UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05034
Salomon Funds Trust
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Salomon Brothers Asset Management Inc
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 725-6666
Date of fiscal year end: December 31
Date of reporting period: December 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
December 31, 2003
ANNUAL
REPORT
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Salomon Brothers Asset Management
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o National Tax Free Bond Fund
o California Tax Free Bond Fund
Salomon Brothers o New York Tax Free Bond Fund
o Mid Cap Fund
================
SALOMON
- ----------------
BROTHERS
================
ASSET MANAGEMENT
-------------------------------------------------------
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
-------------------------------------------------------
23
Table of Contents
Letter from the Chairman .................................................... 1
Salomon Funds Trust
National Tax Free Bond Fund:
Manager Overview ....................................................... 2
Fund Performance ....................................................... 4
California Tax Free Bond Fund:
Manager Overview ....................................................... 5
Fund Performance ....................................................... 7
New York Tax Free Bond Fund:
Manager Overview ....................................................... 8
Fund Performance ....................................................... 10
Mid Cap Fund:
Manager Overview ....................................................... 11
Fund Performance ....................................................... 13
Schedules of Investments .................................................... 15
Statements of Assets and Liabilities ........................................ 26
Statements of Operations .................................................... 27
Statements of Changes in Net Assets ......................................... 28
Notes to Financial Statements ............................................... 30
Financial Highlights ........................................................ 38
Independent Auditors' Report ................................................ 46
Additional Information ...................................................... 47
Tax Information ............................................................. 50
Letter from the Chairman
[PHOTO OMITTED]
R. JAY GERKEN, CFA
Chairman and President
DEAR SHAREHOLDER,
The year began with investors uneasy that the potential conflict with Iraq might
exacerbate an already weak economy. Accordingly, investors continued to seek the
safer havens of fixed-income investments, which continued to appreciate in
price, supported by this robust demand. However, once evidence of sustainable
economic improvement emerged in the second half of the year, the stock market
began to improve, prompting a renewed interest in equity investments and
corporate bonds. However, the market's advance was generally led by the riskiest
securities -- small-cap stocks, stocks with high operating and financial
leverage, and high-yield corporate bonds -- that had experienced the greatest
price losses during the previous bear market. With short-term interest rates
hovering near historical lows and investor attention turning back to equities,
by the end of the year the more interest-rate sensitive areas of the
fixed-income market had lost most of the price gains they previously had
garnered.
Please read on for a more detailed look at prevailing economic and market
conditions during the fund's fiscal year and to learn how those conditions and
changes made to the portfolio during this time may have affected the performance
of your fund.
INFORMATION ABOUT YOUR FUND
In recent months several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. The funds' Adviser and some of its
affiliates have received requests for information from various government
regulators regarding market timing, late trading, fees and other mutual fund
issues in connection with various investigations. The regulators appear to be
examining, among other things, the funds' response to market timing and
shareholder exchange activity, including compliance with prospectus disclosure
related to these subjects. The funds have been informed that the Adviser and its
affiliates are responding to those information requests, but are not in a
position to predict the outcome of these requests and investigations.
As always thank you for your confidence in our stewardship of your assets. We
look forward to helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman and President
JANUARY 20, 2004
1
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SALOMON FUNDS TRUST
National Tax Free Bond Fund
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PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2003 (UNAUDITED)
(EXCLUDING SALES CHARGES)
- --------------------------------------------------------------------------------
6 MONTHS 12 MONTHS
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Class A Shares 0.84% 5.07%
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Lehman Brothers
Municipal 4 Years
Plus Bond Index 1.53% 5.81%
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Lipper General
Municipal Debt
Funds Category Average 1.33% 4.75%
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ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. Principal value and investment returns will fluctuate and investors'
shares, when redeemed, may be worth more or less than their original cost.
Class A shares returns assume the reinvestment of income dividends and capital
gains distributions at net asset value and the deduction of all fund expenses.
Returns have not been adjusted to include sales charges that may apply when
shares are purchased or the deduction of taxes that a shareholder would pay on
fund distributions. Excluding sales charges, Class B shares returned 0.55%,
Class 2 shares returned 0.60% and Class O shares returned 1.06% over the six
months ended December 31, 2003. Excluding sales charges, Class B shares returned
4.35%, Class 2 shares returned 4.53% and Class O shares returned 5.48% over the
12 months ended December 31, 2003. If sales charges had been included, returns
would have been lower.
All index performance reflects no deduction for fees, expenses or taxes. The
Lehman Brothers Municipal 4 Years Plus Bond Index is a broad measure of the
municipal bond market with maturities of at least four years. 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 December 31, 2003, calculated among the 299 funds
for the six-month period and among the 296 funds for the 12-month period in the
fund's Lipper category including the reinvestment of dividends and capital
gains, if any, and excluding sales charges.
Certain investors may be subject to the federal Alternative Minimum Tax, and
state and local taxes may apply. Capital gains, if any, are fully taxable.
Please consult your personal tax adviser.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
For the 12 months ended December 31, 2003, Class A shares of the Salomon
Brothers National Tax Free Bond Fund, excluding sales charges, returned 5.07%.
These shares underperformed the fund's unmanaged benchmark, the Lehman Brothers
Municipal 4 Years Plus Bond Index(i), which returned 5.81% for the same period.
However, they outperformed the fund's Lipper general municipal debt funds
category average, which was 4.75% for the same period.(1)
Certain investors may be subject to the federal Alternative Minimum Tax, and
state and local taxes may apply. Capital gains, if any, are fully taxable.
Please consult your personal tax adviser.
MUNICIPAL BONDS CONTINUED TO COMMAND INVESTOR INTEREST
The year began with uneven prospects for an economic recovery, heightened
concerns about terrorism and war, and volatility in the embattled stock markets.
In addition, many states and municipalities faced widening budget deficits in
the weak economy, causing them to increase their borrowing activity in the
tax-exempt bond market. In fact, state and local governments issued more than
$380 billion of debt in 2003 to fund new projects and refinance outstanding
bonds, exceeding the record set in 2002. Although a rising supply of bonds
typically puts downward pressure on bond yields, investor interest in tax-exempt
securities did not diminish during the first quarter of the year.
Demand for municipal bonds remained strong during the second quarter as well,
even when signs of potential economic growth began to appear, major combat in
Iraq ended quickly and a sustained stock market rally started. Indeed, many
investors remained attracted to bonds because they believed that the Fed would
continue to reduce short-term interest rates to stimulate renewed economic
growth. As a result, municipal bonds continued to rally in advance of the Fed's
rate cut in late June, its thirteenth since January 2001, which drove the
federal funds rate(ii) to a 45-year low of 1%.
The impact of the Fed's rate cuts became more apparent during the second half of
2003, when the economy and stock market gained considerable strength. In fact,
in July, investors' concerns about the potential implications of a recovering
economy on inflation caused one of the most severe six-week declines in the
history of the municipal bond market. The bond market recovered fitfully during
the fall, as investors recognized that the labor markets
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Average annual returns are based on the 12-month period ended December 31,
2003, calculated among the 296 funds in the fund's Lipper category
including the reinvestment of dividends and capital gains, if any, and
excluding sales charges.
2
continued to be relatively weak and the Fed remained committed to maintaining
low interest rates "for a considerable period."
Although these influences created heightened market volatility over the near
term, municipal bond yields ended the year roughly unchanged from where they
began, and 2003 represented yet another year of positive returns for the
tax-exempt market.
DEFENSIVE POSITIONING HELPS CUSHION VOLATILITY
In this volatile investment climate, we maintained a generally defensive
investment posture. For example, we focused on high-quality securities,
including general obligation bonds that are backed by the taxation authority of
the states that issue them. We also invested a significant portion of the fund's
assets in "pre-refunded bonds," which are seasoned bonds for which reserves have
been set aside for their redemption on their earliest available "call" dates.
Because the money set aside to refund these bonds is invested in U.S. Treasury
securities in the meantime, investors consider them to have very strong credit
characteristics.
In addition, we tended to favor securities that were selling at a premium to
their face values. Historically, such structures have held more of their value
during market declines. Conversely, the fund held relatively few
corporate-backed bonds issued on behalf of airlines or bonds backed by the
states' settlement of litigation with the nation's tobacco companies. Although
these types of bonds gained value over the year, their prices were highly
volatile.
As of year-end, we have continued to position the fund relatively defensively.
Given the potential for higher interest rates in 2004, we believe this remains a
prudent strategy.
Thank you for your investment in Salomon Brothers National Tax Free Bond Fund.
We appreciate that you have entrusted us to manage your money, and we value our
relationship with you.
Sincerely,
/s/ Robert E. Amodeo /s/ John Mooney
Robert E. Amodeo John Mooney
Co-Portfolio Manager Co-Portfolio Manager
JANUARY 20, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to
change. Please refer to pages 15 and 16 for a list and percentage breakdown of
the fund's holdings.
All index performance reflects no deduction for fees, expenses or taxes.
(i) The Lehman Brothers Municipal 4 Years Plus Bond Index is a broad measure of
the municipal bond market with maturities of at least four years. Please
note that an investor cannot invest directly in an index.
(ii) The federal funds rate is the interest rate that banks with excess reserves
at a Federal Reserve district bank charge other banks that need overnight
loans. The federal funds rate often points to the direction of U.S.
interest rates.
3
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SALOMON FUNDS TRUST
National Tax Free Bond Fund
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE (UNAUDITED)
NATIONAL TAX FREE BOND FUND -- CLASS A SHARES
COMPARISON OF $10,000 INVESTMENT IN THE FUND WITH
THE LEHMAN BROTHERS MUNICIPAL 4 YEARS PLUS BOND INDEX
[The table below represents a line chart in the printed report.]
Lehman Brothers Municipal
4 Years Plus
National Tax Free Bond Fund Bond Index
--------------------------- -------------------------
Bond Index
8/17/95 9597 10000
12/95 10310 10650
12/96 10651 11124
12/97 11871 12208
12/98 13064 13029
12/99 12560 12638
12/00 14079 14269
12/01 14557 14973
12/02 16073 16509
12/31/2003 16888 17469
Past performance is not predictive of future performance. The performance above
reflects returns after deduction of applicable maximum sales charge. The returns
shown do not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
The graph above depicts the performance of the National Tax Free Bond Fund
versus the Lehman Brothers Municipal 4 Years Plus Bond Index.(1) It is important
to note that the National Tax Free Bond Fund is a professionally managed mutual
fund while the index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 2003+ (UNAUDITED)
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS A SHARES TWELVE MONTHS THREE YEAR FIVE YEAR (8/17/95)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 5.07% 6.25% 5.27% 6.98%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) 0.88% 4.81% 4.41% 6.46%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS B SHARES (10/12/01)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 4.35% N/A N/A 5.23%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) -0.65% N/A N/A 3.95%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS 2 SHARES (11/19/01)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 4.53% N/A N/A 5.74%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) 3.53% N/A N/A 5.74%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS O SHARES (11/19/01)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 5.48% N/A N/A 6.57%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) 5.48% N/A N/A 6.57%
- --------------------------------------------------------------------------------
See page 14 for all footnotes.
4
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SALOMON FUNDS TRUST
California Tax Free Bond Fund
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PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2003 (UNAUDITED)
(EXCLUDING SALES CHARGES)
- --------------------------------------------------------------------------------
6 MONTHS 12 MONTHS
- --------------------------------------------------------------------------------
Class A Shares 0.68% 4.40%
- --------------------------------------------------------------------------------
Lehman Brothers
California 4 Years
Plus Index 1.52% 5.22%
- --------------------------------------------------------------------------------
Lipper California
Municipal Debt
Funds Category Average 1.19% 4.24%
- --------------------------------------------------------------------------------
ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. Principal value and investment returns will fluctuate and investors'
shares, when redeemed, may be worth more or less than their original cost.
Class A shares returns assume the reinvestment of income dividends and capital
gains distributions at net asset value and the deduction of all fund expenses.
Returns have not been adjusted to include sales charges that may apply when
shares are purchased or the deduction of taxes that a shareholder would pay on
fund distributions. Excluding sales charges, Class B shares returned 0.38%,
Class 2 shares returned 0.42% and Class O shares returned 0.81% over the six
months ended December 31, 2003. Excluding sales charges, Class B shares returned
3.70%, Class 2 shares returned 3.86% and Class O shares returned 4.76% over the
12 months ended December 31, 2003. If sales charges had been included, returns
would have been lower.
All index performance reflects no deduction for fees, expenses or taxes. The
Lehman Brothers California 4 Years Plus Index is a broad-based index of
California municipal bonds with a maturity of greater than 4 years. 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 December 31, 2003, calculated among the 128 funds
for the six-month period and among the 125 funds for the 12-month period in the
fund's Lipper category including the reinvestment of dividends and capital
gains, if any, and excluding sales charges.
Certain investors may be subject to the federal Alternative Minimum Tax, and
state and local taxes may apply. Capital gains, if any, are fully taxable.
Please consult your personal tax adviser.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
For the 12 months ended December 31, 2003, Class A shares of the Salomon
Brothers California Tax Free Bond Fund, excluding sales charges, returned 4.40%.
These shares underperformed the fund's unmanaged benchmark, the Lehman Brothers
California 4 Years Plus Index(i), which returned 5.22% for the same period.
However, they outperformed the fund's Lipper California municipal debt funds
category average, which was 4.24% for the same period.(1)
Certain investors may be subject to the federal Alternative Minimum Tax, and
state and local taxes may apply. Capital gains, if any, are fully taxable.
Please consult your personal tax adviser.
MUNICIPAL BONDS CONTINUED TO COMMAND INVESTOR INTEREST
The year began with uneven prospects for an economic recovery, heightened
concerns about terrorism and war, and volatility in the embattled stock markets.
In addition, many states and municipalities faced widening budget deficits in
the weak economy, causing them to increase their borrowing activity in the
tax-exempt bond market. In fact, state and local governments throughout the
United States issued more than $380 billion of debt in 2003 to fund new projects
and refinance outstanding bonds, exceeding the record set in 2002. California's
economy was hit particularly hard during the economic downturn, as the slump in
Silicon Valley and the lingering effects of the state's 2001 energy crisis took
their toll. To fund its budget gap, which was the largest of any state by a wide
margin, California so far has relied primarily on issuance of tax-exempt
securities. In addition, the state's fiscal problems were intensified by the
controversy surrounding the recall of former Governor Gray Davis and the
election of his successor, Arnold Schwarzenegger. As a result, some of the major
independent credit rating agencies downgraded California's credit rating in
2003.
The rising supply of new securities put upward pressure on California bond
yields, causing their prices to decline and erasing the yield premium that
California bonds historically have commanded. Nonetheless, investor interest in
tax-exempt securities overall did not diminish during the first half of the
year, even when signs of potential economic growth began to appear, major combat
in Iraq ended quickly and a sustained stock market rally started. Indeed, many
investors remained attracted to bonds because they believed that the Fed would
continue to
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Average annual returns are based on the 12-month period ended December 31,
2003, calculated among the 125 funds in the fund's Lipper category
including the reinvestment of dividends and capital gains, if any, and
excluding sales charges.
5
reduce short-term interest rates to stimulate renewed economic growth. As a
result, municipal bonds continued to rally in advance of the Fed's rate cut in
late June, its thirteenth since January 2001, which drove the federal funds
rate(ii) to a 45-year low of 1%.
The impact of the Fed's rate cuts became more apparent during the second half of
2003, when the economy and stock market gained considerable strength. In fact,
in July, investors' concerns about the potential implications of a recovering
economy on inflation caused one of the most severe six-week declines in the
history of the municipal bond market. The bond market recovered fitfully during
the fall, as investors recognized that the labor markets continued to be
relatively weak and the Fed remained committed to maintaining low interest rates
"for a considerable period."
Although these influences created heightened market volatility over the near
term, municipal bond yields ended the year roughly unchanged from where they
began, and 2003 represented yet another year of positive returns for the
tax-exempt market.
DEFENSIVE POSITIONING HELPS CUSHION VOLATILITY
In this volatile investment climate, we maintained a generally defensive
investment posture. For example, we focused on high-quality securities,
including securities backed by revenue from essential services and bonds
enhanced by insurance or bank letters of credit. Because of its fiscal problems,
we generally avoided the state's unsecured debt, preferring tax-exempt
securities from school districts that, in our judgment, are less impacted by
state aid. Finally, we found a number of attractive opportunities in bonds
issued by Puerto Rico, which generally are exempt from federal, state and local
income taxes for U.S. residents.
In addition, we tended to favor securities that were selling at a premium to
their face values. Historically, such securities have held more of their value
during market declines. Conversely, the fund held relatively few
corporate-backed bonds issued on behalf of airlines or bonds backed by
California's settlement of litigation with the nation's tobacco companies.
Although these types of bonds gained value over the year, their prices were
highly volatile.
As of year-end, we have continued to position the fund relatively defensively.
Given the potential for higher interest rates in 2004, we believe this remains a
prudent strategy.
Thank you for your investment in Salomon Brothers California Tax Free Bond Fund.
We appreciate that you have entrusted us to manage your money, and we value our
relationship with you.
Sincerely,
/s/ Robert E. Amodeo /s/ John Mooney
Robert E. Amodeo John Mooney
Co-Portfolio Manager Co-Portfolio Manager
JANUARY 20, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to
change. Please refer to page 17 for a list and percentage breakdown of the
fund's holdings.
All index performance reflects no deduction for fees, expenses or taxes.
(i) The Lehman Brothers California 4 Years Plus Index is a broad-based index of
California municipal bonds with a maturity of greater than 4 years. Please
note that an investor cannot invest directly in an index.
(ii) The federal funds rate is the interest rate that banks with excess reserves
at a Federal Reserve district bank charge other banks that need overnight
loans. The federal funds rate often points to the direction of U.S.
interest rates.
6
- --------------------------------------------------------------------------------
SALOMON FUNDS TRUST
California Tax Free Bond Fund
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE (UNAUDITED)
CALIFORNIA TAX FREE BOND FUND -- CLASS A SHARES
COMPARISON OF $10,000 INVESTMENT IN THE FUND WITH THE LEHMAN BROTHERS CALIFORNIA
4 YEARS PLUS INDEX
[The table below represents a line chart in the printed report.]
Lehman Brothers California
California Tax Free Bond Fund 4 Years Plus Index
----------------------------- -----------------------
11/2/98 9597 10000
12/98 9714 10050
12/99 9467 9682
12/00 10823 11035
12/01 11128 11594
12/02 12071 12632
12/31/2003 12602 13292
Past performance is not predictive of future performance. The
performance above reflects returns after deduction of applicable maximum sales
charge. The returns shown do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
The graph above depicts the performance of the California Tax Free Bond Fund
versus the Lehman Brothers California 4 Years Plus Index.(4) It is important to
note that the California Tax Free Bond Fund is a professionally managed mutual
fund while the index is not available for investment and is unmanaged. The
comparison is shown for illustrative purposes only.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 2003+ (UNAUDITED)
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS A SHARES TWELVE MONTHS THREE YEAR FIVE YEAR (11/2/98)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 4.40% 5.20% 5.34% 5.42%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) 0.25% 3.78% 4.49% 4.58%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS B SHARES (10/5/01)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 3.70% N/A N/A 3.87%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) -1.30% N/A N/A 2.58%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS 2 SHARES (9/9/02)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 3.86% N/A N/A 2.71%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) 2.86% N/A N/A 2.71%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS O SHARES (10/8/02)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 4.76% N/A N/A 3.20%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) 4.76% N/A N/A 3.20%
- --------------------------------------------------------------------------------
See page 14 for all footnotes.
