--------------------------------------------------------------------------------
ANIMAL LOVERS
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THE HUMANE
EQUITY
FUND
--------------------------------------------------------------------------------
NEED TO INVEST TOO
--------------------------------------------------------------------------------
ANNUAL REPORT
September 30, 2000
[GRAPHIC OMITTED]
THE HUMANE EQUITY FUND
-------------------------
ANIMAL FRIENDLY INVESTING
-------------------------
-------------------------
THE HUMANE SOCIETY
-------------------------
OF THE UNITED STATES
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NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
--------------------------------------------------------------------------------
<PAGE>
THE HUMANE EQUITY FUND...
INVESTING WITH YOUR VALUES
You don't have to sacrifice your values when you choose your investments. The
Humane Equity Fund ("Fund") seeks to invest in companies that believe
sensitivity to animal interests makes good business sense. Many of these
companies are forward-looking companies with an eye on future generations. They
believe that creating sustainable growth and respecting living things is a
smart, long-term business strategy.
The cornerstone of the Fund is its policy of avoiding investing in companies
that directly harm animals and their habitats. The Fund is designed to combine
both financial and animal friendly criteria in all of its investment decisions.
The Fund follows a screening process founded upon the humane treatment of
animals as defined by The Humane Society of the United States.
THANK YOU FOR INVESTING IN
THE HUMANE EQUITY FUND.
Distributor CFBDS, Inc., NASD Member. The Humane Society of the United States is
not affiliated with CFBDS, Inc.
<PAGE>
--------------------------------------------------------------------------------
Shareholder Letter
--------------------------------------------------------------------------------
[PHOTO OMITTED]
PAUL G.
IRWIN
President
The Humane Society
of the United States
Dear Shareholder:
It is a great pleasure for The Humane Society of the United States ("The HSUS")
to serve as a consultant to The Humane Equity Fund ("Fund"), and I am also
pleased to serve as a director of the Fund. We believe this Fund provides an
opportunity for individuals to invest for their future and from their hearts.
We are especially gratified to be working with Salomon Brothers Asset Management
Inc, a company with experience in and a commitment to socially aware investing,
and with the Fund's manager Charles P. Graves III, a professional with more than
15 years of investment experience.
As the nation's largest animal protection organization, our mission is to
promote the protection of all animals, and to create understanding and
compassion for all who share our world.
This animal-friendly mutual fund clearly mirrors the ethics of The HSUS. As a
consultant to the Fund, we will receive a fee once the Fund's assets reach $50
million. But we support The Humane Equity Fund to the extent that we have
allocated a portion of our liquid assets to this new financial vehicle, as have
I personally. On behalf of everyone here at The HSUS, I thank you too, for your
support for and investment in the Fund.
Sincerely,
/s/ Paul G. Irwin
Paul G. Irwin
President
The Humane Society of the United States and Director of the Humane Equity Fund
October 25, 2000
--------------------------------------------------------------------------------
The Humane Equity Fund 1
<PAGE>
--------------------------------------------------------------------------------
Shareholder Letter
--------------------------------------------------------------------------------
[PHOTO OMITTED] [PHOTO OMITTED]
HEATH B. CHARLES P.
MCLENDON GRAVES III, CFA
Chairman Executive
Vice President
Dear Shareholder:
We are pleased to provide the inaugural annual report of The Humane Equity Fund
("Fund") for the period since inception, February 2, 2000 through September 30,
2000. In this report, we have summarized the period's prevailing economic
conditions and briefly outlined the Fund's investment strategy. The information
in this letter is the manager's opinion. It is not a forecast of the future,
investment advice, or a guarantee of how the Fund will do in the future.
Please refer to pages 6 through 8 for a complete list and percentage breakdown
of the Fund's holdings. A detailed summary of the Fund's performance can be
found in the appropriate sections that follow. Please note any discussion of the
Fund's holdings is as of September 30, 2000 and is subject to change. We hope
that with your continued support, we can continue to build a fund that looks to
provide competitive returns while promoting the principles of the humane
treatment of animals as developed by The Humane Society of the United States
("The HSUS").
Performance Update and Investment Strategy
The Fund seeks long-term growth of capital by investing mainly in the common
stocks of U.S. companies and avoids investing in companies that directly harm
animals and their habitats. We look to invest in companies that exhibit both
business and social leadership. We believe these types of companies that are
committed to respecting animals are smart companies. In our opinion, these
select companies are positioned for growth because they are more likely to have
less costly litigation and a positive public image.
