N-CSRS 1 c52911_ncsrs.htm

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 811-04052

Legg Mason Partners Money Market Trust
(Exact name of registrant as specified in charter)

55 Water Street, New York, NY 10041
    (Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
300 First Stamford Place, 4
th Floor
Stamford, CT 06902
(Name and address of agent for service)

Registrant’s telephone number, including area code: (800) 451-2010

Date of fiscal year end: August 31
Date of reporting period: February 29, 2008

 




ITEM 1. REPORT TO STOCKHOLDERS.

The Semi-Annual Report to Shareholders is filed herewith.


 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(LEGG MASON LOGO)

 

 

 

 

 

 

 

SEMI-ANNUAL REPORT / FEBRUARY 29, 2008

 

 

 

 

 

 

 

 

 

CitiSM California
Tax Free Reserves

 

 

 

 

 

 

 

 

 

Managed by WESTERN ASSET

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Fund objective

 

 

 

 

 

To provide its shareholders with high levels of current income exempt from both federal and California personal income taxes*, preservation of capital and liquidity.






* A portion of the income may be subject to the federal alternative minimum tax (“AMT”), and state and local taxes may apply. Capital gains, if any, are fully taxable. Consult your personal tax adviser.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What’s inside

 

 

 

 

 

 

 

 

 

Letter from the chairman

 

I

 

 

Fund at a glance

 

1

 

 

Fund expenses

 

2

 

 

Schedule of investments

 

4

 

 

Statement of assets and liabilities

 

12

 

 

Statement of operations

 

13

 

 

Statements of changes in net assets

 

14

 

 

Financial highlights

 

15

 

 

Notes to financial statements

 

16

 

 

Board approval of management and subadvisory agreements

 

23

 

 

 

 

 

 

 

 

 

 

 

 

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager and Western Asset Management Company (“Western Asset”) is the Fund’s subadviser. LMPFA and Western Assets are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).

 

 

 

 

 

 

 

“Citi” is a service mark of Citigroup, licensed for use by Legg Mason as the name of funds. Legg Mason and its affiliates, as well as the Fund’s investment manager, are not affiliated with Citigroup. Investments in the Fund referenced herein are not bank deposits or obligations of Citibank.

 

 

 

 

 

 



Letter from the chairman

 

 

R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer

(Photo of R. Jay Gerken)

 

 

Dear Shareholder,

 

 

 

While the U.S. economy continued to expand during the six-month reporting period ended February 29, 2008, it weakened significantly as the reporting period progressed. Third quarter 2007 U.S. gross domestic product (“GDP”)i growth was 4.9%, its strongest showing in four years. However, continued weakness in the housing market and an ongoing credit crunch took their toll on the economy during the last three months of 2007. During this period, GDP growth was 0.6%. Recently, there have been additional signs of an economic slowdown, leading some to believe that the U.S. may be headed for a recession. The U.S. Department of Labor said that non-farm payroll employment fell 22,000 in January 2008, the first monthly decline in more than four years. This was followed up with 63,000 jobs lost in February—the largest decline in five years. Elsewhere, the National Association of Realtors reported that existing home sales fell for the sixth consecutive month in January 2008 and the median home price was down nearly 5% versus January 2007.

 

 

Ongoing issues related to the housing and subprime mortgage markets and an abrupt tightening in the credit markets prompted the Federal Reserve Board (“Fed”)ii to take several actions during the reporting period. The Fed initially responded by lowering the discount rate—the rate the Fed uses for loans it makes directly to banks—from 6.25% to 5.75% in mid-August 2007. Then, at its meeting on September 18, 2007, the Fed reduced the discount rate to 5.25% and the federal funds rateiii from 5.25% to 4.75%. This marked the first reduction in the federal funds rate since June 2003. The Fed again lowered rates in October and December 2007, bringing the federal funds rate to 4.25% at the end of 2007. In January 2008, the Fed continued to aggressively ease monetary policy in an attempt to ward off a recession. In a surprise move, the Fed cut the federal funds rate on January 22, 2008 by 0.75% to 3.50%. The Fed again lowered the federal funds rate during its meeting on January 30, 2008, bringing it to 3.00%. In March 2008, after the reporting period ended, the Fed cut the federal funds rate an additional 0.75% to 2.25%, its lowest level since December 2004. In its statement accompanying the March rate cut, the Fed stated: “Recent information indicates that the outlook for economic activity has weakened further. . . .

CitiSM California Tax Free Reserves   |   I


 

 

 

 

 

 

 

 

 

 

 

 

 

Letter from the chairman continued

 

 

 

 

 

Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.”

 

 

 

 

 

During the six-month reporting period, both short- and long-term Treasury yields experienced periods of volatility. This was due, in part, to mixed economic and inflation data, the fallout from the subprime mortgage market and shifting expectations regarding the Fed’s monetary policy. Within the bond market, investors were initially focused on the subprime segment of the mortgage-backed market. These concerns broadened, however, to include a wide range of financial institutions and markets. As a result, other fixed-income instruments also experienced increased price volatility. This turmoil triggered several “flights to quality,” causing Treasury yields to move sharply lower (and their prices higher), while riskier segments of the market saw their yields move higher (and their prices lower).

 

 

 

 

 

Overall, during the six months ended February 29, 2008, two-year Treasury yields fell from 4.15% to 1.65%. Over the same time, 10-year Treasury yields fell from 4.54% to 3.53%. Short-term yields fell sharply in concert with the Fed’s rate cuts while longer-term yields fell less dramatically due to inflationary concerns, resulting in a steepening of the U.S. yield curveiv during the reporting period.

 

 

 

 

 

During the reporting period, the yields available from tax-free money market instruments fluctuated given the changing short-term interest rate environment. The current market challenges have not affected the Fund’s $1.00 share price. Additionally, we believe that the current situation should not affect the Fund’s $1.00 share price, going forward. Over time, we also believe that the Fund’s returns should remain competitive.

 

II   |  CitiSM California Tax Free Reserves


 

 

 

 

 

 

 

 

 

 

 

 


Performance review

 

 

 

 

 

As of February 29, 2008, the seven-day current yield for CitiSM California Tax Free Reserves was 2.22% and its seven-day effective yield, which reflects compounding, was 2.24%.1

 

 

 

 

 

Current expense reimbursements and/or fee waivers are voluntary and may be reduced or terminated at any time. Absent current expense reimbursements and/or fee waivers, the seven-day current yield would have been 2.09% and the seven-day effective yield would have been 2.11%.

 

 

 

 

 

Certain investors may be subject to the federal alternative minimum tax, and state and local taxes may apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.


 

 

 

 

 

 

CITISM CALIFORNIA TAX FREE RESERVES YIELDS as of February 29, 2008 (unaudited)

 

 

Seven-day current yield1

2.22%

 

 

Seven-day effective yield1

2.24%

 

 

 

 

 

 

 

The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Yields will fluctuate. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/individualinvestors.

 

 

 

 

 

 

 

Current expense reimbursements and/or fee waivers are voluntary and may be reduced or terminated at any time. Absent current expense reimbursements and/or fee waivers, the seven-day current yield would have been 2.09% and the seven-day effective yield would have been 2.11%.

 

 

 

 

 

 

 

An investment in the Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

 

 

 

 

 

 

 

Information about your fund

 

 

 

 

 

 

 

As you may be aware, several issues in the mutual fund industry have come under the scrutiny of federal and state regulators. Affiliates of the Fund’s manager have, in recent years, received requests for information from various government regulators regarding market timing, late trading, fees, and other mutual fund issues in connection with various investigations. The regulators appear to be examining, among other things, the Fund’s response to market timing and shareholder exchange activity, including compliance with prospectus disclosure related to these subjects. The Fund is not in a position to predict the outcome of these requests and investigations.

Important information with regard to recent regulatory developments that may affect the Fund is contained in the Notes to Financial Statements included in this report.

 

 

 

 

 

 

1

The seven-day current yield reflects the amount of income generated by the investment during that seven-day period and assumes that the income is generated each week over a 365-day period. The yield is shown as a percentage of the investment. The seven-day effective yield is calculated similarly to the seven-day current yield but, when annualized, the income earned by an investment in the Fund is assumed to be reinvested. The effective yield typically will be slightly higher than the current yield because of the compounding effect of the assumed reinvestment.

 

CitiSM California Tax Free Reserves   |   III



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Letter from the chairman continued

 

 

 

 

 

 

As always, thank you for your confidence in our stewardship of your assets. We look forward to helping you meet your financial goals.

 

 

 

 

 

 

Sincerely,

 

 

 

 

 

 

-s- R. Jay Gerken

 

 

 

 

 

 

R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer

 

 

 

 

 

 

March 28, 2008

 

 

 

 

 

 

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.

 

 

 

 

 

 

RISKS: An investment in a money market fund is neither insured nor guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at one dollar per share, it is possible to lose money by investing in the Fund.