7
- --------------------------------------------------------------------------------
SALOMON FUNDS TRUST
New York Tax Free Bond Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2003 (UNAUDITED)
(EXCLUDING SALES CHARGES)
- --------------------------------------------------------------------------------
6 MONTHS 12 MONTHS
- --------------------------------------------------------------------------------
Class A Shares 0.83% 4.77%
- --------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond
Index 1.45% 5.31%
- --------------------------------------------------------------------------------
Lipper New York
Municipal Debt
Funds Category Average 1.49% 4.78%
- --------------------------------------------------------------------------------
ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. Principal value and investment returns will fluctuate and investors'
shares, when redeemed, may be worth more or less than their original cost.
Class A shares returns assume the reinvestment of income dividends and capital
gains distributions at net asset value and the deduction of all fund expenses.
Returns have not been adjusted to include sales charges that may apply when
shares are purchased or the deduction of taxes that a shareholder would pay on
fund distributions. Excluding sales charges, Class B shares returned 0.37%,
Class 2 shares returned 0.58% and Class O shares returned 0.96% over the six
months ended December 31, 2003. Excluding sales charges, Class B shares returned
3.94%, Class 2 shares returned 4.18% and Class O shares returned 4.99% over the
12 months ended December 31, 2003. If sales charges had been included, returns
would have been lower.
All index performance reflects no deduction for fees, expenses or taxes. The
Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond
market with maturities of at least one year. Please note that an investor cannot
invest directly in an index.
Lipper, Inc. is a major independent mutual-fund tracking organization. Returns
are based on the period ended December 31, 2003, calculated among the 106 funds
for the six- and 12-month periods in the fund's Lipper category including the
reinvestment of dividends and capital gains, if any, and excluding sales
charges.
Certain investors may be subject to the federal Alternative Minimum Tax, and
state and local taxes may apply. Capital gains, if any, are fully taxable.
Please consult your personal tax adviser.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
For the 12 months ended December 31, 2003, Class A shares of the Salomon
Brothers New York Tax Free Bond Fund, excluding sales charges, returned 4.77%.
These shares underperformed the fund's unmanaged benchmark the Lehman Brothers
Municipal Bond Index(i), which returned 5.31% for the same period. However, they
essentially matched the fund's Lipper New York municipal debt funds category
average, which was 4.78% for the same period.(1)
Certain investors may be subject to the federal Alternative Minimum Tax, and
state and local taxes may apply. Capital gains, if any, are fully taxable.
Please consult your personal tax adviser.
MUNICIPAL BONDS CONTINUED TO COMMAND INVESTOR INTEREST
The year began with uncertain prospects for an economic recovery, heightened
concerns about terrorism and war, and volatility in the embattled stock markets.
In addition, many states and municipalities faced widening budget deficits in
the weak economy, causing them to increase their borrowing activity in the
tax-exempt bond market. In fact, state and local governments throughout the
United States issued more than $380 billion of debt in 2003 to fund new projects
and refinance outstanding bonds, exceeding the record set in 2002. New York's
economy was hit particularly hard during the economic downturn, as the slump on
Wall Street and the lingering effects of the September 11 terrorist attacks took
their toll. While New York also increased its issuance of tax-exempt bonds, the
state closed its budget gaps primarily through spending cuts and higher fees and
taxes.
Although a rising supply of bonds typically puts downward pressure on bond
yields, investor interest in tax-exempt securities did not diminish during the
first quarter of the year. Demand for municipal bonds remained strong during the
second quarter as well, even when signs of potential economic growth began to
appear, major combat in Iraq ended quickly and a sustained stock market rally
took hold. Indeed, many investors remained attracted to both taxable and
tax-exempt bonds because they believed that the Fed would continue to reduce
short-term interest rates to stimulate renewed economic growth. As a result,
municipal bonds continued to rally in advance of the Fed's rate cut in late
June, its thirteenth since January 2001, which drove the
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Average annual returns are based on the 12-month period ended December 31,
2003, calculated among the 106 funds in the fund's Lipper category
including the reinvestment of dividends and capital gains, if any, and
excluding sales charges.
8
federal funds rate(ii) to a 45-year low of 1%.
The impact of the Fed's rate cuts became more apparent during the second half of
2003, when the economy and stock market gained considerable strength. In fact,
in July, investors' concerns about the potential implications of a recovering
economy on inflation caused one of the most severe six-week declines in the
history of the municipal bond market. The bond market recovered fitfully during
the fall, as investors recognized that the labor markets continued to be
relatively weak and the Fed remained committed to maintaining low interest rates
"for a considerable period."
Although these influences created heightened market volatility over the near
term, municipal bond yields ended the year roughly unchanged from where they
began, and 2003 represented yet another year of positive returns for the
tax-exempt market.
DEFENSIVE POSITIONING HELPS CUSHION VOLATILITY
In this volatile investment climate, we maintained a generally defensive
investment posture. For example, we focused on high-quality securities,
including general obligation bonds that are backed by New York's taxation
authority. We also invested a significant portion of the fund's assets in
"pre-refunded bonds," which are bonds for which reserves have been set aside for
their redemption on their earliest available "call" dates. Because the money set
aside to refund these bonds is invested in U.S. Treasury securities in the
meantime, investors consider them to have very strong credit characteristics. On
the other hand, we tended to underweight bonds issued by New York City,
primarily because we regarded their prices as relatively expensive, and we found
more attractive opportunities elsewhere, including bonds issued by Puerto Rico.
Municipal bonds issued by U.S. territories generally are exempt from federal,
state and local income taxes for U.S. residents.
In addition, we tended to favor securities that were selling at a premium to
their face values. Historically, such securities have held more of their value
during market declines. Conversely, the fund held relatively few
corporate-backed bonds issued on behalf of airlines or bonds backed by New
York's settlement of litigation with the nation's tobacco companies. Although
these types of bonds gained value over the year, their prices were highly
volatile.
As of year-end, we have continued to position the fund relatively defensively.
Given the potential for higher interest rates in 2004, we believe this remains a
prudent strategy.
Thank you for your investment in Salomon Brothers New York Tax Free Bond Fund.
We appreciate that you have entrusted us to manage your money, and we value our
relationship with you.
Sincerely,
/s/ Robert E. Amodeo /s/ John Mooney
Robert E. Amodeo John Mooney
Co-Portfolio Manager Co-Portfolio Manager
JANUARY 20, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to
change. Please refer to pages 18 and 19 for a list and percentage breakdown of
the fund's holdings.
All index performance reflects no deduction for fees, expenses or taxes.
(i) The Lehman Brothers Municipal Bond Index is a broad measure of the
municipal bond market with maturities of at least one year. Please note
that an investor cannot invest directly in an index.
(ii) The federal funds rate is the interest rate that banks with excess reserves
at a Federal Reserve district bank charge other banks that need overnight
loans. The federal funds rate often points to the direction of U.S.
interest rates.
9
- --------------------------------------------------------------------------------
SALOMON FUNDS TRUST
New York Tax Free Bond Fund
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE (UNAUDITED)
NEW YORK TAX FREEBOND FUND -- CLASS A SHARES
COMPARISON OF $10,000 INVESTMENT IN THE FUND WITH THE LEHMAN BROTHERS MUNICIPAL
BOND INDEX
[The table below represents a line chart in the printed report.]
Lehman Brothers Municipal
New York Tax Free Bond Fund Bond Index
--------------------------- -------------------------
12/93 9600 10000
12/94 8883 9483
12/95 10472 11139
12/96 10787 11632
12/97 11825 12702
12/98 12640 13525
12/99 12168 13248
12/00 13573 14796
12/01 14023 15554
12/02 15460 17049
12/03 16197 17955
Past performance is not predictive of future performance. The
performance above reflects returns after deduction of applicable maximum sales
charge. The returns shown do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
The graph above depicts the performance of the New York Tax Free Bond Fund
versus the Lehman Brothers Municipal BondIndex. It is important to note that the
New York Tax Free Bond Fund is a professionally managed mutual fund while the
index is not available for investment and is unmanaged. The comparison is shown
for illustrative purposes only.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 2003+ (UNAUDITED)
- --------------------------------------------------------------------------------
TWELVE THREE FIVE TEN SINCE INCEPTION
CLASS A SHARES MONTHS YEAR YEAR YEAR (9/7/86)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 4.77% 6.07% 5.08% 5.37% 6.46%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) 0.58% 4.64% 4.23% 4.94% 6.21%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS B SHARES (11/19/01)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 3.94% N/A N/A N/A 5.32%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) -1.06% N/A N/A N/A 3.98%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS 2 SHARES (7/19/02)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 4.18% N/A N/A N/A 5.19%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) 3.18% N/A N/A N/A 5.19%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS O SHARES (10/29/01)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(2) 4.99% N/A N/A N/A 6.08%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(3) 4.99% N/A N/A N/A 6.08%
- --------------------------------------------------------------------------------
See page 14 for all footnotes.
10
- --------------------------------------------------------------------------------
SALOMON FUNDS TRUST
Mid Cap Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE SNAPSHOT
AS OF DECEMBER 31, 2003 (UNAUDITED)
(EXCLUDING SALES CHARGES)
- --------------------------------------------------------------------------------
6 MONTHS 12 MONTHS
- --------------------------------------------------------------------------------
Class O Shares 17.22% 28.65%
- --------------------------------------------------------------------------------
S&P MidCap
400 Index 20.64% 35.62%
- --------------------------------------------------------------------------------
Lipper Mid-Cap
Core Funds
Category Average 19.63% 35.75%
- --------------------------------------------------------------------------------
ALL FIGURES REPRESENT PAST PERFORMANCE AND ARE NOT A GUARANTEE OF FUTURE
RESULTS. Principal value and investment returns will fluctuate and investors'
shares, when redeemed, may be worth more or less than their original cost.
Class O shares have no initial or contingent deferred sales charges. Class O
shares are only available to existing Class O shareholders. Excluding sales
charges, Class A shares returned 16.89%, Class B shares returned 16.42% and
Class 2 shares returned 16.43% over the six months ended December 31, 2003.
Excluding sales charges, Class A shares returned 28.15%, Class B shares returned
27.18% and Class 2 shares returned 27.15% over the 12 months ended December 31,
2003. If sales charges had been included, returns would have been lower.
All index performance reflects no deduction for fees, expenses or taxes. The S&P
MidCap 400 Index is a market-value weighted index consists of 400 domestic
stocks chosen for market size, liquidity, and industry group representation. 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 December 31, 2003, calculated among the 315 funds
for the six-month period and among the 313 funds for the 12-month period in the
fund's Lipper category including the reinvestment of dividends and capital
gains, if any, and excluding sales charges.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
For the 12 months ended December 31, 2003, Class O shares of the Salomon
Brothers Mid Cap Fund, excluding sales charges, returned 28.65%. These shares
underperformed the fund's unmanaged benchmark, the S&P MidCap 400 Index(i),
which returned 35.62% for the same period. They also underperformed the fund's
Lipper mid-cap core funds category average, which was 35.75% for the same
period.(1) We attribute the fund's underperformance primarily to our stock
selection strategy within the industrial, information technology and financial
sectors of the medium-sized company marketplace. In addition, the fund did not
participate fully in the strong rebound of stocks at the lower end of the
mid-cap range, which led the market's advance in 2003.
FROM WEAKNESS TO STRENGTH: AN ECONOMIC AND MARKET RECOVERY
When 2003 began, the U.S. economy showed few clear signs of improvement, and the
stock market was testing multiyear lows. However, investors became more
optimistic after the conclusion of major combat operations in Iraq, and by the
end of the summer, the domestic economy experienced its strongest quarterly
growth rate in nearly 20 years. Because risk-averse management teams controlled
corporate spending rigorously during the economic downturn, many companies
enjoyed dramatic operating leverage during the early stages of the economic
rebound, when modest revenue increases began to translate into positive earnings
surprises.
These improved economic and business conditions provided the backdrop for a
dramatic stock market rally that persisted from the end of the first quarter
through year-end. Many of the rally's biggest gainers were low-priced stocks
that had ranked among the worst performers during the previous three-year bear
market. Hedge funds were partially responsible for the sharp rise of
lower-priced stocks, as many hedge funds looked to purchase these riskier stocks
that had the potential for higher returns.
Toward the end of 2003, we began to see evidence of a transition in stock market
leadership. Signs emerging near year-end suggested that investors' attention may
be returning to more fundamental influences in the wake of outsized gains among
smaller and lower-quality stocks. With interest rates at historically low
levels, companies that are well positioned competitively and conservatively
financed appear to have begun to attract more investor interest. In short, we
see renewed investor interest in high-quality companies versus their more
speculative counterparts.
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Average annual returns are based on the 12-month period ended December 31,
2003, calculated among the 313 funds in the fund's Lipper category
including the reinvestment of dividends and capital gains, if any, and
excluding sales charges.
11
FUND PERFORMANCE: A DISCIPLINED APPROACH IN A VOLATILE MARKETPLACE
Although the fund participated in the mid-cap market's rally to a significant
degree, our focus on higher quality stocks with what we believe to be strong
underlying fundamentals prevented it from keeping pace with its benchmark, the
S&P Midcap 400 Index. Many of the smaller, more speculative companies that led
the market's advance in 2003 did not meet our investment criteria. Over the
longer-term, we think a focus on high-quality names is more prudent than taking
a focus on more speculative companies in the pursuit of shorter-term gains.
The fund received strong contributions to its performance in a number of areas.
Over the year, the consumer discretionary group was the fund's best performing
sector and was a principal driver of its positive results. The hotel, restaurant
and leisure area and the retailing industry performed particularly well, led by
fund holdings ROYAL CARIBBEAN CRUISES LTD., GTECH HOLDINGS CORP. and UNIVISION
COMMUNICATIONS INC.
In the information technology sector, we emphasized stocks in the software and
services area. Software-related stocks contributing significantly to the fund's
returns included VERITAS SOFTWARE CORP. and MERCURY INTERACTIVE CORP. However,
the fund was relatively under-represented in the technology hardware & equip
ment industry, which hindered returns from the information technology sector
overall. Specifically, we did not have sufficient exposure to some of the
semiconductor and semiconductor capital equipment stocks that responded
favorably to the strengthening economy and rising customer demand.
The healthcare sector also contributed meaningfully to the fund's return. Strong
performers in this group included GILEAD SCIENCES, INC., BARR PHARMACEUTICALS
INC. and MEDICIS PHARMACEUTICAL CORP. However, positive contributions from these
companies were partially offset by disappointing performance from CV
THERAPEUTICS INC. and CEPHALON INC.
Thank you for your investment in Salomon Brothers Mid Cap Fund. We appreciate
that you have entrusted us to manage your money, and we value our relationship
with you.
Sincerely,
/s/ Marguerite Wagner
Marguerite Wagner
Portfolio Manager
JANUARY 20, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Mid capitalization stocks may involve a higher degree of risk and volatility
than large capitalization stocks.
Portfolio holdings and breakdowns are as of December 31, 2003 and are subject to
change and may not be representative of the portfolio manager's current or
future investments. The fund's top ten holdings as of this date were: DST
Systems, Inc. (2.30%); Outback Steakhouse, Inc. (2.17%); M&T Bank Corp. (2.15%);
Hormel Foods Corp. (2.02%); Omnicare, Inc. (2.01%); Compass Bancshares, Inc.
(1.97%); Medicis Pharmaceutical Corp., Class A Shares (1.91%); DENTSPLY
International Inc. (1.77%); Commerce Bancshares, Inc. (1.68%); Legg Mason, Inc.
(1.52%). Please refer to pages 20 through 23 for a list and percentage breakdown
of the fund's holdings.
All index performance reflects no deduction for fees, expenses or taxes.
(i) The S&P MidCap 400 Index is a market-value weighted index consists of 400
domestic stocks chosen for market size, liquidity, and industry group
representation. Please note that an investor cannot invest directly in an
index.
12
- --------------------------------------------------------------------------------
SALOMON FUNDS TRUST
Mid Cap Fund
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE (UNAUDITED)
MID CAP FUND -- CLASS O SHARES
COMPARISON OF $10,000 INVESTMENT IN THE FUND WITH THE S&P MIDCAP 400 INDEX
[The table below represents a line chart in the printed report.]
S&P Mid Cap
Salomon Mid Cap Fund 400 Index
-------------------- -----------
9/10/2001 10000 10000
12/2001 10936 10331
12/2002 8779 8831
12/31/2003 11294 11976
Past performance is not predictive of future performance. The performance above
reflects returns after deduction of applicable maximum sales charge. The returns
shown do not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
The graph above depicts the performance of the Mid Cap Fund versus the S&P
MidCap 400 Index.(5) It is important to note that the Mid Cap Fund is a
professionally managed mutual fund while the index is not available for
investment and is unmanaged. The comparison is shown for illustrative purposes
only.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 2003+ (UNAUDITED)
- --------------------------------------------------------------------------------
TWELVE THREE FIVE TEN SINCE INCEPTION
CLASS A SHARES MONTHS YEAR YEAR YEAR (11/30/01)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(6) 28.15% N/A N/A N/A 2.97%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(7) 20.78% N/A N/A N/A 0.09%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS B SHARES (12/18/01)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(6) 27.18% N/A N/A N/A 1.05%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(7) 22.18% N/A N/A N/A -0.42%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS 2 SHARES (5/7/02)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(6) 27.15% N/A N/A N/A 1.06%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(7) 24.89% N/A N/A N/A 0.45%
- --------------------------------------------------------------------------------
SINCE INCEPTION
CLASS O SHARES* (1/1/93)
- --------------------------------------------------------------------------------
WITHOUT SALES CHARGES(6) 28.65% -1.15% 9.58% 13.61% 13.46%
- --------------------------------------------------------------------------------
WITH SALES CHARGES(7) 28.65% -1.15% 9.58% 13.61% 13.46%
- --------------------------------------------------------------------------------
See page 14 for all footnotes.
13
FOOTNOTES
(1) The Lehman Brothers Municipal 4 Years Plus Bond Index is valued at month
end only. As a result, while the Fund's total return calculations used in
this comparison are for the period August 17, 1995 through December 31,
2003, the combined Index returns are for the period September 1, 1995
through December 31, 2003.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charge with respect to Class A shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and 2
shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum sales charge of 4.00%. Class B shares reflect the deduction
of a 5.00% CDSC, which applies if shares are redeemed within one year from
purchase payment. Thereafter, the CDSC declines by 1.00% for the first 2
years; 1.00% for years 3 and 4; and then declines by 1.00% per year until
no CDSC is incurred. Class 2 shares also reflect the deduction of a 1.00%
CDSC, which applies if shares are redeemed within one year from purchase
payment. In addition, Class A shares also have a 1.00% CDSC, which applies
if redemption occurs within one year from purchase payment. This CDSC only
applies to those purchases of Class A shares, which, when combined with
current holdings of Class A shares, equal or exceed $1,000,000 in the
aggregate. These purchases do not incur an initial sales charge. Class O
shares have no initial or contingent deferred sales charges.