For the period February 2, 2000 through September 30, 2000, the Fund returned
7.30%.(1) In comparison, the Standard & Poor's 500 Index ("S&P 500")(2) returned
2.74% for the same period.
The Fund invests in a broad range of companies, industries and sectors, without
regard to market capitalization, looking for investments with capital
appreciation potential. We utilize the style of stock selection commonly known
as "growth at a reasonable price," investing in companies with the common
characteristic being good, timely investment opportunity based on its earnings
growth, dividend risk and risk characteristics.
Additionally, we avoid investing in companies that directly harm animals and
their habitats by screening all potential investments using guidelines
established in conjunction with The HSUS. These guidelines include:
o No investment in pharmaceutical companies;
o No investment in cosmetics companies if there is a question about such
companies' use of animals for testing or studies;
o No investment in companies that use animals in an end product, e.g.,
meat-packing companies; and
o No investment in companies producing products adverse to the humane
treatment of animals, e.g., manufacturers of hunting and trapping
equipment.
Because we use animal friendly criteria as a component of our selection process,
the Fund's universe of investments may be smaller than that of other funds. In
some circumstances, this could cause the Fund's
----------
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. All figures represent past performance and are
not a guarantee of future results. Investment returns and principal value
will fluctuate, and redemption value may be more or less than the original
cost.
(2) The S&P 500 is a market capitalization-weighted measure of 500 widely held
common stocks. Please note that an investor cannot invest directly in an
index.
--------------------------------------------------------------------------------
2 2000 Annual Report to Shareholders
<PAGE>
investment performance to be better or worse than funds with similar investment
objectives that do not have the Fund's screening policies.
Portfolio and Market Update
We knew it had to happen. And we knew we wouldn't like it when it did, but
stocks don't always go up. For each of the last five years, annual stock market
returns were greater than 20%. However, so far during 2000 most major stock
market indices are down. There is no question it has been a challenging year for
most stock investors and portfolio managers.
The Federal Reserve Board's ("Fed's") decision to steadily increase short-term
interest rates earlier this year caused a number of investors to question the
durability of broad economic growth and therefore the sustainability of the
current stock market advance. In addition to the economically depressant effects
of rising interest rates, investors had to contend with the effects of rising
energy costs. The more money we spend filling our gas tanks and heating our
homes, the less we have to spend at the mall.
In this environment, many investors moved away from more speculative stocks and
into traditionally defensive stocks.(3) Technology and communication stocks were
notably weak during the third quarter of 2000, while utility stocks were all the
rage. During the third quarter of 2000, other sectors dependent on capital
spending also suffered. In fact, the only industry sector in the Fund's
portfolio that was a real detriment to its performance during the period was the
producer manufacturing sector.
During the period, a few specific disappointing performers for the Fund were:
o Pitney Bowes, an operator of three main business segments: mailing and
integrated logistics, office solutions and capital services;
o Deere & Co., a manufacturer, distributor and financier of a wide range of
agricultural equipment; and
o Illinois Tool Works, a designer and manufacturer of fasteners, components,
equipment and consumable systems.
Although a move to more defensive market sectors is typical in the early stages
of an economic slowdown, there were, of course, other factors influencing these
moves. Technology stocks were due for a break. As fundamentally strong as the
businesses of many of these companies are, their stocks were simply too richly
valued.
When we started the Fund in February of this year, we were in the midst of a
technology stock buying frenzy. At the time, we elected to underweight
technology stocks as a group (relative to the S&P 500) but overweight specific
high quality names such as EMC Corp., Sun Microsystems and Oracle. Now, we
believe the correction in many technology stocks is mostly complete and we
continue to increase their weighting in the portfolio. We have started to
increase the portfolio's technology holdings by adding names like Compaq and
Computer Associates, companies with great long-term potential but little current
investor support. In technology, we have gone from almost 8% underweight at the
end of March to 1% overweight at the end of September.
As excited as we are about the future for technology stocks we also see great
value in other sectors of the market. This is reflected in the composition of
the Fund's top five holdings where EMC Corp. is the only technology stock. In
fact, since June, four of the Fund's five top contributors to performance came
from sectors other than technology. We had great performance from stocks in such
mundane industries as airlines (Southwest), utilities (AES Corp.) and banks (JP
Morgan).