 

 

 

 

 

 

i

Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time.

 

 

 

 

 

 

ii

The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

 

 

 

 

 

 

iii

The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day.

 

 

 

 

 

 

iv

The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.

 

IV   |   CitiSM California Tax Free Reserves


Fund at a glance (unaudited)

 

INVESTMENT BREAKDOWN (%) As a percent of total investments — February 29, 2008

 

(BAR CHART)

CitiSM California Tax Free Reserves 2008 Semi-Annual Report  |  1


Fund expenses (unaudited)

Example

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested on September 1, 2007 and held for the six months ended February 29, 2008.

Actual expenses

The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.

 

BASED ON ACTUAL TOTAL RETURN1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACTUAL
TOTAL
RETURN2

 

BEGINNING
ACCOUNT
VALUE

 

ENDING
ACCOUNT
VALUE

 

ANNUALIZED
EXPENSE
RATIO

 

EXPENSES
PAID DURING
THE PERIOD3

 













CitiSM California Tax Free Reserves

 

1.26

%

 

$

1,000.00

 

$

1,012.60

 

0.65

%

 

$

3.25

 


 

 

1

For the six months ended February 29, 2008.

 

 

2

Assumes reinvestment of all distributions, including returns of capital, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

 

3

Expenses (net of fee waivers and/or expense reimbursements) are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366.

2  |  CitiSM California Tax Free Reserves 2008 Semi-Annual Report


Hypothetical Example for Comparison Purposes

The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

BASED ON HYPOTHETICAL TOTAL RETURN1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HYPOTHETICAL
ANNUALIZED
TOTAL RETURN

 

BEGINNING
ACCOUNT
VALUE

 

ENDING
ACCOUNT
VALUE

 

ANNUALIZED
EXPENSE
RATIO

 

EXPENSES
PAID DURING
THE PERIOD2

 












CitiSM California Tax Free Reserves

5.00%

 

$

1,000.00

 

$

1,021.63

 

0.65

%

 

$

3.27

 


 

 

1

For the six months ended February 29, 2008.

 

 

2

Expenses (net of fee waivers and/or expense reimbursements) are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366.

CitiSM California Tax Free Reserves 2008 Semi-Annual Report  |  3


Schedule of investments (unaudited)
February 29, 2008

 

CITISM CALIFORNIA TAX FREE RESERVES

 

 

 

 

 

 

 

 

FACE
AMOUNT

 

SECURITY

 

VALUE

 







SHORT-TERM INVESTMENTS — 93.7%

 

 

 





 

 

 

Education — 10.8%

 

 

 

 

$

1,395,000

 

ABAG Finance Authority for Nonprofit Corp., CA:

 

 

 

 

 

 

 

Francis Parker School Project, LOC-Bank of New York, 3.100%,

 

 

 

 

 

 

 

3/6/08 (a)

 

$

1,395,000

 

 

2,060,000

 

Valley Christian Schools, LOC-Bank of America, 3.200%, 3/6/08 (a)

 

 

2,060,000

 

 

2,670,000

 

Alameda-Contra Costa, CA, Schools Financing Authority, COP, Capital

 

 

 

 

 

 

 

Improvement Financing Projects, LOC-Scotiabank, 3.210%, 3/6/08 (a)

 

 

2,670,000

 

 

 

 

California EFA Revenue:

 

 

 

 

 

1,870,000

 

Carnegie Institution of Washington, LOC-SunTrust Bank, 3.160%,

 

 

 

 

 

 

 

3/5/08 (a)

 

 

1,870,000

 

 

7,800,000

 

Stanford University, 3.140%, 3/3/08 (a)

 

 

7,800,000

 

 

3,400,000

 

Refunding, Stanford University, 3.000%, 3/5/08 (a)(b)

 

 

3,400,000

 

 

7,500,000

 

California Statewide CDA, 1.050% due 5/22/08

 

 

7,500,000

 

 

3,100,000

 

Puerto Rico Industrial, Tourist Educational, Medical & Environmental

 

 

 

 

 

 

 

Pollution Control Facilities Financing Authority, Ana G Mendez University

 

 

 

 

 

 

 

Systems Project, LOC-Banco Santander PR, 3.310%, 3/5/08 (a)

 

 

3,100,000

 

 

1,225,000

 

San Diego County, CA, COP, Friends of Chabad, LOC-Comerica Bank,

 

 

 

 

 

 

 

2.950%, 3/6/08 (a)

 

 

1,225,000

 









 

 

 

Total Education

 

 

31,020,000

 









 

 

 

Finance — 13.9%

 

 

 

 

 

1,100,000

 

California State Economic Recovery Bonds, SPA-JPMorgan Chase,

 

 

 

 

 

 

 

3.170%, 3/3/08 (a)

 

 

1,100,000

 

 

12,000,000

 

California Communities Note Program, Note Participations, TRAN,

 

 

 

 

 

 

 

County of San Bernardino, 4.500% due 6/30/08

 

 

12,033,668

 

 

13,400,000

 

California State, RAN, 4.000% due 6/30/08

 

 

13,427,403

 

 

5,000,000

 

Commonwealth of Puerto Rico, TRAN, LOC-Bank of Nova Scotia, et al,

 

 

 

 

 

 

 

4.250% due 7/30/08

 

 

5,017,182

 

 

5,000,000

 

Contra Costa County, CA, TRAN,, 4.000% due 12/5/08

 

 

5,026,888

 

 

3,500,000

 

San Mateo County, CA, Joint Powers Financing Authority Lease Revenue,

 

 

 

 

 

 

 

Public Safety Project, LOC-Depfa Bank PLC, 3.050%, 3/6/08 (a)

 

 

3,500,000

 









 

 

 

Total Finance

 

 

40,105,141

 









 

 

 

General Obligation — 11.1%

 

 

 

 

 

 

 

California State, GO:

 

 

 

 

 

1,000,000

 

LOC-Depfa Bank PLC, 3.000%, 3/5/08 (a)

 

 

1,000,000

 

 

1,000,000

 

LOC-Westdeutsche Landesbank, 3.700%, 3/3/08 (a)

 

 

1,000,000

 

 

 

 

Commonwealth of Puerto Rico, GO, Refunding, Public Improvements:

 

 

 

 

 

4,400,000

 

FSA, LOC-JP Morgan Chase, 3.190%, 3/6/08 (a)

 

 

4,400,000

 

 

11,600,000

 

FSA, SPA-Dexia Credit Local, 2.900%, 3/3/08 (a)

 

 

11,600,000

 

 

1,500,000

 

Irvine Ranch California Water District, GO, Consolidated Improvement

 

 

 

 

 

 

 

District, LOC-Landesbank Baden Wurttemberg, 3.650%, 3/3/08 (a)

 

 

1,500,000

 

 

12,500,000

 

San Diego, CA, USD, GO, TRAN, 4.500% due 7/22/08

 

 

12,539,501

 









 

 

 

Total General Obligation

 

 

32,039,501

 









 

 

 

Hospitals — 4.6%

 

 

 

 

 

8,800,000

 

Fresno, CA, Revenue, Trinity Health Credit, SPA-Landesbank Hessen-

 

 

 

 

 

 

 

Thuringen, 3.000%, 3/6/08 (a)

 

 

8,800,000

 

 

1,000,000

 

Loma Linda, CA, Hospital Revenue, Loma Linda University Medical,

 

 

 

 

 

 

 

LOC-Bank of America N.A., 2.700%, 3/6/08 (a)

 

 

1,000,000

 

See Notes to Financial Statements.

4  |  CitiSM California Tax Free Reserves 2008 Semi-Annual Report


 

CITISM CALIFORNIA TAX FREE RESERVES

 

 

 

 

 

 

 

 

FACE
AMOUNT

 

SECURITY

 

VALUE

 







 

 

 

Hospitals — 4.6% continued

 

 

 

 

$

900,000

 

North Carolina Medical Care Commission, Duke University Hospital,

 

 

 

 

 

 

 

LOC-Wachovia Bank, 2.300%, 3/6/08 (a)

 

$

900,000

 

 

2,500,000

 

Pleasanton, CA, COP, Assisted Living Facility Financing, LOC-Citibank

 

 

 

 

 

 

 

N.A., 2.910%, 3/6/08 (a)

 

 

2,500,000

 









 

 

 

Total Hospitals

 

 

13,200,000

 









 

 

 

Housing: Multi-Family — 11.0%

 

 

 

 

 

3,765,000

 

California Statewide CDA, Multifamily Revenue, Coventry Place

 

 

 

 

 

 

 

Apartments, LIQ-FNMA, 2.900%, 3/6/08 (a)(c)

 

 

3,765,000

 

 

2,200,000

 

Contra Costa County, CA, MFH Revenue, Creekview Apartments, FHLMC,

 

 

 

 

 

 

 

LIQ-FHLMC, 3.060%, 3/6/08 (a)(c)