(4) The Lehman Brothers California 4 Years Plus Index is valued at month end
only. As a result, while the Fund's total return calculations used in this
comparison are for the period November 2, 1998 through December 31, 2003,
the combined Index returns are for the period December 1, 1998 through
December 31, 2003.
(5) The S&P MidCap 400 Index is valued at month end only. As a result, while
the Fund's total return calculations used in this comparison are for the
period September 10, 2001 through December 31, 2003, the combined Index
returns are for the period September 1, 2001 through December 31, 2003.
(6) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and 2 shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and 2 shares.
(7) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and 2 shares reflect the
deduction of the maximum sales charge of 5.75% and 1.00%, respectively.
Class B shares reflect the deduction of a 5.00% CDSC, which applies if
shares are redeemed within one year from purchase payment. Thereafter, the
CDSC declines by 1.00% for the first 2 years; 1.00% for years 3 and 4; and
then declines by 1.00% per year until no CDSC is incurred. Class 2 shares
also reflect the deduction of a 1.00% CDSC, which applies if shares are
redeemed within one year from purchase payment. In addition, Class A shares
also have a 1.00% CDSC, which applies if redemption occurs within one year
from purchase payment. This CDSC only applies to those purchases of Class A
shares, which, when combined with current holdings of Class A shares, equal
or exceed $1,000,000 in the aggregate. These purchases do not incur an
initial sales charge. Class O shares have no initial or contingent deferred
sales charges.
+ The returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
* Performance calculations for Class O shares for Mid Cap Fund include the
historical return information related to Keough Common Stock Fund of the
Collective Trust for Citibank's Business and Professional Retirement Plan,
which was the predecessor fund, for the period from January 1, 1993 through
September 7, 2001.
14
- --------------------------------------------------------------------------------
Schedules of Investments
- --------------------------------------------------------------------------------
December 31, 2003
SALOMON BROTHERS NATIONAL TAX FREE BOND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT RATING(A) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES -- 98.7%
AVIATION -- 0.7%
$ 60,000 Aaa Austin, TX Airport System Revenue, Series A, MBIA-Insured,
Pre-Refunded -- Escrowed to maturity with state and local government securities,
6.500% due 11/15/05 ........................................................................... $ 65,465
250,000 Aaa Miami, Dade County, FL Aviation Revenue, Miami International Airport,
Series A, FGIC-Insured, 5.550% due 10/1/13 .................................................... 277,553
-----------
343,018
-----------
EDUCATION -- 9.9%
300,000 Aaa Indiana Secondary Market for Education Loans Inc. Revenue,
Series C, AMBAC-Insured, 5.550% due 12/1/05 ................................................... 300,000
1,000,000 Aaa Larimer County, CO School District No. R-001 Poudre, MBIA-Insured, 5.750% due 12/15/17 .......... 1,155,690
105,000 A++ Mississippi Higher Education Student Loan, Sub-Series C, 6.050% due 9/1/07 ...................... 106,380
250,000 A1 New York State Dormitory Authority Lease Revenue,
State University Dorm Facilities, Series A, 6.000% due 7/1/14 ................................. 295,805
1,150,000 Aaa Northside, TX ISD, PSFG, 6.000% due 8/15/16 ..................................................... 1,350,859
1,300,000 Aaa Pennsylvania State Higher Education Assistance Agency, Capital Acquisition,
MBIA-Insured, 6.125% due 12/15/17 ............................................................. 1,567,306
-----------
4,776,040
-----------
GENERAL OBLIGATION -- 32.4%
1,000,000 Aa1 Boulder, CO Open Space Acquisition, 5.500% due 8/15/17 .......................................... 1,122,060
500,000 Aa3 Connecticut State, Series B, 5.500% due 6/15/15 ................................................. 570,570
250,000 Aaa Cook County, IL Series A, MBIA-Insured, 5.625% due 11/15/16 ..................................... 280,928
1,605,000 Aaa Georgia State, Series D, 5.800% due 11/1/16 ..................................................... 1,870,242
1,100,000 Aaa Hidalgo County, TX Certificates of Obligation, FGIC-Insured, 5.500% due 8/15/16 ................. 1,240,459
1,000,000 Aaa Houston, TX Public Improvement, FSA-Insured, 5.750% due 3/1/17 .................................. 1,147,150
1,500,000 Aaa Illinois State, First Series, FGIC-Insured, 6.100% due 1/1/20 ................................... 1,729,080
Massachusetts State, Construction Loan:
3,900,000 Aa2 Series A, 6.000% due 2/1/14 ................................................................... 4,639,440
2,000,000 Aa2 Series B, 6.000% due 6/1/15 ................................................................... 2,374,000
500,000 Aaa Snohomish County, WA School District No. 2, FSA-Insured, 5.500% due 12/1/16 ..................... 563,700
-----------
15,537,629
-----------
HEALTHCARE -- 1.1%
500,000 BBB+* Indiana Health Facility Finance Authority, Hospital Revenue,
Hancock Memorial Hospital Health Services, 5.800% due 8/15/06 ................................. 535,115
-----------
HOUSING -- 1.4%
95,000 Aaa Florida Housing Finance Agency, SFM, Series A, FNMA/GNMA-Collateralized, 6.150% due 7/1/06 ...... 98,726
160,000 Aaa Iowa Finance Authority Single Family Revenue, Mortgage Backed Securities Program,
Series A, FNMA/GNMA-Collateralized, 6.000% due 7/1/13 ......................................... 171,358
250,000 Aa1 Maine State Housing Authority Mortgage Purchase Revenue, Series A, 5.950% due 11/15/11 .......... 265,955
130,000 Aa2 North Dakota State Housing Finance Agency Revenue, Housing Finance Program,
Home Mortgage, Series A, 6.100% due 7/1/13 .................................................... 139,772
-----------
675,811
-----------
MISCELLANEOUS -- 4.0%
165,000 Aa2 Missouri State Regional Convention & Sports Complex Authority, Convention & Sports Facilities
Project A-1, 5.000% due 8/15/05 ............................................................... 174,601
1,500,000 Aaa New Jersey Sports & Exposition Authority Contract, Series A, MBIA-Insured, 6.000% due 3/1/15 .... 1,751,040
-----------
1,925,641
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
15
Schedules of Investments
(continued)
SALOMON BROTHERS NATIONAL TAX FREE BOND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT RATING(a) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
POWER -- 2.9%
$ 750,000 Aaa Energy Northwest WA Electric Revenue, Columbia Generating, Series A, FSA-Insured,
5.500% due 7/1/16 ............................................................................. $ 833,903
500,000 Aaa Tacoma, WA Electric System Revenue, Series A, FSA-Insured, 5.750% due 1/1/16 .................... 570,440
-----------
1,404,343
-----------
SALES TAX -- 6.9%
1,300,000 Aaa Hamilton County, OH Sales Tax, Subseries B, AMBAC-Insured, 5.750% due 12/1/17 ................... 1,497,730
New York City, NY Transitional Finance Authority Revenue, Future Tax Secured:
1,235,000 Aa2 Series B, (Call 5/15/10 @ 101), 6.125% due 11/15/14 (b) ......................................... 1,491,781
265,000 Aa2 Unrefunded, Series B, 6.125% due 11/15/14 ....................................................... 314,287
-----------
3,303,798
-----------
TRANSPORTATION -- 29.1%
1,000,000 Aaa Chicago, IL O'Hare International Airport Revenue, Series A-2, 5.750% due 1/1/19 ................. 1,103,040
2,500,000 Aaa Massachusetts Bay Transportation Authority, General Transportation System, Series A,
5.500% due 3/1/15 ............................................................................. 2,885,775
4,000,000 Aaa Metropolitan Transit Authority, NY Transit Revenue, Series A, AMBAC-Insured,
5.500% due 11/15/15 ........................................................................... 4,562,120
1,500,000 Aaa Miami, Dade County, FL County Expressway Authority Toll System Revenue,
FGIC-Insured, 6.000% due 7/1/13 ............................................................... 1,773,855
1,500,000 Aaa New Jersey EDA Revenue (Transportation Project), Series A, FSA-Insured, 5.750% due 5/1/13 ....... 1,733,265
1,750,000 Aa1 New York State Thruway Authority, State Personal Income Tax Revenue, Series A,
5.500% due 3/15/20 ............................................................................ 1,922,725
-----------
13,980,780
-----------
WATER & SEWER -- 10.3%
500,000 Aaa California State Department of Water & Residential Power Supply Revenue, Series A,
MBIA-Insured, 6.000% due 5/1/15 ............................................................... 579,905
2,280,000 Aaa Kansas State Development Finance Authority Revenue, Public Water Supply,
Revolving Loan-2, AMBAC-Insured, 5.750% due 4/1/14 ............................................ 2,652,187
280,000 Aaa Passaic Valley, NJ Sewer Commissioners, Sewer System, Series D, AMBAC-Insured,
5.750% due 12/1/07 (c) ........................................................................ 318,886
1,165,000 Aaa Pueblo, CO Board of Waterworks Revenue, Improvement, Series A, FSA-Insured, 6.000% due 11/1/15 .. 1,375,096
-----------
4,926,074
-----------
TOTAL MUNICIPAL BONDS AND NOTES
(Cost -- $43,037,604) ........................................................................... 47,408,249
-----------
VARIABLE RATE DEMAND NOTE (d) -- 1.3%
SALES TAX -- 1.3%
600,000 VMIG 1 New York City, NY Transitional Finance Authority, Series 3, Sub-Series 3E,
1.270% due 11/1/22 (Cost -- $600,000) ......................................................... 600,000
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $43,637,604**) ......................................................................... $48,008,249
===========
- ----------------
(a) All ratings are by Moody's Investors Service, except for those which are
identified by an asterisk (*) or a double dagger (++), which are rated by
Standard's & Poor's Ratings Service and Fitch Ratings, respectively.
(b) Pre-Refunded bonds are escrowed with U.S. government securities and are
considered by the Manager to be triple-A rated even if issuer has not
applied for new ratings.
(c) Bonds are escrowed to maturity with U.S. government securities and are
considered by the Manager to be triple-A rated even if issuer has not
applied for new ratings.
(d) Variable rate demand notes have a demand feature under which the Fund could
tender them back to the issuer on no more than seven days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 24 and 25 for definitions of ratings and certain abbreviations.
SEE NOTES TO FINANCIAL STATEMENTS.
16
Schedules of Investments
(continued)
SALOMON BROTHERS CALIFORNIA TAX FREE BOND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT RATING(a) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES -- 98.5%
GENERAL OBLIGATION -- 34.9%
$1,000,000 Aaa Glendale, CA Unified School District, Series C, FSA-Insured, 5.750% due 9/1/13 .................. $ 1,153,240
250,000 Aaa Lake Tahoe, CA Unified School District, MBIA-Insured, 5.500% due 7/1/14 ......................... 291,180
250,000 Aaa Placer, CA Union High School District, Series A, FGIC-Insured, 6.000% due 8/1/14 ................ 289,888
575,000 Aaa Pomona, CA Unified School District, Series A, MBIA-Insured, 6.500% due 8/1/19 ................... 693,070
1,150,000 Aaa Puerto Rico Commonwealth, MBIA-Insured, 6.250% due 7/1/12 ....................................... 1,407,899
625,000 Aaa San Bernardino, CA City University School District, Series A, FGIC-Insured,
5.625% due 8/1/15 ............................................................................. 714,200
-----------
4,549,477
-----------
HOUSING -- 10.7%
California Housing Finance Agency:
1,000,000 Aaa Revenue, MFH III, Series A, 5.850% due 8/1/17 ................................................... 1,053,050
325,000 Aa3 SFM Purchase, AMT, Series A-2, Class III, 4.800% due 8/1/12 ..................................... 339,557
-----------
1,392,607
-----------
MISCELLANEOUS -- 2.2%
250,000 Aa3 Sacramento County, CA Sanitation District Finance Authority Revenue,
Series A, 6.000% due 12/1/14 .................................................................. 290,325
-----------
TRANSPORTATION -- 22.1%
500,000 Aaa Bay Area Government Association, California Bay Area Rapid Transit,
Capital Grant, Series A, AMBAC-Insured, 4.000% due 6/15/08 .................................... 501,500
2,000,000 Aaa Intermodal Container Transfer Facility, Joint Powers Authority Revenue,
Series A, AMBAC-Insured, 5.750% due 11/1/14 ................................................... 2,382,400
-----------
2,883,900
-----------
WATER & SEWER -- 28.6%
1,000,000 Aaa Fresno, CA Sewer Revenue, Series A-1, AMBAC-Insured, 6.250% due 9/1/14 .......................... 1,222,770
1,500,000 Aaa Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue, MBIA-Insured,
6.250% due 7/1/13 ............................................................................. 1,846,890
560,000 Aa3 San Diego County, CA Water Authority Revenue, COP, Series A, 5.750% due 5/1/12 .................. 652,428
-----------
3,722,088
-----------
TOTAL MUNICIPAL BONDS AND NOTES
(Cost -- $11,465,884) ........................................................................... 12,838,397
-----------
VARIABLE RATE DEMAND NOTE (B) -- 1.5%
WATER & POWER -- 1.5%
190,000 VMIG 1 California Health Facilities Finance Authority Revenue, Adventist Hospital,
Series B, MBIA-Insured, 1.270% due 9/1/28 (Cost -- $190,000) .................................. 190,000
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $11,655,884*) .......................................................................... $13,028,397
===========
- ----------
(a) All securities are rated by Moody's Investors Service.
(b) Variable rate demand notes have a demand feature under which the Fund could
tender them back to the issuer on no more than seven days notice.
* Aggregate cost for Federal income tax purposes is substantially the same.
See pages 24 and 25 for definitions of ratings and certain abbreviations.
SEE NOTES TO FINANCIAL STATEMENTS.
17
Schedules of Investments
(continued)
SALOMON BROTHERS NEW YORK TAX FREE BOND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT RATING(a) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES -- 99.7%
EDUCATION -- 26.2%
New York State Dormitory Authority Revenue:
$1,000,000 Aaa Columbia University, Series B, 5.375% due 7/1/15 ............................................. $ 1,135,840
3,000,000 Aaa Consolidated Debt City, 2nd Generation, Series A, AMBAC-Insured,
5.750% due 7/1/18 .......................................................................... 3,587,640
1,610,000 A3 Mental Health Services, Series B, 6.500% due 2/15/11 (b) ..................................... 1,968,257
825,000 Aaa Municipal Health Facilities Program, Series 1, FSA-Insured, 5.500% due 1/15/14 ............... 930,996
New York University, Series A, MBIA-Insured:
1,000,000 Aaa 5.750% due 7/1/15 .......................................................................... 1,187,310
6,300,000 Aaa 5.750% due 7/1/27 .......................................................................... 7,404,138
2,500,000 Aaa North Shore University Hospital, 5.500% due 11/1/14 .......................................... 2,924,850
1,500,000 Aaa School District Financing Program, Series A, 5.750% due 10/1/17 .............................. 1,725,255
State University:
1,070,000 Aaa Adult Facilities, Series C, 5.750% due 5/15/17 ............................................. 1,279,474
Dorm Facilities:
1,000,000 Aaa FGIC-Insured, 5.500% due 7/1/18 .......................................................... 1,170,160
1,160,000 A1 Series A, 6.000% due 7/1/15 .............................................................. 1,371,027
1,515,000 Aaa Series C, MBIA-Insured, 5.750% due 7/1/13 ................................................ 1,752,991
Education Facilities:
2,030,000 A3 Series B, 5.250% due 5/15/13 ............................................................. 2,275,184
1,690,000 A3 Series C, 5.400% due 5/15/23 ............................................................. 1,750,806
------------
30,463,928
------------
GENERAL OBLIGATION -- 7.7%
New York City, NY:
Series B:
2,450,000 A2 5.750% due 8/1/14 .......................................................................... 2,717,369
1,185,000 Aaa Call 8/15/05 @ 101, 6.375% due 8/15/11 (c) ................................................. 1,293,795
3,075,000 A2 Unrefunded, Series A, 6.250% due 8/1/12 ...................................................... 3,423,890
1,250,000 Aaa Puerto Rico Commonwealth, Public Improvement,
Series A, MBIA-Insured, 5.500% due 7/1/16 .................................................... 1,465,138
------------
8,900,192
------------
HIGHWAY/TOLLS -- 20.8%
New York State Thruway Authority:
1,000,000 Aaa Highway & Bridge Transportation Fund, Refunded, Series C, AMBAC-Insured,
5.500% due 4/1/15 .......................................................................... 1,132,040
5,275,000 Aa3 Series E, 5.250% due 1/1/13 .................................................................. 5,793,849
Service Contract Revenue, Local Highway & Bridge:
2,000,000 A3 Call 4/1/07 @ 102, 6.000% due 4/1/11 (c) ................................................... 2,298,540
4,370,000 Aaa Series B, 5.375% due 4/1/13 ................................................................ 4,842,222
2,995,000 A3 Unrefunded, 6.000% due 4/1/11 .............................................................. 3,361,049
Puerto Rico Commonwealth Highway & Transportation Authority, Highway Revenue:
Refunded:
MBIA-Insured:
1,000,000 Aaa Series X, 5.500% due 7/1/15 .............................................................. 1,172,300
2,000,000 Aaa Series Z, 6.250% due 7/1/14 .............................................................. 2,477,280
1,250,000 Aaa Series W, FSA-Insured, 5.500% due 7/1/13 ................................................... 1,463,525
1,500,000 Aaa Series G, FGIC-Insured, 5.250% due 7/1/16 .................................................... 1,683,300
------------
24,224,105
------------
HOUSING -- 9.0%
New York City, NY Housing Development Corp., MFH Revenue:
1,310,000 Aa2 Series A, 5.625% due 5/1/12 ................................................................ 1,330,279
1,645,000 Aa2 Series E, SONYMA-Insured, 6.100% due 11/1/19 ............................................... 1,774,363
3,715,000 Aaa New York State HFA, State University Construction, Series A, Refunded,
7.900% due 11/1/06 ......................................................................... 4,086,945
3,200,000 Aa1 New York State Mortgage Agency Revenue, AMT, Home Owner Mortgage,
Series 71, 5.350% due 10/1/18 .............................................................. 3,309,216
------------
10,500,803
------------
MISCELLANEOUS -- 1.1%
1,100,000 Aaa Puerto Rico Public Finance Corp., Commonwealth Appropriation, Series A,
MBIA-Insured, 5.500% due 8/1/17 ............................................................ 1,242,813
------------
SEE NOTES TO FINANCIAL STATEMENTS.
