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.
SMITH BARNEY
MUNI FUNDS
NATIONAL PORTFOLIO
CLASSIC SERIES | 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.
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
[PHOTO] PETER M. COFFEY
PORTFOLIO MANAGER
[LOGO] Classic Series
Annual Report . March 31, 2004
SMITH BARNEY
NATIONAL PORTFOLIO
PETER M. COFFEY
Peter M. Coffey has more than 35 years of securities business experience
and has been managing the Fund since 1987.
FUND OBJECTIVE
The fund seeks as high a level of income exempt from federal income
taxes* as is consistent with prudent investing. The fund invests at least
80% of its net assets in "municipal securities," which are debt
obligations issued by any of the 50 states and their political
subdivisions, agencies and public authorities.
FUND FACTS
FUND INCEPTION
-----------------
August 20, 1986
MANAGER INVESTMENT
INDUSTRY EXPERIENCE
-----------------
35 Years
* Certain investors may be subject to the federal Alternative Minimum
Tax, and state and local taxes will apply. Capital gains, if any, are
fully taxable. Please consult your personal tax adviser.
What's Inside
Letter from the Chairman.............................................. 1
Manager Overview...................................................... 2
Fund Performance...................................................... 5
Historical Performance................................................ 6
Schedule of Investments............................................... 7
Statement of Assets and Liabilities................................... 19
Statement of Operations............................................... 20
Statements of Changes in Net Assets................................... 21
Notes to Financial Statements......................................... 22
Financial Highlights.................................................. 27
Independent Auditors' Report.......................................... 29
Additional Information................................................ 30
Tax Information....................................................... 32
LETTER FROM THE CHAIRMAN
[PHOTO]
R. JAY GERKEN, CFA
Chairman, President and Chief Executive Officer
Dear Shareholder,
The U.S. economy's quarterly pace of growth picked up considerably during the
year ending March 31, 2004./i/ Stronger-than-expected economic growth
exacerbated bond investors' concerns that inflation might pick up and lead to
rising interest rates sooner than previously anticipated, which caused bond
prices to decline over the summer. However, as the period advanced, many of
these concerns were tempered somewhat by tepid employment results and comments
from the Fed, which maintained its interest rate targets at four-decade lows.
Municipal bonds returned 5.86% over the past year as measured by the Lehman
Brothers Municipal Bond Index./ii/
On a local level, state-tax revenues improved during the second half of last
year, and U.S. job growth for March significantly exceeded estimates./iii/
Given that the fund's manager had anticipated that the economies on a national
and state level could begin to pick up, the manager maintained a defensive
posture in managing the portfolio's exposure to inflation and interest rate
risk. Although this strategy detracted from the fund's performance during times
when bond prices rose, it diminished the negative impact on the portfolio when
bond prices declined.
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
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
1 Smith Barney Muni Funds | 2004 Annual Report
MANAGER OVERVIEW
Special Shareholder Notice
Effective April 29, 2004, Smith Barney Class L shares were renamed Class C
shares. The current expenses, management fees, and sales charges have not
changed.
Performance Review
For the 12 months ended March 31, 2004, Class A shares of the Smith Barney Muni
Funds -- National Portfolio, excluding sales charges, returned 6.28%. In
comparison, the broader-based Lehman Brothers Municipal Bond Index returned
5.86% for the same period. The fund's Lipper general municipal debt funds
category average returned 5.46% during the same time frame./1/
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.
Given our concerns early in the period that U.S. economic growth could pick up
and that interest rates could potentially rise sooner than anticipated, we
structured the fund defensively to help mitigate the effects of a possible rise
in interest rates. Our strategy entailed focusing on bonds with higher coupons,
maintaining a lower average life than in recent years, and maintaining a short
position in U.S. Treasury futures./iv/ Although this conservative strategy at
times limited the fund's full participation in market rallies, it helped reduce
the impact on the fund during times when bond prices declined, particularly
early in the summer and after the reporting period ended. The fund's
performance benefited from its exposure to toll road and airport special
facilities for airlines issues in the transportation sector, while low-income
housing issues in the multi-family housing sector detracted from its
performance.
Bond Market Review
In order to help boost a relatively sluggish economy, early last year the Fed
reduced its target for the federal funds rate,/v/ which dropped to four-decade
lows in June. However, the prices of U.S. Treasury bonds plunged through the
early summer as stronger-than-expected
PERFORMANCE SNAPSHOT
AS OF MARCH 31, 2004
(excluding sales charges)
6 Months 12 Months
Class A Shares 3.28% 6.28%
Lehman Brothers Municipal Bond Index 3.12% 5.86%
Lipper General Municipal Debt Funds
Category Average 2.82% 5.46%
The performance shown represents past performance. Past performance is no
guarantee of future results and current performance may be higher or lower
than the performance shown above. Principal value and investment returns will
fluctuate and investors' shares, when redeemed, may be worth more or less
than their original cost. To obtain performance data current to the most
recent month-end, please visit our website at www.smithbarneymutualfunds.com.
Class A share returns assume the reinvestment of income dividends and capital
gains distributions at net asset value and the deduction of all fund
expenses. Returns have not been adjusted to include sales charges that may
apply when shares are purchased or the deduction of taxes that a shareholder
would pay on fund distributions. Excluding sales charges, Class B shares
returned 2.94% and Class L shares returned 2.97% over the six months ended
March 31, 2004. Excluding sales charges, Class B shares returned 5.68% and
Class L shares returned 5.66% over the 12 months ended March 31, 2004.
Effective February 2, 2004, initial sales charges on Smith Barney Class L
shares were suspended.
All index performance reflects no deduction for fees, expenses or taxes. The
Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond
market with maturities of at least one year. Please note that an investor
cannot invest directly in an index.
Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended March 31, 2004, calculated among the
302 funds for the six-month period and among the 299 funds for the 12-month
period in the fund's Lipper category including the reinvestment of dividends
and capital gains, if any, and excluding sales charges.
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/ Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended March 31, 2004, calculated
among the 299 funds in the fund's Lipper category including the reinvestment
of dividends and capital gains, if any, and excluding sales charges.
2 Smith Barney Muni Funds | 2004 Annual Report
economic growth data for the second calendar quarter generated concerns that
inflation could become more pronounced and interest rates rise, (bond prices
move inversely to the direction of interest rate movements). During this
tumultuous time, however, municipal bonds collectively held up better than U.S.
Treasury bonds. As the summer came to a close, the broader bond markets
stabilized in response to the Fed's concerns about the lack of growth in
employment and lingering disinflation.
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")/vi/ 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
Bond 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."/vii/ 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.
Estimates of fourth calendar-quarter 2003 GDP annual growth released during the
period registered at 4.1%./vi/ This rate was below third-quarter 2003 results
but exceeded levels early last year. Furthermore, in recent testimony to
Congress, Fed Chairman, Alan Greenspan revealed that the Fed raised its
expectations for economic growth. On a state level, revenues have continued to
rise amid the improvement in the national economy. Tax revenues for the fourth
quarter of last year on average increased 7.2% at the state level over results
for the final quarter of 2002./viii/ Despite the momentum behind the U.S.
economy, over the first calendar quarter of this year, the Lehman Brothers
Municipal Bond Index returned 1.73% amid lackluster employment data.
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/iii/ 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,/iii/ marking the
largest number since April 2000./viii/ 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.
Emphasis on Revenue Bonds
The fund continued to concentrate most of its assets in higher-yielding revenue
bonds, which are backed by the revenue streams of specific public works. The
portfolio's heaviest revenue bond exposure in terms of sectors was hospitals,
multi-family housing, transportation, water and sewer, and miscellaneous./ix/
Over the period, the hospitals sector in particular was among the leading
performers returning 7.80%, while housing was the worst performer returning
4.36%./x/ The fund had more exposure to these sectors not because we targeted
specific industries but, rather, because we felt many of these issues had more
appealing yields and offered better relative values on a risk/reward basis when
we invested in them. The fund's overall portfolio holdings on average were of
investment-grade quality.
Why Higher-Coupon Callable Bonds?
In rising-rate environments, the prices of shorter-term fixed-income
obligations have typically held up better than those on longer-term bonds.
Rather than commit a substantial portion of the fund's assets to low-yielding,
short-term instruments, the fund maintained an emphasis on longer-term,
premium-priced higher-coupon callable bonds for their favorable income streams
and the reduced market sensitivity provided by their above-market level coupons
and shorter effective maturities. The fund also continued to hold a short
position in U.S. Treasury bond futures to help hedge the portfolio against
interest rate risk. As of the period's close, the fund's average maturity was
approximately 19.7 years, while its average life call-adjusted effective
maturity, which is adjusted to account for the shorter call dates on our
premium bonds (rather than the longer final maturity dates on these callable
issues), was 9.72 years./xi/
3 Smith Barney Muni Funds | 2004 Annual Report
While no one can say for sure where interest rates will head, given the recent
economic picture, as of the end of the period we continued to maintain a
defensive posture with regard to interest rate risk.
Thank you for your investment in the Smith Barney Muni Funds -- National
Portfolio. We appreciate that you have entrusted us to manage your money and
value our relationship with you.
Sincerely,
/s/ Peter M. Coffey
Peter M. Coffey
Vice President and 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 15 for a list and percentage breakdown
of the fund's holdings.
The mention of sector breakdowns is for informational purposes only and should
not be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon
which to make an investment decision. Investors seeking financial advice
regarding the appropriateness of investing in any securities or investment
strategies discussed should consult their financial professional. Portfolio
holdings are subject to change at any time and may not be representative of the
portfolio manager's current or future investments. The fund's top five sector
holdings as of March 31, 2004 were: Hospitals (16.5%); Housing: Multi-Family
(11.1%); Transportation (10.8%); Water & Sewer (7.9%); Miscellaneous (7.8%).
The fund's portfolio composition is subject to change at any time.
RISKS: Keep in mind, the fund's investments are subject to interest rate and
credit risk. The fund may use derivatives, such as options and futures, which
can be illiquid, may disproportionately increase losses, and have a potentially
large impact on fund performance.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
/i/ Source: Based upon gross domestic product data from the Bureau of
Economic Analysis (January 30, 2004). Gross domestic product is a market
value of goods and services produced by labor and property in a given
country.
/ii/ The Lehman Brothers Municipal Bond Index is a broad measure of the
municipal bond market with maturities of at least one year.
/iii/ Based upon data released on April 1, 2004 from the U.S. Department of
Labor.
/iv/ Derivatives, such as options and futures, can be illiquid and harder to
value, especially in declining markets. A small investment in certain
derivatives may have a potentially large impact on the fund's
performance. Derivatives can disproportionately increase losses as stated
in the prospectus.