 

 

2,200,000

 

 

1,070,000

 

Livermore, CA, Multifamily Revenue, Mortgage Portola, LIQ-FNMA,

 

 

 

 

 

 

 

2.950%, 3/6/08 (a)(c)

 

 

1,070,000

 

 

2,800,000

 

Los Angeles, CA, MFH Revenue, Louisiana Brea Apartments Project,

 

 

 

 

 

 

 

LOC-Citibank N.A., 3.100%, 3/6/08 (a)(c)

 

 

2,800,000

 

 

11,800,000

 

Los Angeles, CA, Community Redevelopment Agency, MFH Revenue,

 

 

 

 

 

 

 

Second & Central Apartments Project, LOC-HSBC Bank USA N.A.,

 

 

 

 

 

 

 

2.900%, 3/5/08 (a)(c)

 

 

11,800,000

 

 

1,000,000

 

Pleasant Hill, CA, RDA, Multi-Family Revenue, Refunding, Housing

 

 

 

 

 

 

 

Chateau III, LIQ-FNMA, 3.160%, 3/6/08 (a)(c)

 

 

1,000,000

 

 

3,700,000

 

Pleasanton, CA, MFH Revenue, Busch Senior Housing, FNMA, LIQ

 

 

 

 

 

 

 

FAC-FNMA, 3.060%, 3/6/08 (a)(c)

 

 

3,700,000

 

 

1,285,000

 

Redondo Beach, CA, RDA Multi-Family Revenue, Refunding, Heritage

 

 

 

 

 

 

 

Pointe Apartments, FNMA, LIQ-FNMA, 2.900%, 3/6/08 (a)(c)

 

 

1,285,000

 

 

2,900,000

 

San Francisco City & County, CA, MFH Revenue, Folsom Dore Apartment

 

 

 

 

 

 

 

Project, LOC-Citibank N.A., 2.490%, 3/3/08 (a)(c)

 

 

2,900,000

 

 

1,000,000

 

San Jose CA, MFH Revenue, Cinnabar Commons, LOC-Bank of America,

 

 

 

 

 

 

 

2.900%, 3/6/08 (a)(c)

 

 

1,000,000

 









 

 

 

Total Housing: Multi-Family

 

 

31,520,000

 









 

 

 

Housing: Single Family — 0.7%

 

 

 

 

 

1,000,000

 

California Housing Finance Agency Revenue, Home Mortgage, SPA-Calyon

 

 

 

 

 

 

 

Bank, 3.150%, 3/3/08 (a)(c)

 

 

1,000,000

 

 

1,000,000

 

Los Angeles, CA, Single Family Mortgage Revenue, SPA-State Street Bank

 

 

 

 

 

 

 

& Trust Co., 2.780%, 3/5/08 (a)(c)

 

 

1,000,000

 









 

 

 

Total Housing: Single Family

 

 

2,000,000

 









 

 

 

Industrial Development — 2.6%

 

 

 

 

 

2,070,000

 

California Infrastructure & Economic Development Bank, Revenue, IDR,

 

 

 

 

 

 

 

RCP Block & Brick, LOC-U.S. Bank NA, 3.160%, 3/6/08 (a)(c)

 

 

2,070,000

 

 

3,200,000

 

California MFA, Exempt Facilities Revenue, Refunding, ExxonMobil Project,

 

 

 

 

 

 

 

3.900%, 3/3/08 (a)(c)

 

 

3,200,000

 

 

2,100,000

 

California Statewide CDA, IDR, Florestone Products Project, LOC-Wells

 

 

 

 

 

 

 

Fargo Bank, 3.000%, 3/5/08 (a)(c)

 

 

2,100,000

 









 

 

 

Total Industrial Development

 

 

7,370,000

 









 

 

 

Life Care Systems — 0.8%

 

 

 

 

 

2,150,000

 

California Statewide Community Development Corp., COP, Covenant

 

 

 

 

 

 

 

Retirement Communities, LOC-LaSalle National Bank, 2.900%,

 

 

 

 

 

 

 

3/6/08 (a)

 

 

2,150,000

 









See Notes to Financial Statements.

CitiSM California Tax Free Reserves 2008 Semi-Annual Report   |   5


Schedule of investments (unaudited) continued
February 29, 2008

 

CITISM CALIFORNIA TAX FREE RESERVES

 

 

 

 

 

 

 

 

FACE
AMOUNT

 

SECURITY

 

VALUE

 







 

 

 

Pollution Control — 2.9%

 

 

 

 

$

1,900,000

 

California PCFA Revenue, Refunding, ExxonMobil Project, 3.550%,

 

 

 

 

 

 

 

3/3/08 (a)

 

$

1,900,000

 

 

6,310,000

 

California PCFA, PCR, Refunding, ExxonMobil Project, 3.550%, 3/3/08 (a)

 

 

6,310,000

 









 

 

 

Total Pollution Control

 

 

8,210,000

 









 

 

 

Public Facilities — 10.4%

 

 

 

 

 

6,400,000

 

California Statewide CDA, Revenue, North Peninsula Jewish Community

 

 

 

 

 

 

 

Center, LOC-Bank of America, 3.470%, 3/3/08 (a)

 

 

6,400,000

 

 

4,900,000

 

Fremont, CA, COP, Capital Improvement Financing Project,

 

 

 

 

 

 

 

LOC-Scotiabank, 3.160%, 3/6/08 (a)

 

 

4,900,000

 

 

5,000,000

 

Glendale, CA, COP, Police Building Project, SPA-Morgan Guaranty Trust,

 

 

 

 

 

 

 

3.200%, 3/6/08 (a)

 

 

5,000,000

 

 

4,195,000

 

Hesperia, CA, Public Financing Authority, 1993 Street Improvement

 

 

 

 

 

 

 

Project, LOC-Bank of America, 3.000%, 3/5/08 (a)

 

 

4,195,000

 

 

 

 

Irvine, CA, Improvement Bond Act 1915:

 

 

 

 

 

3,325,000

 

Assessment District 04-20, LOC-KBC Bank NV, 2.900%, 3/3/08 (a)

 

 

3,325,000

 

 

1,674,000

 

Assessment District 87-8, LOC-KBC Bank, 2.900%, 3/3/08 (a)

 

 

1,674,000

 

 

1,000,000

 

Municipal Import Corp. of Los Angeles, 1.750% due 6/5/08

 

 

1,000,000

 

 

3,315,000

 

Orange County, CA, Improvement Bond, Assessment District No. 88-1,

 

 

 

 

 

 

 

LOC-KBC Bank NV, 3.200%, 3/3/08 (a)

 

 

3,315,000

 









 

 

 

Total Public Facilities

 

 

29,809,000

 









 

 

 

Solid Waste — 0.8%

 

 

 

 

 

2,400,000

 

Orange County, CA,, Sanitation Districts, COP, SPA-Dexia Public Finance

 

 

 

 

 

 

 

Bank, 2.900%, 3/3/08 (a)

 

 

2,400,000

 









 

 

 

Tax Allocation — 3.5%

 

 

 

 

 

10,000,000

 

Los Angeles, CA, USD, TRAN, 4.000% due 12/29/08

 

 

10,066,991

 









 

 

 

Transportation — 2.4%

 

 

 

 

 

5,000,000

 

Riverside County, CA, Transit Commission, TECP, 0.900% due 5/1/08

 

 

5,000,000

 

 

2,000,000

 

San Francisco County, CA, Transportation Authority, 1.250% due 7/7/08

 

 

2,000,000

 









 

 

 

Total Transportation

 

 

7,000,000

 









 

 

 

Utilities — 4.5%

 

 

 

 

 

 

 

California PCFA, PCR, Pacific Gas & Electric:

 

 

 

 

 

 

 

LOC-Bank One:

 

 

 

 

 

2,400,000

 

3.000%, 3/3/08 (a)

 

 

2,400,000

 

 

1,300,000

 

3.170%, 3/3/08 (a)

 

 

1,300,000

 

 

 

 

LOC-JPMorgan Chase:

 

 

 

 

 

1,700,000

 

3.170%, 3/3/08 (a)

 

 

1,700,000

 

 

1,100,000

 

3.600%, 3/3/08 (a)(c)

 

 

1,100,000

 

 

 

 

California State Department of Water Resources Power Supply Revenue:

 

 

 

 

 

2,500,000

 

LOC-Landesbank Hessen-Thuringen, 2.800%, 3/6/08 (a)

 

 

2,500,000

 

 

4,000,000

 

Refunding, Subordinated, LOC-JPMorgan Chase & Societe Generale,

 

 

 

 

 

 

 

3.000%, 3/3/08 (a)

 

 

4,000,000

 









 

 

 

Total Utilities

 

 

13,000,000

 









See Notes to Financial Statements.