18
Schedules of Investments
(continued)
SALOMON BROTHERS NEW YORK TAX FREE BOND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT RATING(a) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
POWER -- 2.6%
$1,500,000 Aaa Long Island Power Authority, NY Electric System Revenue,
Series C, MBIA/IBC-Insured, 5.500% due 9/1/21 ................................................ $ 1,662,150
1,250,000 Aaa Puerto Rico Electric Power Authority, Power Revenue, Refunded,
FSA-Insured, 5.500% due 7/1/14 ............................................................... 1,345,725
------------
3,007,875
------------
SALES TAX -- 11.6%
New York City, NY, Transitional Finance Authority, Future Tax Secured:
Series A:
5,000,000 Aa2 5.750% due 2/15/16 ......................................................................... 5,719,400
5,000,000 Aaa FGIC-Insured, 6.000% due 8/15/15 ........................................................... 5,968,300
580,000 Aa2 Unrefunded, 5.750% due 2/15/14 ............................................................. 659,651
1,000,000 Aa2 Series C, 5.875% due 11/1/14 ................................................................. 1,163,200
------------
13,510,551
------------
STATE AGENCIES -- 5.3%
New York State Local Assistance Corp., Refunded:
3,000,000 A1 Series C, 5.500% due 4/1/17 .................................................................. 3,445,440
2,255,000 A1 Series E, 6.000% due 4/1/14 .................................................................. 2,663,899
------------
6,109,339
------------
TRANSPORTATION -- 15.2%
Metropolitan Transportation Authority, NY:
2,300,000 AAA* Commuter Facilities Revenue, Series A, FSA-Insured, 5.125% due 7/1/17 ........................ 2,633,822
2,000,000 Aaa Dedicated Tax Fund, Series A, FGIC-Insured, 6.125% due 4/1/17 ................................ 2,391,900
2,500,000 Aaa Refunded, Series A, AMBAC-Insured, 5.500% due 11/15/15 ....................................... 2,851,325
Service Contract, Series O:
1,000,000 A3 Commuter Facilities Revenue, 5.750% due 7/1/13 ............................................. 1,168,220
Transportation Facilities Revenue:
3,000,000 A3 5.750% due 7/1/13 ........................................................................ 3,504,660
1,000,000 Aaa 5.500% due 7/1/17 ........................................................................ 1,173,620
New York City Transportation Authority, Triborough Bridge Revenue, Series A, AMBAC-Insured:
2,500,000 Aaa 5.625% due 1/1/14 ............................................................................ 2,820,850
1,000,000 Aaa 5.625% due 1/1/15 ............................................................................ 1,134,160
------------
17,678,557
------------
WATER & SEWER -- 0.2%
290,000 Aaa New York State Environmental Facilities Corp., Pollution Control Revenue,
State Water Revolving Fund, Series A, 7.500% due 6/15/12 ..................................... 291,334
------------
TOTAL MUNICIPAL BONDS AND NOTES
(Cost -- $105,181,354) ........................................................................ 115,929,497
------------
VARIABLE RATE DEMAND NOTE (d) -- 0.3%
WATER & SEWER -- 0.3%
400,000 Aa2 New York City, Municipal Water Finance Authority, Water and Sewer Systems Revenue,
Series F, Sub-Series F-2, 1.170% due 6/15/35 (Cost -- $400,000) .............................. 400,000
------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $105,581,354**) ....................................................................... $116,329,497
============
- ----------------
(a) All ratings are by Moody's Investors Service, except for those which are
identified by an asterisk (*), are rated by Standard &Poor's Ratings
Service.
(b) Bonds are escrowed to maturity with U.S. government securities and are
considered by the Manager to be triple-A rated even if issuer has not
applied for new ratings.
(c) Pre-Refunded bonds are escrowed with U.S. government securities and are
considered by the Manager to be triple-A rated even if issuer has not
applied for new ratings.
(d) Variable rate demand notes have a demand feature under which the Fund could
tender them back to the issuer on more than seven days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 24 and 25 for definitions of ratings and certain abbreviations.
SEE NOTES TO FINANCIAL STATEMENTS.
19
Schedules of Investments
(continued)
SALOMON BROTHERS MID CAP FUND
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 100.0%
AEROSPACE & DEFENSE -- 1.0%
3,708 Alliant Techsystems Inc.* ........................... $ 214,174
-----------
AIRLINES -- 1.2%
9,525 JetBlue Airways Corp.* .............................. 252,603
-----------
AUTO COMPONENTS -- 0.4%
1,740 Gentex Corp. ........................................ 76,838
-----------
BANKS -- 9.2%
8,800 Banknorth Group, Inc. ............................... 286,264
7,140 Commerce Bancshares, Inc. ........................... 350,003
10,485 Compass Bancshares, Inc. ............................ 412,165
4,565 M&T Bank Corp. ...................................... 448,740
8,160 National Commerce Financial Corp. ................... 222,605
3,600 UnionBanCal Corp. ................................... 207,144
-----------
1,926,921
-----------
BEVERAGES -- 0.7%
7,000 Coca-Cola Enterprises Inc. .......................... 153,090
-----------
BIOTECHNOLOGY -- 2.5%
3,625 Biogen Idec Inc.* ................................... 133,327
4,500 Gilead Sciences, Inc.* .............................. 261,630
2,450 Neurocrine Biosciences, Inc.* ....................... 133,623
-----------
528,580
-----------
COMMERCIAL SERVICES & SUPPLIES -- 5.7%
9,400 ARAMARK Corp., Class B Shares ....................... 257,748
1,800 Avery Dennison Corp. ................................ 100,836
3,600 CheckFree Corp.* .................................... 99,540
11,500 DST Systems, Inc.* .................................. 480,240
3,500 Manpower Inc. ....................................... 164,780
3,000 R.R. Donnelley & Sons Co. ........................... 90,450
-----------
1,193,594
-----------
COMMUNICATIONS EQUIPMENT -- 2.2%
4,500 Avaya Inc.* ......................................... 58,230
10,700 Netscreen Technologies, Inc.* ....................... 264,825
4,300 Plantronics, Inc.* .................................. 140,395
-----------
463,450
-----------
COMPUTERS & PERIPHERALS -- 0.8%
6,500 Electronics for Imaging, Inc.* ...................... 169,130
-----------
CONSTRUCTION & ENGINEERING -- 1.1%
4,800 Jacobs Engineering Group Inc.* ...................... 230,448
-----------
CONSTRUCTION MATERIALS -- 0.6%
2,700 Vulcan Materials Co. ................................ 128,439
-----------
CONTAINERS & PACKAGING -- 2.2%
4,700 AptarGroup, Inc. .................................... 183,300
4,800 Pactiv Corp.* ....................................... 114,720
8,200 Smurfit-Stone Container Corp.* ...................... 152,274
-----------
450,294
-----------
DIVERSIFIED FINANCIALS -- 2.0%
4,100 Legg Mason, Inc. .................................... 316,438
3,400 SEI Investments Co. ................................. 103,598
-----------
420,036
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
20
Schedules of Investments
(continued)
SALOMON BROTHERS MID CAP FUND
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 2.6%
2,100 Pinnacle West Capital Corp. ......................... $ 84,042
9,100 Puget Energy, Inc. .................................. 216,307
6,900 Wisconsin Energy Corp. .............................. 230,805
-----------
531,154
-----------
ELECTRICAL EQUIPMENT & INSTRUMENTS -- 1.9%
3,700 Diebold, Inc. ....................................... 199,319
7,100 Jabil Circuit, Inc.* ................................ 200,930
-----------
400,249
-----------
ENERGY EQUIPMENT & SERVICES -- 4.1%
12,100 Core Laboratories N.V.* ............................. 201,949
13,115 Hanover Compressor Co.* ............................. 146,232
4,800 Patterson-UTI Energy, Inc.* ......................... 158,016
9,700 Rowan Cos., Inc.* ................................... 224,749
3,200 Smith International Inc.* ........................... 132,864
-----------
863,810
-----------
FOOD & DRUG RETAILING -- 0.5%
1,500 Whole Foods Market, Inc. ............................ 100,695
-----------
FOOD PRODUCT -- 2.8%
16,310 Hormel Foods Corp. .................................. 420,961
3,700 The J.M. Smucker Co. ................................ 167,573
-----------
588,534
-----------
GAS UTILITIES -- 0.7%
4,700 Sempra Energy ....................................... 141,282
-----------
HEALTHCARE EQUIPMENT & SUPPLIES -- 5.1%
8,200 DENTSPLY International Inc. ......................... 370,394
4,600 Edwards Lifesciences Corp.* ......................... 138,368
3,500 Respironics, Inc.* .................................. 157,815
3,300 St. Jude Medical, Inc.* ............................. 202,455
5,700 STERIS Corp.* ....................................... 128,820
1,000 Varian Medical Systems, Inc.* ....................... 69,100
-----------
1,066,952
-----------
HEALTHCARE PROVIDERS & SERVICES -- 3.0%
10,400 Omnicare, Inc. ...................................... 420,056
3,700 Universal Health Services, Inc., Class B Shares ..... 198,764
-----------
618,820
-----------
HOTELS, RESTAURANTS & LEISURE -- 4.9%
2,000 Four Seasons Hotels Inc. ............................ 102,300
5,290 GTECH Holdings Corp. ................................ 261,802
4,200 Landry's Restaurants, Inc. .......................... 108,024
1,900 Mandalay Resort Group ............................... 84,968
10,255 Outback Steakhouse, Inc. ............................ 453,374
-----------
1,010,468
-----------
HOUSEHOLD DURABLES -- 2.7%
2,900 Fortune Brands, Inc. ................................ 207,321
5,600 Maytag Corp. ........................................ 155,960
2,933 Mohawk Industries, Inc.* ............................ 206,894
-----------
570,175
-----------
HOUSEHOLD PRODUCTS -- 0.8%
4,200 Church & Dwight Co., Inc. ........................... 166,320
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
21
Schedules of Investments
(continued)
SALOMON BROTHERS MID CAP FUND
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 2.6%
3,945 Carlisle Cos. Inc. .................................. $ 240,093
5,100 Textron Inc. ........................................ 291,006
-----------
531,099
-----------
INSURANCE -- 6.3%
1,000 Ambac Financial Group, Inc. ......................... 69,390
320 China Life Insurance Co. Ltd., ADR* ................. 10,550
4,100 Philadelphia Consolidated Holding Corp.* ............ 200,203
9,900 Platinum Underwriters Holdings, Ltd. ................ 297,000
4,100 Radian Group Inc. ................................... 199,875
1,900 RenaissanceRE Holdings Ltd. ......................... 93,195
3,300 StanCorp Financial Group, Inc. ...................... 207,504
7,200 Willis Group Holdings Ltd. .......................... 245,304
-----------
1,323,021
-----------
IT CONSULTING & SERVICES -- 1.1%
4,300 Affiliated Computer Services, Inc., Class A Shares* . 234,178
-----------
MACHINERY -- 1.9%
3,500 Actuant Corp., Class A Shares* ...................... 126,700
6,300 IDEX Corp. .......................................... 262,017
-----------
388,717
-----------
MEDIA -- 4.1%
2,600 Belo Corp., Class A Shares .......................... 73,684
5,000 Cox Radio, Inc., Class A Shares* .................... 126,150
2,500 The E.W. Scripps Co. ................................ 235,350
6,500 Univision Communications Inc.* ...................... 257,985
200 The Washington Post Co., Class B Shares ............. 158,280
-----------
851,449
-----------
MULTI-LINE RETAIL -- 0.9%
3,550 The Neiman Marcus Group, Inc., Class A Shares* ...... 190,528
-----------
MULTI-UTILITIES -- 0.5%
3,000 SCANA Corp. ......................................... 102,750
-----------
OIL & GAS -- 1.1%
3,600 Murphy Oil Corp. .................................... 235,116
-----------
PAPER & FOREST PRODUCTS -- 0.8%
3,600 Bowater Inc. ........................................ 166,716
-----------
PHARMACEUTICALS -- 2.6%
1,852 Barr Pharmaceuticals Inc.* .......................... 142,511
5,600 Medicis Pharmaceutical Corp., Class A Shares ........ 399,280
-----------
541,791
-----------
ROAD & RAIL -- 1.3%
13,600 Werner Enterprises, Inc. ............................ 265,064
-----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 5.9%
11,100 Applied Micro Circuits Corp.* ....................... 66,378
22,300 Axcelis Technologies, Inc.* ......................... 227,906
2,200 KLA-Tencor Corp.* ................................... 129,074
4,300 Micrel, Inc.* ....................................... 66,994
7,400 Novellus Systems, Inc.* ............................. 311,170
3,600 Silicon Laboratories Inc.* .......................... 155,592
10,830 Teradyne, Inc.* ..................................... 275,624
-----------
1,232,738
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
22
Schedules of Investments
(continued)
SALOMON BROTHERS MID CAP FUND
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------
SOFTWARE -- 7.0%
6,400 Cognos, Inc.* ....................................... $ 195,968
4,940 Mercury Interactive Corp.* .......................... 240,282
2,140 National Instruments Corp. .......................... 97,306
19,700 Quest Software, Inc.* ............................... 279,740
6,260 Synopsys, Inc.* ..................................... 211,338
23,000 TIBCO Software Inc.* ................................ 155,710
7,500 VERITAS Software Corp.* ............................. 278,700
-----------
1,459,044
-----------
SPECIALTY RETAIL -- 4.5%
6,900 Chico's FAS, Inc.* .................................. 254,955
9,700 PETsMART, Inc. ...................................... 230,860
5,700 Tiffany & Co. ....................................... 257,640
5,400 Williams-Sonoma, Inc.* .............................. 187,758
-----------
931,213
-----------
WIRELESS TELECOMMUNICATIONS SERVICES -- 0.7%
2,300 Telephone and Data Systems, Inc. .................... 143,865
-----------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $16,649,296**) ............................. $20,863,345
===========
- ----------
* Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
-----------------------------------
ADR - American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
23
- --------------------------------------------------------------------------------
Bond Ratings
- --------------------------------------------------------------------------------
(unaudited)
The definitions of the applicable rating symbols are set forth below:
STANDARD & POOR'S RATINGS SERVICE ("STANDARD & POOR'S") -- Ratings from "AA" to
"BBB" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issue only in a
small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB -- Bonds rated "BBB" have an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
MOODY'S INVESTORS SERVICE ("MOODY'S") -- Numerical modifiers 1, 2 and 3 may be
applied to each generic rating from "Aa" to "Baa," where 1 is the highest and 3
the lowest ranking within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" are judged to possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa -- Bonds rated "Baa" are judged as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative
characteristics as well.
FITCH RATINGS ("FITCH") -- Ratings from "AA" to "A" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standings within the
major rating categories.
AAA -- Bonds rated "AAA" have the lowest expectation of credit risk. They
are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA -- Bonds rated "AA" have a very low expectation of credit risk. They
indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
A -- Bonds rated "A" have a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
NR -- Indicates that the bond is not rated by Standard & Poor's, Moody's,
or Fitch.
24
- --------------------------------------------------------------------------------
Short-Term Security Ratings
- --------------------------------------------------------------------------------
(unaudited)
SP-1 -- Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issues determined to
possess overwhelming safety characteristics are denoted with a plus
(+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong; those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to the
advent of the VMIG 1 rating.
- --------------------------------------------------------------------------------
Abbreviations*
- --------------------------------------------------------------------------------
(unaudited)
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- American Municipal Bond
Assurance Indemnity Corporation
AMT -- Alternative Minimum Tax
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CDA -- Community Development Administration
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility
Construction Loan Insurance
COP -- Certificate of Participation
EDA -- Economic Development Authority
ETM -- Escrowed To Maturity
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FLAIRS -- Floating Adjustable Interest Rate Securities
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Financial Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDA -- Housing Development Authority
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IBC -- Insured Bond Certificates
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
ISD -- Independent School District
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors
Assurance Corporation
MFH -- Multi-Family Housing
MVRICS -- Municipal Variable Rate Inverse
Coupon Security
PCR -- Pollution Control Revenue
PFA -- Public Finance Authority
PSFG -- Permanent School Fund Guaranty
Q-SBLF -- Qualified School Bond Loan Fund
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
SFM -- Single-Family Mortgage
SONYMA -- State of New York Mortgage Association
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
- ----------
* Abbreviations may or may not appear in the schedule of investments.
