UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05034
Salomon Funds Trust
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Salomon Brothers Asset Management Inc.
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: December 31
Date of reporting period: December 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
December 31, 2004
ANNUAL
REPORT
Salomon Brothers Asset Management
• National Tax Free Bond Fund | ||
Salomon Brothers | • California Tax Free Bond Fund | |
• New York Tax Free Bond Fund | ||
• Mid Cap Fund | ||
Table of Contents
Letter from the Chairman | 1 | |
Salomon Funds Trust | ||
National Tax Free Bond Fund: | ||
Manager Overview | 2 | |
Fund at a Glance | 4 | |
Fund Expenses | 5 | |
Historical and Fund Performance | 7 | |
California Tax Free Bond Fund: | ||
Manager Overview | 8 | |
Fund at a Glance | 10 | |
Fund Expenses | 11 | |
Historical and Fund Performance | 13 | |
New York Tax Free Bond Fund: | ||
Manager Overview | 14 | |
Fund at a Glance | 16 | |
Fund Expenses | 17 | |
Historical and Fund Performance | 19 | |
Mid Cap Fund: | ||
Manager Overview | 20 | |
Fund at a Glance | 22 | |
Fund Expenses | 23 | |
Historical and Fund Performance | 25 | |
Schedules of Investments | 27 | |
Statements of Assets and Liabilities | 39 | |
Statements of Operations | 40 | |
Statements of Changes in Net Assets | 41 | |
Financial Highlights. | 45 | |
Notes to Financial Statements | 53 | |
Report of Independent Registered Public Accounting Firm | 62 | |
Additional Information | 63 | |
Important Tax Information | 66 |
Letter from the Chairman
Dear Shareholder, Despite sharply rising oil prices, threats of terrorism, geopolitical concerns and uncertainties surrounding the presidential election, the U.S. economy continued to expand during the reporting period. Following a robust 4.5% gain in the first quarter of 2004, gross domestic product (“GDP”)i growth was 3.3% in the second quarter of the year.This decline was largely attributed to higher energy prices. However, third quarter 2004 GDP growth rose a strong 4.0% .While fourth quarter GDP figures have not yet been released, continued growth is expected. Turning to the financial markets, stocks in both the U.S. and abroad rallied sharply during the fourth quarter of 2004, helping to produce solid gains for the year. With the uncertainty of the presidential election behind them, coupled with falling oil prices, investors were drawn to the equity markets.The overall bond market also generated positive returns during the fiscal year.This was surprising to many, given the economic expansion and five interest rate hikes by the Federal Reserve Board (“Fed”)ii. | ![]() R. Jay Gerken, CFA |
Please read on for a more detailed look at prevailing economic and market conditions during the funds’ fiscal year and to learn how those conditions have affected fund performance.
Information About Your Fund
As you may be aware, several issues in the mutual fund industry have recently come under the scrutiny of federal and state regulators.The fund’s Adviser and some of its affiliates have received requests for information from various government regulators regarding market timing, late trading, fees, and other mutual fund issues in connection with various investigations.The regulators appear to be examining, among other things, the fund’s response to market timing and shareholder exchange activity, including compliance with prospectus disclosure related to these subjects.The funds’ have been informed that the Adviser and its affiliates are responding to those information requests, but are not in a position to predict the outcome of these requests and investigations.
As previously disclosed by Citigroup, the Staff of the Securities and Exchange Commission (“SEC”) has notified Citigroup Asset Management (“CAM”) and Citicorp Trust Bank (“CTB”), an affiliate of CAM, that the Staff is considering recommending a civil injunctive action and/or an administrative proceeding against CAM, CTB, the former CEO of CAM, two former employees and a current employee of CAM, relating to the creation, operation and fees of an internal transfer agent unit that serves various CAM-managed funds. Citigroup is cooperating with the SEC and will seek to resolve this matter in discussion 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 funds. For further information, please see the “Additional Information” note in the Notes to the Financial Statements included in this report.
As always, thank you for your confidence in our stewardship of your assets.We look forward to helping you continue to meet your financial goals.
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx3x2.jpg)
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
January 26, 2005
1
SALOMON FUNDS TRUST
National Tax Free Bond Fund
PERFORMANCE REVIEW
For the 12 months ended December 31, 2004, Class A shares of the Salomon Brothers National Tax Free Bond Fund, excluding sales charges, returned 3.28% .These shares underperformed the fund’s unmanaged benchmark, the Lehman Brothers Municipal 4 Years Plus Bond Indexiii, which returned 4.97% for the same period.They also underperformed the Lipper General Municipal Debt Funds Category Average1, which was 3.70% .
Certain investors may be subject to the federal Alternative Minimum Tax, and state and local taxes may apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.
MARKET AND ECONOMIC OVERVIEW
Despite rising interest rates, surging oil prices and an expanding economy, the overall municipal bond market generated solid results in 2004, with the Lehman Municipal Bond Indexiv returning 4.48% .As the year began, it was widely expected that the Fed would have to raise interest rates to ward off a potential increase in inflation.This came to pass in late June, as the Fed raised its target for the federal funds ratev by 0.25% to 1.25% . This was followed by four subsequent rate hikes, bringing the federal funds rate to 2.25% by the end of the year. After the end of the fund’s reporting period, at their February meeting, the Fed once again raised the target rate by 0.25% to 2.50% .
As one would expect, the short end of the yield curve rose in conjunction with the Fed rate hikes. However, intermediate and longer-term bond yields surprisingly did not rise, but were stable or declined slightly.As such, the overall yield curve flattened as the difference between short and long term yields narrowed during the year. This flattening also occurred in the municipal bond market, but to a lesser extent.
New municipal bond issuance from state and local governments was approximately $358 billion in 2004.While this was roughly 6.0% less than 2003’s record level, it was still the third largest amount of new issuance during a calendar year. New supply was generally met with strong demand, in particular by institutions and property and casualty insurers.As was the case in the Treasury market, the shorter end of the municipal bond curve generated
PERFORMANCE SNAPSHOT | ||||
AS OF DECEMBER 31, 2004 | ||||
(excluding sales charges) | ||||
(unaudited) | ||||
6 Months | 12 Months | |||
Class A Shares—National | ||||
Tax Free Bond Fund | 4.78 | % | 3.28 | % |
Lehman Brothers Municipal | ||||
4 Years Plus Bond Index | 5.79 | % | 4.97 | % |
Lipper General Municipal | ||||
Debt Funds Category Average | 4.71 | % | 3.70 | % |
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.sbam.com.
The 30-Day SEC Yield for Class A shares was 3.31% . Current reimbursements and/or fee waivers, if any, are voluntary and may be reduced or terminated at any time. Absent these fee waivers and/or expense reimbursements, the fund’s yield would have been 2.73% and the total return would have been lower.
Class A share returns assume the reinvestment of income dividends and capital gains distributions at net asset value and the deduction of all fund expenses. Returns have not been adjusted to include sales charges that may apply when shares are purchased or the deduction of taxes that a shareholder would pay on fund distributions. Excluding sales charges, Class B shares returned 4.38%, Class C shares returned 4.60% and Class O shares returned 4.91% over the six months ended December 31, 2004. Excluding sales charges, Class B shares returned 2.51%, Class C shares returned 2.85% and Class O shares returned 3.54% over the 12 months ended December 31, 2004.
Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 302 funds for the six-month period and among the 297 funds for the 12-month period in the fund’s Lipper category and excluding sales charges.
1 | Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 297 funds in the fund’s Lipper category and excluding sales charges. |
2
the weakest results, while the longer end of the curve outperformed. From a credit quality perspective, lower quality municipals outperformed their higher quality counterparts.
CONTRIBUTORS TO PERFORMANCE
As we began 2004, the fund was defensively positioned in anticipation of the Fed raising interest rates.As such, the fund’s durationvi was shorter than that of the benchmark and we favored higher quality securities. In addition, we emphasized the 10-year portion of the yield curve and focused on premium coupon securities while avoiding discount coupons.vii
This strategy produced mixed results.While our exposure to 10-year yields was beneficial as they outperformed shorter maturity bonds, an underweight to longer term securities detracted from relative results. In addition, our high quality bias was not rewarded by the market, as more speculative issues outperformed. In particular, our lack of tobacco and airline securities hurt relative results.
However, given the market environment, we did not believe the risks associated with these securities warranted their purchase.
At the end of the reporting period, the fund’s portfolio continued to be defensively positioned given our expectations for the Fed to raise rates further in 2005.
Thank you for your investment in the Salomon Brothers National Tax Free Bond Fund.As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund’s investment goals.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx5x1.jpg)
Robert E.Amodeo | John Mooney |
Co-Portfolio Manager | Co-Portfolio Manager |
February 3, 2005
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2004, and are subject to change and may not be representative of the portfolio managers’ current or future investments.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager’s current or future investments. The fund’s top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: General Obligation (38.3%), Transportation (24.8%), Healthcare (6.4%), Miscellaneous (5.9%) and Water & Sewer (5.7%) . The fund’s portfolio composition is subject to change at any time.
RISKS: The Fund is a non-diversified mutual fund. This means that the fund may invest a relatively high percentage of its assets in the obligations of a limited number of issuers. Investment in bonds are subject to interest rate and credit risks. As interest rates rise, bond prices fall, reducing the value of the fund’s share price. Investors should consider the greater risk inherent in these policies when compared with a more diversified mutual fund. A portion of the income may be subject to the federal alternative minimum tax; capital gains, if any, are subject to federal, state and local income taxes. While it is expected that a substantial portion of the dividends paid to shareholders of the fund will be exempt from federal personal income taxes, portions of such dividends from time to time may be taxable. Salomon Brothers does not provide tax or legal advice. Please consult with your tax or legal adviser. The fund may invest in derivatives, which can be illiquid and harder to value, especially in declining markets. A small investment in certain derivatives may have a potentially large impact on the fund’s performance. Derivatives can disproportionately increase losses as stated in the prospectus. The fund’s objectives may be changed without shareholder approval.
All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
i | Gross domestic product is a market value of goods and services produced by labor and property in a given country. |
ii | The Fed is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
iii | The Lehman Brothers Municipal 4 Years Plus Bond Index is a broad measure of the municipal bond market with maturities of at least four years. |
iv | The Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond market with maturities of at least one year. |
v | The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. |
vi | Duration is a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates. |
vii | Coupon is the periodic interest payment made to the bondholders during the life of the bond. |
3
Salomon Brothers National Tax Free Bond Fund
Fund at a Glance
(unaudited)
Investment Breakdown
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx6x1.jpg)
4
Salomon Brothers National Tax Free Bond Fund
Fund Expenses
(unaudited)
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on July 1, 2004 and held for the six months ended December 31, 2004.
Actual Expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.
Based on Actual Total Return(1)
Actual | |||||||
Total Return | Beginning | Ending | Annualized | Expenses | |||
Without | Account | Account | Expense | Paid During | |||
Sales Charges(2) | Value | Value | Ratio | the Period(3) | |||
Class A | $1,000.00 | $1,047.80 | $3.86 | ||||
Class B | 1,000.00 | 1,043.80 | 7.71 | ||||
Class C(4) | 1,000.00 | 1,046.00 | 6.43 | ||||
Class O | 1,000.00 | 1,049.10 | 2.58 | ||||
(1) | For the six months ended December 31, 2004. |
(2) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable contingent deferred sales charges (CDSC) with respect to Class B and C shares. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of volun- tary fee waivers and/or expense reimbursements, the total return would have been lower. |
(3) | Expenses (net of voluntary fee waiver) are equal to each Class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. |
(4) | On April 29, 2004 Class 2 shares were renamed as Class C shares. |
5
Salomon Brothers National Tax Free Bond Fund
Fund Expenses
(unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Based on Hypothetical Total Return(1)
Annualized | ||||||||||
Hypothetical | Expense | |||||||||
Total Return | Ratio | |||||||||
Class A | 5.00 | % | $ | 1,000.00 | $ | 1,021.37 | 0.75 | % | $ | 3.81 |
Class B | 5.00 | 1,000.00 | 1,017.60 | 1.50 | 7.61 | |||||
Class C(3) | 5.00 | 1,000.00 | 1,018.85 | 1.25 | 6.34 | |||||
Class O | 5.00 | 1,000.00 | 1,022.62 | 0.50 | 2.54 | |||||
(1) | For the six months ended December 31, 2004. |
(2) | Expenses (net of voluntary fee waiver) are equal to each Class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. |
(3) | On April 29, 2004 Class 2 shares were renamed as Class C shares. |
6
SALOMON FUNDS TRUST
National Tax Free Bond Fund
Historical Performance (unaudited)
Comparison of $10,000 Investment in the
Salomon Brothers National Tax Free Bond Fund — Class A Shares vs
the Lehman Brothers Municipal 4 Years Plus Bond Index
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx9x1.jpg)
All figures represent past performance and are not a guarantee of future results. Performance above reflects returns after deduction of applicable maximum sales charge. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown also do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower.
The graph above depicts the performance of the National Tax Free Bond Fund versus the Lehman Brothers Municipal 4 Years Plus Bond Index.(1) It is important to note that the National Tax Free Bond Fund is a professionally managed mutual fund while the index is not available for investment and is unmanaged. The comparison is shown for illustrative purposes only.
Average Annual Total Returns for the Period Ended December 31, 2004† (unaudited)
Class A Shares | Twelve Months | Three Year | Five Year | Since Inception (8/17/95) | ||||
Without Sales Charges(2) | 3.28 | % | 6.21 | % | 6.79 | % | 6.58 | % |
With Sales Charges(3) | -0.88 | % | 4.79 | % | 5.92 | % | 6.11 | % |
Class B Shares | Since Inception (10/12/01) | |||||||
Without Sales Charges(2) | 2.51 | % | 5.44 | % | N/A | 4.37 | % | |
With Sales Charges(3) | -1.47 | % | 4.84 | % | N/A | 4.09 | % | |
Class C Shares(4) | Since Inception (11/19/01) | |||||||
Without Sales Charges(2) | 2.85 | % | 5.73 | % | N/A | 4.80 | % | |
With Sales Charges(3) | 1.85 | % | 5.73 | % | N/A | 4.80 | % | |
Class O Shares | Since Inception (11/19/01) | |||||||
Without Sales Charges(2) | 3.54 | % | 6.52 | % | N/A | 5.59 | % | |
With Sales Charges(3) | 3.54 | % | 6.52 | % | N/A | 5.59 | % | |
See page 26 for all footnotes.
7
SALOMON FUNDS TRUST
California Tax Free Bond Fund
PERFORMANCE REVIEW
For the 12 months ended December 31, 2004, Class A shares of the Salomon Brothers California Tax Free Bond Fund, excluding sales charges, returned 3.19% .These shares underperformed the fund’s unmanaged benchmark, the Lehman Brothers California 4 Years Plus Bond Indexiii, which returned 6.49% for the same period.They also underperformed the Lipper California Municipal Debt Funds Category Average1, which was 4.34% .
Certain investors may be subject to the federal Alternative Minimum Tax, and state and local taxes may apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.
MARKET AND ECONOMIC OVERVIEW
Despite rising interest rates, surging oil prices and an expanding economy, the overall municipal bond market generated solid results in 2004, with the Lehman Municipal Bond Indexiv returning 4.48% .As the year began, it was widely expected that the Fed would have to raise interest rates to ward off a potential increase in inflation.This came to pass in late June, as the Fed raised its target for the federal funds ratev by 0.25% to 1.25% . This was followed by four subsequent rate hikes, bringing the federal funds rate to 2.25% by the end of the year. After the end of the fund’s reporting period, at their February meeting, the Fed once again raised the target rate by 0.25% to 2.50% .
As one would expect, the short end of the yield curve rose in conjunction with the Fed rate hikes. However, intermediate and longer-term bond yields surprisingly did not rise, but were stable or declined slightly.As such, the overall yield curve flattened as the difference between short and long term yields narrowed during the year. This flattening also occurred in the municipal bond market, but to a lesser extent.
New municipal bond issuance from state and local governments was approximately $358 billion in 2004.While this was roughly 6.0% less than 2003’s record level, it was still the third largest amount of new issuance during a calendar year. New supply was generally met with strong demand, in particular by institutions and property and casualty insurers.As was the case in the Treasury market, the shorter end of the municipal bond curve generated the weakest results, while the longer end of the curve outperformed. From a credit quality perspective, lower quality municipals outperformed their higher quality counterparts.
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2004
(excluding sales charges)
(unaudited)
6 Months | 12 Months | |||
Class A Shares—California | ||||
Tax Free Bond Fund | 4.55 | % | 3.19 | % |
Lehman Brothers California | ||||
4 Years Plus Bond Index | 6.79 | % | 6.49 | % |
Lipper California Municipal | ||||
Debt Funds Category Average | 5.33 | % | 4.34 | % |
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.sbam.com.
The 30-Day SEC Yield for Class A shares was 2.89% . Current reimbursements and/or fee waivers, if any, are voluntary and may be reduced or terminated at any time. Absent these fee waivers and/or expense reimbursements, the fund’s yield would have been 1.80% and the total return would have been lower.
Class A share returns assume the reinvestment of income dividends and capital gains distributions at net asset value and the deduction of all fund expenses. Returns have not been adjusted to include sales charges that may apply when shares are purchased or the deduction of taxes that a shareholder would pay on fund distributions. Excluding sales charges, Class B shares returned 4.16%, Class O shares returned 4.55% and Class C shares returned 4.29% over the six months ended December 31, 2004. Excluding sales charges, Class B shares returned 2.42%, Class O shares returned 3.35% and Class C shares returned 2.67% over the 12 months ended December 31, 2004.
Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 125 funds for the six-month period and among the 125 funds for the 12-month period in the fund’s Lipper category and excluding sales charges.
1 | Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 125 funds in the fund’s Lipper category and excluding sales charges. |
8
In California, a financial crisis was averted as it was able to refinance a large portion of its short-term debt obligations that were nearing maturity.This, in turn, helped the state’s credit rating to be upgraded by both Moody’s and Standard and Poor’s.
CONTRIBUTORS TO PERFORMANCE
As we began 2004, the fund was defensively positioned in anticipation of the Fed raising interest rates.As such, the fund’s durationvi was shorter than that of the benchmark and we favored higher quality securities. In addition, we emphasized the 10-year portion of the yield curve and focused on premium coupon securities while avoiding discount coupons.vii
This strategy produced mixed results.While our exposure to 10-year yields was beneficial as they outperformed shorter maturity bonds, an underweight to longer term securities detracted from relative results. In addition, our high quality bias was not rewarded by the market, as more speculative issues outperformed. In particular, our lack of tobacco and airline securities hurt relative results. However, given the market environment, we did not believe the risks associated with these securities warranted their purchase.
At the end of the reporting period, the fund’s portfolio continued to be defensively positioned given our expectations for the Fed to raise rates further in 2005.
Thank you for your investment in Salomon Brothers California Tax Free Bond Fund.As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund’s investment goals.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx11x1.jpg)
Robert E.Amodeo | John Mooney |
Co-Portfolio Manager | Co-Portfolio Manager |
February 3, 2005
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2004, and are subject to change and may not be representative of the portfolio managers’ current or future investments.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio managers’ current or future investments. The fund’s top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Water & Sewer (32.2%), General Obligation (27.5%), Transportation (25.2%), Housing (11.1%), Miscellaneous (2.5%) . The fund’s portfolio composition is subject to change at any time.
RISKS: The fund is not diversified, which means that it is permitted to invest a higher percentage of its assets in any one issuer than a diversified fund. This may magnify the fund’s losses from events affecting a particular issuer. Investment in bonds are subject to interest rate and credit risks. As interest rates rise, bond prices fall, reducing the value of the fund’s share price. Certain investors may be subject to the federal Alternative Minimum Tax (“AMT”) and state and local taxes may apply. Capital gains, if any, are fully taxable. Fund income earned by non-California residents may be subject to certain taxes. While it is expected that a substantial portion of the dividends paid to shareholders of the fund will be exempt from federal, state and local personal income taxes, portions of such dividends from time to time may be taxable. Salomon Brothers does not provide tax or legal advice. Please consult with your tax or legal adviser. The fund may invest in derivatives, which can be illiquid and harder to value, especially in declining markets. A small investment in certain derivatives may have a potentially large impact on the fund’s performance. Derivatives can disproportionately increase losses as stated in the prospectus. The fund’s objectives may be changed without shareholder approval.
All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
i | Gross domestic product is a market value of goods and services produced by labor and property in a given country. |
ii | The Fed is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
iii | The Lehman Brothers California 4-Year Plus Bond Index is a broad measure of the California municipal bond market with maturities of at least four years. |
iv | The Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond market with maturities of at least one year. |
v | The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. |
vi | Duration is a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates. |
vii | Coupon is the periodic interest payment made to the bondholders during the life of the bond. |
9
Salomon Brothers California Tax Free Bond Fund
Fund at a Glance
(unaudited)
Investment Breakdown
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx12x1.jpg)
10
Salomon Brothers California Tax Free Bond Fund
Fund Expenses
(unaudited)
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on July 1, 2004 and held for the six months ended December 31, 2004.
Actual Expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.