Although the stock market started the final quarter of the year in a typically
bad mood, we believe the outlook for stock price appreciation is improving.
First, short-term interest rates have stopped going up. As of this writing, the
interest rate on two-year government notes is below the federal funds rate ("fed
funds rate").(4) The last three times this situation occurred, the move on the
part of the Fed was to lower the fed funds rate. In a flat to declining rate
environment we would expect to see the market shift back more favorably to
growth-
----------
(3) Defensive stocks are more stable than average and can provide a somewhat
safe return on investor's money.
(4) Fed 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 fed funds rate often points to the direction of U.S. interest
rates.
--------------------------------------------------------------------------------
The Humane Equity Fund 3
<PAGE>
oriented stocks from the value orientation favored for most of this year.
Second, although we have never been good at forecasting movements in the price
of oil, we expect oil prices to trend lower into the beginning of next year.
Oil price increases acted like a big tax increase for most of this year and we
believe the trend will be reversed next year. Third, we believe that earnings
growth will slow in 2001 from this year's level. Somewhat surprisingly, stocks
tend to act better in years where earnings growth is moderate, in a range of 5%
to 10%, which is the range we are expecting for next year. Given these factors,
our outlook for the remainder of 2000 and into 2001 is increasingly positive. Of
course, no forecast is without risk, and this year's big risk is politics.
Divided government (Democratic White House, Republican Congress) has been good
for our country. Neither party has been able to dramatically alter fiscal
policy. For the past five years, tax policy has been consistent and government
has grown only modestly. If either party were to win control of both the
Presidency and Congress, we would have to adjust our outlook accordingly.
As always, thank you for your confidence in our investment approach. We look
forward to continuing to help you invest in harmony with your values in the
future.
Sincerely,
/s/ Heath B. McLendon /s/ Charles P. Graves III, CFA
Heath B. McLendon Charles P. Graves III, CFA
Chairman Executive Vice President
October 25, 2000
--------------------------------------------------------------------------------
4 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
The Humane Equity Fund at a Glance (unaudited)
--------------------------------------------------------------------------------
Growth of $10,000 Invested in Shares of
The Humane Equity Fund vs. the Standard & Poor's 500 Index+
--------------------------------------------------------------------------------
February 2000 -- September 2000
[The following table was depicted as a mountain graph in the printed material.]
The Humane Standard &
Equity Fund Poor's 500 Index
----------- ----------------
Feb 2\2000 10,000 10,000
Feb 29\2000 9,830 97,08
Mar 31\2000 10,590 10,657
Apr 30\2000 10,620 10,337
May 31\2000 10,080 10,125
Jun 30\2000 10,240 10,374
Jul 31\2000 10,460 10,212
Aug 31\2000 11,050 10,846
Sept 30\2000 10,730 11,419
+ Hypothetical illustration of $10,000 invested in shares of The Humane
Equity Fund on February 2, 2000 (commencement of operations), assumes
reinvestment of dividends and capital gains, if any, at net asset value
through September 30, 2000. The Standard & Poor's 500 Index ("S&P 500
Index") is an index of widely held common stocks listed on the New York
and American Stock Exchanges and the over-the-counter markets. Figures for
the S&P 500 Index include reinvestment of dividends. The Index is
unmanaged and is not subject to the same management and trading expenses
of a mutual fund. An investor cannot invest directly in an index.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
--------------------------------------------------------------------------------
The Humane Equity Fund 5
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments September 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 94.3%
Consumer Durables -- 2.2%
5,100 The Black & Decker Corp. $ 174,356
2,700 Newell Rubbermaid Inc. 61,594
--------------------------------------------------------------------------------
235,950
--------------------------------------------------------------------------------
Consumer Non-Durables -- 2.8%
7,500 Avon Products, Inc. 306,563
--------------------------------------------------------------------------------
Consumer Services -- 6.2%
2,200 Amdocs Ltd.* 137,225
6,400 Convergys Corp.* 248,800
2,900 Infinity Broadcasting Corp.* 95,700
2,100 The Reader's Digest Association,
Inc., Class A Shares 74,156
3,000 Univision Communications Inc.* 112,125
--------------------------------------------------------------------------------
668,006
--------------------------------------------------------------------------------
Electronic Technology -- 19.3%
4,400 Cisco Systems, Inc.* 243,100
10,000 Compaq Computer Corp. 275,800
2,000 Dell Computer Corp.* 61,625
3,920 EMC Corp.* 388,570
3,600 Intel Corp. 149,625
1,100 International Business Machines Corp. 123,750
2,018 Koninklijke Philips Electronics, Inc. 85,765
1,740 Motorola, Inc. 49,155
2,200 Palm, Inc.* 116,463
5,200 Solectron Corp.* 239,850
2,500 Sun Microsystems, Inc.* 291,875
1,500 VerticalNet, Inc.* 52,688
