1. Significant Accounting Policies
Smith Barney Capital Preservation Fund II (“Fund”), a separate investment fund of Smith Barney Trust II (“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 following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). 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.
Notes to Financial Statements (continued)
(d) Investment Transactions and Investment Income. Security transactions are accounted for on trade date. 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. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Gains or losses on the sale of securities are calculated by using the specific identification method.
(e) Dividends and Distributions to Shareholders. Dividends and distributions to shareholders are recorded on the ex-dividend date; the Fund distributes dividends and capital gains, if any at least annually.The character of income and gains to be distributed is determined in accordance with income tax regulations which may differ from GAAP.
(f) Class Accounting. Class specific expenses are charged to each class; management fees, general fund expenses, income, gains and/or losses are allocated on the basis of relative net assets of each class or on another reasonable basis.
(g) Federal and Other Taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code 1986, as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute substantially all of its taxable income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates.
(h) Reclassification. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, $29,101 has been reclassified between paid-in capital and accumulated net investment loss as a result of permanent differences attributable to a taxable overdistribution of net investment income.This reclassification has no effect on net assets or net asset values per share.
2. Management 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 Fund’s average daily net assets during the Guarantee Period.This fee is calculated daily and paid monthly.
During the year ended October 31, 2004, SBFM waived a portion of its management fee in the amount of $45,586.
Citicorp Trust Bank, fsb. (“CTB”), another subsidiary of Citigroup, acts as the Fund’s transfer agent. PFPC Inc. (“PFPC”) and Primerica Shareholder Services (“PSS”), another subsidiary of Citigroup, act as the Fund’s sub-transfer agent. CTB receives account fees and asset-based fees that vary according to the size and type of account. PFPC and PSS are responsible for shareholder recordkeeping and financial processing for all shareholder accounts and are paid by CTB. For the year ended October 31, 2004, the Fund paid transfer agent fees of $591,472 to CTB and PSS.
Citigroup Global Markets Inc. (“CGM”) and PFS Distributors, Inc. both of which are subsidiaries of Citigroup, act as the Fund’s distributor.
On February 2, 2004, initial sales charges on Class L shares were eliminated. Effective April 29, 2004, the Fund’s Class L shares were renamed as Class C shares.
There is a maximum initial sales charge of 5.00% for Class A shares.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 C shares also have a 1.00% CDSC, which applies if redemption occurs within one year from purchase payment. In addition, 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 $1,000,000 in the aggregate.These purchases do not incur an initial sales charge.
22 Smith Barney Capital Preservation Fund II | 2004 Annual Report
Notes to Financial Statements (continued)
For the year ended October 31, 2004, CGM and its affiliates received no sales charges on sales of the Fund’s Class A and C shares, respectively. In addition, for the year ended October 31, 2004, CDSCs paid to CGM were approximately:
All officers and one Trustee of the Trust are employees of Citigroup or its affiliates and do not receive compensation from the Trust.