25
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 2003
SALOMON BROTHERS
---------------------------------------------------------
NATIONAL CALIFORNIA NEW YORK MID
TAX FREE TAX FREE TAX FREE CAP
BOND FUND BOND FUND BOND FUND FUND
----------- ----------- ------------ -----------
ASSETS:
Investments, at cost ................................................. $43,637,604 $11,655,884 $105,581,354 $16,649,296
=========== =========== ============ ===========
Investments, at value ................................................ $48,008,249 $13,028,397 $116,329,497 $20,863,345
Cash ................................................................. 72,868 35,083 120,322 57,935
Dividends and interest receivable .................................... 636,181 223,864 2,094,697 12,627
Receivable for Fund shares sold ...................................... 68,693 364 8,239 --
Receivable from manager .............................................. -- 2,402 -- --
Other assets ......................................................... 4,399 -- -- --
----------- ----------- ------------ -----------
TOTAL ASSETS ......................................................... 48,790,390 13,290,110 118,552,755 20,933,907
----------- ----------- ------------ -----------
LIABILITIES:
Payable for Fund shares reacquired ................................... 82,089 13,664 321,874 23,484
Dividends payable .................................................... 13,269 615 5,145 --
Distribution and service plan fees payable ........................... 5,823 1,230 10,722 116
Management fees payable .............................................. 749 -- 33,543 1,314
Accrued expenses ..................................................... 68,498 59,015 107,226 27,944
----------- ----------- ------------ -----------
TOTAL LIABILITIES .................................................... 170,428 74,524 478,510 52,858
----------- ----------- ------------ -----------
TOTAL NET ASSETS ....................................................... $48,619,962 $13,215,586 $118,074,245 $20,881,049
=========== =========== ============ ===========
NET ASSETS:
Par value of shares of beneficial interest ........................... $ -- $ -- $ -- $ 1,227
Capital paid in excess of par value .................................. 51,633,077 14,961,461 116,423,223 18,560,659
Accumulated net realized loss from investment transactions ........... (7,383,760) (3,118,388) (9,097,121) (1,894,886)
Net unrealized appreciation of investments ........................... 4,370,645 1,372,513 10,748,143 4,214,049
----------- ----------- ------------ -----------
TOTAL NET ASSETS ....................................................... $48,619,962 $13,215,586 $118,074,245 $20,881,049
=========== =========== ============ ===========
SHARES OUTSTANDING:
Class A .............................................................. 3,543,409 1,215,905 9,758,348 15,966
=========== =========== ============ ===========
Class B .............................................................. 363,003 16,623 30,313 9,152
=========== =========== ============ ===========
Class 2 .............................................................. 161,249 2,491 53,034 6,487
=========== =========== ============ ===========
Class O .............................................................. 13,165 193 7,772 1,195,768
=========== =========== ============ ===========
NET ASSET VALUE:
CLASS A SHARES
Net asset value and redemption price ................................. $11.91 $10.70 $11.99 $16.89
=========== =========== ============ ===========
Maximum offering price per share (based on maximum sales charges of
4.00%, 4.00%, 4.00% and 5.75%, respectively) ....................... $12.41 $11.15 $12.49 $17.92
=========== =========== ============ ===========
CLASS B SHARES
Net asset value and offering price, per share* ....................... $11.93 $10.71 $11.99 $16.66
=========== =========== ============ ===========
CLASS 2 SHARES
Net asset value*+ .................................................... $11.92 $10.70 $12.00 $16.72
=========== =========== ============ ===========
Maximum offering price per share (based on maximum sales charge of
1.00% for Mid Cap Fund) ............................................ N/A N/A N/A $16.89
=========== =========== ============ ===========
CLASS O SHARES
Net asset value, offering price and redemption price per share ....... $11.93 $10.71 $11.98 $17.02
=========== =========== ============ ===========
- ----------
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
+ Net asset value and offering price for National Tax Free Bond Fund, California
Tax Free Bond Fund and New York Tax Free Bond Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
26
- --------------------------------------------------------------------------------
Statements of Operations
- --------------------------------------------------------------------------------
For the Year Ended December 31, 2003
SALOMON BROTHERS
---------------------------------------------------------
NATIONAL CALIFORNIA NEW YORK MID
TAX FREE TAX FREE TAX FREE CAP
BOND FUND BOND FUND BOND FUND FUND
----------- ----------- ------------ -----------
INVESTMENT INCOME:
Interest ............................................................. $ 2,593,293 $ 645,869 $ 5,920,659 $ 168,882
Dividends ............................................................ -- -- -- 3,273
Less: Foreign withholding tax ........................................ -- -- -- (36)
----------- ----------- ------------ -----------
TOTAL INVESTMENT INCOME .............................................. 2,593,293 645,869 5,920,659 172,119
----------- ----------- ------------ -----------
EXPENSES:
Management fees (Note 2) ............................................. 277,855 72,754 622,889 135,653
Distribution and service plan fees (Note 4) .......................... 185,142 38,542 315,634 2,540
Shareholder servicing fees (Note 4) .................................. 46,247 4,915 59,647 11,656
Custody .............................................................. 45,349 25,114 48,265 23,212
Registration fees .................................................... 38,271 36,035 38,497 34,973
Audit and legal ...................................................... 37,080 14,271 59,000 22,452
Shareholder communications (Note 4) .................................. 21,027 5,680 37,266 4,337
Trustees' fees ....................................................... 2,139 1,734 3,940 1,973
Other ................................................................ 3,374 6,988 17,818 7,203
----------- ----------- ------------ -----------
TOTAL EXPENSES ....................................................... 656,484 206,033 1,202,956 243,999
Less: Management fee waiver (Note 2) ................................. (192,690) (72,754) (200,361) (45,465)
Expense reimbursement (Note 2) ................................. -- (14,730) -- --
----------- ----------- ------------ -----------
NET EXPENSES ......................................................... 463,794 118,549 1,002,595 198,534
----------- ----------- ------------ -----------
NET INVESTMENT INCOME (LOSS) ........................................... 2,129,499 527,320 4,918,064 (26,415)
----------- ----------- ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 3):
Realized Gain From Investment Transactions
(excluding short-term securities):
Proceeds from sales ................................................ 32,702,883 1,461,015 24,885,334 14,213,138
Cost of securities sold ............................................ 30,491,080 1,414,974 23,810,111 14,039,105
----------- ----------- ------------ -----------
NET REALIZED GAIN .................................................... 2,211,803 46,041 1,075,223 174,033
----------- ----------- ------------ -----------
Change in Net Unrealized Appreciation (Depreciation) of Investments:
Beginning of year .................................................. 6,008,579 1,364,122 11,148,055 (339,672)
End of year ........................................................ 4,370,645 1,372,513 10,748,143 4,214,049
----------- ----------- ------------ -----------
INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION ................... (1,637,934) 8,391 (399,912) 4,553,721
----------- ----------- ------------ -----------
NET GAIN ON INVESTMENTS ................................................ 573,869 54,432 675,311 4,727,754
----------- ----------- ------------ -----------
INCREASE IN NET ASSETS FROM OPERATIONS ................................. $ 2,703,368 $ 581,752 $ 5,593,375 $ 4,701,339
=========== =========== ============ ===========
SEE NOTES TO FINANCIAL STATEMENTS.
27
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Year Ended December 31, 2003
SALOMON BROTHERS
---------------------------------------------------------
NATIONAL CALIFORNIA NEW YORK MID
TAX FREE TAX FREE TAX FREE CAP
BOND FUND BOND FUND BOND FUND FUND
----------- ----------- ------------ -----------
OPERATIONS:
Net investment income (loss) ......................................... $ 2,129,499 $ 527,320 $ 4,918,064 $ (26,415)
Net realized gain .................................................... 2,211,803 46,041 1,075,223 174,033
Increase (decrease) in net unrealized appreciation ................... (1,637,934) 8,391 (399,912) 4,553,721
----------- ----------- ------------ -----------
INCREASE IN NET ASSETS FROM OPERATIONS ............................... 2,703,368 581,752 5,593,375 4,701,339
----------- ----------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 5):
Net investment income ................................................ (2,155,254) (527,320) (4,982,340) --
----------- ----------- ------------ -----------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS ............ (2,155,254) (527,320) (4,982,340) --
----------- ----------- ------------ -----------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares ..................................... 34,834,712 501,662 25,703,716 523,233
Net asset value of shares issued for reinvestment of dividends ....... 1,905,712 515,095 4,784,677 --
Cost of shares reacquired ............................................ (45,811,300) (3,411,036) (40,854,259) (1,205,654)
----------- ----------- ------------ -----------
DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS .................. (9,070,876) (2,394,279) (10,365,866) (682,421)
----------- ----------- ------------ -----------
INCREASE (DECREASE) IN NET ASSETS ...................................... (8,522,762) (2,339,847) (9,754,831) 4,018,918
NET ASSETS:
Beginning of year .................................................... 57,142,724 15,555,433 127,829,076 16,862,131
----------- ----------- ------------ -----------
END OF YEAR .......................................................... $48,619,962 $13,215,586 $118,074,245 $20,881,049
=========== =========== ============ ===========
SEE NOTES TO FINANCIAL STATEMENTS.
28
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Year Ended December 31, 2002
SALOMON BROTHERS
---------------------------------------------------------
NATIONAL CALIFORNIA NEW YORK MID
TAX FREE TAX FREE TAX FREE CAP
BOND FUND BOND FUND BOND FUND FUND
----------- ----------- ------------ -----------
OPERATIONS:
Net investment income (loss) ........................................ $ 2,578,835 $ 571,813 $ 5,624,766 $ (26,545)
Net realized gain (loss) ............................................ 830,498 241,828 1,142,668 (1,838,330)
Increase (decrease) in net unrealized appreciation .................. 2,771,921 439,711 6,424,227 (2,522,919)
----------- ----------- ------------ -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ................... 6,181,254 1,253,352 13,191,661 (4,387,794)
----------- ----------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 5):
Net investment income ............................................... (2,554,278) (571,813) (5,604,635) --
----------- ----------- ------------ -----------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS ........... (2,554,278) (571,813) (5,604,635) --
----------- ----------- ------------ -----------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares .................................... 12,580,286 316,275 5,149,564 573,929
Net asset value of shares issued for reinvestment of dividends ...... 1,905,237 475,153 4,279,240 --
Cost of shares reacquired ........................................... (29,684,776) (2,301,539) (29,617,857) (2,318,445)
----------- ----------- ------------ -----------
DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS ................. (15,199,253) (1,510,111) (20,189,053) (1,744,516)
----------- ----------- ------------ -----------
DECREASE IN NET ASSETS ................................................. (11,572,277) (828,572) (12,602,027) (6,132,310)
NET ASSETS:
Beginning of year ................................................... 68,715,001 16,384,005 140,431,103 22,994,441
----------- ----------- ------------ -----------
END OF YEAR* ........................................................ $57,142,724 $15,555,433 $127,829,076 $16,862,131
=========== =========== ============ ===========
* Includes undistributed net investment income of: ..................... $25,755 -- $64,276 $772
=========== =========== ============ ===========
SEE NOTES TO FINANCIAL STATEMENTS.
29
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Salomon Brothers National Tax Free Bond Fund ("National Tax Free Bond Fund"),
Salomon Brothers California Tax Free Bond Fund ("California Tax Free Bond Fund")
and Salomon Brothers New York Tax Free Bond Fund ("New York Tax Free Bond Fund")
are separate non-diversified series of Salomon Funds Trust ("Trust"), a
Massachusetts business trust. Salomon Brothers Mid Cap Fund ("Mid Cap Fund") is
a separate diversified series of the Trust. The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
National Tax Free Bond Fund, California Tax Free Bond Fund, New York Tax Free
Bond Fund and Mid Cap Fund ("Fund(s)"), as of December 31, 2003 offer Class A
shares, Class B shares, Class 2 shares and Class O shares. Expenses of each Fund
are borne pro rata by the holders of each class of shares, except that each
class bears expenses unique to that class (including the Rule 12b-1 distribution
and service plan fees applicable to such class), and votes as a class only with
respect to its own Rule 12b-1 plan.
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 Funds are in
conformity with generally accepted accounting policies ("GAAP") and are as
follows:
(A) INVESTMENT SECURITY VALUATIONS. Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at closing prices.
Unlisted securities or listed securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in 60 days or less) are valued on the basis of
valuations furnished by a pricing service which takes into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, and other market data,
without exclusive reliance upon quoted prices or exchange or over-the-counter
prices, since such valuations are believed to reflect more accurately the fair
value of the securities. Short-term obligations (maturing in 60 days or less)
are valued at amortized cost, which approximates market value. Securities, if
any, for which there are no such valuations or quotations are valued at fair
value as determined in good faith by or under guidelines established by the
Trustees.
(B) INCOME. Interest income, adjusted for amortization of premium and
accretion of discount, is recorded on an accrual basis. Dividend income is
recorded on the ex-dividend date.
(C) FEDERAL INCOME TAXES. Each Fund has complied with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distributed all of its income, including any net realized gains, to
shareholders. Therefore, no Federal income tax or excise tax provision is
required for such Funds.
(D) 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. Distributions to shareholders and shares issuable to
shareholders electing to receive distributions in shares are recorded on the
ex-dividend date.
(E) EXPENSES. The Funds bear all their costs of its operations other than
expenses specifically assumed by the Manager. Expenses incurred by the Trust
with respect to any two or more funds or series are allocated in proportion to
the average net assets of each fund, except when allocations of direct expenses
to each fund can otherwise be made fairly. Expenses directly attributable to a
fund are charged to that fund.
30
Notes to Financial Statements
(continued)
(F) REPURCHASE AGREEMENTS. Each Fund purchases (and a custodian takes
possession of) U.S. government securities from securities dealers subject to
agreements to resell the securities to the sellers at a future date (generally,
the next business day), at an agreed-upon higher repurchase price. The Funds
require continual maintenance of the market value (plus accrued interest) of the
collateral in amounts at least equal to the repurchase price.
(G) YEAR END TAX RECLASSIFICATIONS. The character of income and gains to be
distributed is determined in accordance with income tax regulations which may
differ from GAAP. At December 31, 2003, reclassifcations were made to the
capital accounts of the Mid Cap Fund to reflect permanent book/tax differences
and income and gains available for distributions under income tax regulations.
Accordingly, a portion of overdistributed net investment income amounting to
$26,415 was reclassified to paid-in-capital for the Mid Cap Fund. Net investment
income, net realized gains and net assets were not affected by this change.
2. MANAGEMENT AGREEMENT AND AFFILIATED TRANSACTIONS
Salomon Brothers Asset Management Inc ("Manager"), an indirect wholly-owned
subsidiary of Citigroup Inc. ("Citigroup"), acts as investment manager to the
Funds. The Manager is responsible for overall management of the Funds' business
affairs, and has a separate Management Agreement with each Fund. The Manager or
an affiliate also provides certain administrative services to each Fund. These
administrative services include providing general office facilities and
supervising the overall administration of each Fund.
The management fees paid to the Manager are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.50%, 0.50%, 0.50% and
0.75% of the average daily net assets of National Tax Free Bond Fund, California
Tax Free Bond Fund, New York Tax Free Bond Fund and Mid Cap Fund, respectively.
For the year ended December 31, 2003, the Funds had the following class level
voluntary expense limitations, which resulted in management fee waivers and
expense reimbursements.
CLASS A CLASS B CLASS 2 CLASS O
------- ------- ------- -------
National Tax Free Bond Fund ........... 0.75% 1.50% 1.25% 0.50%
California Tax Free Bond Fund ......... 0.80 1.55 1.30 0.55
New York Tax Free Bond Fund ........... 0.80 1.55 1.30 0.55
Mid Cap Fund .......................... 1.50 2.25 2.25 1.08
For the year ended December 31, 2003, the Manager waived management fees of
$192,690, $72,754, $200,361 and $45,465 for National Tax Free Bond Fund,
California Tax Free Bond Fund, New York Tax Free Bond Fund and Mid Cap Fund,
respectively. In addition, for the year ended December 31, 2003, the Manager has
agreed to reimburse expenses totaling $14,730, for the California Tax Free Bond
Fund. These expense limitations can be terminated at any time by the Manager.
Citigroup Global Markets Inc. ("CGM") (formerly known as Salomon Smith Barney
Inc.), another indirect wholly-owned subsidiary of Citigroup, acts as the Funds'
distributor.
There is a maximum initial sales charge of 4.00% for Class A shares of National
Tax Free Bond Fund, California Tax Free Bond Fund and New York Tax Free Bond
Fund. There are maximum initial sales charges of 5.75% and 1.00% for Class A and
2 shares, respectively, of Mid Cap Fund. There is a contingent deferred sales
charge ("CDSC") of 5.00% on Class B shares of the Funds, which applies if
redemption occurs within one year from purchase payment and declines thereafter
by 1.00% per year until no CDSC is incurred. Class 2 shares of the Funds also
have a 1.00% CDSC, which applies if redemption occurs within one year from
purchase payment. In certain cases, Class A shares of the Funds have a 1.00%
CDSC, which applies if redemption occurs within one year from purchase payment.
This CDSC only applies to those purchases of Class A shares, which, when
combined with current holdings of Class A shares, equal or exceed $1,000,000 in
the aggregate. These purchases do not incur an initial sales charge. Class O
shares of the Funds have no initial or contingent deferred sales charges.
31
Notes to Financial Statements
(continued)
During the year ended December 31, 2003, sales charges received by CGM and
contingent deferred sales charges ("CDSCs") paid to CGM were as follows:
SALES CHARGES CDSCs
----------------- --------------------------
CLASS A CLASS 2 CLASS A CLASS B CLASS 2
- --------------------------------------------------------------------------------
National Tax Free Bond Fund ..... $35,517 -- $ 3,894 $4,767 $2,159
California Tax Free Bond Fund ... 8,542 -- -- -- --
New York Tax Free Bond Fund ..... 44,044 -- 19,409 935 --
Mid Cap Fund .................... 3,630 $ 1 -- 1,124 --
For the year ended December 31, 2003, CGM received brokerage commissions of $475
from the Mid Cap Fund.
3. INVESTMENTS
During the year ended December 31, 2003, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments) were as follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
National Tax Free Bond Fund ................... $22,713,374 $32,702,883
=========== ===========
California Tax Free Bond Fund ................. -- $ 1,461,015
=========== ===========
New York Tax Free Bond Fund ................... $14,953,646 $24,885,334
=========== ===========
Mid Cap Fund .................................. $13,935,090 $14,213,138
=========== ===========
At December 31, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
- --------------------------------------------------------------------------------
National Tax Free Bond Fund ........ $ 4,401,914 $ (31,269) $ 4,370,645
California Tax Free Bond Fund ...... 1,372,513 -- 1,372,513
New York Tax Free Bond Fund ........ 10,774,919 (26,776) 10,748,143
Mid Cap Fund ....................... 4,489,002 (274,953) 4,214,049
4. CLASS SPECIFIC EXPENSES
Pursuant to a Rule 12b-1 Distribution and Service Plan, each Fund pays a service
fee with respect to its Class A, B and 2 shares calculated at the annual rate of
0.25% of the average daily net assets of each respective class. Each Fund also
pays a distribution fee with respect to Class B shares calculated at the annual
rate of 0.75% of the average daily net assets of that class. National Tax Free
Bond Fund, California Tax Free Bond Fund and New York Tax Free Bond Fund each
pay a distribution fee with respect to Class 2 shares calculated at the annual
rate of 0.50% of the average daily net assets of that class. Mid Cap Fund pays a
distribution fee with respect to Class 2 shares calculated at the annual rate of
0.75% of the average daily net assets of that class. For the year ended December
31, 2003, total Rule 12b-1 Distribution and Service Plan fees, which are accrued
daily and paid monthly, were as follows:
CLASS A CLASS B CLASS 2
-------- ------- -------
National Tax Free Bond Fund ................. $121,298 $49,066 $14,778
California Tax Free Bond Fund ............... 35,627 2,720 195
New York Tax Free Bond Fund ................. 309,396 3,147 3,091
Mid Cap Fund ................................ 425 1,334 781
32
Notes to Financial Statements
(continued)
For the year ended December 31, 2003, total Shareholder Servicing fees were as
follows:
CLASS A CLASS B CLASS 2 CLASS O
- --------------------------------------------------------------------------------
National Tax Free Bond Fund ........ $40,387 $4,061 $1,661 $ 138
California Tax Free Bond Fund ...... 4,813 93 9 0*
New York Tax Free Bond Fund ........ 59,266 150 187 44
Mid Cap Fund ....................... 125 86 54 11,391
For the year ended December 31, 2003, total Shareholder Communication expenses
were as follows:
CLASS A CLASS B CLASS 2 CLASS O
- --------------------------------------------------------------------------------
National Tax Free Bond Fund ........ $18,352 $1,868 $ 737 $ 70
California Tax Free Bond Fund ...... 5,575 94 10 1
New York Tax Free Bond Fund ........ 37,014 94 130 28
Mid Cap Fund ....................... 41 34 20 4,242
- ----------
* Amount represents less than $1.00.
5. DISTRIBUTIONS PAID TO SHAREHOLDERS BY CLASS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
NATIONAL TAX FREE BOND FUND:
NET INVESTMENT INCOME
Class A ........................................ $1,924,384 $2,335,292
Class B ........................................ 156,063 153,307
Class 2 ........................................ 67,487 56,538
Class O ........................................ 7,320 9,141
---------- ----------
Total .......................................... $2,155,254 $2,554,278
========== ==========
CALIFORNIA TAX FREE BOND FUND:
NET INVESTMENT INCOME
Class A ........................................ $ 518,620 $ 568,333
Class B ........................................ 7,804 3,227
Class 2 ........................................ 817 236
Class O ........................................ 79 17
---------- ----------
Total .......................................... $ 527,320 $ 571,813
========== ==========
NEW YORK TAX FREE BOND FUND:
NET INVESTMENT INCOME
Class A ........................................ $4,954,495 $5,601,061
Class B ........................................ 10,014 1,580
Class 2 ........................................ 13,942 346
Class O ........................................ 3,889 1,648
---------- ----------
Total .......................................... $4,982,340 $5,604,635
========== ==========
33
Notes to Financial Statements
(continued)
6. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest without par value for National
Tax Free Bond Fund, California Tax Free Bond Fund and New York Tax Free Bond
Fund and with a par value of $0.001 per share for Mid Cap Fund.
