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 811-4007
SMITH BARNEY TRUST II--
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: OCTOBER 31
Date of reporting period: OCTOBER 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The ANNUAL Report to Stockholders is filed herewith.
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SMITH BARNEY
SMALL CAP GROWTH
OPPORTUNITIES FUND
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ANNUAL REPORT | OCTOBER 31, 2003
[SMITH BARNEY LOGO OMITTED]
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED.(SM)
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED(R)
is a Registered Service Mark of Citigroup Global Markets Inc.
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
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TEAM MANAGED
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A team of individuals employed by the manager now manages the day-to-day
operations of the Fund.
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FUND OBJECTIVE
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The fund seeks long-term capital growth. Dividend income, if any, is
incidental to this goal. The fund seeks to achieve its investment objective by
normally investing at least 80% of its net assets in equity securities of U.S.
small cap companies with small market capitalizations and related investments.
In selecting investments, the manager looks for issuers that have a
predictable, growing demand for their products or services, and issuers with a
dominant position in a niche market or whose customers are very large
corporations.
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FUND FACTS
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FUND INCEPTION
- ------------------
June 21, 1995
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Annual Report o October 31, 2003
SMITH BARNEY SMALL CAP
GROWTH OPPORTUNITIES FUND
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WHAT'S INSIDE
LETTER FROM THE CHAIRMAN ............................................. 1
MANAGER OVERVIEW ..................................................... 2
FUND PERFORMANCE ..................................................... 4
HISTORICAL PERFORMANCE ............................................... 5
SCHEDULE OF INVESTMENTS .............................................. 6
SCHEDULE OF ASSETS AND LIABILITIES ...................................11
STATEMENT OF OPERATIONS ..............................................12
STATEMENTS OF CHANGES IN NET ASSETS ..................................13
NOTES TO FINANCIAL STATEMENTS ........................................14
FINANCIAL HIGHLIGHTS .................................................19
REPORT OF INDEPENDENT AUDITORS .......................................23
ADDITIONAL INFORMATION ...............................................24
LETTER FROM THE CHAIRMAN
[Photo Omitted]
R. JAY GERKEN, CFA
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
DEAR SHAREHOLDER,
After a torturous three-year bear market, the U.S. stock market has rallied
strongly so far in 2003 as geopolitical uncertainties eased and investors began
to look forward to better economic times. The recent performance of the U.S.
economy has supported an improvement in investor sentiment and corporate
earnings. Small cap stocks benefited particularly from this advance as the
Russell 2000 Index,(i) an unmanaged index representative of the small-cap stock
universe, gained 43.35% over the year ended October 31, 2003.
For a more detailed review of how your fund performed within this market
environment, please continue reading this report. As always, thank you for
entrusting your assets to us. We look forward to helping you continue to meet
your financial goals.
Sincerely,
/s/ R. Jay Gerken, CFA
- ----------------------
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
NOVEMBER 20, 2003
1 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
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MANAGER OVERVIEW
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SPECIAL SHAREHOLDER NOTICE
As of August 5, 2003, management of the day-to-day operations of the fund has
transitioned from Victor Dosti to a team of individuals.
PERFORMANCE REVIEW
For the 12 months ended October 31, 2003, the Smith Barney Small Cap Growth
Opportunities Fund (class A shares), excluding sales charges, returned 37.36%.
However, the fund produced lower returns than its benchmark, the unmanaged
Russell 2000 Growth Index,(ii) which returned 46.56%. The fund also
underperformed its Lipper peer group of small-cap growth funds, which had an
average return of 40.49%.(1)
MARKET OVERVIEW
The fund's fiscal year presented equity investors with strong gains as investor
sentiment improved amid evidence of an improving economy, including stronger
spending trends among consumers and corporations, improved business conditions
and more stable labor and product markets. The economy's gains were supported by
a stimulative monetary policy, as the Federal Reserve Board reduced key
short-term interest rates to 1%, the lowest level in decades.
While the stock market benefited greatly from the stronger economy, the market's
advance was generally led by the smallest companies in the small-cap range.
Stocks with market capitalizations that rank in the bottom 20% of the Russell
2000 Growth Index (i.e., those with market capitalizations under $144 million)
gained considerably more in percentage terms than the largest companies in the
top 20% of the Index (those with market capitalizations above $629 million). In
addition, small-cap stocks that had lower stock prices (of under $5.00) and
minimal or no earnings contributed the most gains in the third calendar quarter
of 2003 to the Russell 2000 and Russell 2000 Growth Indices.(iii)
PERFORMANCE SNAPSHOT
AS OF OCTOBER 31, 2003
(EXCLUDING SALES CHARGES)
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6 MONTHS 12 MONTHS
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Class A Shares 31.56% 37.36%
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Russell 2000
Growth Index 36.11% 46.56%
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Average of Lipper
small-cap growth funds 34.36% 40.49%
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. ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A
GUARANTEE OF FUTURE RESULTS. Results of other share classes may vary.
The Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth values.
Please note that an investor cannot invest directly in an index.
Lipper Inc. is a major independent mutual-fund tracking organization. Returns
are based on the period ended October 31, 2003, calculated among 487 funds for
the six-month period and among 474 funds for the 12-month period, in the fund's
Lipper peer group including the reinvestment of dividends and capital gains and
excluding sales charges.
Principal value and investment returns will fluctuate and investors' shares,
when redeemed may be worth more or less than their original cost.
(1) Lipper Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended October 31, 2003, calculated
among 474 funds in the Lipper small-cap growth funds category with
reinvestment of dividends and capital gains excluding sales charges.
2 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
FUND OVERVIEW(iv)
Because the fund held a greater percentage of the largest stocks and fewer of
the smallest stocks than the Russell 2000 Growth Index did for much of its
fiscal year, it underperformed its benchmark. Indeed, the fund historically has
attempted to mitigate volatility by focusing on larger, more liquid small-cap
securities and avoiding the more aggressive micro-cap issues. While this
strategy often has been beneficial to performance, it detracted from the fund's
relative returns during the reporting period. Specific fund holdings that
detracted most from performance were: NETIQ CORP., a provider of systems and
security management and Web analytics software solutions; aerospace and
defensive supplier, DRS TECHNOLOGIES, INC.; and drug manufacturer, LIGAND
PHARMACEUTICALS, INC.
The fund enjoyed attractive returns from individual stocks in a variety of
industry groups. The top three contributions to the fund's performance included:
OAK TECHNOLOGY, INC., a designer and developer of integrated circuits and
software; REMEC, INC., a producer of high frequency voice and data transmission
for commercial wireless and defense communications; and APTARGROUP, INC., a
manufacturer of product dispensing systems to the personal care, pharmaceutical,
fragrance, cosmetics and industrial markets.
The fund has an investment policy of investing at least 80% of its net assets in
equity securities of small cap companies and related investments. The fund
considers small cap companies to be those with market capitalizations within the
range of the market capitalizations of the companies in the Russell 2000 Index.
When we assumed responsibility for the fund in August, we reviewed and
restructured the fund's holdings so as, in our judgment, to best position the
fund going forward. In that restructuring and in some subsequent transactions,
we purchased a number of stocks which we considered to be small cap stocks, but
which had market capitalizations in excess of the Russell 2000 range at that
time. That range had recently fallen because of a rebalancing of that index. As
a result, less than the required 80% of the fund's net assets were invested in
small cap companies as the fund defines them. This situation continued beyond
the end of the fund's October 31 fiscal year but was subsequently rectified. The
failure to comply with the 80% policy did not have any material adverse effect
on the fund during the fiscal year. Nonetheless, the Adviser has agreed to
reimburse the fund for realized losses on positions that were acquired in
violation of the 80% policy. We have taken appropriate steps to ensure full
compliance with the fund's 80% investment policy in the future.
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 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.
Thank you for your investment in the Smith Barney Small Cap Growth Opportunities
Fund. We appreciate that you have entrusted us to manage your money and value
our relationship with you.
Sincerely,
The Small Cap Portfolio Management Team
NOVEMBER 20, 2003
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 October 31, 2003 and are subject to
change. Please refer to pages 6 through 10 for a list and percentage breakdown
of the fund's holdings.
(i) The Russell 2000 Index measures the performance of the 2000 smallest
companies in the Russell 3000 Index, which represents approximately 8% of
the total market capitalization of the Russell 3000 Index. Please note
that an investor cannot invest directly in an index.
(ii) The Russell 2000 Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values. Please note that an investor cannot invest directly in an
index.