6   |   CitiSM California Tax Free Reserves 2008 Semi-Annual Report


 

CITISM CALIFORNIA TAX FREE RESERVES

 

 

 

 

 

 

 

 

FACE
AMOUNT

 

SECURITY

 

VALUE

 







 

 

 

Water & Sewer — 13.7%

 

 

 

 

$

7,500,000

 

California State Department of Water Resources Power Supply Revenue,

 

 

 

 

 

 

 

LOC-Lloyds Bank PLC, 3.190%, 3/6/08 (a)

 

$

7,500,000

 

 

2,500,000

 

Eastern Municipal Water District, CA, Water & Sewer Revenue, COP,

 

 

 

 

 

 

 

SPA-Wells Fargo Bank N.A., 2.800%, 3/6/08 (a)

 

 

2,500,000

 

 

5,350,000

 

Imperial Irrigation District Revenue, 0.650% due 6/12/08

 

 

5,350,000

 

 

1,800,000

 

Irvine Ranch, CA, Water District, Consolidated District, LOC-Landesbank

 

 

 

 

 

 

 

Baden-Wurttemberg, 3.600%, 3/3/08 (a)

 

 

1,800,000

 

 

 

 

Metropolitan Water District of Southern California:

 

 

 

 

 

6,840,000

 

SPA-Dexia Credit Local, 2.950%, 3/6/08 (a)

 

 

6,840,000

 

 

 

 

Waterworks Revenue:

 

 

 

 

 

2,400,000

 

Refunding, SPA-JPMorgan Chase, 2.950%, 3/6/08 (a)

 

 

2,400,000

 

 

3,400,000

 

SPA-Lloyds TSB Bank PLC, 3.750%, 3/3/08 (a)

 

 

3,400,000

 

 

 

 

Orange County, CA, Sanitation Districts, COP:

 

 

 

 

 

1,160,000

 

Capital Improvement & Refunding Project, LOC-Societe Generale,

 

 

 

 

 

 

 

3.200%, 3/3/08 (a)

 

 

1,160,000

 

 

3,720,000

 

SPA-Depfa Bank PLC, 2.900%, 3/3/08 (a)

 

 

3,720,000

 

 

2,300,000

 

SPA-Dexia Public Finance, 2.900%, 3/3/08 (a)

 

 

2,300,000

 

 

2,500,000

 

San Diego County, CA, Water Authority, 1.650% due 8/4/08

 

 

2,500,000

 









 

 

 

Total Water & Sewer

 

 

39,470,000

 









 

 

 

TOTAL INVESTMENTS — 93.7% (Cost — $269,360,633#)

 

 

269,360,633

 

 

 

 

Other Assets in Excess of Liabilities — 6.3%

 

 

18,192,127

 









 

 

 

TOTAL NET ASSETS — 100.0%

 

$

287,552,760

 










 

 

(a)

Variable rate demand obligations have a demand feature under which the Fund can tender them back to the issuer on no more than 7 days notice. Date shown is the date of the next interest rate change.

 

 

(b)

Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees, unless otherwise noted.

 

 

(c)

Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax (“AMT”).

 

 

#

Aggregate cost for federal income tax purposes is substantially the same.

See Notes to Financial Statements.

CitiSM California Tax Free Reserves 2008 Semi-Annual Report   |   7


Schedule of investments (unaudited) continued
February 29, 2008

 

 

 

Abbreviations used in this schedule:

 

 

 

ABAG

Association of Bay Area Governor

CDA

Community Development Authority

COP

Certificate of Participation

EFA

Educational Facilities Authority

FHLMC

Federal Home Loan Mortgage Corporation

FNMA

Federal National Mortgage Association

FSA

Financial Security Assurance - Insured Bonds

GO

General Obligation

IDR

Industrial Development Revenue

LIQ

Liquidity Facility

LOC

Letter of Credit

MFA

Municipal Finance Authority

MFH

Multi-Family Housing

PCFA

Pollution Control Finance Authority

PCR

Pollution Control Revenue

RAN

Revenue Anticipation Notes

RDA

Redevelopment Agency

SPA

Standby Bond Purchase Agreement

TECP

Tax Exempt Commercial Paper

TRAN

Tax and Revenue Anticipation Notes

USD

Unified School District


 

 

 

 

 

RATINGS TABLE

 

VALUE

 

S&P/Moody’s/Fitch

 

 

 

 

A-1

 

67.7

%

 

SP-1

 

21.6

 

 

VMIG1

 

8.5

 

 

F1

 

2.2

 

 






 

 

100.0

%

 






† As a percentage of total investments.

 

 

 

 

 

‡ S&P primary rating; Moody’s secondary, then Fitch.

 

 

 

 

 

See pages 9 to 11 for definitions of ratings.

 

 

 

 

See Notes to Financial Statements.

8   |   CitiSM California Tax Free Reserves 2008 Semi-Annual Report


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 “CCC” 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 issues only in a small degree.

A

Bonds rated “A” have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.

BBB

Bonds rated “BBB” are regarded as having 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.

BB, B,
CCC,

 

 

CC and C

Bonds rated “BB”, “B”, “CCC”, “CC” and “C” are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. “BB” represents the lowest degree of speculation and “C” the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.

D

Bonds rated “D” are in default and payment of interest and/or repayment of principal is in arrears.

 

 

 

Moody’s Investors Service (“Moody’s”) — Numerical modifiers 1, 2 and 3 may be applied to each generic rating from “Aa” to “Caa,” 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 as 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” 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 considered 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.

Ba

Bonds rated “Ba” are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and therefore not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.

CitiSM California Tax Free Reserves 2008 Semi-Annual Report  |   9


Bond ratings (unaudited) continued

 

 

 

B

Bonds rated “B” generally lack characteristics of desirable investments. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

Caa

Bonds rated “Caa” are of poor standing. These may be in default, or present elements of danger may exist with respect to principal or interest.

Ca

Bonds rated “Ca” represent obligations which are speculative in a high degree. Such issues are often in default or have other marked short- comings.

C

Bonds rated “C” are the lowest class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

 

 

 

Fitch Ratings Service (“Fitch”) — Ratings from “AA” to “CCC” 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 Fitch. 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 issues only in a small degree.

A

Bonds rated “A” have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.

BBB

Bonds rated “BBB” are regarded as having 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.

BB, B,

 

 

CCC

 

 

and CC

Bonds rated “BB”, “B”, “CCC” and “CC” are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. “BB” represents a lower degree of speculation than “B”, and “CC” the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.

NR

Indicates that the bond is not rated by Standard & Poor’s, Moody’s or Fitch.

10   |   CitiSM California Tax Free Reserves 2008 Semi-Annual Report


Short-term security ratings (unaudited)

 

 

 

The definitions of the applicable ratings symbols are set forth below:

 

Standard & Poor’s Ratings Service (“Standard & Poor’s”)

 

 

 

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.

 

 

 

Moody’s Investors Service (“Moody’s”)

 

 

 

VMIG 1

Moody’s highest rating for issues having a demand feature — VRDO.

MIG1

Moody’s highest rating for short-term municipal obligations.

P-1

Moody’s highest rating for commercial paper and for VRDO prior to the advent of the VMIG 1 rating.

 

 

 

Fitch Ratings Service (“Fitch”)

 

 

 

F1

Fitch’s highest rating indicating the strongest capacity for timely payment of financial commitments; those issues determined to possess overwhelming strong credit feature are denoted with a plus (+) sign.

NR

Indicates that the bond is not rated by Standard & Poor’s, Moody’s or Fitch.

CitiSM California Tax Free Reserves 2008 Semi-Annual Report  |   11


Statement of assets and liabilities (unaudited)
February 29, 2008

 

 

 

 

 

         

ASSETS:

 

 

 

 

Investments, at amortized cost

 

$

269,360,633

 

Cash

 

 

104,191

 

Receivable for securities sold

 

 

17,309,088

 

Interest receivable

 

 

1,423,924

 

Prepaid expenses

 

 

37,374

 






Total Assets

 

 

288,235,210

 

         

LIABILITIES:

 

 

 

 

Distributions payable

 

 

333,162

 

Payable for Fund shares repurchased

 

 

125,003

 

Investment management fee payable

 

 

77,717

 

Distribution fees payable

 

 

59,846

 

Trustees’ fees payable

 

 

2,308

 

Accrued expenses

 

 

84,414

 






Total Liabilities

 

 

682,450

 






TOTAL NET ASSETS

 

$

287,552,760

 

NET ASSETS:

 

 

 

 

Par value (Note 3)

 

$

2,876

 

Paid-in capital in excess of par value

 

 

287,549,582

 

Overdistributed net investment income

 

 

(58

)

Accumulated net realized gain on investments

 

 

360

 






TOTAL NET ASSETS

 

$

287,552,760

 






Shares Outstanding

 

 

287,552,458

 






Net Asset Value

 

$

1.00

 






See Notes to Financial Statements.