Based on Actual Total Return(1)
Actual | ||||||
Total Return | Beginning | Ending | Annualized | Expenses | ||
Without | Account | Account | Expense | Paid During | ||
Sales Charges(2) | Value | Value | Ratio | the Period(3) | ||
Class A | | |||||
Class B | ||||||
Class C(4) | ||||||
Class O | ||||||
(1) | For the six months ended December 31, 2004. |
(2) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class B and C shares. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of volun- tary fee waivers and/or expense reimbursements, the total return would have been lower. |
(3) | Expenses (net of voluntary fee waiver) are equal to each Class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. |
(4) | On April 29, 2004 Class 2 shares were renamed as Class C shares. |
11
Salomon Brothers California Tax Free Bond Fund
Fund Expenses
(unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Based on Hypothetical Total Return(1)
Beginning | Ending | Annualized | Expenses | |||
Hypothetical | Account | Account | Expense | Paid During | ||
Total Return | Value | Value | the Period(2) | |||
Class A | | $4.06 | ||||
Class B | 7.86 | |||||
Class C(3) | 6.60 | |||||
Class O | 3.25 | |||||
(1) | For the six months ended December 31, 2004. |
(2) | Expenses (net of voluntary fee waiver) are equal to each Class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. |
(3) | On April 29, 2004 Class 2 shares were renamed as Class C shares. |
12
SALOMON FUNDS TRUST
California Tax Free Bond Fund
Historical Performance (unaudited)
Comparison of $10,000 Investment in the
Salomon Brothers California Tax Free Bond Fund — Class A Shares vs
the Lehman Brothers California 4 Years Plus Bond Index
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx15x1.jpg)
All figures represent past performance and are not a guarantee of future results. Performance above reflects returns after deduction of applicable maximum sales charge. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown also do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower.
The graph above depicts the performance of the California Tax Free Bond Fund versus the Lehman Brothers California 4 Years Plus Bond Index.(5) It is important to note that the California Tax Free Bond Fund is a professionally managed mutual fund while the index is not available for investment and is unmanaged. The comparison is shown for illustrative purposes only.
Average Annual Total Returns for the Period Ended December 31, 2004† (unaudited)
Class A Shares | Twelve Months | Three Year | Five Year | Since Inception (11/2/98) | ||||
Without Sales Charges(2) | 3.19 | % | 5.33 | % | 6.55 | % | 5.05 | % |
With Sales Charges(3) | -0.97 | % | 3.91 | % | 5.69 | % | 4.35 | % |
Class B Shares | Since Inception (10/5/01) | |||||||
Without Sales Charges(2) | 2.42 | % | 4.54 | % | N/A | 3.42 | % | |
With Sales Charges(3) | -1.56 | % | 3.92 | % | N/A | 3.13 | % | |
Class C Shares(4) | Since Inception (9/9/02) | |||||||
Without Sales Charges(2) | 2.67 | % | N/A | N/A | 2.70 | % | ||
With Sales Charges(3) | 1.68 | % | N/A | N/A | 2.70 | % | ||
Class O Shares | Since Inception (10/8/02) | |||||||
Without Sales Charges(2) | 3.35 | % | N/A | N/A | 3.26 | % | ||
With Sales Charges(3) | 3.35 | % | N/A | N/A | 3.26 | % | ||
See page 26 for all footnotes.
13
SALOMON FUNDS TRUST
New York Tax Free Bond Fund
PERFORMANCE REVIEW
For the 12 months ended December 31, 2004, Class A shares of the Salomon Brothers New York Tax Free Bond Fund, excluding sales charges, returned 3.17% .These shares underperformed the fund’s unmanaged benchmarks, the Lehman Brothers Municipal Bond Indexiii and the Lehman Brothers NY 4+ Year Municipal Bond Indexiv, which returned 4.48% and 4.81%, respectively, for the same period.The Lipper New York Municipal Debt Funds Category Average1 was 3.49% .
Certain investors may be subject to the federal Alternative Minimum Tax, and state and local taxes may apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.
MARKET/ECONOMIC OVERVIEW
Despite rising interest rates, surging oil prices, and an expanding economy, the overall municipal bond market generated solid results in 2004, with the Lehman Brothers Municipal Bond Index returning 4.48% .As the year began, it was widely expected that the Fed would have to raise interest rates to ward off a potential increase in inflation.This came to pass in late June, as the Fed raised its target for the federal funds rate v by 0.25% to 1.25% .This was followed by four subsequent rate hikes, bringing the federal funds rate to 2.25% by the end of the year.After the end of the fund’s reporting period, at their February meeting, the Fed once again raised the target rate by 0.25% to 2.50% .
As one would expect, the short end of the yield curve rose in conjunction with the Fed rate hikes. However, intermediate and longer-term bond yields surprisingly did not rise, but were stable or declined slightly.As such, the overall yield curve flattened as the difference between short and long term yields narrowed during the year. This flattening also occurred in the municipal bond market, but to a lesser extent.
New municipal bond issuance from state and local governments was approximately $358 billion in 2004.While this was roughly 6.0% less than 2003’s record level, it was still the third largest amount of new issuance during a calendar year. New supply was generally met with strong demand, in particular by institutions and property and casualty insurers.As was the case in the Treasury market, the shorter end of the municipal bond curve generated the weakest results, while the longer end of the curve outperformed. From a credit quality perspective, lower quality municipals outperformed their higher quality counterparts.
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2004
(excluding sales charges)
(unaudited)
6 Months | 12 Months | |||
Class A Shares—New York | ||||
Tax Free Bond Fund | 4.74 | % | 3.17 | % |
Lehman Brothers Municipal | ||||
Bond Index | 5.19 | % | 4.48 | % |
Lehman Brothers NY 4+ Year | ||||
Municipal Bond Index | 5.67 | % | 4.81 | % |
Lipper New York Municipal | ||||
Debt Funds Category Average | 4.77 | % | 3.49 | % |
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.sbam.com.
The 30-Day SEC Yield for Class A shares was 3.17% . Current reimbursements and/or fee waivers, if any, are voluntary and may be reduced or terminated at any time. Absent these fee waivers and/or expense reimbursements, the fund’s yield would have been 3.01% and the total return would have been lower.
Class A share returns assume the reinvestment of income dividends and capital gains distributions at net asset value and the deduction of all fund expenses. Returns have not been adjusted to include sales charges that may apply when shares are purchased or the deduction of taxes that a shareholder would pay on fund distributions. Excluding sales charges, Class B shares returned 4.35%, Class O shares returned 4.87% and Class C shares returned 4.21% over the six months ended December 31, 2004. Excluding sales charges, Class B shares returned 2.41%, Class O shares returned 3.44% and Class C shares returned 2.40% over the 12 months ended December 31, 2004.
Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 110 funds for the six-month period and among the 110 funds for the 12-month period in the fund’s Lipper category and excluding sales charges.
1 | Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the funds in the 110 fund’s Lipper category and excluding sales charges. |
14
As was the case with many other lower-rated issues, New York state’s municipal securities improved over the reporting period.This was due, in part, to strengthening local economies. New York state was upgraded from A1 to A2 by Moody’s and New York City was put on positive credit watch by the rating agency.
CONTRIBUTORS TO PERFORMANCE
As we began 2004, the fund was defensively positioned in anticipation of the Fed raising interest rates.As such, the fund’s durationvi was shorter than that of the benchmark and we favored higher quality securities. In addition, we emphasized the 10-year portion of the yield curve and focused on premium coupon securities while avoiding discount coupons.vii
This strategy produced mixed results.While our exposure to 10-year yields was beneficial as they outperformed shorter maturity bonds, an underweight to longer term securities detracted from relative results. In addition, our high quality bias was not rewarded by the market, as more speculative issues outperformed. In particular, our lack of tobacco and airline securities hurt relative results. However, given the market environment, we did not believe the risks associated with these securities warranted their purchase.
At the end of the reporting period, the fund’s portfolio continued to be defensively positioned given our expectations for the Fed to raise rates further in 2005.
Thank you for your investment in the Salomon Brothers New York Tax Free Bond Fund.As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund’s investment goals.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx17x1.jpg)
Robert E.Amodeo | John Mooney |
Co-Portfolio Manager | Co-Portfolio Manager |
February 3, 2005
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2004, and are subject to change and may not be representative of the portfolio managers’ current or future investments.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager’s current or future investments. The fund’s top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Education (27.5%), Highway/Tolls (20.4%), Sales Tax (12.8%), Transportation (11.8%), Housing (9.8%) . The fund’s portfolio composition is subject to change at any time.
RISKS: The fund is a non-diversified mutual fund. This means that the fund may invest a relatively high percentage of its assets in the obligations of a limited number of issuers. Investment in bonds are subject to interest rate and credit risks. As interest rates rise, bond prices fall, reducing the value of the fund’s share price. Investors should consider the greater risk inherent in these policies when compared with a more diversified mutual fund. A portion of the income may be subject to federal alternative minimum tax; capital gains, if any, are subject to federal, state and local income taxes. Fund income earned by non-New York residents may be subject to certain taxes. While it is expected that a substantial portion of the dividends paid to shareholders of the fund will be exempt from federal personal income taxes, portions of such dividends from time to time may be taxable. Salomon Brothers does not provide tax or legal advice. Please consult with your tax or legal adviser. The fund may invest in derivatives, which can be illiquid and harder to value, especially in declining markets. A small investment in certain derivatives may have a potentially large impact on the fund’s performance.
Derivatives can disproportionately increase losses as stated in the prospectus. The fund’s objectives may be changed without shareholder approval.
All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
i | Gross domestic product is a market value of goods and services produced by labor and property in a given country. |
ii | The Fed is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
iii | The Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond market with maturities of at least one year. |
iv | The Lehman Brothers NY 4+ Year Municipal Bond Index is a market value-weighted index of New York fixed-rate investment grade municipal bonds with maturity of at least four years. |
v | The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. |
vi | Duration is a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates. |
vii | Coupon is the periodic interest payment made to the bondholders during the life of the bond. |
15
Salomon Brothers New York Tax Free Bond Fund
Fund at a Glance
(unaudited)
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx18x1.jpg)
16
Salomon Brothers New York Tax Free Bond Fund
Fund Expenses
(unaudited)
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on July 1, 2004 and held for the six months ended December 31, 2004.
Actual Expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.
Based on Actual Total Return(1)
Actual | |||||
Total Return | Beginning | Ending | Annualized | Expenses | |
Without | Account | Account | Expense | Paid During | |
Sales Charges(2) | Value | Value | Ratio | the Period(3) | |
Class A | |||||
Class B | |||||
Class C(4) | |||||
Class O | |||||
(1) | For the six months ended December 31, 2004. |
(2) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class B and C shares. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of volun- tary fee waivers and/or expense reimbursements, the total return would have been lower. |
(3) | Expenses (net of voluntary fee waiver) are equal to each Class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. |
(4) | On April 29, 2004 Class 2 shares were renamed as Class C shares. |
17
Salomon Brothers New York Tax Free Bond Fund
Fund Expenses
(unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Based on Hypothetical Total Return(1)
Beginning | Ending | Annualized | Expenses | ||
Hypothetical | Account | Account | Expense | Paid During | |
Total Return | Value | Value | Ratio | the Period(2) | |
Class A | |||||
Class B | |||||
Class C(3) | |||||
Class O | |||||
(1) | For the six months ended December 31, 2004. |
(2) | Expenses (net of voluntary fee waiver) are equal to each Class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. |
(3) | On April 29, 2004 Class 2 shares were renamed as Class C shares. |
18
SALOMON FUNDS TRUST
New York Tax Free Bond Fund
Historical Performance (unaudited)
Comparison of $10,000 Investment in the
Salomon Brothers New York Tax Free Bond Fund — Class A Shares vs
the Lehman Brothers Municipal Bond Index
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx21x1.jpg)
All figures represent past performance and are not a guarantee of future results. Performance above reflects returns after deduction of applicable maximum sales charge. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown also do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower.
The graph above depicts the performance of the New York Tax Free Bond Fund versus the Lehman Brothers Municipal Bond Index. It is important to note that the New York Tax Free Bond Fund is a professionally managed mutual fund while the index is not available for investment and is unmanaged. The comparison is shown for illustrative purposes only.
Average Annual Total Returns for the Period Ended December 31, 2004† (unaudited)
Class A Shares | Twelve Months | Three Year | Five Year | Ten Year | Since Inception (9/7/86) | |||||
Without Sales Charges(2) | 3.17 | % | 6.01 | % | 6.55 | % | 6.52 | % | 6.28 | % |
With Sales Charges(3) | -0.96 | % | 4.58 | % | 5.68 | % | 6.09 | % | 6.04 | % |
Class B Shares | Since Inception (11/19/01) | |||||||||
Without Sales Charges(2) | 2.41 | % | 5.21 | % | N/A | N/A | 4.38 | % | ||
With Sales Charges(3) | -1.56 | % | 4.61 | % | N/A | N/A | 4.08 | % | ||
Class C Shares(4) | Since Inception (7/19/02) | |||||||||
Without Sales Charges(2) | 2.40 | % | N/A | N/A | N/A | 4.04 | % | |||
With Sales Charges(3) | 1.41 | % | N/A | N/A | N/A | 4.04 | % | |||
Class O Shares | Since Inception (10/29/01) | |||||||||
Without Sales Charges(2) | 3.44 | % | 6.28 | % | N/A | N/A | 5.24 | % | ||
With Sales Charges(3) | 3.44 | % | 6.28 | % | N/A | N/A | 5.24 | % | ||
See page 26 for all footnotes.
19
SALOMON FUNDS TRUST
Mid Cap Fund
PERFORMANCE REVIEW
For the 12 months ended December 31, 2004, Class A shares of the Salomon Brothers Mid Cap Fund, excluding sales charges, returned 13.38% .These shares under-performed the fund’s unmanaged benchmark, the S&P Midcap 400 Indexiii, which returned 16.48% for the same period.They also underperformed the Lipper Mid-Cap Core Funds Category Average1, which was 15.52% .
The fund’s underperformance was mainly attributable to its stock selection within the consumer discretionary and materials sectors, as we did not expect the strength in housing or the rise in raw materials that occurred during the year.
MARKET OVERVIEW
Short-term interest rates, as represented by the fed funds rateiv, started the year at 1.00% . During the course of the year, the rate was raised five times to 2.25% to bring monetary policy back to a more normal point as the economy was showing clear signs of improvement. After the end of the fund’s reporting period, at their February meeting, the Fed once again raised the target rate by 0.25% to 2.50% . This followed two years of a slow economy with little pricing pressure.The ten-year U.S.Treasury bond remained virtually unchanged at about 4.25% for the calendar year. Inflation, as measured by the consumer price indexv, rose 3.30% for the year. Real domestic growth is estimated to be 4.40% for the calendar year 2004.vi Part of the reason for this above-average level of growth was the tax benefit of accelerated levels of depreciation and a strong housing marketplace with low interest rates. Refinancing of mortgages also benefited consumer spending.
FUND OVERVIEW
The past year was another good one for the mid capitalization marketplace, with the S&P Midcap 400 Index returning 16.48% for 2004 and setting new record highs in the month of December. In comparison, the large-cap market experienced more modest performance, as seen in the S&P 500 Indexvii, which returned 10.87% in 2004, and the Dow Jones Industrial Average (“DJIA”)viii, which increased 5.31% for the year.
The mid-cap market was in a trading range for most of the year, but in November it broke out of this range and had a significant move to the upside, providing attractive returns for shareholders of the fund.
As we had anticipated, the equity marketplace emphasized fundamental factors in 2004, as opposed to the prior year where low priced, lower quality and micro capitalization stocks drove the huge performance gains seen in 2003.With our focus on fundamental investing, shareholders benefited from the growth and revaluation of companies that offer what we believe to be attractive fundamental attributes in 2004.
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2004
(excluding sales charges)
(unaudited)
6 Months | 12 Months | |||
Class A Shares—Mid Cap Fund | 5.10 | % | 13.38 | % |
S&P Midcap 400 Index | 9.80 | % | 16.48 | % |
Lipper Mid-Cap Core | ||||
Funds Category Average | 9.48 | % | 15.52 | % |
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.sbam.com.
Performance figures reflect fee waivers and/or expense reimbursements, if any, which may be reduced or terminated at any time. In the absence of fee waivers and/or expense reimbursements, if any, the total return would be reduced.
Class A share returns assume the reinvestment of income dividends and capital gains distributions at net asset value and the deduction of all fund expenses. Returns have not been adjusted to include sales charges that may apply when shares are purchased or the deduction of taxes that a shareholder would pay on fund distributions. Excluding sales charges, Class B shares returned 4.69%, Class C shares returned 4.67% and Class O shares returned 5.33% over the six months ended December 31, 2004. Excluding sales charges, Class B shares returned 12.55%, Class C shares returned 12.56% and Class O shares returned 13.87% over the 12 months ended December 31, 2004.
Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 316 funds for the six-month period and among the 303 funds for the 12-month period in the fund’s Lipper category and excluding sales charges.
1 | Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the12-month period ended December 31, 2004, including the reinvestment of dividends and capital gains, if any, calculated among the 303 funds in the fund’s Lipper category and excluding sales charges. |
20
FUND PERFORMANCE
Over the calendar year, the fund’s best performing sectors were energy, telecommunication services and financials. However, we showed the best relative performance in the information technology sector, in which we were overweight and outperformed the benchmark.While all sectors in the fund had positive performance for the year, both sector allocation and stock selection contributed to underperformance in comparison to the benchmark.
In terms of individual holdings, our best performing positions for the year were enterprise software provider TIBCO Software Inc. in information technology, casino operator Mandalay Resort Group in consumer discretionary and asset management firm Legg Mason, Inc. in financials. Detractors from performance included pharmacy and related service provider Omnicare Inc. in healthcare, data storage and management software producer Veritas Software Corp. and electronics and semiconductor design software company Synopsys Inc. in information technology.
In summary, we believe the mid-capitalization equity class continues to show competitive returns, as it has over the last few years.We believe our disciplined core strategy is a moderate approach in an environment of high volatility and changing market leadership. Historically, the mid capitalization equity class has presented an attractive investment alternative, having less volatility than the small cap market and higher returns than the large-cap market.
Thank you for your investment in the Salomon Brothers Mid Cap Fund.As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the fund’s investment goals.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx23x1.jpg)
Marguerite Wagner
Portfolio Manager
February 3, 2005
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2004 and are subject to change and may not be representative of the portfolio manager’s current or future investments. The fund’s top ten holdings (as a percentage of net assets) as of this date were: DST Systems, Inc. (2.6%), Legg Mason, Inc. (2.3%), Church & Dwight Co., Inc. (2.1%), TIBCO Software Inc. (2.0%), Outback Steakhouse, Inc. (1.7%), Carlisle Cos. Inc. (1.7%), Philadelphia Consolidated Holding Corp. (1.7%), IDEX Corp. (1.7%), Station Casinos, Inc. (1.7%), Werner Enterprises, Inc. (1.6%) . Please refer to pages 33 through 36 for a list and percentage breakdown of the fund’s holdings.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio manager’s current or future investments. The fund’s top five sector holdings (as a percentage of net assets) as of December 31, 2004 were: Industrials (18.4%), Consumer Discretionary (17.7%), Information Technology (16.2%), Financials (14.9%), Healthcare (10.9%) . The fund’s portfolio composition is subject to change at any time.
RISKS: Investments in mid-cap stocks may involve a higher degree of risk and volatility than large-cap stocks. Compared to large-cap companies, medium-sized companies are more likely to have more limited product lines, capital resources and management depth and experience sharper swings in market values. The fund may invest in derivatives, which can be illiquid and harder to value especially in declining markets. A small investment in certain derivatives may have a potentially large impact on the fund’s performance. Derivatives can disproportionately increase losses as stated in the prospectus.
All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
i | Gross domestic product is a market value of goods and services produced by labor and property in a given country. |
ii | The Fed is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
iii | The S&P MidCap 400 Index is a market-value weighted index which consists of 400 domestic stocks chosen for market size, liquidity, and indus- try group representation. |
iv | The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. |
v | The Consumer Price Index measures the average change in U.S. consumer prices over time in a fixed market basket of goods and services deter- mined by the U.S. Bureau of Labor Statistics. |
vi | As measured by gross domestic product. |
vii | The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. |
viii | The DJIA is a widely followed measurement of the stock market. The average is comprised of 30 stocks that represent leading companies in major industries. These stocks, widely held by both individual and institutional investors, are considered to be all blue-chip companies. |
21
Salomon Brothers Mid Cap Fund
Fund at a Glance
(unaudited)
Investment Breakdown
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx24x1.jpg)
22
Salomon Brothers Mid Cap Fund
Fund Expenses
(unaudited)
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on July 1, 2004 and held for the six months ended December 31, 2004.
Actual Expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.
Based on Actual Total Return(1)
Actual | ||||||
Total Return | Beginning | Ending | Annualized | Expenses | ||
Without | Account | Account | Expense | Paid During | ||
Sales Charges(2) | Value | Value | Ratio | the Period(3) | ||
Class A | | |||||
Class B | ||||||
Class C(4) | ||||||
Class O | ||||||
(1) | For the six months ended December 31, 2004. |
(2) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class B and C shares. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of volun- tary fee waivers and/or expense reimbursements, the total return would have been lower. |
(3) | Expenses (net of voluntary fee waiver) are equal to each Class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. |
(4) | On April 29, 2004 Class 2 shares were renamed as Class C shares. |
23
Salomon Brothers Mid Cap Fund
Fund Expenses
(unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
Based on Hypothetical Total Return(1)
Beginning | Ending | Annualized | Expenses | ||
Hypothetical | Account | Account | Expense | Paid During | |
Total Return | Value | Value | Ratio | the Period(2) | |
Class A | |||||
Class B | |||||
Class C(3) | |||||
Class O | |||||
(1) | For the six months ended December 31, 2004. |
(2) | Expenses (net of voluntary fee waiver) are equal to each Class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366. |
(3) | On April 29, 2004 Class 2 shares were renamed as Class C shares. |
24
SALOMON FUNDS TRUST
Mid Cap Fund
Historical Performance (unaudited)
Comparison of $10,000 Investment in the
Salomon Brothers Mid Cap Fund — Class O Shares vs
the S&P MidCap 400 Index
![](https://capedge.com/proxy/N-CSR/0000930413-05-001753/c35269_n-csrx27x1.jpg)
All figures represent past performance and are not a guarantee of future results. Performance above reflects returns after deduction of applicable maximum sales charge. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown also do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower.