/v/ 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.
/vi/ Source for GDP (gross domestic product) growth: Bureau of Labor
Statistics.
/vii/ Source: Federal Reserve (January 28, 2004).
/viii/ Source: Lehman Brothers.
/ix/ Percentages are based on net asset values as a percentage of fund assets
on March 31, 2004.
/x/ Based upon the performance of sub indices of the Lehman Brothers
Municipal Bond Index reflective of the performance of municipal bonds in
each respective sector category over 12-month reporting period.
/xi/ There are no assurances that callable bonds will be called/redeemed on
their call dates prior to maturity.
4 Smith Barney Muni Funds | 2004 Annual Report
AVERAGE ANNUAL TOTAL RETURNS+ (UNAUDITED)
Without Sales Charges/(1)/
-------------------------
Class A Class B Class L
- --------------------------------------------------------------
Twelve Months Ended 3/31/04 6.28% 5.68% 5.66%
- -------------------------------------------------------------
Five Years Ended 3/31/04 4.67 4.14 4.08
- -------------------------------------------------------------
Ten Years Ended 3/31/04 6.07 N/A 5.45
- -------------------------------------------------------------
Inception* through 3/31/04 7.05 6.34 5.43
- -------------------------------------------------------------
With Sales Charges/(2)/
----------------------
Class A Class B Class L
- -----------------------------------------------------------
Twelve Months Ended 3/31/04 2.02% 1.18% 4.66%
- ----------------------------------------------------------
Five Years Ended 3/31/04 3.83 3.97 4.08
- ----------------------------------------------------------
Ten Years Ended 3/31/04 5.64 N/A 5.45
- ----------------------------------------------------------
Inception* through 3/31/04 6.80 6.34 5.43
- ----------------------------------------------------------
CUMULATIVE TOTAL RETURNS+ (UNAUDITED)
Without Sales Charges/(1)/
- -----------------------------------------------------------------
Class A (3/31/94 through 3/31/04) 80.34%
- ----------------------------------------------------------------
Class B (Inception* through 3/31/04) 78.10
- ----------------------------------------------------------------
Class L (3/31/94 through 3/31/04) 70.06
- ----------------------------------------------------------------
(1)Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the applicable
sales charge with respect to Class A shares or the applicable contingent
deferred sales charges ("CDSC") with respect to Class B and L shares.
(2)Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 4.00%; Class B shares reflect the
deduction of a 4.50% CDSC, which applies if shares are redeemed within one
year from purchase payment. This CDSC declines by 0.50% the first year after
purchase payment and thereafter by 1.00% per year until no CDSC is incurred.
Class L shares also reflect the deduction of a 1.00% CDSC, which applies if
shares are redeemed within one year from purchase payment. The 1.00% initial
sales charge on Class L shares is no longer imposed effective February 2,
2004.
+ All figures represent past performance and are not a guarantee of future
results. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. The returns shown do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
* Inception dates for Class A, B and L shares are August 20, 1986, November 7,
1994 and January 5, 1993, respectively.
5 Smith Barney Muni Funds | 2004 Annual Report
HISTORICAL PERFORMANCE (UNAUDITED)
Value of $10,000 Invested in Class A Shares of the National Portfolio
vs. Lehman Brothers Municipal Bond Index and Lipper General Municipal Debt
Funds Average+
- --------------------------------------------------------------------------------
March 1994 -- March 2004
[CHART]
National Lipper
Portfolio -- Class Lehman Brothers General Municipal
A Shares Municipal Bond Index Debt Funds Average
------------------ -------------------- ------------------
3/94 $ 9,597 $10,000 $10,000
3/95 10,210 10,744 10,625
3/96 11,112 11,645 11,395
3/97 11,713 12,278 11,939
3/98 13,056 13,594 13,218
3/99 13,774 14,437 13,868
3/00 13,494 14,424 13,541
3/01 14,999 16,000 14,889
3/02 15,400 16,612 15,299
3/03 16,285 18,253 16,571
3/04 17,308 19,323 17,476
+ Hypothetical illustration of $10,000 invested in Class A shares on March 31,
1994, assuming deduction of the 4.00% maximum initial sales charge at the time
of investment and reinvestment of dividends (after deduction of applicable
sales charges through November 6, 1994, and thereafter at net asset value) and
capital gains (at net asset value) through March 31, 2004. The Lehman Brothers
Municipal Bond Index is a broad-based, total return index comprised of
investment-grade, fixed-rate municipal bonds selected from issues larger than
$50 million issued since January 1984. The Index is unmanaged and is not
subject to the same management and trading expenses as a mutual fund. Please
note that an investor cannot invest directly in an index. The Lipper General
Municipal Debt Funds Average is composed of an average of the Fund's peer
group of 299 mutual funds investing in municipal securities as of March 31,
2004. The performance of the Fund's other classes may be greater or less than
the Class A shares' performance indicated on this chart, depending on whether
greater or lesser sales charges and fees were incurred by shareholders
investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. The returns shown do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares.
6 Smith Barney Muni Funds | 2004 Annual Report
SCHEDULE OF INVESTMENTS MARCH 31, 2004
FACE
AMOUNT RATING(a) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
Education -- 6.5%
$ 1,250,000 BBB+ Brookhaven, NY IDA, Civic Facility Revenue, St. Joseph's College, 6.000% due 12/1/20 $ 1,349,412
1,000,000 Aaa* Bulloch County, GA Development Authority, Student Housing Lease Revenue, (Georgia
Southern University Project), AMBAC-Insured, 5.000% due 8/1/22 1,052,050
3,000,000 NR Capital Projects Finance Authority, Student Housing Revenue, CAFRA Capital Corp.,
Florida Universities, Series A, 7.850% due 8/15/31 3,009,390
1,000,000 AAA Chicago, IL Board of Education, School Reform, Series A, MBIA-Insured,
5.500% due 12/1/28 1,114,770
1,000,000 Baa3* Colorado Educational & Cultural Facilities Authority Revenue, Charter School, (Bromley
East Project), Series A, 7.250% due 9/15/30 1,012,520
1,000,000 AAA Lake Superior, MI State University Revenue, AMBAC-Insured, 5.500% due 11/15/21 1,126,890
350,000 AAA Montana State Board of Regents Revenue, 10.000% due 11/15/08 (b) 422,191
1,000,000 BBB- New Hampshire Health & Education Facilities Authority Revenue, New Hampshire
College, 7.500% due 1/1/31 1,098,690
1,500,000 Ba1* New Hampshire Higher Education & Health, Brewster Academy, 6.750% due 6/1/25 1,525,275
2,000,000 AA- New York State Dormitory Authority, Lease Revenue, State University Dormitory
Facilities, (Call 7/1/12 @ 100), 5.375% due 7/1/18 (c) 2,319,040
New York State Dormitory Authority Revenue:
3,500,000 AAA School Districts Financing Program, Series E, 5.750% due 10/1/22 (d) 3,985,800
486,000 AA- Series B, (Call 5/15/05 @ 100), 7.500% due 5/15/11 (c) 607,971
1,014,000 AA- Unrefunded Balance, Series B, 7.500% due 5/15/11 1,222,032
985,000 Baa3* Pennsylvania State Higher Educational Facilities Authority, Student Housing Revenue,
(Student Association Inc. Project), Series A, 6.750% due 9/1/32 1,039,126
1,000,000 NR Savannah, GA EDA Revenue, (College of Art & Design Inc. Project),
(Call 10/1/09 @ 102), 6.900% due 10/1/29 (c) 1,094,850
1,000,000 Baa3* Student Housing Corp., TX Student Housing Revenue,
(Midwestern State University Project), 6.500% due 9/1/34 1,056,690
3,780,000 AAA Utah State Board of Regents Revenue, (Hospital -- University of Utah),
5.000% due 8/1/20 (d) 3,975,993
10,000 AAA Weatherford, TX ISD, PSFG, Unrefunded Balance, Capital Appreciation,
zero coupon due 2/15/21 3,780
1,835,000 CC++ Will County, IL Student Housing Revenue, (Joliet Junior College Project), Series A,
6.750% due 9/1/33 1,479,781
- --------------------------------------------------------------------------------------------------------------------------------
28,496,251
- --------------------------------------------------------------------------------------------------------------------------------
Finance -- 3.3%
2,200,000 NR Harrisburg, PA Redevelopment Authority, First Mortgage Office Building,
6.750% due 5/15/25 (d) 2,252,338
1,500,000 AAA Indiana Bond Bank Guaranty, State Revolving Fund, Series A, 6.875% due 2/1/12 1,597,950
3,600,000 AAA Indiana Bond Bank, Special Program, Series A, AMBAC-Insured, 9.750% due 8/1/09 (b)(d) 4,397,724
5,685,000 AAA Mississippi Development Bank Special Obligation, Capital Projects & Equipment
Program, Series A, AMBAC-Insured, 5.625% due 7/1/31 (d) 6,440,252
- --------------------------------------------------------------------------------------------------------------------------------
14,688,264
- --------------------------------------------------------------------------------------------------------------------------------
General Obligation -- 5.1%
2,000,000 NR Capital Trust Agency Revenue, Seminole Tribe Convention-A, 8.950% due 10/1/33 2,344,820
3,130,000 AAA Cincinnati, OH City School District, School Improvement, FSA-Insured,
5.250% due 6/1/16 3,508,542
2,000,000 AAA Massachusetts State, RITES-PA 993-R, MBIA-Insured, 9.531% due 11/1/15 (d)(e) 2,681,640
7,400,000 AA- New York, NY Office of the City Comptroller, 1.050% due 8/15/23 (e) 7,400,000
5,000,000 AAA Washoe County, NV GO, Reno-Sparks Convention, Series A, FSA-Insured,
(Call 1/1/10 @100), 6.400% due 7/1/29 (c)(d) 5,986,000
See Notes to Financial Statements.
