| | | | For the Period |
| | | | September 24, 2002 |
| | For the Year | (Commencement |
| | Ended | of Operations) to |
| | October 31, 2003 | October 31, 2002 |
|
|
|
|
|
| | | | | |
| OPERATIONS: | | | | | | |
| Net investment income | $ | 1,264,356 | | $ | 170,430 | |
| Net realized loss from investments (excluding short-term securities) and futures contracts | (4,348,503 | ) | | — | |
| Net increase in net unrealized appreciation on investments and futures contracts | | 19,974,814 | | | — | |
|
|
|
|
|
|
|
| Increase in Net Assets From Operations | | 16,890,667 | | | 170,430 | |
|
|
|
|
|
|
|
| | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | | | |
| Net investment income Class A | | (194,274 | ) | | (21,988 | ) |
| Net investment income Class B | | (1,665,776 | ) | | (125,701 | ) |
| Net investment income Class L | | (291,026 | ) | | (22,741 | ) |
|
|
|
|
|
|
|
| Decrease in Net Assets From Distributions to Shareholders | | (2,151,076 | ) | | (170,430 | ) |
|
|
|
|
|
|
|
| | | | | | | |
| TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 9): | | | | | | |
| Class A | | | | | | |
| Net proceeds from sale of shares | | 2,339,824 | | | 78,511,378 | |
| Net asset value of shares issued to shareholders from reinvestment of distributions | | 206,426 | | | — | |
| Cost of shares repurchased | | (20,257,127 | ) | | (3,959,744 | ) |
|
|
|
|
|
|
|
| Total Class A | | (17,710,877 | ) | | 74,551,634 | |
|
|
|
|
|
|
|
| Class B | | | | | | |
| Net proceeds from sale of shares | | — | | | 674,475,339 | |
| Net asset value of shares issued to shareholders from reinvestment of distributions | | 1,680,585 | | | — | |
| Cost of shares repurchased | | (95,512,467 | ) | | (1,108,387 | ) |
|
|
|
|
|
|
|
| Total Class B | | (93,831,882 | ) | | 673,366,952 | |
|
|
|
|
|
|
|
| Class L | | | | | | |
| Net proceeds from sale of shares | | 970,725 | | | 122,253,859 | |
| Net asset value of shares issued to shareholders from reinvestment of distributions | | 295,255 | | | — | |
| Cost of shares repurchased | | (35,487,587 | ) | | (40,955 | ) |
|
|
|
|
|
|
|
| Total Class L | | (34,221,607 | ) | | 122,212,904 | |
|
|
|
|
|
|
|
| Net Increase (Decrease) in Net Assets From Fund Share Transactions | | (145,764,366 | ) | | 870,131,490 | |
|
|
|
|
|
|
|
| Net Increase (Decrease) in Net Assets | | (131,024,775 | ) | | 870,131,490 | |
|
|
|
|
|
|
|
| | | | | | | |
| NET ASSETS: | | | | | | |
| Beginning of period | | 870,131,490 | | | — | |
|
|
|
|
|
|
|
| End of period* | $ | 739,106,715 | | $ | 870,131,490 | |
|
|
|
|
|
|
|
| * Includes undistributed net investment income of: | $ | 564,169 | | $ | 262,955 | |
|
|
|
|
|
|
|
Notes to Financial Statements
1. Significant Accounting Policies
The Smith Barney Capital Preservation Fund II (the “Fund”), a separate investment fund of Smith Barney Trust II (the “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 Fund commenced operations on September 24, 2002.
The significant accounting policies consistently followed by the Fund are: (a) security transactions are accounted for on trade date; (b) investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value as determined by or under the direction of the Board of Trustees. Equity securities that are traded primarily on a domestic or foreign exchange are valued at the last sale price on that exchange or, if there were no sales during the day, at the current quoted bid price. Securities listed on the NASDAQ National Market System for which market quotations are available are valued at the official closing price or, if there is no official closing price on that day, at the last sale price. Options are generally valued at the mean of the quoted bid and asked prices. Bonds and other fixed income securities (other than short-term obligations) are valued on the basis of valuations furnished by a pricing service, use of which has been approved by the Board of Trustees. In making such val-uations,the pricing service utilizes both dealer-supplied valuations and electronic data processing techniques that take into account appropriate factors such as institutional-size trading in similar groups of securities,yield,quality,coupon rate,maturity,type of issue, trading characteristics and other market data, without exclusive reliance upon quoted prices or exchange or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of such securities. Short-term obligations (maturing in 60 days or less) are valued at amortized cost, which constitutes fair value as determined by the Board of Trustees. Futures contracts are normally valued at the settlement price on the exchange on which they are traded. Securities for which there are no such valuations are valued using fair value procedures established by and under the general supervision of the Board of Trustees; (c) interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis; (d) dividend income is recorded on the ex-dividend date; foreign dividend income is recorded on the ex-dividend date or as soon as practical after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence; (e) dividends and distributions to shareholders are recorded on the ex-dividend date; (f) gains or losses on the sale of securities are calculated by using the specific identification method; (g) the accounting records are maintained in U.S. dollars.All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation (although the Fund generally does not expect to hold investments denominated in foreign currencies). Purchases and sales of securities, and income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded; (h) direct expenses are charged to each class; management fees and general fund expenses are allocated on the basis of relative net assets of each class; (i) the character of income and gains distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Reclassifications were made to the Fund’s capital accounts to reflect permanent book/tax differences and income and gains available for distributions under income tax regulations. For the year ended October 31, 2003 the Fund reclassified a portion of accumulated net investment loss amounting to $1,187,934 to paid-in-capital; (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. Management Agreement, Distribution Agreement and Other Transactions
Smith Barney Fund Management LLC (“SBFM”), a subsidiary of Citigroup Inc. (“Citigroup”), acts as investment manager to the Fund. The Fund pays SBFM a management fee calculated at an annual rate of 0.75% of the average daily net assets during the Guarantee Period.This fee is calculated daily and paid monthly.The management fee amounted to $6,253,493, for the period ended October 31, 2003.