(iii) Source: Prudential Financial, QUANTITATIVE OUTLOOK, October 8, 2003
(iv) The fund's top ten holdings as of October 31, 2003 were: Trankaryotic
Therapies, Inc. (1.89%); Electronics for Imaging, Inc. (1.87%); DJ
Orthopedics, Inc. (1.74%); Georgia Gulf Corp. (1.73%); Intermune, Inc.
(1.65%); CSG Systems International, Inc. (1.65%); Citizens Communications
Co. (1.55%); Pride International, Inc. (1.41%); NPS Pharmaceuticals, Inc.
(1.33%); Sicor, Inc. (1.20%).
3 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
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AVERAGE ANNUAL TOTAL RETURNS+ (UNAUDITED)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(1)
--------------------------------------------------------------------------------
CLASS A CLASS B CLASS L CLASS Y
- ----------------------------------------------------------------------------------------------------------------------
Twelve Months Ended 10/31/03 37.36% 36.37% 36.31% --
- ----------------------------------------------------------------------------------------------------------------------
Five Years Ended 10/31/03 8.17% -- -- --
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Inception++ through 10/31/03 13.51% 5.24% (8.73)% 40.76%*
- ----------------------------------------------------------------------------------------------------------------------
WITH SALES CHARGES(2)
--------------------------------------------------------------------------------
CLASS A CLASS B CLASS L CLASS Y
- ----------------------------------------------------------------------------------------------------------------------
Twelve Months Ended 10/31/03 30.49% 31.37% 33.96% --
- ----------------------------------------------------------------------------------------------------------------------
Five Years Ended 10/31/03 7.07% -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Inception++ through 10/31/03 12.82% 5.08% (9.02)% 40.76%*
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(1) ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF
ANY, AT NET ASSET VALUE AND DOES NOT REFLECT DEDUCTION OF ALL APPLICABLE
SALES CHARGES WITH RESPECT TO CLASS A AND L SHARES OR THE APPLICABLE
CONTINGENT DEFERRED SALES CHARGES ("CDSC") WITH RESPECT TO CLASS B AND L
SHARES.
(2) ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF
ANY, AT NET ASSET VALUE. IN ADDITION, CLASS A AND L SHARES REFLECT THE
DEDUCTION OF THE MAXIMUM SALES CHARGE OF 5.00% AND 1.00%, RESPECTIVELY, AND
CLASS B SHARES REFLECT THE DEDUCTION OF A 5.00% CDSC, WHICH APPLIES IF
SHARES ARE REDEEMED WITHIN ONE YEAR FROM PURCHASE PAYMENT. THEREAFTER, THIS
CDSC DECLINES BY 1.00% PER YEAR UNTIL NO CDSC IS INCURRED. CLASS L SHARES
ALSO REFLECT THE DEDUCTION OF 1.00% CDSC, WHICH APPLIES IF SHARES ARE
REDEEMED WITHIN ONE YEAR OF PURCHASE PAYMENT.
+ ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE, AND
REDEMPTION VALUE MAY BE MORE OR LESS THAN THE ORIGINAL COST. THE RETURNS
SHOWN DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON
A FUND DISTRIBUTION OR THE REDEMPTION OF FUND SHARES.
++ INCEPTION DATES FOR CLASS A, B, L, AND Y SHARES ARE JUNE 21, 1995, JANUARY
4, 1999, SEPTEMBER 22, 2000 AND APRIL 11, 2003, RESPECTIVELY.
* NOT ANNUALIZED.
4 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
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HISTORICAL PERFORMANCE (UNAUDITED)
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VALUE OF $10,000 INVESTED IN CLASS A SHARES OF THE SMITH BARNEY SMALL CAP GROWTH
OPPORTUNITIES FUND VS. BENCHMARKS
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[THE DATA BELOW IS PRESENTED AS A GRAPH IN THE PRINTED DOCUMENT]
JUNE 1995 -- OCTOBER 2003
SMITH
BARNEY
SMALL
CAP GROWTH
OPPORTUNITIES RUSSELL
FUND CLASS A 2000
WITH GROWTH
DATE SALES LOAD INDEX
--------- ------------- --------
6/21/95 9500 10000
6/30/95 9548 10037
7/31/95 10422 10819
8/31/95 11058 10953
9/30/95 11400 11178
10/31/95 11381 10629
11/30/95 12873 11098
12/31/95 13754 11344
1/31/96 14099 11250
2/29/96 15483 11763
3/31/96 16270 11995
4/30/96 18239 12916
5/31/96 19555 13579
6/30/96 18965 12696
7/31/96 16790 11146
8/31/96 18877 11971
9/30/96 19676 12588
10/31/96 19072 12045
11/30/96 19423 12380
12/31/96 18952 12621
1/31/97 19764 12936
2/28/97 18619 12155
3/31/97 17495 11297
4/30/97 16975 11167
5/31/97 19473 12845
6/30/97 20534 13281
7/31/97 21234 13961
8/31/97 21547 14380
9/30/97 23396 15528
10/31/97 22184 14595
11/30/97 21986 14247
12/31/97 21949 14255
1/31/98 20967 14065
2/28/98 23456 15307
3/31/98 24405 15949
4/30/98 24503 16047
5/31/98 22593 14881
6/30/98 24263 15033
7/31/98 22211 13777
8/31/98 16667 10597
9/30/98 18173 11672
10/31/98 18511 12280
11/30/98 19690 13233
12/31/98 20978 14430
1/31/99 21054 15079
2/28/99 18981 13700
3/31/99 19417 14188
4/30/99 19886 15441
5/31/99 19876 15465
6/30/99 21229 16280
7/31/99 21491 15777
8/31/99 21556 15187
9/30/99 22364 15479
10/31/99 23401 15876
11/30/99 25518 17555
12/31/99 29611 20649
1/31/00 29404 20457
2/29/00 37263 25216
3/31/00 34032 22565
4/30/00 31129 20287
5/31/00 28957 18511
6/30/00 33333 20902
7/31/00 31631 19111
8/31/00 36924 21121
9/30/00 35538 20072
10/31/00 33901 18442
11/30/00 27778 15094
12/31/00 32221 16017
1/31/01 32373 17314
2/28/01 28205 14941
3/31/01 25325 13582
4/30/01 28690 15245
5/31/01 29024 15598
6/30/01 29524 16023
7/31/01 28129 14656
8/31/01 26553 13741
9/30/01 22734 11524
10/31/01 24446 12633
11/30/01 25992 13687
12/31/01 27432 14539
1/31/02 26841 14022
2/28/02 25659 13114
3/31/02 27750 14254
4/30/02 26765 13946
5/31/02 26098 13131
6/30/02 23764 12017
7/31/02 20688 10170
8/31/02 20748 10165
9/30/02 18824 9431
10/31/02 19960 9908
11/30/02 21658 10890
12/31/02 20203 10139
1/31/03 19672 9864
2/28/03 19203 9601
3/31/03 19384 9746
4/30/03 20839 10669
5/31/03 22537 11871
6/30/03 22764 12100
7/31/03 23871 13014
8/31/03 25553 13713
9/30/03 24886 13366
10/31/03 27417 14521
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the index) and assumes all dividends and distributions from the Fund
are reinvested at net asset value.
Notes: ALL FUND PERFORMANCE NUMBERS REPRESENT PAST PERFORMANCE AND ARE NO
GUARANTEE OF FUTURE RESULTS. The Fund's share price and investment return will
fluctuate so that the value of an investor's shares, when redeemed, may be worth
more or less than their original cost. The returns shown do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares. Total returns include change in share price and
reinvestment of dividends and distributions, if any. Total return figures "with
sales charge" are provided in accordance with SEC guidelines for comparative
purposes for prospective investors and reflect certain voluntary fee waivers
which may be terminated at any time. If the waivers were not in place, the
Fund's returns would have been lower. The returns shown do not reflect the
deductions of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares. The maximum sales charge of 5.00% went into effect on
January 4, 1999. Investors may not invest directly in an index. The performance
of the Fund's other classes may be greater or less than the performance of Class
A shares performance indicated on this chart, depending on whether greater or
lesser sales charges and fees were incurred by shareholders investing in other
classes.