3. Investments
During the year ended October 31, 2004, the aggregate cost of purchases and proceeds from sales of investments (including maturities, but excluding short-term securities) were as follows:
|
| Purchases | | $ | 61,106,754 | |
|
| Sales | | | 268,054,698 | |
|
At October 31, 2004, the aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were as follows:
|
| Gross unrealized appreciation | | $ | 14,935,262 | |
| Gross unrealized depreciation | | | (3,189,345 | ) |
|
| Net unrealized appreciation | | $ | 11,745,917 | |
|
At October 31, 2004, the Fund had the following open futures contracts:
| | | Number of | | Expiration | | Basis | | Market | | Unrealized |
| Contracts to Buy | | Contracts | | Date | | Value | | Value | | Gain |
|
| S & P 500 Index | | 15 | | 12/04 | | $4,227,570 | | $4,238,625 | | $11,055 |
|
4. 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 C shares calculated at the annual rate of 0.25% of the average daily net assets of each respective class.The Fund also pays a distribution fee with respect to its Class B and C shares calculated at the annual rate of 0.75% of the average daily net assets for each class. For the year ended October 31, 2004, total Rule 12b-1 Distribution Plan fees incurred, which are accrued daily and paid monthly, were as follows:
| | | Class A | | Class B | | Class C | |
|
| Rule 12b-1 Distribution Plan Fees | | $115,295 | | $5,106,784 | | $660,050 | |
|
| |
| For the year ended October 31, 2004, total Transfer Agency Service expenses were as follows: |
| |
| | | Class A | | Class B | | Class C | |
|
| Transfer Agency Service Expenses | | $42,633 | | $434,193 | | $58,080 | |
|
| |
| For the year ended October 31, 2004, total Shareholder Communication expenses were as follows: |
| |
| | | Class A | | Class B | | Class C | |
|
| Shareholder Communication Expenses | | $8,133 | | $90,057 | | $11,640 | |
|
23 Smith Barney Capital Preservation Fund II | 2004 Annual Report
Notes to Financial Statements (continued)
5. Distributions Paid to Shareholders by Class
| | | Year Ended
October 31, 2004 | | Year Ended
October 31, 2003 | |
|
| |
| Net Investment Income | | | | | | | |
| Class A | | $ | 432,628 | | $ | 194,274 | |
| Class B | | | 413,047 | | | 1,665,776 | |
| Class C | | | 58,841 | | | 291,026 | |
|
| Total | | $ | 904,516 | | $ | 2,151,076 | |
|
6.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 Guarantor has earned triple-A ratings, the highest ratings available from Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and Fitch Ratings, Inc. These ratings are an essential part of the Guarantor’s ability to provide credit enhancement. 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 $4,671,010 for the year ended October 31, 2004. This fee is calculated daily and paid monthly. Please see the prospectus for more information relating to the guarantee arrangement.
7. Shares of Beneficial Interest
At October 31, 2004, 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:
| | | Year Ended
October 31, 2004 | | | Year Ended
October 31, 2003 | |
| |
|
| | | Shares | | Amount | | Shares | | | Amount | |
|
| |
| Class A | | | | | | | | | | | | | | |
| Shares sold | | 25,307 | | | $ | 299,039 | | | 205,301 | | | $ | 2,339,824 | |
| Shares issued on reinvestment | | 35,555 | | | | 414,922 | | | 18,220 | | | | 206,426 | |
| Shares repurchased | | (1,792,358 | ) | | | (21,068,234 | ) | | (1,747,177 | ) | | | (20,257,127 | ) |
|
| Net Decrease | | (1,731,496 | ) | | $ | (20,354,273 | ) | | (1,523,656 | ) | | $ | (17,710,877 | ) |
|
| |
| Class B | | | | | | | | | | | | | | |
| Shares sold | | — | | | | — | | | — | | | | — | |
| Shares issued on reinvestment | | 33,651 | | | $ | 392,554 | | | 148,496 | | | $ | 1,680,585 | |
| Shares repurchased | | (12,624,113 | ) | | (147,951,823 | ) | | (8,285,930 | ) | | | (95,512,467 | ) |
|
| Net Decrease | | (12,590,462 | ) | | $ | (147,559,269 | ) | | (8,137,434 | ) | | $ | (93,831,882 | ) |
|
| |
| Class C* | | | | | | | | | | | | | | |
| Shares sold | | — | | | | — | | | 85,325 | | | $ | 970,725 | |
| Shares issued on reinvestment | | 4,714 | | | $ | 54,960 | | | 26,088 | | | | 295,255 | |
| Shares repurchased | | (3,414,481 | ) | | | (39,981,673 | ) | | (3,077,884 | ) | | | (35,487,587 | ) |
|
| Net Decrease | | (3,409,767 | ) | | $ | (39,926,713 | ) | | (2,966,471 | ) | | $ | (34,221,607 | ) |
|
| * | Effective April 29, 2004 Class L shares were renamed as Class C shares. |
24 Smith Barney Capital Preservation Fund II | 2004 Annual Report
Notes to Financial Statements (continued)
8. Income Tax Information & Distribution to Shareholders
The tax character of distributions paid during the fiscal years ended October 31, were as follows:
| | | 2004 | | 2003 |
|
| Ordinary income | | $ 904,516 | | $ 2,151,076 |
|
As of October 31, 2004, the components of accumulated earnings on a tax basis were as follows:
|
| Undistributed long-term capital gains | | $ 11,572,765 | |
| Other book/tax temporary differences | | (113,918 | )* |
| Unrealized appreciation | | 11,756,972 | ** |
|
| Total accumulated earnings | | $ 23,215,819 | |
|
| * | Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized gains (losses) on certain futures con- tracts and the book/tax differences in amortization of organizational costs. |
| |
| ** | The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales. |
| |
9.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 were 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. Two former Trustees are currently receiving payments under the Plan. In addition, two other former Trustees elected to receive a lump sum payment under the Plan during this period.The Fund’s allocable share of the expenses of the Plan for the year ended October 31, 2004 and the related liability at October 31, 2004 was $10,585.