Citicorp Trust Bank, fsb. (“CTB”), another subsidiary of Citigroup, acts as the Fund’s transfer agent. PFPC Global Fund Services (“PFPC”) and Primerica Shareholder Services (“PSS”), another subsidiary of Citigroup, act as the Fund’s sub-transfer agent. CTB
14 Smith Barney Capital Preservation Fund II | 2003 Annual Report
Notes to Financial Statements (continued)
receives account fees and asset-based fees that vary according to the size and type of account. PFPC and PSS are responsible for shareholder recordkeeping and financial processing for all shareholder accounts and are paid by CTB. For the period ended October 31, 2003, the Fund paid transfer agent fees of $573,877 to CTB and PSS.
Citigroup Global Markets Inc. (“CGM”) (formerly known as Salomon Smith Barney Inc.) and PFS Distributors, Inc. both of which are subsidiaries of Citigroup, act as the Fund’s distributor. Certain other broker-dealers also continue to sell Fund shares to the public as members of the selling group. For the period ended October 31, 2003, CGM and its affiliates received brokerage commissions of $0 for the Fund’s portfolio agency transactions.
There were maximum initial sales charges of 5.00% and 1.00% for Class A and L shares, respectively.There is a contingent deferred sales charge (“CDSC”) of 5.00% on Class B shares, which applies if redemption occurs within one year from purchase and declines 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 the first year of purchase. In addition, Class A shares have a 1.00% CDSC, which applies if redemption occurs within the first year of purchase.This CDSC only applies to those purchases of Class A shares which, when combined with current holdings of Class A shares, equal or exceed $1,000,000 in the aggregate.
For the year ended October 31, 2003, CGM received sales charges of approximately $156,000 and $187,000 on sales of the Fund’s Class A and L shares, respectively. In addition, for the year ended October 31, 2003, CDSCs paid to CGM were approximately:
| | Class A | | Class B | | Class L | |
|
|
|
|
|
|
|
| CDSCs | $0 | | $1,825,000 | | $118,000 | |
|
|
|
|
|
|
|
Pursuant to a Distribution Plan, the Fund pays a distribution fee with respect to Class A, B and L shares calculated at the annual rate of 0.25%, 1.00% and 1.00% of the average daily net assets of each class, respectively. For the period ended October 31, 2003, total Distribution Plan fees were:
| | Class A | | Class B | | Class L | |
|
|
|
|
|
|
|
| Distribution Plan Fees | $177,889 | | $6,492,421 | | $1,134,014 | |
|
|
|
|
|
|
|
All officers and one Trustee of the Trust are employees of Citigroup or its affiliates.
3. Investments
During the period ended October 31, 2003, the aggregate cost of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities) were as follows:
|
|
|
| Purchases | $992,952,505 | |
|
|
|
| Sales | $905,275,281 | |
|
|
|
| | | | |
| At October 31, 2003, the aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows: | |
| | | | | |
|
|
|
|
|
| Gross unrealized appreciation | | | $20,728,567 | |
| Gross unrealized depreciation | | | (1,413,453 | ) |
|
|
|
|
|
| Net unrealized appreciation | | | $19,315,114 | |
|
|
|
|
|
15 Smith Barney Capital Preservation Fund II | 2003 Annual Report
| Notes to Financial Statements (continued) | | | |
| | | | |
| 4. Income Tax Information and Distributions to Shareholders | |
| At October 31, 2003 the tax basis components of distributable earnings were: | |
|
|
|
|
| Undistributed ordinary income | $ | 703,332 | |
|
|
|
|
| Accumulated capital losses | $ | (3,688,803 | ) |
|
|
|
|
| Unrealized appreciation | $ | 19,315,114 | |
|
|
|
|
The difference between book basis and tax basis unrealized appreciation is attributable primarily to mark to market of derivative contracts.
The tax character of distributions paid during the year was:
|
|
|
|
| Ordinary income | $ | 2,151,076 | |
|
|
|
|
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized as assets. Securities equal to the initial margin amount are segregated by the custodian in the name of the broker. Additional securities are also segregated up to the current market value of the futures contracts. 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 the 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 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 (futures contracts) and the credit risk should a coun-terparty fail to perform under such contracts.
Futures contracts which were open at October 31, 2003, are as follows:
| | Number of | Expiration | Book | | Market | | Unrealized | |
Contracts | Contracts | Date | Value | | Value | | Gain/(Loss) | |
|
|
|
|
|
|
|
|
|
| S & P Index Futures (Buy) | 113 | December 2003 | $28,988,675 | | $29,648,375 | | $659,700 | |
|
|
|
|
|
|
|
|
|
|
|
|
6. Option Contracts
Premiums paid when put or call options are purchased by the Fund, represent investments, which are marked-to-market daily. When a purchased option expires, the Fund will realize a loss in the amount of the premium paid.When the Fund enters into a closing sales transaction, the Fund will realize a gain or loss depending on whether the proceeds from the closing sales transaction are greater or less than the premium paid for the option.When the Fund exercises a put option, it will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid.When the Fund exercises a call option, the cost of the security which the Fund purchases upon exercise will be increased by the premium originally paid.
At October 31, 2003, the Fund held no purchased call options or purchased put options.
16 Smith Barney Capital Preservation Fund II | 2003 Annual Report
Notes to Financial Statements (continued)
When a Fund writes a call or put option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily. When a written option expires, the Fund realizes a gain equal to the amount of the premium received.When the Fund enters into a closing purchase transaction, the Fund realizes a gain or loss depending upon whether the cost of the closing transaction is greater or less than the premium originally received, without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is eliminated. When a written call option is exercised, the proceeds of the security sold will be increased by the premium originally received.When a written put option is exercised, the amount of the premium originally received will reduce the cost of the security which the Fund purchases upon exercise. When written index options are exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally paid.The Fund enters into options for hedging purposes. The risk in writing a covered call option is that the Fund gives up the opportunity to participate in any increase in the price of the underlying security beyond the exercise price. The risk in writing a put option is that the Fund is exposed to the risk of loss if the market price of the underlying security declines.