5 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
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SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 93.3%
AEROSPACE & DEFENSE -- 0.7%
16,306 Aeroflex Inc.* $ 151,320
1,227 L-3 Communications Holdings, Inc.* 57,350
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208,670
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AUTO COMPONENTS -- 1.0%
6,900 Gentex Corp. 269,445
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BANKS -- 5.4%
5,592 Banknorth Group, Inc. 175,141
3,488 City National Corp. 210,013
4,400 Commerce Bancorp, Inc. 212,696
3,358 Cullen Frost Bankers, Inc. 130,156
2,986 East West Bancorp, Inc. 146,583
2,866 Mercantile Bankshares Corp. 121,432
5,298 New York Community Bancorp, Inc. 191,788
2,960 Pacific Northwest Bancorp 114,966
2,061 UCBH Holdings, Inc. 73,598
2,926 Westamerica Bancorporation 146,476
- --------------------------------------------------------------------------------
1,522,849
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 5.5%
8,500 BioMarin Pharmaceutical Inc.* 59,500
8,100 Digene Corp.* 285,120
12,300 ILEX Oncology, Inc.* 256,578
2,400 Onyx Pharmaceuticals, Inc.* 58,728
16,100 PRAECIS Pharmaceuticals Inc.* 111,573
41,200 Transkaryotic Therapies, Inc.* 540,132
11,300 United Therapeutics Corp.* 227,469
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1,539,100
- --------------------------------------------------------------------------------
CHEMICALS -- 2.7%
18,321 Georgia Gulf Corp. 492,835
2,500 Minerals Technologies Inc. 137,000
2,800 Valspar Corp. 133,560
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763,395
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COMMERCIAL SERVICES & SUPPLIES -- 2.2%
17,400 Activcard Corp.* 147,030
40,900 CSG System International, Inc.* 469,941
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616,971
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 5.2%
42,827 3Com Corp.* 308,354
16,246 Adaptec, Inc.* 138,254
8,808 Avocent Corp.* 332,942
14,800 Computer Network Technology Corp.* 146,520
4,157 Emulex Corp.* 117,726
19,976 McDATA Corp.* 206,352
13,333 Tekelec* 214,528
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1,464,676
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SEE NOTES TO FINANCIAL STATEMENTS.
6 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
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SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2003
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMPUTERS & PERIPHERALS -- 5.1%
14,236 ATI Technologies Inc.* $ 203,717
21,839 Cray, Inc.* 284,344
19,700 Electronics for Imaging, Inc.* 533,870
5,700 Imation Corp. 194,085
17,700 Innovex, Inc.* 200,010
- --------------------------------------------------------------------------------
1,416,026
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIALS -- 1.7%
1,700 Affiliated Managers Group, Inc.* 123,250
4,000 Investors Financial Services Corp. 141,320
2,614 Legg Mason, Inc. 217,616
- --------------------------------------------------------------------------------
482,186
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION -- 3.2%
35,500 Cincinnati Bell Inc.* 181,405
35,400 Citizens Communications Co.* 440,730
6,478 Commonwealth Telephone Enterprises, Inc.* 264,043
- --------------------------------------------------------------------------------
886,178
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS -- 1.3%
1,253 Lexar Media, Inc.* 28,706
11,185 Plexus Corp.* 193,389
4,235 Tech Data Corp.* 139,416
- --------------------------------------------------------------------------------
361,511
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES -- 3.4%
6,286 Precision Drilling Corp.* 247,543
24,540 Pride International, Inc.* 401,965
12,200 Rowan Companies, Inc.* 292,190
- --------------------------------------------------------------------------------
941,698
- --------------------------------------------------------------------------------
FOOD & DRUG RETAILING -- 0.5%
12,469 Pathmark Stores, Inc.* 85,413
6,400 Wild Oats Markets, Inc.* 66,432
- --------------------------------------------------------------------------------
151,845
- --------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.4%
3,777 Bunge Limited 102,357
- --------------------------------------------------------------------------------
GAS UTILITIES -- 1.1%
17,901 Southern Union Co.* 315,237
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 3.5%
27,700 DJ Orthopedics Inc.* 497,215
10,000 Dade Behring Holdings Inc.* 305,700
4,987 Wilson Greatbatch Technologies, Inc.* 188,010
- --------------------------------------------------------------------------------
990,925
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES -- 1.3%
2,100 Mid Atlantic Medical Services, Inc.* 122,640
4,000 Sierra Health Services, Inc.* 93,160
2,969 Universal Health Services, Inc.--
Class B shares* 139,692
- --------------------------------------------------------------------------------
355,492
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
7 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2003
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
HOTELS RESTAURANTS & LEISURE -- 1.6%
3,012 Applebee's International, Inc.* $ 112,980
4,200 Ashford Hospitality Trust* 38,430
4,987 California Pizza Kitchen, Inc.* 92,758
7,031 Station Casinos, Inc. 209,172
- --------------------------------------------------------------------------------
453,340
- --------------------------------------------------------------------------------
INSURANCE -- 2.3%
4,500 Brown & Brown, Inc. 137,025
6,061 IPC Holdings, Ltd. 226,984
3,839 PartnerRe Ltd. 208,343
1,992 Platinum Underwriters Holdings, Ltd. 57,250
- --------------------------------------------------------------------------------
629,602
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES -- 2.9%
15,400 Check Point Software Technologies Ltd.* 261,646
3,700 Digital River, Inc.* 101,306
8,313 Openwave System Inc.* 108,480
14,300 RADWARE Ltd.* 331,045
- --------------------------------------------------------------------------------
802,477
- --------------------------------------------------------------------------------
IT CONSULTING & SERVICES -- 1.8%
2,165 Infosys Technologies Ltd., ADR 183,181
9,759 Perot System Corp.-- Class A shares* 103,641
12,469 Satyam Computer Services Ltd., ADR 225,689
- --------------------------------------------------------------------------------
512,511
- --------------------------------------------------------------------------------
MACHINERY -- 1.3%
8,346 AGCO CORP.* 150,228
5,592 Navistar International Corp.* 226,085
- --------------------------------------------------------------------------------
376,313
- --------------------------------------------------------------------------------
MEDIA -- 3.1%
3,307 Citadel Broadcasting Co.* 65,148
4,000 Getty Images, Inc.* 178,800
7,700 Spanish Broadcasting System, Inc.--
Class A shares* 69,300
36,900 UnitedGlobalCom, Inc.-- Class A shares* 261,252
13,916 Young Broadcasting Inc.-- Class A shares* 279,572
- --------------------------------------------------------------------------------
854,072
- --------------------------------------------------------------------------------
METALS & MINING -- 0.1%
14,513 AK Steel Holding Corp.* 34,831
- --------------------------------------------------------------------------------
OIL & GAS -- 1.6%
6,893 Patina Oil & Gas Corp. 290,747
6,444 Premcor Inc.* 152,078
- --------------------------------------------------------------------------------
442,825
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 0.6%
9,000 Louisiana-Pacific Corp.* 171,180
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
8 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2003
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
PHARMACEUTICALS -- 8.8%
3,900 Angiotech Pharmaceuticals, Inc.* $ 178,347
11,345 Esperion Therapeutics, Inc.* 270,805
23,500 InterMune Inc.* 470,000
12,400 Ligand Pharmaceuticals Inc.--
Class B shares* 170,872
7,965 MGI Pharma, Inc.* 299,165
14,400 NPS Pharmaceuticals, Inc.* 379,152
13,600 Nektar Therapeutics* 178,704
12,800 SICOR Inc.* 343,040
4,123 Watson Pharmaceuticals, Inc.* 161,910
- --------------------------------------------------------------------------------
2,451,995
- --------------------------------------------------------------------------------
REAL ESTATE -- 3.0%
3,872 Alexandraia Real Estate Equities, Inc 197,472
11,604 American Financial Realty Trust 176,381
328 CenterPoint Properties Trust 22,288
3,574 Cousins Properties, Inc. 102,753
7,377 PS Business Parks, Inc. 278,113
2,926 United Dominion Realty Trust, Inc. 51,059
- --------------------------------------------------------------------------------
828,066
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 5.9%
60,500 Agere System Inc. -- Class B Shares* 205,095
16,730 ASE Test Limited* 208,623
17,300 Exar Corp.* 278,357
14,500 Genesis Microchip Inc.* 240,410
31,600 GlobespanVirata, Inc.* 194,656
12,590 Microsemi Corp.* 260,613
24,100 White Electronic Designs Corp.* 265,100
- --------------------------------------------------------------------------------
1,652,854
- --------------------------------------------------------------------------------
SOFTWARE -- 9.4%
19,371 Activision, Inc.* 292,308
14,963 Borland Software Corp.* 132,871
4,252 Cognos, Inc.* 146,566
30,704 Compuware Corp.* 172,556
29,600 MSC. Software Corp.* 304,880
14,530 NetIQ Corp.* 176,394
20,988 Network Association, Inc.* 292,363
49,012 Novell, Inc.* 287,700
7,253 PeopleSoft, Inc.* 150,572
6,284 SERENA Software, Inc.* 108,399
51,217 TIBCO Software Inc.* 329,838
10,500 Verint System Inc.* 235,095
- --------------------------------------------------------------------------------
2,629,542
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
9 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2003
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
SPECIALTY RETAIL -- 3.6%
4,598 Abercrombie & Fitch Co.--
Class A shares* $ 131,043
1,480 American Eagle Outfitters, Inc.* 23,665
3,950 Chico's FAS, Inc.* 148,283
8,200 Linens' n Things, Inc.* 242,064
7,000 Too Inc.* 115,500
7,900 West Marine, Inc.* 175,064
3,500 Zale Corp.* 181,160
- --------------------------------------------------------------------------------
1,016,779
- --------------------------------------------------------------------------------
TEXTILES & APPAREL -- 0.1%
1,400 Carter's Inc.* 39,200
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS -- 1.3%
4,296 Fastenal Co. 191,043
7,049 MSC Industrial Direct Co., Inc.--
Class A shares 166,709
- --------------------------------------------------------------------------------
357,752
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 1.7%
28,300 Dobson Communications Corp.--
Class A shares* 245,361
2,400 NII Holdings Inc.-- Class B shares* 185,016
2,100 PanAmSat Corp.* 43,470
- --------------------------------------------------------------------------------
473,847
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Identified Cost-- $23,072,057) $26,115,747
- --------------------------------------------------------------------------------
====================================================================================================================================
FACE
AMOUNT SECURITY VALUE
====================================================================================================================================
REPURCHASE AGREEMENTS -- 6.7%
$1,657,000 State Street Repurchase Agreement, 0.95% due 11/3/03; proceeds at maturity $1,657,131
(Fully collateralized by Federal Home Loan Bank, 1.50% due 7/15/05 valued at $1,690,415)
(Identified Cost-- $1,657,000) 1,657,000
215,000 UBS Warburg Repurchase Agreement, 1.04% due 11/3/03; proceeds at maturity $215,019
(Fully collateralized by Freddie Mac, 3.25% due 1/15/04 valued at $219,300)
(Identified Cost-- $215,000) 215,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Identified Cost-- $1,872,000) 1,872,000
====================================================================================================================================
TOTAL INVESTMENTS -- 100%
(Identified Cost-- $24,944,057**) $27,987,747
====================================================================================================================================