The graph above depicts the performance of the Mid Cap Fund versus the S&P MidCap 400 Index.(6) It is important to note that the Mid Cap Fund is a professionally managed mutual fund while the index is not available for investment and is unmanaged. The comparison is shown for illustrative purposes only.
Average Annual Total Returns for the Period Ended December 31, 2004† (unaudited)
Class A Shares | Twelve Months | Three Year | Five Year | Ten Year | Since Inception (11/30/01) | |||||
Without Sales Charges(7) | 13.38 | % | 5.15 | % | N/A | N/A | 6.24 | % | ||
With Sales Charges(8) | 6.86 | % | 3.10 | % | N/A | N/A | 4.22 | % | ||
Class B Shares | Since Inception (12/18/01) | |||||||||
Without Sales Charges(7) | 12.55 | % | 4.42 | % | N/A | N/A | 4.70 | % | ||
With Sales Charges(8) | 7.55 | % | 3.49 | % | N/A | N/A | 3.79 | % | ||
Class C Shares(4) | Since Inception (5/7/02) | |||||||||
Without Sales Charges(7) | 12.56 | % | N/A | N/A | N/A | 5.25 | % | |||
With Sales Charges(8) | 11.56 | % | N/A | N/A | N/A | 5.25 | % | |||
Class O Shares* | Since Inception (1/1/93) | |||||||||
Without Sales Charges(7) | 13.87 | % | 5.55 | % | 6.88 | % | 15.91 | % | 14.37 | % |
With Sales Charges(8) | 13.87 | % | 5.55 | % | 6.88 | % | 15.91 | % | 14.37 | % |
See page 26 for all footnotes.
25
FOOTNOTES
1 | The Lehman Brothers Municipal 4 Years Plus Bond Index is valued at month end only. As a result, while the Fund’s total return calculations used in this comparison are for the period August 17, 1995 through December 31, 2004, the combined Index returns are for the period September 1, 1995 through December 31, 2004. |
2 | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charges (“CDSC”) with respect to Class B and C shares. |
3 | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value. In addition, Class A shares reflect the deduction of the maximum sales charge of 4.00%. Class B shares reflect the deduction of a 4.00% CDSC, which applies if shares are redeemed within one year from purchase payment.Thereafter, the CDSC declines to 3.00% in the second year, 2.00% in the third year, 1.00% in the fourth and fifth year and no deferred sales charges after the fifth year. Class C shares also reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed within one year from purchase payment. In addition, Class A shares also 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. Class O shares ha ve no initial or contingent deferred sales charges. |
4 | On April 29, 2004 Class 2 shares were renamed as Class C shares. |
5 | The Lehman Brothers California 4 Years Plus Index is valued at month end only. As a result, while the Fund’s total return calculations used in this comparison are for the period November 2, 1998 through December 31, 2004, the combined Index returns are for the period December 1, 1998 through December 31, 2004. |
6 | The S&P MidCap 400 Index is valued at month end only. As a result, while the Fund’s total return calculations used in this comparison are for the period September 10, 2001 through December 31, 2004, the combined Index returns are for the period September 1, 2001 through December 31, 2004. |
7 | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A or the applicable contingent deferred sales charges (“CDSC”) with respect to Class B and C shares. |
8 | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value. In addition, Class A shares reflect the deduction of the maximum sales charge of 5.75%. Class B shares reflect the deduction of a 5.00% CDSC, which applies if shares are redeemed within one year from purchase payment.Thereafter, the CDSC declines by 1.00% for the first 2 years; 1.00% for years 3 and 4; and then declines by 1.00% per year until no CDSC is incurred. Class C shares also reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed within one year from purchase payment. In addition, Class A shares also 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. Class O shares have no initial or contingent deferred sales charges. |
† | The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of fee waivers and/or expense reimbursements, the total return would be reduced. |
* | Performance calculations for Class O shares for Mid Cap Fund include the historical return information related to Keough Common Stock Fund of the Collective Trust for Citibank’s Business and Professional Retirement Plan, which was the predecessor fund, for the period from January 1, 1993 through September 7, 2001. |
Schedules of Investments
December 31, 2004
Salomon Brothers National Tax Free Bond Fund
Rating(a) | |||||
MUNICIPAL BONDS AND NOTES — 96.6% | |||||
California — 6.6% | |||||
$ 500,000 | Aaa | California State Department of Water & Residential Power Supply Revenue, Series A, | |||
MBIA-Insured, 6.000% due 5/1/15 | $ | 582,215 | |||
1,000,000 | Aa3 | California State Economic Recovery, Series A, 5.000% due 7/1/17 | 1,064,290 | ||
1,000,000 | Aaa | Calleguas Las Virgines, CA Public Financing Authority Revenue, | |||
Refunding, Series B, 5.250% due 7/1/17 | 1,114,350 | ||||
2,760,855 | |||||
Colorado — 10.4% | |||||
1,000,000 | Aa1 | Boulder, CO Open Space Acquisition, 5.500% due 8/15/17 | 1,110,190 | ||
1,165,000 | Aaa | Pueblo, CO Board of Waterworks Revenue, Improvement, Series A, | |||
FSA-Insured, 6.000% due 11/1/15 | 1,343,653 | ||||
1,680,000 | Aaa | Summit County, CO School District No. 2, FSA-Insured, 5.250% due 12/1/16 | 1,894,250 | ||
4,348,093 | |||||
Florida — 0.7% | |||||
250,000 | Aaa | Miami, Dade County, FL Aviation Revenue, Miami International Airport, Series A, AMT, | |||
FGIC-Insured, 5.550% due 10/1/13 | 273,285 | ||||
Illinois — 8.0% | |||||
1,250,000 | Aaa | Chicago, IL O’Hare International Airport Revenue, Series A-2, AMT, 5.750% due 1/1/19 | 1,392,825 | ||
250,000 | Aaa | Cook County, IL Refunding, Series A, MBIA-Insured, 5.625% due 11/15/16 | 272,093 | ||
1,500,000 | Aaa | Illinois State, First Series, FGIC-Insured, 6.100% due 1/1/20 | 1,702,800 | ||
3,367,718 | |||||
Iowa — 0.2% | |||||
90,000 | Aaa | Iowa Finance Authority Single Family Revenue, Mortgage Backed Securities Program, | |||
Series A, FNMA/GNMA-Collateralized, 6.000% due 7/1/13 | 94,596 | ||||
Kentucky — 2.0% | |||||
750,000 | Aaa | Kenton County, KY Airport Board Revenue, AMT, 5.625% due 3/1/15 | 824,655 | ||
Maine — 0.6% | |||||
250,000 | Aa1 | Maine State Housing Authority Mortgage Purchase Revenue, Series A, AMT, 5.950% due 11/15/11 | 260,995 | ||
Massachusetts — 18.9% | |||||
2,500,000 | Aaa | Massachusetts Bay Transportation Authority, General Transportation System, Series A, 5.500% due 3/1/15 | 2,868,825 | ||
Massachusetts State, Construction Loan: | |||||
3,900,000 | Aa2 | Series A, 6.000% due 2/1/14 | 4,524,078 | ||
500,000 | Aaa | Series D, FSA-Insured, 5.000% due 12/1/19 | 538,425 | ||
7,931,328 | |||||
Mississippi — 0.1% | |||||
65,000 | A+ | Mississippi Higher Education Student Loan, Sub-Series C, AMT, 6.050% due 9/1/07 | 65,283 | ||
New Hampshire — 2.6% | |||||
1,000,000 | Aaa | New Hampshire Health & Education Facilities Authority Revenue, | |||
University of New Hampshire, 5.375% due 7/1/20 | 1,112,120 | ||||
New Jersey — 8.1% | |||||
New Jersey EDA Revenue, | |||||
750,000 | Aaa | Motor Vehicle Survey, MBIA-Insured, Series A, 5.250% due 7/1/17 | 832,170 | ||
500,000 | Aaa | Transportation Project, Series A, 5.250% due 7/1/16 | 556,460 | ||
1,500,000 | Aaa | New Jersey Sports & Exposition Authority Contract, Series A, | |||
MBIA-Insured, 6.000% due 3/1/15 | 1,708,020 | ||||
280,000 | Aaa | Passaic Valley, NJ Sewer Commissioners, Pre-Refunded, Sewer System, | |||
Series D, AMBAC-Insured, 5.750% due 12/1/07 | 306,827 | ||||
3,403,477 | |||||
See Notes to Financial Statements.
27
Schedules of Investments
(continued)
Salomon Brothers National Tax Free Bond Fund
Face | |||||
Amount | Rating(a) | ||||
New York — 18.7% | |||||
New York City, NY: | |||||
$ 500,000 | A2 | Series A, 5.750% due 8/1/16 | $ | 559,435 | |
750,000 | Aaa | Series D, 5.000% due 11/1/17 | 811,650 | ||
265,000 | Aa2 | New York City, NY Transitional Finance Authority Revenue, Future Tax Secured, | |||
Unrefunded, Series B, 6.125% due 11/15/14 | 305,982 | ||||
250,000 | A1 | New York State Dormitory Authority Lease Revenue, State University Dorm Facilities, | |||
Series A, 6.000% due 7/1/14 | 287,762 | ||||
1,750,000 | A1 | New York State Thruway Authority, State Personal Income Tax Revenue, | |||
Series A, 5.500% due 3/15/20 | 1,942,605 | ||||
2,750,000 | Aaa | Metropolitan Transit Authority, NY Transit Revenue, Series A, | |||
AMBAC-Insured, 5.500% due 11/15/15 | 3,112,890 | ||||
750,000 | Aa3 | Triborough Bridge & Tunnel Authority Revenue, Refunding, Series B, 5.250% due 11/15/16 | 823,268 | ||
7,843,592 | |||||
North Dakota — 0.3% | |||||
120,000 | Aa2 | North Dakota State Housing Finance Agency Revenue, Refunding, Housing Finance Program, | |||
Home Mortgage, Series A, AMT, 6.100% due 7/1/13 | 123,029 | ||||
Ohio — 3.5% | |||||
1,300,000 | Aaa | Hamilton County, OH Sales Tax, Sub-Series B, AMBAC-Insured, 5.750% due 12/1/17 | 1,472,575 | ||
Oregon — 5.2% | |||||
Multnomah County, OR Hospital Facilities Authority Revenue, | |||||
1,000,000 | Aa3 | 5.250% due 10/1/16 | 1,105,900 | ||
1,000,000 | Aa3 | 5.250% due 10/1/20 | 1,076,520 | ||
2,182,420 | |||||
Texas — 6.0% | |||||
60,000 | Aaa | Austin, TX, Airport System Revenue, Series A, MBIA-Insured, Pre-Refunded- | |||
Escrowed to maturity with state and local government securities, 6.500% due 11/15/05 | 62,208 | ||||
1,100,000 | Aaa | Hidalgo County , TX Certificates of Obligation, FGIC-Insured, 5.500% due 8/15/16 | 1,235,685 | ||
1,000,000 | Aaa | Keller, TX ISD, Refunding, PSFG, 5.250% due 8/15/22 | 1,072,540 | ||
85,000 | Aaa | Houston, TX Unrefunded Balance, Public Improvement, FSA-Insured, 5.750% due 3/1/17 | 95,753 | ||
55,000 | Aaa | Northside, TX ISD, Refunding, PSFG, 6.000% due 8/15/16 | 62,759 | ||
2,528,945 | |||||
Washington — 4.7% | |||||
750,000 | Aaa | Energy Northwest WA Electric Revenue, Colombia Generating, Series A, | |||
FSA-Insured, 5.500% due 7/1/16 | 833,153 | ||||
500,000 | Aaa | Snohomish County, WA School District No. 2, FSA-Insured, 5.500% due 12/1/16 | 560,910 | ||
500,000 | Aaa | Tacoma, WA Electric System Revenue, Refunding, Series A, | |||
FSA-Insured, 5.750% due 1/1/16 | 566,105 | ||||
1,960,168 | |||||
TOTAL MUNICIPAL BONDS AND NOTES | |||||
(Cost — $38,382,927) | 40,553,134 | ||||
See Notes to Financial Statements.
28
Schedules of Investments
(continued)
Salomon Brothers National Tax Free Bond Fund
Rating(a) | |||||
VARIABLE RATE DEMAND NOTES (b) — 1.9% | |||||
Pennsylvania — 1.4% | |||||
$ 600,000 | VMIG 1 | Philadelphia, PA Hospitals & Higher Education Facilities Authority Revenue, Refunding, | |||
Children’s Hospital Project, Series A, 2.170% due 7/1/22 | $ | 600,000 | |||
Texas — 0.5% | |||||
200,000 | VMIG 1 | Guadalupe-Blanco River Authority, TX Pollution Control Revenue, Refunding, Central Power & Light | |||
Construction Project, AMT, Credit Enhanced by Barclays Bank PLC, 2.150% due 11/1/15 | 200,000 | ||||
TOTAL VARIABLE RATE DEMAND NOTES | |||||
(Cost — $800,000) | 800,000 | ||||
TOTAL INVESTMENTS — 98.5% | |||||
(Cost — $39,182,927*) | 41,353,134 | ||||
Other Assets in Excess of Liabilities — 1.5% | 632,794 | ||||
TOTAL NET ASSETS — 100.0% | $ | 41,985,928 | |||
(a) | All ratings are by Moody’s Investors Service, except for those which are identified by a dagger (+), which are rated by Fitch Ratings. |
(b) | Variable rate demand notes have a demand feature under which the Fund may tender the security to the issuer within seven days notice. |
* | Aggregate cost for federal income tax purposes is substantially the same. |
See pages 37 and 38 for definitions of ratings and certain abbreviations.
SALOMON BROTHERS NATIONAL TAX FREE BOND FUND
Summary of Investments by Industry* | December 31, 2004 | |
General Obligation | 40.0 | % |
Transportation | 25.9 | |
HealthCare | 6.7 | |
Miscellaneous | 6.1 | |
Water and Sewer | 5.9 | |
Sales Tax | 4.3 | |
Education | 3.7 | |
Power | 3.4 | |
Aviation | 2.8 | |
Housing | 1.2 | |
100.0 | % | |
* | As a percentage of total investments. Please note that fund holdings are as of December 31, 2004 and are subject to change. |
See Notes to Financial Statements.
29
Schedules of Investments
(continued)
Salomon Brothers California Tax Free Bond Fund
Face | |||||
Amount | Rating(a) | ||||
MUNICIPAL BONDS & NOTES — 95.8% | |||||
General Obligation — 24.8% | |||||
$1,000,000 | Aaa | Glendale, CA Unified School District, Series C, FSA-Insured, 5.750% due 9/1/13 | $ | 1,144,690 | |
250,000 | Aaa | Placer, CA Union High School District, Series A, FGIC-Insured, 6.000% due 8/1/14 | 286,835 | ||
575,000 | Aaa | Pomona, CA Unified School District, Refunding, Series A, MBIA-Insured, 6.500% due 8/1/19 | 683,945 | ||
625,000 | Aaa | San Bernardino, CA City University School District, Series A, FGIC-Insured, 5.625% due 8/1/15 | 713,581 | ||
2,829,051 | |||||
Housing — 11.1% | |||||
California Housing Finance Agency: | |||||
1,000,000 | Aaa | Revenue, MFH III, Series A, MBIA-Insured, 5.850% due 8/1/17 | 1,043,610 | ||
215,000 | Aa3 | SFM Purchase, AMT, Series A-2, Class III, 4.800% due 8/1/12 | 221,147 | ||
1,264,757 | |||||
Miscellaneous — 2.5% | |||||
250,000 | Aa3 | Sacramento County, CA Sanitation District Finance Authority Revenue, | |||
Series A, 6.000% due 12/1/14 | 286,553 | ||||
Transportation — 25.2% | |||||
2,000,000 | Aaa | Intermodal Container Transfer Facility, Joint Powers Authority Revenue, | |||
Series A, AMBAC-Insured, 5.750% due 11/1/14 | 2,362,080 | ||||
500,000 | Aaa | Long Beach, CA Highway and Bridge Revenue, | |||
AMT, Series B, MBIA-Insured, 4.000% due 5/15/07 | 514,760 | ||||
2,876,840 | |||||
Water & Sewer — 32.2% | |||||
1,000,000 | Aaa | Fresno, CA Sewer Revenue, Series A-1, AMBAC-Insured, 6.250% due 9/1/14 | 1,209,920 | ||
1,500,000 | Aaa | Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue, MBIA-Insured, | |||
6.250% due 7/1/13 | 1,817,850 | ||||
560,000 | Aa3 | San Diego County, CA Water Authority Revenue, COP, Series A, 5.750% due 5/1/12 | 647,780 | ||
3,675,550 | |||||
TOTAL MUNICIPAL BONDS & NOTES | |||||
(Cost — $9,851,651) | 10,932,751 | ||||
VARIABLE RATE DEMAND NOTE (b) — 2.7% | |||||
General Obligation — 2.7% | |||||
300,000 | VMIG I | California State, Series A-1, 2.25% due 5/1/33 (Cost — $300,00) | 300,000 | ||
TOTAL INVESTMENTS — 98.5% (Cost — $10,151,651*) | 11,232,751 | ||||
Other Assets in Excess of Liabilities — 1.5% | 175,181 | ||||
TOTAL NET ASSETS — 100.0% | $ | 11,407,932 | |||
(a) | All securities are rated by Moody’s Investors Service. |
(b) | Variable rate demand notes have a demand feature under which the Fund could tender them back to the issuer on no more than seven days notice. |
* | Aggregate cost for federal income tax purposes is substantially the same. |
See pages 37 and 38 for definitions of ratings and certain abbreviations.
See Notes to Financial Statements.
30
Schedules of Investments
(continued)
Salomon Brothers New York Tax Free Bond Fund
Face | |||||
Amount | Rating(a) | ||||
MUNICIPAL BONDS & NOTES — 98.2% | |||||
Education — 27.5% | |||||
New York State Dormitory Authority Revenue: | |||||
$1,000,000 | Aaa | Columbia University, Series B, 5.375% due 7/1/15 | $ | 1,126,090 | |
3,000,000 | Aaa | Consolidated Debt City 2nd Generation, Series A, AMBAC-Insured, 5.750% due 7/1/18 | 3,567,420 | ||
2,000,000 | A3 | Court Facilities, Series A, 5.000% due 5/15/08 | 2,145,460 | ||
1,000,000 | A+* | Municipal Building Bank Agency, Series C, 5.500% due 6/1/16 | 1,109,910 | ||
825,000 | Aaa | Municipal Health Facilities Program, Series 1, FSA-Insured, 5.500% due 1/15/14 | 916,468 | ||
2,500,000 | Aaa | North Shore University Hospital, 5.500% due 11/1/14 | 2,896,650 | ||
New York University, Series A, MBIA-Insured: | |||||
1,000,000 | Aaa | 5.750% due 7/1/15 | 1,180,690 | ||
6,300,000 | Aaa | 5.750% due 7/1/27 | 7,557,228 | ||
1,500,000 | Aaa | School District Financing Program, Series A, 5.750% due 10/1/17 | 1,723,695 | ||
State University: | |||||
1,070,000 | Aaa | Adult Facilities, Series C, 5.750% due 5/15/17 | 1,270,743 | ||
Dormitory Facilities: | |||||
1,160,000 | A1 | Series A, 6.000% due 7/1/15 | 1,333,954 | ||
1,515,000 | Aaa | Series C, MBIA-Insured, 5.750% due 7/1/13 | 1,710,177 | ||
2,030,000 | A3 | Education Facilities Series B, 5.250% due 5/15/13 | 2,260,588 | ||
28,799,073 | |||||
General Obligation — 8.2% | |||||
New York, NY: | |||||
Series A: | |||||
2,000,000 | Aaa | FGIC — Insured, 5.000% due 8/1/09 | 2,170,220 | ||
1,000,000 | A2 | 5.750% due 8/1/16 | 1,118,870 | ||
Series B: | |||||
1,000,000 | A2 | 5.625% due 12/1/13 | 1,121,500 | ||
2,450,000 | A2 | 5.750% due 8/1/14 | 2,724,645 | ||
1,250,000 | Aaa | Puerto Rico Commonwealth, Refunding, Public Improvement, | |||
Series A, MBIA Insured, 5.500% due 7/1/16 | 1,465,425 | ||||
8,600,660 | |||||
Highway/Tolls — 20.4% | |||||
New York State Thruway Authority: | |||||
1,000,000 | Aaa | Highway & Bridge Transportation Fund, Refunded, Series C, | |||
AMBAC-Insured, 5.500% due 4/1/15 | 1,122,780 | ||||
5,275,000 | Aa3 | Refunded, Series E, 5.250% due 1/1/13 | 5,699,532 | ||
Service Contract Revenue, Local Highway & Bridge: | |||||
1,100,000 | A2 | 5.500% due 4/1/14 | 1,227,622 | ||
4,370,000 | Aaa | Series B, 5.375% due 4/1/13 | 4,768,675 | ||
2,995,000 | A2 | Unrefunded, 6.000% due 4/1/11 | 3,268,713 | ||
Puerto Rico Commonwealth Highway & Transportation Authority, Highway Revenue: | |||||
Refunded: | |||||
MBIA-Insured: | |||||
1,000,000 | Aaa | Series X, 5.500% due 7/1/15 | 1,168,570 | ||
2,000,000 | Aaa | Series Z, 6.250% due 7/1/14 | 2,448,060 | ||
1,500,000 | Aaa | Series G, FGIC-Insured, 5.250% due 7/1/16 | 1,673,835 | ||
21,377,787 | |||||
Housing — 9.8% | |||||
New York City Housing Development Corp., MFH Revenue: | |||||
655,000 | Aa2 | Series A, 5.625% due 5/1/12 | 663,777 | ||
1,645,000 | Aa2 | Series E, SONYMA-Insured, 6.100% due 11/1/19 | 1,761,499 | ||
2,575,000 | Aaa | New York State HFA Refunded, State University Construction, Series A, 7.900% due 11/1/06 | 2,725,251 | ||
3,200,000 | Aa1 | New York State Mortgage Agency Revenue, AMT, Home Owner Mortgage, | |||
Series 71, 5.350% due 10/1/18 | 3,283,008 | ||||
1,640,000 | Aaa | Schenectady New York Industrial Development Agency, Civic Facility Revenue: | |||
(Union College Project) Series A, 5.500% due 7/1/16 | 1,839,818 | ||||
10,273,353 | |||||
See Notes to Financial Statements.