10. Additional Information
In connection with an investigation previously disclosed by Citigroup, the Staff of the Securities and Exchange Commission (“SEC”) has notified Citigroup Asset Management (“CAM”), the Citigroup business unit that includes the Fund’s investment manager and other investment advisory companies; Citicorp Trust Bank (“CTB”), an affiliate of CAM;Thomas W. Jones, the former CEO of CAM; and three other individuals, one of whom is an employee and the other two of whom are former employees of CAM, that the SEC Staff is considering recommending a civil injunctive action and/or an administrative proceeding against each of them relating to the creation and operation of an internal transfer agent unit to serve various CAM-managed funds.
In 1999, CTB entered the transfer agent business. CTB hired an unaffiliated subcontractor to perform some of the transfer agent services.The subcontractor, in exchange, had signed a separate agreement with CAM in 1998 that guaranteed investment management revenue to CAM and investment banking revenue to a CAM affiliate. The subcontractor’s business was later taken over by PFPC Inc., and at that time the revenue guarantee was eliminated and a one-time payment was made by the subcontractor to a CAM affiliate.
25 Smith Barney Capital Preservation Fund II | 2004 Annual Report
Notes to Financial Statements (continued)
CAM did not disclose the revenue guarantee when the boards of various CAM-managed funds hired CTB as transfer agent. Nor did CAM disclose to the boards of the various CAM-managed funds the one-time payment received by the CAM affiliate when it was made.
In addition, the SEC Staff has indicated that it is considering recommending action based on the adequacy of the disclosures made to the fund boards that approved the transfer agency arrangement, CAM’s initiation and operation of, and compensation for, the transfer agent business and CAM’s retention of, and agreements with, the subcontractor.
Citigroup is cooperating fully in the investigation and will seek to resolve the matter in discussions with the SEC Staff.
Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the Fund. As previously disclosed, CAM has already agreed to pay the applicable funds, primarily through fee waivers, a total of approximately $17 million (plus interest) that is the amount of the revenue received by Citigroup relating to the revenue guarantee.
11. Legal Matters
Beginning in June 2004, class action lawsuits alleging violations of the federal securities laws were filed against Citigroup Global Markets Inc. (the “Distributor”) and a number of its affiliates, including Smith Barney Fund Management LLC and Salomon Brothers Asset Management Inc (the “Advisers”), substantially all of the mutual funds managed by the Advisers, including the Fund, and directors or trustees of the Funds (collectively, the “Defendants”). The complaints alleged, among other things, that the Distributor created various undisclosed incentives for its brokers to sell Smith Barney and Salomon Brothers funds. In addition, according to the complaints, the Advisers caused the Funds to pay excessive brokerage commissions to the Distributor for steering clients towards proprietary funds. The complaints also alleged that the defendants breached their fiduciary duty to the Funds by improperly charging Rule 12b-1 fees and by drawing on fund assets to make undisclosed payments of soft dollars and excessive brokerage commissions.The complaints also alleged that the Funds failed to adequately disclose certain of the allegedly wrongful conduct.The complaints sought injunctive relief and compensatory and punitive damages, rescission of the Funds’ contracts with the Advisers, recovery of all fees paid to the Advisers pursuant to such contracts and an award of attorneys’ fees and litigation expenses.