Transactions in Fund shares for the periods indicated were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
NATIONAL TAX FREE BOND FUND:
CLASS A
Shares sold ..................... 2,669,098 $31,580,892 927,942 $ 10,792,434
Shares issued on reinvestment ... 149,110 1,756,036 156,772 1,805,886
Shares reacquired ............... (3,541,350) (41,937,070) (2,427,845) (27,982,377)
--------- ----------- --------- ------------
Net Decrease .................... (723,142) $(8,600,142) (1,343,131) $(15,384,057)
========= =========== ========= ============
CLASS B
Shares sold ..................... 92,971 $ 1,099,090 90,980 $ 1,056,513
Shares issued on reinvestment ... 7,710 91,334 4,924 57,019
Shares reacquired ............... (147,741) (1,744,911) (98,816) (1,134,866)
--------- ----------- --------- ------------
Net Decrease .................... (47,060) $ (554,487) (2,912) $ (21,334)
========= =========== ========= ============
CLASS 2
Shares sold ..................... 177,425 $ 2,090,992 52,043 $ 601,296
Shares issued on reinvestment ... 4,353 52,612 2,927 33,839
Shares reacquired ............... (169,952) (1,997,513) (23,560) (272,469)
--------- ----------- --------- ------------
Net Increase .................... 11,826 $ 146,091 31,410 $ 362,666
========= =========== ========= ============
CLASS O
Shares sold ..................... 5,209 $ 63,738 10,969 $ 130,043
Shares issued on reinvestment ... 480 5,730 736 8,493
Shares reacquired ............... (10,875) (131,806) (25,846) (295,064)
--------- ----------- --------- ------------
Net Decrease .................... (5,186) $ (62,338) (14,141) $ (156,528)
========= =========== ========= ============
CALIFORNIA TAX FREE BOND FUND:
CLASS A
Shares sold ..................... 39,568 $ 423,299 6,173 $ 65,159
Shares issued on reinvestment ... 48,181 510,920 45,319 474,173
Shares reacquired ............... (309,140) (3,259,851) (219,955) (2,269,510)
--------- ----------- --------- ------------
Net Decrease .................... (221,391) $(2,325,632) (168,463) $ (1,730,178)
========= =========== ========= ============
CLASS B
Shares sold ..................... 7,328 $ 78,363 21,068 $ 223,389
Shares issued on reinvestment ... 292 3,279 68 727
Shares reacquired ............... (14,277) (151,185) (3,009) (32,029)
--------- ----------- --------- ------------
Net Increase (Decrease) ......... (6,657) $ (69,543) 18,127 $ 192,087
========= =========== ========= ============
CLASS 2*
Shares sold ..................... -- -- 2,392 $ 25,737
Shares issued on reinvestment ... 77 $ 817 22 236
--------- ----------- --------- ------------
Net Increase .................... 77 $ 817 2,414 $ 25,973
========= =========== ========= ============
CLASS O**
Shares sold ..................... -- -- 184 $ 1,990
Shares issued on reinvestment ... 7 $ 79 2 17
--------- ----------- --------- ------------
Net Increase .................... 7 $ 79 186 $ 2,007
========= =========== ========= ============
34
Notes to Financial Statements
(continued)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
NEW YORK TAX FREE BOND FUND:
CLASS A
Shares sold ..................... 2,079,678 $ 24,813,975 412,505 $ 4,799,341
Shares issued on reinvestment ... 400,250 4,775,651 367,305 4,277,764
Shares reacquired ............... (3,421,134) (40,703,268) (2,550,243) (29,592,962)
---------- ------------ ---------- ------------
Net Decrease .................... (941,206) $(11,113,642) (1,770,433) $(20,515,857)
========== ============ ========== ============
CLASS B
Shares sold ..................... 17,162 $ 204,341 18,994 $ 223,640
Shares issued on reinvestment ... 583 6,965 112 1,312
Shares reacquired ............... (5,713) (67,523) (2,103) (24,895)
---------- ------------ ---------- ------------
Net Increase .................... 12,032 $ 143,783 17,003 $ 200,057
========== ============ ========== ============
CLASS 2*
Shares sold ..................... 56,881 $ 685,400 3,089 $ 36,969
Shares issued on reinvestment ... 167 2,015 10 119
Shares reacquired ............... (7,113) (83,468) -- --
---------- ------------ ---------- ------------
Net Increase .................... 49,935 $ 603,947 3,099 $ 37,088
========== ============ ========== ============
CLASS O
Shares sold ..................... -- -- 7,677 $ 89,614
Shares issued on reinvestment ... 4 $ 46 4 45
---------- ------------ ---------- ------------
Net Increase .................... 4 $ 46 7,681 $ 89,659
========== ============ ========== ============
MID CAP FUND:
CLASS A
Shares sold ..................... 9,557 $ 142,992 8,025 $ 132,571
Shares reacquired ............... (2,357) (34,706) (2,094) (32,639)
---------- ------------ ---------- ------------
Net Increase .................... 7,200 $ 108,286 5,931 $ 99,932
========== ============ ========== ============
CLASS B
Shares sold ..................... 9,105 $ 124,779 15,452 $ 234,122
Shares reacquired ............... (8,216) (118,848) (7,933) (128,569)
---------- ------------ ---------- ------------
Net Increase .................... 889 $ 5,931 7,519 $ 105,553
========== ============ ========== ============
CLASS 2*
Shares sold ..................... 4,513 $ 59,285 4,572 $ 64,941
Shares reacquired ............... -- -- (2,598) (33,939)
---------- ------------ ---------- ------------
Net Increase .................... 4,513 $ 59,285 1,974 $ 31,002
========== ============ ========== ============
CLASS O
Shares sold ..................... 12,492 $ 196,177 8,594 $ 142,295
Shares reacquired ............... (72,561) (1,052,100) (144,785) (2,123,298)
---------- ------------ ---------- ------------
Net Decrease .................... (60,069) $ (855,923) (136,191) $ (1,981,003)
========== ============ ========== ============
- ----------
* Inception dates for Class 2 shares were as follows:
California Tax Free Bond Fund -- September 9, 2002
New York Tax Free Bond Fund -- July 19, 2002
Mid Cap Fund -- May 7, 2002
** Inception date for Class O shares of California Tax Free Bond Fund was
October 8, 2002.
35
Notes to Financial Statements
(continued)
7. CAPITAL LOSS CARRYFORWARD
At December 31, 2003, the National Tax Free Bond Fund, California Tax Free Bond
Fund, New York Tax Free Bond Fund and Mid Cap Fund had, for Federal income tax
purposes, approximately $7,384,000, $3,118,000, $9,097,000 and $1,895,000,
respectively, unused capital loss carryforwards available to offset future
capital gains. To the extent that these carryforward losses are used to offset
capital gains, it is probable that such gains will not be distributed.
2007 2008 2009 2010 2011
---------- ---------- -------- ---------- --------
National Tax Free Bond Fund ....... $3,953,000 $3,431,000 -- -- --
California Tax Free Bond Fund ..... 2,407,000 711,000 -- -- --
New York Tax Free Bond Fund ....... 3,631,000 5,263,000 $203,000 -- --
Mid Cap Fund ...................... -- -- 225,000 $1,249,000 $421,000
8. INCOME TAX INFORMATION AND DISTRIBUTIONS TO SHAREHOLDERS
At December 31, 2003, the tax basis components of distributable earnings were:
ACCUMULATED UNREALIZED
FUND CAPITAL LOSSES APPRECIATION
- --------------------------------------------------------------------------------
National Tax Free Bond Fund ...................... $(7,383,760) $ 4,370,645
California Tax Free Bond Fund .................... (3,118,388) 1,372,513
New York Tax Free Bond Fund ...................... (9,097,121) 10,748,143
Mid Cap Fund ..................................... (1,894,886) 4,214,049
At December 31, 2003, there was no difference between book basis and tax basis
unrealized appreciation for the Funds.
The tax character of distributions paid during the year ended December 31, 2003
was:
TAX-EXEMPT ORDINARY
FUND INCOME INCOME TOTAL
- --------------------------------------------------------------------------------
National Tax Free Bond Fund ........... $2,154,104 $ 1,150 $2,155,254
California Tax Free Bond Fund ......... 525,570 1,750 527,320
New York Tax Free Bond Fund ........... 4,950,326 32,014 4,982,340
For the year ended December 31, 2003, the Mid Cap Fund did not make any
distributions.
At December 31, 2002, the tax basis components of distributable earnings were:
UNDISTRIBUTED UNREALIZED
TAX-EXEMPT ACCUMULATED APPRECIATION
FUND INCOME CAPITAL LOSSES (DEPRECIATION)
- --------------------------------------------------------------------------------
National Tax Free Bond Fund ......... $ 25,755 $ (9,595,563) $ 6,008,579
California Tax Free Bond Fund ....... -- (3,164,429) 1,364,122
New York Tax Free Bond Fund ......... 64,276 (10,172,344) 11,148,055
Mid Cap Fund ........................ -- (1,473,681) (344,976)
At December 31, 2002, the difference between book basis and tax basis unrealized
depreciation for the Mid Cap Fund was attributable primarily to wash sale loss
deferrals. There was no difference for the other funds.
36
Notes to Financial Statements
(continued)
The tax character of distributions paid during the year ended December 31, 2002
was:
TAX-EXEMPT ORDINARY
FUND INCOME INCOME TOTAL
- --------------------------------------------------------------------------------
National Tax Free Bond Fund ........... $2,552,631 $ 1,647 $2,554,278
California Tax Free Bond Fund ......... 570,152 1,661 571,813
New York Tax Free Bond Fund ........... 5,503,288 101,347 5,604,635
For the year ended December 31, 2002, the Mid Cap Fund did not make any
distributions.
9. ADDITIONAL INFORMATION
The Funds have received the following information from Citigroup Asset
Management ("CAM"), the Citigroup business unit which includes the Funds'
Investment Manager and other investment advisory companies, all of which are
indirect, wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry,
through an affiliate, into the transfer agent business in the period 1997-1999.
As CAM currently understands the facts, at the time CAM decided to enter the
transfer agent business, CAM sub-contracted for a period of five years certain
of the transfer agency services to a third party and also concluded a revenue
guarantee agreement with this sub-contractor providing that the sub-contractor
would guarantee certain benefits to CAM or its affiliates (the "Revenue
Guarantee Agreement"). In connection with the subsequent purchase of the
sub-contractor's business by an affiliate of the current sub-transfer agent
(PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee
Agreement was amended eliminating those benefits in exchange for arrangements
that included a one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub- contractor at the time the Boards considered
and approved the transfer agent arrangements. Nor were the Boards informed of
the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds
approximately $17 million (plus interest) that CAM and its affiliates received
from the Revenue Guarantee Agreement and its amendment. CAM also plans an
independent review to verify that the transfer agency fees charged by CAM were
fairly priced as compared to competitive alternatives. CAM is instituting new
procedures and making changes designed to ensure no similar arrangements are
entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
The Funds' transfer agent is PFPC Inc., which is not affiliated with CAM.
10. SUBSEQUENT EVENT
Effective February 2, 2004, the 1.00% initial sales charge on Class 2 shares
will no longer be imposed for the Mid Cap Fund.
37
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended December 31, unless otherwise noted:
SALOMON BROTHERS NATIONAL TAX FREE BOND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
----------------------------------------------------
2003 2002 2001 2000 1999
------- ------- ------- ------- --------
NET ASSET VALUE, BEGINNING OF YEAR ......................................... $11.79 $11.13 $11.26 $10.54 $11.43
------- ------- ------- ------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................................... 0.46* 0.48* 0.50 0.51 0.47
Net realized and unrealized gain (loss) ................................. 0.13 0.66 (0.12) 0.73 (0.90)
------- ------- ------- ------- --------
Total Income (Loss) From Operations ........................................ 0.59 1.14 0.38 1.24 (0.43)
------- ------- ------- ------- --------
LESS DISTRIBUTIONS FROM:
Net investment income ................................................... (0.47) (0.48) (0.51) (0.52) (0.45)
Net realized gains ...................................................... -- -- -- -- (0.01)
------- ------- ------- ------- --------
Total Distributions ........................................................ (0.47) (0.48) (0.51) (0.52) (0.46)
------- ------- ------- ------- --------
NET ASSET VALUE, END OF YEAR ............................................... $11.91 $11.79 $11.13 $11.26 $10.54
======= ======= ======= ======= ========
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ............................................. $42,210 $50,325 $62,440 $72,875 $106,449
Ratio of expenses to average net assets (1)(2) .......................... 0.75% 0.76% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets after fees paid indirectly (1) .. N/A N/A 0.80 0.80 0.81
Ratio of net investment income to average net assets .................... 3.92 4.22 4.28 4.67 4.14
PORTFOLIO TURNOVER RATE .................................................... 42% 12% 15% 46% 112%
TOTAL RETURN (3) ........................................................... 5.07% 10.41% 3.39% 12.10% (3.86)%
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the period, the expenses
were not reduced for fees paid indirectly and the Manager had not voluntarily assumed expenses, the net investment income per
share and the ratios would have been as follows:
Net investment income per share ......................................... $0.42* $0.44* $0.43 $0.46 $0.42
Ratio of expenses to average net assets ................................. 1.10% 1.18% 1.52% 1.32% 1.20%
Ratio of net investment income to average net assets .................... 3.57 3.80 3.56 4.15 3.74
SALOMON BROTHERS NATIONAL TAX FREE BOND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
-----------------------------
2003 2002 2001(4)
------- ------- -------
NET ASSET VALUE, BEGINNING OF YEAR ......................................... $11.80 $11.14 $11.46
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................................... 0.37* 0.40* 0.07*
Net realized and unrealized gain (loss) ................................. 0.13 0.65 (0.31)
------- ------- -------
Total Income (Loss) From Operations ........................................ 0.50 1.05 (0.24)
------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income ................................................... (0.37) (0.39) (0.08)
------- ------- -------
Total Distributions ........................................................ (0.37) (0.39) (0.08)
------- ------- -------
NET ASSET VALUE, END OF YEAR ............................................... $11.93 $11.80 $11.14
======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ............................................. $4,330 $4,839 $4,599
Ratio of expenses to average net assets (1)(5) .......................... 1.50% 1.49% 1.53%+
Ratio of expenses to average net assets after fees paid indirectly (1) .. N/A N/A 1.53+
Ratio of net investment income to average net assets .................... 3.16 3.43 3.55+
PORTFOLIO TURNOVER RATE .................................................... 42% 12% 15%
TOTAL RETURN (3) ........................................................... 4.35% 9.59% (2.09)%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the period, the expenses
were not reduced for fees paid indirectly and the Manager had not voluntarily assumed expenses, the net investment income per
share and the ratios would have been as follows:
Net investment income per share ......................................... $0.33* $0.35* $0.06*
Ratio of expenses to average net assets ................................. 1.85% 1.91% 2.22%+
Ratio of net investment income to average net assets .................... 2.81 3.02 2.86+
- ----------
(1) The expense ratios for 2001, 2000 and 1999 reflect the effects of expense
offset arrangements with its service providers.
(2) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.75% for Class A shares. Prior to
January 30, 2002 the expense limitation was 0.80%.
(3) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
(4) For the period October 12, 2001 (inception date) to December 31, 2001.
(5) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.50% for Class B shares.
* Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
38
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each
year ended December 31, unless otherwise noted:
SALOMON BROTHERS NATIONAL TAX FREE BOND FUND
- ---------------------------------------------------------------------------------------------------------------
CLASS 2 SHARES
---------------------------------
2003 2002 2001(1)
------- ------- -------
NET ASSET VALUE, BEGINNING OF YEAR ......................................... $11.80 $11.13 $11.42
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................................... 0.40* 0.43* 0.05*
Net realized and unrealized gain (loss) ................................. 0.12 0.66 (0.28)
------- ------- -------
Total Income (Loss) From Operations ........................................ 0.52 1.09 (0.23)
------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income ................................................... (0.40) (0.42) (0.06)
------- ------- -------
Total Distributions ........................................................ (0.40) (0.42) (0.06)
------- ------- -------
NET ASSET VALUE, END OF YEAR ............................................... $11.92 $11.80 $11.13
======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ............................................. $1,923 $1,763 $1,314
Ratio of expenses to average net assets (2)(3) .......................... 1.25% 1.25% 1.25%+
Ratio of expenses to average net assets after fees paid indirectly (2) .. N/A N/A 1.25+
Ratio of net investment income to average net assets .................... 3.41 3.69 3.73+
PORTFOLIO TURNOVER RATE .................................................... 42% 12% 15%
TOTAL RETURN (4) ........................................................... 4.53% 9.96% (2.10)%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the
period, the expenses were not reduced for fees paid indirectly and the Manager had not voluntarily
assumed expenses, the net investment income per share and the ratios would have been as follows:
Net investment income per share ......................................... $0.36* $0.38* $0.04*
Ratio of expenses to average net assets ................................. 1.60% 1.67% 1.94%+
Ratio of net investment income to average net assets .................... 3.06 3.27 3.04+
SALOMON BROTHERS NATIONAL TAX FREE BOND FUND
- ---------------------------------------------------------------------------------------------------------------
CLASS O SHARES
---------------------------------
2003 2002 2001(1)
------- ------- -------
NET ASSET VALUE, BEGINNING OF YEAR ......................................... $11.79 $11.13 $11.42
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................................... 0.49* 0.50* 0.06*
Net realized and unrealized gain (loss) ................................. 0.14 0.67 (0.29)
------- ------- -------
Total Income (Loss) From Operations ........................................ 0.63 1.17 (0.23)
------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income ................................................... (0.49) (0.51) (0.06)
------- ------- -------
Total Distributions ........................................................ (0.49) (0.51) (0.06)
------- ------- -------
NET ASSET VALUE, END OF YEAR ............................................... $11.93 $11.79 $11.13
======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ............................................. $157 $216 $362
Ratio of expenses to average net assets (2)(5) .......................... 0.50% 0.50% 0.50%+
Ratio of expenses to average net assets after fees paid indirectly (2) .. N/A N/A 0.50+
Ratio of net investment income to average net assets .................... 4.18 4.39 4.48+
PORTFOLIO TURNOVER RATE .................................................... 42% 12% 15%
TOTAL RETURN (4) ........................................................... 5.48% 10.69% (2.01)%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the
period, the expenses were not reduced for fees paid indirectly and the Manager had not voluntarily
assumed expenses, the net investment income per share and the ratios would have been as follows:
Net investment income per share ......................................... $0.45* $0.46* $0.05*
Ratio of expenses to average net assets ................................. 0.85% 0.91% 1.19%+
Ratio of net investment income to average net assets .................... 3.83 3.98 3.79+
- -------------
(1) For the period November 19, 2001 (inception date) to December 31, 2001.
(2) The expense ratios for 2001, 2000 and 1999 reflect the effects of expense
offset arrangements with its service providers.