No written covered call/put option transactions occurred during the period ended October 31, 2003.
7. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government securities from banks and securities dealers subject to agreements to resell the securities to the sellers at a future date (generally, the next business day) at an agreed-upon higher repurchase price. The Fund requires continual maintenance of the market value (plus accrued interest) of the collateral in amounts at least equal to the repurchase price.
8.The Guarantee
Provided that all dividends and distributions received from the Fund have been reinvested and no shares have been redeemed by a shareholder, the Fund guarantees that on the Guarantee Maturity Date, as described in the prospectus, each shareholder will be entitled to redeem his or her shares for an amount no less than the value of that shareholder’s account as of the close of business on November 1, 2002, less certain expenses. The Fund’s guarantee is backed by an unconditional and irrevocable financial guarantee from Ambac Assurance Corporation (the “Guarantor”) pursuant to a financial guarantee insurance policy issued by the Guarantor for the benefit of the shareholders of the Fund. The Fund will pay to the Guarantor a fee equal to 0.75% of the average daily net assets of the Fund during the Guarantee Period for providing the financial guarantee insurance policy.The guarantee fees amounted to $6,253,493 for the period ended October 31, 2003. Please see the prospectus for more information relating to the guarantee arrangement.
9. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.Translation of foreign currency includes net exchange gains and losses resulting from the disposition of foreign currency and the difference between the amount of investment income, expenses and foreign withholding taxes recorded and the actual amount received or paid.
17 Smith Barney Capital Preservation Fund II | 2003 Annual Report
Notes to Financial Statements (continued)
10. Shares of Beneficial Interest
At October 31, 2003, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. The Fund has the ability to issue multiple classes of shares. Each share of a class represents an identical interest and has the same rights, except that each class bears certain direct expenses specifically related to the distribution of its shares.
Transactions in shares of each class were as follows:
| | | | | | For the Period September 24, 2002 |
| | Year Ended | (Commencement of Operations) |
| | October 31, 2003 | October 31, 2002 |
| |
|
|
|
|
| | Shares | Amount | Shares | Amount |
|
|
|
|
|
|
|
|
|
| | | | | | | | | |
| Class A | | | | | | | | |
| Shares sold | 205,301 | | | $ 2,339,824 | | 6,886,963 | | | $ 78,511,378 | |
| Shares issued to shareholders from reinvestment of distributions | 18,220 | | | 206,426 | | — | | | — | |
| Shares repurchased | (1,747,177 | ) | | (20,257,127 | ) | (347,346 | ) | | (3,959,744 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Net Increase (Decrease) | (1,523,656 | ) | | $(17,710,877 | ) | 6,539,617 | | | $ 74,551,634 | |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| Class B | | | | | | | | | | |
| Shares sold | — | | | — | | 59,164,503 | | | $674,475,339 | |
| Shares issued to shareholders from reinvestment of distributions | 148,496 | | | 1,680,585 | | — | | | — | |
| Shares repurchased | (8,285,930 | ) | | (95,512,467 | ) | (97,227 | ) | | (1,108,387 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Net Increase (Decrease) | (8,137,434 | ) | | $(93,831,882 | ) | 59,067,276 | | | $673,366,952 | |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | |
| Class L | | | | | | | | | | |
| Shares sold | 85,325 | | | $ 970,725 | | 10,724,023 | | | $122,253,859 | |
| Shares issued to shareholders from reinvestment of distributions | 26,088 | | | 295,255 | | — | | | — | |
| Shares repurchased | (3,077,884 | ) | | (35,487,587 | ) | (3,593 | ) | | (40,955 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Net Increase (Decrease) | (2,966,471 | ) | | $(34,221,607 | ) | 10,720,430 | | | $122,212,904 | |
|
|
|
|
|
|
|
|
|
|
|
11.Trustee Retirement Plan
The Trustees of the Fund have adopted a Retirement Plan for all Trustees who are not “interested persons” of the Fund, within the meaning of the 1940 Act. Under the Plan, all Trustees are required to retire from the Board as of the last day of the calendar year in which the applicable Trustee attains age 75 (certain Trustees who had already attained age 75 when the Plan was adopted are required to retire effective December 31, 2003).Trustees may retire under the Plan before attaining the mandatory retirement age. Trustees who have served as Trustee of the Trust or any of the investment companies associated with Citigroup for at least ten years when they retire are eligible to receive the maximum retirement benefit under the Plan. The maximum retirement benefit is an amount equal to five times the amount of retainer and regular meeting fees payable to a Trustee during the calendar year ending on or immediately prior to the applicable Trustee’s retirement. Amounts under the Plan may be paid in installments or in a lump sum (discounted to present value). Benefits under the Plan are unfunded. The Fund’s allocable share of the expenses of the Plan for the period ended October 31, 2003 and the related liability at October 31, 2003 was not material.
18 Smith Barney Capital Preservation Fund II | 2003 Annual Report
Notes to Financial Statements (continued)
12. Capital Loss Carryforward
At October 31, 2003, the Fund had, for Federal income tax purposes, a capital loss carryforward of approximately $3,689,000 available to offset future capital gains expiring October 31, 2011.To the extent that these carryforward losses are used to offset capital gains, it is probable that any gains so offset will not be distributed.