On December 15, 2004, a consolidated amended complaint (the “Complaint”) was filed alleging substantially similar causes of action.While the lawsuit is in its earliest stages, to the extent that the Complaint purports to state causes of action against the Funds, Citigroup Asset Management believes the Funds have significant defenses to such allegations, which the Funds intend to vigorously assert in responding to the Complaint.
Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the Defendants in the future.
As of the date of this report, Citigroup Asset Management and the Funds believe that the resolution of the pending lawsuit will not have a material effect on the financial position or results of operations of the Funds or the ability of the Advisers and their affiliates to continue to render services to the Funds under their respective contracts.
26 Smith Barney Capital Preservation Fund II | 2004 Annual Report
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of 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, 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 two-year period then ended, 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 Trust’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 the standards of the Public Company Accounting Oversight Board (United States).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, 2004, by correspondence with the custodian and brokers. 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 Smith Barney Capital Preservation Fund II as of October 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 two-year period then ended and for the period September 24, 2002 through October 31, 2002, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 17, 2004
|
27 Smith Barney Capital Preservation Fund II | 2004 Annual Report
Additional Information (unaudited)
Information about Trustees and Officers
The business and affairs of Smith Barney Capital Preservation Fund II (“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.The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request by calling the Fund’s transfer agent (Citicorp Trust Bank, fsb. at 1-800-451-2010) or the Fund’s sub-transfer agents (PFPC at 1-800-451-2010 and Primerica Shareholder Services at 1-800-544-5445).
| Name, Address and Age | | Position(s)
Held with
Fund
| | Term of
Office* and
Length
of Time
Served | | Principal
Occupation(s)
During Past
Five Years | | | Number of
Portfolios In
Fund Complex
Overseen by
Trustee | | Other Board
Memberships
Held by
Trustee | |
|
| Non-Interested Trustees: | | | | | | | | | | | | |
| Elliott J. Berv | | Trustee | | Since 2001 | | Executive Vice President and Chief | | | 36 | | Board Member, | |
| c/o R. Jay Gerken | | | | | | Operations Officer, DigiGym Systems | | | | | American Identity Corp. | |
| Citigroup Asset Management | | | | | | (on-line personal training systems) | | | | | (doing business as | |
| (“CAM”) | | | | | | (since 2001); Chief Executive Officer, | | | | | Morpheus Technologies) | |
| 399 Park Avenue | | | | | | Rocket City Enterprises (internet | | | | | (biometric information | |
| New York, NY 10022 | | | | | | service company) (from 2000 to | | | | | management) (since | |
| DOB: 4/30/43 | | | | | | 2001); President, Catalyst | | | | | 2001; consultant since | |
| | | | | | | (consulting) (since 1984). | | | | | 1999); Director, Lapoint | |
| | | | | | | | | | | | Industries (industrial | |
| | | | | | | | | | | | filter company) (since | |
| | | | | | | | | | | | 2002); Director, | |