7 Smith Barney Muni Funds | 2004 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2004
FACE
AMOUNT RATING(a) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------------------------
General Obligation -- 5.1% (continued)
$ 1,490,000 AAA Weatherford, TX ISD, Capital Appreciation, PSFG, (Call 2/15/10 @ 48.281),
zero coupon due 2/15/21 (c) $ 601,751
- --------------------------------------------------------------------------------------------------------------------------------
22,522,753
- --------------------------------------------------------------------------------------------------------------------------------
Hospital -- 16.7%
3,000,000 BBB+ Arizona Health Facilities Authority Revenue, Catholic Healthcare West, Series A,
6.625% due 7/1/20 3,432,750
2,000,000 BBB- Arkansas State Development Finance Authority, Hospital Revenue,
Washington Regional Medical Center, 7.375% due 2/1/29 2,254,380
Colorado Health Facilities Authority Revenue Bonds:
1,000,000 Baa1* Parkview Medical Center Project, 6.500% due 9/1/20 1,079,640
1,000,000 A Vail Valley Medical Center, Series A, 6.500% due 1/15/13 1,038,560
3,000,000 BBB Cuyahoga County, OH Hospital Facilities Revenue, (Canton Inc. Project),
7.500% due 1/1/30 3,354,480
840,000 NR Douglas County, NE Hospital Authority No. 2, Bergan Mercy,
9.500% due 7/1/10 (b) 1,034,519
350,000 BB- Green Springs, OH Health Care Facilities Revenue, (St. Francis Health Care Center Project),
Series A, 7.125% due 5/15/25 271,663
3,000,000 BBB+ Henderson, NV Health Care Facility Revenue, Catholic Healthcare West, Series A,
6.750% due 7/1/20 3,400,080
2,750,000 A Highlands County, FL Health Facilities Authority Revenue, Hosp-Adventist Health Systems,
Series D, 5.875% due 11/15/29 2,925,203
Illinois Health Facilities Authority Revenue:
574,000 AAA Community Provider Pooled Loan Program, FSA-Insured, 7.350% due 8/15/10 576,239
2,240,000 CC Mercy Hospital & Medical Center, 7.000% due 1/1/07 1,344,000
790,000 AAA Methodist Medical Center Project, 9.000% due 10/1/10 (b) 963,800
3,000,000 A OSF Healthcare Systems, 6.250% due 11/15/29 3,181,410
1,500,000 A Passavant Memorial Area Hospital, 6.000% due 10/1/24 1,566,090
3,000,000 BBB- Indiana Health Facility Financing Authority, Hospital Revenue, Community Foundation
Northwest, IN, Series A, 6.375% due 8/1/31 (d) 3,070,560
Iowa Finance Authority Revenue:
3,000,000 AA Catholic Health Initiatives, Series A, 6.000% due 12/1/18 (d) 3,240,390
3,000,000 A1* Health Care Facilities Revenue, Genesis Medical Center, 6.250% due 7/1/25 (d) 3,200,250
Klamath Falls, OR Inter-Community Hospital Authority Revenue,
(Merle West Medical Center Project):
1,000,000 BBB 6.250% due 9/1/31 1,057,450
900,000 BBB Call 9/1/04 @ 102, 7.100% due 9/1/24 (c) 940,077
Massachusetts State Health & Educational Facilities Authority Revenue:
1,000,000 AA Berkshire Health System, Series E, Radian-Insured, 5.700% due 10/1/25 1,085,390
3,000,000 BBB Caritas Christi Obligation, Series B, 6.750% due 7/1/16 3,323,490
3,000,000 AAA INFLOS, Series G-4, AMBAC-Insured, 6.000% due 7/1/25 (e) 3,062,370
1,250,000 BBB University of Massachusetts, Memorial Healthcare Inc., Series C, 6.625% due 7/1/32 1,314,638
630,000 AAA Minneapolis, MN Hospital Revenue, St. Mary's Hospital & Rehabilitation,
10.000% due 6/1/13 (b) 849,731
1,000,000 A- New Hampshire Health & Education Facilities Authority Revenue, Healthcare System,
Convenant Health, 6.125% due 7/1/31 1,051,890
2,000,000 BBB- New Jersey Health Care Facilities Financing Authority Revenue, Trinitas Hospital
Obligation Group, 7.400% due 7/1/20 2,237,100
4,000,000 B- Oklahoma Development Finance Authority Refunding Revenue, Hillcrest Healthcare
System, Series A, 5.625% due 8/15/29 3,157,880
See Notes to Financial Statements.
8 Smith Barney Muni Funds | 2004 Annual Report
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FACE
AMOUNT RATING(a) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Hospital -- 16.7% (continued)
$ 2,000,000 NR Orange County, FL Health Facilities Authority Revenue, First Mortgage, Health Care
Facilities, 9.000% due 7/1/31 $ 2,052,380
1,000,000 A Pennsylvania State Higher Educational Facilities Authority Revenue, University of
Pennsylvania Medical Center Health System, Series A, 6.000% due 1/15/31 1,071,100
1,025,000 AAA Philadelphia Hospitals & Higher Education Facilities Authority, Hospital Revenue,
Presbyterian Medical Center, 6.650% due 12/1/19 (b) 1,296,000
2,000,000 A1* Pinellas County, FL Health Facilities Authority Revenue, Baycare Health System,
5.500% due 11/15/33 2,084,240
3,900,000 Aa3* Rhode Island Health & Educational Building Corp., Refunding Revenue, Health Facilities,
St. Antoine Residence, Series A, 6.125% due 11/15/18 (d) 4,165,356
980,000 NR Suffolk County, NY IDA, Civic Facilities Revenue, Eastern Long Island Hospital Association,
Series A, 7.750% due 1/1/22 1,009,870
2,500,000 A Tarrant County, TX Health Facilities Development Corp., Hospital Revenue,
6.700% due 11/15/30 (d) 2,719,325
1,000,000 A3* University of Colorado Hospital Authority Revenue, Series A, 5.600% due 11/15/21 1,046,550
1,570,000 AAA Weber County, UT Hospital Revenue, St. Benedict's Hospital, 10.000% due 3/1/10 (b)(d)(f) 1,985,281
Wisconsin State Health & Educational Facilities Authority Revenue:
1,000,000 A- Agnesian Healthcare Inc., 6.000% due 7/1/30 1,050,110
875,000 A Kenosha Hospital & Medical Center Project, 5.700% due 5/15/20 904,068
- ------------------------------------------------------------------------------------------------------------------------------------
73,398,310
- ------------------------------------------------------------------------------------------------------------------------------------
Housing: Multi-Family -- 11.3%
Bexar County, TX Housing Finance Corp., MFH Revenue:
1,450,000 Aaa* New Light Village, Series A1, GNMA-Collateralized, 5.900% due 2/20/38 1,555,647
3,000,000 A3* Nob Hill Apartments, Refunding, Series A, 6.000% due 6/1/31 3,097,800
1,000,000 Aaa* Waters at Northern Hills Apartments, Series A, MBIA-Insured, 6.050% due 8/1/36 1,073,540
1,500,000 Aaa* Columbia Heights, MN MFH Revenue, Crest View, Series A-1, GNMA-Collateralized,
6.625% due 4/20/43 1,681,935
250,000 Aaa* Cuyahoga County, OH MFH, Dalebridge Apartments, FHA-Insured, GNMA-Collateralized,
6.500% due 10/20/20 (g) 260,655
1,000,000 Aaa* De Kalb County, GA Housing Authority, MFH Revenue, (Snapwoods Project), Series A,
GNMA-Collateralized, 5.500% due 12/20/32 1,042,280
El Paso County, TX Housing Finance Corp., MFH Revenue, Series A:
3,000,000 A3* American Village Communities, 6.375% due 12/1/32 (d) 3,020,490
2,390,000 A3* La Plaza Apartments, 6.750% due 7/1/30 (d) 2,652,302
1,000,000 A3* Las Lomas Apartments, 6.375% due 12/1/29 1,053,980
4,000,000 Aaa* Fort Worth, TX Housing Finance Corp., MFH, Villas Eastwood Terrace,
GNMA-Collateralized, 6.000% due 8/20/43 (d) 4,400,120
1,000,000 Aaa* Franklin County, OH Mortgage Revenue, Villas at St. Therese, Series E,
GNMA-Collateralized, 5.900% due 6/20/39 1,078,520
1,000,000 AAA Grand Prairie, TX Housing Finance Corp., MFH Revenue, (Landings of Carrier Project),
Series A, GNMA-Collateralized, 6.750% due 9/20/32 1,110,540
Illinois Housing Development Authority, MFH Revenue:
975,000 A+ Series 1991A, 8.125% due 7/1/10 975,965
1,830,000 AAA Series A-1, GNMA-Collateralized, 5.750% due 12/20/32 1,986,538
1,000,000 Aaa* Louisiana Local Government Environmental Facilities and Community Development
Authority Revenue, Mortgage, Sharlo Apartments, Series A, GNMA-Collateralized,
6.500% due 6/20/37 1,110,190
1,500,000 A3* Lubbock, TX Housing Finance Corp., MFH Revenue, Las Colinas Quail Creek Apartments,
Series A, 6.000% due 7/1/32 1,538,115
See Notes to Financial Statements.