12  |  CitiSM California Tax Free Reserves 2008 Semi-Annual Report


Statement of operations (unaudited)
For the Six Months Ended February 29, 2008

 

 

 

 

 

 

         

INVESTMENT INCOME:

 

 

 

 

Interest

 

$

4,991,968

 

         

EXPENSES:

 

 

 

 

Investment management fee (Note 2)

 

 

707,208

 

Distribution fees (Note 2)

 

 

392,894

 

Legal fees

 

 

34,233

 

Registration fees

 

 

28,555

 

Shareholder reports

 

 

18,697

 

Audit and tax

 

 

14,987

 

Transfer agent fees

 

 

8,543

 

Litigation fees (Note 5)

 

 

6,079

 

Insurance

 

 

3,285

 

Trustees’ fees (Note 2)

 

 

2,622

 

Custody fees

 

 

1,808

 

Miscellaneous expenses

 

 

3,026

 






Total Expenses

 

 

1,221,937

 

Less:

Fee waivers and/or expense reimbursements (Notes 2 and 5)

 

 

(199,738

)

 

Fees paid indirectly (Note 1)

 

 

(676

)






Net Expenses

 

 

1,021,523

 






NET INVESTMENT INCOME

 

$

3,970,445

 






NET REALIZED GAIN FROM INVESTMENT TRANSACTIONS

 

 

851

 






INCREASE IN NET ASSETS FROM OPERATIONS

 

$

3,971,296

 

See Notes to Financial Statements.

CitiSM California Tax Free Reserves 2008 Semi-Annual Report  |  13


Statements of changes in net assets

 

 

 

 

 

 

 

 

FOR THE SIX MONTHS ENDED FEBRUARY 29, 2008 (unaudited)
AND THE YEAR ENDED AUGUST 31, 2007

 

2008

 

2007

 

           

OPERATIONS:

 

 

 

 

 

 

 

Net investment income

 

$

3,970,445

 

$

8,285,803

 

Net realized gain

 

 

851

 

 

21,268

 









Increase in Net Assets From Operations

 

 

3,971,296

 

 

8,307,071

 

DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1):

 

 

 

 

 

 

 

Net investment income

 

 

(3,970,426

)     

 

(8,285,880

)

Net realized gains

 

 

(21,759

)

 

(9,411

)









Decrease in Net Assets From Distributions to Shareholders

 

 

(3,992,185

)

 

(8,295,291

)

           

FUND SHARE TRANSACTIONS (NOTE 3):

 

 

 

 

 

 

 

Net proceeds from sale of shares

 

 

378,528,475

 

 

511,106,840

 

Reinvestment of distributions

 

 

333,414

 

 

1,187,872

 

Cost of shares repurchased

 

 

(354,287,772

)

 

(526,807,915

)









Increase (Decrease) in Net Assets From Fund Share Transactions

 

 

24,574,117

 

 

(14,513,203

)









INCREASE (DECREASE) IN NET ASSETS

 

 

24,553,228

 

 

(14,501,423

)

           

NET ASSETS:

 

 

 

 

 

 

 

Beginning of period

 

 

262,999,532

 

 

277,500,955

 









End of period*

 

$

287,552,760

 

$

262,999,532

 









* Includes overdistributed net investment income of:

 

$

(58

)

$

(77

)

See Notes to Financial Statements.

14  |  CitiSM California Tax Free Reserves 2008 Semi-Annual Report


Financial highlights

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR ENDED AUGUST 31,
UNLESS OTHERWISE NOTED:

 

 

 

2008

1

2007

 

2006

 

2005

 

2004

 

2003

 















NET ASSET VALUE,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BEGINNING OF PERIOD

 

$

1.000

 

$

1.000

 

$

1.000

 

$

1.000

 

$

1.000

 

$

1.000

 















INCOME FROM OPERATIONS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

0.013

 

 

0.029

 

 

0.024

 

 

0.013

 

 

0.004

 

 

0.006

 

Net realized gain2

 

 

0.000

 

 

0.000

 

 

0.000

 

 

0.000

 

 

0.000

 

 

0.000

 

Total income from operations

 

 

0.013

 

 

0.029

 

 

0.024

 

 

0.013

 

 

0.004

 

 

0.006

 

LESS DISTRIBUTIONS FROM:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

(0.013

)

 

(0.029

)

 

(0.024

)

 

(0.013

)

 

(0.004

)

 

(0.006

)

Net realized gains2

 

 

(0.000

)

 

(0.000

)

 

(0.000

)

 

(0.000

)

 

(0.000

)

 

(0.000

)















Total distributions

 

 

(0.013

)

 

(0.029

)

 

(0.024

)

 

(0.013

)

 

(0.004

)

 

(0.006

)















NET ASSET VALUE,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

END OF PERIOD

 

$

1.000

 

$

1.000

 

$

1.000

 

$

1.000

 

$

1.000

 

$

1.000

 















Total return3

 

 

1.26

%

 

2.94

%

 

2.48

%

 

1.31

%

 

0.41

%

 

0.62

%















NET ASSETS,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

END OF PERIOD (000s)

 

$

287,553

 

$

263,000

 

$

277,501

 

$

264,609

 

$

254,035

 

$

290,733

 

 















RATIOS TO AVERAGE NET ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross expenses

 

 

0.78

%4,5

 

0.79

%5,6

 

0.83

%5

 

0.80

%

 

0.80

%

 

0.78

%

Net expenses7,8,9

 

 

0.65

4

 

0.656

 

 

0.65

 

 

0.65

 

 

0.65

 

 

0.65

 

Net investment income

 

 

2.53

4

 

2.90

 

 

2.44

 

 

1.29

 

 

0.38

 

 

0.59

 


 

 

1

For the six months ended February 29, 2008 (unaudited).

 

 

2

Amount represents less than $0.0005 per share.

 

 

3

Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.

 

 

4

Annualized.

 

 

5

The gross expense ratio includes litigation fees. In the absence of these fees, the gross expense ratio would have been 0.77%, 0.77% and 0.78% for the six months ended February 29, 2008 and the years ended August 31, 2007 and 2006, respectively.

 

 

6

Included in the expense ratios are certain non-recurring restructuring (and reorganization, if applicable) fees that were incurred by the Fund during the period. Without these fees, the gross and net expense ratios would have been 0.78% and 0.65%, respectively.

 

 

7

Reflects fee waivers and/or expense reimbursements.

 

 

8

As a result of a voluntary expense limitation, the ratio of expenses, other than interest, brokerage, taxes and extraordinary expenses, to average net assets will not exceed 0.65%.

 

 

9

There was no impact to the expense ratio as a result of fees paid indirectly.

See Notes to Financial Statements.

 

CitiSM California Tax Free Reserves 2008 Semi-Annual Report  | 15


Notes to financial statements (unaudited)

1. Organization and significant accounting policies

CitiSM California Tax Free Reserves (the “Fund”) is a separate non-diversified series of Legg Mason Partners Money Market Trust (“Trust”). The Trust, a Maryland business trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ.

(a) Investment valuation. Money market instruments are valued at amortized cost, in accordance with Rule 2a-7 under the 1940 Act, which approximates market value. This method involves valuing portfolio securities at their cost and thereafter assuming a constant amortization to maturity of any discount or premium. The Fund’s use of amortized cost is subject to their compliance with certain conditions as specified by Rule 2a-7 of the 1940 Act.

(b) Fund concentration. Since the Fund invests primarily in obligations of issuers within California, it is subject to possible concentration risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting California.

(c) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. The cost of investments sold is determined by use of the specific identification method.

(d) Fees paid indirectly. The Fund’s custody fees are reduced according to a fee arrangement which provides for a reduction based on the level of cash deposited with the custodian by the Fund. The amount is shown as a reduction of expenses on the Statement of Operations.

(e) Credit and market risk. The Fund may invest in instruments specifically structured so that they are eligible for purchase by money market funds, including securities that have demand, tender or put features, or interest rate reset features. Structured instruments may take the form of participation interests or receipts in underlying securities or other assets, and in some cases are backed by a financial institution serving as a liquidity provider. Some of these instruments may have an interest rate swap feature which substitutes a floating or variable interest rate for the fixed interest rate on an underlying security, and some may be asset-backed or mortgage-backed securities. Structured instruments are a type of derivative instrument and the payment and credit qualities of these instruments derive from the assets embedded in the structure.

16  |  CitiSM California Tax Free Reserves 2008 Semi-Annual Report


The fair value of these securities may be different than the amortized cost value reported in the Statement of Investments for the Fund. As of the date of this report, the fund continued to meet the requirements under Rule 2a-7 that permits the Fund to utilize amortized cost to value its securities.

(f) Distributions to shareholders. Distributions on the shares of the Fund are declared each business day, as of 12:00 noon Eastern Time, to shareholders of record, and are paid monthly. Distributions of net realized gains, if any, are declared at least annually. Distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.