| | | | | | | | | | | | Alzheimer’s Association | |
| | | | | | | | | | | | (New England Chapter) | |
| | | | | | | | | | | | (since 1998). | |
| | | | | | | | | | | | | |
| Donald M. Carlton | | Trustee | | Since 2001 | | Consultant, URS Corporation | | | 31 | | Director, Temple-Inland | |
| c/o R. Jay Gerken | | | | | | (engineering) (since 1999); | | | | | (forest products) (since | |
| CAM | | | | | | former Chief Executive Officer, | | | | | 2003); American | |
| 399 Park Avenue | | | | | | Radian International LLC | | | | | Electric Power Co. | |
| New York, NY 10022 | | | | | | (engineering) (from 1996 to | | | | | (electric utility) (since | |
| DOB: 7/20/37 | | | | | | 1998), Member of Management | | | | | 1999); Director, Valero | |
| | | | | | | Committee, Signature Science | | | | | Energy (petroleum | |
| | | | | | | (research and development) (since | | | | | refining) (since 1999); | |
| | | | | | | 2000) | | | | | Director, National | |
| | | | | | | | | | | | Instruments Corp. | |
| | | | | | | | | | | | (technology) (since | |
| | | | | | | | | | | | 1994). | |
| | | | | | | | | | | | | |
| A. Benton Cocanougher | | Trustee | | Since 2001 | | Interim Chancellor, Texas A&M | | | 31 | | None | |
| c/o R. Jay Gerken | | | | | | University System (since 2003); | | | | | | |
| CAM | | | | | | former Special Advisor to the | | | | | | |
| 399 Park Avenue | | | | | | President, Texas A&M University | | | | | | |
| New York, NY 10022 | | | | | | (2002 to 2003); former Dean | | | | | | |
| DOB: 7/6/38 | | | | | | Emeritus and Wiley Professor, | | | | | | |
| | | | | | | Texas A&M University (since 2001); | | | | | | |
| | | | | | | former Dean and Professor of | | | | | | |
| | | | | | | Marketing, College and Graduate | | | | | | |
| | | | | | | School of Business of Texas A&M | | | | | | |
| | | | | | | University (from 1987 to 2001) | | | | | | |
28 Smith Barney Capital Preservation Fund II | 2004 Annual Report
Additional Information (unaudited) (continued)
| Name, Address and Age | | Position(s)
Held with
Fund
| | Term of
Office* and
Length
of Time
Served | | Principal
Occupation(s)
During Past
Five Years | | Number of
Portfolios In
Fund Complex
Overseen by
Trustee | | Other Board
Memberships
Held by
Trustee | |
|
| 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, | |
| CAM | | | | | | 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). | |
| DOB: 5/16/43 | | | | | | 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 | | Chief Executive Officer, HLB Gross Collins, | | 31 | | Director, United Telesis, | |
| c/o R. Jay Gerken | | | | | | P.C. (accounting firm) (since 1979); | | | | Inc. (telecommunications) | |
| CAM | | | | | | Partner, Capital Investment Advisory | | | | (since 1997); Director, | |
| 399 Park Avenue | | | | | | Partners (consulting) (2000 to | | | | eBank.com, Inc. (1997– | |
| New York, NY 10022 | | | | | | 2002); former Chief Operating Officer, | | | | 2004); Director, Andersen | |
| DOB: 10/8/47 | | | | | | General Media Communications, Inc. | | | | Calhoun, Inc. (assisted | |
| | | | | | | (from March 2003 to August 2003); | | | | living) (since 1987); | |
| | | | | | | former Managing Director, Fountainhead | | | | former Director, Charter | |
| | | | | | | Ventures, LLC (consulting) (from 1998 to | | | | Bank, Inc. (from 1987 to | |
| | | | | | | 2003); former Secretary, Carint N.A. | | | | 1997); former Director, | |
| | | | | | | (manufacturing) (1988–2002); former | | | | Yu Save, Inc. (internet | |