9 Smith Barney Muni Funds | 2004 Annual Report
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FACE
AMOUNT RATING(a) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------
Housing: Multi-Family -- 11.3% (continued)
$ 2,450,000 AAA Maricopa County, AZ IDA, MFH Revenue Refunding, FHA-Insured, GNMA-Collateralized,
6.000% due 10/20/31 (d) $ 2,652,395
1,845,000 AAA Mohave County, AZ IDA, MFH, Copper Ridge Apartments, FHA-Insured,
7.375% due 4/1/32 (g) 1,870,092
994,000 Aaa* Panhandle, TX Regional Housing Finance Corp., Series A, GNMA-Collateralized,
6.650% due 7/20/42 1,110,169
500,000 Aa2* Portland, OR MFH Revenue, (Cherry Ridge Project), LOC U.S. National Bank of Oregon,
6.250% due 5/1/12 (g) 510,300
405,000 AAA Rogers County, OK HFA, MFH Revenue Refunding, Series A, FHA-Insured,
FNMA-Collateralized, 7.750% due 8/1/23 406,073
2,347,000 AAA Seattle, WA Housing Authority, Low Income Housing Revenue, GNMA-Collateralized,
7.400% due 11/20/36 (d) 2,599,772
1,000,000 Ba3* Tarrant County, TX Housing Finance Corp., MFH Revenue, Westridge, Series A,
6.000% due 6/1/31 842,180
Texas State Affordable Housing Corp., MFH Revenue:
2,000,000 Baa3* Ashton Place & Woodstock Apartments, Series A, 6.300% due 8/1/33 (d) 2,063,040
3,915,000 Ba1* Sub-HIC Arbrostone/Baybrook, Series C, 7.250% due 11/1/31 (d) 3,814,659
1,000,000 AA Texas State GO, Veterans Housing Assistance, Series D, 6.450% due 12/1/20 (g) 1,041,330
4,000,000 B3* Travis County, TX Housing Finance Authority, MFH Revenue, (Lakeview Apartments
Project), Series A, 6.375% due 1/1/34 (d) 2,782,960
1,875,000 AAA Yuma, AZ IDA, Mortgage, MFH Revenue Refunding, Series A, GNMA-Collateralized,
6.100% due 9/20/34 (d)(g) 2,057,381
- -----------------------------------------------------------------------------------------------------------------------------
49,388,968
- -----------------------------------------------------------------------------------------------------------------------------
Housing: Single-Family -- 1.0%
40,000 NR Aurora Kane & Dupage, IL Single-Family Mortgage Revenue, Series A,
FHLMC/GNMA-Collateralized, 7.950% due 10/1/25 (g) 40,122
Chicago, IL Single-Family Mortgage Revenue:
610,000 Aaa* Series A, FNMA/GNMA-Collateralized, 6.350% due 10/1/30 (g) 638,078
180,000 AAA Series C, FHLMC/FNMA/GNMA-Collateralized, 7.000% due 3/1/32 186,086
20,000 Aa2* Colorado HFA, Single-Family Program Refunding, Sr. Bonds,
Series 94 D-1, 8.000% due 12/1/24 20,011
960,000 AAA Cowley & Shawnee Counties, KS Mortgage Revenue, Series B, AMBAC-Insured,
GNMA-Collateralized, zero coupon due 6/1/22 (g) 234,749
65,000 AAA Fort Worth, TX Housing Finance Corp., Single-Family Mortgage Revenue,
Capital Appreciation, Series A, GNMA-Collateralized, zero coupon due 6/1/21 (g) 16,240
1,000,000 A+ King County, WA Housing Authority Revenue Refunding, Sr. Bonds,
Series A, 6.800% due 3/1/26 1,032,460
470,000 AA Massachusetts State HFA, Single-Family Mortgage Housing Revenue,
Series 38, 7.200% due 12/1/26 (g) 483,677
180,000 AAA Missouri State Housing Development Community Mortgage Revenue,
Series C, FNMA/GNMA-Collateralized, 7.450% due 9/1/27 (g) 187,281
45,000 AAA Ohio Housing Finance Agency Residential Mortgage, Series A-2,
GNMA-Collateralized, 6.625% due 3/1/26 (g) 46,360
375,000 AAA Pima County, AZ Single-Family Mortgage Revenue, Series A,
FHLMC/FNMA/GNMA-Collateralized, 7.100% due 11/1/29 (g) 400,669
1,140,000 Aaa* Sedgwick & Shawnee Counties, KS Single-Family Mortgage Revenue, Series A-1,
GNMA-Collateralized, 6.875% due 12/1/26 (g) 1,192,109
See Notes to Financial Statements.
10 Smith Barney Muni Funds | 2004 Annual Report
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FACE
AMOUNT RATING(a) SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
Housing: Single-Family -- 1.0% (continued)
$ 110,000 AAA Travis County, TX Housing Finance Corp., Single-Family Mortgage Revenue, Series B,
FNMA/GNMA-Collateralized, 7.100% due 10/1/27 (g) $ 113,979
- -----------------------------------------------------------------------------------------------------------------------------
4,591,821
- -----------------------------------------------------------------------------------------------------------------------------
Industrial Development -- 6.0%
2,500,000 NR Alaska Industrial Development & Export Authority Revenue, Williams Lynxs Alaska
Cargoport, 8.125% due 5/1/31 (g) 2,635,975
2,500,000 Baa3* Boston, MA Industrial Development Financing Authority, (Crosstown Center Project),
6.500% due 9/1/35 (g) 2,543,275
5,000,000 A- Brazos River, TX Harbor Navigation District, Brazoria County Environmental, (Dow
Chemical Co. Project), Series A-7, 6.625% due 5/15/33 (d)(g) 5,474,950
2,000,000 NR Hillsborough County, FL IDA Exempt Facilities Revenue, National Gypsum, Series A,
7.125% due 4/1/30 (g) 2,087,940
1,000,000 AA Massachusetts State Development Finance Agency Revenue, May Institute Issue,
Radian-Insured, 5.750% due 9/1/29 1,095,290
2,000,000 NR Midlothian, TX Development Authority, Tax Increment Contract Revenue,
7.875% due 11/15/26 2,188,180
3,000,000 AAA New York State Urban Development Corp. Revenue, Personal Tax Income, Series C-1,
5.500% due 3/15/21 (d) 3,337,890
1,640,000 AA- Oklahoma City, OK Industrial & Cultural Facilities, Trigen Energy Corp.,
6.750% due 9/15/17 (g) 1,646,396
1,000,000 BBB-++ Overland Park, KS Development Corp. Revenue, First Tier, Overland Park, Series A,
7.375% due 1/1/32 1,018,380
1,000,000 AA- Rensselaer County, NY IDA, Albany International Corp., LOC Fleet Bank,
7.550% due 7/15/07 1,126,310
1,000,000 B2* Rockbridge County, VA IDA Revenue, Virginia Horse Center, Series C,
6.850% due 7/15/21 951,370
2,000,000 A+ West Chicago, IL IDR, (Leggett & Platt Inc. Project), 6.900% due 9/1/24 (d)(g) 2,067,620
- -----------------------------------------------------------------------------------------------------------------------------
26,173,576
- -----------------------------------------------------------------------------------------------------------------------------
Life Care -- 3.7%
1,500,000 BBB- Bexar County, TX Health Facilities Development Corp. Revenue, (Army Retirement
Residence Project), 6.300% due 7/1/32 1,580,310
2,925,000 Aa2* Hamilton County, OH Mortgage Revenue, Judson Care Center, Series A, FHA-Insured,
6.500% due 8/1/26 (d) 3,197,785
2,500,000 BBB Illinois Development Finance Authority Health Facilities, Community Living,
7.125% due 3/1/10 2,528,700
1,000,000 A- Lancaster County, PA Hospital Authority Revenue, Health Center, (Willow Valley
Retirement Project), 5.875% due 6/1/31 1,037,630
1,150,000 NR Lancaster, PA IDA Revenue, (Garden Spot Village Project), Series A, 7.625% due 5/1/31 1,225,348
930,000 AAA Massachusetts State Industrial Finance Agency Revenue Refunding, Chelsea Jewish,
Series A, FHA-Insured, 6.500% due 8/1/37 1,020,405
1,000,000 NR Montgomery County, PA Higher Education & Health Authority Revenue, Temple
Continuing Care Center, 6.750% due 7/1/29 (h) 380,000
2,000,000 NR North Manchester, Industrial Revenue, (Peabody Retirement Community Project),
Series A, 7.125% due 7/1/22 2,031,420
Orange County, NY IDA, Civic Facilities Revenue, (Arden Hill Life Care Center Project),
Series A:
1,000,000 NR 7.000% due 8/1/21 1,038,670
1,000,000 NR 7.000% due 8/1/31 1,031,600
See Notes to Financial Statements.
11 Smith Barney Muni Funds | 2004 Annual Report
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FACE
AMOUNT RATING(a) SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
Life Care -- 3.7% (continued)
$ 1,000,000 NR St. Joseph, MO IDA, Healthcare Revenue, (Living Community St. Joseph Project),
7.000% due 8/15/32 $ 1,044,060
- -------------------------------------------------------------------------------------------------------------------------------
16,115,928
- -------------------------------------------------------------------------------------------------------------------------------
Miscellaneous -- 7.9%
5,000,000 NR Barona Band of Mission Indians, CA, 8.250% due 1/1/20 (d)(f) 5,417,750
2,265,000 NR Bonnet Creek Resort Community Development District, Special Assessment,
7.375% due 5/1/34 2,392,723
1,945,000 NR Century Parc Community Development District, FL Special Assessment,
7.000% due 11/1/31 2,041,900
Dauphin County, PA General Authority:
4,000,000 NR Hyatt Regency, 6.200% due 1/1/29 2,841,800
1,515,000 NR Riverfront Office, 6.000% due 1/1/25 1,457,536
1,775,000 NR Galveston, TX Special Contract Revenue Refunding, (Farmland Industries Inc. Project),
5.500% due 5/1/15 1,576,111
2,000,000 A+ Houston, TX Participation Interest, 6.400% due 6/1/27 2,198,540
2,000,000 A Illinois Development Finance Authority Revenue, City of East St. Louis,
7.250% due 11/15/09 2,086,180
2,375,000 NR Maryland State Economic Development Corp. Revenue, Health & Mental Hygiene
Program, Series A, 7.750% due 3/1/25 (d) 2,515,458
1,000,000 NR New Morgan, PA Municipal Authority Office Revenue, (Commonwealth Office Project),
Series A, 6.500% due 6/1/25 1,032,960
1,000,000 AAA Philadelphia Municipal Authority, Series B, 5.250% due 11/15/17 1,103,930
3,500,000 NR Reunion East Community Development District, FL Special Assessment, Series A,
7.375% due 5/1/33 3,774,645
3,400,000 AA Rhode Island State Economic Development Corp. Revenue, Providence Plaza Mall,
Sr. Notes, Radian-Insured, 6.125% due 7/1/20 (d) 3,925,844
2,470,000 NR Wenonah Park Properties Inc., Bay City Hotel Revenue Bond, 7.500% due 4/1/33 (d) 2,431,270
- -------------------------------------------------------------------------------------------------------------------------------
34,796,647
- -------------------------------------------------------------------------------------------------------------------------------
Pollution Control -- 6.3%
1,700,000 BBB Adams County, MS Environmental Improvement Revenue Refunding, (International
Paper Co. Project), Series A, 6.800% due 8/1/24 (g) 1,852,932
5,000,000 Aa3* Brazos River, TX Navigation District, (BASF Corp. Project), 6.750% due 2/1/10 (d) 5,970,950
1,000,000 BBB De Kalb County, GA Development Authority, PCR Refunding, (General Motors Corp.
Project), 6.000% due 3/15/21 1,053,060
3,325,000 BBB La Crosse, WI Resource Recovery Revenue Refunding, (Northern States Power Co.
Project), 6.000% due 11/1/21 (g) 3,495,240
3,000,000 BBB Lowndes County, MS Solid Waste Disposal & PCR Refunding, (Weyerhaeuser Co.
Project), Series A, 6.800% due 4/1/22 3,560,370
1,000,000 BBB Mobile, AL IDB, Environmental Improvement Revenue, (International Paper Co. Project),
Series B, 6.450% due 5/15/19 (g) 1,089,470
1,000,000 BBB Rapides, LA Finance Authority, Environmental Improvement Revenue, (International
Paper Co. Project), Series A, 6.550% due 11/15/23 (g) 1,080,500
1,000,000 BBB Richland County, SC Environmental Improvement Revenue, (International Paper Co.