450 Vishay Intertechnology, Inc.* 13,838
--------------------------------------------------------------------------------
2,092,104
--------------------------------------------------------------------------------
Entertainment/Media -- 2.1%
884 Viacom Inc., Class B Shares* 227,214
--------------------------------------------------------------------------------
Finance -- 14.1%
1,170 American International Group, Inc. 111,954
2,000 Capital One Financial Corp. 140,125
8,500 The Charles Schwab Corp. 301,750
5,250 The Chase Manhattan Corp. 242,484
4,800 Federal Home Loan Mortgage Corp. 259,500
1,630 Marsh & McLennan Cos., Inc. 216,382
980 State Street Corp. 127,400
1,700 XL Capital Ltd., Class A Shares 124,950
--------------------------------------------------------------------------------
1,524,545
--------------------------------------------------------------------------------
Industrial Services -- 4.2%
6,600 The AES Corp. 452,100
--------------------------------------------------------------------------------
Non-Energy Minerals -- 1.4%
4,200 Alcoa Inc. 106,313
1,600 Nucor Corp. 48,200
--------------------------------------------------------------------------------
154,513
--------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
6 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Process Industries -- 1.0%
3,000 Praxair, Inc. $ 112,125
--------------------------------------------------------------------------------
Producer Manufacturing -- 3.2%
4,720 Ford Motor Co. 119,475
1,800 Illinois Tool Works Inc. 100,575
3,100 Pitney Bowes Inc. 122,256
--------------------------------------------------------------------------------
342,306
--------------------------------------------------------------------------------
Retail Trade -- 9.3%
1,500 Best Buy Co., Inc.* 95,437
6,500 Costco Wholesale Corp.* 227,094
1,300 The Home Depot Inc. 68,981
7,700 The Kroger Co.* 173,731
5,000 Lowe's Cos., Inc. 224,375
7,500 Staples, Inc.* 106,406
2,400 Wal-Mart Stores, Inc. 115,500
--------------------------------------------------------------------------------
1,011,524
--------------------------------------------------------------------------------
Technology Services -- 10.5%
3,100 America Online, Inc.* 166,625
4,400 Automatic Data Processing, Inc. 294,250
7,000 Computer Associates International, Inc. 176,313
2,600 Electronic Data Systems Corp. 107,900
1,000 Genuity Inc.* 6,531
40 Inrange Technologies Corp.* 2,120
3,100 Oracle Corp.* 244,125
1,000 VERITAS Software Corp.* 142,000
--------------------------------------------------------------------------------
1,139,864
--------------------------------------------------------------------------------
Transportation -- 5.4%
17,000 Southwest Airlines Co. 412,250
3,100 United Parcel Service, Inc. 174,762
--------------------------------------------------------------------------------
587,012
--------------------------------------------------------------------------------
Utilities -- 12.6%
2,200 ALLTEL Corp. 114,812
1,500 AT&T Corp. 44,063
1,000 AT&T Wireless Group* 20,875
2,000 The Coastal Corp. 148,250
4,500 Comcast Corp. 184,219
3,200 Dynegy Inc., Class A Shares 182,400
2,400 Enron Corp. 210,300
2,900 SBC Communications Inc. 145,000
600 Southern Energy, Inc.* 18,825
950 Time Warner Telecom Inc.* 45,897
4,000 Valero Energy Corp. 140,750
3,600 WorldCom, Inc.* 109,350
--------------------------------------------------------------------------------
1,364,741
--------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $9,528,062) 10,218,567
================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
The Humane Equity Fund 7
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (continued) September 30, 2000
--------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 5.7%
$614,000 Morgan Stanley Dean Witter & Co., 6.480% due
10/2/00; Proceeds at maturity -- $614,332;
(Fully collateralized by U.S. Treasury Notes,
5.875% to 6.500% due 11/30/01 to 10/15/06;
Market value -- $616,945) (Cost -- $614,000) $ 614,000
================================================================================
TOTAL INVESTMENTS-- 100%
(Cost -- $10,142,062**) $10,832,567
================================================================================
* Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
8 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Assets and Liabilities September 30, 2000
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $10,142,062) $ 10,832,567
Cash 836
Receivable from investment advisor 126,699
Receivable for Fund shares sold 4,305
Dividends and interest receivable 2,885
--------------------------------------------------------------------------------
Total Assets 10,967,292
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 50,607
Distribution fees payable 2,188
Administration fees payable 875
Payable for Fund shares purchased 377
Accrued expenses 59,440
--------------------------------------------------------------------------------
Total Liabilities 113,487
--------------------------------------------------------------------------------
Total Net Assets $ 10,853,805
================================================================================
NET ASSETS:
Par value of capital shares $ 1,012
Capital paid in excess of par value 10,163,282
Accumulated net investment income 1,528
Accumulated net realized loss from security transactions (2,522)
Net unrealized appreciation of investments 690,505
--------------------------------------------------------------------------------