| | | | | | | Treasurer, Hank Aaron Enterprises | | | | company) (from 1998 to | |
| | | | | | | (fast food franchise) (from 1985 | | | | 2000); former Director, | |
| | | | | | | to 2001); Treasurer, Coventry Limited, | | | | Hotpalm, Inc. (wireless | |
| | | | | | | Inc. (since 1985). | | | | applications) (from 1998 | |
| | | | | | | | | | | to 2000). | |
| | | | | | | | | | | | |
| Diana R. Harrington | | Trustee | | Since 1992 | | Professor, Babson College | | 36 | | None | |
| c/o R. Jay Gerken | | | | | | (since 1993). | | | | | |
| CAM | | | | | | | | | | | |
| 399 Park Avenue | | | | | | | | | | | |
| New York, NY 10022 | | | | | | | | | | | |
| DOB: 3/25/40 | | | | | | | | | | | |
| | | | | | | | | | | | |
| Susan B. Kerley | | Trustee | | Since 1992 | | Consultant, Strategic Management | | 36 | | Director, Eclipse Funds | |
| c/o R. Jay Gerken | | | | | | Advisors, LLC/Global Research | | | | (currently supervises 12 | |
| CAM | | | | | | Associates, Inc. (investment | | | | investment companies | |
| 399 Park Avenue | | | | | | consulting) (since 1990). | | | | in fund complex) (since | |
| New York, NY 10022 | | | | | | | | | | 1990). | |
| DOB: 8/12/51 | | | | | | | | | | | |
29 Smith Barney Capital Preservation Fund II | 2004 Annual Report
Additional Information (unaudited) (continued)
Name, Address and Age | | Position(s)
Held with
Fund
| | Term of
Office* and
Length
of Time
Served | | Principal
Occupation(s)
During Past
Five Years | | Number of
Portfolios In
Fund Complex
Overseen by
Trustee | | Other Board
Memberships
Held by
Trustee |
|
| Alan G. Merten | | Trustee | | Since 2001 | | President, George Mason | | 31 | | Former Director, Comshare, |
| c/o R. Jay Gerken | | | | | | University (since 1996). | | | | Inc. (information |
| CAM | | | | | | | | | | technology) (since 1985 |
| 399 Park Avenue | | | | | | | | | | to 2003); Director, |
| New York, NY 10022 | | | | | | | | | | DigitalNet Holdings, Inc. |
| DOB: 12/27/41 | | | | | | | | | | (since 2003). |
| | | | | | | | | | | |
| R. Richardson Pettit | | Trustee | | Since 2001 | | Professor of Finance, University | | 31 | | None |
| c/o R. Jay Gerken | | | | | | of Houston (from 1977 to 2002); | | | | |
| CAM | | | | | | independent consultant | | | | |
| 399 Park Avenue | | | | | | (since 1984). | | | | |
| New York, NY 10022 | | | | | | | | | | |
| DOB: 7/6/42 | | | | | | | | | | |
| | | | | | | | | | | |
| Interested Trustee: | | | | | | | | | | |
| | | | | | | | | | | |
| R. Jay Gerken* | | Chairman, | | Since 2002 | | Managing Director of Citigroup | | 221 | | N/A |
| CAM | | President, | | | | Global Markets (“CGM”) (since | | | | |
| 399 Park Avenue | | and Chief | | | | 1996); Chairman, President, and | | | | |
| New York, NY 10022 | | Executive | | | | Chief Executive Officer of Smith | | | | |
| DOB: 4/5/51 | | Officer | | | | Barney Fund Management LLC | | | | |
| | | | | | | (“SBFM”), Travelers Investment | | | | |
| | | | | | | Advisers, 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 Vice | | Since 2003 | | Director of CAM; Chief | | N/A | | N/A |
| CAM | | President and | | | | Administrative Officer of mutual | | | | |
| 125 Broad Street | | Chief | | | | funds associated with Citigroup | | | | |
| New York, NY 10004 | | Administrative | | | | Inc.; Head of International Funds | | | | |
| DOB: 8/1/56 | | Officer | | | | 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 | | | | |
| | | | | | | (from 1998 to 2000). | | | | |
| |