(g) Federal and other taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute substantially all of its taxable income and net realized gains, if any, to shareholders each year. Therefore, no federal income tax provision is required in the Fund’s financial statements.

Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years and has concluded that as of February 29, 2008, no provision for income tax would be required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

Dividends paid by the Fund from net interest received on tax-exempt money market instruments are not includable by shareholders as gross income for federal income tax purposes because the Fund intends to meet certain requirements of the Internal Revenue Code applicable to regulated investment companies, including Subchapter M, which will enable the Fund to pay exempt-interest dividends. The portion of such interest, if any, earned on private activity bonds issued after August 7, 1986, may be considered a tax preference item to shareholders.

(h) Reclassification. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share.

2. Investment management agreement and other transactions with affiliates

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager and Western Asset Management Company (“Western Asset”) is the Fund’s subadviser. LMPFA and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).

CitiSM California Tax Free Reserves 2008 Semi-Annual Report  |  17


Notes to financial statements (unaudited) continued

Under the investment management agreement, the Fund pays an investment management fee calculated daily and paid monthly in accordance with the following breakpoint schedule:

 

 

 

AVERAGE DAILY NET ASSETS

ANNUAL RATE


First $1 billion

0.450

%


Next $1 billion

0.425

 


Next $3 billion

0.400

 


Next $5 billion

0.375

 


Over $10 billion

0.350

 


LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadviser the day-to-day portfolio management of the Fund. For its services, LMPFA pays Western Asset 70% of the net management fee it receives from the Fund.

During the six months ended February 29, 2008, the Fund had a voluntary expense limitation in place of 0.65% of the Fund’s average daily net assets.

During the six months ended February 29, 2008, LMPFA waived a portion of its fee in the amount of $193,659 and was reimbursed for litigation fees in the amount of $6,079 as described in Note 5.

Effective January 1, 2008, the manager is permitted to recapture amounts that it has previously voluntarily waived and/or reimbursed, to the Fund during the same fiscal year if the Fund’s total annual operating expenses have fallen to a level below the expense cap shown in the fee table of the Fund’s prospectus. In no case will the manager recapture any amount that would result, on any particular Fund business day, in the Fund’s total annual operating expenses exceeding the expense cap.

Effective December 1, 2007, Legg Mason Investor Services, LLC (“LMIS”), a wholly owned broker-dealer subsidiary of legg Mason, serves as the Fund’s sole and exclusive distributor. Prior to December 1, 2007, Citigroup Global Markets Inc. (“CGM”) and LMIS served as co-distributors of the Fund.

The Fund adopted a Rule 12b-1 distribution and service plan and under that plan, the Fund pays a monthly fee at an annual rate not to exceed 0.25% of the average daily net assets. For the six months ended February 29, 2008, distribution and/or service fees paid amounted to $392,894.

On July 10, 2006, a retirement plan applicable to the Fund was amended by the Board then overseeing the Fund (the “Previous Board”) to provide for the payment of certain benefits (in lieu of any other retirement payments under any previous plans) to Trustees who had not elected to retire as of April 2007. Trustees electing to receive benefits under the amended plan waived all rights to receive payments to which they were previously entitled under the plan. All of the

18  |  CitiSM California Tax Free Reserves 2008 Semi-Annual Report


Trustees comprising the Previous Board (and who had not elected to retire as of April 2007) elected to receive benefits under the amended plan. Each fund overseen by the Previous Board (including the Fund) paid its pro rata share (based upon asset size) of such benefits to the Trustees comprising the Previous Board. Legg Mason or its affiliates agreed to reimburse the funds an amount equal to 50% of these benefits. The Fund’s allocable share of benefits under this amendment at February 29, 2008 was $781. Generally, benefits under the retirement plan are paid in quarterly installments unless the Trustee elected to receive them in a lump sum at net present value. Two former Trustees are currently receiving payments under the retirement plan.

Certain officers and Trustees of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.

3. Shares of beneficial interest

The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest with a par value of $0.00001 per share.

Because the Fund has maintained a $1.00 net asset value per share from inception, the number of shares sold, shares issued in reinvestment of dividends declared, and share repurchased, is equal to the dollar amount shown in the Statements of Changes in Net Assets for the corresponding capital share transactions.

4. Legal matters

Beginning in June 2004, class action lawsuits alleging violations of the federal securities laws were filed against CGM, a former distributor of the Fund, and other affiliated funds (collectively, the “Funds”) and a number of its then affiliates, including Smith Barney Fund Management, LLC (“SBFM”) and Salomon Brothers Asset Management Inc (“SBAM”), which were then investment adviser or manager to certain of the Funds (the “Managers”), substantially all of the mutual funds then managed by the Managers (the “Defendant Funds”), and Board members of the Defendant Funds (collectively, the “Defendants”). The complaints alleged, among other things, that CGM created various undisclosed incentives for its brokers to sell Smith Barney and Salomon Brothers funds. In addition, according to the complaints, the Managers caused the Defendant Funds to pay excessive brokerage commissions to CGM for steering clients towards proprietary funds. The complaints also alleged that the Defendants breached their fiduciary duty to the Defendant Funds by improperly charging Rule 12b-1 fees and by drawing on fund assets to make undisclosed payments of soft dollars and excessive brokerage commissions. The complaints also alleged that the Defendant Funds failed to adequately disclose certain of the allegedly wrongful conduct. The complaints sought injunctive relief and compensatory and punitive damages, rescission of the Defendant Funds’

CitiSM California Tax Free Reserves 2008 Semi-Annual Report  |  19


Notes to financial statements (unaudited) continued

contracts with the Managers, recovery of all fees paid to the Managers pursuant to such contracts and an award of attorneys’ fees and litigation expenses.

On December 15, 2004, a consolidated amended complaint (the “Complaint”) was filed alleging substantially similar causes of action. On May 27, 2005, all of the Defendants filed motions to dismiss the Complaint. On July 26, 2006, the court issued a decision and order (1) finding that plaintiffs lacked standing to sue on behalf of the shareholders of the Funds in which none of the plaintiffs had invested and dismissing those Funds from the case (although stating that they could be brought back into the case if standing as to them could be established), and (2) other than one stayed claim, dismissing all of the causes of action against the remaining Defendants, with prejudice, except for the cause of action under Section 36(b) of the 1940 Act, which the court granted plaintiffs leave to repeal as a derivative claim.

On October 16, 2006, plaintiffs filed their Second Consolidated Amended Complaint (“Second Amended Complaint”) which alleges derivative claims on behalf of nine funds identified in the Second Amended Complaint, under Section 36(b) of the 1940 Act, against Citigroup Asset Management (“CAM”), SBAM and SBFM as investment advisers to the identified funds, as well as CGM as a distributor for the identified funds (collectively, the “Second Amended Complaint Defendants”). The Fund was not identified in the Second Amended Complaint. The Second Amended Complaint alleges no claims against any of the funds or any of their Board Members. Under Section 36(b), the Second Amended Complaint alleges similar facts and seeks similar relief against the Second Amended Complaint Defendants as the Complaint.

On December 3, 2007, the court granted the Defendants’ motion to dismiss, with prejudice. On January 2, 2008, the plaintiffs filed a notice of appeal to the Second Circuit Court of Appeals.

Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed in the future.

*  *  *

Beginning in August 2005, five class action lawsuits alleging violations of federal securities laws and state law were filed against CGM and SBFM, (collectively, the “Defendants”) based on the May 31, 2005 settlement order issued against the Defendants by the Securities and Exchange Commission (“SEC”) as previously described. The complaints seek injunctive relief and compensatory and punitive damages, removal of SBFM as the investment manager for the Smith Barney family of funds, rescission of the funds’ management and other contracts with SBFM, recovery of all fees paid to SBFM pursuant to such contracts, and an award of attorneys’ fees and litigation expenses. The five actions were subsequently consolidated and a consolidated complaint was filed.

20  |  CitiSM California Tax Free Reserves 2008 Semi-Annual Report


On September 26, 2007, the United States District Court for the Southern District of New York issued an order dismissing the consolidated complaint, and judgment was later entered. An appeal has been filed and is pending before the U.S. Court of Appeals for the Second Circuit.

5. Other matters

On or about May 30, 2006, John Halebian, a purported shareholder of CitiSM New York Tax Free Reserves, a series of Legg Mason Partners Money Market Trust, formerly a series of CitiFunds Trust III (the “Subject Trust”), filed a complaint in the United States District Court for the Southern District of New York against the independent trustees of the Subject Trust (Elliott J. Berv, Donald M. Carlton, A. Benton Cocanougher, Mark T. Finn, Stephen Randolph Gross, Diana R. Harrington, Susan B. Kerley, Alan G. Merten and R. Richardson Pettit).