31
Schedules of Investments
(continued)
Salomon Brothers New York Tax Free Bond Fund
Face | |||||
Amount | Rating(a) | ||||
Power — 1.6% | |||||
Long Island Power Authority, NY Electric System Revenue, | |||||
$1,500,000 | Aaa | Series C, MBIA IBC-Insured, 5.500% due 9/1/21 | $ | 1,679,475 | |
Sales Tax — 12.8% | |||||
New York City, NY, Transitional Finance Authority, Future Tax Secured: | |||||
Series A: | |||||
1,685,000 | Aa2 | 5.500% due 11/15/17 | 1,892,609 | ||
5,000,000 | Aa2 | 5.750% due 2/15/16 | 5,618,950 | ||
580,000 | Aa2 | Unrefunded, 5.750% due 2/15/14 | 654,136 | ||
1,155,000 | Aa2 | Series B, 5.375% due 2/1/15 | 1,289,788 | ||
1,000,000 | Aa2 | Series C, 5.875% due 11/1/14 | 1,138,350 | ||
2,500,000 | Aaa | Sales Tax Asset Receivable, Corporation New York, 5.25% due 10/15/18 | 2,787,100 | ||
13,380,933 | |||||
State Agencies — 5.8% | |||||
New York State Local Assistance Corp., Refunding: | |||||
3,000,000 | A1 | Series C, 5.500% due 4/1/17 | 3,453,960 | ||
2,255,000 | A1 | Series E, 6.000% due 4/1/14 | 2,638,327 | ||
6,092,287 | |||||
Transportation — 11.8% | |||||
Metropolitan Transportation Authority, NY: | |||||
2,300,000 | AAA* | Commuter Facilities Revenue, Series A, FSA-Insured, 5.125% due 7/1/17 | 2,584,786 | ||
2,500,000 | Aaa | Refunded, Series A, AMBAC-Insured, 5.500% due 11/15/15 | 2,829,900 | ||
Service Contract, Series O: | |||||
1,000,000 | A2 | Commuter Facilities Revenue, 5.750% due 7/1/13 | 1,145,460 | ||
Transportation Facilities Revenue: | |||||
3,000,000 | A2 | 5.750% due 7/1/13 | 3,436,380 | ||
1,000,000 | Aaa | MBIA/IBC — Insured, 5.500% due 7/1/17 | 1,175,380 | ||
1,000,000 | Aaa | New York City Transit Authority, MTA, Co. (Triborough Bridge), | |||
Series A, AMBAC-Insured 5.625% due 1/1/15 | 1,142,900 | ||||
12,314,806 | |||||
Water & Sewer — 0.3% | |||||
290,000 | Aaa | New York State Environmental Facilities Corp., Pollution Control Revenue, | |||
State Water Revolving Fund, Series A, 7.500% due 6/15/12 | 290,954 | ||||
TOTAL MUNICIPAL BONDS & NOTES | |||||
(Cost — $96,018,205) | 102,809,328 | ||||
VARIABLE DEMAND NOTE (b) — 0.3% | |||||
Housing — 0.3% | |||||
300,000 | VMIG I | Jay Street Development Corp., New York Counties Facility, Lease Revenue, | |||
2.16% due 1/6/05 (Cost — $300,000) | 300,000 | ||||
TOTAL INVESTMENTS — 98.5% (Cost — $96,318,205**) | 103,109,328 | ||||
Other Assets in Excess of Liabilities — 1.5% | 1,536,411 | ||||
TOTAL NET ASSETS — 100.0% | $ | 104,645,739 | |||
(a) | All ratings are by Moody’s Investors Service, except for those identified by an asterisk (*), which are rated by Standard & Poor’s Rating Service. |
(b) | Variable rate demand notes have a demand feature under which the Fund could tender them back to the issuer on no more than seven days notice |
** | Aggregate cost for federal income tax purposes is substantially the same. |
See pages 37 and 38 for definitions of ratings and certain abbreviations.
See Notes to Financial Statements.
32
Schedules of Investments
(continued)
Salomon Brothers Mid Cap Fund
Shares | Value | |||
COMMON STOCK — 99.6% | ||||
CONSUMER DISCRETIONARY — 17.7% | ||||
Auto Components — 2.4% | ||||
10,500 | American Axle & Manufacturing Holdings, Inc. | $ | 321,930 | |
4,200 | Borg Warner Inc. | 227,514 | ||
549,444 | ||||
Hotels, Restaurants & Leisure — 4.3% | ||||
3,480 | GTECH Holdings Corp. | 90,306 | ||
4,200 | Landry’s Restaurants, Inc. | 122,052 | ||
8,555 | Outback Steakhouse, Inc. | 391,648 | ||
6,900 | Station Casinos, Inc. | 377,292 | ||
981,298 | ||||
Household Durables — 1.8% | ||||
1,700 | HNI Corp. | 73,185 | ||
1,933 | Mohawk Industries, Inc. (a) | 176,386 | ||
3,000 | The Ryland Group, Inc. | 172,620 | ||
422,191 | ||||
Media — 3.0% | ||||
5,300 | Entercom Communications Corp. (a) | 190,217 | ||
6,700 | Lamar Advertising Co., Class A Shares (a) | 286,626 | ||
200 | The Washington Post Co., Class B Shares | 196,605 | ||
673,448 | ||||
Multi-Line Retail — 1.3% | ||||
2,350 | The Neiman Marcus Group, Inc., Class A Shares | 168,119 | ||
8,600 | Saks Inc. (a) | 124,786 | ||
292,905 | ||||
Specialty Retail — 4.0% | ||||
11,800 | AnnTaylor Stores Corp. (a) | 254,055 | ||
2,900 | Chico’s FAS, Inc. (a) | 132,037 | ||
2,300 | O’Reilly Automotive, Inc. (a) | 103,615 | ||
6,400 | PETsMART, Inc. | 227,392 | ||
5,400 | Williams-Sonoma, Inc. (a) | 189,216 | ||
906,315 | ||||
Textiles & Apparel — 0.9% | ||||
3,400 | Columbia Sportswear Co. (a) | 202,674 | ||
TOTAL CONSUMER DISCRETIONARY | 4,028,275 | |||
CONSUMER STAPLES — 4.9% | ||||
Food Products — 2.3% | ||||
11,510 | Hormel Foods Corp. | 360,838 | ||
3,300 | The J. M. Smucker Co. | 155,332 | ||
516,170 | ||||
Household Products — 2.1% | ||||
14,400 | Church & Dwight Co., Inc. | 484,128 | ||
Personal Products — 0.5% | ||||
3,200 | Chattem, Inc. (a) | 105,920 | ||
TOTAL CONSUMER STAPLES | 1,106,218 | |||
ENERGY — 7.1% | ||||
Energy Equipment & Services — 5.2% | ||||
10,500 | Core Laboratories N.V. (a) | 245,175 | ||
13,300 | Patterson-UTI Energy, Inc. | 258,685 | ||
3,500 | Precision Drilling Corp. (a) | 219,800 | ||
10,400 | Rowan Cos., Inc. (a) | 269,360 | ||
3,200 | Smith International, Inc. (a) | 174,112 | ||
1,167,132 | ||||
See Notes to Financial Statements.
33
Schedules of Investments
(continued)
Salomon Brothers Mid Cap Fund
Shares�� | Value | |||
Oil & Gas — 1.9% | ||||
3,600 | Murphy Oil Corp. | $ | 289,620 | |
4,200 | XTO Energy, Inc. | 148,596 | ||
438,216 | ||||
TOTAL ENERGY | 1,605,348 | |||
FINANCIALS — 14.9% | ||||
Banks — 5.5% | ||||
3,800 | Banknorth Group, Inc. | 139,080 | ||
4,100 | CVB Financial Corp. | 108,896 | ||
2,000 | City National Corp. | 141,300 | ||
3,402 | Commerce Bancshares, Inc. | 170,780 | ||
6,485 | Compass Bancshares, Inc. | 315,625 | ||
3,300 | Independence Community Bank Corp. | 140,514 | ||
4,900 | Popular, Inc. | 141,267 | ||
3,200 | TCF Financial Corp. | 102,848 | ||
1,260,310 | ||||
Diversified Financials — 2.3% | ||||
7,200 | Legg Mason, Inc. | 527,472 | ||
Insurance — 7.1% | ||||
3,000 | Mercury General Corp. | 179,760 | ||
5,800 | Philadelphia Consolidated Holding Corp. (a) | 383,612 | ||
9,900 | Platinum Underwriters Holdings, Ltd. | 307,890 | ||
7,600 | Scottish Re Group Ltd. | 196,840 | ||
1,400 | StanCorp Financial Group, Inc. | 115,500 | ||
200 | White Mountains Insurance Group Ltd. | 129,200 | ||
7,200 | Willis Group Holdings Ltd. | 296,424 | ||
1,609,226 | ||||
TOTAL FINANCIALS | 3,397,008 | |||
HEALTH CARE — 10.9% | ||||
Biotechnology — 0.2% | ||||
3,900 | Millennium Pharmaceuticals, Inc. (a) | 47,268 | ||
Healthcare Equipment & Supplies — 6.6% | ||||
1,400 | C.R. Bard, Inc. | 89,572 | ||
10,600 | DJ Orthopedics Inc. (a) | 227,052 | ||
4,900 | DENTSPLY International, Inc. | 275,380 | ||
5,600 | Edwards Lifesciences Corp. (a) | 231,056 | ||
4,000 | Fisher Scientific International Inc. (a) | 249,520 | ||
5,200 | Respironics Inc. (a) | 282,672 | ||
5,700 | STERIS Corp. (a) | 135,204 | ||
1,490,456 | ||||
Healthcare Providers & Services — 1.1% | ||||
3,500 | Apria Healthcare Group, Inc. (a) | 115,325 | ||
5,000 | Community Health Systems, Inc. (a) | 139,400 | ||
254,725 | ||||
Pharmaceuticals — 3.0% | ||||
6,100 | Auxilium Pharmaceuticals, Inc. (a) | 53,375 | ||
5,178 | Barr Pharmaceuticals, Inc. (a) | 235,806 | ||
6,200 | Medicis Pharmaceutical Corp., Class A Shares | 217,682 | ||
3,000 | Sepracor, Inc. (a) | 178,110 | ||
684,973 | ||||
TOTAL HEALTH CARE | 2,477,422 | |||
See Notes to Financial Statements.
34
Schedules of Investments
(continued)
Salomon Brothers Mid Cap Fund
Shares | Value | |||
INDUSTRIALS — 18.4% | ||||
Aerospace & Defense — 2.0% | ||||
17,300 | Aeroflex, Inc. (a) | $ | 209,676 | |
3,708 | Alliant Techsystems, Inc. (a) | 242,429 | ||
452,105 | ||||
Airlines — 1.0% | ||||
9,525 | JetBlue Airways Corp. (a) | 221,170 | ||
Commercial Services & Supplies — 7.1% | ||||
4,300 | ARAMARK Corp., Class B Shares | 113,993 | ||
2,300 | ChoicePoint Inc. (a) | 105,777 | ||
11,500 | DST Systems, Inc. (a) | 599,380 | ||
6,000 | Education Management Corp. (a) | 198,060 | ||
4,300 | Manpower, Inc. | 207,690 | ||
3,000 | R.R. Donnelley & Sons Co. | 105,870 | ||
10,000 | Robert Half International, Inc. | 294,300 | ||
1,625,070 | ||||
Construction & Engineering — 0.3% | ||||
2,200 | Granite Construction, Inc. | 58,520 | ||
Electrical Equipment — 0.5% | ||||
2,400 | Tecumseh Products Co., Class A Shares | 114,720 | ||
Industrial Conglomerates — 1.7% | ||||
5,945 | Carlisle Cos. Inc. | 385,949 | ||
Machinery — 4.2% | ||||
3,500 | Actuant Corp., Class A Shares (a) | 182,525 | ||
9,450 | IDEX Corp. | 382,725 | ||
1,800 | Oshkosh Truck Corp. | 123,084 | ||
10,500 | Timken Co. | 273,210 | ||
961,544 | ||||
Road & Rail — 1.6% | ||||
16,400 | Werner Enterprises, Inc. | 371,296 | ||
TOTAL INDUSTRIALS | 4,190,374 | |||
INFORMATION TECHNOLOGY — 16.2% | ||||
Communications Equipment — 5.8% | ||||
14,700 | Avaya Inc. (a) | 252,840 | ||
38,000 | Brocade Communications Systems, Inc. (a) | 290,320 | ||
15,300 | Carrier Access Corp. (a) | 163,404 | ||
6,200 | Plantronics, Inc. | 257,114 | ||
10,900 | Powerwave Technologies, Inc. (a) | 92,432 | ||
13,000 | Tekelec (a) | 265,720 | ||
1,321,830 | ||||
Computers & Peripherals — 0.5% | ||||
4,200 | SanDisk Corp. (a) | 104,874 | ||
Electronic Equipment & Instruments — 3.5% | ||||
7,500 | Amphenol Corp., Class A Shares (a) | 275,550 | ||
1,800 | Arrow Electronics, Inc. (a) | 43,740 | ||
2,600 | Benchmark Electronics, Inc. (a) | 88,660 | ||
5,000 | Diebold, Inc. | 278,650 | ||
7,600 | Plexus Corp. (a) | 98,876 | ||
785,476 | ||||
Internet Software & Services — 0.5% | ||||
2,300 | Infospace Inc. (a) | 109,365 | ||
See Notes to Financial Statements.
35
Schedules of Investments
(continued)
Salomon Brothers Mid Cap Fund
Shares | Value | ||||
Office Electronics — 0.7% | |||||
2,900 | Zebra Technologies Corp., Class A Shares (a) | $ | 163,212 | ||
Semiconductor Equipment & Products — 1.4% | |||||
4,600 | Cymer, Inc. (a) | 135,885 | |||
20,500 | LSI Logic Corp. (a) | 112,340 | |||
3,930 | Teradyne, Inc. (a) | 67,085 | |||
315,310 | |||||
Software — 3.8% | |||||
2,300 | Macromedia, Inc. (a) | 71,576 | |||
21,800 | Quest Software, Inc. (a) | 347,710 | |||
34,000 | TIBCO Software Inc. (a) | 453,560 | |||
872,846 | |||||
TOTAL INFORMATION TECHNOLOGY | 3,672,913 | ||||
MATERIALS — 5.0% | |||||
Chemicals — 2.0% | |||||
3,400 | FMC Corp. (a) | 164,220 | |||
7,500 | Lubrizol Corp. | 276,450 | |||
440,670 | |||||
Construction Materials — 1.7% | |||||
2,820 | Rinker Group Ltd. ADR | 234,255 | |||
2,700 | Vulcan Materials Co. | 147,447 | |||
381,702 | |||||
Containers & Packaging — 1.3% | |||||
4,200 | AptarGroup, Inc. | 221,676 | |||
2,700 | Sonoco Products Co. | 80,055 | |||
301,731 | |||||
TOTAL MATERIALS | 1,124,103 | ||||
TELECOMMUNICATION SERVICES — 0.8% | |||||
Wireless Telecommunication Services — 0.8% | |||||
2,300 | Telephone & Data Systems, Inc. | 176,985 | |||
UTILITIES — 3.7% | |||||
Electric Utilities — 1.1% | |||||
7,100 | Wisconsin Energy Corp. | 239,341 | |||
Gas Utilities — 1.2% | |||||
5,100 | Sempra Energy | 187,068 | |||
1,700 | Southwestern Energy Co. (a) | 86,174 | |||
273,242 | |||||
Multi-Utilities — 1.4% | |||||
5,500 | SCANA Corp. | 216,700 | |||
4,800 | Westar Energy, Inc. | 109,776 | |||
326,476 | |||||
TOTAL UTILITIES | 839,059 | ||||
TOTAL COMMON STOCK (Cost — $ 17,857,248) | 22,617,705 | ||||
REPURCHASE AGREEMENT — 0.7% | |||||
$154,000 | State Street Bank & Trust Co. dated 12/31/04, 1.400% due 1/3/05; Proceeds at maturity $154,018; | ||||
(Fully collateralized by Federal Home Loan Bank, 6.500% due 11/13/09; Market Value — $157,325) | |||||
(Cost — $154,000) | 154,000 | ||||
TOTAL INVESTMENTS — 100.3% (Cost — $18,011,248*) | 22,771,705 | ||||
Liabilities in Excess of Other Assets — (0.3)% | (67,978 | ) | |||
TOTAL NET ASSETS — 100.0% | $ | 22,703,727 | |||
(a) | Non-income producing security. | |
* | Aggregate cost for federal income tax purposes is $18,012,681. |
See pages 37 and 38 for definitions of ratings and certain abbreviations.
See Notes to Financial Statements.
36
Bond Ratings
(unaudited)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor’s Ratings Service (“Standard & Poor’s”) — Ratings from “AA” to “BBB” may be modified by the addition of a plus (+) or minus (–) sign to show relative standings within the major rating categories.
AAA | — | Bonds rated “AAA” have the highest rating assigned by Standard & Poor’s. Capacity to pay interest and repay | |
principal is extremely strong. | |||
AA | — | Bonds rated “AA” have a very strong capacity to pay interest and repay principal and differ from the highest rated | |
issue only in a small degree. | |||
A | — | Bonds rated “A” have a strong capacity to pay interest and repay principal although it is somewhat more | |
susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated | |||
categories. | |||
BBB | — | Bonds rated “BBB” have an adequate capacity to pay interest and repay principal. Whereas they normally exhibit | |
adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to | |||
a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories. |
Moody’s Investors Service (“Moody’s”) — Numerical modifiers 1, 2 and 3 may be applied to each generic rating from “Aa” to “Baa,” where 1 is the highest and 3 the lowest ranking within its generic category.
Aaa | — | Bonds rated “Aaa” are judged to be of the best quality. They carry the smallest degree of investment risk and are | |
generally referred to as “gilt edge.” Interest payments are protected by a large or by an exceptionally stable margin | |||
and principal is secure. While the various protective elements are likely to change, such changes as can be | |||
visualized are most unlikely to impair the fundamentally strong position of such issues. | |||
Aa | — | Bonds rated “Aa” are judged to be of high quality by all standards. Together with the “Aaa” group they comprise | |
what are generally known as high grade bonds. They are rated lower than the best bonds because margins of | |||
protection may not be as large in “Aaa” securities or fluctuation of protective elements may be of greater amplitude | |||
or there may be other elements present which make the long-term risks appear somewhat larger than in “Aaa” | |||
securities. | |||
A | — | Bonds rated “A” are judged to possess many favorable investment attributes and are to be considered as upper | |
medium grade obligations. Factors giving security to principal and interest are considered adequate but elements | |||
may be present which suggest a susceptibility to impairment some time in the future. | |||
Baa | — | Bonds rated “Baa” are judged as medium grade obligations, i.e., they are neither highly protected nor poorly | |
secured. Interest payments and principal security appear adequate for the present but certain protective elements | |||
may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding | |||
investment characteristics and in fact have speculative characteristics as well. |
Fitch Ratings (“Fitch”) — Ratings from “AA” to “A” may be modified by the addition of a plus (+) or minus (-) sign to show relative standings within the major rating categories.