Total Net Assets $ 10,853,805
================================================================================
Shares Outstanding 1,011,563
--------------------------------------------------------------------------------
Net Asset Value $ 10.73
================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
The Humane Equity Fund 9
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations For the Period Ended September 30, 2000 (a)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 51,148
Interest 44,603
Less: Foreign withholding tax (91)
---------------------------------------------------------------------------------
Total Investment Income 95,660
---------------------------------------------------------------------------------
EXPENSES:
Shareholder communications 87,000
Investment advisory fees (Note 2) 42,197
Audit and legal 37,000
Shareholder and system servicing fees 35,000
Registration fees 16,700
Distribution fees (Note 2) 16,230
Directors' fees 12,000
Administration fees (Note 2) 6,492
Custody 2,500
Other 8,000
---------------------------------------------------------------------------------
Total Expenses 263,119
Less: Management fee waiver and expense reimbursement (Note 2) (168,987)
---------------------------------------------------------------------------------
Net Expenses 94,132
---------------------------------------------------------------------------------
Net Investment Income 1,528
---------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 1,389,282
Cost of securities sold 1,391,804
---------------------------------------------------------------------------------
Net Realized Loss (2,522)
---------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period --
End of period 690,505
---------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 690,505
---------------------------------------------------------------------------------
Net Gain on Investments 687,983
---------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 689,511
=================================================================================
</TABLE>
(a) For the period from February 2, 2000 (commencement of operations) to
September 30, 2000.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Changes in Net Assets For the Period Ended September 30, 2000 (a)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 1,528
Net realized loss (2,522)
Increase in net unrealized appreciation 690,505
----------------------------------------------------------------------------------
Increase in Net Assets From Operations 689,511
----------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income --
----------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders --
----------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 10,195,134
Net asset value of shares issued for reinvestment of dividends --
Cost of shares reacquired (30,840)
----------------------------------------------------------------------------------
Increase in Net Assets From Fund Share Transactions 10,164,294
----------------------------------------------------------------------------------
Increase in Net Assets 10,853,805
NET ASSETS:
Beginning of period --
----------------------------------------------------------------------------------
End of period* $ 10,853,805
==================================================================================
* Includes accumulated net investment income of: $ 1,528
==================================================================================
</TABLE>
(a) For the period from February 2, 2000 (commencement of operations) to
September 30, 2000.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
The Humane Equity Fund 11
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
1. Significant Accounting Policies
The Humane Equity Fund ("Fund") is a separate diversified investment portfolio
of SSB Citi Funds, Inc. ("Series"), a Maryland corporation, registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on such markets;
securities for which no sales price were reported and U.S. government agencies
and obligations are valued at current quoted mean prices; (c) securities that
have a maturity of more than 60 days are valued at prices based on market
quotations for securities of similar type, yield and maturity; (d) securities
maturing within 60 days are valued at cost plus accreted discount, or minus
amortized premium, which approximates value; (e) dividend income is recorded on
the ex-dividend date and interest income is recorded on an accrual basis; (f)
gains or losses on the sale of securities are calculated by using the specific
identification method; (g) dividends and distributions to share holders are
recorded on the ex-dividend date; (h) the accounting records are maintained in
U.S. dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars based on the rate of exchange of such currencies
against U.S. dollars on the date of valuation. Purchases and sales of
securities, and income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income or expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank; (i) the Fund intends to comply with the
applicable provisions of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; (j) the character of income and gains to be distributed are
determined in accordance with in come tax regulations which may differ from
generally accepted accounting principles; and (k) 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.