13. Subsequent Event
The Fund has received the following information from Citigroup Asset Management (“CAM”), the Citigroup business unit which includes the Fund’s Investment Manager and other investment advisory companies, all of which are indirect, wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an affiliate, into the transfer agent business in the period 1997-1999.As CAM currently understands the facts, at the time CAM decided to enter the transfer agent business, CAM subcontracted 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 subcontractor at the time the Boards considered and approved the transfer agent agreements. Nor were the Boards informed of the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds $16 million (plus interest) that CAM and its affiliates received from the Revenue Guarantee Agreement and its amendment. CAM also plans an independent review to verify that the transfer agency fees charged by CAM were fairly priced as compared to competitive alternatives. CAM is instituting new procedures and making changes designed to ensure no similar arrangements are entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other regulators with respect to this matter, as well as the U.S.Attorney who is investigating the matter. CAM is cooperating with governmental authorities on this matter, the ultimate outcome of which is not yet determinable.
19 Smith Barney Capital Preservation Fund II | 2003 Annual Report
| Financial Highlights | | | | | | | | |
| | | | | | | | | |
| For a share of each class of Capital Stock: | | | | | | | | |
| | | | | | | | | |
| | | | | For the Period September 24, 2002 |
| | Year Ended | (Commencement of Operations) to |
Class A Shares | October 31, 2003 | October 31, 2002 |
|
|
|
|
|
Net Asset Value, Beginning of Year | $ | 11.40 | | $ | 11.40 | |
|
|
|
|
|
| Income From Operations: | | | | | | |
| Net investment income(1) | | | 0.097 | | | | 0.006 | |
| Net realized and unrealized gain | | | 0.213 | | | | 0.004 | |
|
|
|
|
|
| Total Income From Operations | | | 0.310 | | | | 0.010 | |
|
|
|
|
|
| Less Distributions From: | | | | | | | | |
| Net investment income | | (0.030 | ) | | (0.010 | ) |
|
|
|
|
|
| Total Distributions | | (0.030 | ) | | (0.010 | ) |
|
|
|
|
|
| Net Asset Value, End of Year | | $ | 11.68 | | | $ | 11.40 | |
|
|
|
|
|
| Total Return | | | 2.73 | % | | | 0.09 | %** |
|
|
|
|
|
| Net Assets, End of Year (000s) | | $ | 58,594 | | | $ | 74,552 | |
|
|
|
|
|
| Ratios to Average Net Assets: | | | | | | | | |
| Expenses | | | 1.94 | % | | | 0.68 | %* |
| Net investment income | | | 0.83 | % | | | 0.76 | %* |
|
|
|
|
|
| Portfolio Turnover Rate | | | 114 | % | | | — | |
|
|
|
|
|
| | | | | | | | | |
| Note: If Agents of the Fund had not voluntarily waived a portion of their fees and assumed expenses the net investment income per share and the ratios would have been as follows: |
| | | | | | | | |
| Net investment income per share(1) | | $ | 0.097 | | | $ | 0.002 | |
| Ratios: | | | | | | | | |
| Expenses to average net assets | | | 1.94 | % | | | 1.24 | %* |
| Net investment income to average net assets | | | 0.83 | % | | | 0.20 | %* |
|
|
|
|
|
| * Annualized | | | | | | | | |
| ** Not Annualized | | | | | | | | |
| (1) The per share amounts were computed using a monthly average number of shares outstanding during the period. |
See Notes to Financial Statements.
20 Smith Barney Capital Preservation Fund II | 2003 Annual Report
| Financial Highlights (continued) | | | | | | | | | |
| | | | | | | | | | |
| For a share of each class of Capital Stock: | | | | | | | | | |
| | | | | | | | | | |
| | | | | For the Period September 24, 2002 |
| | Year Ended | (Commencement of Operations) to |
Class B Shares | October 31, 2003 | October 31, 2002 |
|
|
|
|
|
|
|
|
|
|
Net Asset Value, Beginning of Year | $ | 11.40 | | | $ | 11.40 | |
|
|
|
|
|
|
|
|
|
|
| Income From Operations: | | | | | | |
| Net investment income(1) | | | 0.010 | | | | | 0.004 | |
| Net realized and unrealized gain | | | 0.218 | | | | | 0.002 | |
|
|
|
|
|
|
|
|
|
|
| Total Income From Operations | | | 0.228 | | | | | 0.006 | |
|
|
|
|
|
|
|
|
|
|
| Less Distributions From: | | | | | | | | | |
| Net investment income | | (0.028 | ) | | | (0.006 | ) |
|
|
|
|
|
|
|
|
|
|
| Total Distributions | | (0.028 | ) | | | (0.006 | ) |
|
|
|
|
|
|
|
|
|
|
| Net Asset Value, End of Year | | $ | 11.60 | | | | $ | 11.40 | |
|
|
|
|
|
|
|
|
|
|
| Total Return | | | 2.01 | % | | | | 0.05 | %** |
|
|
|
|
|
|
|
|
|
|
| Net Assets, End of Year (000s) | | $ | 590,590 | | | | $ | 673,367 | |
|
|
|
|
|
|
|
|
|
|
| Ratios to Average Net Assets: | | | | | | | | | |
| Expenses | | | 2.69 | % | | | | 0.97 | %* |
| Net investment income | | | 0.09 | % | | | | 0.41 | %* |
|
|
|
|
|
|
|
|
|
|
| Portfolio Turnover Rate | | | 114 | % | | | | — | |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
| Note: If Agents of the Fund had not voluntarily waived a portion of their fees and assumed expenses the net investment income (loss) per share and the ratios would have been as follows: |
| | | | | | | | | |
| Net investment income (loss) per share(1) | | $ | 0.010 | | | | | ($0.001 | ) |
| Ratios: | | | | | | | | | |
| Expenses to average net assets | | | 2.69 | % | | | | 1.53 | %* |
| Net investment income (loss) to average net assets | | | 0.09 | % | | | | (0.15 | )%* |
|
|
|
|
|
|
|
|
|
|
| * Annualized | | | | | | | | | |
| ** Not Annualized | | | | | | | | | |
| (1) The per share amounts were computed using a monthly average number of shares outstanding during the period. |
See Notes to Financial Statements.