Project), 6.100% due 4/1/23 (g) 1,082,250
3,000,000 NR Rockdale County, GA Solid Waste Authority Revenue, (Visy Paper Inc. Project),
7.500% due 1/1/26 (d)(g) 3,043,710
1,945,000 BBB- Saint Charles Parish, LA PCR, (Union Carbide Project), 7.350% due 11/1/22 (e) 1,947,626
See Notes to Financial Statements.
12 Smith Barney Muni Funds | 2004 Annual Report
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FACE
AMOUNT RATING(a) SECURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Pollution Control -- 6.3% (continued)
$ 1,130,000 A Southwestern Illinois Development Authority, Solid Waste Disposal Revenue, (Laclede
Steel Co. Project), 8.500% due 8/1/20 (g) $ 1,135,017
2,200,000 BB+ Sweetwater County, WY Solid Waste Disposal Revenue, (FMC Corp. Project), Series A,
7.000% due 6/1/24 (d)(g) 2,236,080
- ---------------------------------------------------------------------------------------------------------------------------------
27,547,205
- ---------------------------------------------------------------------------------------------------------------------------------
Public Facilities -- 3.6%
2,250,000 BBB- Austin, TX Convention Enterprises Inc., Convention Center, First Tier, Series A,
6.700% due 1/1/32 2,400,075
3,685,000 AA Indianapolis, IN Local Public Improvement Bond Bank, Series D, 6.750% due 2/1/14 (d) 4,535,461
1,000,000 AAA Metropolitan Pier & Exposition Authority, IL Dedicated State Tax Revenue, Capital
Appreciation, McCormick Place Expansion, Series A, MBIA-Insured,
5.500% due 6/15/23 1,100,050
2,500,000 AAA Summit County, CO Sports Facilities Refunding Revenue, (Keystone Resorts
Management Inc. Project), Ralston Purina Co. Guaranteed, 7.750% due 9/1/06 (d) 2,843,500
3,960,000 AA- Tulsa, OK Public Facilities Authority, Lease Payment Revenue Refunding, Assembly
Center, 6.600% due 7/1/14 (d) 4,847,040
- ---------------------------------------------------------------------------------------------------------------------------------
15,726,126
- ---------------------------------------------------------------------------------------------------------------------------------
Tax Allocation -- 1.3%
2,500,000 A- Dekalb County, IN Redevelopment, (Mini-Mill Local Public Improvement Project),
Series A, 6.500% due 1/15/14 2,618,875
1,920,000 NR Midlothian, TX Development Authority, Tax Increment Contract Revenue,
6.700% due 11/15/23 1,950,643
1,000,000 B Providence, RI Special Obligation, Tax Increment, Series D, 6.650% due 6/1/16 1,005,270
- ---------------------------------------------------------------------------------------------------------------------------------
5,574,788
- ---------------------------------------------------------------------------------------------------------------------------------
Tobacco -- 4.1%
2,000,000 BBB++ Chautauqua, NY Tobacco, Asset Securitization Corp., 6.750% due 7/1/40 2,083,280
5,000,000 BBB Educational Enhancement Funding Corp., SD Tobacco, Series B, 6.500% due 6/1/32 (d) 4,873,500
2,000,000 BBB Golden State Tobacco Securitization Corp., CA Tobacco Settlement Revenue,
Series 2003 A-1, 6.250% due 6/1/33 1,960,380
Tobacco Settlement Financing Corp.:
5,000,000 BBB NJ, 6.750% due 6/1/39 (d) 4,933,250
2,500,000 NR RI, RITES-PA 1048, 6.000% due 6/1/23 (d)(e) 2,307,100
2,000,000 NR Tobacco Settlement Revenue, Management Authority, SC Tobacco Settlement Revenue,
RITES-PA 962, 6.375% due 11/15/09 (e) 1,845,200
- ---------------------------------------------------------------------------------------------------------------------------------
18,002,710
- ---------------------------------------------------------------------------------------------------------------------------------
Transportation -- 11.0%
3,000,000 CCC Alliance Airport Authority Inc., TX Special Facilities Revenue, (American Airlines Inc.
Project), 7.500% due 12/1/29 (g) 2,179,980
3,000,000 AAA Chicago, IL Skyway Toll Bridge Revenue, AMBAC-Insured, 5.500% due 1/1/31 3,284,430
3,000,000 AAA Chicago O'Hare International Airport, Gen-Airport, 3rd Lien-B2, 6.000% due 1/1/29 (g) 3,343,920
2,010,000 NR Connecticut Development Authority, Airport Facilities Revenue, (Signature Flight Co.
Project), Guaranty Agreement, Series A, 6.625% due 12/1/14 (g) 2,037,999
Connector 2000 Association Inc., Toll Road Revenue, Capital Appreciation, Sr. Bonds,
Series B:
20,000,000 B- Zero coupon due 1/1/37 803,000
19,000,000 B- Zero coupon due 1/1/38 762,660
See Notes to Financial Statements.
13 Smith Barney Muni Funds | 2004 Annual Report
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FACE
AMOUNT RATING(a) SECURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------
Transportation -- 11.0% (continued)
$ 3,500,000 CCC Dallas-Fort Worth, TX International Airport Revenue, Facility Improvement Corp.
Revenue, American Airlines Inc., 6.375% due 5/1/35 (g) $ 2,405,935
3,335,000 AAA Delaware River Port Authority PA & NJ, R-B RITES-PA 964, 9.529% due 1/1/15 (d)(e) 4,285,608
2,000,000 AAA Georgia State Road & Tollway Authority Revenue, 5.000% due 10/1/23 2,119,320
2,000,000 NR Kenton County, KY Airport Board, Special Facilities Revenue, (Mesaba Aviation Inc.
Project), Series A, 6.700% due 7/1/29 (g) 1,558,360
New Hampshire State Turnpike Systems Revenue Refunding, FGIC-Insured:
2,500,000 AAA Series A, 6.750% due 11/1/11 2,845,775
1,000,000 AAA Series C, RIBS, 6.806% due 11/1/17 (e) 1,250,390
New Jersey State Transportation Trust Fund Authority, MBIA-Insured, RITES:
2,500,000 AAA Series-PA 958R, 6.000% due 12/15/09 (e) 3,535,000
1,000,000 AAA Series-PA 958R-B, 6.000% due 12/15/09 (e) 1,414,000
10,000,000 AAA Northwest Parkway, Public Highway Authority, CO Revenue, Capital Appreciation,
Sr. Bonds, Series B, AMBAC-Insured, zero coupon due 6/15/31 2,079,200
Pocahontas Parkway Association, VA Toll Road Revenue, Capital Appreciation,
Sr. Bonds, Series B:
25,000,000 BB Zero coupon due 8/15/34 2,665,750
35,000,000 BB Zero coupon due 8/15/35 3,467,100
1,250,000 NR Port Authority, NY & NJ Special Obligation Revenue, (5th Installment Special Project),
Series 4, 6.750% due 10/1/19 (g) 1,290,363
2,865,000 A3* Port Longview, WA Revenue Refunding, Series A, 6.250% due 12/1/18 (d)(g) 3,214,387
1,045,000 AAA Regional Transit Authority, IL, Series C, FGIC-Insured, 7.750% due 6/1/20 1,434,827
1,770,000 AA- Triborough Bridge & Tunnel Authority, NY Revenue, (Convention Center Project),
Series E, 7.250% due 1/1/10 (d) 2,055,731
- -----------------------------------------------------------------------------------------------------------------------------
48,033,735
- -----------------------------------------------------------------------------------------------------------------------------
Utilities -- 4.2%
1,500,000 A Georgia Municipal Electric Authority Power Revenue, Series X, 6.500% due 1/1/12 1,764,420
960,000 AAA Hawaii State Department Budget & Finance, Hawaiian Electric Co., Inc., Series A,
MBIA-Insured, 5.650% due 10/1/27 (g) 1,045,882
1,305,000 AAA Hillsborough County, FL Utility Refunding Revenue, 9.875% due 12/1/11 (b) 1,676,664
1,500,000 AAA Municipal Electric Authority, GA, (Combustion Turbine Project), Series A, MBIA-Insured,
5.250% due 11/1/22 1,617,960
1,000,000 A New York State Energy Research & Development, (Con Edison Project), Series A,
7.125% due 12/1/29 (g) 1,052,170
North Carolina Eastern Municipal Power Agency, Power System Revenue Refunding:
1,310,000 BBB Series A, (Call 1/1/22 @ 100), 6.000% due 1/1/26 (c) 1,587,969
1,700,000 A Series B, ACA-Insured, 5.750% due 1/1/24 1,813,424
2,500,000 BBB Series D, 6.700% due 1/1/19 2,799,975
1,500,000 AAA North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue,
MBIA-Insured, 5.250% due 1/1/11 (e) 1,925,025
1,235,000 AAA Piedmont, SC Municipal Power Agency, Electric Revenue Refunding, FGIC-Insured,
6.750% due 1/1/20 1,599,918
1,020,000 AAA Provo, UT Electric Revenue, 10.125% due 4/1/15 (b) 1,431,131
- -----------------------------------------------------------------------------------------------------------------------------
18,314,538
- -----------------------------------------------------------------------------------------------------------------------------
Water & Sewer -- 8.0%
1,355,000 AAA Boston, MA Water & Sewer Revenue, 10.875% due 1/1/09 (b)(f) 1,683,628
2,180,000 AAA Colorado Water Resource & Power Authority, Small Water Resources Revenue, Series A,
FGIC-Insured, 5.375% due 11/1/20 2,405,630
See Notes to Financial Statements.