2. Investment Advisory Agreement,
Administration Agreement and
Other Transactions
Salomon Brothers Asset Management Inc ("SBAM"), an indirect wholly owned
subsidiary of Salomon Smith Barney Holdings, Inc. ("SSBH"), which, in turn, is
wholly owned by Citigroup Inc., acts as advisor to the Fund. Under the
investment advisory agreement, the Fund pays a fee calculated at the annual rate
of 0.65% of its average daily net assets. This fee is calculated daily and paid
monthly.
SSB Citi Fund Management LLC ("SSBC"), another subsidiary of SSBH, acts as
administrator to the Fund. As compensation for its services the Fund pays SSBC a
fee calculated at an annual rate of 0.10% of its average daily net assets. This
fee is calculated daily and paid monthly. For the period ended September 30,
2000, SBAM waived all of its investment advisory fee and reimbursed expenses of
$126,699.
In addition, The Humane Society of the United States ("HSUS"), acting as a
consultant, assists SBAM in its determination of which investments meet the
Fund's animal friendly criteria. SBAM, from its investment
--------------------------------------------------------------------------------
12 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
advisory fee pays HSUS a fee of 0.07% of the Fund's average daily net assets.
This fee will begin to accrue when the Fund's aggregate net assets equal or
exceed $50 million.
CFBDS, Inc. acts as the Fund's distributor.
Salomon Smith Barney Inc. ("SSB") acts as the primary broker for the Fund's
portfolio agency transactions. For the period ended September 30, 2000, SSB did
not receive any brokerage commissions.
Pursuant to a Distribution Plan, the Fund pays service and/or distribution fees
calculated at the annual rate of 0.25% of the average daily net assets.
3. Investments
During the period ended September 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $10,919,867
--------------------------------------------------------------------------------
Sales 1,389,282
================================================================================
At September 30, 2000, aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 1,528,922
Gross unrealized depreciation (838,417)
--------------------------------------------------------------------------------
Net unrealized appreciation $ 690,505
================================================================================
4. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and 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 Fund requires continual maintenance
of the market value (plus accrued interest) of the collateral in amounts at
least equal to the repurchase price.
5. Reverse Repurchase Agreement
The Fund may enter into reverse repurchase agreement transactions for leveraging
purposes. A reverse repurchase agreement involves a sale by the Fund of
securities with an agreement by the Fund to repurchase the same securities at an
agreed upon price and date. A reverse repurchase agreement involves the risk
that the market value of the securities sold by the Fund may decline below the
repurchase price of the securities. The Fund will establish a segregated account
with its custodian, in which the Fund will maintain liquid securities equal in
value to its obligations with respect to reverse repurchase agreements.
During the period ended September 30, 2000, the Fund did not enter into any
reverse repurchase agreements.
6. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. Securities equal to the initial margin amount are segregated by the
custodian in the name of the broker. Additional securities are also segregated
up to the current market value of the futures contracts. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking to market" on a daily basis to reflect
the market value of the contract at the end of each day's trading. Variation
margin payments are made or received and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transactions and the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio. The
Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
--------------------------------------------------------------------------------
The Humane Equity Fund 13
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
At September 30, 2000, the Fund had no open futures contracts.
7. Option Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments which are marked-to-market daily. When a purchase option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are greater
or less than the premium paid for the option. When the Fund exercises a put
option, it will realize a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the premium originally
paid. When the Fund exercises a call option, the cost of the security which the
Fund purchases upon exercise will be increased by the premium originally paid.
At September 30, 2000, the Fund had no open purchased call or put option
contracts.
When a Fund writes a covered call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised, the cost of the security sold will be
decreased by the premium originally received. When a put option is exercised,
the amount of the premium originally received will reduce the cost of the
security which the Fund purchases upon exercise. When written index options are
exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Fund enters into options for hedging purposes. The risk in writing a
covered call option is that the Fund gives up the opportunity to participate in
any increase in the price of the underlying security beyond the exercise price.
The risk in writing a put option is that the Fund is exposed to the risk of a
loss if the market price of the underlying security declines.