* NON-INCOME PRODUCING SECURITY
** AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSE IS $24,875,471.
SEE NOTES TO FINANCIAL STATEMENTS.
10 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2003
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (Note 1A) (Identified Cost, $23,072,057) $ 26,115,747
Short-term holdings at amortized cost (Note1A) (Identified Cost, $1,872,000) 1,872,000
Cash 490
Receivable for investments sold 606,870
Receivable for shares of beneficial interest sold 133,682
Dividends and interest receivable 3,466
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 28,732,255
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 139,634
Distribution/Service fees payable (Note 3) 8,910
Payable for shares of beneficial interest repurchased 7,916
Accrued expenses and other liabilities 67,525
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 223,985
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $28,508,270
======================================================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 24,820,898
Accumulated net realized gain from security transactions 643,682
Net unrealized appreciation of investments 3,043,690
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $28,508,270
======================================================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value and redemption price per share ($21,581,148/1,192,748 shares outstanding) $18.09
Offering Price per share ($18.09 / 0.95) 19.04*
======================================================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price ($2,726,372/157,073 shares outstanding) $17.36**
======================================================================================================================
CLASS L SHARES:
Net Asset Value per share ($3,281,064/185,546 shares outstanding) $17.68**
Offering Price per share ($17.68 / 0.99) $17.86
======================================================================================================================
CLASS Y SHARES:
Net Asset Value per share and offering price ($919,686/50,724 shares outstanding) $18.13**
======================================================================================================================
* BASED UPON SINGLE PURCHASES OF LESS THAN $25,000.
** REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY APPLICABLE
CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS.
11 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2003
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $ 104,013
Interest income 62,113
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 166,126
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 236,438
Distribution/Service fees (Note 3) 78,455
Shareholder reports 57,696
Custody and fund accounting fees 55,939
Transfer agent fees 49,594
Blue sky fees 48,231
Audit fees 44,700
Legal fees 22,981
Trustees' fees 1,697
Other 5,185
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 600,916
- ----------------------------------------------------------------------------------------------------------------------
Less: Aggregate amount waived by the Manager (Note 2) (236,438)
Less: Expenses assumed by the Manager (Note 8) (49,745)
- ----------------------------------------------------------------------------------------------------------------------
NET EXPENSES 314,733
- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (148,607)
======================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions (430,690)
Net increase in unrealized appreciation on investments 7,329,176
Net realized and unrealized gains on investments related to prospectus restrictions (Note 11) 450,862
- ----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS 7,349,348
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,200,741
======================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
12 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED OCTOBER 31
- --------------------------------------------------------------------------------
2003 2002
===============================================================================================================================
OPERATIONS:
Net investment loss $ (148,607) $ (154,309)
Net realized loss from investment transactions (430,690) (1,198,814)
Unrealized appreciation (depreciation) of investments 7,329,176 (3,188,844)
Net realized and unrealized gains on investments related to prospectus restrictions 450,862 --
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 7,200,741 (4,541,967)
- -------------------------------------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (NOTE 7):
CLASS A
Net proceeds from sale of shares 7,825,518 4,859,940
Cost of shares repurchased (8,784,571) (5,949,444)
- -------------------------------------------------------------------------------------------------------------------------------
Total Class A (959,053) (1,089,504)
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B
Net proceeds from sale of shares 725,409 593,483
Cost of shares repurchased (212,066) (356,130)
- -------------------------------------------------------------------------------------------------------------------------------
Total Class B 513,343 237,353
- -------------------------------------------------------------------------------------------------------------------------------
CLASS L
Net proceeds from sale of shares 2,079,511 1,287,160
Cost of shares repurchased (616,923) (193,761)
- -------------------------------------------------------------------------------------------------------------------------------
Total Class L 1,462,588 1,093,399
- -------------------------------------------------------------------------------------------------------------------------------
CLASS Y
Net proceeds from sale of shares 808,832 --
Cost of shares repurchased -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total Class Y 808,832 --
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST 1,825,710 241,248
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS 9,026,451 (4,300,719)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 19,481,819 23,782,538
- -------------------------------------------------------------------------------------------------------------------------------
END OF YEAR+ $28,508,270 $19,481,819
===============================================================================================================================
+ Includes undistributed net investment loss: $ -- --
===============================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
13 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Small Cap Growth Opportunities Fund (the "Fund") is a separate
diversified series of Smith Barney Trust II (the "Trust"), a Massachusetts
business trust. The Trust is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The investment
manager of the Fund is Smith Barney Fund Management LLC (the "Manager").
Citigroup Global Markets Inc. ("CGM"), serves as the Fund's distributor, (the
"Distributor") and continues to sell Fund shares to the public as a member of
the selling group. Smith Barney Fund Management Inc., and CGM are subsidiaries
of Citigroup Inc. ("Citigroup").
Citicorp Trust Bank, fsb. ("CTB"), a subsidiary of Citigroup, acts as the Fund's
transfer agent and PFPC Global Fund Services ("PFPC") acts as the Fund's
sub-transfer agent. CTB receives fees and asset-based fees that vary according
to the account size and type of account. PFPC is responsible for shareholder
recordkeeping and financial processing for all shareholder accounts and is paid
by CTB. For the year ended October 31, 2003 the Fund paid transfer agent fees of
$40,594 to CTB.
The Fund offers Class A, Class B, Class L and Class Y shares. Class A shares
have a front-end, or initial, sales charge. This sales charge may be reduced or
eliminated in certain circumstances. Class B shares have no front-end sales
charge, pay a higher ongoing distribution fee than Class A shares, and are
subject to a deferred sales charge if sold within five years of purchase. Class
B shares automatically convert into Class A shares after eight years. Class L
shares have a front-end, or initial, sales charge that is lower than Class A
shares, pay a higher ongoing distribution fee than Class A shares, and are
subject to a deferred sales charge if sold within one year of purchase. Expenses
of the Fund are borne pro-rata by the holders of each class of shares, based on
the proportionate interest in the Fund represented by the daily net assets of
such class, except that each class bears expenses unique to that class
(including the Rule 12b-1 service and distribution fees applicable to such
class), and votes as a class only with respect to its own Rule 12b-1 plan.