14 Smith Barney Muni Funds | 2004 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2004
FACE
AMOUNT RATING(a) SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------
Water & Sewer -- 8.0% (continued)
$ 2,400,000 A- Dauphin County, PA IDA, General Water Works Corp., 6.900% due 6/1/24 (g) $ 3,093,864
1,210,000 AAA Fairmont, WV Water & Sewer Revenue, AMBAC-Insured, 9.250% due 11/1/11 (b) 1,545,823
5,000,000 Ba3* Gulf Coast IDA, TX Solid Waste Disposal Revenue, (Citgo Petroleum Project),
8.000% due 4/1/28 (d)(g) 5,261,400
1,000,000 AAA Massachusetts Water Pollution Abatement Trust, Series 9, 5.250% due 8/1/28 1,062,790
2,500,000 NR Michigan State Strategic Fund, Resource Recovery, Limited Obligation Revenue,
Central Wayne Energy Recovery, Series A, 7.000% due 7/1/27 (g) 125,000
2,140,000 AAA Mississippi Development Bank Special Obligation, Water & Solid Waste Management,
Series A, FSA-Insured, 5.375% due 2/1/22 (d) 2,313,811
5,870,000 AAA Ohio State Water Development Authority Revenue, Safe Water, Series 2,
9.375% due 12/1/10 (b)(d) 7,132,578
1,550,000 Aaa* Paris, TX Water & Sewer Revenue, FGIC-Insured, 5.375% due 6/15/20 1,664,065
1,000,000 AAA Portland, OR Sewer System Revenue, Ref-Second Lien, Series A, 5.250% due 6/1/19 1,099,820
3,400,000 Aa1* Port of Umatilla, OR Water Revenue, LOC Bank of America, 6.650% due 8/1/22 (d)(g) 3,457,868
2,750,000 BBB Trumbull County, OH Sewer Disposal Revenue, (General Motors Corp. Project),
6.750% due 7/1/14 (d)(g) 3,181,943
1,000,000 NR Wasco County, OR Solid Waste Disposal Revenue, (Waste Connections Inc. Project),
7.250% due 3/1/21 (g) 1,058,570
- --------------------------------------------------------------------------------------------------------------------------
35,086,790
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $419,828,439**) $ 438,458,410
- --------------------------------------------------------------------------------------------------------------------------
(a) All ratings are by Standard & Poor's Ratings Service, except for those for
those are identified by an asterisk (*) or a double dagger (++), are rated
by Moody's Investors Service and Fitch Ratings, respectively.
(b) Bonds are escrowed to maturity with U.S. government securities and are
considered by the Manager to be triple-A rated even if issuer has not
applied for new ratings.
(c) Pre-Refunded bonds are escrowed with U.S. government securities and are
considered by the Manager to be triple-A rated even if issuer has not
applied for new ratings.
(d) All or a portion of this security has been segregated for futures contracts
(Note 5).
(e) Residual interest bond -- coupon varies inversely with level of short-term
tax-exempt interest rates.
(f) All or a portion of this security is held as collateral for open futures
contracts (Note 5).
(g) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(h) Security is currently in default.
** Aggregate cost for Federal income tax purposes is $419,369,107.
See pages 16 through 18 for definitions of ratings and certain abbreviations.
See Notes to Financial Statements.
15 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") -- Ratings from "AA" to
"CCC" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and
repay principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues
only in a small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated
categories.
BB, -- Bonds rated "BB", "B", "CCC" and "CC" are regarded, on balance,
B, CCC and CC as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. "BB" represents a lowest degree of speculation
than "B", "CCC" and "CC", the highest degree of speculation.
While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk, exposures to adverse conditions.
Moody's Investors Service ("Moody's") -- Numerical modifiers 1, 2 and 3 may be
applied to each generic rating from "Aa" to "Caa," where 1 is the highest and 3
the lowest ranking within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as
large in "Aaa" securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger
than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period
of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be in
default, or present elements of danger may exist with respect
to principal or interest.
16 Smith Barney Muni Funds | 2004 Annual Report
BOND RATINGS (UNAUDITED) (CONTINUED)
Fitch Ratings ("Fitch") -- Ratings of "A" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standings with the
major ratings categories.
A -- Bonds rated "A" are considered to have a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered to be strong, but may be more
vulnerable to changes in economic conditions and circumstances
than bonds with higher ratings.
BBB -- Bonds rated "BBB" currently have a low expectation of credit
risk. The capacity for timely payment of financial commitments
is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to
impair this capacity. This is the lowest investment-grade
category assigned by Fitch.
BB -- Bonds rated "BB" indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic
change over time; however, business of financial alternatives
may be available to allow financial commitments to be met.
B -- Bonds rated "B" indicate that significant credit risk is
present, but a limited margin of safety remains. Financial
Commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable
business and economic environment.
CCC, CC and C-- Bonds rated "CCC", "CC" and "C" carry the real possibility of
defaulting. The capacity to meet financial commitments depends
solely on a sustained, favorable business and economic
environment. Default of some kind on bonds rated "CC" appears
probable, a "C" rating indicates imminent default.
NR -- Indicates that the bond is not rated by Standard & Poor's,
Moody's or Fitch.
SHORT-TERM SECURITY RATINGS (UNAUDITED)
SP-1 -- Standard & Poor's highest rating indicating very strong or
strong capacity to pay principal and interest; those issues
determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate
demand obligation (VRDO) rating indicating that the degree of
safety regarding timely payment is either overwhelming or very
strong; those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature --
VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior
to the advent of the VMIG 1 rating.
17 Smith Barney Muni Funds | 2004 Annual Report
ABBREVIATIONS* (UNAUDITED)
ABAG -- Association of Bay Area Governors
ACA -- American Capital Assurance
AIG -- American International Guaranty
AMBAC -- Ambac Assurance Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility Construction Loan
Insurance
CONNIE College Construction Loan Insurance
LEE -- Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
EDR -- Economic Development Revenue
ETM -- Escrowed To Maturity
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FLAIRS -- Floating Adjustable Interest Rate Securities
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Financial Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
ISD -- Independent School District
LEVRRS -- Leveraged Reverse Rate Securities
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
Corporation
MFH -- Multi-Family Housing
MVRICS -- Municipal Variable Rate Inverse Coupon
Security
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guaranty
Radian -- Radian Asset Assurance
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
- --------
* Abbreviations may or may not appear in the schedule of investments.
18 Smith Barney Muni Funds | 2004 Annual Report
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2004
ASSETS:
Investments, at value (Cost -- $419,828,439) $438,458,410
Cash 143,084
Interest receivable 7,827,107
Receivable for securities sold 360,300
Receivable for Fund shares sold 318,678
Prepaid expenses 6,691
- -------------------------------------------------------------------------
Total Assets 447,114,270
- -------------------------------------------------------------------------
LIABILITIES:
Payable to broker -- variation margin 962,500
Management fee payable 170,434
Payable for Fund shares reacquired 159,407
Distribution plan fees payable 40,189
Deferred compensation payable 10,453
Accrued expenses 67,709
- -------------------------------------------------------------------------
Total Liabilities 1,410,692
- -------------------------------------------------------------------------
Total Net Assets $445,703,578
- -------------------------------------------------------------------------
NET ASSETS:
Par value of shares of beneficial interest $ 33,673
Capital paid in excess of par value 442,222,575
Undistributed net investment income 2,019,540
Accumulated net realized loss from investment
transactions and futures contracts (13,491,243)
Net unrealized appreciation of investments and futures
contracts 14,919,033
- -------------------------------------------------------------------------
Total Net Assets $445,703,578
- -------------------------------------------------------------------------
Shares Outstanding:
Class A 26,941,099
- --------------------------------------------------------------------------
Class B 4,387,657
- --------------------------------------------------------------------------
Class L 2,344,190
- --------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $13.24
- --------------------------------------------------------------------------
Class B * $13.21
- --------------------------------------------------------------------------
Class L * $13.27
- --------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.17% of net asset value
per share) $13.79
- -------------------------------------------------------------------------
* Redemption price is NAV of Class B and L shares reduced by a 4.50% and 1.00%
CDSC, respectively, if shares are redeemed within one year from purchase
payment (See Note 3).
See Notes to Financial Statements.
19 Smith Barney Muni Funds | 2004 Annual Report
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2004
INVESTMENT INCOME:
Interest $29,099,535
- -------------------------------------------------------------------------
EXPENSES:
Management fee (Note 3) 2,044,838
Distribution plan fees (Note 6) 1,164,737
Transfer agency services (Note 6) 84,912
Shareholder communications (Note 6) 76,554
Audit and legal 26,171
Registration fees 9,271
Custody 3,456
Trustees' fees 3,186
Other 8,347
- -------------------------------------------------------------------------
Total Expenses 3,421,472
- -------------------------------------------------------------------------
Net Investment Income 25,678,063
- -------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS (NOTES 4 AND 5):
Realized Loss From:
Investment transactions (499,895)
Futures contracts (4,050,555)
- -------------------------------------------------------------------------
Net Realized Loss (4,550,450)
- -------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and
Futures Contracts:
Beginning of year 8,987,360
End of year 14,919,033
- -------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 5,931,673
- -------------------------------------------------------------------------
Net Gain on Investments and Futures Contracts 1,381,223
- -------------------------------------------------------------------------
Increase in Net Assets From Operations $27,059,286
- -------------------------------------------------------------------------
See Notes to Financial Statements.
20 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 $ 25,678,063 $ 27,512,946
Net realized loss (4,550,450) (4,359,508 )
Increase in net unrealized appreciation 5,931,673 3,625,384
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations 27,059,286 26,778,822
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTES 2 AND
7):
Net investment income (24,754,798) (26,970,923)
- -------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to
Shareholders (24,754,798) (26,970,923)
- -------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 39,588,040 58,737,804
Net asset value of shares issued for 11,762,674
reinvestment of dividends 13,205,291
Cost of shares reacquired (71,655,351) (100,288,361)
- -------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share
Transactions (20,304,637) (28,345,266)
- -------------------------------------------------------------------------------
Decrease in Net Assets (18,000,149) (28,537,367)
NET ASSETS:
Beginning of year 463,703,727 492,241,094
- -------------------------------------------------------------------------------
End of year* $445,703,578 $ 463,703,727
- -------------------------------------------------------------------------------
* Includes undistributed net investment income of: $2,019,540 $1,101,232
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
21 Smith Barney Muni Funds | 2004 Annual Report
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
The National 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 a diversified open-end
management investment company. The Trust consists of this Fund and eight other
separate investment funds: Florida, Georgia, Limited Term, New York,
Pennsylvania, California Money Market, Massachusetts 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)
securities are valued at the mean between the bid and asked prices provided by
an independent pricing service which are based on transactions in municipal
obligations, quotations from municipal bond dealers, market transactions in
comparable securities and various relationships between securities; (c)
securities for which market quotations are not available will be valued in good
faith at fair value by or under the direction of the Board of Trustees; (d)
securities maturing within 60 days are valued at cost plus accreted discount,
or minus amortized premium, which approximates value; (e) gains or losses on
the sale of securities are calculated by using the specific identification
method; (f ) interest income, adjusted for amortization of premium and
accretion of discount, is recorded on an accrual basis; (g) dividends and
distributions to shareholders are recorded on the ex-dividend date; (h) class
specific expenses are charged to each class; management fees and general fund
expenses are allocated on the basis of relative net assets of each class or on
another reasonable basis; (i) 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. At March 31, 2004, reclassifications were made to the capital accounts
of the Fund to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Net investment
income, net realized loss and net assets were not affected by this change; ( j)
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; and (k) estimates and
assumptions are required to be made regarding assets, liabilities and changes
in net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
2. Exempt-Interest Dividends and Other Distributions
The Fund intends to satisfy conditions that will enable interest from municipal
securities, which is exempt from regular Federal income tax and from designated
state income taxes, to retain such tax-exempt status when distributed to the
shareholders of the Fund.