During the period ended September 30, 2000, the Fund did not write any call or
put option contracts.
8. Shares of Capital Stock
At September 30, 2000, the Series had 500,000,000 shares of capital stock
authorized with a par value of $0.001 per share. Each share represents an equal
proportionate interest and has an equal entitlement to any dividends and
distributions made by the Fund.
Transactions in shares of the Fund were as follows:
Period Ended
September 30, 2000*
================================================================================
Shares sold 1,014,482
Shares issued on reinvestment --
Shares reacquired (2,919)
--------------------------------------------------------------------------------
Net Increase 1,011,563
================================================================================
* For the period from February 2, 2000 (commencement of operations) to
September 30, 2000.
--------------------------------------------------------------------------------
14 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout the period
ended September 30, 2000:
2000(1)
================================================================================
Net Asset Value, Beginning of Period $ 10.00
--------------------------------------------------------------------------------
Income From Operations:
Net investment income(2) 0.00*
Net realized and unrealized gain 0.73
--------------------------------------------------------------------------------
Total Income From Operations 0.73
--------------------------------------------------------------------------------
Less Distributions From:
Net investment income --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
Net Asset Value, End of Period $ 10.73
--------------------------------------------------------------------------------
Total Return++ 7.30%
--------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 10,854
--------------------------------------------------------------------------------
Ratios to Average Net Assets+:
Expenses(2)(3) 1.44%
Net investment income 0.02
--------------------------------------------------------------------------------
Portfolio Turnover Rate 15%
================================================================================
(1) For the period from February 2, 2000 (commencement of operations) to
September 30, 2000.
(2) The Investment Advisor has waived all of its fees for the period ended
September 30, 2000. In addition, the Investment Advisor reimbursed the
Fund for expenses of $126,699. If such fees were not waived and expenses
not reimbursed, the per share decrease in net investment income and actual
annualized expense ratio would have been $0.17 and 4.02%, respectively.
(3) As a result of a voluntary expense limitation, the expense ratio will not
exceed 1.45%.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
--------------------------------------------------------------------------------
The Humane Equity Fund 15
<PAGE>
--------------------------------------------------------------------------------
Independent Auditors' Report
--------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The Humane Equity Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The Humane Equity Fund as of September 30, 2000,
the related statements of operations and changes in net assets, and the
financial highlights for the period February 2, 2000 (commencement of
operations) to September 30, 2000. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit 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 September 30, 2000, by correspondence with the custodian.
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 audit provides 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 The
Humane Equity Fund as of September 30, 2000, the results of its operations, the
changes in its net assets, and financial highlights for the period February 2,
2000 to September 30, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
New York, New York
November 13, 2000
--------------------------------------------------------------------------------
16 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Management of the Fund
--------------------------------------------------------------------------------
Directors
Andrew L. Breech
Carol L. Colman
William R. Dill
Paul G. Irwin
Clifford M. Kirtland, Jr.
Robert W. Lawless
Heath B. McLendon, Chairman
Officers
Heath B. McLendon
President
Lewis E. Daidone
Executive Vice President and Treasurer
Charles P. Graves III
Executive Vice President
Anthony Pace
Controller
Christina T. Sydor
Secretary
Investment Advisor
Salomon Brothers Asset Management Inc
Distributor
CFBDS, Inc.
Custodian
PFPC Trust Company
Transfer Agent
Boston Financial Data Services Inc.
P.O. Box 9121
Boston, Massachusetts 02205-9121
This report is submitted for the general information of shareholders of The
Humane Equity Fund, but it may also be used as sales literature when preceded or
accompanied by a current Prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the Fund. If used as
sales material after December 31, 2000, this report must be accompanied by
performance information for the most recently completed calendar quarter.
The Humane Equity Fund
7 World Trade Center
New York, New York 10048
<PAGE>
[GRAPHIC OMITTED]
THE HUMANE EQUITY FUND
-------------------------
ANIMAL FRIENDLY INVESTING
-------------------------
------------------------------
Salomon Brothers
-------------------------------
Asset Management
Distributor: CFBDS, Inc., NASD Member
1-877-552-5420
www.humanefund.com
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[RECYCLE LOGO] Because we care about the environment, this shareholder report
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deinked using a non-chlorine bleach process.
(C)2000 Salomon Brothers Asset Management Inc
All rights reserved.
HEQANN 9/00