Expenses directly attributable to a Fund are charged to that Fund; other
expenses of the Trusts are allocated proportionately among each of the Funds
within the Trusts in relation to the net assets of each Fund or on another
reasonable basis. Expenses directly attributable to a particular class are
charged directly to such class. In calculating the net asset value per share of
each class, investment income, realized and unrealized gains and losses and
expenses other than class specific expenses are allocated daily to each class of
shares based upon the proportion of net assets of each class at the beginning of
each day. Shares of each class would receive their pro-rata share of the net
assets of the Fund, if the Fund were liquidated. For the year ended October 31,
2003, the Fund has been informed that the Distributor retained front-end net
commissions paid by investors of $9,000 and $4,000 from sales of Class A and
Class L shares, respectively and $3,000 and $0 in deferred sales charges from
redemptions of Class B and Class L shares, respectively.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates. The
significant accounting policies consistently followed by the Fund are as
follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges are valued at last sale prices. Securities listed on the NASDAQ
National Market System for which market quotations are available are valued at
the official closing price or, if there is no official closing price on that
day, at the last sale price. 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 sixty days or less)
are valued on the basis of valuations furnished by pricing services approved by
the Board of Trustees which take 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 on quoted prices or exchange or over-the- counter prices. Short-term
obligations, maturing in 60 days or less, are value at amortized cost, which
constitutes fair value as determined by the Trustees. 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. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or accretion of discount on long-term debt
securities. Dividend income is recorded on the ex-dividend date.
14 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
C. FEDERAL TAXES The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary.
D. EXPENSES The Fund bears all 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 were
charged to that fund.
E. DISTRIBUTIONS Distributions to shareholders are recorded on the ex-dividend
date. The amount and character of income and net realized gains to be
distributed are determined in accordance with income tax rules and regulations,
which may differ from generally accepted accounting principles. These
differences are attributable to permanent book and tax accounting differences.
Reclassifications are made to the Fund's capital accounts to reflect income and
net realized gains available for distribution (or available capital loss
carryovers) under income tax rules and regulations. For the year ended October
31, 2003, the Fund reclassified $153,467 from accumulated investment loss to
paid in capital.
F. REPURCHASE AGREEMENTS It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreements. The Fund
requires continued maintenance of the market value (plus accrued interest) of
the collateral in amounts at least equal to the repurchase price.
G. OTHER 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.
2. MANAGEMENT FEES
The Manager is responsible for overall management of the Fund's business
affairs, and has a Management Agreement with the Fund. The Manager or an
affiliate also provides certain administrative services to the Fund. These
administrative services include providing general office facilities and
supervising the overall administration of the Fund.
The management fees paid to the Manager are accrued daily and payable monthly.
The management fee is computed at the annual rate of 1.10% of the Funds' average
daily net assets. The management fee amounted to $236,438, all of which was
voluntarily waived for the year ended October 31, 2003.
The Trust pays no compensation directly to any Trustee or any other officer who
is affiliated with the Manager, all of whom receive remuneration for their
services to the Trust from the Manager or its affiliates.
3. DISTRIBUTION/SERVICE FEES
The Fund maintains separate Service Plans for Class A, Class B and Class L
shares, which have been adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940, as amended. Under the Class A Service Plan, the
Fund may pay monthly fees at an annual rate not to exceed 0.25% of the average
daily net assets represented by Class A shares of the Fund. The Service fees for
Class A shares amounted to $44,794 for the year ended October 31, 2003. Under
the Class B and Class L Service Plans, the Fund may pay a combined monthly
distribution and service fee at an annual rate not to exceed 1.00% of the
average daily net assets represented by Class B and Class L shares of the Fund,
respectively. The Service fees for Class B and Class L shares amounted to
$19,069 and $14,592 respectively, for the year ended October 31, 2003. These
fees may be used to make payments to the Distributor for distribution services
and to others as compensation for the sale of shares of the applicable class of
the Fund, for advertising, marketing, or other promotional activity, and for
preparation, printing and distribution of prospectuses, statements of additional
information and reports for recipients other than regulators and exist-
15 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
ing shareholders. The Fund also may make payments to the Distributor and others
for providing personal service or the maintenance of shareholder accounts.
4. PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term obligations,
aggregated $29,181,634 and $28,758,641 respectively, for the year ended October
31, 2003. Brokerage commissions paid to Citigroup Global Markets, Inc. amounted
to $75.
5. FEDERAL INCOME TAX BASIS OF INVESTMENTS
Then cost and unrealized appreciation (depreciation) in value of the investment
securities owned at October 31, 2003, as computed on a federal income tax basis,
are as follows:
================================================================================
Gross unrealized appreciation $ 3,658,137
Gross unrealized depreciation (545,861)
- -------------------------------------------------------------------------------
Net unrealized appreciation $ 3,112,276
===============================================================================
6. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
At October 31, 2003 the tax basis components of distributable earnings were:
================================================================================
Accumulated capital gain $ 575,095
- --------------------------------------------------------------------------------
Unrealized appreciation $3,112,276
================================================================================
The difference between book basis and tax basis unrealized depreciation is
attributable primarily to the allocation of tax basis from prior
reorganizations.
7. 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).
Transactions in shares of beneficial interest were as follows:
YEAR ENDED OCTOBER 31,
------------------------------
2003 2002
================================================================================
CLASS A
Shares sold 521,588 311,000
Shares issued on reinvestment -- --
Shares repurchased (589,462) (384,834)
- -------------------------------------------------------------------------------
Net decrease (67,874) (73,834)
================================================================================
CLASS B
Shares sold 49,308 36,421
Shares issued on reinvestment -- --
Shares repurchased (14,915) (23,841)
- -------------------------------------------------------------------------------
Net increase 34,393 12,580
================================================================================
CLASS L
Shares sold 129,456 82,234
Shares issued on reinvestment -- --
Shares repurchased (45,016) (13,830)
- -------------------------------------------------------------------------------
Net increase 84,440 68,404
================================================================================
CLASS Y*
Shares sold 50,724 --
Shares issued on reinvestment -- --
Shares repurchased -- --
- -------------------------------------------------------------------------------
Net increase 50,724 --
================================================================================
* APRIL 11, 2003 (COMMENCEMENT OF OPERATIONS).
16 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
8. ASSUMPTION OF EXPENSES
The Manager has voluntarily agreed to pay a portion of the unwaived expenses of
the Fund for the year ended October 31, 2003, which amounted to $49,745, to
maintain a voluntary expense limitation of average daily net assets of 1.35%,
2.10% and 2.10% and 1.10% for Class A, Class B, Class L and Class Y shares,
respectively. These voluntary expense limitations may be discontinued at any
time.
9. TRUSTEE RETIREMENT PLAN
The Trustees of the Fund have adopted a Retirement Plan for all Trustees who are
not "interested persons" of the Fund, within the meaning of the 1940 Act. Under
the Plan, all Trustees are required to retire from the Board as of the last day
of the calendar year in which the applicable Trustee attains age 75 (certain
Trustees who had already attained age 75 when the Plan was adopted are required
to retire effective December 31, 2003). Trustees may retire under the Plan
before attaining the mandatory retirement age. Trustees who have served as
Trustee of the Trust or any of the investment companies associated with
Citigroup for at least ten years when they retire are eligible to receive the
maximum retirement benefit under the Plan. The maximum retirement benefit is an
amount equal to five times the amount of retainer and regular meeting fees
payable to a Trustee during the calendar year ending on or immediately prior to
the applicable Trustee's retirement. Amounts under the Plan may be paid in
installments or in a lump sum (discounted to present value). Benefits under the
Plan are unfunded. The Fund's allocable share of the expense of the Plan for the
year ended October 31, 2003 and the related liability at October 31, 2003 were
not material.