The Subject Trust is also named in the complaint as a nominal defendant. The complaint alleges both derivative claims on behalf of the Subject Trust and class claims on behalf of a putative class of shareholders of the Subject Trust in connection with the 2005 sale of Citigroup’s asset management business to Legg Mason and the related approval of new investment advisory agreements by the trustees and shareholders. In the derivative claim, the plaintiff alleges, among other things, that the independent trustees breached their fiduciary duty to the Subject Trust and its shareholders by failing to negotiate lower fees or seek competing bids from other qualified investment advisers in connection with Citigroup’s sale to Legg Mason. In the claims brought on behalf of the putative class of shareholders, the plaintiff alleges that the independent trustees violated the proxy solicitation requirements of the 1940 Act, and breached their fiduciary duty to shareholders, by virtue of the voting procedures, including “echo voting,” used to obtain approval of the new investment advisory agreements and statements made in a proxy statement regarding those voting procedures. The plaintiff alleges that the proxy statement was misleading because it failed to disclose that the voting procedures violated the 1940 Act. The relief sought includes an award of damages, rescission of the advisory agreement, and an award of costs and attorney fees.

In advance of filing the complaint, Mr. Halebian’s lawyers made written demand for relief on the Board of the Subject Trust, and the Board’s independent trustees formed a demand review committee to investigate the matters raised in the demand, and subsequently in the complaint, and recommend a course of action to the Board. The committee, after a thorough review, determined that the independent trustees did not breach their fiduciary duties as alleged by Mr. Halebian, and that the action demanded by Mr. Halebian would not be in the best interests of the Subject Trust. The Board of the Subject Trust (the trustee who is an “interested person” of the Subject Trust, within the meaning of the 1940 Act, having recused himself from the matter), after receiving and considering the committee’s report and based upon the findings of the committee, subsequently also determined and, adopting the recommendation of the committee, directed

CitiSM California Tax Free Reserves 2008 Semi-Annual Report  |  21


Notes to financial statements (unaudited) continued

counsel to move to dismiss Mr. Halebian’s complaint. A motion to dismiss was filed on October 23, 2006. Opposition papers were filed on or about December 7, 2006. The complaint was dismissed on July 31, 2007. Mr. Halebian has filed an appeal in the U.S. Court of Appeals for the Second Circuit. The appeal is pending.

6. Recent accounting pronouncements

On September 20, 2006, the Financial Accounting Standards Board (“FASB”) released Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management has determined that there is no material impact to the Fund’s valuation policies as a result of adopting FAS 157. The Fund will implement the disclosure requirements beginning with its November 30, 2008 Form N-Q.

In March 2008, FASB issued the Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial position, performance and cash flows. Management is currently evaluating the impact the adoption of SFAS 161 will have on the Fund’s financial statements and related disclosures.

7. Recent Developments

On May 21, 2007, the United States Supreme Court agreed to hear an appeal in Department of Revenue of Kentucky v. Davis, a case concerning the validity of statutes that create a state tax exemption for interest from municipal securities. The Kentucky Court of Appeals had held that Kentucky’s statute, which provided an exemption for interest earned on municipal securities of Kentucky issuers while taxing interest earned on municipal securities of issuers in other states, violated the Interstate Commerce Clause of the United States Constitution. If the Supreme Court were to adopt the reasoning of the Kentucky Court of Appeals, its decision would affect the state tax status of fund distributions. It is unclear how such a decision would affect the market for municipal securities, but it could adversely affect the value of securities held by the Fund, and therefore of the Fund’s shares. Such a decision could also prompt legislation at the state level that would have further impacts upon the taxability of Fund distributions and upon the market for municipal securities. The case was argued before the Supreme Court on November 5, 2007, but no decision has yet been issued.

22  |  CitiSM California Tax Free Reserves 2008 Semi-Annual Report


Board approval of management and
subadvisory agreements (unaudited)

At a meeting of the Board of Trustees of Legg Mason Partners Money Market Trust (the “Trust”) held on November 12-13, 2007, the Board, including the Board members who are not considered to be “interested persons” of the Trust (the “Independent Board Members”) under the Investment Company Act of 1940, as amended (the “1940 Act”), approved for an annual period the continuation of the management agreement (the “Management Agreement”) between the Trust and Legg Mason Partners Fund Advisor, LLC (the “Manager”) with respect to the CitiSM California Tax Free Reserves, a series of the Trust (the “Fund”), and the sub-advisory agreement (the “Sub-Advisory Agreement”) between the Manager and Western Asset Management Company (the “Subadviser”), an affiliate of the Manager, with respect to the Fund.

Background

The Board received information in advance of the meeting from the Manager to assist it in its consideration of the Management Agreement and the Sub-Advisory Agreement and was given the opportunity to ask questions and request additional information from management. The Board received and considered a variety of information about the Manager, the Subadviser and the Fund’s distributor (and any distributors affiliated with the Fund during the past two years), as well as the management, sub-advisory and distribution arrangements for the Fund and other funds overseen by the Board, certain portions of which are discussed below. The presentation made to the Board encompassed the Fund and all funds for which the Board has responsibility. The discussion below covers both the advisory and the administrative functions being rendered by the Manager, both of which functions are encompassed by the Management Agreement, as well as the advisory functions rendered by the Subadviser pursuant to the Sub-Advisory Agreement.

Board approval of management agreement and sub-advisory agreement

The Independent Board Members were advised by separate independent legal counsel throughout the process. Prior to voting, the Independent Board Members received a memorandum from their independent legal counsel discussing the legal standards for their consideration of the proposed continuation of the Management Agreement and the Sub-Advisory Agreement. The Independent Board Members also discussed the proposed continuation of the Management Agreement and the Sub-Advisory Agreement in private sessions with their independent legal counsel at which no representatives of the Manager were present. In approving the Management Agreement and Sub-Advisory Agreement, the Board, including the Independent Board Members, considered a variety of factors, including those factors discussed below. No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve the Management Agreement and the Sub-Advisory Agreement, and each Board Member attributed different weight to the various factors.

CitiSM California Tax Free Reserves  |  23


Board approval of management and
subadvisory agreements (unaudited) continued

Nature, extent and quality of the services under the management agreement and sub-advisory agreement

The Board received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Subadviser under the Management Agreement and the Sub-Advisory Agreement, respectively, during the past two years. The Board noted information received at regular meetings throughout the year related to the services rendered by the Manager in its management of the Fund’s affairs and the Manager’s role in coordinating the activities of the Fund’s other service providers. The Board’s evaluation of the services provided by the Manager and the Subadviser took into account the Board’s knowledge and familiarity gained as Board members of funds in the Legg Mason Partners fund complex, including the scope and quality of the investment management and other capabilities of the Manager and the Subadviser, and the quality of the Manager’s administrative and other services. The Board observed that the scope of services provided by the Manager and the Subadviser had expanded over time as a result of regulatory and other developments, including maintaining and monitoring their own and the Fund’s expanded compliance programs. The Board reviewed information received from the Manager and the Subadviser regarding the Fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act.

The Board reviewed the qualifications, backgrounds and responsibilities of the Fund’s senior personnel and the portfolio management team primarily responsible for the day-to-day portfolio management of the Fund. The Board also considered the degree to which the Manager implemented organizational changes to improve investment results and the services provided to the Legg Mason Partners fund complex. The Board also considered, based on its knowledge of the Manager and its affiliates, the financial resources available to Legg Mason, Inc., the parent organization of the Manager and the Subadviser.

The Board considered the division of responsibilities between the Manager and the Subadviser and the oversight provided by the Manager. The Board also considered the Manager’s and the Subadviser’s brokerage policies and practices. In addition, management also reported to the Board on, among other things, its business plans, organizational changes and portfolio manager compensation plan.

The Board concluded that, overall, the nature, extent and quality of services provided (and expected to be provided) under the Management Agreement and the Sub-Advisory Agreement were satisfactory.

Fund performance

The Board received and considered performance information for the Fund as well as for a group of funds (the “Performance Universe”) selected by Lipper, Inc. (“Lipper”), an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to determine the

24  |  CitiSM California Tax Free Reserves


similarity of the Fund with the funds included in the Performance Universe. The Board also noted that it had received and discussed with management information throughout the year at periodic intervals comparing the Fund’s performance against its benchmark.

The information comparing the Fund’s performance to that of its Performance Universe, consisting of all retail and institutional funds classified as California tax-free money market funds by Lipper, showed, among other data, that the Fund’s performance for the 1-, 3- and 5-year periods ended June 30, 2007 was below the median. The Board noted the explanations from the Manager concerning the underperformance versus the peer group.

Based on its review, which included careful consideration of all of the factors noted above, the Board concluded that it will continue to evaluate the Fund’s performance and any actions taken by the Manager to continue to improve performance.