| Frances M. Guggino | | Chief | | Since 2004 | | Vice President of CAM, Chief | | N/A | | N/A |
| CAM | | Financial | | | | Financial Officer and Treasurer | | | | |
| 125 Broad Street | | Officer | | | | of certain mutual funds associated | | | | |
| New York, NY 10004 | | and | | | | with Citigroup; Controller of | | | | |
| DOB: 9/8/57 | | Treasurer | | | | certain mutual funds associated | | | | |
| | | | | | | with Citigroup. | | | | |
30 Smith Barney Capital Preservation Fund II | 2004 Annual Report
Additional Information (unaudited) (continued)
Name, Address and Age | | Position(s)
Held with
Fund
| | Term of
Office* and
Length
of Time
Served | | Principal
Occupation(s)
During Past
Five Years | | Number of
Portfolios In
Fund Complex
Overseen by
Trustee | | Other Board
Memberships
Held by
Trustee |
|
| Andrew Beagley | | Chief Anti- | | Since 2002 | | Director of CGM (since 2000); | | N/A | | N/A |
| CAM | | Money | | | | Director of Compliance, North | | | | |
| 399 Park Avenue | | Laundering | | | | America, CAM (since 2000); | | | | |
| 4th Floor | | Compliance | | | | Chief Anti-Money Laundering | | | | |
| New York, NY 10022 | | Officer | | | | Compliance Officer, Chief | | | | |
| DOB: 10/9/62 | | | | | | Compliance Officer and Vice | | | | |
| | | | | | | | | | | |
| | | Chief | | Since 2004 | | President of certain mutual | | | | |
| | | Compliance | | | | funds associated with Citigroup; | | | | |
| | | Officer | | | | Director of Compliance, Europe, | | | | |
| | | | | | | the Middle East and Africa. | | | | |
| | | | | | | Citigroup Asset Management | | | | |
| | | | | | | (from 1999 to 2000); Compliance | | | | |
| | | | | | | Officer, SBFM, CFM, TIA Salomon | | | | |
| | | | | | | Brothers Asset Management Limited, | | | | |
| | | | | | | Smith Barney Global Capital | | | | |
| | | | | | | Management Inc., Salomon | | | | |
| | | | | | | Brothers Asset Management Asia | | | | |
| | | | | | | Pacific Limited (from 1997 | | | | |
| | | | | | | to 1999). | | | | |
| | | | | | | | | | | |
| Wendy S. Setnicka | | Controller | | Since 2004 | | Vice President of CGM; | | N/A | | N/A |
| CAM | | | | | | Controller of certain mutual funds | | | | |
| 125 Broad Street | | | | | | associated with Citigroup. | | | | |
| New York, NY 10004 | | | | | | | | | | |
| DOB: 6/30/64 | | | | | | | | | | |
| | | | | | | | | | | |
| 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 | | | | |
| DOB: 12/12/54 | | | | | | with Citigroup Inc., Chief Legal | | | | |
| | | | | | | Officer of mutual funds associated | | | | |
| | | | | | | with Citigroup Inc. | | | | |
|
| * | Each Director 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. |
| |
31 Smith Barney Capital Preservation Fund II | 2004 Annual Report
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income distributions paid by Smith Barney Capital Preservation Fund II during the taxable year ended October 31, 2004:
| | Record Date: | | 12/15/2003 | |
| | Payable Date: | | 12/17/2003 | |
| | Qualified Dividend Income for Individuals | | 100.00% | |
| | Dividends Qualifying for the Dividends Received Deduction for Corporations | | 63.80% | |
| | Interest from Federal Obligations | | 92.74% | |
The law varies in each State as to whether and what percentage of dividend income attributable to Federal obligations is exempt from State income tax. We recommend that you consult with your Tax adviser to determine if any portion of the dividends you received is exempt from state income taxes.
Please retain this information for your records.