21 Smith Barney Capital Preservation Fund II | 2003 Annual Report
| Financial Highlights (continued) | | | | | | | | | |
| | | | | | | | | | |
| For a share of each class of Capital Stock: | | | | | | | | | |
| | | | | | | | | | |
| | | | | For the Period September 24, 2002 |
| | Year Ended | (Commencement of Operations) to |
Class L Shares | October 31, 2003 | October 31, 2002 |
|
|
|
|
|
Net Asset Value, Beginning of Year | $ | 11.40 | | | $ | 11.40 | |
|
|
|
|
|
|
|
|
|
|
| Income From Operations: | | | | | | |
| Net investment income(1) | | | 0.010 | | | | | 0.004 | |
| Net realized and unrealized gain | | | 0.217 | | | | | 0.002 | |
|
|
|
|
|
|
|
|
|
|
| Total Income From Operations | | | 0.227 | | | | | 0.006 | |
|
|
|
|
|
|
|
|
|
|
| Less Distributions From: | | | | | | | | | |
| Net investment income | | (0.027 | ) | | | (0.006 | ) |
|
|
|
|
|
|
|
|
|
|
| Total Distributions | | (0.027 | ) | | | (0.006 | ) |
|
|
|
|
|
|
|
|
|
|
| Net Asset Value, End of Year | | $ | 11.60 | | | | $ | 11.40 | |
|
|
|
|
|
|
|
|
|
|
| Total Return | | | 2.00 | % | | | | 0.05 | %** |
|
|
|
|
|
|
|
|
|
|
| Net Assets, End of Year (000s) | | $ | 89,922 | | | | $ | 122,213 | |
|
|
|
|
|
|
|
|
|
|
| Ratios to Average Net Assets: | | | | | | | | | |
| Expenses | | | 2.69 | % | | | | 0.97 | %* |
| Net investment income | | | 0.09 | % | | | | 0.41 | %* |
|
|
|
|
|
|
|
|
|
|
| Portfolio Turnover Rate | | | 114 | % | | | | — | |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
| Note: If Agents of the Fund had not voluntarily waived a portion of their fees and assumed expenses the net investment income (loss) per share and the ratios would have been as follows: |
| | | | | | | | | |
| Net investment income (loss) per share(1) | | $ | 0.010 | | | | | ($0.001 | ) |
| Ratios: | | | | | | | | | |
| Expenses to average net assets | | | 2.69 | % | | | | 1.53 | %* |
| Net investment income (loss) to average net assets | | | 0.09 | % | | | | (0.15 | )%* |
|
|
|
|
|
|
|
|
|
|
| * Annualized | | | | | | | | | |
| ** Not Annualized | | | | | | | | | |
| (1) The per share amounts were computed using a monthly average number of shares outstanding during the period. |
See Notes to Financial Statements.
22 Smith Barney Capital Preservation Fund II | 2003 Annual Report
Independent Auditors’ Report
To the Shareholders and Board of Trustees
of the Smith Barney Trust II:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Smith Barney Capital Preservation Fund II of Smith Barney Trust II (the “Trust”) as of October 31, 2003, and the related statements of operations for the year then ended, the statements of changes in net assets, and financial highlights for the year ended October 31, 2003 and for the period September 24, 2002 (Commencement of Operations) through October 31, 2002.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 October 31, 2003, by correspondence with the custodian.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 aspects, the financial position of Smith Barney Capital Preservation Fund II as of October 31, 2003, and the results of its operations for the year then ended, the changes in its net assets and financial highlights for the year ended October 31, 2003 and for the period September 24, 2002 through October 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
New York, New York
December 10, 2003
23 Smith Barney Capital Preservation Fund II | 2003 Annual Report
Tax Information (unaudited)
For Federal tax purposes the Fund hereby designates for the year ended October 31, 2003
• A corporate dividends received deduction of 42.44%.
A total of 88.03% of the ordinary dividends paid by the Fund from net investment income are derived from Federal obligations and may be exempt from taxation at the state level.
24 Smith Barney Capital Preservation Fund II | 2003 Annual Report
Additional Information (unaudited)
Information about Trustees and Officers The business and affairs of the Smith Barney Capital Preservation Fund II (the “Fund”) are managed under the direction of the Fund’s Board of Trustees. Information pertaining to the Trustees and officers of the Fund is set forth below. Each Trustee and officer holds office for his or her lifetime, unless that individual resigns, retires or is otherwise removed.The Statement of Additional Information includes additional information about Fund Trustees and is available, without charge, upon request by calling 1-800-451-2010.