Management fees and expense ratios

The Board reviewed and considered the contractual management fee (the “Contractual Management Fee”) payable by the Fund to the Manager in light of the nature, extent and quality of the management and sub-advisory services provided by the Manager and the Subadviser. The Board also reviewed and considered that fee waiver and/or expense reimbursement arrangements are currently in place for the Fund and considered the actual fee rate (after taking waivers and reimbursements into account) (the “Actual Management Fee”) and that the Manager had agreed to continue its fee waivers and reimbursements until further notice. In addition, the Board noted that the compensation paid to the Subadviser is paid by the Manager, not the Fund, and, accordingly, that the retention of the Subadviser does not increase the fees or expenses otherwise incurred by the Fund’s shareholders.

Additionally, the Board received and considered information comparing the Contractual Management Fees and the Actual Management Fee and the Fund’s overall expenses with those of funds in both the relevant expense group and a broader group of funds, each selected and provided by Lipper. The Board also reviewed information regarding fees charged by the Manager to other U.S. clients investing primarily in an asset class similar to that of the Fund, including, where applicable, separate accounts.

The Manager reviewed with the Board the differences in scope of services provided to the Fund and to these other clients, noting that the Fund is provided with administrative services, office facilities, Fund officers (including the Fund’s chief executive, chief financial and chief compliance officers), and that the Manager coordinates and oversees the provision of services to the Fund by other Fund service providers. The Board considered the fee comparisons in light of the differences required to manage these different types of accounts. The Board also considered and discussed information about the Subadviser’s fees, including the

CitiSM California Tax Free Reserves  |  25


Board approval of management and
subadvisory agreements (unaudited) continued

amount of the management fees retained by the Manager after payment of the subadvisory fee. The Board also received an analysis of complex-wide management fees provided by the Manager, which, among other things, set out a framework of fees based on asset classes.

Management also discussed with the Board the Fund’s distribution arrangements. The Board was provided with information concerning revenues received by and certain expenses incurred by distributors affiliated with the Fund during the past two years and how the amounts received by the distributors were paid during that period.

The information comparing the Fund’s Contractual and Actual Management Fees as well as its actual total expense ratio to its Expense Group, consisting of a group of retail no-load funds (including the Fund) classified as California tax-exempt money market funds and chosen by Lipper to be comparable to the Fund, showed that the Fund’s Contractual Management Fee and Actual Management Fee (which reflects a fee waiver) were below the median. The Board noted that the Fund’s actual total expense ratio was above the median. The Board also noted that the Manager was continuing its voluntary waiver until further notice, resulting in the same net effective fee as currently in place, which is lower than the current contractual fee.

Taking all of the above into consideration, the Board determined that the management fee and the subadvisory fees for the Fund were reasonable in light of the nature, extent and quality of the services provided to the Fund under the Management Agreement and the Sub-Advisory Agreement.

Manager profitability

The Board received and considered an analysis of the profitability of the Manager and its affiliates in providing services to the Fund. The Board also received profitability information with respect to the Legg Mason Partners fund complex as a whole. In addition, the Board received information with respect to the Manager’s allocation methodologies used in preparing this profitability data, as well as a report from an outside consultant that had reviewed the methodologies. The profitability of the Manager and its affiliates was considered by the Board not excessive in light of the nature, extent and quality of the services provided to the Fund and the type of fund.

Economies of scale

The Board received and discussed information concerning whether the Manager realizes economies of scale as the Fund’s assets grow. The Board noted that the Manager had previously agreed to institute breakpoints in the Fund’s Contractual Management Fee, reflecting the potential for reducing the Contractual Management Fee as the Fund grows. The Board considered whether the breakpoint fee structure was a reasonable means of sharing any economies of scale or other efficiencies that might accrue from increases in the Fund’s assets levels. The Board noted that the Fund had not yet reached the specified asset level at which a breakpoint to its Contractual Management Fee would be triggered. The

26  |  CitiSM California Tax Free Reserves


Board also noted that as the Fund’s assets increase over time, certain expenses, such as fees for Board members, auditors and legal fees, become a smaller percentage of overall assets.

The Board determined that the management fee structure for the Fund, including breakpoints, was reasonable.

Other benefits to the manager and the subadviser

The Board considered other benefits received by the Manager, the Subadviser and their affiliates as a result of their relationship with the Fund, including the opportunity to offer additional products and services to Fund shareholders.

In light of the costs of providing investment management and other services to the Fund and the ongoing commitment of the Manager and the Subadviser to the Fund, the Board considered the ancillary benefits that the Manager and its affiliates received were reasonable.

*  *  *

In light of all of the foregoing, the Board determined that the continuation of each of the Management Agreement and Sub-Advisory Agreement would be in the best interests of the Fund’s shareholders and approved the continuation of such agreements for another year.

CitiSM California Tax Free Reserves  |  27



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


CitiSM California Tax Free Reserves

 

 

 

 


Trustees

Elliott J. Berv
A. Benton Cocanougher
Jane F. Dasher
Mark T. Finn
R. Jay Gerken, CFA
   Chairman
Rainer Greeven
Stephen R. Gross
Richard E. Hanson, Jr.
Diana R. Harrington
Susan M. Heilbron
Susan B. Kerley
Alan G. Merten
R. Richardson Pettit

Investment manager

Legg Mason Partners Fund
Advisor, LLC

Subadviser

Western Asset Management
Company

 


Distributor

Legg Mason Investor Services, LLC

Custodian

State Street Bank and Trust
Company

Transfer agents

Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, MA 02171

PFPC Inc.
4400 Computer Drive
Westborough, MA 01581

Independent registered
public accounting firm

KPMG LLP
345 Park Avenue
New York, NY 10154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

CitiSM California Tax Free Reserves

 

 

 

 

 

The Fund is a separate investment series of Legg Mason Partners Money Market Trust, a Maryland business trust.

 

 

 

 

 

CITISM CALIFORNIA TAX FREE RESERVES
55 Water Street
New York, New York 10041

 

 

 

 

 

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call 1-800-451-2010.

 

 

 

 

 

Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-800-451-2010, (2) on the Fund’s website at www.leggmason.com/Individualinvestors and (3) on the SEC’s website at www.sec.gov.

 

 

 

 

 

This report is submitted for the general information of the shareholders of CitiSM California Tax Free Reserves. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by a current prospectus.

 

 

 

 

 

Investors should consider the Fund’s investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.

 

 

 

 

 

 

 

 

www.leggmason.com/individualinvestors

© 2008 Legg Mason Investor Services, LLC
Member FINRA, SIPC

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 


BUILT TO WINSM

 

(LEGG MASON LOGO)

 

 

 

 

 

 

 

 

At Legg Mason, we’ve assembled a collection of experienced investment management firms and empowered each of them with the tools, the resources and, most importantly, the independence to pursue the strategies they know best.

 

 

 

 

 

 

 

 

 

 

•     Each was purposefully chosen for their commitment to investment excellence.

 

 

 

 

 

 

 

 

 

 

 

•     Each is focused on specific investment styles and asset classes.

 

 

 

 

 

 

 

 

 

 

 

•     Each exhibits thought leadership in their chosen area of focus.

 

 

 

 

 

 

 

 

 

 

 

Together, we’ve built a powerful portfolio of solutions for financial advisors and their clients. And it has made us a world leader in money management.*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*     Ranked ninth-largest investment manager in 2007 based on 12/31/06 assets under management, according to Pensions & Investments, May 2007.

 

 

 

 

 

 

 

 

 

 

 

       www.leggmason.com/individualinvestors

 

 

 

 

 

 

 

 

 

 

       
       ©2008 Legg Mason Investor Services, LLC Member FINRA, SIPC
       FDXX010869 4/08          SR08-536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOT PART OF THE SEMI-ANNUAL REPORT

 

 

 

 

 

 

 

 

 

 

 

 

 





ITEM 2. CODE OF ETHICS.
   
  Not applicable.
   
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
   
  Not applicable.
   
ITEM 4. PRINCIPAL ACCOUNTANT FEES and SERVICES.
   
  Not applicable.
   
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
   
  Not applicable.
   
ITEM 6. SCHEDULE OF INVESTMENTS.
   
  Included herein under Item 1.
   
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
   
  Not applicable.
   
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
   
  Not applicable.
   
ITEM 9. PURCHASES OF INCOME SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
   
  Not applicable.
   
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
   
  Not applicable.
   
ITEM 11. 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 12. EXHIBITS.
   
  (a)(1) Not applicable.
   
    Exhibit 99.CODE ETH
     
  (a)(2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
     
    Exhibit 99.CERT
     
  (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
     
    Exhibit 99.906CERT





 

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.

Legg Mason Partners Money Market Trust

By: /s/ R. Jay Gerken
  (R. Jay Gerken)
  Chief Executive Officer of
  Legg Mason Partners Money Market Trust

Date: May 2, 2008

     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
  Legg Mason Partners Money Market Trust

Date: May 2, 2008

By: /s/ Frances M. Guggino
  (Frances M. Guggino)
  Chief Financial Officer of
  Legg Mason Partners Money Market Trust

Date: May 2, 2008