AAA | — | Bonds rated “AAA” have the lowest expectation of credit risk. They are assigned only in case of exceptionally | |
strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely | |||
affected by foreseeable events. | |||
AA | — | Bonds rated “AA” have a very low expectation of credit risk. They indicate very strong capacity for timely | |
payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. | |||
A | — | Bonds rated “A” have a low expectation of credit risk. The capacity for timely payment of financial commitments | |
is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in | |||
economic conditions than is the case for higher ratings. | |||
NR | — | Indicates that the bond is not rated by Standard & Poor’s, Moody’s, or Fitch. |
37
Short-Term Security Ratings
(unaudited)
SP-1 | — | Standard & Poor’s highest rating indicating very strong or strong capacity to pay principal and interest; those issues | |
determined to possess overwhelming safety characteristics are denoted with a plus (+) sign. | |||
A-1 | — | Standard & Poor’s highest commercial paper and variable-rate demand obligation (VRDO) rating indicating that | |
the degree of safety regarding timely payment is either overwhelming or very strong; those issues determined to | |||
possess overwhelming safety characteristics are denoted with a plus (+) sign. | |||
VMIG 1 | — | Moody’s highest rating for issues having a demand feature — VRDO. | |
P-1 | — | Moody’s highest rating for commercial paper and for VRDO prior to the advent of the VMIG 1 rating. |
Abbreviations*
(unaudited)
ABAG | — | Association of Bay Area Governments | IDA | — | Industrial Development Authority | |||
ADR | — | American Depositary Receipt | IDB | — | Industrial Development Board | |||
AIG | — | American International Guaranty | IDR | — | Industrial Development Revenue | |||
AMBAC | — | American Municipal Bond | INFLOS | — | Inverse Floaters | |||
Assurance Indemnity Corporation | ISD | — | Independent School District | |||||
AMT | — | Alternative Minimum Tax | LOC | — | Letter of Credit | |||
BAN | — | Bond Anticipation Notes | MBIA | — | Municipal Bond Investors | |||
BIG | — | Bond Investors Guaranty | Assurance Corporation | |||||
CDA | — | Community Development Administration | MFH | — | Multi-Family Housing | |||
CGIC | — | Capital Guaranty Insurance Company | MVRICS | — | Municipal Variable Rate Inverse | |||
CHFCLI | — | California Health Facility | Coupon Security | |||||
Construction Loan Insurance | PCR | — | Pollution Control Revenue | |||||
COP | — | Certificate of Participation | PFA | — | Public Finance Authority | |||
EDA | — | Economic Development Authority | PSFG | — | Permanent School Fund Guaranty | |||
ETM | — | Escrowed To Maturity | Q-SBLF | — | Qualified School Bond Loan Fund | |||
FGIC | — | Financial Guaranty Insurance Company | RAN | — | Revenue Anticipation Notes | |||
FHA | — | Federal Housing Administration | RIBS | — | Residual Interest Bonds | |||
FHLMC | — | Federal Home Loan Mortgage Corporation | RITES | — | Residual Interest Tax-Exempt Securities | |||
FLAIRS | — | Floating Adjustable Interest Rate Securities | SFM | — | Single-Family Mortgage | |||
FNMA | — | Federal National Mortgage Association | SONYMA | — | State of New York Mortgage Association | |||
FRTC | — | Floating Rate Trust Certificates | SYCC | — | Structured Yield Curve Certificate | |||
FSA | — | Financial Security Assurance | TAN | — | Tax Anticipation Notes | |||
GIC | — | Guaranteed Investment Contract | TECP | — | Tax Exempt Commercial Paper | |||
GNMA | — | Government National Mortgage Association | TOB | — | Tender Option Bonds | |||
GO | — | General Obligation | TRAN | — | Tax and Revenue Anticipation Notes | |||
HDA | — | Housing Development Authority | VA | — | Veterans Administration | |||
HDC | — | Housing Development Corporation | VRDD | — | Variable Rate Daily Demand | |||
HFA | — | Housing Finance Authority | VRWE | — | Variable Rate Wednesday Demand | |||
IBC | — | Insured Bond Certificates |
* | Abbreviations may or may not appear in the schedule of investments. |
38
Statements of Assets and Liabilities
December 31, 2004
Salomon Brothers | |||||||||||||||
ASSETS: | |||||||||||||||
Investments, at cost | $ | 39,182,927 | $ | 10,151,651 | $ | 96,318,205 | $ | 18,011,248 | |||||||
Investments, at value | $ | 41,353,134 | $ | 11,232,751 | $ | 103,109,328 | $ | 22,771,705 | |||||||
Cash | 132,775 | 26,328 | 65,053 | 863 | |||||||||||
Dividends and interest receivable | 632,615 | 180,691 | 1,754,561 | 14,047 | |||||||||||
Receivable for shares of beneficial interest sold | 32,094 | 180 | 3,213 | 6,811 | |||||||||||
Receivable from manager | 3,516 | 1,727 | — | — | |||||||||||
Prepaid expenses | 13,591 | 14,937 | 10,484 | 23,130 | |||||||||||
Total Assets | 42,167,725 | 11,456,614 | 104,942,639 | 22,816,556 | |||||||||||
LIABILITIES: | |||||||||||||||
Dividends payable | 10,301 | 1,191 | 6,504 | — | |||||||||||
Payable for securities purchased | — | — | — | 24,221 | |||||||||||
Payable for shares of beneficial interest repurchased | 98,289 | 3,952 | 152,235 | 28,786 | |||||||||||
Management fee payable (Note 2) | — | — | 29,171 | — | |||||||||||
Distribution and service fees payable (Note 4) | 5,529 | 1,210 | 10,838 | 604 | |||||||||||
Accrued expenses | 67,678 | 42,329 | 98,152 | 59,218 | |||||||||||
Total Liabilities | 181,797 | 48,682 | 296,900 | 112,829 | |||||||||||
Total Net Assets | $ | 41,985,928 | $ | 11,407,932 | $ | 104,645,739 | $ | 22,703,727 | |||||||
NET ASSETS: | |||||||||||||||
Par value of shares of beneficial interest (Note 6) | — | — | — | $ | 1,173 | ||||||||||
Capital paid in excess of par value | $ | 45,294,074 | $ | 13,267,279 | $ | 103,731,228 | 17,534,993 | ||||||||
Accumulated net realized gain (loss) from investment transactions | (5,478,353 | ) | (2,940,447 | ) | (5,876,612 | ) | 407,104 | ||||||||
Net unrealized appreciation on investments | 2,170,207 | 1,081,100 | 6,791,123 | 4,760,457 | |||||||||||
Total Net Assets | $ | 41,985,928 | $ | 11,407,932 | $ | 104,645,739 | $ | 22,703,727 | |||||||
Shares Outstanding: | |||||||||||||||
Class A | 3,149,981 | 1,057,828 | 8,743,855 | 77,741 | |||||||||||
Class B | 248,065 | 11,960 | 23,021 | 15,532 | |||||||||||
Class C† | 129,642 | 3,482 | 2,744 | 12,409 | |||||||||||
Class O | 13,495 | 201 | 6,512 | 1,067,528 | |||||||||||
Net Asset Value: | |||||||||||||||
Class A Shares | |||||||||||||||
Net asset value and redemption price, per share | $ | 11.85 | $ | 10.63 | $ | 11.92 | $ | 19.15 | |||||||
Maximum offering price, per share (based on maximum sales | |||||||||||||||
charges of 4.00%, 4.00%, 4.00% and 5.75%, respectively) | $ | 12.34 | $ | 11.07 | $ | 12.42 | $ | 20.32 | |||||||
Class B Shares | |||||||||||||||
Net asset value and offering price, per share* | $ | 11.87 | $ | 10.64 | $ | 11.92 | $ | 18.75 | |||||||
Class C Shares† | |||||||||||||||
Net asset value and offering price, per share* | $ | 11.87 | $ | 10.63 | $ | 11.90 | $ | 18.82 | |||||||
Class O Shares | |||||||||||||||
Net asset value, offering price and redemption price per share | $ | 11.87 | $ | 10.63 | $ | 11.91 | $ | 19.38 | |||||||
* | Redemption price per share is equal to net asset value less any applicable contingent deferred sales charges. | |
† | On April 29, 2004 Class 2 shares were renamed as Class C Shares. |
See Notes to Financial Statements.
39
Statements of Operations
For the Year Ended December 31, 2004
Salomon Brothers | ||||||||||||||||
INVESTMENT INCOME: | ||||||||||||||||
Interest | $ | 2,012,864 | $ | 549,461 | $ | 4,975,112 | $ | 2,379 | ||||||||
Dividend | — | — | — | 175,311 | ||||||||||||
Less: Foreign withholding tax | — | — | — | (78 | ) | |||||||||||
Total Investment Income | 2,012,864 | 549,461 | 4,975,112 | 177,612 | ||||||||||||
EXPENSES: | ||||||||||||||||
Management fees (Note 2) | 224,668 | 59,786 | 550,388 | 156,907 | ||||||||||||
Distribution and service plan fees (Note 4) | 146,276 | 31,009 | 279,229 | 4,982 | ||||||||||||
Transfer agency services (Note 4) | 52,724 | 8,530 | 41,647 | 15,985 | ||||||||||||
Audit and legal | 49,306 | 41,642 | 55,815 | 35,847 | ||||||||||||
Custody | 45,555 | 39,641 | 56,287 | 45,693 | ||||||||||||
Shareholder communications (Note 4) | 39,009 | 16,980 | 33,352 | 18,190 | ||||||||||||
Registration fees | 24,305 | 30,418 | 35,936 | 30,823 | ||||||||||||
Insurance fees | 1,050 | 1,269 | 2,747 | 1,627 | ||||||||||||
Trustees’ fees | 1,249 | 876 | 2,422 | 2,225 | ||||||||||||
Other | 14,530 | 6,095 | 6,557 | 14,602 | ||||||||||||
Total Expenses | 598,672 | 236,246 | 1,064,380 | 326,881 | ||||||||||||
Less: Management fee waivers and expense reimbursement (Note 2) | (227,608 | ) | (139,470 | ) | (179,723 | ) | (94,006 | ) | ||||||||
Net Expenses | 371,064 | 96,776 | 884,657 | 232,875 | ||||||||||||
Net Investment Income (Loss) | 1,641,800 | 452,685 | 4,090,455 | (55,263 | ) | |||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) ON | ||||||||||||||||
TRANSACTIONS (NOTES 1 AND 3): | ||||||||||||||||
Net Realized Gain From Investment Transactions | 1,905,407 | 177,941 | 3,220,509 | 2,301,990 | ||||||||||||
Net Change in Unrealized Appreciation/Depreciation of Investments | (2,200,438 | ) | (291,413 | ) | (3,957,020 | ) | 546,408 | |||||||||
Net Gain (Loss) on Investments | (295,031 | ) | (113,472 | ) | (736,511 | ) | 2,848,398 | |||||||||
Increase in Net Assets From Operations | $ | 1,346,769 | $ | 339,213 | $ | 3,353,944 | $ | 2,793,135 | ||||||||
See Notes to Financial Statements.
40
Statements of Changes in Net Assets
For the Years Ended December 31,
Salomon Brothers | ||||||||
National Tax Free | ||||||||
Bond Fund | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 1,641,800 | $ | 2,129,499 | ||||
Net realized gain | 1,905,407 | 2,211,803 | ||||||
Net change in net unrealized appreciation/depreciation | (2,200,438 | ) | (1,637,934 | ) | ||||
Increase in Net Assets From Operations | 1,346,769 | 2,703,368 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 5): | ||||||||
Net investment income | (1,641,800 | ) | (2,155,254 | ) | ||||
Decrease in Net Assets From Distributions to Shareholders | (1,641,800 | ) | (2,155,254 | ) | ||||
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 6): | ||||||||
Proceeds from sale of shares | 5,247,209 | 34,834,712 | ||||||
Net assets value of shares issued for reinvestment of distributions | 1,515,194 | 1,905,712 | ||||||
Cost of shares repurchased | (13,101,406 | ) | (45,811,300 | ) | ||||
Decrease in Net Assets From Transactions in Shares of Beneficial Interest | (6,339,003 | ) | (9,070,876 | ) | ||||
Decrease in Net Assets | (6,634,034 | ) | (8,522,762 | ) | ||||
NET ASSETS: | ||||||||
Beginning of year | 48,619,962 | 57,142,724 | ||||||
End of year | $ | 41,985,928 | $ | 48,619,962 | ||||
See Notes to Financial Statements.
41
Statements of Changes in Net Assets
For the Years Ended December 31,
Salomon Brothers | ||||||||
California Tax Free | ||||||||
Bond Fund | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 452,685 | $ | 527,320 | ||||
Net realized gain | 177,941 | 46,041 | ||||||
Net change in net unrealized appreciation/depreciation | (291,413 | ) | 8,391 | |||||
Increase in Net Assets From Operations | 339,213 | 581,752 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 5): | ||||||||
Net investment income | (452,685 | ) | (527,320 | ) | ||||
Decrease in Net Assets From Distributions to Shareholders | (452,685 | ) | (527,320 | ) | ||||
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 6): | ||||||||
Proceeds from sale of shares | 103,073 | 501,662 | ||||||
Net assets value of shares issued for reinvestment of distributions | 342,606 | 515,095 | ||||||
Cost of shares repurchased | (2,139,861 | ) | (3,411,036 | ) | ||||
Decrease in Net Assets From Transactions in Shares of Beneficial Interest | (1,694,182 | ) | (2,394,279 | ) | ||||
Decrease in Net Assets | (1,807,654 | ) | (2,339,847 | ) | ||||
NET ASSETS: | ||||||||
Beginning of year | 13,215,586 | 15,555,433 | ||||||
End of year | $ | 11,407,932 | $ | 13,215,586 | ||||
See Notes to Financial Statements.
42
Statements of Changes in Net Assets
For the Years Ended December 31,
Salomon Brothers | ||||||||
New York Tax Free | ||||||||
Bond Fund | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 4,090,455 | $ | 4,918,064 | ||||
Net realized gain | 3,220,509 | 1,075,223 | ||||||
Net change in net unrealized appreciation/depreciation | (3,957,020 | ) | (399,912 | ) | ||||
Increase in Net Assets From Operations | 3,353,944 | 5,593,375 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 5): | ||||||||
Net investment income | (4,090,455 | ) | (4,982,340 | ) | ||||
Decrease in Net Assets From Distributions to Shareholders | (4,090,455 | ) | (4,982,340 | ) | ||||
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 6): | ||||||||
Proceeds from sale of shares | 1,011,044 | 25,703,716 | ||||||
Net assets value of shares issued for reinvestment of distributions | 4,043,985 | 4,784,677 | ||||||
Cost of shares repurchased | (17,747,024 | ) | (40,854,259 | ) | ||||
Decrease in Net Assets From Transactions in Shares of Beneficial Interest | (12,691,995 | ) | (10,365,866 | ) | ||||
Decrease in Net Assets | (13,428,506 | ) | (9,754,831 | ) | ||||
NET ASSETS: | ||||||||
Beginning of year | 118,074,245 | 127,829,076 | ||||||
End of year | $ | 104,645,739 | $ | 118,074,245 | ||||
43
Statements of Changes in Net Assets
For the Years Ended December 31,
Salomon Brothers | ||||||||
Mid Cap | ||||||||
OPERATIONS: | ||||||||
Net investment loss | $ | (55,263 | ) | $ | (26,415 | ) | ||
Net realized gain | 2,301,990 | 174,033 | ||||||
Net change in net unrealized appreciation/depreciation | 546,408 | 4,553,721 | ||||||
Increase in Net Assets From Operations | 2,793,135 | 4,701,339 | ||||||
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 6): | ||||||||
Proceeds from sale of shares | 2,003,952 | 523,233 | ||||||
Cost of shares repurchased | (2,974,409 | ) | (1,205,654 | ) | ||||
Decrease in Net Assets From Transactions in Shares of Beneficial Interest | (970,457 | ) | (682,421 | ) | ||||
Increase in Net Assets | 1,822,678 | 4,018,918 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 20,881,049 | 16,862,131 | ||||||
End of year | $ | 22,703,727 | $ | 20,881,049 | ||||
44
Financial Highlights
For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Salomon Brothers National Tax Free Bond Fund |
Class A Shares | ||||||||||||||||||||
2004 | * | 2003 | * | 2002 | * | 2001 | 2000 | |||||||||||||
Net Asset Value, Beginning of Year | $ | 11.91 | $ | 11.79 | $ | 11.13 | $ | 11.26 | $ | 10.54 | ||||||||||
Income (Loss) From Operations: | ||||||||||||||||||||
Net investment income | 0.44 | 0.46 | 0.48 | 0.50 | 0.51 | |||||||||||||||
Net realized and unrealized gain (loss) | (0.06 | ) | 0.13 | 0.66 | (0.12 | ) | 0.73 | |||||||||||||
Total Income From Operations | 0.38 | 0.59 | 1.14 | 0.38 | 1.24 | |||||||||||||||
Less Distributions From: | ||||||||||||||||||||
Net investment income | (0.44 | ) | (0.47 | ) | (0.48 | ) | (0.51 | ) | (0.52 | ) | ||||||||||
Net realized gains | — | — | — | — | — | |||||||||||||||
Total Distributions | (0.44 | ) | (0.47 | ) | (0.48 | ) | (0.51 | ) | (0.52 | ) | ||||||||||
Net Asset Value, End of Year | $ | 11.85 | $ | 11.91 | $ | 11.79 | $ | 11.13 | $ | 11.26 | ||||||||||
Total Return (1) | 3.28 | % | 5.07 | % | 10.41 | % | 3.39 | % | 12.10 | % | ||||||||||
Net Assets, End of Year (000s) | $ | 37,343 | $ | 42,210 | $ | 50,325 | $ | 62,440 | $ | 72,875 | ||||||||||
Ratios to Average Net Assets: | ||||||||||||||||||||
Expenses(2)(3)(4) | 0.75 | % | 0.75 | % | 0.76 | % | 0.80 | % | 0.80 | % | ||||||||||
Expenses after fees paid indirectly (2) | N/A | N/A | N/A | 0.80 | 0.80 | |||||||||||||||
Net investment income | 3.73 | 3.92 | 4.22 | 4.28 | 4.67 | |||||||||||||||
Portfolio Turnover Rate | 41 | % | 42 | % | 12 | % | 15 | % | 46 | % |
Salomon Brothers National Tax Free Bond Fund
2004 | 2003 | 2002 | 2001 | (5) | ||||||||||||
Net Asset Value, Beginning of Year | $ | 11.93 | $ | 11.80 | $ | 11.14 | $ | 11.46 | ||||||||
Income (Loss) From Operations: | ||||||||||||||||
Net investment income | 0.35 | 0.37 | 0.40 | 0.07 | ||||||||||||
Net realized and unrealized gain (loss) | (0.06 | ) | 0.13 | 0.65 | (0.31 | ) | ||||||||||
Total Income (Loss) From Operations | 0.29 | 0.50 | 1.05 | (0.24 | ) | |||||||||||
Less Distributions From: | ||||||||||||||||
Net investment income | (0.35 | ) | (0.37 | ) | (0.39 | ) | (0.08 | ) | ||||||||
Total Distributions | (0.35 | ) | (0.37 | ) | (0.39 | ) | (0.08 | ) | ||||||||
Net Asset Value, End of Year | $ | 11.87 | $ | 11.93 | $ | 11.80 | $ | 11.14 | ||||||||
Total Return (1) | 2.51 | % | 4.35 | % | 9.59 | % | (2.09 | )%‡ | ||||||||
Net Assets, End of Year (000s) | $ | 2,944 | $ | 4,330 | $ | 4,839 | $ | 4,599 | ||||||||
Ratios to Average Net Assets: | ||||||||||||||||
Expenses (2)(4)(6) | 1.50 | % | 1.50 | % | 1.49 | % | 1.53 | %† | ||||||||
Expenses after fees paid indirectly (2) | N/A | N/A | N/A | 1.53 | † | |||||||||||
Ratio of net investment income to average net assets | 2.98 | 3.16 | 3.43 | 3.55 | † | |||||||||||
Portfolio Turnover Rate | 41 | % | 42 | % | 12 | % | 15 | % |
(1 | ) | Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence |
of voluntary fee waivers and/or expense reimbursements, the total return would be reduced. | ||
(2 | ) | The expense ratios for 2001, 2000 and 1999 reflect the effects of expense offset arrangements with its service providers. |
(3 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 0.75% for Class A shares. Prior to January 30, 2002, |
the expense limitation was 0.80%. | ||
(4 | ) | The investment manager voluntarily waived a portion of its management fee for the year ended December 31, 2004, 2003, 2002, 2001 and 2000, |
respectively. If such fee were not waived, the actual expense ratios would have been 1.26%, 1.10%, 1.18%, 1.52% and 1.32% for Class A and 2.01%, | ||
1.85%, 1.91% and for the period ended 2001, 2.22%† for Class B shares, respectively. | ||
(5 | ) | For the period October 12, 2001 (inception date) to December 31, 2001. |
(6 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.50% for Class B shares. |
* | Per share amounts have been calculated using the monthly average shares method. | |
‡ | Total return is not annualized, as it may not be representative of the total return for the year. | |
† | Annualized. |
See Notes to Financial Statements.