It is the Fund's policy to distribute dividends monthly. Capital gains
distributions, if any, are taxable to shareholders, and are declared and paid
at least annually.
3. Management Agreement and Other Transactions
Smith Barney Fund Management LLC ("SBFM"), an indirect wholly-owned subsidiary
of Citigroup Inc. ("Citigroup"), acts as investment manager to the Fund. The
Fund pays SBFM a management fee calculated at the annual rate of 0.45% of the
Fund's average daily net assets. This fee is calculated daily and paid monthly.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the
Fund's transfer agent. PFPC Inc. ("PFPC") acts as the Fund's sub-transfer
agent. CTB receives account fees and asset-based fees that vary according to
the size and type
22 Smith Barney Muni Funds | 2004 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $87,929 to CTB.
There is a maximum initial sales charge of 4.00% for Class A shares. There is a
contingent deferred sales charge ("CDSC") of 4.50% on Class B shares, which
applies if redemption occurs within one year from purchase payment. This CDSC
declines by 0.50% the first year after purchase payment and thereafter by 1.00%
per year until no CDSC is incurred. Class L shares also have a 1.00% CDSC,
which applies if redemption occurs within one year from purchase payment. In
certain cases, Class A shares have a 1.00% CDSC, which applies if redemption
occurs within one year from purchase payment. This CDSC only applies to those
purchases of Class A shares, which when combined with current holdings of Class
A shares, equal or exceed $500,000 in the aggregate. These purchases do not
incur an initial sales charge.
For the year ended March 31, 2004, Citigroup Global Markets Inc. ("CGM"),
another indirect wholly-owned subsidiary of Citigroup, received sales charges
of approximately $275,000 and $37,000 on sales of the Fund's Class A and L
shares, respectively.
In addition, for the year ended March 31, 2004, CDSCs paid to CGM were
approximately:
Class A Class B Class L
- --------------------------------------------------------------------------
CDSCs $4,000 $74,000 $1,000
- -------------------------------------------------------------------------
All officers and one Trustee of the Trust are employees of Citigroup or its
affiliates.
4. Investments
During the year ended March 31, 2004, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments) were as follows:
- ------------------------------------------------
Purchases $136,999,612
- ------------------------------------------------
Sales 171,041,240
- ------------------------------------------------
At March 31, 2004, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were as follows:
- ------------------------------------------------
Gross unrealized
appreciation $ 31,115,893
Gross unrealized depreciation (12,026,590)
- ------------------------------------------------
Net unrealized appreciation $ 19,089,303
- ------------------------------------------------
5. Futures Contracts
Securities or cash equal to the initial margin amount are either deposited with
the broker or segregated by the custodian upon entering into the futures
contract. Additional securities are also segregated up to the current market
value of the futures contract. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
received or made and recognized as assets due from or liabilities due to
broker, depending upon whether unrealized gains or losses are incurred. When
the contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of ) the closing transactions and
the Fund's basis in the contract. The Fund enters into such contracts typically
to hedge a portion of its portfolio. The Fund bears the market risk that arises
from changes in the value of the financial instruments and securities indices.
23 Smith Barney Muni Funds | 2004 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At March 31, 2004, the Fund had the following open futures contracts:
Number of Basis Market Unrealized
Contracts Expiration Value Value Loss
- -----------------------------------------------------------------------------------------------
Contracts to Sell:
20 Year, 6.000% U.S. Treasury Bond 1,400 6/04 $155,976,562 $159,687,500 $(3,710,938)
- ----------------------------------------------------------------------------------------------
6. Class Specific Expenses
Pursuant to a Rule 12b-1 Distribution Plan, the Fund pays a service fee with
respect to its Class A, B and L shares calculated at the annual rate of 0.15%
of the average daily net assets of each respective class. In addition, the Fund
pays a distribution fee with respect to its Class B and L shares calculated at
the annual rates of 0.50% and 0.55% of the average daily net assets of each
class, respectively. For the year ended March 31, 2004, total Rule 12b-1
Distribution Plan fees, which are accrued daily and paid monthly, were as
follows:
Class A Class B Class L
- --------------------------------------------------------------
Rule 12b-1 Distribution Plan Fees $541,438 $401,019 $222,280
- --------------------------------------------------------------
For the year ended March 31, 2004, total Transfer Agency
Service expenses were as follows:
Class A Class B Class L
- --------------------------------------------------------------
Transfer Agency Service Expenses $58,560 $12,810 $13,542
- --------------------------------------------------------------
For the year ended March 31, 2004, total Shareholder
Communication expenses were as follows:
Class A Class B Class L
- --------------------------------------------------------------
Shareholder Communication Expenses $58,000 $12,474 $6,080
- --------------------------------------------------------------
7. Distributions Paid to Shareholders by Class
Year Ended Year Ended
March 31, 2004 March 31, 2003
- -----------------------------------------------------------------
Net Investment Income
Class A $20,052,748 $22,137,785
Class B 3,122,092 3,275,632
Class L 1,579,958 1,557,506
- ----------------------------------------------------------------
Total $24,754,798 $26,970,923
- ----------------------------------------------------------------
8. Shares of Beneficial Interest
At March 31, 2004, the Trust had an unlimited number of shares of beneficial
interest authorized with a par value of $0.001 per share. The Fund has the
ability to issue multiple classes of shares. Each share of a class represents
an identical interest in the Fund and has the same rights, except that each
class bears certain expenses specifically related to the distribution of its
shares.
24 Smith Barney Muni Funds | 2004 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Transactions in shares of each class were as follows:
Year Ended Year Ended
March 31, 2004 March 31, 2003
------------------------ ------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------
Class A
Shares sold 2,100,036 $ 27,824,667 2,427,448 $ 32,527,105
Shares issued on
reinvestment 735,527 9,734,119 824,698 10,990,786
Shares reacquired (3,850,223) (50,955,239) (6,009,823) (80,211,889)
- ----------------------------------------------------------------------------
Net Decrease (1,014,660) $(13,396,453) (2,757,677) $(36,693,998)
- ----------------------------------------------------------------------------
Class B
Shares sold 496,663 $ 6,570,481 1,323,486 $ 17,673,852
Shares issued on
reinvestment 90,299 1,192,753 101,066 1,344,619
Shares reacquired (1,093,192) (14,442,133) (910,856) (12,111,637)
- ----------------------------------------------------------------------------
Net Increase
(Decrease) (506,230) $ (6,678,899) 513,696 $ 6,906,834
- ----------------------------------------------------------------------------
Class L
Shares sold 391,316 $ 5,192,892 636,505 $ 8,536,847
Shares issued on
reinvestment 63,030 835,802 65,158 869,886
Shares reacquired (471,708) (6,257,979) (595,401) (7,964,835)
- ----------------------------------------------------------------------------
Net Increase
(Decrease) (17,362) $ (229,285) 106,262 $ 1,441,898
- ----------------------------------------------------------------------------
9. Capital Loss Carryforward
At March 31, 2004, the Fund had, for Federal income tax purposes, approximately
$6,568,000 of unused capital loss carryforwards available to offset future
capital gains. To the extent that these carryforward losses are used to offset
capital gains, it is probable that the gains so offset will not be distributed.
The amount and expiration of the carryforwards are indicated below. Expiration
occurs on March 31 of the year indicated:
2008 2009 2012
- ------------------------------------------------------------------
Carryforward amounts $685,000 $3,676,000 $2,207,000
- ------------------------------------------------------------------
In addition, the Fund had $10,386,825 of capital losses realized after October
31, 2003, which were deferred for tax purposes to the first day of the
following fiscal year.
10.Income Tax Information and Distributions to Shareholders
The tax basis components of distributable earnings at March 31, 2004 were:
2004
- -----------------------------------------------
Undistributed tax exempt $ 1,464,811
- -----------------------------------------------
Accumulated capital losses (6,568,159)
- -----------------------------------------------
Unrealized appreciation 19,089,303
- -----------------------------------------------
At March 31, 2004, the difference between book basis and tax basis unrealized
appreciation and depreciation was attributable primarily to wash sale loss
deferrals, mark to market of derivative contracts and the treatment of
accretion of discounts and amortization of premiums.
The tax character of distributions paid during the years ended March 31 was:
2004 2003
- -----------------------------------------------------------
Tax-exempt income $24,702,128 $26,970,923
Ordinary income 52,670 --
- -----------------------------------------------------------
Total $24,754,798 $26,970,923
- -----------------------------------------------------------
25 Smith Barney Muni Funds | 2004 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11.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 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.
12.Subsequent Event
Effective April 29, 2004, Class L shares were renamed as Class C shares.
26 Smith Barney Muni Funds | 2004 Annual Report
FINANCIAL HIGHLIGHTS
For a share of each class of beneficial interest outstanding throughout each
year ended March 31, unless otherwise noted:
Class A Shares 2004/(1)/ 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/
- ----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $13.17 $13.18 $13.58 $12.94 $13.97
- ----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(2)/ 0.76 0.77 0.77 0.76 0.74
Net realized and unrealized gain (loss)/(2)/ 0.05 (0.02) (0.41) 0.64 (1.03)
- ----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.81 0.75 0.36 1.40 (0.29)
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.74) (0.76) (0.76) (0.76) (0.73)
Net realized gains -- -- -- -- (0.01)
- ----------------------------------------------------------------------------------------------------
Total Distributions (0.74) (0.76) (0.76) (0.76) (0.74)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.24 $13.17 $13.18 $13.58 $12.94
- ----------------------------------------------------------------------------------------------------
Total Return 6.28% 5.74% 2.67% 11.16% (2.03)%
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $356,627 $368,188 $404,803 $388,838 $363,812
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.64% 0.67% 0.66% 0.68% 0.68%
Net investment income/(2)/ 5.76 5.76 5.67 5.75 5.59
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 31% 43% 52% 52% 68%
- ----------------------------------------------------------------------------------------------------
Class B Shares 2004/(1)/ 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/
- ----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $13.15 $13.16 $13.57 $12.93 $13.96
- ----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(3)/ 0.69 0.70 0.70 0.69 0.67
Net realized and unrealized gain (loss)/(3)/ 0.04 (0.02) (0.41) 0.64 (1.03)
- ----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.73 0.68 0.29 1.33 (0.36)
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.67) (0.69) (0.70) (0.69) (0.66)
Net realized gains -- -- -- -- (0.01)
- ----------------------------------------------------------------------------------------------------
Total Distributions (0.67) (0.69) (0.70) (0.69) (0.67)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.21 $13.15 $13.16 $13.57 $12.93
- ----------------------------------------------------------------------------------------------------
Total Return 5.68% 5.25% 2.13% 10.64% (2.56)%
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $57,978 $64,348 $57,661 $46,534 $42,872
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.15% 1.18% 1.17% 1.18% 1.18%
Net investment income/(3)/ 5.25 5.25 5.17 5.26 5.11
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 31% 43% 52% 52% 68%
- ----------------------------------------------------------------------------------------------------
(1)Per share amounts have been calculated using the monthly average shares
method.