(3) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.25% for Class 2 shares.
(4) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
(5) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.50% for Class O shares.
* Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
39
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each
year ended December 31, unless otherwise noted:
SALOMON BROTHERS CALIFORNIA TAX FREE BOND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
----------------------------------------------------
2003 2002 2001 2000 1999
------- ------- ------- ------- --------
NET ASSET VALUE, BEGINNING OF YEAR ......................................... $10.63 $10.17 $10.31 $9.43 $10.08
------- ------- ------- ------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................................... 0.39* 0.39* 0.43 0.44 0.40
Net realized and unrealized gain (loss) ................................. 0.07 0.46 (0.14) 0.88 (0.65)
------- ------- ------- ------- --------
Total Income (Loss) From Operations ........................................ 0.46 0.85 0.29 1.32 (0.25)
------- ------- ------- ------- --------
LESS DISTRIBUTIONS FROM:
Net investment income ................................................... (0.39) (0.39) (0.43) (0.44) (0.40)
------- ------- ------- ------- --------
Total Distributions ........................................................ (0.39) (0.39) (0.43) (0.44) (0.40)
------- ------- ------- ------- --------
NET ASSET VALUE, END OF YEAR ............................................... $10.70 $10.63 $10.17 $10.31 $9.43
======= ======= ======= ======= ========
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ............................................. $13,009 $15,280 $16,332 $20,748 $34,396
Ratio of expenses to average net assets (1)(2) .......................... 0.80% 0.80% 0.80% 0.80% 0.70%
Ratio of expenses to average net assets after fees paid indirectly (1) .. N/A N/A 0.81 0.81 0.70
Ratio of net investment income to average net assets .................... 3.64 3.71 4.04 4.52 4.06
PORTFOLIO TURNOVER RATE .................................................... 0% 9% 8% 58% 116%
TOTAL RETURN (3) ........................................................... 4.40% 8.47% 2.83% 14.33% (2.54)%
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the period, the expenses
were not reduced for fees paid indirectly and the Manager had not voluntarily assumed expenses, the net investment income per
share and the ratios would have been as follows:
Net investment income per share ......................................... $0.32* $0.26* $0.24 $0.34 $0.33
Ratio of expenses to average net assets ................................. 1.40% 2.05% 2.43% 1.82% 1.41%
Ratio of net investment income to average net assets .................... 3.04 2.46 2.41 3.52 3.35
SALOMON BROTHERS CALIFORNIA TAX FREE BOND FUND
- -------------------------------------------------------------------------------------------------------------
CLASS B SHARES
-------------------------------
2003 2002 2001(4)
------- ------- -------
NET ASSET VALUE, BEGINNING OF YEAR ......................................... $10.63 $10.18 $10.51
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................................... 0.31* 0.30* 0.07*
Net realized and unrealized gain (loss) ................................. 0.08 0.46 (0.32)
------- ------- -------
Total Income (Loss) From Operations ........................................ 0.39 0.76 (0.25)
------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income ................................................... (0.31) (0.31) (0.08)
------- ------- -------
Total Distributions ........................................................ (0.31) (0.31) (0.08)
------- ------- -------
NET ASSET VALUE, END OF YEAR ............................................... $10.71 $10.63 $10.18
======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ............................................. $178 $247 $52
Ratio of expenses to average net assets (1)(5) .......................... 1.55% 1.53% 1.56%+
Ratio of expenses to average net assets after fees paid indirectly (1) .. N/A N/A 1.57%+
Ratio of net investment income to average net assets .................... 2.86 2.88 3.23+
PORTFOLIO TURNOVER RATE .................................................... 0% 9% 8%
TOTAL RETURN (3) ........................................................... 3.70% 7.66% (2.39)%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the
period, the expenses were not reduced for fees paid indirectly and the Manager had not voluntarily
assumed expenses, the net investment income per share and the ratios would have been as follows:
Net investment income per share ......................................... $0.25* $0.17* $0.03*
Ratio of expenses to average net assets ................................. 2.11% 2.76% 3.19%+
Ratio of net investment income to average net assets .................... 2.31 1.66 1.60+
- -------------
(1) The expense ratios for 2001, 2000 and 1999 reflect the effects of expense
offset arrangements with its service providers.
(2) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.80% for Class A shares.
(3) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
(4) For the period October 5, 2001 (inception date) to December 31, 2001.
(5) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.55% for Class B shares.
* Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
40
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each
year ended December 31, unless otherwise noted:
SALOMON BROTHERS CALIFORNIA TAX FREE BOND FUND
- --------------------------------------------------------------------------------
CLASS 2 SHARES
--------------------
2003 2002(1)
------ ------
NET ASSET VALUE, BEGINNING OF YEAR ....................... $10.63 $10.76
------ ------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................. 0.33* 0.10*
Net realized and unrealized gain (loss) ............... 0.07 (0.13)
------ ------
Total Income (Loss) From Operations ...................... 0.40 (0.03)
------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ................................. (0.33) (0.10)
------ ------
Total Distributions ...................................... (0.33) (0.10)
------ ------
NET ASSET VALUE, END OF YEAR ............................. $10.70 $10.63
====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ........................... $27 $26
Ratio of expenses to average net assets (2)(3) ........ 1.30% 1.30%+
Ratio of net investment income to average net assets .. 3.14 3.07+
PORTFOLIO TURNOVER RATE .................................. 0% 9%
TOTAL RETURN (4) ......................................... 3.87% (0.28)%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the period and the Manager had not voluntarily assumed
expenses, the net investment income per share and the ratios would have been as
follows:
Net investment income per share ....................... $0.27* $0.06*
Ratio of expenses to average net assets ............... 1.89% 2.51%+
Ratio of net investment income to average net assets .. 2.55 1.86+
SALOMON BROTHERS CALIFORNIA TAX FREE BOND FUND
- --------------------------------------------------------------------------------
CLASS O SHARES
--------------------
2003 2002(5)
------ ------
NET ASSET VALUE, BEGINNING OF YEAR ....................... $10.63 $10.81
------ ------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................. 0.42* 0.09*
Net realized and unrealized gain (loss) ............... 0.08 (0.18)
------ ------
Total Income (Loss) From Operations ...................... 0.50 (0.09)
------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ................................. (0.42) (0.09)
------ ------
Total Distributions ...................................... (0.42) (0.09)
------ ------
NET ASSET VALUE, END OF YEAR ............................. $10.71 $10.63
====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ........................... $2 $2
Ratio of expenses to average net assets (2)(6) ........ 0.45% 0.47%+
Ratio of net investment income to average net assets .. 3.94 3.94+
PORTFOLIO TURNOVER RATE .................................. 0% 9%
TOTAL RETURN (4) ......................................... 4.76% (0.79)%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the period and the Manager had not voluntarily assumed
expenses, the net investment income per share and the ratios would have been as
follows:
Net investment income per share ....................... $0.35* $0.06*
Ratio of expenses to average net assets ............... 1.06% 1.70%+
Ratio of net investment income to average net assets .. 3.33 2.72+
- ----------
(1) For the period September 9, 2002 (inception date) to December 31, 2002.
(2) The expense ratios for 2001, 2000 and 1999 reflect the effects of expense
offset arrangements with its service providers.
(3) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.30% for Class 2 shares.
(4) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
(5) For the period October 8, 2002 (inception date) to December 31, 2002.
(6) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.55% for Class O shares.
* Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
41
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each
year ended December 31, unless otherwise noted:
SALOMON BROTHERS NEW YORK TAX FREE BOND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
----------------------------------------------------
2003 2002 2001 2000 1999
------- ------- ------- ------- --------
NET ASSET VALUE, BEGINNING OF YEAR ......................................... $11.91 $11.26 $11.44 $10.79 $11.69
------- ------- ------- ------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................................... 0.47* 0.49* 0.54 0.60 0.51
Net realized and unrealized gain (loss) ................................. 0.08 0.65 (0.16) 0.61 (0.94)
------- ------- ------- ------- --------
Total Income (Loss) From Operations ........................................ 0.55 1.14 0.38 1.21 (0.43)
------- ------- ------- ------- --------
LESS DISTRIBUTIONS FROM:
Net investment income ................................................... (0.47) (0.49) (0.56) (0.56) (0.47)
------- ------- ------- ------- --------
Total Distributions ........................................................ (0.47) (0.49) (0.56) (0.56) (0.47)
------- ------- ------- ------- --------
NET ASSET VALUE, END OF YEAR ............................................... $11.99 $11.91 $11.26 $11.44 $10.79
======= ======= ======= ======= ========
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ............................................. $116,982 $127,482 $140,416 $172,420 $224,144
Ratio of expenses to average net assets (1) ............................. 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income to average net assets .................... 3.95 4.19 4.53 4.81 4.40
PORTFOLIO TURNOVER RATE .................................................... 12% 13% 16% 15% 30%
TOTAL RETURN (2) ........................................................... 4.77% 10.25% 3.32% 11.54% (3.73)%
Note: If Agents of the Fund, had not voluntarily agreed to waive all or a portion of their fees for the period indicated and
the expenses were not reduced for fees paid indirectly, the net investment income per share and the ratios would have been
as follows:
Net investment income per share ......................................... $0.45* $0.46* $0.51 $0.55 $0.47
Ratio of expenses to average net assets ................................. 0.96% 1.00% 1.21% 1.16% 1.13%
Ratio of net investment income to average net assets .................... 3.79 3.99 4.12 4.45 4.07
SALOMON BROTHERS NEW YORK TAX FREE BOND FUND
- -----------------------------------------------------------------------------------------------------------
CLASS B SHARES
-----------------------------
2003 2002 2001(3)
------- ------- -------
NET ASSET VALUE, BEGINNING OF YEAR ......................................... $11.91 $11.26 $11.53
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................................... 0.38* 0.32* 0.04*
Net realized and unrealized gain (loss) ................................. 0.08 0.73 (0.26)
------- ------- -------
Total Income (Loss) From Operations ........................................ 0.46 1.05 (0.22)
------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income ................................................... (0.38) (0.40) (0.05)
------- ------- -------
Total Distributions ........................................................ (0.38) (0.40) (0.05)
------- ------- -------
NET ASSET VALUE, END OF YEAR ............................................... $11.99 $11.91 $11.26
======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ............................................. $363 $218 $14
Ratio of expenses to average net assets (4) ............................. 1.55% 1.55% 1.55%+
Ratio of net investment income to average net assets .................... 3.18 3.32 3.50+
PORTFOLIO TURNOVER RATE .................................................... 12% 13% 16%
TOTAL RETURN (2) ........................................................... 3.94% 9.43% (1.88)%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the
period, the expenses were not reduced for fees paid indirectly and the Manager had not voluntarily
assumed expenses, the net investment income per share and the ratios would have been as follows:
Net investment income per share ......................................... $0.36* $0.31* $0.04*
Ratio of expenses to average net assets ................................. 1.71% 1.74% 1.96%+
Ratio of net investment income to average net assets .................... 3.01 3.13 3.09+
- -------------
(1) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.80% for Class A shares.
(2) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
(3) For the period November 19, 2001 (inception date) to December 31, 2001.
(4) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.55% for Class B shares.
* Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
42
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each
year ended December 31, unless otherwise noted:
SALOMON BROTHERS NEW YORK TAX FREE BOND FUND
- --------------------------------------------------------------------------------
CLASS 2 SHARES
----------------
2003 2002(1)
------ ------
NET ASSET VALUE, BEGINNING OF YEAR ....................... $11.92 $11.72
------ ------
INCOME FROM OPERATIONS:
Net investment income ................................. 0.41* 0.18*
Net realized and unrealized gain ...................... 0.08 0.21
------ ------
Total Income From Operations ............................. 0.49 0.39
------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ................................. (0.41) (0.19)
------ ------
Total Distributions ...................................... (0.41) (0.19)
------ ------
NET ASSET VALUE, END OF YEAR ............................. $12.00 $11.92
====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ........................... $636 $37
Ratio of expenses to average net assets (2) ........... 1.30% 1.30%+
Ratio of net investment income to average net assets .. 3.38 3.63+
PORTFOLIO TURNOVER RATE .................................. 12% 13%
TOTAL RETURN (3) ......................................... 4.18% 3.30%++
Note: If Agents of the Fund, had not voluntarily agreed to waive all or a
portion of their fees for the period indicated and the expenses were not reduced
for fees paid indirectly, the net investment income per share and the ratios
would have been as follows:
Net investment income per share ....................... $0.40* $0.17*
Ratio of expenses to average net assets ............... 1.47% 1.50%+
Ratio of net investment income to average net assets .. 3.20 3.45+
SALOMON BROTHERS NEW YORK TAX FREE BOND FUND
- -------------------------------------------------------------------------------------------
CLASS O SHARES
------------------------------
2003 2002 2001(4)
------ ------ ------
NET ASSET VALUE, BEGINNING OF YEAR ....................... $11.90 $11.25 $11.59
------ ------ ------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................................. 0.50* 0.52* 0.09*
Net realized and unrealized gain (loss) ............... 0.08 0.64 (0.33)
------ ------ ------
Total Income (Loss) From Operations ...................... 0.58 1.16 (0.24)
------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ................................. (0.50) (0.51) (0.10)
------ ------ ------
Total Distributions ...................................... (0.50) (0.51) (0.10)
------ ------ ------
NET ASSET VALUE, END OF YEAR ............................. $11.98 $11.90 $11.25
====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ........................... $93 $92 $1
Ratio of expenses to average net assets (5) ........... 0.55% 0.56% 0.53%+
Ratio of net investment income to average net assets .. 4.20 4.40 4.76+
PORTFOLIO TURNOVER RATE .................................. 12% 13% 16%
TOTAL RETURN (3) ......................................... 4.99% 10.54% (2.04)%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the period, the expenses were not reduced for fees paid
indirectly and the Manager had not voluntarily assumed expenses, the net
investment income per share and the ratios would have been as follows:
Net investment income per share ....................... $0.48* $0.50* $0.09*
Ratio of expenses to average net assets ............... 0.71% 0.75% 0.94%+
Ratio of net investment income to average net assets .. 4.03 4.21 4.35+
- ----------
(1) For the period July 19, 2002 (inception date) to December 31, 2002.
(2) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.30% for Class 2 shares.
(3) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
(4) For the period October 29, 2001 (inception date) to December 31, 2001.
(5) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 0.55% for Class O shares.
* Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
43
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout each
year ended December 31, unless otherwise noted:
SALOMON BROTHERS MID CAP FUND
- -------------------------------------------------------------------------------------------
CLASS A SHARES
------ ------ ------
2003 2002 2001(1)
------ ------ ------
NET ASSET VALUE, BEGINNING OF YEAR ....................... $13.18 $16.47 $13.71
------ ------ ------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss ................................... (0.08)* (0.06)* (0.01)*
Net realized and unrealized gain (loss) ............... 3.79 (3.23) 2.77
------ ------ ------
Total Income (Loss) From Operations ...................... 3.71 (3.29) 2.76
------ ------ ------
NET ASSET VALUE, END OF YEAR ............................. $16.89 $13.18 $16.47
====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ........................... $270 $116 $47
Ratio of expenses to average net assets (2) ........... 1.50% 1.42% 1.36%+
Ratio of net investment loss to average net assets .... (0.56) (0.44) (0.69)+
PORTFOLIO TURNOVER RATE .................................. 78% 71% 26%
TOTAL RETURN (3) ......................................... 28.15% (19.98)% 3.65%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the period, the expenses were not reduced for fees paid
indirectly and the Manager had not voluntarily assumed expenses, the net
investment loss per share and the ratios would have been as follows:
Net investment loss per share ......................... $(0.10)* $(0.13)* $(0.04)*
Ratio of expenses to average net assets ............... 1.60% 1.91% 1.93%+
Ratio of net investment loss to average net assets .... (0.66) (0.93) (1.26)+
SALOMON BROTHERS MID CAP FUND
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
----------------------------
2003 2002 2001(4)
------ ------ ------
NET ASSET VALUE, BEGINNING OF YEAR ....................... $13.10 $16.47 $16.31
------ ------ ------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss ................................... (0.19)* (0.16)* (0.01)*
Net realized and unrealized gain (loss) ............... 3.75 (3.21) 0.17
------ ------ ------
Total Income (Loss) From Operations ...................... 3.56 (3.37) 0.16
------ ------ ------
NET ASSET VALUE, END OF YEAR ............................. $16.66 $13.10 $16.47
====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ........................... $152 $108 $12
Ratio of expenses to average net assets (5) ........... 2.25% 1.95% 2.15%+
Ratio of net investment loss to average net assets .... (1.31) (0.99) (1.50)+
PORTFOLIO TURNOVER RATE .................................. 78% 71% 26%
TOTAL RETURN (3) ......................................... 27.18% (20.46)% 0.98%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the period, the expenses were not reduced for fees paid
indirectly and the Manager had not voluntarily assumed expenses, the net
investment loss per share and the ratios would have been as follows:
Net investment loss per share ......................... $(0.20)* $(0.23)* $(0.01)*
Ratio of expenses to average net assets ............... 2.33% 2.42% 2.73%+
Ratio of net investment loss to average net assets .... (1.39) (1.46) (2.09)+
- ----------
(1) For the period November 30, 2001 (inception date) to December 31, 2001.
(2) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.50% for Class A shares.
(3) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
(4) For the period December 18, 2001 (inception date) to December 31, 2001.
(5) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 2.25% for Class B shares.
* Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
44
Financial Highlights
(continued)
For a share of each class of beneficial interest outstanding throughout the
period ended December 31, unless otherwise noted:
SALOMON BROTHERS MID CAP FUND
- -----------------------------------------------------------------------------
CLASS 2 SHARES
-----------------
2003 2002(1)
------ ------
NET ASSET VALUE, BEGINNING OF YEAR ....................... $13.15 $16.43
------ ------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss ................................... (0.19)* (0.04)*
Net realized and unrealized gain (loss) ............... 3.76 (3.24)
------ ------
Total Income (Loss) From Operations ...................... 3.57 (3.28)
------ ------
NET ASSET VALUE, END OF YEAR ............................. $16.72 $13.15
====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ........................... $109 $26
Ratio of expenses to average net assets (2) ........... 2.25% 1.68%+
Ratio of net investment loss to average net assets .... (1.31) (0.51)+
PORTFOLIO TURNOVER RATE .................................. 78% 71%
TOTAL RETURN (3) ......................................... 27.15% (19.96)%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the period, the expenses were not reduced for fees paid
indirectly and the Manager had not voluntarily assumed expenses, the net
investment loss per share and the ratios would have been as follows:
Net investment loss per share ......................... $(0.21)* $(0.09)*
Ratio of expenses to average net assets ............... 2.35% 2.27%+
Ratio of net investment loss to average net assets .... (1.41) (1.09)+
SALOMON BROTHERS MID CAP FUND
- -----------------------------------------------------------------------------------------
CLASS O SHARES
----------------------------
2003 2002 2001(4)
------ ------ ------
NET ASSET VALUE, BEGINNING OF YEAR ....................... $13.23 $16.48 $15.07
------ ------ ------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss ................................... (0.02)* (0.02)* (0.01)*
Net realized and unrealized gain (loss) ............... 3.81 (3.23) 1.42
------ ------ ------
Total Income (Loss) From Operations ...................... 3.79 (3.25) 1.41
------ ------ ------
NET ASSET VALUE, END OF YEAR ............................. $17.02 $13.23 $16.48
====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF YEAR (000S) ........................... $20,350 $16,612 $22,935
Ratio of expenses to average net assets (5) ........... 1.08% 1.07% 1.08%+
Ratio of net investment loss to average net assets .... (0.13) (0.13) (0.17)+
PORTFOLIO TURNOVER RATE .................................. 78% 71% 26%
TOTAL RETURN (3) ......................................... 28.65% (19.72)% (6.48)%++
Note: If Agents of the Fund had not voluntarily agreed to waive all or a portion
of their fees for the period, the expenses were not reduced for fees paid
indirectly and the Manager had not voluntarily assumed expenses, the net
investment loss per share and the ratios would have been as follows:
Net investment loss per share ......................... $(0.06)* $(0.09)* $(0.10)*
Ratio of expenses to average net assets ............... 1.33% 1.54% 2.97%+
Ratio of net investment loss to average net assets .... (0.38) (0.60) (2.05)+
- ----------
(1) For the period May 7, 2002 (inception date) to December 31, 2002.