45
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Salomon Brothers National Tax Free Bond FundClass C Shares (1)* | ||||||||||||||||
2004 | 2003 | 2002 | 2001 | (2) | ||||||||||||
Net Asset Value, Beginning of Year | $ | 11.92 | $ | 11.80 | $ | 11.13 | $ | 11.42 | ||||||||
Income (Loss) From Operations: | ||||||||||||||||
Net investment income | 0.38 | 0.40 | 0.43 | 0.05 | ||||||||||||
Net realized and unrealized gain (loss) | (0.05 | ) | 0.12 | 0.66 | (0.28 | ) | ||||||||||
Total Income (Loss) From Operations | 0.33 | 0.52 | 1.09 | (0.23 | ) | |||||||||||
Less Distributions From: | ||||||||||||||||
Net investment income | (0.38 | ) | (0.40 | ) | (0.42 | ) | (0.06 | ) | ||||||||
Total Distributions | (0.38 | ) | (0.40 | ) | (0.42 | ) | (0.06 | ) | ||||||||
Net Asset Value, End of Year | $ | 11.87 | $ | 11.92 | $ | 11.80 | $ | 11.13 | ||||||||
Total Return (3) | 2.85 | % | 4.53 | % | 9.96 | % | (2.10 | )%‡ | ||||||||
Net Assets, End of Year (000s) | $ | 1,539 | $ | 1,923 | $ | 1,763 | $ | 1,314 | ||||||||
Ratios to Average Net Assets: | ||||||||||||||||
Expenses (4)(5)(6) | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | %† | ||||||||
Expenses after fees paid indirectly (3) | N/A | N/A | N/A | 1.25 | † | |||||||||||
Net investment income | 3.22 | % | 3.41 | 3.69 | 3.73 | † | ||||||||||
Portfolio Turnover Rate | 41 | % | 42 | % | 12 | % | 15 | % | ||||||||
Salomon Brothers National Tax Free Bond Fund | ||||||||||||||||
Class O Shares* | ||||||||||||||||
2004 | 2003 | 2002 | 2001 | (2) | ||||||||||||
Net Asset Value, Beginning of Year | $ | 11.93 | $ | 11.79 | $ | 11.13 | $ | 11.42 | ||||||||
Income (Loss) From Operations: | ||||||||||||||||
Net investment income | 0.47 | 0.49 | 0.50 | 0.06 | ||||||||||||
Net realized and unrealized gain (loss) | (0.06 | ) | 0.14 | 0.67 | (0.29 | ) | ||||||||||
Total Income (Loss) From Operations | 0.41 | 0.63 | 1.17 | (0.23 | ) | |||||||||||
Less Distributions From: | ||||||||||||||||
Net investment income | (0.47 | ) | (0.49 | ) | (0.51 | ) | (0.06 | ) | ||||||||
Total Distributions | (0.47 | ) | (0.49 | ) | (0.51 | ) | (0.06 | ) | ||||||||
Net Asset Value, End of Year | $ | 11.87 | $ | 11.93 | $ | 11.79 | $ | 11.13 | ||||||||
Total Return (3) | 3.54 | % | 5.48 | % | 10.69 | % | (2.01 | )%‡ | ||||||||
Net Assets, End of Year (000s) | $ | 160 | $ | 157 | $ | 216 | $ | 362 | ||||||||
Ratios to Average Net Assets: | ||||||||||||||||
Expenses (4)(6)(7) | 0.50 | % | 0.50 | % | 0.50 | % | 0.50 | %† | ||||||||
Expenses after fees paid indirectly (4) | N/A | N/A | N/A | 0.50 | † | |||||||||||
Ratio of net investment income to average net assets | 3.97 | 4.18 | 4.39 | 4.48 | † | |||||||||||
Portfolio Turnover Rate | 41 | % | 42 | % | 12 | % | 15 | % |
(1 | ) | On April 29, 2004, Class 2 shares were renamed as Class C shares. | |
(2 | ) | For the period November 19, 2001 (inception date) to December 31, 2001. | |
(3 | ) | Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence | |
of voluntary fee waivers and/or expense reimbursements, the total return would be reduced. | |||
(4 | ) | The expense ratios for 2001 reflect the effects of expense offset arrangements with its service providers. | |
(5 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.25% for Class C shares. | |
(6 | ) | The investment manager voluntarily waived a portion of its management fee for the year ended December 31, 2004, 2003, 2002 and the period ended | |
2001, respectively. If such fee were not waived the actual expense ratios would have been 1.76%, 1.60%, 1.67% and 1.94%† for Class C and 1.01%, | |||
0.85%, 0.91% and 1.19%† for Class O shares, respectively. | |||
(7 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 0.50% for Class O shares. | |
* | Per share amounts have been calculated using the monthly average shares method. | ||
‡ | Total return is not annualized, as it may not be representative of the total return for the year. | ||
† | Annualized. |
See Notes to Financial Statements.
46
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Salomon Brothers California Tax Free Bond FundClass A Shares | ||||||||||||||||||||
2004 | * | 2003 | * | 2002 | * | 2001 | 2000 | |||||||||||||
Net Asset Value, Beginning of Year | $ | 10.70 | $ | 10.63 | $ | 10.17 | $ | 10.31 | $ | 9.43 | ||||||||||
Income (Loss) From Operations: | ||||||||||||||||||||
Net investment income | 0.40 | 0.39 | 0.39 | 0.43 | 0.44 | |||||||||||||||
Net realized and unrealized gain (loss) | (0.07 | ) | 0.07 | 0.46 | (0.14 | ) | 0.88 | |||||||||||||
Total Income From Operations | 0.33 | 0.46 | 0.85 | 0.29 | 1.32 | |||||||||||||||
Less Distributions From: | ||||||||||||||||||||
Net investment income | (0.40 | ) | (0.39 | ) | (0.39 | ) | (0.43 | ) | (0.44 | ) | ||||||||||
Total Distributions | (0.40 | ) | (0.39 | ) | (0.39 | ) | (0.43 | ) | (0.44 | ) | ||||||||||
Net Asset Value, End of Year | $ | 10.63 | $ | 10.70 | $ | 10.63 | $ | 10.17 | $ | 10.31 | ||||||||||
Total Return (1) | 3.19 | % | 4.40 | % | 8.47 | % | 2.83 | % | 14.33 | % | ||||||||||
Net Assets, End of Year (000s) | $ | 11,242 | $ | 13,009 | $ | 15,280 | $ | 16,332 | $ | 20,748 | ||||||||||
Ratios to Average Net Assets: | ||||||||||||||||||||
Expenses (2)(3)(4) | 0.80 | % | 0.80 | % | 0.80 | % | 0.80 | % | 0.80 | % | ||||||||||
Expenses after fees paid indirectly (2) | N/A | N/A | N/A | 0.81 | 0.81 | |||||||||||||||
Net investment income | 3.80 | 3.64 | 3.71 | 4.04 | 4.52 | |||||||||||||||
Portfolio Turnover Rate | 5 | % | 0 | % | 9 | % | 8 | % | 58 | % | ||||||||||
Salomon Brothers California Tax Free Bond Fund | ||||||||||||||||||||
Class B Shares* | ||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | (5) | ||||||||||||||||
Net Asset Value, Beginning of Year | $ | 10.71 | $ | 10.63 | $ | 10.18 | $ | 10.51 | ||||||||||||
Income (Loss) From Operations: | ||||||||||||||||||||
Net investment income | 0.32 | 0.31 | 0.30 | 0.07 | ||||||||||||||||
Net realized and unrealized gain (loss) | (0.07 | ) | 0.08 | 0.46 | (0.32 | ) | ||||||||||||||
Total Income (Loss) From Operations | 0.25 | 0.39 | 0.76 | (0.25 | ) | |||||||||||||||
Less Distributions From: | ||||||||||||||||||||
Net investment income | (0.32 | ) | (0.31 | ) | (0.31 | ) | (0.08 | ) | ||||||||||||
Total Distributions | (0.32 | ) | (0.31 | ) | (0.31 | ) | (0.08 | ) | ||||||||||||
Net Asset Value, End of Year | $ | 10.64 | $ | 10.71 | $ | 10.63 | $ | 10.18 | ||||||||||||
Total Return (1) | 2.42 | % | 3.70 | % | 7.66 | % | (2.39 | )%‡ | ||||||||||||
Net Assets, End of Year (000s) | $ | 127 | $ | 178 | $ | 247 | $ | 52 | ||||||||||||
Ratios to Average Net Assets: | ||||||||||||||||||||
Expenses (2)(4)(6) | 1.55 | % | 1.55 | % | 1.53 | % | 1.56 | %† | ||||||||||||
Expenses after fees paid indirectly (2) | N/A | N/A | N/A | 1.57 | %† | |||||||||||||||
Net investment income | 3.04 | 2.86 | 2.88 | 3.23 | † | |||||||||||||||
Portfolio Turnover Rate | 5 | % | 0 | % | 9 | % | 8 | % |
(1 | ) | Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of | |
voluntary fee waivers and/or expense reimbursements, the total return would be reduced. | |||
(2 | ) | The expense ratios for 2001, 2000 and 1999 reflect the effects of expense offset arrangements with its service providers. | |
(3 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 0.80% for Class A shares. | |
(4 | ) | The investment manager voluntarily waived a portion of its management fee for the year ended December 31, 2004, 2003, 2002, 2001 and 2000, | |
respectively. If such fee were not waived the actual expense ratios would have been 1.97%, 1.40%, 2.05%, 2.43% and 1.82% for Class A and 2.70%, | |||
2.11%, 2.76% and for the period ended 2001, 3.19%† for Class B shares, respectively. | |||
(5 | ) | For the period October 5, 2001 (inception date) to December 31, 2001. | |
(6 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.55% for Class B shares. | |
* | Per share amounts have been calculated using the monthly average shares method. | ||
‡ | Total return is not annualized, as it may not be representative of the total return for the year. | ||
† | Annualized. |
See Notes to Financial Statements.
47
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Salomon Brothers California Tax Free Bond FundClass C Shares (1)* | ||||||||||||
2004 | 2003 | 2002 | (2) | |||||||||
Net Asset Value, Beginning of Year | $ | 10.70 | $ | 10.63 | $ | 10.76 | ||||||
Income (Loss) From Operations: | ||||||||||||
Net investment income | 0.35 | 0.33 | 0.10 | |||||||||
Net realized and unrealized gain (loss) | (0.07 | ) | 0.07 | (0.13 | ) | |||||||
Total Income (Loss) From Operations | 0.28 | 0.40 | (0.03 | ) | ||||||||
Less Distributions From: | ||||||||||||
Net investment income | (0.35 | ) | (0.33 | ) | (0.10 | ) | ||||||
Total Distributions | (0.35 | ) | (0.33 | ) | (0.10 | ) | ||||||
Net Asset Value, End of Year | $ | 10.63 | $ | 10.70 | $ | 10.63 | ||||||
Total Return (3) | 2.67 | % | 3.87 | % | (0.28 | )%‡ | ||||||
Net Assets, End of Period (000s) | $ | 37 | $ | 27 | $ | 26 | ||||||
Ratios to Average Net Assets: | ||||||||||||
Expenses (4)(5) | 1.29 | % | 1.30 | % | 1.30 | %† | ||||||
Net investment income | 3.27 | 3.14 | 3.07 | † | ||||||||
Portfolio Turnover Rate | 5 | % | 0 | % | 9 | % | ||||||
Salomon Brothers California Tax Free Bond Fund | ||||||||||||
2004 | 2003 | 2002 | (6) | |||||||||
Net Asset Value, Beginning of Year | $ | 10.71 | $ | 10.63 | $ | 10.81 | ||||||
Income (Loss) From Operations: | ||||||||||||
Net investment income | 0.43 | 0.42 | 0.09 | |||||||||
Net realized and unrealized gain (loss) | (0.08 | ) | 0.08 | (0.18 | ) | |||||||
Total Income (Loss) From Operations | 0.35 | 0.50 | (0.09 | ) | ||||||||
Less Distributions From: | ||||||||||||
Net investment income | (0.43 | ) | (0.42 | ) | (0.09 | ) | ||||||
Total Distributions | (0.43 | ) | (0.42 | ) | (0.09 | ) | ||||||
Net Asset Value, End of Year | $ | 10.63 | $ | 10.71 | $ | 10.63 | ||||||
Total Return (3) | 3.35 | % | 4.76 | % | (0.79 | )%‡ | ||||||
Net Assets, End of Year (000s) | $ | 2 | $ | 2 | $ | 2 | ||||||
Ratios to Average Net Assets: | ||||||||||||
Expenses (5)(7) | 0.53 | % | 0.45 | % | 0.47 | %† | ||||||
Net investment income | 4.03 | 3.94 | 3.94 | † | ||||||||
Portfolio Turnover Rate | 5 | % | 0 | % | 9 | % |
(1 | ) | On April 29, 2004, Class 2 shares were renamed as Class C shares. | |
(2 | ) | For the period September 9, 2002 (inception date) to December 31, 2002. | |
(3 | ) | Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence | |
of voluntary fee waivers and/or expense reimbursements, the total return would be reduced. | |||
(4 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.30% for Class C shares. | |
(5 | ) | The investment manager voluntarily waived a portion of its management fee for the year ended December 31, 2004, 2003 and the period ended 2002, | |
respectively. If such fee were not waived the actual expense ratios would have been 2.60%, 1.89% and 2.51%† for Class C and 1.73%, 1.06% and 1.70%† | |||
for Class O shares, respectively. | |||
(6 | ) | For the period October 8, 2002 (inception date) to December 31, 2002. | |
(7 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 0.55% for Class O shares. | |
* | Per share amounts have been calculated using the monthly average shares method. | ||
‡ | Total return is not annualized, as it may not be representative of the total return for the year. | ||
† | Annualized. |
See Notes to Financial Statements.
48
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Salomon Brothers New York Tax Free Bond FundClass A Shares | ||||||||||||||||||||
2004 | * | 2003 | * | 2002 | * | 2001 | 2000 | |||||||||||||
Net Asset Value, Beginning of Year | $ | 11.99 | $ | 11.91 | $ | 11.26 | $ | 11.44 | $ | 10.79 | ||||||||||
Income (Loss) From Operations: | ||||||||||||||||||||
Net investment income | 0.44 | 0.47 | 0.49 | 0.54 | 0.60 | |||||||||||||||
Net realized and unrealized gain (loss) | (0.07 | ) | 0.08 | 0.65 | (0.16 | ) | 0.61 | |||||||||||||
Total Income (Loss) From Operations | 0.37 | 0.55 | 1.14 | 0.38 | 1.21 | |||||||||||||||
Less Distributions From: | ||||||||||||||||||||
Net investment income | (0.44 | ) | (0.47 | ) | (0.49 | ) | (0.56 | ) | (0.56 | ) | ||||||||||
Total Distributions | (0.44 | ) | (0.47 | ) | (0.49 | ) | (0.56 | ) | (0.56 | ) | ||||||||||
Net Asset Value, End of Year | $ | 11.92 | $ | 11.99 | $ | 11.91 | $ | 11.26 | $ | 11.44 | ||||||||||
Total Return (1) | 3.17 | % | 4.77 | % | 10.25 | % | 3.32 | % | 11.54 | % | ||||||||||
Net Assets, End of Period (000s) | $ | 104,260 | $ | 116,982 | $ | 127,482 | $ | 140,416 | $ | 172,420 | ||||||||||
Ratios to Average Net Assets: | ||||||||||||||||||||
Expenses (2)(3) | 0.80 | % | 0.80 | % | 0.80 | % | 0.80 | % | 0.80 | % | ||||||||||
Net investment income | 3.72 | 3.95 | 4.19 | 4.53 | 4.81 | |||||||||||||||
Portfolio Turnover Rate | 21 | % | 12 | % | 13 | % | 16 | % | 15 | % |
Salomon Brothers New York Tax Free Bond Fund
2004 | 2003 | 2002 | 2001 | (4) | ||||||||||||
Net Asset Value, Beginning of Year | $ | 11.99 | $ | 11.91 | $ | 11.26 | $ | 11.53 | ||||||||
Income (Loss) From Operations: | ||||||||||||||||
Net investment income | 0.35 | 0.38 | 0.32 | 0.04 | ||||||||||||
Net realized and unrealized gain (loss) | (0.07 | ) | 0.08 | 0.73 | (0.26 | ) | ||||||||||
Total Income (Loss) From Operations | 0.28 | 0.46 | 1.05 | (0.22 | ) | |||||||||||
Less Distributions From: | ||||||||||||||||
Net investment income | (0.35 | ) | (0.38 | ) | (0.40 | ) | (0.05 | ) | ||||||||
Total Distributions | (0.35 | ) | (0.38 | ) | (0.40 | ) | (0.05 | ) | ||||||||
Net Asset Value, End of Year | $ | 11.92 | $ | 11.99 | $ | 11.91 | $ | 11.26 | ||||||||
Total Return (1) | 2.41 | % | 3.94 | % | 9.43 | % | (1.88 | )%‡ | ||||||||
Net Assets, End of Year (000s) | $ | 275 | $ | 363 | $ | 218 | $ | 14 | ||||||||
Ratios to Average Net Assets: | ||||||||||||||||
Expenses (3)(5) | 1.55 | % | 1.55 | % | 1.55 | % | 1.55 | %† | ||||||||
Net investment income | 2.96 | 3.18 | 3.32 | 3.50 | † | |||||||||||
Portfolio Turnover Rate | 21 | % | 12 | % | 13 | % | 16 | % |
(1 | ) | Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of | |
voluntary fee waivers and/or expense reimbursements, the total return would be reduced. | |||
(2 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 0.80% for Class A shares. | |
(3 | ) | The investment manager voluntarily waived a portion of its management fee for the year ended December 31, 2004, 2003, 2002, 2001 and 2000 | |
respectively. If such fee were not waived the actual expense ratios would have been 0.96%, 0.96%, 1.00%, 1.21% and 1.16% for Class A and 1.71%, | |||
1.71%, 1.74% and for the period ended 2001, 1.96%† for Class B shares, respectively. | |||
(4 | ) | For the period November 19, 2001 (inception date) to December 31, 2001. | |
(5 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.55% for Class B shares. | |
* | Per share amounts have been calculated using the monthly average shares method. | ||
‡ | Total return is not annualized, as it may not be representative of the total return for the year. | ||
† | Annualized. |
See Notes to Financial Statements.
49
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Salomon Brothers New York Tax Free Bond FundClass C Shares (1)* | ||||||||||||
2004 | 2003 | 2002 | (2) | |||||||||
Net Asset Value, Beginning of Year | $ | 12.00 | $ | 11.92 | $ | 11.72 | ||||||
Income (Loss) From Operations: | ||||||||||||
Net investment income | 0.38 | 0.41 | 0.18 | |||||||||
Net realized and unrealized gain (loss) | (0.10 | ) | 0.08 | 0.21 | ||||||||
Total Income From Operations | 0.28 | 0.49 | 0.39 | |||||||||
Less Distributions From: | ||||||||||||
Net investment income | (0.38 | ) | (0.41 | ) | (0.19 | ) | ||||||
Total Distributions | (0.38 | ) | (0.41 | ) | (0.19 | ) | ||||||
Net Asset Value, End of Year | $ | 11.90 | $ | 12.00 | $ | 11.92 | ||||||
Total Return (3) | 2.40 | % | 4.18 | % | 3.30 | %‡ | ||||||
Net Assets, End of Year (000s) | $ | 33 | $ | 636 | $ | 37 | ||||||
Ratios to Average Net Assets: | ||||||||||||
Expenses (4)(5) | 1.30 | % | 1.30 | % | 1.30 | %† | ||||||
Net investment income | 3.31 | 3.38 | 3.63 | † | ||||||||
Portfolio Turnover Rate | 21 | % | 12 | % | 13 | % |
Salomon Brothers New York Tax Free Bond Fund
2004 | 2003 | 2002 | 2001 | (6) | ||||||||||||
Net Asset Value, Beginning of Year | $ | 11.98 | $ | 11.90 | $ | 11.25 | $ | 11.59 | ||||||||
Income (Loss) From Operations: | ||||||||||||||||
Net investment income | 0.47 | 0.50 | 0.52 | 0.09 | ||||||||||||
Net realized and unrealized gain (loss) | (0.07 | ) | 0.08 | 0.64 | (0.33 | ) | ||||||||||
Total Income (Loss) From Operations | 0.40 | 0.58 | 1.16 | (0.24 | ) | |||||||||||
Less Distributions From: | ||||||||||||||||
Net investment income | (0.47 | ) | (0.50 | ) | (0.51 | ) | (0.10 | ) | ||||||||
Total Distributions | (0.47 | ) | (0.50 | ) | (0.51 | ) | (0.10 | ) | ||||||||
Net Asset Value, End of Year | $ | 11.91 | $ | 11.98 | $ | 11.90 | $ | 11.25 | ||||||||
Total Return (3) | 3.44 | % | 4.99 | % | 10.54 | % | (2.04 | )%‡ | ||||||||
Net Assets, End of Year (000s) | $ | 78 | $ | 93 | $ | 92 | $ | 1 | ||||||||
Ratios to Average Net Assets: | ||||||||||||||||
Expenses (5)(7) | 0.55 | % | 0.55 | % | 0.56 | % | 0.53 | %† | ||||||||
Net investment income | 3.96 | 4.20 | 4.40 | 4.76 | † | |||||||||||
Portfolio Turnover Rate | 21 | % | 12 | % | 13 | % | 16 | % |
(1 | ) | On April 29, 2004, Class 2 shares were renamed as Class C shares. | |
(2 | ) | For the period July 19, 2002 (inception date) to December 31, 2002. | |
(3 | ) | Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence | |
of voluntary fee waivers and/or expense reimbursements, the total return would be reduced. | |||
(4 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.30% for Class C shares. | |
(5 | ) | The investment manager voluntarily waived a portion of its management fee for the year ended December 31, 2004, 2003, 2002 and the period ended | |
2001 (Class O only) respectively. If such fee were not waived the actual expense ratios would have been 1.45%, 1.47% and 1.50%† for Class C and 0.71%, | |||
0.71%, 0.75% and 0.94%† for Class O shares, respectively. | |||
(6 | ) | For the period October 29, 2001 (inception date) to December 31, 2001. | |
(7 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 0.55% for Class O shares. | |
* | Per share amounts have been calculated using the monthly average shares method. | ||
‡ | Total return is not annualized, as it may not be representative of the total return for the year. | ||
† | Annualized. |
See Notes to Financial Statements.