10. SUBSEQUENT EVENT
The Fund has received the following information from Citigroup Asset Management
("CAM"), the Citigroup business unit which includes the Fund's Investment
Manager and other investment advisory companies, all of which are indirect,
wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an
affiliate, into the transfer agent business in the period 1997-1999. As CAM
currently understands the facts, at the time CAM decided to enter the transfer
agent business, CAM sub-contracted for a period of five years certain of the
transfer agency services to a third party and also concluded a revenue guarantee
agreement with this sub-contractor providing that the sub-contractor would
guarantee certain benefits to CAM or its affiliates (the "Revenue Guarantee
Agreement"). In connection with the subsequent purchase of the sub-contractor's
business by an affiliate of the current sub-transfer agent (PFPC Inc.) used by
CAM on many of the funds it manages, this Revenue Guarantee Agreement was
amended eliminating those benefits in exchange for arrangements that included a
one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub-contractor at the time the Boards considered
and approved the transfer agent agreements. Nor were the Boards informed of the
subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds
$16 million (plus interest) that CAM and its affiliates received from the
Revenue Guarantee Agreement and its amendment. CAM also plans an independent
review to verify that the transfer agency fees charged by CAM were fairly priced
as compared to competitive alternatives. CAM is instituting new procedures and
making changes designed to ensure no similar arrangements are entered into in
the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
17 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
11. PROSPECTUS RESTRICTION
The Fund has an investment policy of investing at least 80% of its net assets in
equity securities of small cap companies and related investments. The Fund
considers small cap companies to be those with market capitalizations within the
range of the market capitalizations of the companies in the Russell 2000 Index
("Index") at the time of investment. Subsequent to a reconstitution of the
Russell 2000 Index in July 2003, the Fund purchased securities of certain
companies with market capitalizations that were no longer within of the range of
those of the companies in the Index, resulting in less than 80% of the Fund's
net assets being invested in equity securities of small cap companies and
related investments for a period of time. For the year ended October 31, 2003,
the net realized and unrealized gains on the investment in such securities in
excess of the 20% of Fund net assets permitted by the investment policy were
approximately $74,000 and $376,000, respectively. These items represented 2.16%,
2.23%, 2.19% and 2.21% for Class A, B, L and Y, respectively, of the total
return of each share class.
Subsequent to October 31, 2003, the Fund sold certain securities of issuers with
market capitalizations outside of the range of those of the companies in the
Index to achieve compliance with its investment policy. The net realized gain on
such sales were approximately $306,000. In addition, the Adviser has agreed to
reimburse the Fund for losses on investments that were acquired in violation of
its investment policy in the amount of $29,200; the amount of such losses
attributable to the year ended October 31, 2003 was not material.
18 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK:
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------------
CLASS A SHARES 2003 2002 2001 2000 1999
===================================================================================================================================
NET ASSET VALUE, BEGINNING OF YEAR $ 13.17 $ 16.13 $ 31.06 $ 21.44 $ 16.96
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment loss (0.084)+ (0.093) (0.111) (0.525) (0.196)+
Net realized and unrealized gain (loss) 5.004 (2.867) (7.432) 10.145 4.676
- -----------------------------------------------------------------------------------------------------------------------------------
Total From Operations 4.920 (2.960) (7.543) 9.620 4.480
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- -- -- -- --
Net realized gain -- -- (7.387) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (7.387) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 18.09 $ 13.17 $ 16.13 $ 31.06 $ 21.44
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $21,581 $16,608 $21,529 $30,717 $23,794
Ratio of expenses to average net assets 1.35% 1.35% 1.35%(a) 1.35%(a) 1.35%(a)
Ratio of net investment
loss to average net assets (0.57)% (0.56)% (0.60)% (0.82)% (1.03)%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 37.36%++ (18.35)% (27.89)% 44.87% 26.42%
- -----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 141% 21% 57% 81% 104%
===================================================================================================================================
NOTE: IF AGENTS OF THE FUND HAD NOT VOLUNTARILY WAIVED A PORTION OF THEIR FEES AND ASSUMED FUND EXPENSES FOR THE YEARS INDICATED,
THE NET INVESTMENT LOSS PER SHARE AND THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
Net investment loss per share $(0.278)+ $(0.357) $(0.345) $(0.435) $(0.351)+
RATIOS:
Expenses to average net assets 2.68% 2.93% 2.61%(a) 2.18%(a) 2.16%(a)
Net investment loss to average net assets (1.90)% (2.14)% (1.86)% (1.65)% (1.84)%
===================================================================================================================================
+ THE PER SHARE AMOUNTS WERE COMPUTED USING A MONTHLY AVERAGE NUMBER OF
SHARES OUTSTANDING DURING THE PERIOD.
++ 2.16% OF CLASS A'S TOTAL RETURN RESULTED FROM INVESTMENTS NOT MEETING THE
INVESTMENT POLICY OF THE FUND. (SEE NOTE 11 TO THE FINANCIAL STATEMENTS.)
(a) INCLUDES THE FUND'S SHARE OF SMALL CAP GROWTH PORTFOLIO ALLOCATED EXPENSES
FOR THE PERIODS INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
19 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK:
JANUARY 4, 1999
YEAR ENDED OCTOBER 31, (COMMENCEMENT
--------------------------------------------------------------- OF OPERATIONS) TO
CLASS B SHARES 2003 2002 2001 2000 OCTOBER 31, 1999
====================================================================================================================================
NET ASSET VALUE, BEGINNING OF YEAR $ 12.73 $ 15.71 $ 30.65 $ 21.31 $ 18.95
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment loss (0.188)+ (0.198) (0.214) (0.481) (0.265)+
Net realized and unrealized gain (loss) 4.818 (2.782) (7.339) 9.821 2.625
- ------------------------------------------------------------------------------------------------------------------------------------
Total From Operations 4.630 (2.980) (7.553) 9.340 2.360
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- -- -- -- --
Net realized gain -- -- (7.387) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (7.387) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 17.36 $ 12.73 $ 15.71 $ 30.65 $ 21.31
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $ 2,726 $ 1,562 $ 1,730 $ 1,743 $ 737
Ratio of expenses to average net assets 2.10% 2.10% 2.10%(a) 2.10%(a) 2.10%(a)*
Ratio of net investment loss to average
net assets (1.34)% (1.30)% (1.36)% (1.55)% (1.77)%*
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 36.37%++ (18.97)% (28.42)% 43.78% 12.45%**
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 141% 21% 57% 81% 104%
====================================================================================================================================
NOTE: IF AGENTS OF THE FUND HAD NOT VOLUNTARILY WAIVED A PORTION OF THEIR FEES AND ASSUMED FUND EXPENSES FOR THE YEARS INDICATED,
THE NET INVESTMENT LOSS PER SHARE AND THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
Net investment loss per share $(0.375)+ $(0.439) $(0.453) $(0.621) $ (0.420)+
RATIOS:
Expenses to average net assets 3.43% 3.68% 3.61%(a) 2.93%(a) 2.91%(a)*
Net investment loss to average net assets (2.67)% (2.88)% (2.87)% (2.40)% (2.58)%*
====================================================================================================================================
* ANNUALIZED
** NOT ANNUALIZED
+ THE PER SHARE AMOUNTS WERE COMPUTED USING A MONTHLY AVERAGE NUMBER OF
SHARES OUTSTANDING DURING THE PERIOD.
++ 2.23% OF CLASS B'S TOTAL RETURN RESULTED FROM INVESTMENTS NOT MEETING THE
INVESTMENT POLICY OF THE FUND. (SEE NOTE 11 TO THE FINANCIAL STATEMENTS.)
(a) INCLUDES THE FUND'S SHARE OF SMALL CAP GROWTH PORTFOLIO ALLOCATED EXPENSES
FOR THE PERIODS INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
20 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK:
SEPTEMBER 22, 2000
YEAR ENDED OCTOBER 31, COMMENCEMENT
--------------------------------------------- OF OPERATIONS) TO
CLASS L SHARES 2003 2002 2001 OCTOBER 31, 2000
====================================================================================================================================
NET ASSET VALUE, BEGINNING OF YEAR $ 12.97 $ 16.00 $ 31.06 $ 32.62
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment loss (0.186)+ (0.122) (0.153) (0.065)
Net realized and unrealized gain (loss) 4.896 (2.908) (7.520) (1.495)
- ------------------------------------------------------------------------------------------------------------------------------------
Total From Operations 4.710 (3.030) (7.673) (1.560)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- -- -- --
Net realized gain -- -- (7.387) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (7.387) --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 17.68 $ 12.97 $ 16.00 $ 31.06
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $ 3,281 $ 1,312 $ 523 $ 19
Ratio of expenses to average net assets 2.10% 2.10% 2.10%(a) 2.10%(a)*
Ratio of net investment loss to average net assets (1.34)% (1.22)% (1.37)% (1.91)%*
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 36.31%++ (18.94)% (28.39)% (4.78)%**
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 141% 21% 57% 81%
====================================================================================================================================
NOTE: IF AGENTS OF THE FUND HAD NOT VOLUNTARILY WAIVED A PORTION OF THEIR FEES AND ASSUMED FUND EXPENSES FOR THE YEARS INDICATED,
THE NET INVESTMENT LOSS PER SHARE AND THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
Net investment loss per share $(0.371)+ $(0.280) $(0.383) $(0.140)
RATIOS:
Expenses to average net assets 3.43% 3.68% 4.16%(a) 2.93%(a)*
Net investment loss to average net assets (2.67)% (2.80)% (3.43)% (2.74)%*
====================================================================================================================================
* ANNUALIZED
** NOT ANNUALIZED
+ THE PER SHARE AMOUNTS WERE COMPUTED USING A MONTHLY AVERAGE NUMBER OF
SHARES OUTSTANDING DURING THE PERIOD.