(2)Effective April 1, 2001, the Fund adopted a change in the accounting method
that requires the Fund to amortize premiums and accrete all discounts.
Without the adoption of this change, for the year ended March 31, 2002, the
ratio of net investment income to average net assets would have been 5.64%.
Per share information, ratios and supplemental data for the periods prior to
April 1, 2001 have not been restated to reflect this change in presentation.
In addition, the impact of this change to net investment income and net
realized and unrealized loss was less than $0.01 per share.
(3)Effective April 1, 2001, the Fund adopted a change in the accounting method
that requires the Fund to amortize premiums and accrete all discounts.
Without the adoption of this change, for the year ended March 31, 2002, net
investment income, net realized and unrealized loss and the ratio of net
investment income to average net assets would have been $0.69, $0.40 and
5.14%, respectively. Per share information, ratios and supplemental data for
the periods prior to April 1, 2001 have not been restated to reflect this
change in presentation.
27 Smith Barney Muni Funds | 2004 Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout each
year ended March 31, unless otherwise noted:
Class L Shares 2004/(1)/ 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/
- ----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $13.20 $13.20 $13.59 $12.95 $13.97
- ----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(2)/ 0.69 0.69 0.70 0.68 0.66
Net realized and unrealized gain (loss)/(2)/ 0.04 (0.01) (0.41) 0.64 (1.02)
- ----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.73 0.68 0.29 1.32 (0.36)
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.66) (0.68) (0.68) (0.68) (0.65)
Net realized gains -- -- -- -- (0.01)
- ----------------------------------------------------------------------------------------------------
Total Distributions (0.66) (0.68) (0.68) (0.68) (0.66)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.27 $13.20 $13.20 $13.59 $12.95
- ----------------------------------------------------------------------------------------------------
Total Return 5.66% 5.18% 2.13% 10.46% (2.57)%
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $31,099 $31,168 $29,777 $23,294 $19,434
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.22% 1.24% 1.23% 1.25% 1.26%
Net investment income/(2)/ 5.18 5.19 5.11 5.19 5.03
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 31% 43% 52% 52% 68%
- ----------------------------------------------------------------------------------------------------
(1)Per share amounts have been calculated using the monthly average shares
method.
(2)Effective April 1, 2001, the Fund adopted a change in the accounting method
that requires the Fund to amortize premiums and accrete all discounts.
Without the adoption of this change, for the year ended March 31, 2002, net
investment income, net realized and unrealized loss and the ratio of net
investment income to average net assets would have been $0.69, $0.40 and
5.08%, respectively. Per share information, ratios and supplemental data for
the periods prior to April 1, 2001 have not been restated to reflect this
change in presentation.
28 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 National Portfolio ("Fund") of Smith Barney
Muni Funds 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 five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with 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 and broker. As to securities sold but not yet
delivered, we performed other appropriate 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, the changes in its net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
five-year period then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
New York, New York
May 12, 2004
29 Smith Barney Muni Funds | 2004 Annual Report
ADDITIONAL INFORMATION (UNAUDITED)
Information about Trustees and Officers
The business and affairs of the Smith Barney Muni Funds ("Trust") -- National
Portfolio ("Fund") are managed under the direction of the Fund's Board of
Trustees. Information pertaining to the Trustees and Officers of the Fund, a
series 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 in Other
Office* and Fund Complex Board
Position(s) Held Length of Principal Occupation(s) Overseen by Memberships
Name, Address and Age with Fund Time Served During Past Five Years Trustee Held by Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Non-Interested Trustees:
Lee Abraham Trustee Since Retired; Former Director of 27 None
13732 LeHavre Dr. 1999 Signet Group PLC
Frenchman's Creek
Palm Beach Gardens, FL 33410
Age 76
Allan J. Bloostein Trustee Since President of Allan Bloostein 34 Taubman Realty Corp.
27 West 67th Street, Apt. 5FW 1999 Associates, a consulting firm;
New York, NY 10023 Former Director of
Age 74 CVS Corp.
Jane F. Dasher Trustee Since Controller of PBK Holdings Inc., a 27 None
Korsant Partners 1999 family investment company
283 Greenwich Avenue
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 the New 27 None
2751 Vermont Route 140 1999 Atlanta Jewish Community High
Poultney, VT 05764 School
Age 62
Paul Hardin Trustee Since Professor of Law & Chancellor 34 None
12083 Morehead 1994 Emeritus at the University of North
Chapel Hill, NC 27514-8426 Carolina
Age 72
Roderick C. Rasmussen Trustee Since Investment Counselor 27 None
9 Cadence Court 1991
Morristown, NJ 07960
Age 77
John P. Toolan Trustee Since Retired 27 John Hancock Funds
13 Chadwell Place 1992
Morristown, NJ 07960
Age 73
30 Smith Barney Muni Funds | 2004 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Term of Portfolios in Other
Office* and Fund Complex Board
Position(s) Held Length of Principal Occupation(s) Overseen by Memberships
Name, Address and Age with Fund Time Served During Past Five Years Trustee Held by Trustee
- ----------------------------------------------------------------------------------------------------------------------------
Interested Trustee:
R. Jay Gerken, CFA** Chairman, Since Managing Director of 221 None
Citigroup Asset Management President and 2002 Citigroup Global Markets Inc.
("CAM") Chief ("CGM"); Chairman, President and
399 Park Avenue Executive Chief Executive Officer of Smith
4th Floor Officer Barney Fund Management LLC
New York, NY 10022 ("SBFM"), Travelers Investment
Age 52 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)
Officers:
Andrew B. Shoup Senior Since Director of CAM; Senior Vice N/A N/A
CAM Vice President 2003 President and Chief Administrative
125 Broad Street, 11th Floor and Chief Officer of mutual funds associated
New York, NY 10004 Administrative with Citigroup; Treasurer of certain
Age 47 Officer 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 Financial Since Director of CGM; Chief Financial N/A N/A
CAM Officer and 2002 Officer and Treasurer of certain
125 Broad Street, 11th Floor Treasurer mutual funds associated with
New York, NY 10004 Citigroup; Director and Head of
Age 42 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)
Peter M. Coffey Vice President Since Managing Director of CGM; N/A N/A
CAM and Investment 1999 Investment Officer of SBFM
399 Park Avenue, 4th Floor Officer
New York, NY 10022
Age 58
31 Smith Barney Muni Funds | 2004 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Term of Portfolios in Other
Office* and Fund Complex Board
Position(s) Held Length of Principal Occupation(s) Overseen by Memberships
Name, Address and Age with Fund Time Served During Past Five Years Trustee Held by Trustee
- --------------------------------------------------------------------------------------------------------------------------
Andrew Beagley Chief Anti-Money Since Director of CGM (since 2000); N/A N/A
CAM Laundering 2002 Director of Compliance, North
399 Park Avenue, 4th Compliance America, CAM (since 2000); Chief
Floor Officer Anti-Money Laundering Compliance
New York, NY 10022 Officer and Vice President of certain
Age 40 mutual funds associated with
Citigroup; Director of Compliance,
Europe, the Middle East and Africa,
Citigroup Asset Management (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; Controller N/A N/A
CAM 2002 of certain mutual funds associated
125 Broad Street, 11th with Citigroup
Floor
New York, NY 10004
Age 38
Robert I. Frenkel Secretary and Since Managing Director and General N/A N/A
CAM Chief Legal 2003 Counsel of Global Mutual Funds
300 First Stamford Officer for CAM and its predecessor (since
Place, 4th Floor 1994); Secretary of CFM (from
Stamford, CT 06902 2001 to 2004); Secretary and Chief
Age 48 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.
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Fund hereby designates for the fiscal year ended
March 31, 2004:
. 99.79% of the dividends paid by the Fund from net investment income as
tax-exempt for regular Federal income tax purposes.
32 Smith Barney Muni Funds | 2004 Annual Report
SMITH BARNEY
MUNI FUNDS
TRUSTEES INVESTMENT MANAGER
Lee Abraham Smith Barney Fund
Allan J. Bloostein Management LLC
Jane F. Dasher
Donald R. Foley DISTRIBUTOR
R. Jay Gerken, CFA Citigroup Global Markets Inc.
Chairman
Richard E. Hanson, Jr. CUSTODIAN
Paul Hardin State Street Bank and
Roderick C. Rasmussen Trust Company
John P. Toolan
TRANSFER AGENT
OFFICERS Citicorp Trust Bank, fsb.
R. Jay Gerken, CFA 125 Broad Street, 11th Floor
President and New York, New York 10004
Chief Executive Officer
SUB-TRANSFER AGENT
Andrew B. Shoup PFPC Inc.
Senior Vice President and P.O. Box 9699
Chief Administrative Officer Providence, Rhode Island
02940-9699
Richard L. Peteka
Chief Financial Officer
and Treasurer
Peter M. Coffey
Vice President and
Investment Officer
Andrew Beagley
Chief Anti-Money Laundering
Compliance Officer
Kaprel Ozsolak
Controller
Robert I. Frenkel
Secretary and
Chief Legal Officer
Smith Barney Muni Funds
National 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 the general information of the shareholders of
Smith Barney Muni Funds --National Portfolio, but it may also be used as sales
literature when preceded or accompanied by the current Prospectus.
SMITH BARNEY MUNI FUNDS
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004
This document must be preceded or accompanied by a free prospectus. Investors
should consider the fund's investment objectives, risks, charges and expenses
carefully before investing. The prospectus contains this and other important
information about the fund. Please read the prospectus carefully before you
invest or send money.
www.smithbarneymutualfunds.com
(C)2004 Citigroup Global Markets Inc. Member NASD, SIPC
FD02304 5/04 04-6646
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 of $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 of $0 and $0 for
the years ended 3/31/04 and 3/31/03.
(c) Tax Fees for Smith Barney Muni Funds of $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 7, 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 7, 2004
By: /s/ Richard L. Peteka
Richard L. Peteka
Chief Financial Officer of
Smith Barney Muni Funds
Date: June 7, 2004