50
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Salomon Brothers Mid Cap Fund | ||||||||||||||||
2004 | 2003 | 2002 | 2001 | (1) | ||||||||||||
Net Asset Value, Beginning of Year | $ | 16.89 | $ | 13.18 | $ | 16.47 | $ | 13.71 | ||||||||
Income (Loss) From Operations: | ||||||||||||||||
Net investment loss | (0.10 | ) | (0.08 | ) | (0.06 | ) | (0.01 | ) | ||||||||
Net realized and unrealized gain (loss) | 2.36 | 3.79 | (3.23 | ) | 2.77 | |||||||||||
Total Income (Loss) From Operations | 2.26 | 3.71 | (3.29 | ) | 2.76 | |||||||||||
Net Asset Value, End of Year | $ | 19.15 | $ | 16.89 | $ | 13.18 | $ | 16.47 | ||||||||
Total Return (2) | 13.38 | % | 28.15 | % | (19.98 | )% | 3.65 | %‡ | ||||||||
Net Assets, End of Year (000s) | $ | 1,489 | $ | 270 | $ | 116 | $ | 47 | ||||||||
Ratios to Average Net Assets: | ||||||||||||||||
Expenses (3)(4) | 1.50 | % | 1.50 | % | 1.42 | % | 1.36 | %† | ||||||||
Net investment loss | (0.56 | ) | (0.56 | ) | (0.44 | ) | (0.69 | )† | ||||||||
Portfolio Turnover Rate | 66 | % | 78 | % | 71 | % | 26 | % | ||||||||
Salomon Brothers Mid Cap Fund | ||||||||||||||||
2004 | 2003 | 2002 | 2001 | (5) | ||||||||||||
Net Asset Value, Beginning of Year | $ | 16.66 | $ | 13.10 | $ | 16.47 | $ | 16.31 | ||||||||
Income (Loss) From Operations: | ||||||||||||||||
Net investment loss | (0.23 | ) | (0.19 | ) | (0.16 | ) | (0.01 | ) | ||||||||
Net realized and unrealized gain (loss) | 2.32 | 3.75 | (3.21 | ) | 0.17 | |||||||||||
Total Income (Loss) From Operations | 2.09 | 3.56 | (3.37 | ) | 0.16 | |||||||||||
Net Asset Value, End of Year | $ | 18.75 | $ | 16.66 | $ | 13.10 | $ | 16.47 | ||||||||
Total Return (2) | 12.55 | % | 27.18 | % | (20.46 | )% | 0.98 | %‡ | ||||||||
Net Assets, End of Year (000s) | $ | 291 | $ | 152 | $ | 108 | $ | 12 | ||||||||
Ratios to Average Net Assets: | ||||||||||||||||
Expenses (4)(6) | 2.25 | % | 2.25 | % | 1.95 | % | 2.15 | %† | ||||||||
Net investment loss | (1.37 | ) | (1.31 | ) | (0.99 | ) | (1.50 | )† | ||||||||
Portfolio Turnover Rate | 66 | % | 78 | % | 71 | % | 26 | % |
(1 | ) | For the period November 30, 2001 (inception date) to December 31, 2001. |
(2 | ) | Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence |
of voluntary fee waivers and/or expense reimbursements, the total return would be reduced. | ||
(3 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.50% for Class A shares. |
(4 | ) | The investment manager voluntarily waived a portion of its management for the year ended December 31, 2004, 2003, 2002 and the period ended 2001, |
respectively. If such fees were not waived the actual expense ratios would have been 2.08%, 1.60%, 1.91% and 1.93%† for Class A and 2.63%, 2.33%, | ||
2.42% and 2.73%† for Class B shares respectively. | ||
(5 | ) | For the period December 18, 2001 (inception date) to December 31, 2001. |
(6 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 2.25% for Class B shares. |
* | Per share amounts have been calculated using the monthly average shares method. | |
‡ | Total return is not annualized, as it may not be representative of the total return for the year. | |
† | Annualized. |
See Notes to Financial Statements.
51
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Salomon Brothers Mid Cap FundClass C Shares (1)* | ||||||||||||
2004 | 2003 | 2002 | (2) | |||||||||
Net Asset Value, Beginning of Year | $ | 16.72 | $ | 13.15 | $ | 16.43 | ||||||
Income (Loss) From Operations: | ||||||||||||
Net investment loss | (0.24 | ) | (0.19 | ) | (0.04 | ) | ||||||
Net realized and unrealized gain (loss) | 2.34 | 3.76 | (3.24 | ) | ||||||||
Total Income (Loss) From Operations | 2.10 | 3.57 | (3.28 | ) | ||||||||
Net Asset Value, End of Year | $ | 18.82 | $ | 16.72 | $ | 13.15 | ||||||
Total Return (3) | 12.56 | % | 27.15 | % | (19.96 | )%‡ | ||||||
Net Assets, End of Year (000s) | $ | 234 | $ | 109 | $ | 26 | ||||||
Ratios to Average Net Assets: | ||||||||||||
Expenses (4)(5) | 2.25 | % | 2.25 | % | 1.68 | %† | ||||||
Net investment loss | (1.38 | ) | (1.31 | ) | (0.51 | )† | ||||||
Portfolio Turnover Rate | 66 | % | 78 | % | 71 | % |
Salomon Brothers Mid Cap Fund
2004 | 2003 | 2002 | 2001 | (6) | ||||||||||||
Net Asset Value, Beginning of Year | $ | 17.02 | $ | 13.23 | $ | 16.48 | $ | 15.07 | ||||||||
Income (Loss) From Operations: | ||||||||||||||||
Net investment loss | (0.04 | ) | (0.02 | ) | (0.02 | ) | (0.01 | ) | ||||||||
Net realized and unrealized gain (loss) | 2.40 | 3.81 | (3.23 | ) | 1.42 | |||||||||||
Total Income (Loss) From Operations | 2.36 | 3.79 | (3.25 | ) | 1.41 | |||||||||||
Net Asset Value, End of Year | $ | 19.38 | $ | 17.02 | $ | 13.23 | $ | 16.48 | ||||||||
Total Return (3) | 13.87 | % | 28.65 | % | (19.72 | )% | (6.48 | )%‡ | ||||||||
Net Assets, End of Year (000s) | $ | 20,690 | $ | 20,350 | $ | 16,612 | $ | 22,935 | ||||||||
Ratios to Average Net Assets: | ||||||||||||||||
Expenses (5)(7) | 1.08 | % | 1.08 | % | 1.07 | % | 1.08 | %† | ||||||||
Net investment loss | (0.24 | ) | (0.13 | ) | (0.13 | ) | (0.17 | )† | ||||||||
Portfolio Turnover Rate | 66 | % | 78 | % | 71 | % | 26 | % |
(1 | ) | On April 29, 2004, Class 2 shares were renamed as Class C shares. |
(2 | ) | For the period May 7, 2002 (inception date) to December 31, 2002. |
(3 | ) | Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence |
of voluntary fee waivers and/or expense reimbursements, the total return would be reduced. | ||
(4 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 2.25% for Class C shares. |
(5 | ) | The investment manager voluntarily waived a portion of its management fee for the year ended December 31, 2004, 2003, 2002, and the period ended |
2001. If such fees were not waived the actual expense ratios would have been 2.67%, 2.35% and for the period ended 2002, 2.27%† for Class C and 1.53%, | ||
1.33%, 1.54% and 2.97%† for Class O shares, respectively. | ||
(6 | ) | For the period September 10, 2001 (inception date) to December 31, 2001. |
(7 | ) | As a result of voluntary expense limitations, the ratio of expenses to average net assets will not exceed 1.08% for Class O shares. |
* | Per share amounts have been calculated using the monthly average shares method. | |
‡ | Total return is not annualized, as it may not be representative of the total return for the year. | |
† | Annualized. |
See Notes to Financial Statements.
52
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Salomon Brothers National Tax Free Bond Fund (“National Tax Free Bond Fund”), Salomon Brothers California Tax Free Bond Fund (“California Tax Free Bond Fund”) and Salomon Brothers New York Tax Free Bond Fund (“New York Tax Free Bond Fund”) are separate non-diversified series of Salomon Funds Trust (“Trust”), a Massachusetts business trust. Salomon Brothers Mid Cap Fund (“Mid Cap Fund”) is a separate diversified series of the Trust. The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
The following are significant accounting policies consistently followed by the Funds. These policies 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.
(a) Securities Valuation. Equity securities listed on securities exchanges or reported through the NASDAQ system are valued at closing prices. Unlisted securities or listed securities for which last sale prices are not available are valued at last quoted bid prices. Debt securities (other than short-term obligations maturing in 60 days or less) are valued on the basis of valuations furnished by a pricing service which takes into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, 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 the securities. Short-term obligations (maturing in 60 days or less) are valued at amortized cost, which approximates market value. Securities, if any, for which there are no such valuations or quotations are valued at fair value as determined in good faith by or under guidelines established by the Trustees.
(b) Repurchase Agreements. When entering into repurchase agreements, it is the Funds’ policy that a custodian takes possession of the underlying collateral securities, the value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.
(c) Investment Transactions and Investment Income. Investment transactions are accounted for on the date the investments are purchased or sold. Realized gains and losses are determined on the identified cost basis. Distributions to shareholders and shares issuable to shareholders electing to receive distributions in shares are recorded on the ex-dividend date. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date.
(d) Dividends and Distributions to Shareholders. Dividends on the shares of the National Tax Free Bond Fund, California Tax Free Bond Fund and New York Tax Free Bond Fund, are declared each business day to shareholders of record that day, and are paid on the last business day of the month. The Funds intend to satisfy conditions that will enable interest from municipals securities, which is exempt from federal income tax and from certain state income taxes, to retain such tax-exempt status when distributed to the shareholders of the Funds. Dividends from net investment income for the Mid Cap Fund, if any are declared on an annual basis. Distributions of net realized gains to shareholders of the Funds, if any, are taxable and are declared at least annually. Dividends and distributions to shareholders of the Funds are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(e) Expenses. The Funds bear all their costs of its operations other than expenses specifically assumed by the Manager. Expenses incurred by the Trust with respect to any two or more funds or series are allocated in proportion to the average net assets of each fund, except when allocations of direct expenses to each fund can otherwise be made fairly. Expenses directly attributable to a fund are charged to that fund.
(f) Class Accounting. Investment income, common expenses and realized/unrealized gain (loss) on investments are allocated to various classes of each Fund on the basis of daily net assets of each class. Distributions, transfer agency services and shareholder communications fees relating to a specific class are charged directly to that class.
53
Notes to Financial Statements
(continued)
(g) Federal and Other Taxes. It is the Funds’ policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute substantially all of their 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 gain at various rates.
(h) Reclassifications. 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, Salomon Brothers Mid Cap Fund reclassified $55,263 between paid-in capital and accumulated net investment loss as a result of permanent differences attributable to a net operating loss for tax. There were no other reclassifications for the funds during the current year. These reclassifications have no effect on net assets or net asset values per share.
2. Management Agreement and Other Transactions with Affiliates
Salomon Brothers Asset Management Inc (“Manager”), an indirect wholly-owned subsidiary of Citigroup Inc. (“Citigroup”), acts as investment manager to the Funds. The Manager is responsible for overall management of the Funds’ business affairs, and has a separate Management Agreement with each Fund. The Manager or an affiliate also provides certain administrative services to each Fund. These administrative services include providing general office facilities and supervising the overall administration of each Fund.
The management fees paid to the Manager are accrued daily and payable monthly. The management fee is computed at the annual rate of 0.50%, 0.50%, 0.50% and 0.75% of the average daily net assets of National Tax Free Bond Fund, California Tax Free Bond Fund, New York Tax Free Bond Fund and Mid Cap Fund, respectively.
For the year ended December 31, 2004, the Funds had the following voluntary expense limitations, which resulted in management fee waivers and expense reimbursements.
Class A | Class B | Class C | Class O | |||||||||
National Tax Free Bond Fund | 0.75 | % | 1.50 | % | 1.25 | % | 0.50 | % | ||||
California Tax Free Bond Fund | 0.80 | 1.55 | 1.30 | 0.55 | ||||||||
New York Tax Free Bond Fund | 0.80 | 1.55 | 1.30 | 0.55 | ||||||||
Mid Cap Fund | 1.50 | 2.25 | 2.25 | 1.08 |
For the year ended December 31, 2004, the Manager voluntarily waived management fees of $224,668, $59,786, $179,723 and $94,006 for National Tax Free Bond Fund, California Tax Free Bond Fund, New York Tax Free Bond Fund and Mid Cap Fund, respectively. In addition, for the year ended December 31, 2004, the Manager has agreed to reimburse expenses totaling $2,940 and $79,684, for the National Tax Free Bond Fund and the California Tax Free Bond Fund, respectively. These expense limitations can be terminated at any time by the Manager.
Citigroup Global Markets Inc. (“CGM”), another indirect wholly-owned subsidiary of Citigroup, acts as the Funds’ distributor.
During the year ended December 31, 2004, the Fund may have purchased securities from an underwriting syndicate in which the principal underwriter or members of the syndicate are affiliated with the investment manager.
On February 2, 2004, the initial sales charges on Salomon Brothers Class 2 were eliminated.
There is a maximum initial sales charge of 4.00% for Class A shares of National Tax Free Bond Fund, California Tax Free Bond Fund and New York Tax Free Bond Fund. There is also a maximum initial sales charge of 5.75% for Class A shares of Mid Cap Fund. There is a contingent deferred sales charge (“CDSC”) of 5.00% on class B shares of the Mid Cap Fund, which applies if redemption occurs within one year from purchase payment and declines thereafter by 1.00% a year until no CDSC is incurred. Effective September 1, 2004 new and existing shareholders of Class B shares of the National Tax Free Bond Fund, California Tax Free Bond Fund and New York Tax Free Bond Fund are subject to revised pricing structure that reduces the existing CDSC from 4.00% to 1.00% . The CDSC charged is now 4.00% in the first year after purchase, 3.00% in the second year, 2.00% in the third
54
Notes to Financial Statements
(continued)
year, 1.00% in the fourth and fifth year and no deferred sales charge after the fifth year. Class C shares of the Funds have a 1.00% CDSC, which applies if redemption occurs within one year from purchase payment. In certain cases, Class A shares of the Funds 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. Class O shares of the Funds have no initial or contingent deferred sales charges.
For the year ended December 31, 2004, sales charges received by CGM and contingent deferred sales charges (“CDSCs”) paid to CGM were as follows:
CDSCs | ||||||||||||||
Class A | Class C | Class A | Class B | Class C | ||||||||||
National Tax Free Bond Fund | $ | 32,340 | — | — | $ | 9,557 | — | |||||||
California Tax Free Bond Fund | 86 | — | — | 1,522 | — | |||||||||
New York Tax Free Bond Fund | 24,224 | — | — | 337 | — | |||||||||
Mid Cap Fund | 6,831 | $ | 2 | — | 274 | $ | 97 |
For the year ended December 31, 2004, there were no brokerage commissions paid to CGM and its affiliates for the Mid Cap Fund. All officers and one Director of the Trust are employees of Citigroup or its affiliates and do not receive compensation from the Trust.
3. Investments
For the year ended December 31, 2004, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
Purchases | Sales | |||||
National Tax Free Bond Fund | $ | 17,829,188 | $ | 24,191,992 | ||
California Tax Free Bond Fund | $ | 521,565 | $ | 2,280,325 | ||
New York Tax Free Bond Fund | $ | 22,175,947 | $ | 34,085,259 | ||
Mid Cap Fund | $ | 13,776,031 | $ | 14,687,304 | ||
For the year ended December 31, 2004, the aggregate gross unrealized appreciation and depreciation of investments for Federal income tax purposes were substantially as follows:
National Tax Free Bond Fund | $ | 2,193,539 | $ | (23,332 | ) | $ | 2,170,207 | |||
California Tax Free Bond Fund | 1,083,490 | (2,390 | ) | 1,081,100 | ||||||
New York Tax Free Bond Fund | 6,936,583 | (145,460 | ) | 6,791,123 | ||||||
Mid Cap Fund | 4,971,875 | (212,851 | ) | 4,759,024 |
55
Notes to Financial Statements
(continued)
4. Class Specific Expenses
Pursuant to a Rule 12b-1 Distribution and Service Plan, each 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. Each Fund also pays a distribution fee with respect to Class B shares calculated at the annual rate of 0.75% of the average daily net assets of that class. National Tax Free Bond Fund, California Tax Free Bond Fund and New York Tax Free Bond Fund each pay a distribution fee with respect to Class C shares calculated at the annual rate of 0.50% of the average daily net assets of that class. Mid Cap Fund pays a distribution fee with respect to Class C shares calculated at the annual rate of 0.75% of the average daily net assets of that class. For the year ended December 31, 2004, total Rule 12b-1 Distribution and Service Plan fees, which are accrued daily and paid monthly, were as follows:
Class A | Class B | Class C† | ||||||||||
National Tax Free Bond Fund | $ | 99,164 | $ | 35,132 | $ | 11,980 | ||||||
California Tax Free Bond Fund | 29,489 | 1,300 | 220 | |||||||||
New York Tax Free Bond Fund | 273,238 | 3,165 | 2,826 | |||||||||
Mid Cap Fund | 1,488 | 1,989 | 1,505 | |||||||||
For the year ended December 31, 2004, total Transfer Agency Service expenses were as follows: | ||||||||||||
Class A | Class B | Class C† | Class O | |||||||||
National Tax Free Bond Fund | $ | 46,585 | $ | 4,083 | $ | 1,870 | $ | 186 | ||||
California Tax Free Bond Fund | 8,418 | 90 | 21 | 1 | ||||||||
New York Tax Free Bond Fund | 41,329 | 119 | 165 | 34 | ||||||||
Mid Cap Fund | 823 | 175 | 145 | 14,842 | ||||||||
For the year ended December 31, 2004, total Shareholder Communication expenses were as follows: | ||||||||||||
Class A | Class B | Class C† | Class O | |||||||||
National Tax Free Bond Fund | $ | 34,556 | $ | 2,920 | $ | 1,392 | $ | 141 | ||||
California Tax Free Bond Fund | 16,743 | 186 | 48 | 3 | ||||||||
New York Tax Free Bond Fund | 33,098 | 95 | 132 | 27 | ||||||||
Mid Cap Fund | 783 | 189 | 152 | 17,066 |
5. Distributions Paid to Shareholders by Class
National Tax Free Bond Fund: | ||||||
Net Investment Income | ||||||
Class A | $ | 1,479,484 | $ | 1,924,384 | ||
Class B | 104,620 | 156,063 | ||||
Class C† | 51,441 | 67,487 | ||||
Class O | 6,255 | 7,320 | ||||
Total | $ | 1,641,800 | $ | 2,155,254 | ||
California Tax Free Bond Fund: | ||||||
Net Investment Income | ||||||
Class A | $ | 447,687 | $ | 518,620 | ||
Class B | 3,952 | 7,804 | ||||
Class C† | 962 | 817 | ||||
Class O | 84 | 79 | ||||
Total | $ | 452,685 | $ | 527,320 | ||
New York Tax Free Bond Fund: | ||||||
Net Investment Income | ||||||
Class A | $ | 4,065,038 | $ | 4,954,495 | ||
Class B | 9,382 | 10,014 | ||||
Class C† | 12,510 | 13,942 | ||||
Class O | 3,525 | 3,889 | ||||
Total | $ | 4,090,455 | $ | 4,982,340 | ||
† On April 29, 2004, Salomon Brothers Class 2 shares were renamed as Salomon Brothers Class C shares.
56
Notes to Financial Statements
(continued)
6. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest without par value for National Tax Free Bond Fund, California Tax Free Bond Fund and New York Tax Free Bond Fund and with a par value of $0.001 per share for Mid Cap Fund.