++ 2.19% OF CLASS L'S TOTAL RETURN RESULTED FROM INVESTMENTS NOT MEETING THE
INVESTMENT POLICY OF THE FUND. (SEE NOTE 11 TO THE FINANCIAL STATEMENTS.)
(a) INCLUDES THE FUND'S SHARE OF SMALL CAP GROWTH PORTFOLIO ALLOCATED EXPENSES
FOR THE PERIODS INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
21 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK:
APRIL 11, 2003
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31,
CLASS Y SHARES 2003
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $12.88
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment loss (0.029)+
Net realized and unrealized gain 5.279
- --------------------------------------------------------------------------------
Total From Operations 5.250
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
NET REALIZED GAIN --
Total Distributions --
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.13
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $ 920
Ratio of expenses to average net assets 1.08%*
Ratio of net investment loss to average net assets (0.51)%*
- --------------------------------------------------------------------------------
TOTAL RETURN 40.76%**++
PORTFOLIO TURNOVER RATE 141%
================================================================================
NOTE: IF AGENTS OF THE FUND HAD NOT VOLUNTARILY WAIVED A PORTION OF THEIR FEES
AND ASSUMED FUND EXPENSES FOR THE YEARS INDICATED, THE NET INVESTMENT LOSS PER
SHARE AND THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
Net investment loss per share $(0.104)+
RATIOS:
Expenses to average net assets 2.41%*
Net investment loss to average net assets (1.83)%*
================================================================================
* ANNUALIZED
** NOT ANNUALIZED
+ THE PER SHARE AMOUNTS WERE COMPUTED USING A MONTHLY AVERAGE NUMBER OF
SHARES OUTSTANDING DURING THE PERIOD.
++ 2.21% of Class Y's total return resulted from investments not meeting the
investment policy of the Fund. (See Note 11 to the financial statements.)
SEE NOTES TO FINANCIAL STATEMENTS.
22 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF SMITH BARNEY TRUST II AND THE SHAREHOLDERS
OF SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Smith Barney Small Cap Growth
Opportunities Fund (the "Fund"), a series of Smith Barney Trust II, at October
31, 2003, and the results of its operations, the changes in its net assets and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
January 6, 2004
23 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED)
INFORMATION ABOUT TRUSTEES AND OFFICERS The business and affairs of the Smith
Barney Small Cap Growth Opportunities Fund (the "Fund") are managed under the
direction of the Fund's Board of Trustees. Information pertaining to the
Trustees and officers of the Fund is set forth below. Each Trustee and officer
holds office for his or her lifetime, unless that individual resigns, retires or
is otherwise removed. The Statement of Additional Information includes
additional information about Fund Trustees and is available, without charge,
upon request by calling 1-800-451-2010.
NUMBER OF OTHER BOARD
PRINCIPAL PORTFOLIOS IN MEMBERSHIPS
POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX HELD BY
HELD WITH OF TIME DURING PAST OVERSEEN BY TRUSTEE DURING
NAME, ADDRESS AND AGE FUND SERVED FIVE YEARS TRUSTEE PAST FIVE YEARS
- ---------------------- ------------ -------- -------------- --------------- -----------------
NON-INTERESTED
TRUSTEES:
Elliott J. Berv Trustee Since 2001 President and Chief Operations 36 Board Member,
c/o R. Jay Gerken Officer, Landmark City (real American Identity Corp.
Citigroup Asset Management estate development) (since (doing business as
399 Park Avenue 2002); Executive Vice President Morpheus Technologies)
New York, NY 10022 and Chief Operations Officer, (biometric information
Age 60 DigiGym Systems (on-line management) (since
personal training systems) (since 2001; consultant since
2001); Chief Executive Officer, 1999); Director, Lapoint
Rocket City Enterprises (internet Industries (industrial
service company) (from 2000 to filter company) (since
2001); President, Catalyst 2002); Director,
(consulting) (since 1984). Alzheimer's Association
(New England Chapter)
(since 1998).
Donald M. Carlton Trustee Since 2001 Consultant, URS Corporation 31 Director, American
c/o R. Jay Gerken (engineering) (since 1999); Electric Power
Citigroup Asset Management former Chief Executive Officer, (electric utility) (since
399 Park Avenue Radian International LLC 1999); Director, Valero
New York, NY 10022 (engineering) (from 1996 to Energy (petroleum
Age 66 1998), Member of Management refining) (since 1999);
Committee, Signature Science Director, National
(research and development) Instruments Corp.
(since 2000). (technology)
(since 1994).
A. Benton Cocanougher Trustee Since 2001 Dean Emeritus and Wiley 31 Former Director,
c/o R. Jay Gerken Professor, Texas A&M Randall's Food Markets,
Citigroup Asset Management University (since 2001); Inc. (from 1990 to 1999);
399 Park Avenue former Dean and Professor of former Director, First
New York, NY 10022 Marketing, College and American Bank and
Age 65 Graduate School of Business First American Savings
of Texas A & M University Bank (from 1994 to
(from 1987 to 2001). 1999).
24 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NUMBER OF OTHER BOARD
PRINCIPAL PORTFOLIOS IN MEMBERSHIPS
POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX HELD BY
HELD WITH OF TIME DURING PAST OVERSEEN BY TRUSTEE DURING
NAME, ADDRESS AND AGE FUND SERVED FIVE YEARS TRUSTEE PAST FIVE YEARS
- ---------------------- ------------ -------- -------------- --------------- -----------------
Mark T. Finn Trustee Since 2001 Adjunct Professor, William & 36 Former President and
c/o R. Jay Gerken Mary College (since September Director, Delta Financial,
Citigroup Asset Management 2002); Principal/member, Belvan Inc. (investment advisory
399 Park Avenue Partners/Balfour Vantage - Manager firm) (from 1983 to
New York, NY 10022 and General Partner to the 1999).
Age 60 Vantage Hedge Fund, LP (since
March 2002); Chairman and
Owner, Vantage Consulting Group,
Inc. (investment advisory and
consulting firm) (since 1988);
former Vice Chairman and Chief
Operating Officer, Lindner Asset
Management Company (mutual
fund company) (from March 1999
to 2001); former General Partner
and Shareholder, Greenwich
Ventures, LLC (investment
partnership) (from 1996 to 2001);
former President, Secretary, and
Owner, Phoenix Trading Co.
(commodity trading advisory firm)
(from 1997 to 2000).
Stephen Randolph Gross Trustee Since 2001 Partner, Capital Investment 31 Director, United Telesis,
c/o R. Jay Gerken Advisory Partners (consulting) Inc. (telecommunications)
Citigroup Asset Management (since January 2000); former (since 1997); Director,
399 Park Avenue Managing Director, Fountainhead eBank.com, Inc. (since
New York, NY 10022 Ventures, LLC (consulting) (from 1997); Director, Andersen
Age 56 1998 to 2002); Secretary, Carint Calhoun, Inc. (assisted
N.A. (manufacturing) (since 1988); living) (since 1987);
former Treasurer, Hank Aaron former Director, Charter
Enterprises (fast food franchise) Bank, Inc. (from 1987 to
(from 1985 to 2001); Chairman, 1997); former Director,
Gross, Collins & Cress, P.C. Yu Save, Inc. (internet
(accounting firm) (since 1980); company) (from 1998 to
Treasurer, Coventry Limited, Inc. 2000); former Director,
(since 1985). Hotpalm, Inc. (wireless
applications) (from 1998
to 2000); former
Director, Ikon Ventures,
Inc. (from 1997 to 1998).
Diana R. Harrington Trustee Since 1992 Professor, Babson College 36 Former Trustee, The
c/o R. Jay Gerken (since 1993). Highland Family of
Citigroup Asset Management Funds (investment
399 Park Avenue company) (from March
New York, NY 10022 1997 to March 1998).
Age 63
Susan B. Kerley Trustee Since 1992 Consultant, Strategic Management 36 Director, Eclipse Funds
c/o R. Jay Gerken Advisors, LLC/Global Research (currently supervises 17
Citigroup Asset Management Associates, Inc. (investment investment companies
399 Park Avenue consulting) (since 1990). in fund complex) (since
New York, NY 10022 1990).