| | | | | | | | | Number of | | Other Board | |
| | | | | | | Principal | | Portfolios In | | Memberships | |
| | | Position(s) | | Length | | Occupation(s) | | Fund Complex | | Held by | |
| | | Held with | | of Time | | During Past | | Overseen by | | Trustee During | |
Name, Address and Age | | Fund | | Served | | Five Years | | Trustee | | Past Five Years | |
| |
| |
| |
| |
| |
| |
| NON-INTERESTED | | | | | | | | | | | |
| TRUSTEES: | | | | | | | | | | | |
| | | | | | | | | | | | |
| Elliott J. Berv | | Trustee | | Since 2001 | | President and Chief Operations | | 36 | | Board Member, | |
| c/o R. Jay Gerken | | | | | | Officer, Landmark City (real | | | | American Identity Corp. | |
| Citigroup Asset Management | | | | | | estate development) (since | | | | (doing business as | |
| 399 Park Avenue | | | | | | 2002); Executive Vice President | | | | Morpheus Technologies) | |
| New York, NY 10022 | | | | | | and Chief Operations Officer, | | | | (biometric information | |
| Age 60 | | | | | | DigiGym Systems (on-line | | | | management) (since | |
| | | | | | | personal training systems) (since | | | | 2001; consultant since | |
| | | | | | | 2001); Chief Executive Officer, | | | | 1999); Director, Lapoint | |
| | | | | | | Rocket City Enterprises (internet | | | | Industries (industrial | |
| | | | | | | service company) (from 2000 to | | | | filter company) (since | |
| | | | | | | 2001); President, Catalyst | | | | 2002); Director, | |
| | | | | | | (consulting) (since 1984). | | | | Alzheimer’s Association | |
| | | | | | | | | | | (New England Chapter) | |
| | | | | | | | | | | (since 1998). | |
| | | | | | | | | | | | |
| Donald M. Carlton | | Trustee | | Since 2001 | | Consultant, URS Corporation | | 31 | | Director, American | |
| c/o R. Jay Gerken | | | | | | (engineering) (since 1999); | | | | Electric Power | |
| Citigroup Asset Management | | | | | | former Chief Executive Officer, | | | | (electric utility) (since | |
| 399 Park Avenue | | | | | | Radian International LLC | | | | 1999); Director,Valero | |
| New York, NY 10022 | | | | | | (engineering) (from 1969 to | | | | Energy (petroleum | |
| Age 66 | | | | | | 1998), Member of Management | | | | refining) (since 1999); | |
| | | | | | | Committee, Signature Science | | | | Director, National | |
| | | | | | | (research and development) (since | | | | Instruments Corp. | |
| | | | | | | 2000) | | | | (technology) (since | |
| | | | | | | | | | | 1994). | |
| | | | | | | | | | | | |
| A. Benton Cocanougher | | Trustee | | Since 2001 | | Dean Emeritus and Wiley | | 31 | | Former Director, | |
| c/o R. Jay Gerken | | | | | | Professor,Texas A&M | | | | Randall’s Food Markets, | |
| Citigroup Asset Management | | | | | | University (since 2001); | | | | Inc. (from 1990 to 1999); | |
| 399 Park Avenue | | | | | | former Dean and Professor of | | | | former Director, First | |
| New York, NY 10022 | | | | | | Marketing, College and | | | | American Bank and | |
| Age 65 | | | | | | Graduate School of Business | | | | First American Savings | |
| | | | | | | of Texas A & M University | | | | Bank (from 1994 to | |
| | | | | | | (from 1987 to 2001). | | | | 1999). | |
25 Smith Barney Capital Preservation Fund II | 2003 Annual Report
Additional Information (unaudited) (continued)
| | | | | | | | | Number of | | Other |
| | | | | | | Principal | | Portfolios In | | Board Memberships |
| | | Position(s) | | Length | | Occupation(s) | | Fund Complex | | Held by |
| | | Held with | | of Time | | During Past | | Overseen by | | Trustee During |
| Name, Address and Age | | Fund | | Served | | Five Years | | Trustee | | Past Five Years |
| |
| |
| |
| |
| |
|
| Mark T. Finn | | Trustee | | Since 2001 | | Adjunct Professor,William & | | 36 | | Former President and |
| c/o R. Jay Gerken | | | | | | Mary College (since September | | | | Director, Delta Financial, |
| Citigroup Asset Management | | | | | | 2002); Principal/member, Belvan | | | | Inc. (investment advisory |
| 399 Park Avenue | | | | | | Partners/Balfour Vantage – Manager | | | | firm) (from 1983 to |
| New York, NY 10022 | | | | | | and General Partner to the | | | | 1999). |
| Age 60 | | | | | | Vantage Hedge Fund, LP (since | | | | |
| | | | | | | March 2002); Chairman and | | | | |
| | | | | | | owner,Vantage Consulting Group, | | | | |
| | | | | | | Inc. (investment advisory and | | | | |
| | | | | | | consulting firm) (since 1988); | | | | |
| | | | | | | former Vice Chairman and Chief | | | | |
| | | | | | | Operating Officer, Lindner Asset | | | | |
| | | | | | | Management Company (mutual | | | | |
| | | | | | | fund company) (from March 1999 | | | | |
| | | | | | | to 2001); former General Partner | | | | |
| | | | | | | and Shareholder, Greenwich | | | | |
| | | | | | | Ventures, LLC (investment | | | | |
| | | | | | | partnership) (from 1996 to 2001); | | | | |
| | | | | | | former President, Secretary, and | | | | |
| | | | | | | owner, Phoenix Trading Co. | | | | |
| | | | | | | (commodity trading advisory firm) | | | | |
| | | | | | | (from 1997 to 2000). | | | | |
| | | | | | | | | | | |
| Stephen Randolph Gross | | Trustee | | Since 2001 | | Partner, Capital Investment | | 31 | | Director, United Telesis, |
| c/o R. Jay Gerken | | | | | | Advisory Partners (consulting) | | | | Inc. (telecommunications) |
| Citigroup Asset Management | | | | | | (since January 2000); former | | | | (since 1997); Director, |
| 399 Park Avenue | | | | | | Managing Director, Fountainhead | | | | eBank.com, Inc. (since |
| New York, NY 10022 | | | | | | Ventures, LLC (consulting) (from | | | | 1997); Director,Andersen |
| Age 56 | | | | | | 1998 to 2002); Secretary, Carint | | | | Calhoun, Inc. (assisted |
| | | | | | | N.A. (manufacturing) (since 1988); | | | | living) (since 1987); |
| | | | | | | former Treasurer, Hank Aaron | | | | former Director, Charter |
