since N/A N/A
CAM Anti-Money 2002 2000); Director of
399 Park Avenue Laundering Compliance, North America,
4th Floor Compliance CAM (since 2000); Chief
New York, NY 10022 Officer Anti-Money Laundering
Age 40 Compliance Officer and
Vice President of certain
mutual funds associated with
Citigroup; Director of
Compliance, Europe, the
Middle East and Africa,
CAM (from 1999 to 2000);
Compliance Officer,
Salomon Brothers Asset
Management Limited, Smith
Barney Global Capital
Management Inc., Salomon
Brothers Asset Management
Asia Pacific Limited
(from 1997 to 1999)
Kaprel Ozsolak Controller Since Vice President of CGM; N/A N/A
CAM 2002 Controller of certain
125 Broad Street mutual funds associated
11th Floor with Citigroup
New York, NY 10004
Age 38
25 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Additional Information (unaudited) (continued)
================================================================================
Number of
Term of Portfolios
Office* and Principal in Fund Other Board
Position(s) Length Occupation(s) Complex Memberships
Name, Address Held with of Time During Past Overseen Held by
and Age Fund Served Five Years by Trustee Trustee
===============================================================================================================================
Robert I. Frenkel Secretary Since Managing Director and N/A N/A
CAM and Chief 2003 General Counsel of Global
300 First Stamford Legal Mutual Funds for CAM and
Place, 4th Floor Officer its predecessor (since
Stamford, CT 06902 1994); Secre tary of CFM
Age 48 (from 2001 to 2004);
Secretary and Chief Legal
Officer of mutual funds
associated with Citigroup
- ----------
* Each Trustee and Officer serves until his or her successor has been duly
elected and qualified.
** Mr. Gerken is an "interested person" of the Fund as defined in the
Investment Company Act of 1940, as amended, because Mr. Gerken is an
officer of SBFM and certain of its affiliates.
26 Smith Barney Muni Funds | 2004 Annual Report
================================================================================
Tax Information (unaudited)
================================================================================
For the year ended March 31, 2004, 100% of the dividends paid by the Fund from
net investment income were tax-exempt for regular Federal income tax and
Massachusetts state income tax purposes.
27 Smith Barney Muni Funds | 2004 Annual Report
(This page intentionally left blank.)
- --------------------------------------------------------------------------------
SMITH BARNEY
MUNI FUNDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUSTEES
Lee Abraham
Allan J. Bloostein
Jane F. Dasher
Donald R. Foley
R. Jay Gerken, CFA
Chairman
Richard E. Hanson, Jr.
Paul Hardin
Roderick C. Rasmussen
John P. Toolan
OFFICERS
R. Jay Gerken, CFA
President and Chief
Executive Officer
Andrew B. Shoup
Senior Vice President and
Chief Administrative Officer
Richard L. Peteka
Chief Financial Officer
and Treasurer
Julie P. Callahan, CFA
Vice President and
Investment Officer
Joseph P. Deane
Vice President and
Investment Officer
Andrew Beagley
Chief Anti-Money Laundering
Compliance 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
- --------------------------------------------------------------------------------
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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by telephoning the Fund (toll-free) at 1-800-451-2010 and by
visiting the SEC's web site at www.sec.gov.
This report is submitted for general information of the shareholders of Smith
Barney Muni Funds -- Massachusetts Money Market Portfolio.
SMITH BARNEY MUNIFUNDS
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004
(C)2004 Citigroup Global Markets Inc.
Member NASD, SIPC
FD01908 5/04 04-6633
- --------------------------------------------------------------------------------
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Jane F.
Dasher, the Chairman of the Board's Audit Committee, possesses the
technical attributes identified in Instruction 2(b) of Item 3 to Form
N-CSR to qualify as an "audit committee financial expert," and has
designated Ms. Dasher as the Audit Committee's financial expert. Ms.
Dasher is an "independent" Trustee pursuant to paragraph (a)(2) of Item
3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees for Smith Barney Muni Funds were $170,500 and $162,500
for the years ended 3/31/04 and 3/31/03.