Transactions in Fund shares for the periods indicated were as follows:
Year Ended | Year Ended | |||||||||||||
December 31, 2004 | December 31, 2003 | |||||||||||||
National Tax Free Bond Fund: | ||||||||||||||
Class A | ||||||||||||||
Shares sold | 399,951 | $ | 4,729,930 | 2,669,098 | $ | 31,580,892 | ||||||||
Shares issued for reinvestment of distributions | 119,112 | 1,404,733 | 149,110 | 1,756,036 | ||||||||||
Shares repurchased | (912,491 | ) | (10,736,075 | ) | (3,541,350 | ) | (41,937,070 | ) | ||||||
Net Decrease | (393,428 | ) | $ | (4,601,412 | ) | (723,142 | ) | $ | (8,600,142 | ) | ||||
Class B | ||||||||||||||
Shares sold | 15,285 | $ | 180,614 | 92,971 | $ | 1,099,090 | ||||||||
Shares issued for reinvestment of distributions | 5,526 | 65,272 | 7,710 | 91,334 | ||||||||||
Shares repurchased | (135,749 | ) | (1,606,261 | ) | (147,741 | ) | (1,744,911 | ) | ||||||
Net Decrease | (114,938 | ) | $ | (1,360,375 | ) | (47,060 | ) | $ | (554,487 | ) | ||||
Class C† | ||||||||||||||
Shares sold | 28,401 | $ | 336,249 | 177,425 | $ | 2,090,992 | ||||||||
Shares issued for reinvestment of distributions | 3,533 | 41,714 | 4,353 | 52,612 | ||||||||||
Shares repurchased | (63,541 | ) | (759,070 | ) | (169,952 | ) | (1,997,513 | ) | ||||||
Net Increase (Decrease) | (31,607 | ) | $ | (381,107 | ) | 11,826 | $ | 146,091 | ||||||
Class O | ||||||||||||||
Shares sold | 35 | $ | 416 | 5,209 | $ | 63,738 | ||||||||
Shares issued for reinvestment of distributions | 295 | 3,475 | 480 | 5,730 | ||||||||||
Shares repurchased | — | — | (10,875 | ) | (131,806 | ) | ||||||||
Net Increase (Decrease) | 330 | $ | 3,891 | (5,186 | ) | $ | (62,338 | ) | ||||||
California Tax Free Bond Fund: | ||||||||||||||
Class A | ||||||||||||||
Shares sold | 3,382 | $ | 36,153 | 39,568 | $ | 423,299 | ||||||||
Shares issued for reinvestment of distributions | 32,295 | 341,214 | 48,181 | 510,920 | ||||||||||
Shares repurchased | (193,754 | ) | (2,030,872 | ) | (309,140 | ) | (3,259,851 | ) | ||||||
Net Decrease | (158,077 | ) | $ | (1,653,505 | ) | (221,391 | ) | $ | (2,325,632 | ) | ||||
Class B | ||||||||||||||
Shares sold | 5,482 | $ | 56,920 | 7,328 | $ | 78,363 | ||||||||
Shares issued for reinvestment of distributions | 59 | 712 | 292 | 3,279 | ||||||||||
Shares repurchased | (10,204 | ) | (108,989 | ) | (14,277 | ) | (151,185 | ) | ||||||
Net Decrease | (4,663 | ) | $ | (51,357 | ) | (6,657 | ) | $ | (69,543 | ) | ||||
Class C† | ||||||||||||||
Shares sold | 934 | $ | 10,000 | — | $ | — | ||||||||
Shares issued for reinvestment of distributions | 57 | 596 | 77 | 817 | ||||||||||
Net Increase | 991 | $ | 10,596 | 77 | $ | 817 | ||||||||
57
Notes to Financial Statements
(continued)
Year Ended | Year Ended | |||||||||||||
December 31, 2004 | December 31, 2003 | |||||||||||||
Class O | ||||||||||||||
Shares sold | — | $ | — | — | $ | — | ||||||||
Shares issued for reinvestment of distributions | 8 | 84 | 7 | 79 | ||||||||||
Net Increase | 8 | $ | 84 | 7 | $ | 79 | ||||||||
New York Tax Free Bond Fund: | ||||||||||||||
Class A | ||||||||||||||
Shares sold | 83,761 | $ | 982,898 | 2,079,678 | $ | 24,813,975 | ||||||||
Shares issued for reinvestment of distributions | 340,507 | 4,038,786 | 400,250 | 4,775,651 | ||||||||||
Shares repurchased | (1,438,761 | ) | (17,014,042 | ) | (3,421,134 | ) | (40,703,268 | ) | ||||||
Net Decrease | (1,014,493 | ) | $ | (11,992,358 | ) | (941,206 | ) | $ | (11,113,642 | ) | ||||
Class B | ||||||||||||||
Shares sold | 601 | $ | 7,083 | 17,162 | $ | 204,341 | ||||||||
Shares issued for reinvestment of distributions | 360 | 4,277 | 583 | 6,965 | ||||||||||
Shares repurchased | (8,253 | ) | (98,365 | ) | (5,713 | ) | (67,523 | ) | ||||||
Net Increase (Decrease) | (7,292 | ) | $ | (87,005 | ) | 12,032 | $ | 143,783 | ||||||
Class C† | ||||||||||||||
Shares sold | 1,771 | $ | 21,063 | 56,881 | $ | 685,400 | ||||||||
Shares issued for reinvestment of distributions | 73 | 877 | 167 | 2,015 | ||||||||||
Shares repurchased | (52,134 | ) | (619,617 | ) | (7,113 | ) | (83,468 | ) | ||||||
Net Increase (Decrease) | (50,290 | ) | $ | (597,677 | ) | 49,935 | $ | 603,947 | ||||||
Class O | ||||||||||||||
Shares issued for reinvestment of distributions | 3 | $ | 45 | 4 | $ | 46 | ||||||||
Shares repurchased | (1,263 | ) | (15,000 | ) | — | — | ||||||||
Net Increase (Decrease) | (1,260 | ) | $ | (14,955 | ) | 4 | $ | 46 | ||||||
Mid Cap Fund: | ||||||||||||||
Class A | ||||||||||||||
Shares sold | 69,961 | $ | 1,208,200 | 9,557 | $ | 142,992 | ||||||||
Shares repurchased | (8,186 | ) | (149,561 | ) | (2,357 | ) | (34,706 | ) | ||||||
Net Increase | 61,775 | $ | 1,058,639 | 7,200 | $ | 108,286 | ||||||||
Class B | ||||||||||||||
Shares sold | 13,142 | $ | 225,451 | 9,105 | $ | 124,779 | ||||||||
Shares repurchased | (6,762 | ) | (118,424 | ) | (8,216 | ) | (118,848 | ) | ||||||
Net Increase | 6,380 | $ | 107,027 | 889 | $ | 5,931 | ||||||||
Class C† | ||||||||||||||
Shares sold | 8,819 | $ | 154,317 | 4,513 | $ | 59,285 | ||||||||
Shares repurchased | (2,897 | ) | (47,775 | ) | — | — | ||||||||
Net Increase | 5,922 | $ | 106,542 | 4,513 | $ | 59,285 | ||||||||
Class O | ||||||||||||||
Shares sold | 23,472 | $ | 415,984 | 12,492 | $ | 196,177 | ||||||||
Shares repurchased | (151,712 | ) | (2,658,649 | ) | (72,561 | ) | (1,052,100 | ) | ||||||
Net Decrease | (128,240 | ) | $ | (2,242,665 | ) | (60,069 | ) | $ | (855,923 | ) | ||||
† On April 29, 2004, Salomon Brothers Class 2 shares were renamed as Salomon Brothers Class C shares.
58
Notes to Financial Statements
(continued)
8. Income Tax Information and Distributions to Shareholders
The tax character of distributions paid during the fiscal year ended December 31, 2004 were as follows:
National | California | New York | Mid | ||||||||||||
Tax Free | Tax Free | Tax Free | Cap | ||||||||||||
Bond Fund | Bond Fund | Bond Fund | Fund | ||||||||||||
Distributions paid from: | |||||||||||||||
Tax-Exempt Income | $ | 1,641,319 | $ | 450,817 | $ | 4,065,252 | $ | — | |||||||
Ordinary Income | 481 | 1,868 | 25,203 | — | |||||||||||
Total Distributions Paid | $ | 1,641,800 | $ | 452,685 | $ | 4,090,455 | $ | — | |||||||
The tax character of distributions paid during the fiscal year ended December 31, 2003 were as follows: | |||||||||||||||
National | California | New York | Mid | ||||||||||||
Tax Free | Tax Free | Tax Free | Cap | ||||||||||||
Bond Fund | Bond Fund | Bond Fund | Fund | ||||||||||||
Distributions paid from: | |||||||||||||||
Tax-Exempt Income | $ | 2,154,104 | $ | 525,570 | $ | 4,950,326 | $ | — | |||||||
Ordinary Income | 1,150 | 1,750 | 32,014 | — | |||||||||||
Total Distributions Paid | $ | 2,155,254 | $ | 527,320 | $ | 4,982,340 | $ | — | |||||||
As of December 31, 2004, the components of accumulated earnings on a tax basis were as follows: | |||||||||||||||
National | California | New York | Mid | ||||||||||||
Tax Free | Tax Free | Tax Free | Cap | ||||||||||||
Bond Fund | Bond Fund | Bond Fund | Fund | ||||||||||||
Undistributed long-term capital gains | — | — | — | $ | 408,537 | ||||||||||
Capital loss carryforward(1) | $ | (5,478,353 | ) | $ | (2,940,447 | ) | $ | (5,863,800 | ) | — | |||||
Other book/tax temporary differences(2) | — | — | (12,812 | ) | — | ||||||||||
Unrealized appreciation/(depreciation)(3) | 2,170,207 | 1,081,100 | 6,791,123 | 4,759,024 | |||||||||||
Total accumulated earnings/(losses) | $ | (3,308,146 | ) | $ | (1,859,347 | ) | $ | 914,511 | $ | 5,167,561 | |||||
(1) | On December 31, 2004 the Funds had net capital loss carryforwards as follows: |
Year of Expiration | ||||||
12/31/2007 | $2,047,061 | $2,228,951 | $ 397,721 | |||
12/31/2008 | 3,431,292 | 711,496 | 5,263,200 | |||
12/31/2009 | — | — | 202,879 | |||
$5,478,353 | $2,940,447 | $5,863,800 | ||||
These amounts will be available to offset any future taxable capital gains.
(2) | Other book/tax temporary differences are attributable primarily to the deferral of post-October capital losses for tax purposes. |
(3) | The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales. |
59
Notes to Financial Statements
(continued)
9. 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 funds’ 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 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.
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. As previously disclosed, CAM has already paid the applicable funds, primarily through voluntary fee waivers, a total of approximately $17 million (plus interest), which is the amount of the revenue received by Citigroup relating to the revenue guarantee.
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 SEC’s investigation and is seeking to resolve the matter in discussions with the SEC Staff. On January 20, 2005, Citigroup stated that it had established an aggregate reserve of $196 million ($25 million in the third quarter of 2004 and $171 million in the fourth quarter of 2004) related to its discussions with the SEC Staff. Settlement negotiations are ongoing and any settlement of this matter with the SEC will require approval by the Citigroup Board and acceptance by the Commission.
Unless and until any settlement is consummated, there can be no assurance that any amount reserved by Citigroup will be distributed. Nor is there at this time any certainty as to how the proceeds of any settlement would be distributed, to whom any such distribution would be made, the methodology by which such distribution would be allocated, and when such distribution would be made.
Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the funds. The Fund did not implement the contractual arrangement described above and will not receive any payments.
10. 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 (the “Funds”), 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.
60
Notes to Financial Statements
(continued)
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.
61
Report of Independent Registered
Public Accounting Firm
To the Shareholders and Board of Trustees of
Salomon Funds Trust
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Salomon Brothers National Tax Free Bond Fund, Salomon Brothers California Tax Free Bond Fund, Salomon Brothers New York Tax Free Bond Fund, and Salomon Brothers Mid Cap Fund, each a series of Salomon Funds Trust (“Trust”) as of December 31, 2004, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the four-year period then ended. 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. The financial highlights for the year ended December 31, 2000 were audited by other auditors whose report thereon, dated February 1, 2001, expressed an unqualified opinion on the financial highlights.
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 December 31, 2004, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. 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 Salomon Brothers National Tax Free Bond Fund, Salomon Brothers California Tax Free Bond Fund, Salomon Brothers New York Tax Free Bond Fund, and Salomon Brothers Mid Cap Fund, each a series of Salomon Funds Trust as of December 31, 2004, the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the four-year period then ended in conformity with U.S. generally accepted accounting principles.
KPMG LLP
New York, New York
February 18, 2005
62
Additional Information
(unaudited)
Information about Trustees and Officers
The business and affairs of the Salomon Funds Trust (“Trust”) are managed under the direction of the Trust’s Board of Trustees. Information pertaining to the Trustees and officers of the Trust 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 | |||||||||||||
Portfolios | |||||||||||||
In Fund | |||||||||||||
Position(s) | Complex | ||||||||||||
Held with | Principal Occupation(s) | Overseen by | |||||||||||
Name, Address and Age | Fund | During Past Five Years | Trustee | ||||||||||
Non-Interested Trustees: | |||||||||||||
Elliott J. Berv | Trustee | Since | President and Chief Operations | 37 | Board Member, | ||||||||
c/o R. Jay Gerken | 1986 | Officer, Landmark City (real | American Identity Corp. | ||||||||||
Citigroup Asset Management | estate development) (since | (doing business as | |||||||||||
(“CAM”) | 2002); Executive Vice President | Morpheus Technologies) | |||||||||||
399 Park Avenue | and Chief Operations Officer, | (biometric information | |||||||||||
New York, NY 10022 | DigiGym Systems (on-line | management) (since | |||||||||||
Birth Year: 1943 | 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). | |||||||||||||
Mark T. Finn | Trustee | Since | Adjunct Professor, William & | 37 | Former President and | ||||||||
c/o R. Jay Gerken | 1990 | 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). | |||||||||||
Birth Year: 1943 | 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). |
63
Additional Information
(unaudited) (continued)
Number of | ||||||||||||
Portfolios | ||||||||||||
In Fund | ||||||||||||
Complex | ||||||||||||
Principal Occupation(s) | Overseen by | |||||||||||
Name, Address and Age | During Past Five Years | Trustee | ||||||||||
Stephen Randolph Gross | Trustee | Since | Chief Executive Officer, HLB Gross Collins, | Director, United Telesis, | ||||||||
c/o R. Jay Gerken | 2001 | 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 | ||||||||||
Birth Year: 1947 | 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 | Professor, Babson College | 37 | None | |||||||
c/o R. Jay Gerken | 1992 | (since 1993). | ||||||||||
CAM | ||||||||||||
399 Park Avenue | ||||||||||||
New York, NY 10022 | ||||||||||||
Birth Year: 1940 | ||||||||||||
Susan B. Kerley | Trustee | Since | Consultant, Strategic Management | 37 | Director, Eclipse Funds | |||||||
c/o R. Jay Gerken | 1992 | 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). | |||||||||||
Birth Year: 1951 | ||||||||||||
Interested Trustee: | ||||||||||||
R. Jay Gerken** | Chairman, | Since | Managing Director of Citigroup | 219 | N/A | |||||||
CAM | President, | 2002 | Global Markets (“CGM”) (since | |||||||||
399 Park Avenue | and Chief | 1996); Chairman, President, and | ||||||||||
New York, NY 10022 | Executive | Chief Executive Officer of Smith | ||||||||||
Birth Year: 1951 | 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) |
64
Additional Information
(unaudited) (continued)
Number of | ||||||||||
Portfolios | ||||||||||
In Fund | ||||||||||
Complex | Other | |||||||||
Principal Occupation(s) | Overseen by | Board Memberships | ||||||||
Name, Address and Age | During Past Five Years | Trustee | Held by Trustee | |||||||
Officers: | ||||||||||
Andrew B. Shoup | Senior Vice | Since | Director of CAM; Chief | N/A | N/A | |||||
CAM | President and | 2003 | Administrative Officer of mutual | |||||||
125 Broad Street | Chief | funds associated with Citigroup | ||||||||
New York, NY 10004 | Administrative | Inc.; Head of International Funds | ||||||||
Birth Year: 1956 | 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 | ||||||||||
CAM (from 1998 to 2000). | ||||||||||
Frances M. Guggino | Chief | Since | Director of CGM, Chief | N/A | N/A | |||||
CAM | Financial | 2004 | Financial Officer and Treasurer | |||||||
125 Broad Street | Officer | of certain mutual funds associated | ||||||||
New York, NY 10004 | and | with Citigroup; Controller of | ||||||||
Birth Year: 1957 | Treasurer | certain mutual funds associated | ||||||||
with Citigroup (from 1999 to 2004). | ||||||||||
Andrew Beagley | Chief Anti- | Since | Managing Director of CGM (since | N/A | N/A | |||||
CAM | Money | 2002 | 2000); Director of Compliance, | |||||||
399 Park Avenue | Laundering | North America, CAM (since 2000); | ||||||||
4th Floor | Compliance | Chief Anti-Money Laundering | ||||||||
New York, NY 10022 | Officer | Compliance Officer, Chief | ||||||||
Birth Year: 1962 | Compliance Officer and Vice | |||||||||
Chief | Since | President of certain mutual | ||||||||
Compliance | 2004 | funds associated with Citigroup; | ||||||||
Officer | Director of Compliance, Europe, | |||||||||
the Middle East and Africa. | ||||||||||
Citigroup Asset Management | ||||||||||
(from 1999 to 2000); Chief | ||||||||||
Compliance Officer, Salomon | ||||||||||
Brothers Asset Management | ||||||||||
Limited, Smith Barney Global | ||||||||||
Capital Management Inc. | ||||||||||
Wendy S. Setnicka | Controller | Since | Vice President of CAM (since 2003); | N/A | N/A | |||||
CAM | 2004 | Controller of certain mutual funds | ||||||||
125 Broad Street | associated with Citigroup; Assistant | |||||||||
New York, NY 10004 | Controller of CAM (from 2000 | |||||||||
Birth Year: 1964 | to 2004); Accounting Manager with | |||||||||
CAM (from 1998 to 2002). | ||||||||||
Robert I. Frenkel | Secretary | Since | Managing Director and General | N/A | N/A | |||||
CAM | 2000 | Counsel, Global Mutual Funds | ||||||||
300 First Stamford Place | Chief Legal | Since | for CAM (since 1994), Secretary | |||||||
Stamford, CT 06902 | Officer | 2003 | of certain mutual funds associated | |||||||
Birth Year: 1954 | with Citigroup Inc., Chief Legal | |||||||||
Officer of mutual funds associated | ||||||||||
with Citigroup Inc. |
* | Each Trustee and officer serves until his or her successor has been duly elected and qualified. |
** | Mr. Gerken is an “interested person” of the Fund as defined in the Investment Company Act of 1940, as amended, because Mr. Gerken is an officer of the Manager and certain of its affiliates. |
65
Important Tax Information
(unaudited)
99.97% of the net investment income distributions paid monthly by the National Tax Free Bond Fund during the taxable year ended December 31, 2004 qualify as tax-exempt interest dividends for federal income tax purposes.
All of the net investment income distributions paid monthly by the California Tax Free Bond Fund from January through October 2004 and in December 2004 qualify as tax-exempt interest dividends for federal income tax and California state income tax purposes. Additionally, 95.26% of the net investment income distribution paid in November 2004 qualifies as tax-exempt interest dividends for federal income tax and California state income tax purposes.
All of the net investment income distributions paid monthly by the New York Tax Free Bond Fund from January through October 2004 and in December 2004 qualify as tax-exempt interest dividends for federal income tax purposes. Additionally, 92.79% of the net investment income distribution paid in November 2004 qualifies as tax-exempt interest dividends for federal income tax purposes.
Please retain this information for your records.
66
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Salomon Funds Trust
Investment Manager
Salomon Brothers Asset Management Inc
399 Park Avenue
NewYork, NY 10022
Distributor
Citigroup Global Markets Inc.
388 Greenwich Street
NewYork, NewYork 10022
Transfer Agent
PFPC Inc.
P.O. Box 9764
Providence, RI 02940-9764
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Legal Counsel
Bingham McCutchen LLP
150 Federal Street
Boston, MA 02110
Independent Registered Public
Accounting Firm
KPMG LLP
757 Third Avenue
New York, NewYork 10017
Officers
R. Jay Gerken, CFA
Chairman,President and
Chief Executive Officer
Andrew B. Shoup
Senior Vice President and
Chief Administrative Officer
Frances M. Guggino
Chief Financial Officer and
Treasurer
Andrew Beagley
Chief Anti-Money Laundering
Compliance Officer and
Chief Compliance Officer
Wendy S. Setnicka
Controller
Robert I. Frenkel
Secretary and
Chief Legal Officer
Trustees
Elliott J. Berv
Mark T. Finn
R. Jay Gerken, CFA
Stephen Randolph Gross
Diana R. Harrington
Susan B. Kerley
Salomon Funds Trust
Salomon Brothers National Tax Free Bond Fund
Salomon Brothers California Tax Free Bond Fund
Salomon Brothers New York Tax Free Bond Fund
Salomon Brothers Mid Cap Fund
The Funds are separate investment funds of the Salomon Funds Trust, a Massachusetts business trust.
This report is submitted for the general information of the shareholders of Salomon Funds Trust, but it may also be used as sales literature when preceded or accompanied by the current Prospectus.
This document must be preceded or accompanied by a free prospectus. Investors should consider the fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest or send money.
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the Commission’s website at www.sec.gov. The Funds’ 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 1-800-446-1013.
Information on how the funds 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 funds use to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling 1-800-446-1013, (2) on the funds’ website at www.citigroupAM.com and (3) on the SEC’s website at www.sec.gov.
SALOMON BROTHERS ASSET MANAGEMENT © C i t i g r o u p G l o b a l M a r k e t s I n c . S B T A X A N N 1 2 / 0 4 0 5 - 7 8 8 5 | ![]() |
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 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” 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 Salomon Funds Trust were $78,000 and $78,000 for | |
the years ended 12/31/04 and 12/31/03. | ||
(b) | Audit-Related Fees for the Salomon Funds Trust were $0 and $0 for | |
the years ended 12/31/04 and 12/31/03. | ||
(c) | Tax Fees for Salomon Funds Trust of $8,100 and $8,100 for the years | |
ended 12/31/04 and 12/31/03. 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 Salomon Funds Trust. | ||
(d) | All Other Fees for Salomon Funds Trust of $0 and $0 for the years | |
ended 12/31/04 and 12/31/03. | ||
(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 Salomon Funds Trust, 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 12/31/04 and 12/31/03; Tax Fees were 100% and | ||||
100% for the years ended 12/31/04 and 12/31/03; and Other Fees were 100% | ||||
and 100% for the years ended 12/31/04 and 12/31/03. | ||||
(f) | N/A | |||
(g) | Non-audit fees billed by the Accountant for services rendered to | |||
Salomon Funds Trust and CAM and any entity controlling, controlled by, or | ||||
under common control with CAM that provides ongoing services to Salomon | ||||
Funds Trust. Fees billed to and paid by Citigroup Global Markets, Inc. | ||||
related to the transfer agent matter as fully described in the notes to | ||||
the financial statements titles “additional information” were $75,000 and | ||||
$0 for the years ended 12/31/04 and 12/31/03. | ||||
(h) | Yes. The Salomon Funds Trust’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 Salomon Funds Trust 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.
Salomon Funds Trust
By: | /s/ R. Jay Gerken | |
R. Jay Gerken | ||
Chief Executive Officer of | ||
Salomon Funds Trust | ||
Date: | March 10, 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 | ||
Salomon Funds Trust | ||
Date: | March 10, 2005 | |
By: | /s/ Frances M. Guggino | |
(Frances M. Guggino) | ||
Chief Financial Officer of | ||
Salomon Funds Trust | ||
Date: | March 10, 2005 |