| | | | | | | Enterprises (fast food franchise) | | | | Bank, Inc. (from 1987 to |
| | | | | | | (from 1985 to 2001); Chairman, | | | | 1997); former Director, |
| | | | | | | Gross, Collins & Cress, P.C. | | | | Yu Save, Inc. (internet |
| | | | | | | (accounting firm) (since 1980); | | | | company) (from 1998 to |
| | | | | | | Treasurer, Coventry Limited, Inc. | | | | 2000); former Director, |
| | | | | | | (since 1985). | | | | Hotpalm, Inc. (wireless |
| | | | | | | | | | | applications) (from 1998 |
| | | | | | | | | | | to 2000); former |
| | | | | | | | | | | Director, Ikon Ventures, |
| | | | | | | | | | | Inc. (from 1997 to 1998). |
| | | | | | | | | | | |
| Diana R. Harrington | | Trustee | | Since 1992 | | Professor, Babson College | | 36 | | Former Trustee,The |
| c/o R. Jay Gerken | | | | | | (since 1993). | | | | Highland Family of |
| Citigroup Asset Management | | | | | | | | | | Funds (investment |
| 399 Park Avenue | | | | | | | | | | company) (from March |
| New York, NY 10022 | | | | | | | | | | 1997 to March 1998). |
| Age 63 | | | | | | | | | | |
| | | | | | | | | | | |
| Susan B. Kerley | | Trustee | | Since 1992 | | Consultant, Strategic Management | | 36 | | Director, Eclipse Funds |
| c/o R. Jay Gerken | | | | | | Advisors, LLC/Global Research | | | | (currently supervises 17 |
| Citigroup Asset Management | | | | | | Associates, Inc. (investment | | | | investment companies |
| 399 Park Avenue | | | | | | consulting) (since 1990). | | | | in fund complex) (since |
| New York, NY 10022 | | | | | | | | | | 1990). |
| Age 52 | | | | | | | | | | |
26 Smith Barney Capital Preservation Fund II | 2003 Annual Report
Additional Information (unaudited) (continued)
| | | | | | | | | Number of | | Other | |
| | | | | | | Principal | | Portfolios In | | Board Memberships | |
| | | Position(s) | | Length | | Occupation(s) | | Fund Complex | | Held by | |
| | | Held with | | of Time | | During Past | | Overseen by | | Trustee During | |
Name, Address and Age | | Fund | | Served | | Five Years | | Trustee | | Past Five Years | |
| |
| |
| |
| |
| |
| |
| Alan G. Merten | | Trustee | | Since 2001 | | President, George Mason | | 31 | | Director, Comshare, | |
| c/o R. Jay Gerken | | | | | | University (since 1996). | | | | Inc. (information | |
| Citigroup Asset Management | | | | | | | | | | technology) (since 1985); | |
| 399 Park Avenue | | | | | | | | | | former Director, Indus | |
| New York, NY 10022 | | | | | | | | | | (information technology) | |
| Age 62 | | | | | | | | | | (from 1995 to 1999); | |
| | | | | | | | | | | Director, Digital Net | |
| | | | | | | | | | | Holdings, Inc. (since | |
| | | | | | | | | | | 2003). | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| C. Oscar Morong, Jr. | | Trustee | | Since 1991 | | Managing Director, Morong | | 36 | | Former Director, | |
| c/o R. Jay Gerken | | | | | | Capital Management | | | | Indonesia Fund (closed- | |
| Citigroup Asset Management | | | | | | (since 1993). | | | | end fund) (from 1990 to | |
| 399 Park Avenue | | | | | | | | | | 1999);Trustee, Morgan | |
| New York, NY 10022 | | | | | | | | | | Stanley Institutional Fund | |
| Age 68 | | | | | | | | | | Fund (currently super- | |
| | | | | | | | | | | vises 75 investment | |
| | | | | | | | | | | companies) (since 1993). | |
| | | | | | | | | | | | |
| R. Richardson Pettit | | Trustee | | Since 2001 | | Professor of Finance, University | | 31 | | None | |
| c/o R. Jay Gerken | | | | | | of Houston (from 1977 to 2002); | | | | | |
| Citigroup Asset Management | | | | | | independent consultant | | | | | |
| 399 Park Avenue | | | | | | (since 1984). | | | | | |
| New York, NY 10022 | | | | | | | | | | | |
| Age 61 | | | | | | | | | | | |
| | | | | | | | | | | | |
| Walter E. Robb, III | | Trustee | | Since 2001 | | President, Benchmark Consulting | | 36 | | Director, John Boyle & | |
| c/o R. Jay Gerken | | | | | | Group, Inc. (service company) | | | | Co., Inc. (textiles) (since | |
| Citigroup Asset Management | | | | | | (since 1991); sole proprietor, Robb | | | | 1999); Director, Harbor | |
| 399 Park Avenue | | | | | | Associates (financial consulting) | | | | Sweets, Inc. (candy) | |
| New York, NY 10022 | | | | | | (since 1978); Co-owner, Kedron | | | | (since 1990); Director, | |
| Age 77 | | | | | | Design (gifts) (since 1978); | | | | W.A.Wilde Co. (direct | |
| | | | | | | former President and Treasurer, | | | | media marketing) (since | |
| | | | | | | Benchmark Advisors, Inc. | | | | 1982); Director, Alpha | |
| | | | | | | (financial consulting) | | | | Grainger Manufacturing, | |
| | | | | | | (from 1989 to 2000). | | | | Inc. (electronics) (since | |
| | | | | | | | | | | 1983); former Trustee, | |
| | | | | | | | | | | MFS Family of Funds | |
| | | | | | | | | | | (investment company) | |
| | | | | | | | | | | (from 1985 to 2001); | |
| | | | | | | | | | | Harvard Club of Boston | |
| | | | | | | | | | | (Audit Committee) | |
| | | | | | | | | | | (since 2001). | |
27 Smith Barney Capital Preservation Fund II | 2003 Annual Report
Additional Information (unaudited) (continued)
| | | | | | | | | Number of | | Other |
| | | | | | | Principal | | Portfolios In | | Board Memberships |
| | | Position(s) | | Length | | Occupation(s) | | Fund Complex | | Held by |
| | | Held with | | of Time | | During Past | | Overseen by | | Trustee During |
Name, Address and Age | | Fund | | Served | | Five Years | | Trustee | | Past Five Years |
| |
| |
| |
| |
| |
|
| INTERESTED | | | | | | | | | | |
| TRUSTEE: | | | | | | | | | | |
| R. Jay Gerken* | | Chairman, | | Since 2002 | | Managing Director of CGM (since | | Chairman | | N/A |
| Citigroup Asset Management | | President, | | | | 1996); Chairman, President, and | | of the Board, | | |