(b) Audit-Related Fees for Smith Barney Muni Funds were $0 and $0 for
the years ended 3/31/04 and 3/31/03.
(c) Tax Fees for Smith Barney Muni Funds were $18,500 and $18,400 for
the years ended 3/31/04 and 3/31/03. These amounts represent
aggregate fees paid for tax compliance, tax advice and tax
planning services, which include (the filing and amendment of
federal, state and local income tax returns, timely RIC
qualification review and tax distribution and analysis planning)
rendered by the Accountant to Smith Barney Muni Funds.
(d) There were no all other fees for Smith Barney Muni Funds for the
years ended 3/31/04 and 3/31/03.
(e) (1) Audit Committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
The Charter for the Audit Committee (the "Committee") of the
Board of each registered investment company (the "Fund") advised
by Smith Barney Fund Management LLC or Salomon Brothers Asset
Management Inc or one of their affiliates (each, an "Adviser")
requires that the Committee shall approve (a) all audit and
permissible non-audit services to be provided to the Fund and (b)
all permissible non-audit services to be provided by the Fund's
independent auditors to the Adviser and any Covered Service
Providers if the engagement relates directly to the operations
and financial reporting of the Fund. The Committee may implement
policies and procedures by which such services are approved other
than by the full Committee.
The Committee shall not approve non-audit services that the
Committee believes may impair the independence of the auditors.
As of the date of the approval of this Audit
Committee Charter, permissible non-audit services include any
professional services (including tax services), that are not
prohibited services as described below, provided to the Fund by
the independent auditors, other than those provided to the Fund
in connection with an audit or a review of the financial
statements of the Fund. Permissible non-audit services may not
include: (i) bookkeeping or other services related to the
accounting records or financial statements of the Fund; (ii)
financial information systems design and implementation; (iii)
appraisal or valuation services, fairness opinions or
contribution-in-kind reports; (iv) actuarial services; (v)
internal audit outsourcing services; (vi) management functions or
human resources; (vii) broker or dealer, investment adviser or
investment banking services; (viii) legal services and expert
services unrelated to the audit; and (ix) any other service the
Public Company Accounting Oversight Board determines, by
regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit
services is not required so long as: (i) the aggregate amount of
all such permissible non-audit services provided to the Fund, the
Adviser and any service providers controlling, controlled by or
under common control with the Adviser that provide ongoing
services to the Fund ("Covered Service Providers") constitutes
not more than 5% of the total amount of revenues paid to the
independent auditors during the fiscal year in which the
permissible non-audit services are provided to (a) the Fund, (b)
the Adviser and (c) any entity controlling, controlled by or
under common control with the Adviser that provides ongoing
services to the Fund during the fiscal year in which the services
are provided that would have to be approved by the Committee;
(ii) the permissible non-audit services were not recognized by
the Fund at the time of the engagement to be non-audit services;
and (iii) such services are promptly brought to the attention of
the Committee and approved by the Committee (or its delegate(s))
prior to the completion of the audit.
(f) N/A
(g) Non-audit fees billed - $100,000 and $1.2 million for the years
ended 12/31/2003 and 12/31/2002.
(h) Yes. The Smith Barney Muni Funds' Audit Committee has considered
whether the provision of non-audit services that were rendered to
Service Affiliates which were not pre-approved (not requiring
pre-approval) is compatible with maintaining the Accountant's
independence. All services provided by the Accountant to the
Smith Barney Muni Funds or to Service Affiliates which were
required to be pre-approved were pre-approved as required.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. 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) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, there unto duly authorized.
Smith Barney Muni Funds
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Smith Barney Muni Funds
Date: June 4, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Smith Barney Muni Funds
Date: June 4, 2004
By: /s/ Richard L. Peteka
Richard L. Peteka
Chief Financial Officer of
Smith Barney Muni Funds
Date: June 4, 2004