(2) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 2.25% for Class 2 shares.
(3) Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
(4) For the period September 10, 2001 (inception date) to December 31, 2001.
(5) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.08% for Class O shares.
* Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
45
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of the Salomon Funds Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Salomon Brothers National Tax Free Bond Fund,
Salomon Brothers California Tax Free Bond Fund, Salomon Brothers New York Tax
Free Bond Fund, and Salomon Brothers Mid Cap Fund, each a Series of Salomon
Funds Trust as of December 31, 2003, and the related statements of operations
for the year then ended, statements of changes in net assets for each of the
years in the two-year period then ended and financial highlights for each of the
years in the three-year period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the years in the two-year period ended December 31, 2000 were audited by other
auditors whose report thereon, dated February 1, 2001, expressed an unqualified
opinion on the financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and broker. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Salomon Brothers National Tax Free Bond Fund, Salomon Brothers California Tax
Free Bond Fund, Salomon Brothers New York Tax Free Bond Fund, and Salomon
Brothers Mid Cap Fund, each a Series of Salomon Funds Trust as of December 31,
2003, the results of their operations for the year then ended, the changes in
their net assets for each of the years in the two-year period then ended and
financial highlights for each of the years in the three-year period then ended
in conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
New York, New York
February 13, 2004
46
- --------------------------------------------------------------------------------
Additional Information
- --------------------------------------------------------------------------------
(unaudited)
INFORMATION ABOUT TRUSTEES AND OFFICERS
The business and affairs of the Salomon Funds Trust ("Trust") are managed under
the direction of the Trust's Board of Trustees. Information pertaining to the
Trustees and Officers of the Trust is set forth below. Each Trustee and Officer
holds office for his or her lifetime, unless that individual resigns, retires or
is otherwise removed. The Statement of Additional Information includes
additional information about Trustees and is available, without charge, upon
request by calling the Trust's transfer agent (Citicorp Trust Bank, fsb. at
1-800-451-2010).
TERM OF NUMBER OF
OFFICE* PORTFOLIOS
AND IN FUND
POSITION(S) LENGTH COMPLEX OTHER
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY BOARD MEMBERSHIPS
NAME, ADDRESS AND AGE TRUST SERVED DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- -------------------------- ------------ -------- ------------------------------------- ----------- ----------------------------
NON-INTERESTED TRUSTEES:
Elliott J. Berv Trustee Since President and Chief Operations 37 Board Member,
c/o R. Jay Gerken 1986 Officer, Landmark City (real estate American Identity Corp.
Citigroup Asset Management development) (since 2002); Executive (since 2001) (Consultant
("CAM") Vice President and Chief Operations since 1999); Director,
399 Park Avenue, 4th Floor Officer, DigiGym Systems (on-line Lapoint Industries (since
New York, NY 10022 personal training systems) (since 2001); 2002); Director,
Age 60 Chief Executive Officer, Rocket City Alzheimer's Association,
Enterprises (Internet Service Company) New England Chapter
(from 2000 to 2001); President, Catalyst (since 1998)
(Consulting) (since 1984)
Mark T. Finn Trustee Since Adjunct Professor, William & Mary College 37 Former President and
c/o R. Jay Gerken 1990 (since September 2002); Principal/Member, Director, Delta
CAM Balvan Partners/Balfour Vantage - Manager Financial, Inc.
399 Park Avenue, 4th Floor and General Partner to the Vantage Hedge (investment advisory
New York, NY 10022 Fund, L.P. (since March 2002); firm) (from 1983 to
Age 60 Chairman and Owner, Vantage 1999)
Consulting Group, Inc. (Investment
Advisory and Consulting Firm (since
1988); Vice Chairman and Chief Operating
Officer, Lindner Asset Management Company
(Mutual Fund Company) (from 1999 to
2001); President and Director, Delta
Financial, Inc. (Investment Advisory
Firm) (from 1983 to 1999); General
Partner and Shareholder, Greenwich
Ventures LLC (Investment Partnership
(from 1996 to 2001); President, Secretary
and Owner, Phoenix Trading Co. (Commodity
Trading Advisory Firm) (from 1997 to 2000)
Stephen Randolph Gross Trustee Since Partner, Capital Investment Advisory 32 Director, United Telesis,
c/o R. Jay Gerken 2001 Partners (consulting) (since January 2000); Inc. (telecommunications)
CAM former Managing Director, Fountainhead (since 1997); Director,
399 Park Avenue, 4th Floor Ventures, LLC (consulting) (from 1998 to eBank.com, Inc. (since 1997);
New York, NY 10022 2002); Secretary, Carint N.A. (manufacturing) Director, Andersen Calhoun,
Age 56 (since 1988); former Treasurer, Hank Aaron Inc. (assisted living) (since
Enterprises (fast food franchise) (from 1985 1987); former Director,
to 2001); Chairman, Gross, Collins & Cress, Charter Bank, Inc. (from
P.C. (accounting firm) (since 1980); Treasurer 1987 to 1997); former
Coventry Limited, Inc. (since 1985). Director, Yu Save, Inc.
(internet company) (from 1998
to 2000); former Director,
Hotpalm, Inc. (wireless
applications) (from 1998 to
2000); fomer Director, Ikon
Ventures, Inc. (from 1997 to
1998)
47
Additional Information
(unaudited) (continued)
TERM OF NUMBER OF
OFFICE* PORTFOLIOS
AND IN FUND
POSITION(S) LENGTH COMPLEX OTHER
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY BOARD MEMBERSHIPS
NAME, ADDRESS AND AGE TRUST SERVED DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- --------------------------- ------------- --------- ------------------------------------- ------------ ------------------------
Diana R. Harrington Trustee Since Professor, Babson College (since 1992) 37 Former Trustee, The
c/o R. Jay Gerken 1992 Highland Family of
CAM Funds (from March
399 Park Avenue, 4th Floor 1997 to March 1998)
New York, NY 10022
Age 63
Susan B. Kerley Trustee Since Consultant, Strategic Management 37 Director, Eclipse Funds
c/o R. Jay Gerken 1992 Advisors, LLC/Global Research, Inc. (currently supervises 17
CAM Associates (Investment Consulting) investment companies in
399 Park Avenue, 4th Floor (since 1990) fund complex)
New York, NY 10022 (since 1990)
Age 52
C. Oscar Morong, Jr.** Trustee Since Managing Director, Morong Capital 36 Former Director,
c/o R. Jay Gerken 1990 Management (since 1993) Indonesia Fund (from
CAM 1990 to 1999); Trustee,
399 Park Avenue, 4th Floor Morgan Stanley
New York, NY 10022 Institutional Fund
Age 68 (currently supervises 75
investment companies)
(since 1993)
Walter E. Robb, III** Trustee Since President, Benchmark Consulting 36 Director, John Boyle &
c/o R. Jay Gerken 1986 Group, Inc. (since 1991); Sole Co., Inc.; (since 1999);
CAM Proprietor, Robb Associates (since Director, Harbor Sweets,
399 Park Avenue, 4th Floor 1978); Co-Owner, Kedron Design Inc. (since 1990);
New York, NY 10022 (since 1978); President and Treasurer, Director, W.A. Wilde &
Age 77 Benchmark Advisors, Inc. (from 1989 Co.; (since 1982);
to 2000) Director, Alpha Grainger
Manufacturing, Inc.;
Trustee, HFS Family of
Funds (from 1985 to
2001); Harvard Club of
Boston (Audit Committee)
(since 2001)
INTERESTED TRUSTEE:
R. Jay Gerken*** Chairman Since Managing Director of Citigroup Global 221 None
CAM and 2002 Markets Inc. ("CGM"); Chairman,
399 Park Avenue, 4th Floor President President and Chief Executive Officer
New York, NY 10022 of Smith Barney Fund Management LLC
Age 52 ("SBFM"), Travelers Investment Adviser,
Inc. ("TIA") and Citi Fund Management
Inc. ("CFM"); President and Chief
Executive Officer of certain mutual
funds associated with Citigroup Inc.
("Citigroup"); Formerly, Portfolio
Manager of Smith Barney Allocation
Series Inc. (from 1996 to 2001) and
Smith Barney Growth and Income Fund
(from 1996 to 2000)
48
Additional Information
(unaudited) (continued)
TERM OF NUMBER OF
OFFICE* PORTFOLIOS
AND IN FUND
POSITION(S) LENGTH COMPLEX OTHER
HELD WITH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY BOARD MEMBERSHIPS
NAME, ADDRESS AND AGE TRUST SERVED DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
- ---------------------------- ------------- --------- --------------------------------------- ------------ --------------------
OFFICERS:
Andrew B. Shoup Senior Vice Since Director of CAM; Senior Vice President N/A N/A
CAM President 2003 and Chief Administrative Officer of
125 Broad Street, 10th Floor and Chief mutual funds associated with Citigroup;
New York, NY 10004 Administra- Treasurer of certain mutual funds
Age 47 tive Officer associated with Citigroup; Head of
International Funds Administration of
CAM (from 2001 to 2003); Director of
Global Funds Administration of CAM
(from 2000 to 2001); Head of U.S.
Citibank Funds Administration of CAM
(from 1998 to 2000)
Richard L. Peteka Chief Financial Since Director of CGM; Chief Financial Officer N/A N/A
CAM Officer and 2002 and Treasurer of certain mutual funds
125 Broad Street, 11th Floor Treasurer affiliated with Citigroup; Director and
New York, NY 10004 Head of Internal Control for CAM U.S.
Age 42 Mutual Fund Administration (from 1999
to 2002); Vice President, Head of Mutual
Fund Administration and Treasurer at
Oppenheimer Capital (from 1996 to 1999)
Andrew Beagley Vice President Since Director of CGM (since 2000); Director N/A N/A
CAM and Chief 2002 of Compliance, North America, CAM
399 Park Avenue, 4th Floor Anti-Money (since 2000); Chief Anti-Money
New York, NY 10022 Laundering Laundering Compliance Officer and Vice
Age 40 Compliance President of certain mutual funds associated
Officer with Citigroup; Director of Compliance,
Europe, the Middle East and Africa, CAM
(from 1999 to 2000); Compliance Officer,
Salomon Brothers Asset Management
Limited, Smith Barney Global Capital
Management Inc., Salomon Brothers Asset
Management Asia Pacific Limited (from
1997 to 1999)
Kaprel Ozsolak Controller Since Vice President of CGM; Controller of N/A N/A
CAM 2002 certain mutual funds associated with
125 Broad Street, 11th Floor Citigroup
New York, NY 10004
Age 38
Robert I. Frenkel Secretary Since Managing Director and General N/A N/A
CAM 2000 Counsel of Global Mutual Funds for
300 First Stamford Place CAM and its predecessor (since 1994);
4th Floor Chief Legal Since Secretary of CFM; Secretary and Chief
Stamford, CT 06902 Officer 2003 Legal Officer of mutual funds associated
Age 48 with Citigroup
- ----------
* TRUSTEES ARE ELECTED UNTIL THE TRUST'S NEXT ANNUAL MEETING AND UNTIL THEIR
SUCCESSORS ARE ELECTED AND QUALIFIED.
** RETIRED EFFECTIVE DECEMBER 31, 2003.
*** MR. GERKEN IS AN "INTERESTED TRUSTEE" OF THE TRUST AS DEFINED IN THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED, BECAUSE MR. GERKEN IS AN OFFICER
OF SBFM AND CERTAIN OF ITS AFFILIATES.
49
- --------------------------------------------------------------------------------
Tax Information
- --------------------------------------------------------------------------------
(unaudited)
For Federal tax purposes, the Trust hereby designates for the fiscal year ended
December 31, 2003:
o 99.95% of the dividends paid by National Tax Free Bond Fund from net
investment income were tax exempt for regular Federal income tax
purposes.
o 99.67% of the dividends paid by California Tax Free Bond Fund from net
investment income were tax exempt for regular Federal income tax and
California state income tax purposes.
o 99.36% of the dividends paid by New York Tax Free Bond Fund from net
investment income were tax exempt for regular Federal income tax and
New York state income tax purposes.
50
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- --------------------------------------------------------------------------------
Salomon Funds Trust
- --------------------------------------------------------------------------------
TRUSTEES
ELLIOTT J. BERV
MARK T. FINN
R. JAY GERKEN, CFA
STEPHEN RANDOLPH GROSS
DIANA R. HARRINGTON
SUSAN B. KERLEY
OFFICERS
R. JAY GERKEN, CFA
CHAIRMAN AND PRESIDENT
ANDREW B. SHOUP
SENIOR VICE PRESIDENT AND
CHIEF ADMINISTRATIVE OFFICER
RICHARD L. PETEKA
CHIEF FINANCIAL OFFICER AND
TREASURER
ANDREW BEAGLEY
VICE PRESIDENT AND
CHIEF ANTI-MONEY LAUNDERING
COMPLIANCE OFFICER
KAPREL OZSOLAK
CONTROLLER
ROBERT I. FRENKEL
SECRETARY AND
CHIEF LEGAL OFFICER
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
399 Park Avenue
New York, NY 10022
DISTRIBUTOR
Citigroup Global Markets Inc.
TRANSFER AGENT
Citicorp Trust Bank, fsb.
125 Broad Street, 11th Floor
New York, NY 10004
SUB-TRANSFER AGENT
PFPC Inc.
P.O. Box 9699
Providence, RI 02940-9699
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Bingham McCutchen LLP
150 Federal Street
Boston, MA 02110
Salomon Funds Trust
Salomon Brothers National Tax Free Bond Fund
Salomon Brothers California Tax Free Bond Fund
Salomon Brothers New York Tax Free Bond Fund
Salomon Brothers Mid Cap Fund
The Funds are separate investment funds of the Salomon Funds Trust,
a Massachusetts business trust.
SALOMON BROTHERS ASSET MANAGEMENT ================
399 Park Avenue SALOMON
New York, New York 10022 ----------------
1-800-SALOMON BROTHERS
www.sbam.com ================
ASSET MANAGEMENT
(C)Citigroup Global Markets Inc.
Member NASD, SIPC
SBTAXANN 12/03 04-6090
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 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
(a) Audit Fees for Salomon Funds Trust of $78,000 and $75,000 for
the years ended 12/31/03 and 12/31/02.
(b) Audit-Related Fees for Salomon Funds Trust of $0 and $0 for the
years ended 12/31/03 and 12/31/02.
(c) Tax Fees for Salomon Funds Trust of $7,700 and $7,700 for the
years ended 12/31/03 and 12/31/02. These amounts represent
aggregate fees paid for tax compliance, tax advice and tax
planning services, which include (the filing and amendment of
federal, state and local income tax returns, timely RIC
qualification review and tax distribution and analysis planning)
rendered by the Accountant to Salomon Funds Trust.
(d) There were no all other fees for Salomon Funds Trust for the years
ended 12/31/03 and 12/31/02.
(e) (1) Audit Committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
The Charter for the Audit Committee (the "Committee") of the Board
of each registered investment company (the "Fund") advised by
Smith Barney Fund Management LLC or Salomon Brothers Asset
Management Inc. or one of their affiliates (each, an "Adviser")
requires that the Committee shall approve (a) all audit and
permissible non-audit services to be provided to the Fund and (b)
all permissible non-audit services to be provided by the Fund's
independent auditors to the Adviser and any Covered Service
Providers if the engagement relates directly to the operations and
financial reporting of the Fund. The Committee may implement
policies and procedures by which such services are approved other
than by the full Committee.
The Committee shall not approve non-audit services that the
Committee believes may impair the independence of the auditors. As
of the date of the approval of this Audit Committee Charter,
permissible non-audit services include any professional services
(including tax services), that are not prohibited services as
described below, provided to the Fund by the independent auditors,
other than those provided to the Fund in connection with an audit
or a review of the financial statements of the Fund. Permissible
non-audit services may not include: (i) bookkeeping or other
services related to the accounting records or financial statements
of the Fund; (ii) financial information systems design and
implementation; (iii) appraisal or valuation services, fairness
opinions or contribution-in-kind reports; (iv) actuarial services;
(v) internal audit outsourcing services; (vi) management functions
or human resources; (vii) broker or dealer, investment adviser or
investment banking services; (viii) legal services and expert
services unrelated to the audit; and (ix) any other service the
Public Company Accounting Oversight Board determines, by
regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit
services is not required so long as: (i) the aggregate amount of
all such permissible non-audit services provided to the Fund, the
Adviser and any service providers controlling, controlled by or
under common control with the Adviser that provide ongoing
services to the Fund ("Covered Service Providers") constitutes not
more than 5% of the total amount of revenues paid to the
independent auditors during the fiscal year in which the
permissible non-audit services are provided to (a) the Fund, (b)
the Adviser and (c) any entity controlling, controlled by or under
common control with the Adviser that provides ongoing services to
the Fund during the fiscal year in which the services are provided
that would have to be approved by the Committee; (ii) the
permissible non-audit services were not recognized by the Fund at
the time of the engagement to be non-audit services; and (iii)
such services are promptly brought to the attention of the
Committee and approved by the Committee (or its delegate(s)) prior
to the completion of the audit.
(2)
(f) N/A
(g) Non-audit fees billed - $100,000 and $1.2 million for the years
ended 12/31/2003 and 12/31/2002.
(h) Yes. The Salomon Funds Trust's Audit Committee has considered
whether the provision of non-audit services that were rendered to
Service Affiliates which were not pre-approved (not requiring
pre-approval) is compatible with maintaining the Accountant's
independence. All services provided by the Accountant to the
Salomon Funds Trust or to Service Affiliates which were required
to be pre-approved were pre-approved as required.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. 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.
Exhibit 99.CODE ETH
(a)(2) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of
the Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, there unto duly authorized.
Salomon Funds Trust
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Salomon Funds Trust
Date: March 9, 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
Salomon Funds Trust
Date: March 9, 2004
By: /s/ Richard L. Peteka
Richard L. Peteka
Chief Financial Officer of
Salomon Funds Trust
Date: March 9, 2004