| 399 Park Avenue | | and Chief | | | | Chief Executive Officer of Smith | | Trustee or | | |
| New York, NY 10022 | | Executive | | | | Barney Fund Management LLC | | Director | | |
| Age 52 | | Officer | | | | (“SBFM”),Travelers Investment | | of 220 | | |
| | | | | | | Advisers, Inc. (“TIA”) and Citi | | | | |
| | | | | | | Fund Management Inc. (“CFM”); | | | | |
| | | | | | | President and Chief Executive | | | | |
| | | | | | | Officer of certain mutual funds | | | | |
| | | | | | | associated with Citigroup Inc., | | | | |
| | | | | | | 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 Vice | | Since 2003 | | Director of Citigroup Asset | | N/A | | N/A |
| 125 Broad Street | | President and | | | | Management (“CAM”); Chief | | | | |
| New York, NY 10004 | | Chief | | | | Administrative Officer of mutual | | | | |
| Age 47 | | Administrative | | | | funds associated with Citigroup | | | | |
| | | Officer | | | | Inc.; 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). | | | | |
| | | | | | | | | | | |
| Frances M. Guggino | | Controller | | Since 2002 | | Vice President of CGM, Controller | | N/A | | N/A |
| 125 Broad Street | | | | | | of certain mutual funds associated | | | | |
| New York, NY 10004 | | | | | | with Citigroup Inc. | | | | |
| Age 46 | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Robert I. Frenkel | | Secretary | | Since 2000 | | Managing Director and General | | N/A | | N/A |
| CAM | | Chief Legal | | Since 2003 | | Counsel, Global Mutual Funds | | | | |
| 300 First Stamford Place | | Officer | | | | for CAM (since 1994), Secretary | | | | |
| Stamford, CT 06902 | | | | | | of certain mutual funds associated | | | | |
| Age 49 | | | | | | with Citigroup Inc., Chief Legal | | | | |
| | | | | | | Officer of mutual funds associated | | | | |
| | | | | | | with Citigroup Inc. | | | | |
| * | Mr. Gerken is an “interested person” of the fund as defined in the 1940 Act because he is an officer of certain affiliates of the Manager. |
| ** | As of November 25, 2003. |
28 Smith Barney Capital Preservation Fund II | 2003 Annual Report
SMITH BARNEY
CAPITAL PRESERVATION FUND II
| TRUSTEES | INVESTMENT MANAGER |
| Elliott J. Berv | Smith Barney Fund Management LLC |
| Donald M. Carlton | |
| A. Benton Cocanougher | |
| Mark T. Finn | DISTRIBUTOR |
| R. Jay Gerken, CFA, Chairman* | Citigroup Global Markets Inc. |
| Stephen Randolph Gross | PFS Distributors, Inc. |
| Diana R. Harrington | |
| Susan B. Kerley | |
| Alan G. Merten | CUSTODIAN |
| C. Oscar Morong, Jr. | State Street Bank |
| R. Richardson Pettit | &Trust Company |
| Walter E. Robb, III | |
| | |
| | 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 Global Fund Services |
| Senior Vice President and | P.O. Box 9699 |
| Chief Administrative Officer | Providence, Rhode Island |
| | 02940-9699 |
| | |
| Frances M. Guggino* | Primerica Shareholder Services |
| Controller | P.O. Box 9662 |
| | Providence, Rhode Island |
| | 02940-9662 |
| Robert I. Frenkel* | |
| Secretary and Chief Legal Officer | |
| | AUDITORS |
| * Affiliated Person of | KPMG LLP |
| Investment Manager | 757 Third Avenue |
| | New York, New York 10017 |
| † As of November 25, 2003 | |
| | |
Smith Barney Capital Preservation Fund II
This report is submitted for the general information shareholders of Smith Barney Capital Preservation Fund II. It is not for distribution to prospective investors unless accompanied by a current Prospectus for the Fund, which contains information concerning the Fund’s investment policies and expenses as well other pertinent information. If used as sales material after January 31, 2004, this report must be accompa nied by performance information for the most recently completed calendar quarter.
SMITH BARNEY CAPITAL PRESERVATION FUND II
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004
For complete information on any Smith Barney Mutual Funds, including management fees and expenses, call or write your financial professional for a free prospectus. Read it carefully before you invest or send money.
www.smithbarneymutualfunds.com
©2003 Citigroup Global Markets Inc.
Member NASD, SIPC
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 Mr. Stephen
Randolph Gross, 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 Mr. Gross as the Audit Committee's financial expert. Mr.
Gross is an "independent" Trustee pursuant to paragraph (a)(2) of Item
3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal
financial officer have concluded that the registrant's disclosure
controls and procedures (as defined in Rule 30a- 3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act")) are
effective as of a date within 90 days of the filing date of this
report that includes the disclosure required by this paragraph,
based on their evaluation of the disclosure controls and
procedures required by Rule 30a-3(b) under the 1940 Act and
15d-15(b) under the Securities Exchange Act of 1934
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940
Act) that occurred during the registrant's last fiscal half-year
(the registrant's second fiscal half-year in the case of an annual
report) that have materially affected, or are likely to materially
affect the registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Code of Ethics attached hereto.
(a)(2) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302
of the Sarbanes-Oxley Act of 2002
(b) Furnished.
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 Capital Preservation Fund II
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Smith Barney Capital Preservation Fund II
Date: December 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
(R. Jay Gerken)
Chief Executive Officer of
Smith Barney Capital Preservation Fund II
Date: December 22, 2003
By: /s/ ANDREW B. SHOUP
Chief Administrative Officer of
Smith Barney Capital Preservation Fund II
Date: December 22, 2003