32 Smith Barney Capital Preservation Fund II | 2004 Annual Report
SMITH BARNEY
CAPITAL PRESERVATION FUND II |
| | | | |
| | TRUSTEES | | INVESTMENT MANAGER |
| | Elliott J. Berv | | Smith Barney Fund |
| | Donald M. Carlton | | Management LLC |
| | A. Benton Cocanougher | | |
| | Mark T. Finn | | DISTRIBUTOR |
| | R. Jay Gerken, CFA,* | | Citigroup Global Markets Inc. |
| | Chairman | | PFS Distributors, Inc. |
| | Stephen Randolph Gross | | |
| | Diana R. Harrington | | |
| | Susan B. Kerley | | CUSTODIAN |
| | Alan G. Merten | | State Street Bank |
| | R. Richardson Pettit | | andTrust Company |
| | | | |
| | OFFICERS | | TRANSFER AGENT |
| | R. Jay Gerken, CFA | | Citicorp Trust Bank, fsb. |
| | President and | | 125 Broad Street, 11th Floor |
| | Chief Executive Officer | | New York, New York 10004 |
| | | | |
| | Andrew B. Shoup | | SUB-TRANSFER AGENT |
| | Senior Vice President and | | PFPC Inc. |
| | Chief Administrative Officer | | P.O. Box 9699 |
| | | | Providence, Rhode Island |
| | Frances M. Guggino | | 02940-9699 |
| | Chief Financial Officer | | |
| | and Treasurer | | Primerica Shareholder Services |
| | | | P.O. Box 9662 |
| | Andrew Beagley | | Providence, Rhode Island |
| | Chief Anti-Money Laundering | | 02940-9662 |
| | Compliance Officer and | | |
| | Chief Compliance Officer | | |
| | | | |
| | Wendy S. Setnicka | | |
| | Controller | | |
| | | | |
| | Robert I. Frenkel | | |
| | Secretary and Chief Legal Officer | | |
| | | | |
| |
| | |
| | * Affiliated Person of | | |
| | Investment Manager | | |
Smith Barney Trust II
| | | |
Smith Barney Capital Preservation Fund II
The fund is a separate investment fund of Smith Barney Trust II,
a Massachusetts business trust.
| | This report is submitted for the general information of shareholders of Smith Barney Trust II — Smith Barney Capital Preservation Fund II. SMITH BARNEY CAPITAL PRESERVATION FUND II
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004 |
| | |
| The Fund files its complete schedule of portfolio holdings with Securities Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call 1-800-451-2010. | | |
| | | |
| Information on how the fund voted proxies relating to portfolio securities during the 12 month period ended June 30, 2004 and a description of the policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling 1-800-451-2010, (2) on the fund’s website at www.citigroupAM.com and (3) on the SEC’s website at www.sec.gov. | | ©2004 Citigroup Global Markets Inc.
Member NASD, SIPC
FD02665 12/04 | 04-7553 |
| | | |
| 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 Directors of the registrant has determined that Robert |
| | A. Frankel, 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. Frankel as the Audit Committee’s financial |
| | expert. Mr. Frankel is an “independent” Director pursuant to |
| | paragraph (a)(2) of Item 3 to Form N-CSR. |
| |
| |
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
| |
| |
| | | (a)
| Audit Fees for the Smith Barney Trust II were $71,000 and $64,000 for the years ended 10/31/04 and 10/31/03, respectively.
|
| | | (b)
| Audit-Related Fees for the Smith Barney Trust II were $0 and $46,000 for the years ended 10/31/04 and 10/31/03.
|
| | | (c)
| Tax Fees for Smith Barney Trust II of $7,000 and $7,000 for the years ended 10/31/04 and 10/31/03. 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 Trust II.
|
| | | (d)
| All Other Fees for Smith Barney Trust II of $0 and $0 for the years ended 10/31/04 and 10/31/03.
|
| | | (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. |
| | | | |
| | | | (2) For the Smith Barney Trust II, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for the years ended 10/31/04 and 10/31/03; Tax Fees were 100% and 100% for the years ended 10/31/04 and 10/31/03; and Other Fees were 100% and 100% for the years ended 10/31/04 and 10/31/03.
|
| | | (f)
| N/A
|
| | | (g)
| Non-audit fees billed by the Accountant for services rendered to Smith Barney Trust II and CAM and any entity controlling, controlled by, or under common control with CAM that provides ongoing services to Smith Barney Trust II were $0 and $0 for the years ended 10/31/04 and 10/31/03.
|
| | | (h)
| Yes. The Smith Barney Trust II’s 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 Trust II 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. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
| |
| | Not applicable. | | |
| |
| |
| ITEM 10. | 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 11. | 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 Trust II
| By: | /s/ R. Jay Gerken |
| | R. Jay Gerken |
| | Chief Executive Officer of |
| | Smith Barney Trust II |
Date: January 7, 2005
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 Trust II |
Date: January 7, 2005
| By: | /s/ Frances M. Guggino |
| | (Frances M. Guggino) |
| | Chief Financial Officer of |
| | Smith Barney Trust II |
Date: January 7, 2005