Age 52
25 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NUMBER OF OTHER BOARD
PRINCIPAL PORTFOLIOS IN MEMBERSHIPS
POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX HELD BY
HELD WITH OF TIME DURING PAST OVERSEEN BY TRUSTEE DURING
NAME, ADDRESS AND AGE FUND SERVED FIVE YEARS TRUSTEE PAST FIVE YEARS
- ---------------------- ------------ -------- -------------- --------------- -----------------
Alan G. Merten Trustee Since 2001 President, George Mason 31 Director, Comshare,
c/o R. Jay Gerken University (since 1996). Inc. (information
Citigroup Asset Management technology) (since 1985);
399 Park Avenue former Director, Indus
New York, NY 10022 (information technology)
Age 62 (from 1995 to 1999);
Director, Digital Net
Holdings, Inc. (since
2003).
C. Oscar Morong, Jr. Trustee Since 1991 Managing Director, Morong 36 Former Director,
c/o R. Jay Gerken Capital Management Indonesia Fund (closed-
Citigroup Asset Management (since 1993). end fund) (from 1990 to
399 Park Avenue 1999); Trustee, Morgan
New York, NY 10022 Stanley Institutional Fund
Age 68 Fund (currently super-
vises 75 investment
companies) (since 1993).
R. Richardson Pettit Trustee Since 2001 Professor of Finance, University 31 None
c/o R. Jay Gerken of Houston (from 1977 to 2002);
Citigroup Asset Management independent consultant
399 Park Avenue (since 1984).
New York, NY 10022
Age 61
Walter E. Robb, III Trustee Since 2001 President, Benchmark Consulting 36 Director, John Boyle &
c/o R. Jay Gerken Group, Inc. (service company) Co., Inc. (textiles) (since
Citigroup Asset Management (since 1991); sole proprietor, Robb 1999); Director, Harbor
399 Park Avenue Associates (financial consulting) Sweets, Inc. (candy)
New York, NY 10022 (since 1978); Co-owner, Kedron (since 1990); Director,
Age 77 Design (gifts) (since 1978); W.A. Wilde Co. (direct
former President and Treasurer, media marketing) (since
Benchmark Advisors, Inc. 1982); Director, Alpha
(financial consulting) Grainger Manufacturing,
(from 1989 to 2000). Inc. (electronics) (since
1983); former Trustee,
MFS Family of Funds
(investment company)
(from 1985 to 2001);
Harvard Club of Boston
(Audit Committee)
(since 2001).
26 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NUMBER OF OTHER BOARD
PRINCIPAL PORTFOLIOS IN MEMBERSHIPS
POSITION(S) LENGTH OCCUPATION(S) FUND COMPLEX HELD BY
HELD WITH OF TIME DURING PAST OVERSEEN BY TRUSTEE DURING
NAME, ADDRESS AND AGE FUND SERVED FIVE YEARS TRUSTEE PAST FIVE YEARS
- ---------------------- ------------ -------- -------------- --------------- -----------------
INTERESTED
TRUSTEE:
R. Jay Gerken* Chairman, Since 2002 Managing Director of CGM (since Chairman N/A
Citigroup Asset Management President, 1996); Chairman, President, and of the Board,
399 Park Avenue and Chief Chief Executive Officer of Smith Trustee or
New York, NY 10022 Executive Barney Fund Management LLC Director
Age 52 Officer ("SBFM"), Travelers Investment of 220
Advisers, Inc. ("TIA") and Citi
Fund Management Inc. ("CFM");
President and Chief Executive
Officer of certain mutual funds
associated with Citigroup Inc.;
formerly, Portfolio Manager of
Smith Barney Allocation Series
Inc. (from 1996 to 2001) and
Smith Barney Growth and Income
Fund (from 1996 to 2000).
OFFICERS:
Andrew B. Shoup** Senior Vice Since 2003 Director of Citigroup Asset N/A N/A
125 Broad Street President and Management ("CAM"); Chief
New York, NY 10004 Chief Administrative Officer of mutual
Age 47 Administrative funds associated with Citigroup
Officer Inc.; Head of International Funds
Administration of CAM (from
2001 to 2003); Director of Global
Funds Administration of CAM
(from 2000 to 2001); Head of U.S.
Citibank Funds Administration
of CAM (from 1998 to 2000).
Frances M. Guggino Controller Since 2002 Vice President of CGM; Controller N/A N/A
125 Broad Street of certain mutual funds associated
New York, NY 10004 with Citigroup Inc. (since 1991).
Age 46
Robert I. Frenkel Secretary and Since 2000 Managing Director and General N/A N/A
CAM Chief Legal Since 2003 Counsel, Global Mutual Funds
300 First Stamford Place Officer for CAM (since 1994); Secretary
Stamford, CT 06902 of certain mutual funds associated
Age 49 with Citigroup Inc.; Chief Legal
Officer of mutual funds asso ciated
with Citigroup Inc.
* Mr. Gerken is an "interested person" of the fund as defined in the 1940 Act
because he is an officer of certain affiliates of the Manager.
** As of November 25, 2003.
27 SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND | 2003 Annual Report
(This page intentionally left blank.)
SMITH BARNEY
SMALL CAP GROWTH OPPORTUNITIES FUND
TRUSTEES
Elliott J. Berv
Donald M. Carlton
A. Benton Cocanougher
Mark T. Finn
R. Jay Gerken, CFA, Chairman*
Stephen Randolph Gross
Diana R. Harrington
Susan B. Kerley
Alan G. Merten
C. Oscar Morong, Jr.
R. Richardson Pettit
Walter E. Robb, III
OFFICERS
R. Jay Gerken, CFA*
President and
Chief Executive Officer
Andrew B. Shoup*+
Senior Vice President and
Chief Administrative Officer
Frances M. Guggino*
Controller
Robert I. Frenkel*
Secretary and Chief Legal Officer
INVESTMENT MANAGER
Smith Barney Fund Management LLC
DISTRIBUTOR
Citigroup Global Markets Inc.
CUSTODIAN
State Street Bank
& Trust Company
TRANSFER AGENT
Citicorp Trust Bank, fsb.
125 Broad Street, 11th Floor
New York, NY 10004
SUB-TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
INDEPENDENT
AUDITORS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
* Affiliated Person of
Investment Manager
+ As of November 25, 2003
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
This report is submitted for general information of the shareholders of Smith
Barney Small Cap Growth Opportunities Fund, but it may also be used as sales
literature when preceded or accompanied by the current Prospectus, which gives
details about charges, expenses, investment objectives and operating policies of
the Fund. If used as sales material after January 31, 2004, this report must be
accompanied by performance information for the most recently completed calendar
quarter.
SMITH BARNEY SMALL CAP
GROWTH OPPORTUNITIES FUND
Smith Barney Mutual Funds
125 Broad Street, MF-2
New York, New York 10004
For complete information on any Smith Barney Mutual Funds, including management
fees and expenses, call or write your financial professional for a free
prospectus. Read it carefully before you invest or send money.
WWW.SMITHBARNEYMUTUALFUNDS.COM
(C)2003 Citigroup Global Markets Inc.
Member NASD, SIPC
FD02663 12/03 03-5805
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Mr. Stephen
Randolph Gross, the Chairman of the Board's Audit Committee, possesses
the technical attributes identified in Instruction 2(b) of Item 3 to
Form N-CSR to qualify as an "audit committee financial expert," and has
designated Mr. Gross as the Audit Committee's financial expert. Mr.
Gross is an "independent" Trustee pursuant to paragraph (a)(2) of Item
3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal
financial officer have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-
3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act")) are effective as of a date within 90 days of the
filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the
disclosure controls and procedures required by Rule 30a-3(b)
under the 1940 Act and 15d-15(b) under the Securities Exchange
Act of 1934
(b) There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under
the 1940 Act) that occurred during the registrant's last
fiscal half-year (the registrant's second fiscal half-year in
the case of an annual report) that have materially affected,
or are likely to materially affect the registrant's internal
control over financial reporting.
ITEM 10. EXHIBITS.
(a) (1) Code of Ethics attached hereto.
(a) (2) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of
the Sarbanes-Oxley Act of 2002
(b) Exhibit 99.906CERT Certifications pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, there unto duly authorized.
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
Date: JANUARY 6, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
(R. Jay Gerken)
Chief Executive Officer of
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
Date: JANUARY 6, 2004
By: /s/ ANDREW B. SHOUP
Chief Administrative Officer of
SMITH BARNEY SMALL CAP GROWTH OPPORTUNITIES FUND
Date: JANUARY 6, 2004